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 March 31, 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 March 31, 1998.


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

<PAGE>


                                      INDEX
<TABLE>
<CAPTION>
<S>                                                                                    <C>
MID-ATLANTIC COMMUNITY BANKGROUP, INC.                                                 Page No.

Part I.    Financial Information

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

                    Consolidated Statements of Income--
                        Three months ended March 31, 1998 and 1997                        4

                    Consolidated Statements of Stockholders Equity--
                        Three months ended March 31, 1998 and 1997                        5

                    Consolidated Statements of Cash Flows--
                        Three months ended March 31, 1998 and 1997                        6

                    Notes to Consolidated Financial Statements                            7

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

Part II.   Other Information:

           Item 1.  Legal Proceedings                                                     14
           Item 2.  Changes in Securities                                                 14
           Item 3.  Defaults Upon Senior Securities                                       14
           Item 4.  Submission of Matters to a Vote of Security                             
                    Holders                                                               14
           Item 5.  Other Information                                                     14
           Item 6.  Exhibits and Reports of Form 8-K                                      14
</TABLE>



                                       2
<PAGE>

Item 1.    FINANCIAL INFORMATION

              MID-ATLANTIC COMMUNITY BANKGROUP, INC. AND AFFILIATE
                           CONSOLIDATED BALANCE SHEETS
                            (In Thousands of Dollars)
<TABLE>
<CAPTION>
                                                                         March 31,        December 31,
ASSETS:                                                                    1998               1997
                                                                      --------------      ------------

<S>                                                                     <C>                 <C>       
       Cash and due from bank                                           $    9,531          $    6,960
       Securities available for sale (at market value)                      22,944              24,104
       Securities held to maturity (market value
           $12,570 in 1998 and $7,381 in 1997)                              12,476               7,290
       Federal funds sold                                                   11,929               8,414
       Loans, net                                                          107,658             104,240
       Premises and equipment                                                6,584               5,928
       Other real estate owned                                                 371                 208
       Other assets                                                          2,906               2,161
                                                                        ----------          ----------
             TOTAL ASSETS                                               $  174,399          $  159,305
                                                                        ==========          ==========

LIABILITIES:
Deposits
       Demand                                                           $   22,706          $   18,791
       Interest-bearing demand                                              31,161              25,673
       Savings                                                              16,561              15,758
       Certificates of deposit, $100,000 or more                            15,013              13,528
       Other time                                                           67,677              64,673
                                                                        ----------          ----------
          TOTAL DEPOSITS                                                   153,118             138,423
       Short-term debt                                                         184                 292
       Long-term debt                                                           28                  31
       Other liabilities                                                     1,001               1,282
                                                                        ----------          ----------
             TOTAL LIABILITIES                                             154,331             140,028
                                                                        ----------          ----------

SHAREHOLDERS' 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                                                     4,957               4,453
       Accumulated other comprehensive
         income, net                                                            90                  53
                                                                        ----------          ----------
             TOTAL STOCKHOLDERS' EQUITY                                     20,068              19,277
                                                                        ----------          ----------
             TOTAL LIABILITIES AND
               STOCKHOLDERS' EQUITY                                     $  174,399          $  159,305
                                                                        ==========          ==========
</TABLE>

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




                                       3
<PAGE>


              MID-ATLANTIC COMMUNITY BANKGROUP, INC. AND AFFILIATE
                        CONSOLIDATED STATEMENTS OF INCOME
                            (In Thousands of Dollars)

                                                         Three Months Ended
                                                              March 31,
                                                       ----------------------
                                                         1998           1997
                                                         ----           ----

INTEREST INCOME:
Loans and Fees                                         $  2804        $  2413
Federal Funds Sold                                         132             36
Investment Securities                                      563            510
                                                       -------        -------
     Total Interest Income                                3499           2959

INTEREST EXPENSE:
Demand Deposits                                            234            191
Savings Deposits                                           114            105
Certificates of Deposit, $100,000 or more                  190            134
Other Time Deposits                                        932            770
Short-term Debt                                              2              2
Long-term Debt                                               1              1
                                                       -------        -------
     Total Interest Expense                               1473           1203
                                                       -------        -------
     Net Interest Income                                  2026           1756

PROVISION FOR LOAN
AND LEASE LOSSES                                            81             93
                                                       -------        -------
     Net Interest Income After
     Provision for Loan
     and Lease Losses                                     1945           1663

OTHER INCOME:
Service Chgs on Deposit Accts                              172            147
Other Service Charges & Fees                                65             45
Securities Gains (Losses)                                    1              1
                                                       -------        -------
     Total Other Income                                    238            193

OTHER EXPENSES:
Salaries & Employee Benefits                               766            665
Occupancy Expenses                                         119             40
Furniture & Equipment Expenses                             163            166
Other Operating Expenses                                   385            390
                                                       -------        -------
     Total Other Expenses                                 1433           1261
                                                       -------        -------
Income Before Income Taxes                                 750            595
Applicable Income Taxes                                    246            180
                                                       -------        -------
     Net Income                                        $   504        $   415
                                                       =======        =======

      Earnings Per Share, Basic                            .23            .22
                                                       =======        =======
      Earnings Per Share, Assuming
      Dilution                                             .22            .21
                                                       =======        =======

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



                                       4
<PAGE>


              MID-ATLANTIC COMMUNITY BANKGROUP, INC. AND AFFILIATE
                 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)     $   4,729    $   6,694
Comprehensive income:
     Net income                                   415          $    415            415
     Other comprehensive income,
     net of tax
       Unrealized gain (loss) on
       securities available for sale:
       Unrealized holding gain (loss)
       arising during the period:               (180)             (180)
       Less: reclassification
       adjustment:                                  2                 2
                                            ---------          --------
     Other comprehensive income,
     net of tax                                 (182)             (182)                           (182)
                                            ---------          --------                       ---------
     Total comprehensive income                   233          $    233                          ($344)                      
                                            ---------          ========      ---------        =========     ---------    ---------
Balances - March 31, 1997                   $  14,664                        $   3,585                      $   4,729    $   6,694
                                            =========                        =========                      =========    =========

Balances - January 1, 1998                  $  19,277                        $   4,453        $      53     $   5,477    $   9,294
Comprehensive income:
     Net income                                   504          $    504            504
     Other comprehensive income,
     net of tax
       Unrealized gain on securities
       for sale:
       Unrealized holding gain arising
       during the period                           38                38
       Less:  reclassification
       adjustment                                   1                 1
                                           ----------          --------
     Other comprehensive income,
     net of tax                                    37                37                              37
                                           ----------          --------                       ---------
     Total comprehensive income            $      541          $    541
                                           ----------          ========
     Issuance of common stock -
     100% stock split                                                                                           5,490      (5,490)
     Issuance of common stock -                                                                                 
     Johnson Mortgage Co.                         250                                                              28          222
                                           ----------                         --------        ----------    ---------   ----------
Balances - March 31, 1998                  $   20,068                         $  4,957        $       90    $  10,995   $    4,026
                                           ==========                         ========        ==========    =========   ==========

</TABLE>

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



                                       5
<PAGE>


              MID-ATLANTIC COMMUNITY BANKGROUP, INC. AND AFFILIATE
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                            (In Thousands of Dollars)
<TABLE>
<CAPTION>
                                                                                   Three Months Ended
                                                                                         March 31,
                                                                                --------------------------
                                                                                  1998              1997
                                                                                  ----              ----
<S>                                                                             <C>              <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
     Net Income                                                                 $     504        $     415
Adjustments to reconcile net income to net cash
     provided by operating activities:
         Depreciation                                                                 110               88
         Provision for loan losses                                                     81               93
         Amortization of premiums                                                      19               --
         (Profits) on sale of securities available for sale                           (1)              (1)
         Changes in operating assets and liabilities:
              (Increase) in other assets                                            (764)            (268)
              Increase (decrease) in other liabilities                              (281)            (362)
                                                                                ---------        ---------

                 Net Cash Provided By Operating Activities                         ($332)            ($35)
                                                                                ---------        ---------

CASH FLOWS FROM INVESTING ACTIVITIES:
     Net (increase) in loans                                                     ($3,662)         ($3,001)
     Purchase of securities available for sale                                    (1,932)          (2,343)
     Proceeds from sales of securities available for sale                             200            1,593
     Maturities of securities available for sale                                    2,930               --
     Purchase of investment securities                                            (6,050)               --
     Maturities of investment securities                                              864               --
     (Increase) decrease in federal funds sold - net                              (3,515)              941
     Purchase of premises and equipment                                             (766)            (776)
                                                                                ---------        ---------

                 Net Cash (Used In) Investing Activities                        ($11,931)         ($3,586)
                                                                                ---------        ---------

CASH FLOWS FROM FINANCING ACTIVITIES:
     Increase (decrease) in deposits - net                                      $  14,695        $   2,097
     Issuance of common stock                                                         250               --
     Curtailment of other borrowed funds                                            (111)              (3)
                                                                                ---------        ---------

                     Net Cash Provided by Financing Activities                  $  14,834        $   2,094
                                                                                ---------        ---------

                     Net Increase (decrease) In Cash and Due From Banks         $   2,571         ($1,527)

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

CASH AND DUE FROM BANKS - END OF PERIOD                                         $   9,531        $   4,488
                                                                                =========        =========
</TABLE>





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



                                       6
<PAGE>


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

1.    General

      The consolidated statements include the accounts of Mid-Atlantic Community
      BankGroup,  Inc. and its affiliate,  Peninsula Trust Bank. 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 March
      31, 1998 and  December 31, 1997,  and the results of  operations  and cash
      flows for the three months ended March 31, 1998 and 1997.

      The results of  operations  for the three  months ended March 31, 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>
                                                                             March 31, 1998
                                                        --------------------------------------------------------
                                                                           Gross           Gross       Estimated
                                                        Amortized       Unrealized      Unrealized       Market
                                                           Cost            Gains          Losses         Value
                                                        --------------------------------------------------------
                                                                       (In Thousands of Dollars)

<S>                                                      <C>            <C>              <C>            <C>
US Treasury Securities                                        629              3                5            627
US Government Agencies & Corporations                       8,415             69                2          8,482
Obligations of States & Political Subdivisions              4,742             88               17          4,813
Mortgage-backed Securities                                  8,621             43               42          8,622
Federal Reserve Bank Stock                                    343             --               --            343
Other Equity Securities                                        57             --               --             57
                                                         --------       --------         --------       --------
                                                         $ 22,807       $    203         $     66       $ 22,944
                                                         ========       ========         ========       ========
</TABLE>


      Amortized cost and carrying  amount  (estimated  fair value) of securities
      held to maturity are summarized as follows:
<TABLE>
<CAPTION>
                                                                              March 31, 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                       7,088             23                5          7,106
Obligations of States & Political Subdivisions              1,911             52               --          1,963
Mortgage-backed Securities                                  3,477             24               --          3,501
                                                         --------       --------         --------       --------
                                                         $ 12,476       $     99         $      5       $ 12,570
                                                         ========       ========         ========       ========
</TABLE>



                                       7
<PAGE>


      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>

<TABLE>
<CAPTION>
                                                                           Three Months Ended
                                                                                March 31,
                                                                          1998             1997
                                                                        (In Thousands of Dollars)
<S>                                                                     <C>              <C>
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 Losses                                                         1                2
                                                                        ========         ========
</TABLE>





                                       8
<PAGE>



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

3.    Loans

      The following is a summary of loans  outstanding at the end of the periods
      indicated:

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

Commercial Mortgage                                 21,985              23,135
Residential Mortgage                                29,619              28,987
Home Equity                                         12,348              10,905
Construction                                         6,910               6,059
Commercial                                          13,795              12,477
Installment                                         24,333              23,926
All Other                                              565                 617
                                              ------------        ------------
                                                   109,555             106,106
Less Unearned Income                                   525                 542
                                              ------------        ------------
                                                   109,030             105,564
Less Allowance for Loan and Lease Losses             1,372               1,324
                                              ------------        ------------
                                              $    107,658        $    104,240
                                              ============        ============

      The following  schedule  summarizes  the changes in the allowance for loan
      and lease losses:
<TABLE>
<CAPTION>
                                                 Three Months         Three Months
                                                    Ending               Ending
                                                   March 31,            March 31,           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                         81                   93                   347
Recoveries                                               16                    7                    55
Loans Charged Off                                      (49)                 (16)                 (190)
                                                   --------             --------             ---------
Balance, Ending                                    $  1,372             $  1,196             $   1,324
                                                   ========             ========             =========
</TABLE>

      Nonperforming assets consist of the following:

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

Nonaccrual Loans                                   $    609           $   302
Restructured Loans                                       --                --
                                                   --------           -------
Nonperforming Loans                                     609               302
Foreclosed Properties                                   371               208
                                                   --------           -------
Nonperforming Assets                               $    980           $   510
                                                   ========           =======

      Total loans past due 90 days or more and still accruing were $320 on March
      31, 1998 and $77 on December 31, 1997.



                                       9
<PAGE>


              MID-ATLANTIC COMMUNITY BANKGROUP, INC. AND AFFILIATE
              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>
                                                           March 31, 1998                       March 31, 1997
                                                           --------------                       --------------
                                                                       Per Share                            Per Share
                                                       Shares            Amount             Shares            Amount 
                                                       ------            ------             ------            ------

<S>                                                  <C>                <C>               <C>                <C>    
Basic Earnings Per Share                             2,187,791          $   .23           1,888,666          $   .22

Effect of dilutive securities:
  Nonemployee directors' stock options                  46,529                               36,902
  Employee incentive stock options                      55,794                               34,097
                                                     ---------                            ---------

Diluted Earnings Per Share                           2,290,114          $   .22           1,959,665          $   .21
                                                     =========          =======           =========          =======
</TABLE>


5.    Capital Requirements

      A  comparison  of the  Company's  capital  as of March  31,  1998 with the
      minimum requirements is presented below:

                                                                  Minimum
                                         Actual                 Requirements
Tier I Risk-based Capital                16.69 %                   4.00 %
Total Risk-based Capital                 17.86 %                   8.00 %
Leverage Ratio                           12.13 %                   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 Selected  Financial Data,
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 wholly-owned  subsidiary,
Peninsula Trust Bank (the "Bank").

PENINSULA TRUST BANK

Results of Operations

The  Company  consummated  acquisition  of a 50%  ownership  in a  newly  formed
mortgage  company,  Johnson Mortgage Company LLC (JMC) as of March 31, 1998. The
purchase price of $500,000 was represented by approximately $167,000 interest in
stockholders' equity and the remainder as a premium on the capital which will be
amortized over 15 years. JMC is primarily an originator of residential  mortgage
loans and has historically  sold all originated  loans in the secondary  market.
JMC will  continue to sell loans as opposed to  maintaining  a portfolio  of its
own.  It is  anticipated  that  their  fees and sale of  servicing  rights  will
contribute   substantially  to  the  Company's   long-term   noninterest  income
performance. Additionally, it enables the Bank to enhance its product line.

The Bank  experienced  strong balance sheet  expansion  during the first quarter
1998,  with total assets  increasing  $15.1  million,  or 9.5% over December 31,
1997.  Growth  was funded  with new  deposits,  in the form of  interest-bearing
demand  deposits and other time deposits,  which reflected $5.5 million and $3.0
million increases, respectively, for the three months ending March 31, 1998.

Loan  demand was  moderate  during  the first  quarter,  evidenced  by net loans
increasing $3.4 million, or 3.3%, over December 31, 1997.  Competition for loans
intensified  primarily relative to pricing as all banks in the Bank's trade area
were experiencing similar moderation in overall loan demand.

Asset  quality  continues to be sound with problem  credits  considered to be at
satisfactory and manageable levels. Total loans past due 30 days or more equaled
$3.2  million  (2.92% of total  outstandings).  Included in the 30 day total are
$320,000  which  are 90 days or more  past  due  and  still  accruing  interest.
Non-accrual loans totaled $609,000 at March 31, 1998, which represented 0.56% of
total  outstanding  loans  and  44.4%  of  the  loan  loss  reserve.  Foreclosed
properties totaled $371,000 at March 31, 1998. The provision for loan losses was
$81,000 in the first  quarter  1998.  Gross  charge-offs  for the  quarter  were
$49,000, while total recoveries were $16,000.

The Bank  maintained  its practice  during the first quarter of selling  Federal
funds,  having  sold  continuously  on a daily basis in amounts  averaging  $9.7
million,  5.98% of average total assets.  These figures  compare to $2.7 million
and 1.98%, respectively,  for the first quarter 1997. The quarter-end balance of
$11.9 million  represented a $3.5 million (or 41.8%)  increase from December 31,
1997.  The increase in short-term  liquidity was to in part to one of the Bank's
existing  customers  depositing  in excess of $4 million in March.  The customer
informed  the Bank that his  intention  was to  temporarily  park the money in a
money market account with an expectation  that he would be moving  substantially
all of this short-term money to alternative investment vehicles. Therefore, even
though this was unsolicited "hot money",  the Bank chose to maintain these funds
in the overnight Fed funds instrument.

The level of the investment  account increased  approximately $4 million (12.8%)
during the first  quarter  1998,  ending the period at $35.4 million or 20.3% of
total assets.  The portfolio was used to absorb some of the rapid deposit growth
which occurred during the first quarter while loan demand,  discussed above, was
too soft to fully employ all of the deposit expansion.  Management did choose to
invest some of these



                                       11
<PAGE>

increases  in  short-term  investments  to allow the Bank to be  positioned  for
funding  expanded loan demand in the near future.  The portfolio is comprised of
2% US Treasuries, 78% US Government Agencies and Mortgage-backed Securities, 19%
State,  County and Municipal  governments,  and 1% 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 interest  rates,
changes in the security's  prepayment  risk,  increases in loan demand,  general
liquidity needs and other similar factors.

The Bank  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 Bank 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 their respective call structures,  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 Bank purchased
an  additional  $1.9 million and $5.8  million,  during the first  quarter 1998,
which were classified as available for sale and held to maturity, respectively.

Management  has  implemented  additional  tools  for the  measurement  of  three
critical  elements in  portfolio  management:  interest  rate risk,  call and/or
extension  risk  and  maturity  distribution.  Activities  of the  Bank's  Asset
Liability  Committee  (ALCO)  will  include  establishing   parameters  for  the
effective  modified duration (EMD) for the portfolio in the future.  With better
tools to monitor duration,  long-term  earnings  performance of the portfolio is
expected to demonstrate  improved  stability over varying  interest rate cycles.
These  parameters  will also draw a tighter  relationship  between  EMD and bond
convexity.   Convexity   measures  the  percentage  amount  of  portfolio  price
appreciation  if  interest  rates fall 1% relative  to the  percentage  of price
depreciation if interest rates rise 1%. The more a bond declines relative to its
depreciation,  the higher the  negative  convexity  and,  consequently  the more
potential  call and  extension  risk that bond is  likely  to have.  The  Bank's
overall  portfolio  has a current  negative  convexity of 1.40.  Relative to the
current EMD,  management  is  targeting a reduction  in negative  convexity to a
level of .70.  This may be  accomplished  through a mixture of future  purchases
blending  shorter term  maturities and longer term maturities with an absence of
call features in individual bonds.

Deposits   represent  99.2%  of  total   liabilities  of  the  Bank,   including
non-interest bearing checking accounts which represent 12.9% of total deposits.

Earnings

Net income  for the first  quarter  1998  increased  to  $504,000,  compared  to
$415,000 for the first quarter 1997.  The increase in earnings  resulted from an
increase  in net  interest  income  and  non-interest  income,  which was offset
somewhat by an increase in non-interest expense.

Net interest income for the first quarter 1998 (tax  equivalent  interest income
less  interest  expense)  totaled $2.0 million (a 15.0%  increase over the first
quarter 1997), while the net interest margin (tax equivalent net interest income
expressed as a percentage of average earning assets)  declined from 5.71% in the
first  quarter 1997 to 5.43% in the first  quarter  1998.  The average  yield on
interest  earning assets declined 23 basis points during a time when the average
rate on interest bearing liabilities  increased 4 basis points. As a result, the
18.3%  increase in interest  income for the first quarter 1998 compared to first
quarter  1997 was offset by a 22.4%  increase in  interest  expense for the same
period.  The quarter  over  quarter  decline



                                       12
<PAGE>

was due  primarily to an increased  reliance on interest from Federal funds sold
as a  percentage  of total  interest  income.  While the average  yield on these
overnight investment assets remained constant, their absolute yield of 5.46% was
well below  yields of  alternative  earning  assets such as loans or  investment
securities.  However,  the temporary buildup of excess liquidity discussed above
should be curtailed during the next two quarters.

Non-interest  expense for the first quarter  totaled $1.4  million,  compared to
$1.3 million in the first  quarter 1997.  The loan loss  provision for the first
quarter 1998 totaled $81,000,  maintaining  management's 1.25% loan loss reserve
target.

Capital and Liquidity

Equity  capital at March 31, 1998 totaled $20.1 million,  representing  11.5% of
total assets. On March 31, 1998, the Company consummated an agreement to acquire
a 50%  membership  interest in Johnson  Mortgage  Company  L.L.C.,  which is the
successor  to Johnson  Mortgage  Company of Newport  News.  Half of the purchase
price  was paid in cash and the other  half was paid in shares of the  Company's
common  stock,  for a total  purchase  price of $500,000.  This  resulted in the
issuance of 11,234  additional  shares of the Company's common stock. This level
of capital  will  position the Company for growth well into the future and could
support asset growth to more than $200 million.

Liquidity is provided by both excess funds in the form of Federal funds sold and
access to the Federal  funds market  through the purchase of Federal  funds from
correspondent  banks.  The Bank  maintains  lines of credit to purchase  Federal
funds  totaling $5.4  million.  Federal funds sold equaled 22.1% of total demand
deposits at March 31, 1998.  This  compares to 11.5% at March 31, 1997.  This is
considered  an  adequate  level  of  liquidity  to  meet   anticipated   deposit
withdrawals and expected loan demand.

Future Plans

Construction of the permanent  facility for the Newport News office began during
the first half of 1997 and is near  completion at this writing.  The branch will
move to its new location at the corner of Thimble Shoals  Boulevard and J. Clyde
Morris  Boulevard near the entrance to the Oyster Point  Industrial  Park during
the second quarter 1998. The Company acquired the land for its permanent Newport
News branch site in 1996 at a cost of approximately $620,000. Construction costs
for the branch building are expected to be approximately  $850,000, and combined
with site work should  result in total  capitalized  improvements  approximating
$1,000,000.  The current operations for the Newport News branch are conducted in
rented office space, with a lease that expires in October 1998.

The Company has executed an agreement with First Virginia  Bank-Commonwealth  to
purchase  a branch  office  located  on Route 33 in  Mattaponi,  King and  Queen
County,  Virginia,  for  $600,000,  subject to regulatory  approval.  The branch
office is  expected to be  converted  to a  Peninsula  Trust Bank branch  office
before the end of July 1998.

The Company plans to establish a branch  office  located at 100 McLaws Circle in
Williamsburg,  Virginia  during the third  quarter  1998,  subject to regulatory
approval.  The location was purchased  from Wachovia Bank of North  Carolina for
$443,400 and was previously operated as a branch of Jefferson Bank.



                                       13
<PAGE>


                           PART II. OTHER INFORMATION


Item 1.    Legal Proceedings - None

Item 2.    Changes in Securities and Use of Proceeds

           (a)    Not applicable.

           (b)    Not applicable.

           (c)    On March 31, 1998,  the Company  issued  11,234  shares of its
Common Stock to J. Morris  Johnson and R. Allen Barber,  III.  This issuance was
made in connection with the acquisition of a 50% membership  interest in Johnson
Mortgage  Company L.L.C.,  the successor to Johnson  Mortgage Company of Newport
News, pursuant to a Purchase  Agreement, dated April 1, 1997, by and between the
Company, Messrs. Johnson and Barber, Johnson Mortgage Company, L.L.C and Johnson
Mortgage  Company,  Inc. An exemption from the registration of such issuance was
claimed under Section 4(2) of the Securities Act of 1933, as amended.

           (d)    Not applicable.

Item 3.    Defaults Upon Senior Securities - None

Item 4.    Submission of Matters to a Vote of Security Holders - None

Item 5.    Other Information - None

Item 6.    Exhibits and Reports on Form 8-K

           (a)    Exhibits

                     27     Financial Data Schedule (filed electronically only).

           (b)    Reports on Form 8-K - None.




                                       14
<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:  May 14, 1998                   BY /s/ W. J. Farinholt
                                         ------------------------
                                         W. J. Farinholt, President & CEO


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


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




                                       15