SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 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, 1998
                               -------------

[   ]    TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES  EXCHANGE
         ACT OF 1934

For the transition period from ___________________ to ___________________


                         Commission file number 0-21285


                     MID-ATLANTIC COMMUNITY BANKGROUP, INC.
        (Exact Name of Small Business Issuer as Specified in its Charter)


            VIRGINIA                                    54-1809409
--------------------------------------    --------------------------------------
    (State or Other Jurisdiction           (I.R.S. Employer Identification No.)
  of Incorporation or Organization)


                        7171 George Washington Mem. Hwy.
                           Gloucester, Virginia 23061
                  --------------------------------------------
                    (Address of Principal Executive Offices)


                                 (804) 693-0628
          ------------------------------------------------------------
                (Issuer's Telephone Number, Including Area Code)

   -------------------------------------------------------------------------
              (Former Name, Former Address and Former Fiscal Year,
                         If Changed Since Last Report)



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 registrant was required to file such reports),  and (2) has been
subject to such filing requirements for the past 90 days. Yes X . No    .
                                                             ---     ---
State the number of shares outstanding of each of the issuer's classes of common
equity, as of August 14, 1998.


                      Common stock, $5 par value--2,198,900
                      -------------------------------------

<PAGE>


                                      INDEX

MID-ATLANTIC COMMUNITY BANKGROUP, INC.                                  Page No.

Part I.   Financial Information

          Item 1.  Financial Statements                                        3
                   Consolidated Balance Sheets--
                     June 30, 1998 and December 31, 1997

                   Consolidated Statements of Income--                         4
                     Six months ended June 30, 1998 and 1997
                     Three months ended June 30, 1998 and 1997

                   Consolidated Statements of Stockholders' Equity--           5
                     Six months ended June 30, 1998 and 1997

                   Consolidated Statements of Cash Flows--                     6
                     Six months ended June 30, 1998 and 1997

                   Notes to Consolidated Financial Statements             7 - 10

          Item 2.  Management's Discussion and Analysis of Financial
                     Condition and Results of Operations                 11 - 14

Part II.  Other Information:                                             15 - 16

          Item 1.  Legal Proceedings
          Item 2.  Changes in Securities
          Item 3.  Defaults Upon Senior Securities
          Item 4.  Submission of Matters to a Vote of Security
                   Holders
          Item 5.  Other Information
          Item 6.  Exhibits and Reports on Form 8-K




                                       2
<PAGE>


Item 1.    FINANCIAL INFORMATION

                     MID-ATLANTIC COMMUNITY BANKGROUP, INC.
                           CONSOLIDATED BALANCE SHEETS
                            (In Thousands of Dollars)
<TABLE>
<CAPTION>
                                                            June 30,            December 31,
ASSETS:                                                       1998                  1997
                                                          ------------          ------------
<S>                                                       <C>                   <C>         
    Cash and due from banks                               $     10,079          $      6,960
    Securities available for sale (at market value)             25,336                24,104
    Securities held to maturity (market value)
      $11,328 in 1998 and $7,381 in 1997)                       11,243                 7,290
    Federal funds sold                                           9,604                 8,414
    Loans, net                                                 113,704               104,240
    Premises and equipment                                       7,700                 5,928
    Other real estate owned                                        437                   208
    Other assets                                                 3,238                 2,161
                                                          ------------          ------------
          TOTAL ASSETS                                    $    181,341          $    159,305
                                                          ============          ============

LIABILITIES:
    Deposits
      Demand                                              $     26,331          $     18,791
      Interest-bearing demand                                   28,308                25,673
      Savings                                                   16,617                15,758
      Certificates of deposit, $100,000 or more                 17,052                13,528
      Other Time                                                71,243                64,673
                                                          ------------          ------------
        TOTAL DEPOSITS                                         159,551               138,423
    Short-term debt                                                266                   292
    Long-term debt                                                  24                    31
    Other liabilities                                              912                 1,282
                                                          ------------          ------------
          TOTAL LIABILITIES                                    160,753               140,028
                                                          ------------          ------------

STOCKHOLDERS' EQUITY:
    Common stock, par value $5 per share,
     10,000,000 shares authorized, 2,198,900
     shares issued in 1998 and 1,093,833 in 1997                10,995                 5,477
    Surplus                                                      4,026                 9,294
    Undivided profits                                            5,460                 4,453
    Accumulated other comprehensive income, net                    107                    53
                                                          ------------          ------------
          TOTAL STOCKHOLDERS' EQUITY                            20,588                19,277
                                                          ------------          ------------
          TOTAL LIABILITIES AND
            STOCKHOLDERS' EQUITY                          $    181,341          $    159,305
                                                          ============          ============
</TABLE>

Notes to financial statements are an integral part of these statements.



                                       3
<PAGE>

                     MID-ATLANTIC COMMUNITY BANKGROUP, INC.
                        CONSOLIDATED STATEMENTS OF INCOME
                            (In Thousands of Dollars)
<TABLE>
<CAPTION>
                                                       Three Months Ended     Six Months Ended
                                                            June 30,               June 30,
                                                            --------               --------
                                                         1998      1997        1998       1997
                                                         ----      ----        ----       ----
<S>                                                    <C>        <C>         <C>        <C>    
INTEREST INCOME:
Loans and Fees                                         $  2968    $  2548     $  5773    $  4960
Federal Funds Sold                                         121         63         253        100
Investment Securities                                      632        511        1195       1021
                                                       -------    -------     -------    -------
   Total Interest Income                                  3721       3122        7221       6081

INTEREST EXPENSE:
Demand Deposits                                            227        194         461        384
Savings Deposits                                           119        109         233        215
Certificates of Deposit,
   $1000,000 or more                                       226        157         415        291
Other Time Deposits                                        986        835        1918       1605
Short-term Debt                                              2          2           5          5
Long-term Debt                                              --          1           1          1
                                                       -------    -------     -------    -------
   Total Interest Expense                                 1560       1298        3033       2501
                                                       -------    -------     -------    -------
   Net Interest Income                                    2161       1824        4188       3580

PROVISION FOR LOAN
AND LEASE LOSSES                                           152        117         233        210
                                                       -------    -------     -------    -------
   Net Interest Income After
   Provision for Loan
   and Lease Losses                                       2009       1707        3955       3370
                                                       -------    -------     -------    -------

OTHER INCOME:
Service Chgs on Deposit Accts                              177        144         348        291
Other Service Charges & Fees                               115         55         180        100
Securities Gains (Losses)                                   --         --           1          2
                                                       -------    -------     -------    -------
   Total Other Income                                      292        199         529        393
                                                       -------    -------     -------    -------

OTHER EXPENSES:
Salaries & Employee Benefits                               813        700        1580       1365
Occupancy Expenses                                         141        125         260        222
Furniture & Equipment Expenses                             235        202         406        368
Other Operating Expenses                                   381        392         757        724
                                                       -------    -------     -------    -------
   Total Other Expenses                                   1570       1419        3003       2679
                                                       -------    -------     -------    -------
Income Before Income Taxes                                 731        487        1481       1084
Applicable Income Taxes                                    229        138         474        319
                                                       -------    -------     -------    -------
   Net Income                                          $   502    $   349     $  1007    $   765
                                                       =======    =======     =======    =======

   EARNINGS PER SHARE, BASIC                               .23        .18         .46        .40
   EARNINGS PER SHARE,
   ASSUMING DILUTION                                       .22        .18         .44        .39
                                                       =======    =======     =======    =======
</TABLE>

Notes to financial statements are an integral part of these statements.



                                       4
<PAGE>

                     MID-ATLANTIC COMMUNITY BANKGROUP, INC.
                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                            (In Thousands of Dollars)
<TABLE>
<CAPTION>

                                                                                  Accumulated
                                                                                        Other
                                                 Comprehensive    Retained      Comprehensive     Common    Capital
                                       Total            Income    Earnings             Income      Stock    Surplus
                                       -----            ------    --------             ------      -----    -------
<S>                                  <C>             <C>          <C>               <C>          <C>        <C>    
Balances - January 1, 1997           $14,431                      $  3,170             ($162)    $ 4,722    $ 6,701
Comprehensive income:
   Net income                            764         $     764         764
   Other comprehensive income,
   net of tax:
    Unrealized gain on securities 
    available for sale 
    Unrealized holding gain 
    arising during the period             86                86
    Less: reclassification
    adjustment                             2                 2
                                     -------         ---------
   Other comprehensive income,
   net of tax                             84                84                             84
                                     -------         ---------                       --------
   Total comprehensive income            848         $     848                          ($78)                      
                                     -------         =========     -------           ========    -------    -------
Balances - June 30, 1997             $15,279                       $ 3,934                       $ 4,722    $ 6,701
                                     =======                       =======                       =======    =======

Balances - January 1, 1998           $19,277                       $ 4,453           $     53    $ 5,477    $ 9,294
Comprehensive income:
   Net income                          1,007         $   1,007       1,007
   Other comprehensive income,
   net of tax:
    Unrealized gain on securities
    for sale 
    Unrealized holding gain arising
    during the period                     55                55
    Less:  reclassification
    adjustment                             1                 1
                                     -------         ---------
   Other comprehensive income,
   net of tax                             54                54                             54
                                     -------         ---------                       --------
   Total comprehensive income        $   541         $   1,061
                                     -------         =========
   Issuance of common stock -
   stock split effected in the form
   of 100% stock dividend                                                                          5,490    (5,490)
   Issuance of common stock -
   Johnson Mortgage Co.                  250                                                          28        222
                                     -------                       -------           --------    -------    -------
Balances - June 30, 1998             $20,588                       $ 5,460           $    107    $10,995    $ 4,026
                                     =======                       =======           ========    =======    =======


</TABLE>






Notes to financial statements are an integral part of these statements.


                                       5
<PAGE>

                     MID-ATLANTIC COMMUNITY BANKGROUP, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                            (In Thousands of Dollars)
<TABLE>
<CAPTION>
                                                                                Six Months Ended
                                                                                    June 30,
                                                                                    --------
                                                                               1998           1997
                                                                               ----           ----
<S>                                                                         <C>           <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net Income                                                               $   1,007     $     765
   Adjustments to reconcile net income to net cash
   provided by operating activities:
     Depreciation                                                                 210           201
     Provision for loan losses                                                    233           210
     Amortization of premiums on investment securities                             46            16
     (Gain) on sale of investment securities                                      (1)           (2)
     Changes in operating assets and liabilities:
       (Increase) in other assets                                             (1,106)         (467)
       Increase (decrease) in accrued income taxes                                 45         (152)
       Increase (decrease) in other liabilities                                 (159)          (22)
                                                                            ---------     ---------

          Net Cash Provided By Operating Activities                         $     275     $     549
                                                                            ---------     ---------

CASH FLOWS FROM INVESTING ACTIVITIES:
   Net (increase) in loans                                                   ($9,696)      ($5,964)
   Proceeds from sales of securities available for sale                           200         1,593
   (Increase) decrease in federal funds sold                                  (1,419)       (3,067)
   Purchase of securities available for sale                                  (6,628)       (2,603)
   Purchase of securities held to maturity                                    (5,301)            --
   Purchase of property and equipment                                         (1,983)         (808)
   Proceeds from maturities of securities available for sale                    4,538            --
   Proceeds from maturities of securities held to maturity                      2,043            --
                                                                            ---------     ---------

          Net Cash (Used In) Investing Activities                           ($18,246)     ($10,849)
                                                                            ---------     ---------

CASH FLOWS FROM FINANCING ACTIVITIES:
   Net increase in deposits                                                 $  21,128     $  11,121
   Dividends paid                                                               (547)         (236)
   Increase (decrease) in short-term debt                                         266          (15)
   Curtailment of other borrowed funds                                            (7)           (6)
   Issuance of common stock - Johnson Mortgage Co.                                250            --
                                                                            ---------     ---------

          Net Cash Provided by Financing Activities                         $  21,090     $  10,864
                                                                            ---------     ---------

            Net Increase In Cash and Due From Banks                         $   3,119     $     564

CASH AND DUE FROM BANKS - BEGINNING OF PERIOD                                   6,960         6,015
                                                                            ---------     ---------

CASH AND DUE FROM BANKS - END OF PERIOD                                     $  10,079     $   6,579
                                                                            =========     =========

</TABLE>






Notes to financial statements are an integral part of these statements.


                                       6
<PAGE>

                     MID-ATLANTIC COMMUNITY BANKGROUP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.    General

      The consolidated statements include the accounts of Mid-Atlantic Community
      BankGroup,  Inc. and its subsidiaries,  Peninsula Trust Bank, Incorporated
      and Johnson Mortgage Company,  LLC. All significant  intercompany balances
      and transactions have been eliminated.  In the opinion of management,  the
      accompanying  unaudited  consolidated  financial  statements  contain  all
      adjustments  (consisting of only normal recurring  accruals)  necessary to
      present  fairly the  financial  positions as of June 30, 1998 and December
      31, 1997,  and the results of operations and cash flows for the six months
      ended June 30, 1998 and 1997.

      The results of operations  for the six months ended June 30, 1998 and 1997
      are not necessarily  indicative of the results to be expected for the full
      year.

2.    Investment Securities

      Amortized cost and carrying  amount  (estimated  fair value) of securities
      available for sale are summarized as follows:
<TABLE>
<CAPTION>
                                                                    June 30, 1998
                                                  --------------------------------------------------
                                                                    Gross          Gross   Estimated
                                                  Amortized    Unrealized     Unrealized      Market
                                                       Cost         Gains         Losses       Value
                                                  ---------    ----------     ----------   ---------
                                                                (In Thousands of Dollars)

<S>                                               <C>          <C>            <C>          <C>
US Treasury Securities                                  626            --              2         624
US Government Agencies & Corporations                 7,360            59              4       7,415
Obligations of States & Political Subdivisions        5,544            92             16       5,620
Mortgage-backed Securities                           10,756            62             29      10,789
Federal Reserve Bank Stock                              343            --             --         343
Other Equity Securities                                 545            --             --         545
                                                  ---------    ----------     ----------   ---------
                                                  $  25,174    $      213     $       51   $  25,336
                                                  =========    ==========     ==========   =========
</TABLE>

    Amortized cost and carrying amount (estimated fair value) of securities held
    to maturity are summarized as follows:
<TABLE>
<CAPTION>
                                                                    June 30, 1998
                                                  --------------------------------------------------
                                                                    Gross          Gross   Estimated
                                                  Amortized    Unrealized     Unrealized      Market
                                                       Cost         Gains         Losses       Value
                                                  ---------    ----------     ----------   ---------
                                                                (In Thousands of Dollars)
<S>                                               <C>          <C>            <C>          <C>
US Government Agencies & Corporations                 6,064            22              1       6,085
Obligations of States & Political Subdivisions        1,911            55             13       1,953
Mortgage-backed Securities                            3,268            22             --       3,290
                                                  ---------    ----------     ----------   ---------
                                                  $  11,243    $       99     $       14   $  11,328
                                                  =========    ==========     ==========   =========
</TABLE>





                                       7
<PAGE>

                     MID-ATLANTIC COMMUNITY BANKGROUP, INC.
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued


    Securities available for sale at December 31, 1997 consist of the following:
<TABLE>
<CAPTION>
                                                                    Gross          Gross   Estimated
                                                  Amortized    Unrealized     Unrealized      Market
                                                       Cost         Gains         Losses       Value
                                                  ---------    ----------     ----------   ---------
                                                                (In Thousands of Dollars)

<S>                                               <C>          <C>            <C>          <C>
US Treasury Securities                                  632            --              3         629
US Government Agencies & Corporations                10,301            84              4      10,381
Obligations of States & Political Subdivisions        4,946            90             80       4,956
Mortgage-backed Securities                            7,743            40             46       7,737
Federal Reserve Bank Stock                              343            --             --         343
Other Equity Securities                                  57            --             --          57
                                                  ---------    ----------     ----------   ---------
                                                  $  24,024    $      215     $      135   $  24,104
                                                  =========    ==========     ==========   =========
</TABLE>

    Securities held to maturity at December 31, 1997 consist of the following:
<TABLE>
<CAPTION>
                                                                    Gross          Gross   Estimated
                                                  Amortized    Unrealized     Unrealized      Market
                                                       Cost         Gains         Losses       Value
                                                  ---------    ----------     ----------   ---------
                                                                (In Thousands of Dollars)
<S>                                               <C>          <C>            <C>          <C>
US Government Agencies & Corporations                 3,035            23             --       3,058
Obligations of States & Political Subdivisions        1,682            52             --       1,734
Mortgage-backed Securities                            2,573            16             --       2,589
                                                  ---------    ----------     ----------   ---------
                                                  $   7,290    $       91     $       --   $   7,381
                                                  =========    ==========     ==========   =========
</TABLE>

                                                            Six Months Ended
                                                                June 30,
                                                          1998           1997
                                                        --------       --------
                                                       (In Thousands of Dollars)

Gross proceeds from sales of securities                      200         1,593
                                                        ========       =======
Gross Gains on Sale of Securities                              1             2
Gross Losses on Sale of Securities                            --            --
                                                        --------       -------
 Net Securities Gains (Losses)                                 1             2
                                                        ========       =======



                                       8
<PAGE>

                     MID-ATLANTIC COMMUNITY BANKGROUP, INC.
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued

3.    Loans

      The following is a summary of loans  outstanding at the end of the periods
      indicated:
<TABLE>
<CAPTION>
                                                                  June 30,           December 31,
                                                                    1998                 1997
                                                                ------------         ------------
                                                                    (In Thousands of Dollars)
<S>                                                             <C>                  <C>   
Commercial Mortgage                                                   24,022               23,135
Residential Mortgage                                                  31,243               28,987
Home Equity                                                           12,574               10,905
Construction                                                           7,640                6,059
Commercial                                                            13,951               12,477
Installment                                                           25,680               23,926
All Other                                                                604                  617
                                                                ------------         ------------
                                                                     115,714              106,106
Less Unearned Income                                                     546                  542
                                                                ------------         ------------
                                                                     115,168              105,564
Less Allowance for Loan and Lease Losses                               1,464                1,324
                                                                ------------         ------------
                                                                $    113,704         $    104,240
                                                                ============         ============
</TABLE>

The  following  schedule  summarizes  the changes in the  allowance for loan and
lease losses:
<TABLE>
<CAPTION>
                                                 Six Months          Six Months
                                                   Ending              Ending
                                                  June 30,             June 30,         December 31,
                                                    1998                 1997               1997
                                                ------------         -----------        ------------
                                                                (In Thousands of Dollars)
<S>                                             <C>                 <C>                 <C>  
Balance, Beginning                                     1,324               1,112               1,112
Provision Charged Against Income                         233                 210                 347
Recoveries                                                21                  29                  55
Loans Charged Off                                      (114)                (57)               (190)
                                                ------------         -----------        ------------
Balance, Ending                                 $      1,464         $     1,294        $      1,324
                                                ============         ===========        ============
</TABLE>

Nonperforming assets consist of the following:

                                                  June 30,          December 31,
                                                    1998                1997
                                                ------------        ------------
                                                     (In Thousands of Dollars)

Nonaccrual Loans                                $       339         $        302
Restructured Loans                                       --                   --
                                                -----------         ------------
Nonperforming Loans                                     339                  302
Foreclosed Properties                                   437                  208
                                                -----------         ------------
Nonperforming Assets                            $       776         $        510
                                                ===========         ============

Total  loans past due 90 days or more and still  accruing  were $280 on June 30,
1998 and $77 on December 31, 1997.





                                       9
<PAGE>

                     MID-ATLANTIC COMMUNITY BANKGROUP, INC.
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued


4.    Earnings Per Share

      The  following  shows  the  weighted  average  number  of  shares  used in
computing earnings per share and the effect on weighted average number of shares
of diluted potential common stock income available to common shareholders.
<TABLE>
<CAPTION>
                                                       June 30, 1998                   June 30, 1997
                                                       -------------                   -------------
                                                                 Per Share                       Per Share
                                                    Shares         Amount            Shares       Amount
                                                    ------         ------            ------       ------
<S>                                              <C>              <C>              <C>           <C>
Basic Earnings Per Share                         2,193,376        $   .46          1,888,666     $   .40

Effect of dilutive securities: 
  Nonemployee directors' stock options              45,391                            36,170
  Employee incentive stock options                  53,229                            32,444
                                                 ---------                         ---------

Diluted Earnings Per Share                       2,291,996        $   .44          1,957,280     $   .39
                                                 =========        =======          =========     =======
</TABLE>


5.    Capital Requirements

      A comparison of the Company's capital as of June 30, 1998 with the minimum
requirements is presented below:

                                                                     Minimum
                                                  Actual           Requirements
                                                  ------           ------------
Tier I Risk-based Capital                        16.39 %               4.00 %
Total Risk-based Capital                         17.56 %               8.00 %
Leverage Ratio                                   11.94 %               4.00 %




                                       10
<PAGE>


Item 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS

The following presents management's  discussion and analysis of the consolidated
financial  condition  and  results  of  operations  of  Mid-Atlantic   Community
BankGroup,  Inc. (the "Company") as of the dates and for the periods  indicated.
This discussion  should be read in conjunction  with the Company's  Consolidated
Financial  Statements  and the Notes thereto and other  financial data appearing
elsewhere in this report.  The  consolidated  financial  statements  include the
accounts of the Company and its subsidiaries, Peninsula Trust Bank, Incorporated
(the "Bank") and Johnson  Mortgage  Co., LLC  ("JMC").  The Company  consummated
negotiations  to purchase a 50%  interest in JMC as of March 31,  1998.  This is
viewed as an attractive  complement to loan products  previously  offered by the
Bank.


Results of Operations
---------------------

After enjoying strong balance sheet expansion  during the first quarter of 1998,
the Company experienced  moderate balance sheet growth during the second quarter
of 1998, with total assets increasing $6.9 million,  or 4.0% over March 31, 1998
and $22.0  million,  or 13.8% over  December 31, 1997.  Growth was funded almost
entirely  from new  deposits,  which  reflected  $6.4 million and $21.1  million
increases   for  the  three  months  and  six  months   ending  June  30,  1998,
respectively.  The majority of the increase was in  non-interest  bearing demand
deposits, which experienced an increase of $7.5 million over December 31, 1997.

Loan demand maintained strong growth during the second quarter, evidenced by net
loans increasing $6.0 million (5.6%) and $9.5 million (9.1%) over March 31, 1998
and December 31, 1997, respectively.

Asset  quality  continues  to be  strong.  Total  loans past due 30 days or more
equaled $2.9 million (2.51% of total outstandings). Included in the 30 day total
are  $280,000  in loans  which are 90 days or more  past due and still  accruing
interest. Non-accrual loans totaled $339,000 at June 30, 1998, which represented
0.29% of total outstanding loans and 23.2% of the loan loss reserve.  Foreclosed
properties  totaled $437,000 at June 30, 1998. The provision for loan losses was
$152,000 in the second  quarter of 1998 and  $233,000 in the first half of 1998.
Gross  charge-offs  for the quarter were $66,000,  while total  recoveries  were
$4,600.

The Company maintained its practice during the second quarter of selling Federal
funds,  having  sold  continuously  on a daily basis in amounts  averaging  $8.8
million,  5.11% of average total assets.  These figures  compare to $9.7 million
and 5.98%, respectively,  for the first quarter 1998. The quarter-end balance of
$9.6 million represented a $2.3 million decrease from the first quarter 1998 and
a $1.2 million increase from December 31, 1997.

The level of the  investment  account  increased  $1.2 million during the second
quarter of 1998,  ending the period at $36.6  million or 20.1% of total  assets.
The portfolio is comprised of 2% US Treasuries,  75% US Government Agencies, 21%
State,  County and Municipal  governments,  and 2% other equity  securities  and
Federal Reserve Bank Stock.

The Financial Accounting Standards Board (FASB) Statement 115 stipulated the way
in which  banks  must  classify  and  account  for their  securities  portfolio,
beginning  with  the  first  quarter  of  1994.  Securities  are  classified  as
Investment Securities when management has both the intent and the ability at the
time of purchase to hold the securities  until maturity.  Investment  Securities
are carried at cost  adjusted  for  amortization  of premiums  and  accretion of
discounts.  Securities  which  are held  for an  indefinite  period  of time are
classified  as  Securities  Available  for Sale and are marked to market at each
financial  reporting date, or at each month-end.  Securities  Available for Sale
include securities that may be sold in response to changes in


                                       11
<PAGE>

interest rates,  changes in the security's  prepayment  risk,  increases in loan
demand, general liquidity needs and other similar factors.

The Company  elected,  as of year-end 1995, to classify the entire  portfolio as
"available  for  sale".  In an  effort  to manage  the  fluctuation  in the "net
unrealized gains/losses",  the Company elected to reclassify $5.1 million of the
portfolio as "held to  maturity"  as of July 31,  1997,  resulting in a one time
capital  adjustment  for the gain.  These  reclassified  bonds have longer final
maturities.  However, due to their respective call structures, they exhibit more
price volatility with subtle changes in overall  interest rates.  Also, the need
for such bonds to be used for  liquidity  purposes  is  considered  remote.  The
Company purchased an additional $7.0 million and $6.1 million,  during the first
half of 1998,  which were classified as available for sale and held to maturity,
respectively.

Deposits  represent  99.3%  of  total  liabilities  of  the  Company,  including
non-interest bearing checking accounts which represent 16.5% of total deposits.

Earnings
--------

Net income for the second quarter of 1998 totaled  $503,000.  This represents an
impressive  44% increase  over net income of $349,000 for the second  quarter of
1997, but a slight  decline from the $504,000  reported for the first quarter of
this year. The current quarter figures reflect the initial  financial  impact of
the Bank's  implementation of check imaging.  This process required the purchase
of computer hardware and software approximating $500,000, resulting in increased
depreciation expense.  However, the new technology will greatly enhance employee
efficiency in rendering  customer  statements and performing  account  research.
This technology will allow for better  customer  service while also  controlling
future personnel/overhead costs and was, therefore,  considered an investment in
improving earnings over time.

Net interest income for the second quarter of 1998 totaled  $2,161,000 (an 18.5%
increase over second quarter 1997). The net interest margin  experienced  modest
contraction as renewing deposits among consumer CDs reflected an upward trend in
renewal rates. This trend occurred during a period when the average yield on the
securities  portfolio  declined  by 42 basis  points.  As a  result,  the  19.2%
increase in interest  income for the second  quarter 1998 compared to the second
quarter of 1997 was offset by a 20.2% increase in interest  expense for the same
period.

Non-interest  income for the second  quarter of 1998 totaled  $292,000,  a 46.7%
increase over the second  quarter of 1997.  Primary  contributors  of the period
over period  improvement were new automated teller machine (ATM) service charges
for  non-customers  of the Bank and the  Company's  portion  of  second  quarter
earnings of JMC.

Non-interest  expense for the second quarter  totaled $1.6 million,  compared to
$1.4  million  for the first  quarter  of 1998 and $1.4  million  for the second
quarter of 1997. The increase was  attributable  to several  factors.  The check
imaging process,  described above, was joined by other increases in depreciation
expense  associated with the opening of the Bank's new permanent  office for its
Newport News branch.  The Bank also converted to a new software  package for its
ATM  processing.  The software  will permit  better risk  management  of the ATM
product  and  enhanced   customer   service.   One-time  costs  related  to  the
de-conversion  of the old ATM  software,  as  well  as  installation  of the new
software should be offset by improved  profitability and efficiency in this area
of the Bank's operation.

Capital and Liquidity
---------------------

Equity  capital at June 30, 1998 totaled $20.6 million,  representing  11.35% of
total  assets.  This level of capital will  position the Company for growth well
into the future and could support asset growth to more than $250 million with no
further capital augmentation.



                                       12
<PAGE>

Short term  liquidity is provided by access to the Federal funds market  through
correspondent bank relationships. The Bank maintains lines of credit to purchase
Fed funds  totaling $5.4  million.  Fed funds sold equaled 17.6% of total demand
deposits  at June 30,  1998.  This  compares  to  19.3% at June 30,  1997 and is
considered an adequate level of liquidity to meet  anticipated  withdrawals  and
expected loan demand.

Future Plans
------------

The Bank  consummated  the  purchase  of the  Mattaponi  branch  office of First
Virginia  Bank-Commonwealth  on July 17,  1998 and  opened for  business  as the
Bank's sixth branch office on July 20, 1998.  The Bank  purchased the branch and
deposits  from First  Virginia  Bank-Commonwealth  for  $600,000.  The Bank will
complete the renovation of the building during the third quarter of 1998,  which
should result in total capitalized cost of the building and land improvements of
approximately $500,000.

In April 1998,  the Company  purchased a bank  building  from  Wachovia Bank for
$443,000. The building had previously been operated as a Jefferson National Bank
branch,  but was  closed in  February  1998  when  Wachovia  acquired  Jefferson
National.  No  deposits  were  purchased  with the  branch.  Renovation  of this
building has begun and the de novo branch  office is expected to open during the
third  quarter  of  1998.  Total  capitalized  cost  of the  building  and  land
improvements at this location are expected to approximate $400,000.

On July 9, 1998,  the Company  announced  the  execution of a definitive  Merger
Agreement  providing  for a merger of equals with United  Community  Bankshares,
Inc. ("UCB"), headquartered in Franklin, Virginia. UCB is the parent company for
The Bank of Franklin and The Bank of Sussex and Surry.  The agreed upon exchange
rate would  provide  for  holders of UCB stock to  receive  1.075  shares of the
Company's  stock for each  share of UCB stock  owned,  plus cash for  fractional
shares.  The  merger  will be  accounted  for as a pooling  of  interest  and is
expected  to be  consummated  by  December  31,  1998,  subject  to  shareholder
approvals, regulatory approvals and other customary conditions of closing.

Year 2000 Issue
---------------

The Company utilizes and is dependent upon data processing  systems and software
to conduct its business.  The data processing  systems include various  software
packages  licensed to the Company by outside vendors and a mainframe  processing
system,  which are run on in-house computer  networks.  All of these systems are
vulnerable to the Year 2000 issue.

In 1997,  the Company  initiated a review and  assessment  of all  hardware  and
software to confirm that it will  function  properly in the year 2000.  Based on
this  assessment,  the  Company's  mainframe  hardware and banking  software are
currently  Year 2000  compliant.  However,  testing is scheduled  for the fourth
quarter of 1998 and early 1999 to confirm  this  compliance.  For certain  other
systems,  the  Company  has  determined  that it will have to  replace or modify
certain  pieces of hardware  and/or  software so that the systems will  properly
function in the year 2000.  The third party  vendors of these  systems have been
contacted and have indicated that the hardware and/or software will be Year 2000
compliant. Modifications and/or replacements depend on the individual vendor and
their respective products.

The Company has also begun to formulate a process by which all significant  loan
and deposit  customers  will be contacted  to determine  the extent to which the
Company is vulnerable to those third  parties'  failure to remedy their own Year
2000  issue.  No  conclusion  has been drawn at this time on  exposure  to these
customers,  due to the fact  that  this  process  is still in the  developmental
stages.



                                       13
<PAGE>

The Company  plans to  complete  the  majority  of the Year 2000  project by the
second quarter of 1999.  Expenditures  are not expected to have a large material
effect on the Corporation's consolidated financial statements.

The  expected  costs of the project  and the date on which the Company  plans to
complete the Year 2000  modifications  are based on management's best estimates,
which were derived utilizing numerous assumptions of future events including the
continued availability of certain resources,  third party modification plans and
other factors.  However,  there can be no guarantee that these estimates will be
achieved and actual results could differ  materially from those plans.  Specific
factors that might cause such material  differences include, but are not limited
to, the  availability  of personnel  trained in this area,  the ability of third
party vendors to correct their software and hardware, the ability of significant
customers to remedy their Year 2000 issues, and similar uncertainties.

New Accounting Pronouncements
-----------------------------

In February 1998, the Financial  Accounting  Standards Board issued Statement of
Financial Accounting Standards No. 132, "Employers Disclosure about Pensions and
Other Post Retirement  Benefits".  This Statement revises employers'  disclosure
about pension and other  postretirement  benefit  plans.  It does not change the
measurement  or  recognition of those plans.  This  Statement  standardizes  the
disclosure  requirements for pensions and other  postretirement  benefits to the
extent practicable,  requires  additional  information on changes in the benefit
obligations  and fair  values  of plan  assets  that will  facilitate  financial
analysis,  and eliminates  certain  disclosures.  Restatement of disclosures for
earlier  periods is required.  This  Statement is  effective  for the  Company's
financial statements for the year ended December 31, 1998.

In June 1998,  the  Financial  Accounting  Standards  Board issued  Statement of
Financial Accounting  Standards No. 133, "Accounting for Derivative  Instruments
and Hedging Activities". This Statement requires companies to record derivatives
on the balance sheet as assets and liabilities, measured at fair value. Gains or
losses  resulting  from  changes  in the  values of those  derivatives  would be
accounted  for depending on the use of the  derivative  and whether it qualifies
for hedge  accounting.  This Statement is not expected to have a material impact
on the Company's  financial  statements.  This Statement is effective for fiscal
years  beginning  after June 15, 1999,  with earlier  adoption  encouraged.  The
Company will adopt this accounting standard as required by January 1, 2000.

In March 1998, the American  Institute of Certified Public  Accountants  (AICPA)
issued Statement of Position ("SOP") 98-1, "Accounting for the Costs of Computer
Software  Development or Obtained for Internal Use". This SOP provides  guidance
on  accounting  for the costs of computer  software  developed  or obtained  for
internal use. This SOP requires that entities  capitalize  certain  internal-use
software costs once certain criteria are met. This SOP is not expected to have a
material impact on the Company's financial statements.

In April 1998,  the AICPA issued SOP 98-5,  "Reporting  on the Costs of Start-Up
Activities",  which requires the costs of start-up  activities and  organization
costs to be expensed as incurred. This SOP is effective for the fiscal year 1999
financial statements.  This SOP is not expected to have a material impact on the
Company's financial statements.

Effective January 1, 1998, the Company adopted Statement of Financial Accounting
Standards No. 130, "Reporting  Comprehensive Income". This Statement establishes
standards for reporting and display of  comprehensive  income and its components
(revenues,  expenses,  gains  and  losses)  in a  full  set of  general  purpose
financial statements.  Financial statements for prior periods have been restated
as required.



                                       14
<PAGE>

                           PART II. OTHER INFORMATION

Item 1.  Legal Proceedings - None

Item 2.  Changes in Securities - None

Item 3.  Defaults Upon Senior Securities - None

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

On April 28 1998,  the Annual Meeting of  Shareholders  was held to (i) elect 14
directors for a term of one year each, (ii) approve the Company's 1998 Incentive
Plan, and (iii) ratify the  appointment by the Board of Directors of the firm of
Yount, Hyde & Barbour,  P.C. as the Company's  independent auditors for the year
ending  December  31,  1998.  The  results of the votes on these  matters are as
follows:

         (1)   Election of Directors


                                                For         Against     Withheld

               Charles F. Bristow            1,838,427        200         1,400
               John R. Curtis                1,838,427        200         1,400
               Charles F. Dawson             1,838,627         0          1,400
               William J. Farinholt          1,838,627         0          1,400
               William D. Fary               1,838,627         0          1,400
               Robert D. Foster              1,837,777        850         1,400
               Harry M. Healy                1,838,427        200         1,400
               Jeanne P. Hockaday            1,838,627         0          1,400
               Joseph A. Lombard, Jr.        1,838,627         0          1,400
               George A. Marston, Jr.        1,838,627         0          1,400
               Hersey M. Mason, Jr.          1,838,627         0          1,400
               Henry C. Rowe                 1,838,027        600         1,400
               Kenneth E. Smith              1,838,627         0          1,400
               Thomas Z. Wilke               1,838,627         0          1,400

         (2)   Approval of 1998 Incentive Plan

                  For       Against    Withheld   Abstentions   Broker Non-votes
               ---------    -------    --------   -----------   ----------------

               1,782,427    41,510        --        16,090           12,860

         (3)   Ratification of Accountants

                  For       Against    Withheld   Abstentions   Broker Non-votes
               ---------    -------    --------   -----------   ----------------
               1,828,077     2,400        --         9,550           12,860

Item 5.  Other Information - None



                                       15
<PAGE>

Item 6.  Exhibits and Reports on Form 8-K

         a)  Exhibits

             27   Financial Data Schedule (filed electronically only)

         b)  Reports on Form 8-K

             A current report on Form 8-K,  dated March 31,  1998,  was filed on
             April 7,  1998  and  reported Item 4 to  announce  a change  in the
             Company's certifying accountant.


                                       16
<PAGE>

                                   SIGNATURES


Pursuant  to the  requirements  of the  Securities  Exchange  Act of  1934,  the
registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned thereunto duly authorized.


                                    MID-ATLANTIC COMMUNITY BANKGROUP, INC.


Date:  August 14, 1998              BY        /s/ W. J. Farinholt
                                      -----------------------------------
                                      W. J. Farinholt, President & CEO



Date:  August 14, 1998              BY        /s/ Kenneth E. Smith
                                      -----------------------------------
                                      Kenneth E. Smith, Exec. Vice President
                                      & Chief Financial Officer



Date:  August 14, 1998              BY        /s/ Kathleen C. Healy
                                      -----------------------------------
                                      Kathleen C. Healy, Senior Vice President &
                                      Chief  Accounting Officer






                                       17