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     September 30, 2004
                                         ---------------------

     Transition report under Section 13 or 15(d) of the Exchange Act

         For the transition period from _______________ to ________________

                         Commission File Number: 0-24169
                                                 -------

                              PEOPLES BANCORP, INC.
                              ---------------------
             (Exact name of registrant as specified in its charter)

               Maryland                                    52-2027776
           ------------------                            -------------
       (State or Other Jurisdiction of                  (I.R.S. Employer
          Incorporation or Organization)                 Identification No.)

         P.O. Box 210, 100 Spring Avenue,                      21620
           Chestertown, Maryland                               -----
     (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
                                                                  ---     ---

                      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: 794,012 shares of common stock
issued and outstanding as of November 1, 2004

     Transitional  Small Business  Disclosure  Format (check one): Yes    No  X
                                                                      --     ---



<PAGE>
                             PEOPLES BANCORP, INC.

                                   FORM 10-QSB
                                      INDEX


<TABLE>
<CAPTION>
                                                                                               Page

                         Part I - Financial Information

<S>          <C>                                                                               <C>
Item 1.       Financial Statements                                                               3

              Consolidated Balance Sheets at September 30, 2004 (unaudited)
              and December 31, 2003                                                              3

              Consolidated Statements of Income (unaudited) for three and nine months
              ended September 30, 2004 and 2003                                                  4

              Consolidated Statements of Cash Flows (unaudited) for nine months
              ended September 30, 2004 and 2003                                                  5

              Notes to Financial Statements                                                      6

Item 2.       Management's Discussion and Analysis or Plan of Operation                          7
Item 3.       Controls and Procedures                                                           13

                           Part II - Other Information

Item 1.       Legal Proceedings                                                                 14
Item 2.       Unregistered Sales of Equity Securities and Use of Proceeds                       14
Item 3.       Defaults Upon Senior Securities                                                   14
Item 4.       Submission of Matters to a Vote of Security Holders                               14
Item 5.       Other Information                                                                 14
Item 6.       Exhibits                                                                          14

Signatures                                                                                      14

</TABLE>


                                       2
<PAGE>
<TABLE>
<CAPTION>


                         PART I - FINANCIAL INFORMATION

Item 1.           Financial Statements.

PEOPLES BANCORP, INC. AND SUBSIDIARY
Consolidated Balance Sheets                                                  September 30            December 31,
---------------------------
                    (Dollar Amounts in Thousands)                                2004                   2003
                                                                                 ----                   ----
                                                                             (unaudited)
         ASSETS
<S>                                                                             <C>                    <C>
Cash and due from banks                                                          $3,787                 $3,479
Federal funds sold                                                                1,165                  7,509
Investment securities available for sale                                         16,264                 22,901
Investment securities held to maturity
  (approximate fair value of $4,995
   and $3,044)                                                                    5,018                  3,034
Federal Home Loan Bank stock                                                        460                    411
Loans, less allowance for loan losses
  of $1,221 and $1,217                                                          158,687                137,800
Premises and equipment                                                            3,779                  3,747
Accrued interest receivable                                                         989                    897
Deferred income taxes                                                                47                      0
Other assets                                                                        650                    619
                                                                                   ----                   ----
     Total Assets                                                              $190,846               $180,397
                                                                              =========               ========

         LIABILITIES AND STOCKHOLDERS' EQUITY

Deposits
  Non-interest-bearing                                                          $27,508                $25,023
  Interest-bearing                                                              127,501                122,734
                                                                               --------                -------
                                                                                155,009                147,757
Securities sold under repurchase agreements                                       3,532                  8,975
Notes payable                                                                    10,640                  3,000
Accrued Interest payable                                                            268                    312
Accrued expenses                                                                    168                     64
Deferred income taxes                                                                 0                     99
Other liabilities                                                                   286                    243
                                                                                   ----                   ----
                                                                                169,903                160,450
                                                                                -------                -------
Stockholders' equity
  Common stock, par value $10 per share authorized
   1,000,000 shares, issued and outstanding 794,012 shares                        7,940                  7,940
  Additional Paid in Capital                                                      2,921                  2,921
  Retained earnings                                                               9,919                  8,691
                                                                                  -----                  -----
                                                                                 20,780                 19,552
  Accumulated other comprehensive income                                            163                    395
                                                                                    ---                    ---
                                                                                 20,943                 19,947
                                                                                 ------                 ------
     Total Liabilities and Stockholders' Equity                                $190,846               $180,397
                                                                               ========               ========
The accompanying notes are an integral part of these financial statements.
</TABLE>



                                       3
<PAGE>
<TABLE>
<CAPTION>
PEOPLES BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Income (unaudited)
---------------------------------------------
(Dollar Amounts in Thousands Except Per-Share Data)
                                                   For the three months ended     For the nine months ended
                                                          September 30                   September 30
                                                          ------------                   ------------
                                                      2004            2003           2004           2003
                                                      ----            ----           ----           ----
<S>                                                   <C>              <C>            <C>             <C>
Interest and dividend revenue
  Loans, including fees                                $2,469          $2,128          $7,004         $6,269
  Government Agencies Securities                          201             288             655            955
  Federal funds sold                                        6               3              26             31
  Equity securities                                         4               4              11             13
                                                           --               -              --             --
          Total interest and dividend revenue           2,680           2,423           7,696          7,268
                                                        -----           -----           -----          -----

Interest expense
  Deposits                                                580             655           1,778          2,061
  Borrowed funds                                           51              21              89             57
                                                          ---             ---             ---             --
          Total interest expense                          631             676           1,867          2,118
                                                         ----            ----          ------          -----

          Net interest income                           2,049           1,747           5,829          5,150

Provision for loan losses                                  32               0              62             88
                                                          ---               -              --             --
          Net interest income after
            provision for loan losses                   2,017           1,747           5,767          5,062
                                                        ------          ------          ------         -----
Noninterest revenue
  Service charges on deposit accounts                     189             165             545            490
  Other noninterest revenue                                48              46             179            160
                                                          ---             ---            ----            ---
          Total noninterest revenue                       237             211             724            650
                                                         ----            ----            ----            ---

Noninterest expenses
  Salaries and employee benefits                          661             646           1,947          1,928
  Occupancy                                                64              60             185            167
  Furniture and equipment                                  58              55             175            163
  Other operating                                         320             264             898            822
                                                         ----            ----            ----            ---
          Total noninterest expenses                    1,103           1,025           3,205          3,080
                                                       ------          ------          ------          -----

Income before income taxes                              1,151             933           3,286          2,632
Income taxes                                              436             348           1,240            973
                                                         ----            ----          ------            ---
Net income                                               $715            $585          $2,046         $1,659
                                                        -----           -----         -------         ------

Earnings per common share                               $0.90           $0.74           $2.58          $2.08
                                                       ------          ------          ------          -----

The accompanying notes are an integral part of these financial statements.
</TABLE>



                                       4
<PAGE>

<TABLE>
PEOPLES BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows (unaudited)                              For the nine months ended
                                                                                     September 30
                     (Dollar Amounts in Thousands)
CASH FLOWS FROM OPERATING ACTIVITIES                                            2004                 2003
                                                                                ----                 ----
<S>                                                                            <C>                   <C>
  Interest received                                                             $7,590               $7,205
  Fees and commissions received                                                    724                  635
  Cash paid to suppliers and employees                                          (2,916)              (2,722)
  Interest paid                                                                 (1,911)              (2,153)
  Taxes paid                                                                    (1,268)              (1,012)
                                                                                -------              -------
                                                                                 2,219                1,953
                                                                                -------              -------
CASH FLOWS FROM INVESTING ACTIVITIES
  Cash paid for premises, equipment, and software                                 (177)                 (44)
  Loans made, net of principal collected                                       (20,923)             (12,952)
  Proceeds from maturities and calls of securities
    Available for sale                                                           6,250                8,506
    Held to maturity                                                                 2                    0
  Purchase of securities held to maturity                                       (1,989)                   0
  Purchase of FHLB Stock                                                           (49)                 (25)
                                                                                   ---                  ---
                                                                               (16,886)              (4,515)
                                                                               --------              -------
CASH FLOWS FROM FINANCING ACTIVITIES
  Net increase (decrease) in
    Time deposits                                                               (2,185)               1,386
    Other deposits                                                               9,437                2,721
    Securities sold under repurchase agreements                                 (5,443)              (2,101)
  Advances under (repayments of) notes payable                                   7,640               (1,800)
  Repurchase of stock                                                                0                 (292)
  Dividends paid                                                                  (818)                (774)
                                                                                  -----                -----
                                                                                 8,631                 (860)
                                                                                 ------                -----
NET INCREASE (DECREASE) IN CASH                                                 (6,036)              (3,422)
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD                                     10,988                8,676
                                                                                -------               -----
CASH AND EQUIVALENTS AT END OF PERIOD                                           $4,952               $5,254
                                                                                ------               ------
RECONCILIATION OF NET INCOME TO NET CASH PROVIDED
  FROM OPERATING ACTIVITIES
  Net income                                                                    $2,046               $1,659
  ADJUSTMENTS
    Depreciation and amortization                                                  145                  179
    Provision for loan losses                                                       62                   88
    Security discount accretion, net of premium amortization                        12                   16
    Decrease (increase) in
      Accrued interest receivable                                                  (92)                 (42)
      Other assets                                                                 (31)                 (44)
    Increase (decrease) in
      Deferred origination fees and costs, net                                     (26)                 (37)
      Accrued Interest payable and other liabilities                               103                  134
                                                                                   ---                  ---
                                                                                $2,219               $1,953
                                                                                ------               ------
The accompanying notes are an integral part of these financial statements.
</TABLE>



                                       5
<PAGE>

Peoples Bancorp, Inc. and Subsidiary
Notes to Financial Statements

1.   Basis of Presentation

          The  accompanying   unaudited  consolidated  financial  statements  of
     Peoples Bancorp, Inc. (the "Company") have been prepared in accordance with
     generally accepted accounting  principles the 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 nine months ended September 30, 2004 are not necessarily  indicative of
     the results that may be expected  for the year ending  December 31, 2004 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, as amended by Amendment No. 1 on Form 10-KSB/A,  for
     the year ended December 31, 2003.

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  nine  months  ended  September  30,  2004  and  2003,  total
     comprehensive   income,  net  of  taxes,  was  $1,814,000  and  $1,496,000,
     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 September  30, 2004,  rounded to the  approximate
     thousand  dollar of obligation.  The  Corporation is not party to any other
     off-balance sheet arrangements.
                                                 At September 30, 2004
                                                 ---------------------

            Revolving Home Equity Lines             $ 2,733,000
            Commercial Real Estate                  $ 7,321,000
            Other Unused Commitments                $20,878,000
            Commercial Letters of Credit            $ 2,064,000

5.   Earnings Per Share

          Earnings per common share is derived by dividing net income  available
     to common  stockholders by the weighted  average number of shares of common
     stock  outstanding of 794,012 for the nine- and  three-month  periods ended
     September  30, 2004 and 796,483 and 794,012 for the  comparable  periods in
     2003, respectively.


                                       6
<PAGE>

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,  located 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 as 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


                                       7
<PAGE>

consideration  of current  economic trends and  conditions,  all of which may be
susceptible to significant change. In addition,  various regulatory agencies, as
an  integral  part of  their  examination  processes,  periodically  review  the
Company's  allowance  for loan losses.  Such agencies may require the Company to
make  additional  provisions  for  estimated  loan losses  based upon  judgments
different  from those of  management.  The loan  portfolio  also  represents the
largest  asset  type  on  the  balance  sheet.  Further  information  about  the
methodology  used to determine the allowance for loan losses is discussed  below
under the heading "Loan Quality".

     The following  discussion is designed to provide a better  understanding of
the financial position of the Company and should be read in conjunction with the
September 30, 2004 Consolidated  Financial Statements and Notes thereto included
elsewhere in this report,  and in conjunction with the December 31, 2003 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, as amended by Amendment No. 1 on Form 10-KSB/A,  for the year ended
December 31,  2003.  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 the Company's Annual Report on Form 10-KSB,  as amended
by  Amendment  No. 1 on Form  10-KSB/A,  for the year ended  December  31, 2003.
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

     Total  assets of the  Company  at  September  30,  2004 were  $190,846,000,
compared to  $180,397,000  at December  31,  2003,  representing  an increase of
$10,449,000  or 5.79% over December 31, 2003. An increase in the loan  portfolio
of  $20,887,000  was offset by decreases in Federal funds sold of $6,344,000 and
investment securities of $4,653,000.

     Total  liabilities  at September  30, 2004 were  $169,903,000,  compared to
$160,450,000  at December 31, 2003,  representing  an increase of  $9,453,000 or
5.89% over December 31, 2003.  Deposits and  borrowings  increased by $7,252,000
and $2,197,000, respectively, when compared to December 31, 2003.

     Stockholders'  equity was $20,943,000 as of September 30, 2004, compared to
$19,947,000  as of December 31, 2003, an increase of $996,000.  The increase was
due to net income for the period totaling $2,046,000 offset by a decrease in the
unrealized gain on securities available for sale net of income taxes of $232,000
and dividends paid to stockholders of $818,000.


                                       8
<PAGE>


Results of Operations

General

     For the nine- and three-month periods ended September 30, 2004, the Company
reported net income of  $2,046,000  and  $715,000,  or $2.58 and $.90 per share,
respectively,  which represent increases of approximately $387,000 or 23.31% and
$130,000 or 22.22%,  respectively,  over the net income for the same  periods in
2003. These increases  resulted  primarily from increases in net interest income
and noninterest revenue and a decrease in the provision for loan losses,  offset
by moderate increases in noninterest expenses.

Interest Revenue

     Interest  revenue for the nine and three  months ended  September  30, 2004
totaled  $7,696,000  and  $2,680,000,  respectively,  compared to $7,268,000 and
$2,423,000 for the same periods last year, representing increases of $428,000 or
5.89% and $257,000 or 10.61%,  respectively.  These  increases are  attributable
primarily to an increase in loan income of $735,000 for the first nine months of
2004 when compared to the same period last year.  Government  Agencies  Security
income  decreased  $300,000  and $87,000 for the nine- and  three-month  periods
ended September 30, 2004, respectively,  which resulted from the use of maturing
securities to originate new loans.

Interest Expense

     Interest expense for the nine- and three-month  periods ended September 30,
2004 totaled $1,867,000 and $631,000,  respectively,  compared to $2,118,000 and
$676,000 for the same periods last year,  representing  decreases of $251,000 or
11.83% and $45,000 or 6.57%,  respectively.  Although  deposits  have  increased
during  the first  nine  months of 2004,  the  weighted  average  rates  paid on
deposits  decreased  to 1.57%,  compared  to 1.93% for the same  period in 2003.
Rates paid on interest-bearing instruments remain at an all time low.

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 nine- and  three-month  periods ended September
30, 2004 was $5,829,000 and $2,049,000,  respectively, which represent increases
of  $679,000 or 13.18% and  $302,000  or 17.29%  over the same  periods in 2003,
respectively.  Interest  earned on the  increased  loan volume  generated in the
first nine months of 2004, coupled with historically low rates paid on deposits,
contributed to these increases in net interest income.

Noninterest Revenue

     Noninterest  revenue for the nine- and three-month  periods ended September
30,  2004  totaled  $724,000  and  $237,000,   respectively,  which  represented
increases of 11.38% and 12.32% over the same  periods in 2003.  During the first
nine months of 2004,  the Company  experienced  notable  increases  in overdraft
checking fees and income from investment  service  activity when compared to the
first nine months of 2003.

                                       9
<PAGE>

Noninterest Expense

     The Company recorded  noninterest  expense of $3,205,000 and $1,103,000 for
the nine- and  three-month  periods  ended  September  30,  2004,  respectively,
compared to $3,080,000 and $1,025,000 for the same periods in 2003, or increases
of $125,000 or 4.06% and $78,000 or 7.61%,  respectively.  These  increases  are
mainly  attributable  to  increases in data  processing  fees charged by outside
processors,  increased occupancy expenses, including increased real estate taxes
paid in connection  with the Bank's  Millington,  Maryland  branch,  and general
costs associated with maintenance and operations of premises and equipment.

Income Tax Expense

     The  Company's  effective tax rates for the nine- and  three-month  periods
ended  September 30, 2004 was 37.7% and 37.9%,  respectively,  compared to 37.0%
and 37.3% for the respective  periods in 2003. The Company's  income tax expense
was  $1,240,000  and $436,000 for the nine and three months ended  September 30,
2004,  respectively,  compared to $973,000  and $348,000 for the same periods in
2003,  which  represent  increases  of $267,000 or 27.44% and $88,000 or 25.29%,
respectively.  In addition to slightly higher effective tax rates,  increases in
taxable income during the nine- and three-month periods ended September 30, 2004
contributed  to the  increases in income tax expense  when  compared to the same
periods last year.

Composition of Loan Portfolio

     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.  Loans,  net of the  allowance  for loan  losses,  were
$158,687,000  and  $132,436,000  at September  30, 2004 and 2003,  respectively,
which  constituted  86.80%  and  82.20%  of  interest-earning   assets  for  the
respective  periods.  At September 30, 2004, the Company's loan to deposit ratio
was 102.37%, compared to 93.08% at September 30, 2003. 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 loans to
deposits  plus  repurchase  agreements  was 100.09% as of  September  30,  2004,
compared to 90.76% at September 30, 2003. 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 September 30, 2004 is
adequate to cover possible losses in the loan portfolio;  however,  management's
judgment is based upon a number of




                                       10
<PAGE>

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 loss 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. This allowance may be increased to accommodate reserves for
specific  loans  identified  as  substandard  during  management's  loan review.
Generally,  however, neither net recoveries nor a decrease in loans will require
a negative provision to reduce the allowance.  Therefore,  net recoveries and/or
decreases in loans may cause the  allowance  as a  percentage  of gross loans to
exceed the Company's target.

     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 September  30, 2004 and December 31, 2003,  the allowance
for loan losses compared to gross loans was 0.77% and 0.88%, respectively.


     The following table sets forth activity in the Company's allowance for loan
losses for the periods indicated:
<TABLE>
<CAPTION>

                            Allowance for Loan Losses
                                                                 Nine months ended              Year ended
                                                                    September                    December
                                                                      2004                         2003
                                                                      ----                         ----
<S>                                                                <C>                        <C>
  Balance at beginning of year                                     $1,217,000                 $1,160,000
  Loan losses:
    Commercial                                                         44,000                     10,000
    Mortgages                                                               0                          0
    Consumer                                                           23,000                     27,000
                                                                       ------                     ------
                  Total loan losses                                    67,000                     37,000
                                                                       ------                     ------
  Recoveries on loans previously charged off
    Commercial                                                          7,000                          0
    Mortgages                                                               0                          0
    Consumer                                                            2,000                      6,000
                                                                        -----                      -----
                  Total loan recoveries                                 9,000                      6,000
                                                                        -----                      -----

  Net loan losses                                                      58,000                     31,000
  Provision for loan losses charged to expense                         62,000                     88,000
                                                                       ------                     ------
  Balance at end of year                                          $ 1,221,000                $ 1,217,000
                                                                  ===========                ===========
  Allowance for loan losses to loans outstanding
   at end of period                                                     0.77%                      0.88%
</TABLE>





                                       11
<PAGE>


     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  nonperforming  loans of $189,099 and $287,916 at September
30, 2004 and December 31, 2003,  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 September 30, 2004 or December 31, 2003.

Deposits and Other Interest-Bearing Liabilities

     Interest-bearing  deposits increased $4,767,000 or 3.88% to $127,501,000 at
September 30, 2004, from $122,734,000 at December 31, 2003.  Noninterest-bearing
deposits  increased  $2,485,000 or 9.93% to  $27,508,000  at September 30, 2004,
from  $25,023,000 at December 31, 2003.  Total deposits have increased  4.91% or
$7,252,000  since the beginning of the Company's  current fiscal year, and 8.94%
over September 30, 2003.  Borrowings,  primarily from the Federal Home Loan Bank
of Atlanta,  increased to $14,172,000  from  $11,975,000 at December 31, 2003 to
fund strong loan demand.

     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.  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  $17,400,000  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
$25,490,000 of which $8,200,000 has been advanced. Management knows of no trends
or demands,  commitments,  events or uncertainties that are likely to materially
affect the Company's ability to maintain liquidity at satisfactory levels.




                                       12
<PAGE>

     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 September  30, 2004 to the minimum  ratios
required by federal  banking  regulators  is  presented  below.

                                                Minimum
                                   Actual    Requirements
                                   ------    ------------
Tier 1 risk-based capital          13.82%        4.00%
Total  risk-based capital          14.63%        8.00%
Leverage ratio                     10.96%        4.00%

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.

     An evaluation of the effectiveness of these disclosure controls was carried
out as of September 30, 2004 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 third  quarter  of 2004,  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.



                                       13
<PAGE>

                           PART II - OTHER INFORMATION

Item 1. Legal Proceedings.

     None.

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

     The Company did not  repurchase  any shares of its common  stock during the
three-month period ended September 30, 2004.

Item 3. Defaults Upon Senior Securities.

     Not applicable.

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

     Not applicable.

Item 5. Other Information.

     Not applicable.

Item 6. Exhibits.

     3.1  Articles of Incorporation of the Company (incorporated by reference to
          Exhibit 3(a) of Amendment No. 1 to the Company's  Form 10-SB (File No.
          000-24169) filed on May 1, 1998)

     3.2  Bylaws of the Company  (incorporated  by  reference to Exhibit 3(b) of
          Amendment No. 1 to the Company's Form 10-SB (File No. 000-24169) filed
          on May 1, 1998)

     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. ss. 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:  November 10, 2004       By: /s/Thomas G. Stevenson
                                    ------------------------------------
                                    Thomas G. Stevenson
                                     President/Chief Executive Officer
                                     & Chief Financial Officer



                                       14
<PAGE>
                                  EXHIBIT INDEX

Exhibit No. Description
----------- -----------

     3.1  Articles of Incorporation of the Company (incorporated by reference to
          Exhibit 3(a) of Amendment No. 1 to the Company's  Form 10-SB (File No.
          000-24169) filed on May 1, 1998)

     3.2  Bylaws of the Company  (incorporated  by  reference to Exhibit 3(b) of
          Amendment No. 1 to the Company's Form 10-SB (File No. 000-24169) filed
          on May 1, 1998)

     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. ss. 1350 (furnished herewith)