Good morning and welcome to Peoples Bancorp’s conference call. My name is Ryan, and I will be your conference facilitator today. Today's call will cover Peoples Bancorp's discussion of results of operations for the quarter ended June 30, 2008. Please be advised all lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer period. (Operator instructions) This call is also being recorded. If you object to the recording, please disconnect at this time. Please be advised that the commentary in this call may contain projections or other forward-looking statements regarding future events or Peoples' future financial performance. These statements are based on management's current expectations. The statements in this call which are not historical fact are forward-looking statements and involve a number of risks and uncertainties, including but not limited to the interest rate environment; the effect of federal and/or state banking, insurance, and tax regulations; the effects of technological changes; the effect of economic conditions; the impact of competitive products and pricing; and other risks detailed in Peoples' Securities and Exchange Commission filings. Although management believes that the expectations in these forward-looking statements are based on reasonable assumptions within the bounds of management's knowledge of Peoples' business and operations, it is possible that actual results may differ materially from these projections. Peoples disclaims any responsibility to update these forward-looking statements. Peoples' second quarter 2008 earnings release was issued this morning and is available at PeoplesBancorp.com. This call will include about 20 minutes of prepared commentary followed by a question-and-answer period, which I will facilitate. An archived webcast of this call will be available on PeoplesBancorp.com. Peoples Bancorp's participants in today's call will be Mark Bradley, President and Chief Executive Officer, and Ed Sloane, Chief Financial Officer and Treasurer. And both will be available for questions following opening statements. Mr. Bradley, you may begin your conference.

Thank you. Good morning and welcome to Peoples Bancorp's conference call. Today Peoples Bancorp reported second quarter 2008 net income of $2 million, or $0.19 per diluted share, compared to $5.3 million, or $0.51 per diluted share, from last year's second quarter. Peoples' second quarter results included higher net interest income, stronger net interest margin, positive deposit growth, and maintenance of our well capitalized equity position; however, as we disclosed last week in a Form 8-K filing, earnings were negatively impacted by a higher provision for loan losses related to a single credit relationship within our commercial loan portfolio. Second quarter earnings included an additional provision for loan losses of $4.5 million, or $0.28 per share, after tax related to a single commercial real estate loan of $12.6 million, which was identified as impaired as of June 30, 2008. This specific loan was originated in 2006 when an Ohio-based customer as a $14.8 million real estate construction project in the Tampa, Florida area. The purpose of the loan was to finance the purchase of an apartment complex and subsequent conversion of the apartments to condominium units. When the loan was originated, the project had an appraised value on an as-completed basis, which assumes the planned renovations would be completed, of approximately $21 million or a loan-to-value ratio of 70%. In second quarter 2008, this loan was exhibiting signs of impairment as the housing market in Florida continued to deteriorate and the liquidity of the borrower became strained. Management's review of updated information received on this loan in discussions with the borrower indicated that the borrower may be unable to meet its contractual payment obligations, and therefore the loan was placed on non-accrual status as of June 30. Through management's review of a new appraisal received in mid July, we determined…

Think you, Mark. We have spent some time on our loan portfolio in this call, and now would like to spend a few minutes discussing our investment portfolio and more specifically, our Fannie Mae and Freddie Mac preferred stock exposure. Several months ago, management made a determination that our $12.1 million of Fannie Mae and Freddie Mac preferred stock was a credit risk not worth maintaining and began reducing our level of exposure. During the first quarter, Peoples sold $7.2 million of Fannie and Freddie preferred stocks at a loss of $199,000. During the second quarter, we continued our exit strategy and sold another $2.7 million of Fannie Mae and Freddie Mac preferred stock at a pretax loss of $191,000. We recorded an impairment charge of $260,000 on the remaining preferred stock that we owned, which reduced the value of the remaining investment to $1.9 million at June 30. The remaining preferred stock was subsequently sold in July at a pretax loss of $594,000 or $386,000 after tax. As a result of the July sales, Peoples Bancorp no longer owns any preferred stock issued by either Fannie Mae or Freddie Mac. While the losses associated with these securities have lowered Peoples Bancorp's earnings in the short term, we believe that actions were necessary to reduce our investment portfolio's long-term credit exposures and to reposition our portfolio going forward. The losses incurred during the second quarter due to preferred stocks were partially offset by net gains totaling $138,000 from the sale of mortgage-backed securities with an aggregate book value of $18.7 million. These securities were sold as part of the ongoing management of Peoples' interest rate risk profile. In regards to funding, total deposits excluding brokered CDs, at June 30 increased $32 million on a linked-quarter basis and were up $114.5…

Thanks, Ed. I think that with recent events in the economy and the news surrounding banks lately, it's important to comment on the strength and stability of Peoples Bancorp. Although we have not been immune to the impact that the struggling economy and declining real estate values have had on bank loan portfolios, Peoples Bancorp remains profitable, well capitalized, and adequately reserved for loan losses. It has been said that ‘capital is king’ and we agree with that comment. We have been protecting and growing our capital levels in light of the unpredictable nature of current financial markets. At June 30, 2008, our tangible equity to tangible assets ratio stood at 7.30%, up from 7.14% at year-end 2007. We've also enhanced our regulatory capital ratios over last year and remain strongly above well capitalized levels, as evidenced by our total risk-based capital ratio of 13.33% at June 30. While some financial services companies have been cutting dividends, Peoples Bancorp's capital position has allowed us to raise our dividend to shareholders in the first half of 2008. Despite the increase in the provision for loan losses, we see many positives to the second quarter, including net interest margin expansion, continued revenue diversification, and cost control. As expected, loan growth continued to prove difficult but we were able to grow deposits and reduce borrowed funds. Like many in our industry, we saw deterioration in asset quality although the majority of our increase in non-performing loans in the first half of the year is related to two larger commercial credits and we think we are adequately collateralized on those non-performing loans. Year-over-year revenue growth was driven by higher net interest income and margin, and expense growth was contained. Our thoughts for earnings in the second half of the year are tough to predict, but we will share our thoughts anyway. Assuming a loan loss provision of $2.0 million to $2.4 million per quarter and some stability in net interest margin, we look for third-quarter earnings per share to be in the $0.43 to $0.45 range, which includes $0.04 of losses or $386,000 after tax from sales in the third quarter of Fannie Mae and Freddie Mac preferred stocks, as we described earlier. As always, we will continue to manage Peoples Bancorp for the long term, while making the best of the challenging operating environment. This concludes our commentary. We will open the call for questions. Once again, this is Mark Bradley and joining me for the Q&A session will be Ed Sloane, Chief Financial Officer. I will now turn the call back into the hands of our call facilitator. Thank you.

(Operator instructions) Your first question comes from Phillip King of Trufton Investment Management. Phillip King – Trufton Investment Management:

Our legal lending limit is in the $22 million to $23 million range. We don't have an established house limit. Typically, we look at once the deal is in the $15 million range is about where we would go. We occasionally would go a little bit north of that based on guarantors’ strength. But really any deal in the $10 million to $15 million range is typically as large as we go, but we have gone higher than that previously. Phillip King – Trufton Investment Management: So how many loans, $10 million to $15 million do you have in your portfolio offhand?

I would say a handful. Relationship wise, you say loans – this is Mark Bradley, by the way – relationship wise probably in the five to six range. When I say relationship meaning one customer or a group of guarantors. Phillip King – Trufton Investment Management: Okay, the loan in the first quarter would be one and then the Florida condominium would be two and then you mentioned a $10 million loan in Arizona and then a couple more beyond that.

That is correct. Phillip King – Trufton Investment Management: That’s what you are saying. Okay.

Phillip King – Trufton Investment Management: And for this condo project, just curious what was the debt to cash flow that you are looking at that when you originated the loan? It probably had to be on a prospective base. What were some of the other characteristics of that loan apart from the LTV, which was 70% I think you said?

Correct, 70%. Phillip King – Trufton Investment Management: Did you just look at the LTV or did you look at prospective cash flow as well?

Phillip King – Trufton Investment Management: Okay, let's see. How many of the condos have been sold? Do you know?

Yes, I do. The number is in the 20 to 25 range over the life of the project. There's probably – the entire project did not convert to condos. Half of it roughly is still apartments, so there's probably 40 to 50 of condos that could still be sold that are either renovated or partly renovated. So it's still half – these are actually separate buildings. They're not just one building per se. So there are still apartments located on the property. Phillip King – Trufton Investment Management: And you expected a lot more units to be sold by now obviously?

Yes, we did. Phillip King – Trufton Investment Management: Okay, thank you.

Our next question comes from Jason Werner of Howe Barnes. Jason Werner – Howe Barnes Hoefer & Arnett: Good morning.

Hi, Jason. Jason Werner – Howe Barnes Hoefer & Arnett: I guess just to kind of clarify it a little bit the Florida credit here, that originally was a construction loan. At this point all the buildings are finished?

Yes, the buildings were already up. They were being converted to condos, so it was a construction loan as categorized on our balance sheet. They did not convert all the condos – or all the apartments to condos. Jason Werner – Howe Barnes Hoefer & Arnett: Okay, then the other – the $2.2 million other Florida exposure, what types of loans are those?

Those are – the majority of that would be a warehouse loan that is actually owner occupied and then there is a couple of other condo units. They are smaller dollar amounts. Jason Werner – Howe Barnes Hoefer & Arnett: Is it – to individuals, not necessarily a development?

That I don't know for sure. Jason Werner – Howe Barnes Hoefer & Arnett: Okay, just to clarify the Arizona exposure, that is one relationship?

That is one relationship. That is correct. Jason Werner – Howe Barnes Hoefer & Arnett: Okay. And you said that was retail and office space?

That is correct. Jason Werner – Howe Barnes Hoefer & Arnett:

This is Ed Sloane. We continue to look for opportunities in that particular area. We have not pinpointed anything specific in terms of gains to offset, but we continue to evaluate the portfolio for that. Jason Werner – Howe Barnes Hoefer & Arnett: Okay, so the guidance that you gave would not necessarily include that already. That could change if you do find something?

Correct.

That is correct. We are pleased to be out of the Fannie and Freddie situation that we were in at the start of the year. Jason Werner – Howe Barnes Hoefer & Arnett: What about the CDO that you guys had that you previously had in other than temporary write down? Where is that? Is that still there?

Yes, it is, Jason. That is about a $6 million value on our books. Based on our cash flow analysis and the credit stress and analytics that we did, we believe those book values fairly represent the cash flows of the underlying securities. If you remember, it's a blend of bank, insurance, REIT, there is some age on some of them. So we continue to do a lot of analysis on those. But our total exposure on that is limited to $6.1 million. Jason Werner – Howe Barnes Hoefer & Arnett: Okay, that is all I have.

Okay, thank you.

Our next question comes from Michael Lipman of FTN Financial. Michael Lipman – FTN Financial: Good morning Mark and Ed.

Hi.

Hi, Michael. Michael Lipman – FTN Financial: I was just wondering if you could possibly give us a little update on the banquet center NPL from 1Q '08? How is that proceeding? Do you expect any resolution in the near term?

That's a good question, Michael. Just for the callers who may be joining us for the first time, the other large non-performing loan in our portfolio is a – I think Michael called it a banquet facility – it is a lifestyle spa treatment center, banquet facility. It is a $7 million non-performing loan for us, which we wrote down by $1 million in the first quarter. It is still in operations, Michael. We are working with those borrowers. We are meeting with them on a frequent basis. They are adding new members as they try to work their way to breakeven. There is a new management team in there that we are working with, so there is nothing new to report. I don't expect any resolution to it certainly in the next three months. Michael Lipman – FTN Financial: Okay, great. I missed it earlier but can you kind of go over the margin expectations again and how many basis points in the next quarter or next two quarters are you expecting?

Yes. This is Ed Sloane. On the margin, yes, that has been a – it’s been a great story for us this year as we have seen considerable expansion of that margin during the course of the year in the area of 30 basis points. And so for, on a year-to-date basis, margin at approximately 3.61, and that was a nice surprise for us in the second quarter. Really what we have seen so far this year is a much lower cost of funds than what we originally anticipated. And then asset yields holding up nicely as credit spreads have widened. And we mentioned some of that in the press release. So it has been a nice growth in revenue for us in that particular category. Expectations for the rest of the year, we are looking in the low 3.50’s. As we have re-priced most of our liabilities, our interest bearing liabilities down, so we are not expecting to get a lot of additional benefit out of that. On the asset side, we should see some downward pressure on our asset yields, our loan yields in particular, and of course the wild card remains whether or not we will see any prepayment fees additionally in the second half of the year. So we have recognized the fact that we could see a little bit of additional pressure on margin in the second half.

Michael, this is Mark. To add to that, we don't expect any loan growth, so if we have some shrinkage in the portfolio, we probably be putting earning assets on in a slightly lower yield, and then combined with the fact we don't really see a lot more pickup on the liability side, I think that's where our guidance comes in that we expect it to be in that 3.50 to 3.53 range. Michael Lipman – FTN Financial: Okay, will you expect the majority of the compression to be in this next quarter, though, and some stability thereafter?

I would say it is probably spread over the final half of the year. Obviously everybody is waiting for rates to change at some point. So we are working to get our way in that position. Michael Lipman – FTN Financial: Okay, great. Thank you, Mark and Ed.

Thank you.

Thank you.

Our next question comes from Philip King of Trufton Investment Management. Phillip King – Trufton Investment Management: Yes, just as a follow-up, when do you put loans on non-accrual, after how many days?

That really changes from loan to loan. This is Mark. I think we are probably – as I look around the world, the country here, I think we are probably pretty quick to put things on non-accrual if we think there are problems with repayment. So, there is no hard-and-fast rule like 90 days past due. In fact, I don't think the Florida condo loan was at 90 days past due yet and actually sold some units in June. So, we don't have a hard and fast rule here. When we see that there is no documentation that we can find that we can clearly identify repayment of our loan, that’s when we start looking into it and considering impairment. Phillip King – Trufton Investment Management: How about a range of days? Are you willing to go out for half a year, 180 days?

I have been here 17 years and I have never seen that. So, that is not going to be – no, I would say when we are at 30 to 40 days, the nervous level starts. When we are at 60, the nervous level is much higher. When we are at 90, we know we have issues. Phillip King – Trufton Investment Management: Are you aware that there are some banks that are at 180 days?

I am totally aware of that. That is why I say I think we are a little different than others that we proactively analyze and take action on these loans. Phillip King – Trufton Investment Management: Do you have any loans that are 90 days past due and still accruing?

A very, very small amount. It's actually in a – we are all fumbling for our earnings release here.

Yes, it is noted on the earnings release. Phillip, this is Ed Sloane. Loans 90 days or more past due are $290,000.

$290,000, so it's a small number.

Very low level.

We don't – Phillip King – Trufton Investment Management: How about delinquencies, 30 to 60 days, do you happen to have that number?

Yes, I do. Those have decreased compared to year end, and they are also roughly similar to what we saw 12 months ago. So the business category has jumped up just a little bit, but the other categories are doing well. So delinquencies have not significantly increased for us. Phillip King – Trufton Investment Management: But they have gone down since the start of the year, is what you are saying, compared to December 31?

Yes, they have. I am just verifying, yes. Phillip King – Trufton Investment Management: Okay, thank you.

You're welcome.

(Operator instructions) Our next question is from Philip King of Trufton Investment Management. Phillip King – Trufton Investment Management: Sorry about that, just one more follow-up. Could you just describe how the auto industry – how prominent that is in your neck of the woods or you are closer to West Virginia but how important is the auto industry to the economy in your general area?

Good question. This is Mark. The automobile industry itself manufacturers don't really – are not prevalent in our market. They do employ some people that work for automobile or related industries, but we are south enough, I will call it, from a lot of those that we don't – we are not heavily dependent on that. Phillip King – Trufton Investment Management: Okay, thank you.

But I was just saying, I'm sure we have some consumer loans that are related, their employer of choice is either automobile or related industries, so that is where we watch that. There are some manufacturers throughout our market but we are not dependent on it. We are actually pretty diversified. Phillip King – Trufton Investment Management: Okay, thank you.

You're welcome.

(Operator instructions) At this time, there are no further questions. Sir, do you have any closing remarks?

Yes, I just want to thank everyone for participating, especially Philip. Very good questions. Please remember that our earnings release and webcast of this call will be archived on PeoplesBancorp.com under the Investor Relations section. Thanks for your time and have a good day.

This will conclude today's conference call.