- Quarterly Report (10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

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

For the quarterly period ended March 31, 2010

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. Employer
Incorporation or Organization)		Identification No.)

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

(410) 778-3500

Registrant’s Telephone Number, Including Area Code

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter periods that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o (Not Applicable)

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

Large accelerated filer o		Accelerated filer o
Non-accelerated filer o		Smaller reporting company þ
(Do not check if a smaller reporting company)

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

Yes o No þ

APPLICABLE ONLY TO CORPORATE ISSUERS

State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date: 779,512 shares of common stock issued and outstanding as of May 1, 2010

PEOPLES BANCORP, INC.

FORM 10-Q

INDEX

		Page

Part I – Financial Information

Item 1.	Financial Statements	3

	Consolidated Balance Sheets at March 31, 2010 (unaudited) and December 31, 2009	3

	Consolidated Statements of Income (unaudited) for the three months ended March 31, 2010 and 2009	4

	Consolidated Statements of Changes in Stockholders’ Equity (unaudited) for the three months ended March 31, 2010 and 2009	5

	Consolidated Statements of Cash Flows (unaudited) for the three months ended March 31, 2010 and 2009	6-7

	Notes to Financial Statements (unaudited)	8-13

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	14-23
Item 3.	Quantitative and Qualitative Disclosures About Market Risk.	23
Item 4T.	Controls and Procedures	23

Part II – Other Information

Item 1.	Legal Proceedings	23
Item 1A.	Risk Factors	23
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	24
Item 3.	Defaults Upon Senior Securities	24
Item 4.	(Removed and Reserved)	24
Item 5.	Other Information	24
Item 6.	Exhibits	24

Signatures		24
Exhibit Index		25

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PART I - FINANCIAL INFORMATION

Item 1.

Financial Statements.

PEOPLES BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
	March 31,			December, 31
	2010			2009
	(unaudited)
ASSETS
Cash and due from banks	$	9,613,294		$	15,988,739
Federal funds sold		1,015,000			7,015,811
Cash and cash equivalents		10,628,294			23,004,550
Securities available for sale		7,018,240			3,027,700
Securities held to maturity (approximate fair value of $8,716,173 and $10,312,156)		8,564,679			10,063,376
Federal Home Loan Bank & Community Bankers Bank stock, at cost		2,401,200			2,401,200
Loans, less allowance for loan losses of $2,699,638 and $2,845,364		206,092,771			203,899,678
Premises and equipment		6,507,257			6,521,504
Goodwill and intangible assets		654,742			671,660
Accrued interest receivable		1,268,704			1,450,155
Deferred income taxes		1,277,787			1,277,611
Foreclosed real estate		1,335,000			1,335,000
Other assets		1,639,954			1,814,991
Total Assets	$	247,388,628		$	255,467,425

LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Non-interest bearing	$	35,539,813		$	36,951,197
Interest-bearing		152,950,402			156,299,711
		188,490,215			193,250,908

Securities sold under repurchase agreements		1,621,597			2,917,339
Federal Home Loan Bank advances		26,000,000			28,000,000
Accrued interest payable		335,403			439,410
Other liabilities		2,002,091			1,970,020
		218,449,306			226,577,677
Stockholders' equity
Common stock, par value $10 per share; 1,000,000 shares authorizes; issued and outstanding 779,512 shares at March 31, 2010 and at December 31, 2009		7,795,120			7,795,120
Additional paid-in capital		2,920,866			2,920,866
Retained earnings		18,915,875			18,865,399
		29,631,861			29,581,385
Accumulated other comprehensive income (loss)
Unrealized gain(loss) on available for sale securities		2,685			3,587
Unfunded liability of defined benefit plan		(695,224	)		(695,224	)
		28,939,322			28,889,748
Total Liabilities and Stockholders' Equity	$	247,388,628		$	255,467,425

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

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PEOPLES BANCORP, INC. AND SUBSIDIARIES

Consolidated Statements of Income (unaudited)

	For the three months ended March 31,
	2010		2009
Interest and dividend revenue
Loans, including fees	$	3,219,351	$	3,442,891
U.S. government agency securities		108,470		152,193
Deposit in other banks		5		24
Federal funds sold		696		2,020
Equity securities		1,593		-
Total interest and dividend revenue		3,330,115		3,597,128

Interest expense
Deposits		739,813		748,530
Borrowed funds		245,149		444,123
Total interest expense		984,962		1,192,653

Net interest income		2,345,153		2,404,475

Provision for loan losses		475,000		430,000

Noninterest revenue
Service charges on deposit accounts		214,802		226,139
Insurance commissions		333,608		476,675
Other noninterest revenue		64,190		119,991
Total noninterest revenue		612,600		822,805

Noninterest expense
Salaries and employee benefits		1,065,009		1,101,156
Occupancy		127,715		117,514
Furniture and equipment		89,155		77,692
Other operating		572,673		466,493
Total noninterest expense		1,854,552		1,762,855

Income before income taxes		628,201		1,034,425

Income taxes		226,945		391,103

Net income	$	401,256	$	643,322

Earnings per common share - basic and diluted	$	0.51	$	0.83

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

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

THREE MONTHS ENDED MARCH 31, 2010 and 2009

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

Balance, December 31, 2008	$	7,795,120	$	2,920,866	$	18,370,797		$	(643,859	)

Net income		-		-		643,322			-		$	643,322
Unrealized gain on investment
securities available for sale net of income taxes of $15,034		-		-		-			(23,894	)		(23,894	)
Comprehensive income											$	619,428
Cash dividend, $.44 per share		-		-		(342,985	)		-

Balance, March 31, 2009	$	7,795,120	$	2,920,866	$	18,671,133		$	(667,753	)

Balance, December 31, 2009	$	7,795,120	$	2,920,866	$	18,865,399		$	(691,637	)

Net income		-		-		401,256			-		$	401,256
Unrealized gain on investment
securities available for sale net of income taxes of $587		-		-		-			(902	)		(902	)
Comprehensive income											$	400,354
Cash dividend, $.45 per share		-		-		(350,780	)		-

Balance, March 31, 2010	$	7,795,120	$	2,920,866	$	18,915,875		$	(692,539	)

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

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PEOPLES BANCORP, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows (unaudited)

	For the three months ended March 31,
	2010			2009
CASH FLOWS FROM OPERATING ACTIVITIES
Interest received	$	3,548,116		$	3,901,468
Fees and commissions received		612,600			806,659
Cash paid to suppliers and employees		(1,546,735	)		(546,909	)
Interest paid		(1,088,969	)		(1,203,674	)
Taxes paid		(226,534	)		(679,680	)
		1,298,478			2,277,864
CASH FLOWS FROM INVESTING ACTIVITIES
Cash paid for premises, equipment, and software		(69,544	)		(54,294	)
Loans made, net of principal collected		(2,694,290	)		3,902,205
Proceeds from sale of foreclosed real estate		0			83,144
Proceeds from maturities and calls of securities
Available for sale		0			1,000,000
Held to maturity		1,500,188			1,000,179
Purchase of securities available for sale		(4,003,873	)		0
Purchase of securities held to maturity		0			(1,000,000	)
Acquisition of Insurance agency, net		0			(25,344	)
Redemption of FHLB stock, net of purchases		0			152,800
		(5,267,519	)		5,058,690
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in
Time deposits		1,041,256			3,735,050
Other deposits		(5,801,949	)		(1,573,671	)
Securities sold under repurchase agreements		(1,295,742	)		(252,097	)
Advances under (repayments of) notes payable, net		(2,000,000	)		(1,000,000	)
Repayments of other borrowings		0			(28,811	)
Dividends paid		(350,780	)		(342,985	)
		(8,407,215	)		537,486
NET INCREASE (DECREASE) IN CASH		(12,376,256	)		7,874,040
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD		23,004,550			7,686,815
CASH AND EQUIVALENTS AT END OF PERIOD	$	10,628,294		$	15,560,855

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PEOPLES BANCORP, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows, Continued (unaudited)

	For the three months ended March 31,
	2010			2009
RECONCILIATION OF NET INCOME TO NET CASH PROVIDED
FROM OPERATING ACTIVITIES
Net income	$	401,256		$	643,322
ADJUSTMENTS
Depreciation and amortization		83,791			82,088
Provision for loan losses		475,000			430,000
Deferred income taxes		411			0
Amortization of intangible assets		16,918			15,862
Security discount accretion, net of premium amortization		10,353			(6,265	)
Gain of sale of foreclosed real estate		0			(16,145	)
Decrease (increase) in
Accrued interest receivable		181,451			297,948
Income Tax refund receivable		0			(288,577	)
Other assets		175,037			1,033,214
Increase (decrease) in
Deferred origination fees and costs, net		26,197			12,657
Accrued interest payable and other liabilities		(104,007	)		(11,022	)
Other Liabilities		32,071			84,782
	$	1,298,478		$	2,277,864

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

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Peoples Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

1.	Basis of Presentation

The accompanying unaudited consolidated financial statements of Peoples Bancorp, Inc. and its subsidiaries, The Peoples Bank, a Maryland-chartered bank (the “Bank”), and Fleetwood, Athey, Macbeth & McCown, Inc., a Maryland insurance agency (the “Insurance Agency”) , have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Regulation S-X of the Securities and Exchange Commission. Accordingly, they do not include all the information and notes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring entries) considered necessary for a fair presentation have been included. Operating results for the three months ended March 31, 2010 are not necessarily indicative of the results that may be expected for the full year ending December 31, 2010 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, 2009. When used in these notes, the term “Company” refers to Peoples Bancorp, Inc. and unless the context requires otherwise, its consolidated subsidiaries.

The Account Standards Codification (the “ASC”) of the Financial Accounting Standards Board (the “FASB”) became effective on July 1, 2009. At that date, the ASC became FASB’s officially recognized source of authoritative U. S. generally accepted accounting principles (“GAAP”) applicable to all public and non-public non-governmental entities, superseding existing FASB, American Institute of Certified Public Accountants (“AICPA”), Emerging Issues Task Force (“EITF”) and related literature. Rules and interpretive releases of the U.S. Securities and Exchange Commission (the “SEC”) under the authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. All other accounting literature is considered non-authoritative. The switch to the ASC affects the way companies refer to GAAP in financial statements and accounting policies. Citing particular content in the ASC involves specifying the unique numeric path to the content through the Topic, Subtopic, Section and Paragraph structure.

The Company evaluated subsequent events after the balance sheet date through May 14, 2010. No significant subsequent events were identified which would affect the presentation of the financial information.

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, 2010 and 2009, total comprehensive income, net of taxes, was $400,354 and $619,428, 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.

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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, 2010 and December 31, 2009.

	At March 31, 2010		December 31, 2009

Check loan lines of credit	$	504,347	$	502,887
Mortgage lines of credit		8,441,296		11,202,534
Other lines of credit		16,464,396		16,776,329
Un-disbursed construction loan commitments		1,635,764		933,503
Standby letters of credit	$	3,467,200	$	3,761,110

5.	Earnings Per Share

Earnings per common share is derived by dividing net income by the weighted average number of shares of common stock outstanding of 779,512 for the three-month periods ended March 31, 2010 and 2009.

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, 2010 and 2009, the Bank recognized net periodic costs for this plan of $76,342 and $77,648, respectively. The Bank contributed $67,571 to the plan during the first quarter of 2010, compared to no contribution during the same period of 2009.

7.	Segment Reporting

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

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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.

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

For the three months ended March 31, 2010	Community banking		Insurance products and services		Intersegment Transactions			Consolidated Total

Net interest income	$	2,344,762	$	391	$	0		$	2,345,153
Provision for loan losses		475,000		0		0			475,000
Net interest income after provision		1,869,762		391		0			1,870,153

Noninterest revenue		278,364		334,236		0			612,600
Noninterest expense		1,652,554		201,998		0			1,854,552
Income before income taxes		495,572		132,629		0			628,201
Income taxes		174,496		52,499		0			226,995
Net income	$	321,076	$	80,130	$	0		$	401,206

Average assets	$	251,003,285	$	1,780,331	$	(3,093,976	)	$	249,689,640

For the three months ended March 31, 2009	Community banking		Insurance products and services		Intersegment Transactions			Consolidated Total

Net interest income	$	2,407,134	$	-2,659	$	0		$	2,404,475
Provision for loan losses		430,000		0		0			430,000
Net interest income after provision		1,977,134		-2,659		0			1,974,475

Noninterest revenue		343,530		479,275		0			822,805
Noninterest expense		1,542,849		220,006		0			1,762,855
Income before income taxes		777,815		256,610		0			1,034,425
Income taxes		289,883		101,220		0			391,103
Net income	$	487,932	$	155,390	$	0		$	643,322

Average assets	$	249,672,624	$	1,689,292	$	(444,445	)	$	250,917,471

8.	Fair Value

The fair value of an asset or a liability is the price that would be received to sell that asset or paid to transfer that liability in an orderly transaction occurring in the principal market (or most advantageous market in the absence of a principal market) for such asset or liability. In estimating fair value, the Company utilizes valuation techniques that are consistent with the market approach, the income approach and/or the cost approach. Such valuation techniques are consistently applied. Inputs to valuation techniques include the assumptions that market participants would use in pricing an asset or liability. FASB ASC valuation techniques include the assumptions that market participants would use in pricing an asset or a liability. FASB ASC Topic 820 establishes a fair value hierarchy for valuation inputs that gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The fair value hierarchy is as follows:

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•

Level 1 inputs — Unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.

•

Level 2 inputs — Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These might include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (such as interest rates. volatilities, prepayment speeds, credit risks, etc.) or inputs that are derived principally from or corroborated by market data by correlation or other means.

•

Level 3 inputs — Unobservable inputs for determining the fair values of assets or liabilities that reflect an entity’s own assumptions about the assumptions that market participants would use in pricing the assets or liabilities.

In general, fair value is based upon quoted market prices, where available. If such quoted market prices are not available, fair value is based upon internally developed models that primarily use, as inputs, observable market-based parameters. Valuation adjustments may be made to ensure that financial instruments are recorded at fair value. These adjustments may include amounts to reflect counterparty credit quality and the Company’s creditworthiness, among other things, as well as unobservable parameters. Any such valuation adjustments are applied consistently over time. The Company’s valuation methodologies may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Although management believes the Company’s valuation methodologies are appropriate and consistent with those used by other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date. Furthermore, the reported fair value amounts have not been comprehensively revalued since the presentation dates, and, therefore, estimates of fair value after the balance sheet date may differ significantly from the amounts presented herein. Transfers between levels of the fair value hierarchy are recognized on the actual date of the event or circumstance that caused the transfer, which generally coincides with the company’s monthly and quarterly valuation process.

Financial Assets and Financial Liabilities : The following table summarizes financial assets measured at fair value on a recurring basis as of March 31, 2010, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value. The Company did not have any financial liabilities measured at fair value.

Available for Sale		Total				Level 1 Inputs				Level 2 Inputs				Level 3 Inputs
U. S. Government Securities		$	7,018,240			$	7,018,240			$	-			$	-

Certain financial assets and financial liabilities are measured at fair value on a nonrecurring basis, which means that the instruments are not measured at fair value on an ongoing basis but are subject fair value adjustments in certain circumstances (for example, when there is evidence of reduced property value). Financial assets and liabilities measured a fair value on a non-recurring basis during the three months ended March 31, 2010 and 2009 include certain properties held as foreclosed real estate and are reported at the fair value of the underlying collateral, assuming that the sale prices of the properties will be their current appraised values. Appraised values are estimated using Level 2 inputs based on observable market data and current property tax assessments. Financial assets and liabilities measured at fair value on a nonrecurring basis during the three months ended March 31, 2010 are as follows.

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	Total		(Level 1)		(Level 2)		(Level 3)

Foreclosed real estate	$	1,335,000	$	-	$	1,335,000	$	-

During the first three months of 2010 and 2009, the Company recognized no write-downs of foreclosed properties. At December 31, 2009, the Company recognized a write down of $45,000 on foreclosed real estate.

FASB ASC Topic 825 requires disclosure of the fair value of financial assets and financial liabilities, including those financial assets and financial liabilities that are not measured and reported at fair value on a recurring basis or nonrecurring basis. A detailed description of the valuation methodologies used in estimating the fair value of financial instruments is set forth in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009.

Information about estimated fair values of financial instruments as of March 31, 2010 and December 31, 2009 is set forth in the following table:

	March 31, 2010				December 31, 2009
	Carrying		Fair		Carrying		Fair
	amount		value		amount		value

Financial assets
Cash and due from banks	$	9,613,294	$	9,613,294	$	15,988,739	$	15,988,739
Federal funds sold		1,015,000		1,015,000		7,015,811		7,015,811
Investment securities (total)		15,582,919		15,734,413		13,091,076		13,339,856
Federal Home Loan Bank and Community Bankers Bank stock		2,401,200		2,401,200		2,401,200		2,401,200
Loans, net		206,092,771		206,576,170		203,899,678		204,083,903
Accrued interest receivable		1,268,704		1,268,704		1,450,155		1,450,155

Financial liabilities
Noninterest-bearing deposits	$	35,539,813	$	35,539,813	$	36,951,197	$	36,951,197
Interest-bearing deposits		152,950,402		156,726,725		156,299,711		160,895,134
Short-term borrowings		1,621,597		1,621,597		2,917,339		2,917,339
Federal Home Loan
Bank advances		26,000,000		27,025,812		28,000,000		28,457,862
Accrued interest payable		335,403		335,403		439,410		439,410

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9.	Recent Accounting Standards

Recent accounting pronouncements approved by FASB that apply to the Company are discussed below. These pronouncements are not expected to have a material impact on the financial statements of the Company.

ASU No. 2010-06, “Fair Value Measurements and Disclosures (Topic 820) – Improving Disclosures About Fair Value Measurements.” ASU 2010-06 requires expanded disclosures related to fair value measurements including (i) the amounts of significant transfers of assets or liabilities between Levels 1 and 2 of the fair value hierarchy and the reasons for the transfers, (ii) the reasons for transfers of assets or liabilities in or out of Level 3 of the fair value hierarchy, with significant transfers disclosed separately, (iii) the policy for determining when transfers between levels of the fair value hierarchy are recognized and (iv) for recurring fair value measurements of assets and liabilities in Level 3 of the fair value hierarchy, a gross presentation of information of information about purchases, sales, issuances and settlement. ASU 2010-06 further clarifies that (a) fair value measurement disclosures should be provided for each class of assets and liabilities (rather than major category), which would generally be a subset of assets or liabilities within a line item in the statement of financial position and (b) companies should provide disclosures about the valuation techniques and inputs used to measure fair value for both recurring and nonrecurring fair value measurements for each class of assets and liabilities included in Levels 2 and 3 of the fair value hierarchy. The disclosures related to the gross presentation of purchases, sales, issuances and settlements of assets and liabilities included in Level 3 of the fair value hierarchy will be required for the Company beginning January 1, 2011. The remaining disclosure requirements and clarifications made by ASU 2010-06 became effective for the Company on January 1, 2010.

ASU No. 2010-11, “Derivatives and Hedging (Topic 815)- Scope Exception Related to Embedded Credit Derivatives.” ASU 2010-11 clarifies that the only form of embedded credit derivative that is exempt from embedded derivative bifurcation requirements are those that relate to the subordination of one financial instrument to another. As a result, entities that have contracts containing an embedded credit derivative feature in a form other than such subordination may need to separately account for the embedded credit derivative feature. The provisions of ASU 2010-11 will be effective for the Company on July 1, 2010.

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

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

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

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

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

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

The following discussion is designed to provide a better understanding of the financial position of the Company and should be read in conjunction with the interim Consolidated Financial Statements and Notes thereto included elsewhere in this report, and in conjunction with the audited Consolidated Financial Statements and Notes thereto and Management’s Discussion and Analysis of Financial Condition and Results of Operations set forth in the Annual Report of Peoples Bancorp, Inc. on Form 10-K for the year ended December 31, 2009.

Forward-Looking Information

This Quarterly Report on Form 10-Q may contain forward-looking statements within the meaning of The Private Securities Litigation Reform Act of 1995. Readers of this quarterly report should be aware of the speculative nature of “forward-looking statements”. Statements that are not historical in nature, including the words “anticipate”, “estimate”, “should”, “expect”, “believe”, “intend”, and similar expressions, are based on current expectations, estimates and projections about (among other things) the industry and the markets in which we operate; they are not guarantees of future performance. Whether actual results will conform to expectations and predictions is subject to known and unknown risks and uncertainties, including risks and uncertainties discussed in this report, general economic, market or business conditions; changes in interest rates, deposit flow, the cost of funds, and demand for loan products and financial services; changes in our competitive position or competitive actions by other companies; changes in the quality or composition of loan and investment portfolios; the ability to 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.

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RESULTS OF OPERATIONS

General

For the three-month period ended March 31, 2010, the Company reported net income of $401,256 or $0.51 per share, compared to $643,322 or $0.83 per share for the same period of 2009, which represents a decrease of $242,066 or 37.63%. This decrease resulted primarily from a decrease in net interest income, insurance contingency sales commissions, and other income. Additional funding of the loan loss reserve and increased other expenses contributed to the decrease as well. If earned, the Insurance Agency receives its annual contingency sales commissions, which constitutes noninterest revenue, during the first quarter of the year. Accordingly, it is important to consider the timing of this revenue when comparing noninterest revenue for the first quarter of a year to any other quarter of the year.

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.

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, 2010 was 4.29%, compared to 4.22% for the same period in 2009. 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. The net margin may also be adversely impacted by a number of factors which cannot be predicted and are beyond our control.

Net interest income for the three-month period ended March 31, 2010 was $2,345,153, which represents a decrease of $59,322 or 2.47% over net interest income for the same period of 2009. The primary contributor to this decrease was the reduction in interest earning assets.

Interest revenue for the three months ended March 31, 2010 totaled $3,330,115, compared to $3,597,128 for the same period last year, representing a decrease of $267,013 or 7.42%. We have experienced a $223,540 decrease in interest earned on loans as a direct result of our average loan balances decreasing by $8,032,148 (net of the allowance for loan losses) when compared to the first three months of 2009. Additionally, there was a decrease of income on U. S. Government Agency securities for the first three months of 2010 of $43,723 over the same time period in 2009.

Interest expense for the three-month period ended March 31, 2010 totaled $984,962, compared to $1,192,653 for the same period last year, representing an decrease of $207,691 or 17.41%. Deposits were $188,490,215 at March 31, 2010, compared to $193,250,908 at December 31, 2009 and $167,899,952 at March of 2009. The Company decreased its FHLB borrowings during the first quarter of 2010 from $28,000,000 at December 31, 2009 to $26,000,000 at March 31, 2010. FHLB borrowings at March 31, 2009 were $42,000,000. As a result, interest expense on borrowed funds for the first quarter of 2010 dropped $198,974 when compared to the three months ended March 31, 2009. The Company assumed approximately $450,000 of debt in connection with the acquisition of the Insurance Agency in 2007, which was paid in full during 2009.

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

Average Balances, Interest, and Yield

	For the Quarter Ended March 31, 2010							For the Quarter Ended March 31, 2009
	Average							Average
	Balance		Interest		Yield			Balance		Interest		Yield
Assets
Federal funds sold	$	2,323,879	$	696		0.12	%	$	4,036,172	$	2,020		0.20	%
Interest-bearing deposits		49,293		5		0.04	%		64,448		25		0.16	%
Investment securities:
U. S. government agency		14,668,105		113,723		3.14	%		13,563,914		159,561		4.77	%
Other		0		0		0	%		0		0		0	%
FHLB of Atlanta Stock		2,401,200		1,670		0.28	%		2,396,500		0		0	%
Total investment securities		17,069,305		115,393		2.74	%		15,960,414		159,561		4.05	%
Loans:
Demand and time		26,380,179		385,582		5.93	%		39,905,289		597,277		6.07	%
Mortgage		175,474,292		2,751,427		6.36	%		171,556,117		2,783,311		6.58	%
Installment		6,524,397		110,197		6.85	%		3,986,675		79,500		8.09	%
Total loans		208,378,868		3,247,206		6.32	%		215,448,081		3,460,088		6.51	%
Allowance for loan losses		2,895,878							1,932,944
Total loans, net of allowance		205,482,990		3,247,206		6.41	%		213,515,137		3,460,088		6.57	%
Total interest-earning assets		224,925,467		3,363,300		6.06	%		233,576,171		3,621,694		6.29	%
Non-interest-bearing cash		11,750,199							4,738,078
Premises and equipment		6,523,920							6,469,281
Other assets		6,490,054							6,133,941
Total assets	$	249,689,640						$	250,917,471
Liabilities and Stockholders’ Equity
Interest-bearing Deposits
Savings and NOW deposits	$	48,055,941		22,668		0.19	%	$	33,260,260		18,679		0.23	%
Money market and supernow		11,106,248		13,354		0.49	%		16,674,967		21,545		0.52	%
Other time deposits		95,239,534		703,791		3.00	%		82,341,481		708,306		3.49	%
Total interest-bearing deposits		154,401,723		739,813		1.94	%		132,276,708		748,530		2.29	%
Borrowed funds		28,738,342		245,149		3.46	%		54,896,958		444,122		3.28	%
Total interest-bearing liabilities		183,140,065		984,962		2.18	%		187,173,666		1,192,652		2.58	%
Noninterest-bearing deposits		35,216,655							32,625,532
		218,356,720							219,799,198
Other liabilities		2,493,075							2,384,783
Stockholders’ equity		28,839,845							28,733,490
Total liabilities and stockholders equity	$	249,689,640						$	250,917,471
Net interest spread						3.88	%						3.71	%
Net interest income			$	2,378,338						$	2,429,042
Net margin on interest-earning assets						4.29	%						4.22	%

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

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Provision for Loan Losses

The provision for loan losses was $475,000 for the first three months of 2010, compared to $430,000 for the same period of 2009. The increase in the provision was in response to the increase in net charge-offs and specific allocations for impaired loans. Additional information regarding risk elements in the loan portfolio, the provision for loan losses and management’s assessment of the adequacy of the allowance for loan losses is discussed below in the section entitled “Loan Quality”.

Noninterest Revenue

Noninterest revenue for the three-month period ended March 31, 2010 totaled $612,600, which represents a decrease of $210,205 or 25.55% over noninterest revenue for the same period of 2009. This decrease resulted primarily from the $149,192 or 60.38% decrease in Insurance Agency contingency income earned during the first quarter of 2010, from $247,099 for the first quarter of 2009 to $97,905 for the first quarter of 2010. Insurance Agency contingency income is based on sales of new policies to customers and claims against existing policies for the prior year. During 2009 there were several insurance loss claims by customers that caused contingency income to decrease 2010. In addition, we experienced a decrease in other noninterest revenue of $55,801 or 46.50% and in service charges on deposit accounts of $11,337 or 5.01% during the first quarter of 2010 when compared to the same period of 2009.

Noninterest Expense

The Company recorded noninterest expense of $1,854,552 for the three-month period ended March 31, 2010, compared to $1,762,855 for the same period in 2009, an increase of $91,697 or 5.20%. This increase is mainly attributable to increased FDIC insurance premiums of $34,012 and increased data processing expenses of $60,402.

Income Tax Expense

The Company’s effective tax rate for the three-month period ended March 31, 2010 was 36.1%, compared to 37.8% for the same period of 2009. The Company’s income tax expense was $226,945 for the three months ended March 31, 2010, compared to $391,103 for the same period of 2009, which represents a decrease of $164,158 or 41.97%. Decreases in income before income tax during the three-month period ended March 31, 2010 contributed to the decrease in income tax expense when compared to the same period last year.

FINANCIAL CONDITION

Overview

Total assets of the Company at March 31, 2010 were $247,388,628, compared to $255,467,425 at December 31, 2009, representing a decrease of $8,078,797 or 3.16% from December 31, 2009.

Total liabilities at March 31, 2010 were $218,449,306, compared to $226,577,677 at December 31, 2009, representing a decrease of $8,128,371 or 3.59%.

Stockholders’ equity was $28,939,322 as of March 31, 2010, compared to $28,889,748 as of December 31, 2009, an increase of $49,574. The increase was due to net income for the period totaling $401,256 offset by a decrease in the unrealized gain on securities available for sale net of income taxes of $902 and dividends paid to stockholders of $350,780.

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Return on average equity for the quarter ended March 31, 2010 was 5.64%, compared to 9.08% for the same period of 2009. Return on average assets was 0.65% for the quarter ended March 31, 2010, compared to 1.04% for the same period of 2009.

Composition of Loan Portfolio

At March 31, 2010, loans, net of unearned income, were $206,092,771, an increase of $2,193,093 since December 31, 2009. 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 $205,482,990 and $213,515,137 during the first quarters of 2010 and 2009, respectively, which constituted 91.36% and 91.41% of average interest-earning assets for the respective periods. For the quarter ended March 31, 2010, our average loan to deposit ratio was 108.37%, compared to 129.48% for the same period in 2009. 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 94.10% for the quarter ended March 31, 2010, compared to 97.14% for the same period of 2009. The Company extends credit primarily to customers located in and near the Maryland counties of Kent County, Queen Anne’s County, and Cecil County. There are no industry concentrations in our loan portfolio. A substantial portion of our loans are, however, secured by real estate, and the real estate market in the region, which is directly impacted by the local economy, 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, 2010 is adequate to cover possible losses in the loan portfolio identified as of that date; however, management's judgment is based upon a number of assumptions about future events, which are believed to be reasonable, but which may not prove valid. Thus, there can be no assurance that charge-offs in future periods will not exceed the allowance for loan losses or that additional increases in the loan loss allowance will not be required.

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. Net recoveries and/or decreases in loans may cause the allowance as a percentage of gross loans to exceed our target. Historically, our regulators have discouraged negative provisions, however, management would consider a negative provision if warranted.

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.

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The allowance for loan losses decreased to $2,699,638 at March 31, 2010, from $2,845,364 at December 31, 2009. The provision for loan losses was $475,000 for the first three months of 2010, compared to $430,000 for the same period of 2009. The increase in the provision for loan losses in the first three months of 2010 when compared to the same period of 2009 was in response to the increase in net charge-offs, the results of our quarterly review of the adequacy of the factors discussed previously, and specific allocations for impaired loans. As of March 31, 2010 and December 31, 2009, the allowance for loan losses compared to gross loans was 1.29% and 1.38%, respectively. As part of our loan review process, management has noted an increase in foreclosures and bankruptcies in the geographic areas where we operate. Additionally, the current nationwide recession has had a significant and adverse impact on real estate values and sales over the past 12 months. Consequently, we have closely reviewed our loan portfolio and applied sensitivity analyses to collateral values to ensure that we are adequately measuring potential future losses. Where necessary, we have obtained new appraisals on collateral. Specific allocations of the allowance have been provided in these instances where losses may occur.

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 March 31, 2010			Three months ended March 31, 2009			Year ended December 31, 2009

Balance at beginning of year	$	2,845,364		$	2,001,739		$	2,001,739
Loan losses:
Commercial		29,442			152,243			290,126
Mortgages		581,725			9,753			490,049
Consumer		11,839			15,214			157,367
Total loan losses		623,006			177,210			937,542
Recoveries on loans previously charged off
Commercial		820			1,230			47,501
Mortgages		0			3,207			3,207
Consumer		1,460			45			4,459
Total loan recoveries		2,280			4,482			55,167
Net loan losses		620,726			172,728			882,375
Provision for loan losses charged to expense		475,000			430,000			1,726,000
Balance at end of year	$	2,699,638		$	2,259,011		$	2,845,364
Allowance for loan losses to loans outstanding
At end of period		1.29	%		1.06	%		1.38	%

Management believes it has identified and charged off all significant losses in the loan portfolio but there can be no assurance that additional losses will not occur in future periods. The ratio of the allowance for loan losses to loans outstanding has decreased due to this effort to charge off the losses.

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 $10,358,491 and $8,631,961 at March 31, 2010 and December 31, 2009, respectively. These loans are detailed below:

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Risk Elements of Loan Portfolio

	March 31,		December 31,
	2010		2009
Nonaccrual Loans
Commercial	$	460,665	$	485,579
Mortgage		1,721,303		1,898,607
Consumer		0		0
		2,181,968		2,384,186
Accruing Loans Past Due 90 Days or More
Commercial		296,207		168,020
Mortgage		7,830,790		6,055,484
Consumer		49,525		24,271
		8,176,522		6,247,775
	$	10,358,491	$	8,631,961

Gross interest income of $38,298 for the first three months of 2010, $289,779 for fiscal year 2009 and $22,669 for the first three months of 2009 would have been recorded if nonaccrual loans had been current and performing in accordance with their original terms. Interest actually recorded on such loans was $253 for the first three months of 2010, $25,918 for fiscal year 2009 and $10,319 for the first three months of 2009.

Loans are classified as impaired when the collection of contractual obligations, including principal and interest, is doubtful. Management believes it has identified all significant impaired loans as of March 31, 2010 and has made the appropriate change to the Bank’s loan loss reserve.

Deposits and Other Interest-Bearing Liabilities

Average interest-bearing deposits increased $22,125,015 or 16.73% to $154,401,723 for the three months ended March 31, 2010, from $132,276,708 for the same period of 2009. Average noninterest-bearing deposits increased $2,591,123 or 7.94% to $35,216,655 for the three months ended March 31, 2010, from $32,625,532 for the same period of 2009. Average total deposits have increased 14.99% or $24,716,138 to $189,618,378 for the three months ended March 31, 2010 from $164,902,240 for the same period of 2009. Borrowings, primarily from the FHLB, decreased to $26,000,000 from $28,000,000 at December 31, 2009, representing a decrease of 7.14%.

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 grow and continue to be our primary source of funding for the foreseeable future. It should be noted, however, that investor confidence in alternatives to deposit accounts, which may pay yields that are higher than those paid on deposits, typically increases when the economy and stock markets perform well. Increased investor confidence in nondeposit investment products in future periods would likely have an adverse impact on our deposit growth. In addition, changes in governmental monetary policy, especially interest rates, may impact our ability to attract and retain deposits.

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Short-Term Borrowings

The following table sets forth the Company’s position with respect to short-term borrowings at March 31, 2010 and December 31 2009.

	March 31, 2010					December 31, 2009
	Amount		Rate			Amount		Rate
Federal Home Loan Bank (daily re-price)	$	0		-	%	$	0		-	%
Retail Repurchase Agreements		1,621,597		.45	%		2,917,339		.36	%
Federal Funds Borrowed		0		-	%		0		-	%
Total	$	1,621,597				$	2,917,339

We may borrow up to approximately 30% of total assets from the FHLB of Atlanta 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 our real estate mortgage loans. The Bank was required to purchase shares of capital stock in the FHLB of Atlanta 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 $13,650,000 in unsecured overnight federal funds and $5,500,000 in overnight federal funds with correspondent banks at March 31, 2010.

Liquidity and Capital Resources

Liquidity describes our ability to meet financial obligations that arise out of the ordinary course of business. Liquidity is needed primarily to fund loans, meet depositor withdrawal requirements, and fund current and planned expenditures. The Company derives liquidity through increased customer deposits, maturities in the investment portfolio, loan repayments and income from earning assets. To the extent that deposits are not adequate to fund customer loan demand, liquidity needs can be met in the short-term funds markets through lines of credit totaling $19,150,000 from correspondent banks, namely, the Community Bank and M & T Bank. The Bank is also a member of the FHLB of Atlanta, which provides another source of liquidity through a secured line of credit in the amount of $40,822,770 of which $26,000,000 has been advanced as of March 31, 2010. There were no short-term borrowings with the FHLB of Atlanta as of March 31, 2010 or December 31, 2009, respectively. We also have the ability to borrow secured funds through the Federal Reserve’s Discount window as necessary.

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, 2010 to the minimum ratios required by federal banking regulators is presented below.

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				Minimum			To be well
	Actual			Requirements			Capitalized
Total risk-based capital ratio		15.22	%		8.00	%		10.00	%
Tier 1 risk-based capital ratio		13.97	%		4.00	%		6.00	%
Tier 1 leverage ratio		11.19	%		4.00	%		5.00	%

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

The Company is a “smaller reporting company” and is not required to include the information required by this Item.

Item 4T. Controls and Procedures.

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

An evaluation of the effectiveness of these disclosure controls was carried out as of March 31, 2010 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 our disclosure controls and procedures are, in fact, effective at the reasonable assurance level.

During the first quarter of 2010, there was no change in our internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, our 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, 2009. Management does not believe that any material changes in these risk factors have occurred since December 31, 2009.

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Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds.

None

Item 3.

Defaults Upon Senior Securities.

Not applicable.

Item 4.

(Removed and Reserved).

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.

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 13, 2010	By:	/s/ Thomas G. Stevenson
		Thomas G. Stevenson
		President/Chief Executive Officer
		& Chief Financial Officer

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EXHIBIT INDEX

Exhibit No.		Description

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