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, 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, 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
    --      ---

                      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 August 1, 2004

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



<PAGE>
                              PEOPLES BANCORP, INC.

                                   FORM 10-QSB
                                      INDEX


                                                                            Page

                         Part I - Financial Information

Item 1.  Financial Statements                                                2

          Consolidated  Balance Sheets at June 30, 2004 (unaudited)
          and December 31, 2003                                              2

          Consolidated Statements of Condition (unaudited) for six and
          three months ended June 30, 2004 and 2003                          3

          Consolidated Statements of Cash Flows (unaudited) for
          six months ended June 30, 2004 and 2003                            4

          Notes to Financial Statements                                      5

Item 2.   Management's Discussion and Analysis or Plan of Operation          6
Item 3.   Controls and Procedures                                           12

                           Part II - Other Information

Item 1.   Legal Proceedings                                                 13
Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds       13
Item 3.   Defaults Upon Senior Securities                                   13
Item 4.   Submission of Matters to a Vote of Security Holders               13
Item 5.   Other Information                                                 14
Item 6.   Exhibits Reports on Form 8-K                                      15

Signatures                                                                  15



<PAGE>

<TABLE>
<CAPTION>


                         PART I - FINANCIAL INFORMATION

Item 1.           Financial Statements.
PEOPLES BANCORP, INC. AND SUBSIDIARY
Consolidated Balance Sheets                                                          June 30                  December 31,
---------------------------------------
(Dollar Amounts in Thousands)                                                          2004                        2003
                                                                                       ----                        ----
                                                                                    (unaudited)
         ASSETS

<S>                                                                                       <C>                      <C>
Cash and due from banks                                                                   $4,005                   $3,479
Federal funds sold                                                                         2,403                    7,509
Investment securities available for sale                                                  17,305                   22,901
Investment securities held to maturity
  (approximate fair value of $4,948
   and $3,044)                                                                             5,020                    3,034
Federal Home Loan Bank stock                                                                 460                      411
Loans, less allowance for loan losses
  of $1,225 and $1,217                                                                   153,229                  137,800
Premises and equipment                                                                     3,776                    3,747
Accrued interest receivable                                                                  848                      897
Deferred income taxes                                                                         32                        0
Other assets                                                                                 682                      619
                                                                                            ----                      ---
     Total Assets                                                                       $187,760                 $180,397
                                                                                        ========                 ========



         LIABILITIES AND STOCKHOLDERS' EQUITY

Deposits
  Non-interest-bearing                                                                   $27,810                  $25,023
  Interest-bearing                                                                       123,038                  122,734
                                                                                         --------                 -------
                                                                                         150,848                  147,757
Securities sold under repurchase agreements                                                5,957                    8,975
Notes payable                                                                              9,750                    3,000
Accrued Interest payable                                                                     288                      312
Accrued expenses                                                                             121                       64
Deferred income taxes                                                                          0                       99
Other liabilities                                                                            266                      243
                                                                                            ----                     ---
                                                                                         167,230                  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                                                                        9,482                    8,691
                                                                                           -----                    -----
                                                                                          20,343                   19,552
  Accumulated other comprehensive income                                                     187                      395
                                                                                             ---                      ---
                                                                                          20,530                   19,947
                                                                                          ------                   ------
     Total Liabilities and Stockholders' Equity                                         $187,760                 $180,397
                                                                                        ========                 ========
</TABLE>


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


                                      -2-

<PAGE>

<TABLE>
<CAPTION>

PEOPLES BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Condition (unaudited)
------------------------------------------------
(Dollar Amounts in Thousands Except Per-Share Data)

                                                   For the three months            For the six months
                                                             ended                          ended
                                                            June 30                        June 30
                                                            -------                        -------
                                                      2004            2003           2004           2003
                                                      ----            ----           ----           ----
Interest and dividend revenue
<S>                                                    <C>             <C>             <C>            <C>
  Loans, including fees                                $2,326          $2,101          $4,535         $4,141
  Government Agencies Securities                          215             304             454            667
  Federal funds sold                                        6              15              20             28
  Equity securities                                         3               4               7              9
                                                            -               -               -              -
          Total interest and dividend revenue           2,550           2,424           5,016          4,845
                                                        -----           -----           -----          -----


Interest expense
  Deposits                                                585             692           1,198          1,406
  Borrowed funds                                           23              23              38             36
                                                          ---             ---             ---            ---
          Total interest expense                          608             715           1,236          1,442
                                                          ---             ---           -----          -----

          Net interest income                           1,942           1,709           3,780          3,403


Provision for loan losses                                  23              85              30             88
                                                           --              --              --             --
          Net interest income after
            provision for loan losses                   1,919           1,624           3,750          3,315
                                                       ------          ------          ------         ------


Noninterest revenue
  Service charges on deposit accounts                     186             171             356            325
  Other noninterest revenue                                49              42             131            114
                                                          ---             ---            ----           ----
          Total noninterest revenue                       235             213             487            439
                                                         ----            ----            ----           ----

Noninterest expenses

  Salaries and employee benefits                          656             645           1,282          1,282
  Occupancy                                                60              56             121            107
  Furniture and equipment                                  61              52             117            108
  Other operating                                         299             289             582            557
                                                         ----            ----            ----           ----
          Total noninterest expenses                    1,076           1,042           2,102          2,054
                                                        -----           -----           -----          -----

Income before income taxes                              1,078             795           2,135          1,700
Income taxes                                              406             292             804            625
                                                         ----            ----            ----           ----
Net income                                               $672            $503          $1,331         $1,075
                                                         ----            ----          ------         ------

Earnings per common share                               $0.85           $0.63           $1.68          $1.35
                                                        -----           -----           -----          -----
</TABLE>

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

                                      -3-


<PAGE>

<TABLE>
<CAPTION>

PEOPLES BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows (unaudited)
-------------------------------------------------                              For the Six Months Ended
(Dollar Amounts in Thousands)                                                             June 30

CASH FLOWS FROM OPERATING ACTIVITIES                                           2004                2003
                                                                               ----                ----
<S>                                                                            <C>                  <C>
  Interest received                                                            $5,056               $4,984
  Fees and commissions                                                            487                  414
  Cash paid to suppliers and employees                                         (1,928)              (1,831)
  Interest paid                                                                (1,260)              (1,441)
  Taxes paid                                                                     (842)                (658)
                                                                                -----                -----
                                                                                1,513                1,468
                                                                                ------               -----
CASH FLOWS FROM INVESTING ACTIVITIES
  Cash paid for premises, equipment, and software                                (148)                 (21)
  Loans made, net of principal collected                                      (15,442)              (9,866)
  Proceeds from maturities and calls of securities
    Available for sale                                                          5,250                7,503
    Held to maturity                                                                2                    0
  Purchase of securities held to maturity                                      (1,989)                   0
  Purchase of FHLB Stock                                                          (49)                 (25)
                                                                              (12,376)              (2,409)
                                                                              --------              -------
CASH FLOWS FROM FINANCING ACTIVITIES
  Net increase (decrease) in
    Time deposits                                                              (1,990)               2,014
    Other deposits                                                              5,081                2,310
    Securities sold under repurchase agreements                                (3,018)              (2,247)
  Advances under (repayments) notes payable                                     6,750               (3,800)
  Repurchase of stock                                                               0                 (292)
  Dividends paid                                                                 (540)                (512)
                                                                                -----                -----
                                                                                6,283               (2,527)
                                                                                ------              ------
NET INCREASE (DECREASE) IN CASH                                                (4,580)              (3,468)
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD                                    10,988                8,676
                                                                               -------               -----
CASH AND EQUIVALENTS AT END OF PERIOD                                          $6,408               $5,208
                                                                               -------              ------
RECONCILIATION OF NET INCOME TO NET CASH PROVIDED
  FROM OPERATING ACTIVITIES
  Net income                                                                   $1,331               $1,075
  ADJUSTMENTS
    Depreciation and amortization                                                 119                  118
    Provision for loan losses                                                      30                   88
    Security discount accretion, net of premium amortization                        8                   12
    Decrease (increase) in
      Accrued interest receivable                                                  49                  149
      Other assets                                                                (63)                 (52)
    Increase (decrease)
      Deferred origination fees and costs, net                                    (17)                 (22)
      Accrued Interest payable and other liabilities                               56                  100
                                                                                  ---                  ---
                                                                               $1,513               $1,468
                                                                               ------               ------
</TABLE>

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

                                      -4-
<PAGE>


Peoples Bancorp, Inc. and Subsidiary
Notes to Financial Statements

1.   Basis of Presentation

          The accompanying unaudited consolidated financial statements have been
     prepared in accordance with generally  accepted  accounting  principles for
     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 of the six months ended June 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 six months ended June 30, 2004 and 2003,  total  comprehensive
     income,  net  of  taxes,  was  $1,123,000  and  $1,125,000,   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 June 30, 2004, rounded to the approximate thousand
     dollar of obligation. The Corporation is not party to any other off-balance
     sheet arrangements.

                                                           At June 30, 2004
                                                           ----------------

                 Revolving Home Equity Lines                 $  2,766,000
                 Commercial Real Estate                      $  6,524,000
                 Other Unused Commitments                    $ 17,915,000
                 Commercial Letters of Credit                $  2,087,000

5.   Earnings Per Share

          Earnings per common share is derived by dividing net income  available
     to common  shareholders by the weighted  average number of shares of common
     stock  outstanding  of 794,012 for the six- and  three-month  periods ended
     June 30, 2004 and 797,739 and 796,027 for the  comparable  periods in 2003,
     respectively.

                                      -5-
<PAGE>


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

     Peoples Bancorp, Inc., (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

                                      -6-

<PAGE>


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  sheets.  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
June 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 June 30, 2004 were $187,760,000, compared to
$180,397,000  at December 31, 2003,  representing  an increase of  $7,363,000 or
4.08% over December 31, 2003. An increase in the loan  portfolio of  $15,429,000
was  offset  by  decreases  in cash  and  cash  equivalents  of  $4,580,000  and
investment securities of $2,800,000.

     Total  liabilities  at  June  30,  2004  were  $167,230,000,   compared  to
$160,449,000  at December 31, 2003,  representing  an increase of  $6,781,000 or
4.23% over December 31, 2003.  Deposits and  borrowings  increased by $3,091,000
and $3,732,000, respectively, when compared to December 31, 2003.

     Stockholders'  equity  was  $20,530,000  as of June  30,2004,  compared  to
$19,947,000 as of December  31,2003,  an increase of $583,000.  The increase was

                                      -7-

<PAGE>


due to net income for the period totaling $1,331,000 offset by a decrease in the
unrealized gain on securities available for sale net of income taxes of $208,000
and dividends paid to stockholders of $540,000.

Results of Operations
General

     For the six- and  three-month  periods  ended June 30,  2004,  the  Company
reported net income of  $1,331,000  and  $672,000,  or $1.68 and $.85 per share,
respectively,  which represent increases of approximately $256,000 or 23.81% and
$169,000 or 33.60%,  respectively,  over the net income for the same  periods in
2003.  These  increases  were  primarily  due to increased  net interest  income
compounded  by decreased  interest  expense and  decreased  provisions  for loan
losses.

Interest Income

     Interest  income for the six and three  months  ended June 30, 2004 totaled
$5,016,000 and $2,550,000,  respectively,  compared to $4,845,000 and $2,424,000
for the same periods last year,  representing increases of $171,000 or 3.53% and
$126,000 or 5.20%,  respectively.  These increases are attributable primarily to
an increase in loan income of $394,000 for the first half of 2004 when  compared
to the same period last year. Interest income was offset,  however, by decreases
in  Government  Agencies  Security  income as the result of maturing  securities
being used to  originate  new loans of  $213,000  and  $89,000  for the six- and
three-month periods ended June 30, 2004, respectively.

Interest Expense

         Interest expense for the six- and three-month periods ended June 30,
2004 totaled $1,236,000 and $608,000, respectively, compared to $1,442,000 and
$715,000 for the same periods last year, representing decreases of $206,000 or
14.29% and $107,000 or 14.97%, respectively. Though deposits have increased
during the first six months of 2004, the decreases in interest expense are a
result of the decline in the weighted average rates paid on deposits to 1.47%,
compared to 1.95% 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 six- and  three-month  periods  ended June 30,
2004 was $3,780,000 and $1,942,000,  respectively,  which represent increases of
$377,000 or 11.08% and $233,000 or 13.63%,  respectively,  over the same periods
in 2003.  Interest  earned on the increased  loan volume  generated in the first
half of 2004, coupled with historically low rates paid on deposits,  contributed
to the increases in net interest income realized in the first half of 2004.

Noninterest Income

     Noninterest  revenue for the six- and  three-month  periods  ended June 30,
2004 totaled $487,000 and $235,000, respectively, which represented increases of
10.93% and 10.33% over the same periods in 2003.  During the first half of 2004,

                                      -8-

<PAGE>


the Company  experienced notable increases in overdraft checking fees and income
from investment service activity when compared to the first half of 2003.

Noninterest Expense

     The Company recorded  noninterest  expense of $2,102,000 and $1,076,000 for
the six- and three-month periods ended June 30, 2004, respectively,  compared to
$2,054,0000 and $1,042,000 for the same periods in 2003, or increases of $48,000
or 2.34%  and  $34,000  or  3.26%,  respectively.  These  increases  are  mainly
attributable  to increases over the first half of 2003 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 rate was 37.7% for both for the six and three
months ended June 30, 2004, compared to 36.8% and 36.7%,  respectively,  for the
same periods in 2003. The Company's income tax expense was $804,000 and $406,000
for the six and three  months  ended June 30,  2004,  respectively,  compared to
$625,000 and $292,000 for the same periods in 2003, which represent increases of
$179,000 or 28.64% and $114,000 or 39.04%,  respectively.  These  increases  are
attributable  to increases in the Company's  taxable income when compared to the
same periods in 2003.

Composition of Loan Portfolio

     Because  loans are  expected  to  produce  higher  yields  than  investment
securities and other interest-earning  assets (assuming that loan losses are not
excessive), 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  $153,229,000  and $129,335,000 at June 30,
2004  and  2003,   respectively,   which   constituted   85.30%  and  81.08%  of
interest-earning  assets  for the  respective  periods.  At June 30,  2004,  the
Company's  loan to deposit  ratio was  101.58%,  compared  to 90.76% at June 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 97.72% as of
June 30, 2004,  compared to 88.60% at June 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 June 30, 2004 is
adequate to cover possible losses in the loan portfolio;  however,  management's

                                      -9-

<PAGE>


judgment is based upon a number of assumptions  about future  events,  which are
believed to be reasonable, but which may or 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 for reserves for specific
loans identified as substandard during management's loan review.  Generally, the
Company  will not  require a negative  provision  to reduce the  allowance  as a
result of either  net  recoveries  or a  decrease  in loans.  This 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, 2004 and December 31, 2003,  the  allowance  for
loan losses compared to gross loans was 0.80% and 0.88%, respectively.

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

                            Allowance for Loan Losses

                                                  Six months ended    Year ended
                                                       June            December
                                                       2004              2003
                                                       ----              ----

  Balance at beginning of year                       $1,217,000      $1,160,000
  Loan losses:
    Commercial                                                0          10,000
    Mortgages                                                 0               0
    Consumer                                             23,000          27,000
                                                     ----------       ---------
                  Total loan losses                      23,000          37,000
                                                     ----------       ---------
  Recoveries on loans previously charged off
    Commercial                                                0               0
    Mortgages                                                 0               0
    Consumer                                              1,000           6,000
                                                     ----------      ----------
                  Total loan recoveries                   1,000           6,000
                                                     ----------      ----------

  Net loan losses                                        22,000          31,000
  Provision for loan losses charged to expense           30,000          88,000
                                                     ----------      ----------
  Balance at end of year                             $1,225,000      $1,217,000
                                                     ==========      ==========
  Allowance for loan losses to loans outstanding
   at end of period                                       0.80%           0.88%

                                      -10-

<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 $191,091  and $287,916 at June 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 June 30,
2004 and December 31, 2003.

Deposits and Other Interest-Bearing Liabilities

     Interest-bearing  deposits  increased  $304,000 or .25% to  $123,038,000 at
June 30, 2004,  from  $122,734,000  at December  31,  2003.  Noninterest-bearing
deposits  increased  $2,787,000 or 11.14% to $27,810,000 at June 30, 2004,  from
$25,023,000  at December  31,  2003.  Total  deposits  have  increased  2.09% or
$3,091,000  since the beginning of the Company's  current fiscal year, and 5.86%
over June 30,  2003.  Borrowings,  primarily  from the Federal Home Loan Bank of
Atlanta,  increased to $15,707,000 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
corresponded 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 leaving $17,290,000 available.
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.

     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

                                      -11-
<PAGE>

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 capital as of June 30, 2004 for the Company with the minimum requirements is
presented below.


                                                                 Minimum
                                            Actual            Requirements
                                            ------            ------------
Tier 1 risk-based  capital                  13.95%                4.00%
Total risk-based capital                    14.79%                8.00%
Leverage ratio                              11.02%                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 (the
"CEO") and the Chief Financial Officer (the "CFO"), as appropriate, 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 June 30, 2004 under the supervision and with the  participation of the
Company's management,  including the CEO and CFO. Based on that evaluation,  the
Company's  management,  including  the CEO  and  CFO,  has  concluded  that  the
Company's disclosure controls and procedures are effective.

     During the second  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.

                                      -12-

<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 June 30, 2004.

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 24, 2004, the
shareholders  were asked to vote upon the  election of 13  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 2004  ("Proposal  2"). The Company  submitted
these matters to a vote through the solicitation of proxies.

     The results of Proposal 1 were as follows:

     Nominees                                                         Broker
     (terms expire 2005)            For       Against     Abstain    Non-Votes
     -------------------            ---       -------     -------    ---------
     Robert W. Clark, Jr.         566,224        0           0           0
     LaMonte E. Cooke             566,164        60          0           0
     Gary B. Fellows              566,218        6           0           0
     Herman E. Hill, Jr.          566,099       125          0           0
     Elmer E. Horsey              566,224        0           0           0
     P. Patrick McClary           566,224        0           0           0
     Robert A. Moore              566,224        0           0           0
     E. Roy Owens                 566,224        0           0           0
     Alexander P. Rasin, III      566,224        0           0           0
     Stefan R. Skipp              566,224        0           0           0
     Thomas G. Stevenson          566,224        0           0           0
     Elizabeth A. Strong          566,224        0           0           0
     William G. Wheatley          566,224        0           0           0

     The results of Proposal 2 were as follows:  564,980 votes for the proposal;
0 votes against the proposal; 1,244 abstentions; and 0 broker non-votes.

                                      -13-

<PAGE>


Item 5.  Other Information.

Director Recommendations and Nominations

     The Nominating Committee of the Company's Board of Directors is responsible
for assembling and maintaining a list of qualified  candidates to fill vacancies
on the Board,  and it periodically  reviews this list and researches the talent,
skills,  expertise,  and general background of these candidates.  The Nominating
Committee will from time to time review and consider  candidates  recommended by
shareholders.  Shareholder  recommendations  should be  submitted in writing to:
Peoples Bancorp,  Inc., 100 Spring Avenue,  Chestertown,  Maryland 21620,  Attn:
Stephanie L.  Usilton,  Vice  President;  and must specify (i) the  recommending
shareholder's  contact  information,  (ii) the class and number of shares of the
Company's common stock beneficially owned by the recommending shareholder, (iii)
the name, address and credentials of the candidate for nomination,  and (iv) the
candidate's consent to be considered as a candidate.

     Whether  recommended  by a  shareholder  or  chosen  independently  by  the
Nominating  Committee,  a candidate will be selected for nomination based on his
or her talents and the needs of the Board.  The Nominating  Committee's  goal in
selecting nominees is to identify persons that possess  complimentary skills and
that can work well together with existing  Board members at the highest level of
integrity  and  effectiveness.  A candidate,  whether  recommended  by a Company
stockholder or otherwise, will not be considered for nomination unless he or she
is of good character and is willing to devote adequate time to Board duties.  In
assessing the qualifications of potential  candidates,  the Nominating Committee
will also consider the candidate's experience, judgment, and civic and community
relationships,  and the diversity of backgrounds  and experience  among existing
Directors.  Certain Board  positions,  such as Audit Committee  membership,  may
require other special skills or expertise.

     It should be noted that a shareholder  recommendation  is not a nomination,
and there is no guarantee that a candidate  recommended by a shareholder will be
approved by the Nominating Committee or nominated by the Board of Directors.

Shareholder Communications with the Board of Directors

     Shareholders  may contact the  Company's  Board of Directors by  contacting
Stephanie L. Usilton, Vice President,  Peoples Bancorp, Inc., 100 Spring Avenue,
Chestertown,  Maryland 21620 or (410)  778-3500.  All comments will be forwarded
directly to the Chairman of the Board for consideration.

     The  Company  believes  that  the  Annual  Meeting  is an  opportunity  for
shareholders to communicate  directly with directors and,  accordingly,  expects
that all directors will attend each Annual Meeting.  A shareholder who wishes to
discuss issues  directly with  directors  should  consider  attending the Annual
Meeting of Shareholders.

                                      -14-

<PAGE>


Item 6.    Exhibits Reports on Form 8-K.

     (a) 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 pursuant to Section
               302 of the  Sarbanes-Oxley  Act of  2002  (filed  herewith)

          31.2 Certifications of the 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 of the Chief
               Financial   Officer  pursuant  to  18  U.S.C.ss.1350   (furnished
               herewith)

     (b) Reports on Form 8-K

          None.

                                   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 13, 2004               By:  /s/ Thomas G. Stevenson
                                          -------------------------------------
                                          Thomas G. Stevenson
                                          President/Chief Executive Officer



Date:  August 13, 2004               By:  /s/ Ina May Puppe Reed
                                          ------------------------------------
                                          Ina May Puppe Reed
                                          Vice President/Chief Financial Officer

                                      -15-
<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  pursuant to Section
            302  of  the  Sarbanes-Oxley  Act  of  2002  (filed  herewith)

      31.2  Certifications  of the 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 of the  Chief
            Financial Officer pursuant to 18 U.S.C.ss.1350 (furnished herewith)

<PAGE>