**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**WASHINGTON,
      DC 20549**





**FORM
      10-QSB**





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


For
      the
      quarterly period ended  June
      30, 2005





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





Check
      whether the issuer (1) filed all reports required to be filed by Section 13
      or
      15(d) of the Exchange Act during the past 12 months (or for such shorter period
      that the issuer was required to file such reports), and (2) has been subject
      to
      such filing requirements for the past 90 days.


Yes x  No
o





**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 August 1,
      2005





Transitional
      Small Business Disclosure Format (check one): Yes o No x











**PEOPLES
      BANCORP, INC.**





**FORM
      10-QSB**


**INDEX**




PagePart
                I - Financial InformationItem
                1.
            Financial
                Statements
            3Consolidated
                Balance Sheets at June 30, 2005 (unaudited)and
                December 31, 2004
            3Consolidated
                Statements of Income (unaudited) for three and six monthsended
                June 30, 2005 and 2004
            4Consolidated
                Statements of Cash Flows (unaudited) for six monthsended
                June 30, 2005 and 2004
            5Notes
                to Financial Statements (unaudited)
            6Item
                2.
            Management’s
                Discussion and Analysis or Plan of Operation
            8Item
                3.
            Controls
                and Procedures
            15Part
                II - Other InformationItem
                1.
            Legal
                Proceedings
            16Item
                2.
            Unregistered
                Sales of Equity Securities and Use of Proceeds
            16Item
                3.
            Defaults
                Upon Senior Securities
            16Item
                4.
            Submission
                of Matters to a Vote of Security Holders
            16Item
                5.
            Other
                Information
            17Item
                6.
            Exhibits
            17Signatures
            17Exhibit
                Index
            18







-
          2
          -


**PART
      I - FINANCIAL INFORMATION**





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




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




June
                  30,
              
              December
                  31,2005
              
              2004**ASSETS**
              
              (unaudited)Cash
                  and due from banks
              
              
              $5,333,302
              
              
              $3,965,562Federal
                  funds sold
              
              
              1,809,694
              
              
              1,947,273Securities
                  available for sale
              
              
              11,533,645
              
              
              14,138,781Securities
                  held to maturity (approximate fairvalue
                  of $8,444,429 and $5,954,064)
              
              
              8,509,741
              
              
              6,011,312Federal
                  Home Loan Bank stock, at cost
              
              
              2,012,400
              
              
              864,800Loans,
                  less allowance for loan lossesof
                  $1,434,661 and $1,204,274
              
              
              192,216,355
              
              
              170,592,710Premises
                  and equipment
              
              
              3,812,134
              
              
              3,794,199Accrued
                  interest receivable
              
              
              1,064,044
              
              
              908,069Deferred
                  income taxes
              
              
              80,475
              
              
              38,411Other
                  assets
              
              
              723,893
              
              
              684,588**Total
                  Assets**
              
              
              $227,095,683
              
              
              $202,945,705**LIABILITIES
                  AND STOCKHOLDERS’ EQUITY**DepositsNon-interest-bearing
              
              
              $31,468,061
              
              
              $28,596,460Interest-bearing
              
              
              131,141,775
              
              
              131,166,366162,609,836
              
              
              159,762,826Securities
                  sold under repurchase agreementsand
                  federal funds purchased
              
              
              5,782,968
              
              
              10,088,407Federal
                  Home Loan Bank advances
              
              
              35,700,000
              
              
              11,200,000Accrued
                  Interest payable
              
              
              303,780
              
              
              271,081Income
                  taxes payable
              
              
              0
              
              
              75,677Other
                  liabilities
              
              
              400,001
              
              
              340,396204,796,585
              
              
              181,738,387Stockholders'
                  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
              
              
              11,468,284
              
              
              10,309,73422,279,270
              
              
              21,120,720Accumulated
                  other comprehensive income
              
              
              19,828
              
              
              86,59822,299,098
              
              
              21,207,318**Total
                  Liabilities and Stockholders’ Equity**
              
              
              $227,095,683
              
              
              $202,945,705




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




-
          3
          -




**PEOPLES
        BANCORP, INC. AND SUBSIDIARY**


**Consolidated
        Statements of Income (unaudited)**




For
                  the three months ended
                June
                  30
              
              For
                  the six months ended
                June
                  302005
              
              2004
              
              2005
              
              2004Interest
                  and dividend revenueLoans,
                  including fees
              
              
              $3,128,658
              
              
              $2,325,524
              
              
              $6,011,922
              
              
              $4,534,932Government
                  Agencies Securities
              
              
              184,446
              
              
              215,503
              
              
              369,407
              
              
              454,141Deposits
                  in other banks
              
              
              579
              
              
              118
              
              
              825
              
              
              183Federal
                  funds sold
              
              
              11,943
              
              
              5,700
              
              
              20,359
              
              
              19,539Equity
                  securities
              
              
              12,351
              
              
              3,588
              
              
              17,401
              
              
              7,212Total
                  interest and dividend revenue
              
              
              3,337,977
              
              
              2,550,433
              
              
              6,419,914
              
              
              5,016,007Interest
                  expenseDeposits
              
              
              570,848
              
              
              583,427
              
              
              1,192,618
              
              
              1,197,585Borrowed
                  funds
              
              
              368,471
              
              
              23,427
              
              
              496,543
              
              
              38,238Total
                  interest expense
              
              
              939,319
              
              
              606,854
              
              
              1,689,161
              
              
              1,235,823Net
                  interest income
              
              
              2,398,658
              
              
              1,943,579
              
              
              4,730,753
              
              
              3,780,184Provision
                  for loan losses
              
              
              120,000
              
              
              23,000
              
              
              240,000
              
              
              29,500Net
                  interest income afterprovision
                  for loan losses
              
              
              2,278,658
              
              
              1,920,579
              
              
              4,490,753
              
              
              3,750,684Noninterest
                  revenueService
                  charges on deposit accounts
              
              
              198,756
              
              
              185,882
              
              
              377,772
              
              
              356,197Other
                  noninterest revenue
              
              
              63,664
              
              
              48,375
              
              
              141,442
              
              
              130,598Total
                  noninterest revenue
              
              
              262,420
              
              
              234,257
              
              
              519,214
              
              
              486,795Noninterest
                  expensesSalaries
                  and employee benefits
              
              
              692,835
              
              
              655,597
              
              
              1,365,118
              
              
              1,285,307Occupancy
              
              
              63,633
              
              
              59,655
              
              
              118,713
              
              
              121,392Furniture
                  and equipment
              
              
              44,805
              
              
              61,442
              
              
              97,577
              
              
              117,185Other
                  operating
              
              
              338,742
              
              
              299,720
              
              
              648,143
              
              
              578,258Total
                  noninterest expenses
              
              
              1,140,015
              
              
              1,076,414
              
              
              2,229,551
              
              
              2,102,142Income
                  before income taxes
              
              
              1,401,063
              
              
              1,078,422
              
              
              2,780,416
              
              
              2,135,337Income
                  taxes
              
              
              526,619
              
              
              406,858
              
              
              1,045,887
              
              
              804,748Net
                  income
              
              
              $874,444
              
              
              $671,564
              
              
              $1,734,529
              
              
              $1,330,589Earnings
                  per common share
              
              
              $1.11
              
              
              $0.85
              
              
              $2.20
              
              
              $1.68





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




-
          4
          -




**PEOPLES
      BANCORP, INC. AND SUBSIDIARY**


**Consolidated
        Statements of Cash Flows (unaudited)**
  For
                  the six months ended
                June
                  30**2005**
              
              **2004****CASH
                  FLOWS FROM OPERATING ACTIVITIES**Interest
                  received
              
              
              $6,242,190
              
              
              $5,055,621Fees
                  and commissions received
              
              
              519,214
              
              
              486,795Cash
                  paid to suppliers and employees
              
              
              (2,118,759
              )
              
              (1,974,246
              )Interest
                  paid
              
              
              (1,656,462
              )
              
              (1,260,444
              )Taxes
                  paid
              
              
              (1,121,564
              )
              
              (796,469
              )1,864,619
              
              
              1,511,257**CASH
                  FLOWS FROM INVESTING ACTIVITIES**Cash
                  paid for premises, equipment, and software
              
              
              (108,427
              )
              
              (148,049
              )Loans
                  made, net of principal collected
              
              
              (21,844,595
              )
              
              (15,441,378
              )Proceeds
                  from maturities and calls of securitiesAvailable
                  for sale
              
              
              2,500,000
              
              
              5,250,000Held
                  to maturity
              
              
              1,189
              
              
              1,734Purchase
                  of securities held to maturity
              
              
              (2,500,617
              )
              
              (1,988,875
              )Purchase
                  of FHLB Stock
              
              
              (1,147,600
              )
              
              (49,100
              )(23,100,050
              )
              
              (12,375,668
              )**CASH
                  FLOWS FROM FINANCING ACTIVITIES**Net
                  increase (decrease) inTime
                  deposits
              
              
              3,204,633
              
              
              (2,779,214
              )Other
                  deposits
              
              
              (357,623
              )
              
              5,870,484Securities
                  sold under repurchase agreements
              
              
              (4,305,439
              )
              
              (3,017,066
              )Advances
                  under (repayments of) notes payable
              
              
              24,500,000
              
              
              6,750,000Repurchase
                  of stock
              
              
              0
              
              
              0Dividends
                  paid
              
              
              (575,979
              )
              
              (539,929
              )22,465,592
              
              
              6,284,275**NET
                  INCREASE (DECREASE) IN CASH**
              
              
              1,230,161
              
              
              (4,580,136
              )CASH
                  AND EQUIVALENTS AT BEGINNING OF PERIOD
              
              
              5,912,835
              
              
              10,988,572CASH
                  AND EQUIVALENTS AT END OF PERIOD
              
              
              $7,142,996
              
              
              $6,408,436**RECONCILIATION
                  OF NET INCOME TO NET CASH PROVIDED****FROM
                  OPERATING ACTIVITIES**Net
                  income
              
              
              $1,734,529
              
              
              $1,330,589**ADJUSTMENTS**Depreciation
                  and amortization
              
              
              90,492
              
              
              119,215Provision
                  for loan losses
              
              
              240,000
              
              
              29,500Security
                  discount accretion, net of premium amortization
              
              
              (2,699
              )
              
              7,836Decrease
                  (increase) inAccrued
                  interest receivable
              
              
              (155,975
              )
              
              49,019Other
                  assets
              
              
              (39,305
              )
              
              (63,160
              )Increase
                  (decrease) inDeferred
                  origination fees and costs, net
              
              
              (19,050
              )
              
              (17,241
              )Accrued
                  Interest payable and other liabilities
              
              
              92,304
              
              
              47,220Income
                  taxes payable
              
              
              (75,677
              )
              
              8,279$1,864,619
              
              
              $1,511,257




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






-
          5
          -





**Peoples
      Bancorp, Inc. and Subsidiary**


**Notes
      to Financial Statements (unaudited)**





1.
            Basis
                of Presentation





The
      accompanying unaudited consolidated financial statements of Peoples Bancorp,
      Inc. (the “Company”) and its subsidiary have been prepared in accordance with
      generally accepted accounting principles in the United States of America for
      interim financial information and with the instructions to Form 10-QSB and
      Regulation S-X of the Securities and Exchange Commission. Accordingly, they
      do
      not include all the information and footnotes required by generally accepted
      accounting principles for complete financial statements. In the opinion of
      management, all adjustments (consisting of normal recurring accruals) considered
      necessary for a fair presentation have been included. Operating results for
      the
      three and six months ended June 30, 2005 are not necessarily indicative of
      the
      results that may be expected for the year ending December 31, 2005 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-KSB for
      the year ended December 31, 2004.





2.
            Cash
                Flows





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





3.
                Comprehensive
                    income





For
      the
      six months ended June 30, 2005 and 2004, total comprehensive income, net of
      taxes, was $1,667,759 and $1,122,229, respectively. Comprehensive income is
      the
      sum of net income and the change in the unrealized gain or loss on securities
      available for sale, net of income taxes





4.
              Commitments





Loan
      commitments are made to accommodate the financial needs of the Company’s
      customers. Letters of credit commit the Company to make payments on behalf
      of
      customers when certain specified future events occur. These obligations are
      not
      recorded in the Company’s financial statements. The credit risks inherent in
      loan commitments and letters of credit are essentially the same as those
      involved in extending loans to customers, and these arrangements are subject
      to
      the Company’s normal credit policies. The Company’s exposure to credit loss in
      the event the customer does not satisfy the terms of these arrangements equals
      the notional amount of the obligation less the value of any collateral. The
      table below represents unfunded obligations at June 30, 2005. The Company is
      not
      party to any other off-balance sheet arrangements.





At
                June 30, 2005Revolving
                Home Equity Lines
            
            $
            3,964,980Commercial
                Real Estate
            
            $
            2,934,234Other
                Unused Commitments
            
            $
            21,867,222Commercial
                Letters of Credit
            
            $
            3,134,819








-
          6
          -








5.
                Earnings
                    Per Share





Earnings
      per common share is derived by dividing net income available to holders of
      shares of common stock by the weighted average number of shares of common stock
      outstanding of 789,012 for the three- and six-month periods ended June 30,
      2005
      and 794,012 for the comparable periods in 2004.





6.
              Pension





The
      Company has a defined benefit pension plan covering substantially all of the
      employees. Benefits are based on years of service and the employee’s highest
      average rate of earnings for five consecutive years during the final ten full
      years before retirement. The Company’s 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. Assets of the plan are held in
      deposit accounts at the Company.





During
      the six months ended June 30, 2005 and 2004, the Company recognized net periodic
      costs for this plan of $70,000 and $55,000, respectively. During the six months
      ended June 30, 2005, the Company contributed $72,700 to the plan.







-
          7
          -





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





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





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.





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





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





The
      allowance for loan losses represents management’s estimate of probable loan
      losses inherent in the loan portfolio. Determining the amount of the allowance
      for loan losses is considered a critical accounting estimate because it requires
      significant judgment and the use of estimates related to the amount and timing
      of expected future cash flows on impaired loans, estimated losses on pools
      of
      homogeneous loans based on historical loss experience, and consideration of
      current economic trends and conditions, all of which may be susceptible to
      significant change. In addition, various regulatory agencies, as an integral
      part of their examination processes, periodically review 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”.





-
          8
          -


The
      following discussion is designed to provide a better understanding of the
      Company’s financial condition and results of operation and should be read in
      conjunction with the June 30, 2005 Consolidated Financial Statements and Notes
      thereto included elsewhere in this report, and in conjunction with the December
      31, 2004 audited Consolidated Financial Statements and Notes thereto and
      Management’s Discussion and Analysis or Plan of Operation set forth in the
      Company’s Annual Report on Form 10-KSB for the year ended December 31, 2004.
      When the term “Company” is used in this report, it means Peoples Bancorp, Inc.
      and, as the context requires, the Bank.





**Forward-Looking
      Information**





Portions
      of this Quarterly Report on Form 10-QSB contain forward-looking statements
      within the meaning of The Private Securities Litigation Reform Act of 1995.
      Statements that are not historical in nature, including statements that include
      the words “anticipate,” “estimate,” “should,”
      expect,” “believe,” “intend,” and similar expressions, are expressions
      about the Company’s confidence, policies, and strategies, the adequacy of
      capital levels, and liquidity and are not guarantees of future performance.
      Such
      forward-looking statements involve certain risks and uncertainties, including
      economic conditions, competition in the geographic and business areas in which
      the Company and the Bank operate, inflation, fluctuations in interest rates,
      legislation, and governmental regulation. These risks and uncertainties are
      described in more detail in the Company’s Annual Report on Form 10-KSB for the
      year ended December 31, 2004. Actual results may differ materially from such
      forward-looking statements, and the Company assumes no obligation to update
      forward-looking statements at any time.





**FINANCIAL
      CONDITION**





**Overview**





Total
      assets of the Company at June 30, 2005 were $227,095,683, compared to
      $202,945,705 at December 31, 2004, representing an increase of $24,149,978
      or
      11.90% over December 31, 2004.





Total
      liabilities at June 30, 2005 were $204,796,585, compared to $181,738,387 at
      December 31, 2004, representing an increase of $23,058,198 or 12.69%.





Stockholders’
      equity was $22,299,098 as of June 30, 2005, compared to $21,207,318 as of
      December 31, 2004, an increase of $1,091,780. The increase was due to net income
      for the period totaling $1,734,529 offset by a decrease in the unrealized gain
      on securities available for sale net of income taxes of $66,770 and dividends
      paid to stockholders of $575,979.





Return
      on
      average equity for the six months ended June 30, 2005 was 15.87%, compared
      to
      13.06% for the same period in 2004. Return on average assets was 1.61% for
      the
      six months ended June 30, 2005, compared to 1.46% for the same period in
      2004.




-
          9
          -


**Composition
      of Loan Portfolio**





At
      June
      30, 2005, loans, net of unearned income, were $192,216,355, an increase of
      $21,623,645 since December 31, 2004. 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 $182,937,942 and $144,457,835 during the first
      six months of 2005 and 2004, respectively, which constituted 88.80% and 83.47%
      of average interest-earning assets for the respective periods. For the six
      months ended June 30, 2005, the Company’s average loan to deposit ratio was
      114.46%, compared to 97.42% for the six months ended June 30, 2004. 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 repurchase agreements was 94.82% for
      the
      six months ended June 30, 2005, compared to 89.72% for the six months ended
      June
      30, 2004. 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.





**Loan
      Quality**




The
      allowance for loan losses represents a reserve for potential losses in the
      loan
      portfolio. The adequacy of the allowance for loan losses is evaluated
      periodically based on a review of all significant loans, with a particular
      emphasis on non-accruing, past due, and other loans that management believes
      require attention. The determination of the reserve level rests upon
      management's judgment about factors affecting loan quality and assumptions
      about
      the economy. Management believes that the allowance as of June 30, 2005 is
      adequate to cover possible losses in the loan portfolio; however, management's
      judgment is based upon a number of assumptions about future events, which are
      believed to be reasonable, but which may not prove valid. Thus, there can be
      no
      assurance that charge-offs in future periods will not exceed the allowance
      for
      loan losses or that additional increases in the loan loss allowance will not
      be
      required.





For
      significant problem loans, management's review consists of evaluation of the
      financial strengths of the borrowers and guarantors, the related collateral,
      and
      the effects of economic conditions. The overall evaluation of the adequacy
      of
      the total allowance for loan losses is based on an analysis of historical loan
      loss ratios, loan charge-offs, delinquency trends, and previous collection
      experience, along with an assessment of the effects of external economic
      conditions. The allowance may be increased to accommodate reserves for specific
      loans identified as substandard during management's loan review. Generally,
      however, neither net recoveries nor a decrease in loans will require a negative
      provision to reduce the allowance. Therefore, net recoveries and/or decreases
      in
      loans may cause the allowance as a percentage of gross loans to exceed the
      Company’s target.





The
      provision for loan losses is a charge to earnings in the current period to
      replenish the allowance and maintain it at a level management has determined
      to
      be adequate. As of June 30, 2005 and December 31, 2004, the allowance for loan
      losses compared to gross loans was 0.74% and 0.70%, respectively.





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







-
          10
          -





**Allowance
      for Loan Losses**




Six
                  months ended
              
              Year
                  endedJune
                  30,
              
              December
                  31,2005
              
              2004Balance
                  at beginning of year
              
              
              $1,204,274
              
              
              $1,216,881Loan
                  losses:Commercial
              
              
              0
              
              
              61,145Mortgages
              
              
              0
              
              
              0Consumer
              
              
              11,877
              
              
              22,806Total
                  loan losses
              
              
              11,877
              
              
              83,951Recoveries
                  on loans previously charged offCommercial
              
              
              0
              
              
              7,500Mortgages
              
              
              0
              
              
              0Consumer
              
              
              2,264
              
              
              2,344Total
                  loan recoveries
              
              
              2,264
              
              
              9,844Net
                  loan losses
              
              
              9,613
              
              
              74,107Provision
                  for loan losses charged to expense
              
              
              240,000
              
              
              61,500Balance
                  at end of year
              
              
              $1,434,661
              
              
              $1,204,274Allowance
                  for loan losses to loans outstandingat
                  end of period
              
              
              0.74
              %
              
              0.70
              %




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
      $720,399 and $218,092 at June 30, 2005 and December 31, 2004, respectively.
      Loans are classified as impaired when the collection of contractual obligations,
      including principal and interest, is doubtful. Management has identified no
      significant impaired loans as of June 30, 2005 or December
      31 ,
      2004.





**Deposits
      and Other Interest-Bearing Liabilities**





Average
      interest-bearing deposits increased $7,875,310 or 6.44% to $130,209,502 for
      the
      six months ended June 30, 2005, from $122,334,192 for the same period in 2004.
      Average noninterest-bearing deposits increased $3,674,285 or 14.16% to
      $29,623,268 for the six months ended June 30, 2005, from $25,948,983 for the
      same period in 2004. Average total deposits have increased 7.79% or $11,549,595
      to $159,832,770 for the six months ended June 30, 2005 from $148,283,175 for
      the
      same period in 2004. Borrowings, primarily from the Federal Home Loan Bank
      of
      Atlanta to fund strong loan demand, increased to $35,700,000 from $11,200,000
      at
      December 31, 2004, an increase of 218.75%.





-
          11
          -


Deposits,
      particularly core deposits, 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 such deposits will continue to be the
      Company’s primary source of funding for the foreseeable future. It should be
      noted, however, that there appears to be a new confidence in the overall economy
      and stock values appear to be recovering from the market downturn that occurred
      several years ago. Renewed investor confidence in alternatives to deposit
      accounts, which may pay yields that are higher than those paid on deposits,
      could impact the growth of deposits in future periods.





**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 $20,400,000 from correspondent banks, namely, Bank of
      America, Community Bank and M & T Bank. The Bank is also a member of the
      Federal Home Loan Bank of Atlanta, which provides another source of liquidity
      through a secured line of credit in the amount of $53,970,000 of which
      $35,700,000 has been advanced as of June 30, 2005.





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





Risk-based
      capital standards have been supplemented with requirements for a minimum Tier
      1
      capital to assets ratio (leverage ratio). In addition, regulatory agencies
      consider the published capital levels as minimum levels and may require a
      financial institution to maintain capital at higher levels. A comparison of
      the
      Company’s capital ratios as of June 30, 2005 to the minimum ratios required by
      federal banking regulators is presented below.





Minimum
            
            To
                be wellActual
            
            Requirements
            
            capitalizedTier
                1 risk-based capital
            
            12.12%
            
            4.00%
            
            6.00%Total
                risk-based capital
            
            12.90%
            
            8.00%
            
            10.00%Leverage
                ratio
            
            10.03%
            
            4.00%
            
            5.00%





**RESULTS
      OF OPERATIONS**





**General**





For
      the
      three- and six-month periods ended June 30, 2005, the Company reported net
      income of $874,444, or $1.11 per share, and $1,734,529, or $2.20 per share,
      respectively, compared to $671,564, or $0.85 per share, and $1,330,589, or
      $1.68
      per share, respectively, for the same periods in 2004. The increases for the
      three months (30.21%) and six months (30.36%) ended June 30, 2005 over the
      same
      periods last year resulted primarily from increases in loan interest income
      offset by an increase in the provision for loan losses and an increase in
      interest expense on borrowed funds.





-
          12
          -


**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 June 30, 2005 was $2,398,658,
      which represents an increase of $455,079 or 23.41% over net interest income
      for
      the same period in 2004. Net interest income for the six-month period ended
      June
      30, 2005 was $4,730,753, which represents an increase of $950,569 or 25.15%
      over
      the net interest income for the first six months of 2004. Interest earned on
      the
      increased loan volume generated in the first six months of 2005, coupled with
      historically low rates paid on deposits, contributed to these increases in
      net
      interest income.





Interest
      revenue for the three and six months ended June 30, 2005 totaled $3,337,977
      and
      $6,419,914, respectively, compared to $2,550,433 and $5,016,007, respectively,
      for the same periods last year, representing increases of $787,544 or 30.88%
      and
      $1,403,907 or 27.99%, respectively. The increases over the comparable periods
      of
      2004 are attributable primarily to an increase in loan income of $1,476,990
      for
      the first six months of 2005 offset by a decrease in Government Agencies
      Security income of $84,734 over the same time period.





Interest
      expense for the three- and six-month periods ended June 30, 2005 totaled
      $939,319 and $1,689,161, respectively, compared to $606,854 and $1,235,823,
      respectively, for the same periods last year, representing increases of $332,465
      or 54.78% and $453,338 or 36.68%, respectively. The Bank increased its
      borrowings during the first six months of 2005 to fund strong loan demand as
      described above from $11,200,000 at December 31, 2004 to $35,700,000 at June
      30,
      2005, resulting in an increase to borrowed funds interest expense during the
      first six months of 2005 of $458,305 when compared to the same period last
      year.





The
      key
      performance measure for net interest income is the “net margin on
      interest-earning assets,” or net interest income divided by average
      interest-earning assets. The Company’s net interest margin for the six-month
      period ended June 30, 2005 was 4.70%, compared to 4.42% for the same period
      in
      2004. 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, and these events are impacted by a number of unpredictable
      factors.




-
          13
          -


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





**Average
      Balances, Interest, and Yield**




For
                    the Six Months Ended
                
                For
                    the Six Months EndedJune30,2005
                
                June30,2004Average
                
                
                
                
                
                AverageBalance
                
                Interest
                
                Yield
                
                Balance
                
                Interest
                
                Yield**Assets**Federal
                    funds sold
                
                
                $1,532,866
                
                
                $20,359
                
                
                2.68
                %
                
                $4,071,101
                
                
                $19,539
                
                
                0.97
                %Interest-bearing
                    deposits
                
                
                59,891
                
                
                865
                
                
                2.91
                %
                
                80,231
                
                
                191
                
                
                0.48
                %Investment
                    securities:U.
                    S. government agency
                
                
                20,079,011
                
                
                387,288
                
                
                3.89
                %
                
                24,020,488
                
                
                476,127
                
                
                3.99
                %Other
                
                
                1,439,245
                
                
                18,244
                
                
                2.56
                %
                
                431,465
                
                
                7,561
                
                
                3.52
                %Total investment securities
                
                
                21,518,256
                
                
                405,532
                
                
                3.80
                %
                
                24,451,953
                
                
                483,688
                
                
                3.98
                %Loans:Demand
                    and time
                
                
                36,074,800
                
                
                1,325,368
                
                
                7.41
                %
                
                28,155,106
                
                
                814,624
                
                
                5.82
                %Mortgage
                
                
                143,154,172
                
                
                4,507,709
                
                
                6.35
                %
                
                112,824,472
                
                
                3,536,567
                
                
                6.30
                %Installment
                
                
                5,000,464
                
                
                200,310
                
                
                8.08
                %
                
                4,687,628
                
                
                185,869
                
                
                7.97
                %Total loans
                
                
                184,229,436
                
                
                6,033,387
                
                
                6.60
                %
                
                145,667,206
                
                
                4,537,060
                
                
                6.26
                %Allowance
                    for loan losses
                
                
                1,291,494
                
                
                
                
                
                
                
                
                1,209,371Total loans, net of allowance
                
                
                182,937,942
                
                
                6,033,387
                
                
                6.65
                %
                
                144,457,835
                
                
                4,537,060
                
                
                6.32
                %Total
                    interest-earning assets
                
                
                206,048,955
                
                
                6,460,143
                
                
                6.32
                %
                
                173,061,120
                
                
                5,040,478
                
                
                5.86
                %Non-interest-bearing
                    cash
                
                
                4,161,198
                
                
                
                
                
                
                
                
                3,861,305Premises
                    and equipment
                
                
                3,800,057
                
                
                
                
                
                
                
                
                3,766,692Other
                    assets
                
                
                1,657,890
                
                
                
                
                
                
                
                
                1,501,375Total
                    assets
                
                
                $215,668,100
                
                
                
                
                
                
                
                
                $182,190,492Liabilities
                    and Stockholders’ EquityInterest-bearing
                    DepositsSavings
                    and NOW deposits
                
                
                $44,932,459
                
                
                $75,680
                
                
                0.34
                %
                
                $41,957,808
                
                
                $78,461
                
                
                0.38
                %Money
                    market and supernow
                
                
                19,154,254
                
                
                50,748
                
                
                0.53
                %
                
                16,119,212
                
                
                44,355
                
                
                0.55
                %Other
                    time deposits
                
                
                66,122,789
                
                
                1,066,190
                
                
                3.25
                %
                
                64,257,172
                
                
                1,074,769
                
                
                3.36
                %Total
                    interest-bearing deposits
                
                
                130,209,502
                
                
                1,192,618
                
                
                1.85
                %
                
                122,334,192
                
                
                1,197,585
                
                
                1.97
                %Borrowed
                    funds
                
                
                33,103,277
                
                
                496,543
                
                
                3.02
                %
                
                12,731,084
                
                
                38,238
                
                
                0.60
                %Total
                    interest-bearing liabilities
                
                
                163,312,779
                
                
                1,689,161
                
                
                2.09
                %
                
                135,065,276
                
                
                1,235,823
                
                
                1.84
                %Noninterest-bearing
                    deposits
                
                
                29,623,268
                
                
                
                
                
                
                
                
                25,948,983192,936,047
                
                
                
                
                
                
                
                
                161,014,259Other
                    liabilities
                
                
                878,329
                
                
                
                
                
                
                
                
                795,308Stockholders’
                    equity
                
                
                21,853,724
                
                
                
                
                
                
                
                
                20,380,925Total
                    liabilities and stockholders equity
                
                
                $215,668,100
                
                
                
                
                
                
                
                
                $182,190,492Net
                    interest spread
                
                
                
                
                
                
                
                
                4.23
                %
                
                
                
                
                
                
                
                4.02
                %Net
                    interest income
                
                
                
                
                
                $4,770,982
                
                
                
                
                
                
                
                
                $3,804,655Net
                    margin on interest-earning assets
                
                
                
                
                
                
                
                
                4.67
                %
                
                
                
                
                
                
                
                4.42
                %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- and six-month periods ended June 30, 2005 totaled
      $262,420 and $519,214, respectively, which represent increases of 12.02% and
      6.66% over $234,257 and $486,795, respectively, for the same periods in 2004.
      The increases recognized in the first six months of 2005 over the same period
      last year resulted primarily because income from increases in service charges,
      including an increase in debit card income of $13,391 and an increase in
      activity service charges of $8,240, resulting from the fact that the use of
      debit cards and overdrafts have increased.





**Noninterest
      Expense**





The
      Company recorded noninterest expense of $1,140,015 and $2,229,551 for the three-
      and six-month periods ended June 30, 2005, respectively, compared to $1,076,414
      and $2,102,142, respectively, for the same periods in 2004, representing
      increases of $63,601 or 5.91% and $127,409 or 6.06%, respectively. The increases
      during the first six months of 2005 are mainly attributable to increased
      salaries and employee benefits of $79,811, the addition of regulatory compliance
      consulting fees of $12,812 and data processing fees charged by outside
      processors of $31,956.





**Income
      Tax Expense**





The
      Company’s effective tax rate for the three- and six-month periods ended June 30,
      2005 was 37.6%, compared to 37.7% for the same periods in 2004. The Company’s
      income tax expense was $526,619 and $1,045,887 for the three- and six-months
      ended June 30, 2005, respectively, compared to $406,858 and $804,748,
      respectively, for the same periods in 2004. The increases of $119,761 or 29.44%
      and $241,139 or 29.96% for the three- and six-month periods ended June 30,
      2005,
      respectively, when compared the same periods in 2004 were comparable to the
      percentage increase in pre-tax income.





**Item
      3.**   **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.





-
          15
          -


An
      evaluation of the effectiveness of these disclosure controls was carried out
      as
      of June 30, 2005 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 effective.





During
      the second quarter of 2005, 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
      2.**   **Unregistered
      Sales of Equity Securities and Use of Proceeds.**





None.





**Item
      3.**   **Defaults
      Upon Senior Securities.**





Not
      applicable.





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





At
      the
      Company’s Annual Meeting of Shareholders held on May 18, 2005, the shareholders
      were asked to vote upon the election of 12 directors to serve on the Company’s
      Board of Directors for one-year terms and until their successors are duly
      elected and qualify (“Proposal 1”). The shareholders also were asked to ratify
      the selection of Rowles & Company, LLP as the Company’s independent auditing
      and accounting firm for 2005 (“Proposal 2”). The Company submitted these matters
      to a vote through the solicitation of proxies.





The
      results of Proposal 1 were as follows:


**Nominees**
              **(terms
                expire 2006)**
            
            **For**
            
            **Against**
            
            **Abstain**
            
            **Broker**
              **Non-Votes**Robert
                W. Clark, Jr.
            
            625,849
            
            0
            
            1,290
            
            649LaMonte
                E. Cooke
            
            625,789
            
            60
            
            1,290
            
            649Gary
                B. Fellows
            
            625,849
            
            0
            
            1,290
            
            649Herman
                E. Hill, Jr.
            
            616,196
            
            9,653
            
            1,290
            
            649Elmer
                E. Horsey
            
            625,849
            
            0
            
            1,290
            
            649P.
                Patrick McClary
            
            625,015
            
            834
            
            1,290
            
            649Robert
                A. Moore
            
            625,849
            
            0
            
            1,290
            
            649Alexander
                P. Rasin, III
            
            624,727
            
            1,122
            
            1,290
            
            649Stefan
                R. Skipp
            
            625,849
            
            0
            
            1,290
            
            649Thomas
                G. Stevenson
            
            625,849
            
            0
            
            1,290
            
            649Elizabeth
                A. Strong
            
            625,849
            
            0
            
            1,290
            
            649William
                G. Wheatley
            
            625,849
            
            0
            
            1,290
            
            649




-
          16
          -




The
      results of Proposal 2 were as follows: 624,453 votes for the proposal; 2,156
      votes against the proposal; 530 abstentions; and 649 broker
      non-votes.





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





None.





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





3.1
            Articles
                of Incorporation of the Company, as corrected and amended (incorporated
                by
                reference to Exhibit 3.1 of the Company’s Current Report on Form 8-K filed
                on January 24, 2005)3.2
            Bylaws
                of the Company, as amended (incorporated by reference to Exhibit
                3.2 of
                the Company’s Annual Report on Form 10-K for the year ended December 31,
                2004)10.1
            Changes
                to Director Compensation Arrangement (incorporated by reference to
                Exhibit
                10.1 of the Company’s Current Report on Form 8-K filed on August 10,
                2005)31.1
            Certifications
                of the Chief Executive Officer and Chief Financial Officer pursuant
                to
                Section 302 of the Sarbanes-Oxley Act of 2002 (filed
                herewith)32.1
            Certifications
                of the Chief Executive Officer and Chief Financial Officer pursuant
                to 18
                U.S.C. § 1350 (furnished herewith)





**SIGNATURES**





In
      accordance with the requirements of the Exchange Act, the registrant has
      caused **** this
      report to be signed on its behalf by the undersigned, thereunto duly
      authorized.




**PEOPLES
              BANCORP, INC.**Date: August
              11, 2005
            By:
            /s/ Thomas
              G. StevensonThomas
              G. StevensonPresident/Chief
              Executive Officer& Chief Financial
              Officer





-
          17
          -


**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-K for the year ended December 31,
                  2004)10.1
              Changes
                  to Director Compensation Arrangement (incorporated by reference
                  to Exhibit
                  10.1 of the Company’s Current Report on Form 8-K filed on August 10,
                  2005)31.1
              Certifications
                  of the Chief Executive Officer and Chief Financial Officer pursuant
                  to
                  Section 302 of the Sarbanes-Oxley Act of 2002 (filed
                  herewith)32.1
              Certifications
                  of the Chief Executive Officer and Chief Financial Officer pursuant
                  to 18
                  U.S.C. § 1350 (furnished herewith)


-
          18
          -