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 September 30, 1997


[  ]     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 September 30, 1997.


                      Common stock, $5 par value--1,093,833


<PAGE>


                                      INDEX

MID-ATLANTIC COMMUNITY BANKGROUP, INC.                                  Page No.

Part I.   Financial Information

          Item 1.  Financial Statements                                        3
                   Consolidated Balance Sheets--
                     September 30, 1997 and December 31, 1996

                   Consolidated Statements of Income--                         4
                     Nine months ended September 30, 1997 and 1996
                     Three months ended September 30, 1997 and 1996

                   Consolidated Statements of Stockholders Equity--            5
                     Nine months ended September 30, 1997 and 1996

                   Consolidated Statements of Cash Flows--                     6
                     Nine months ended September 30, 1997 and 1996

                   Notes to Consolidated Financial Statements              7 - 9

          Item 2.  Management's Discussion and Analysis of Financial
                     Condition and Results of Operations                 10 - 12

Part II.  Other Information:                                             13 - 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. AND AFFILIATE
                           CONSOLIDATED BALANCE SHEETS
                            (In Thousands of Dollars)

<TABLE>
<CAPTION>
                                                     September 30,            December 31,
ASSETS:                                                  1997                     1996
                                                  -------------------     ------------------

<S>                                                          <C>                   <C>      
    Cash and due from bank                                   $   5,419             $   6,015
    Securities Available for Sale (at Market Value)             22,796                27,297
    Securities Held to Maturity
      (Market Value $6,960 in 1997)                              6,924                   -0-
    Federal Funds Sold                                          10,984                 5,364
    Loans, Net                                                 100,169                90,978
    Premises and equipment                                       5,546                 4,923
    Other Real Estate Owned                                        132                   -0-
    Other assets                                                 2,383                 1,857
                                                             ---------             ---------
          TOTAL ASSETS                                       $ 154,353             $ 136,434
                                                             =========             =========

LIABILITIES:
Deposits
    Demand                                                   $  18,345            $   15,133
    Interest-bearing Demand                                     22,280                25,968
    Savings                                                     15,466                14,969
    Certificates of Deposit, $100,000 or more                   13,810                 9,417
    Other Time                                                  64,116                54,998
                                                             ---------             ---------
       TOTAL DEPOSITS                                          134,017               120,485
    Short-term Debt                                                279                   352
    Long-term Debt                                                  34                    43
    Other Liabilities                                              887                 1,122
                                                             ---------             ---------
          TOTAL LIABILITIES                                    135,217               122,002
                                                             ---------             ---------

SHAREHOLDERS' EQUITY:
    Common stock, par value $5 per share,
     10,000,000 shares authorized, 1,093,833
     shares issued in 1997 and 944,333 in 1996                   5,469                 4,722
    Surplus                                                      9,302                 6,701
    Undivided Profits                                            4,350                 3,170
    Net Unrealized Gain (Loss) on
     Available for Sale Securities                                  15                 (161)
                                                             ---------             ---------
          TOTAL STOCKHOLDERS' EQUITY                            19,136                14,432
                                                             ---------             ---------
          TOTAL LIABILITIES AND
            STOCKHOLDERS' EQUITY                             $ 154,353             $ 136,434
                                                             =========             =========

</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)

<TABLE>
<CAPTION>
                                                       Three Months Ended         Nine Months Ended
                                                          September 30               September 30
                                                         1997      1996             1997      1996
                                                         ----      ----             ----      ----

<S>                                                     <C>       <C>             <C>       <C>    
INTEREST INCOME:
Loans and Fees                                          $ 2631    $  2243         $ 7592    $  6337
Federal Funds Sold                                         181         54            281        166
Investment Securities                                      506        480           1527       1259
                                                        ------    -------         ------     ------
   Total Interest Income                                  3318       2777           9400       7762

INTEREST EXPENSE:
Demand Deposits                                            202        191            587        494
Savings Deposits                                           115         96            329        262
Certificates of Deposit, $100,000 or more                  180        124            471        365
Other Time Deposits                                        892        709           2497       2043
Short-term Debt                                              2          2              7          6
Long-term Debt                                               1          1              2          2
                                                        ------    -------         ------     ------
   Total Interest Expense                                 1392       1123           3893       3172
                                                        ------    -------         ------     ------
   Net Interest Income                                    1926       1654           5507       4590

PROVISION FOR
LOAN AND LEASE LOSSES                                      117         81            327        239
                                                        ------    -------         ------     ------
   Net Interest Income After
   Provision for Loan and Lease Losses                    1809       1573           5180       4351

OTHER INCOME:
Service Chgs on Deposit Accts                              152        111            443        326
Other Service Charges & Fees                                56         37            156        103
Securities Gains (Losses)                                    0        (6)              2        (3)
                                                        ------    -------         ------     ------
   Total Other Income                                      208        142            601        426

OTHER EXPENSES:
Salaries & Employee Benefits                               731        533           2094       1577
Occupancy Expenses                                          59         38            155        104
Furniture & Equipment Expenses                             168        145            537        405
Other Operating Expenses                                   459        349           1313        948
                                                        ------    -------         ------     ------
   Total Other Expenses                                   1417       1065           4099       3034
                                                        ------    -------         ------     ------
Income Before Income Taxes                                 600        650           1682       1743
Applicable Income Taxes                                    184        246            502        624
                                                        ------    -------         ------     ------
   Net Income                                           $  416    $   404        $  1180     $ 1119
                                                        ======    =======        =======     ======

   NET INCOME PER SHARE                                    .39        .41           1.17       1.15
                                                        ======    =======        =======     ======
</TABLE>


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>

                                                                         Nine Months Ended
                                                                           September 30,         
                                                                        -------------------     

                                                                     1997                1996
                                                                     ----                ----
                                                                                   

<S>                                                               <C>                  <C>      
Balance at Beginning of Year                                      $   14,431           $  13,335
  Net Income                                                           1,180               1,119
Issuance of Common Stock - Stock Offering                              3,348                   0
Net change in unrealized gain (loss) on securities
   available for sale                                                    177               (442)
                                                                  ----------           ---------
Balance at End of Period                                          $   19,136           $  14,012
                                                                  ==========           =========

</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>
                                                                               Nine Months Ended
                                                                                  September 30,
                                                                               1997           1996
                                                                             --------         -----
<S>                                                                          <C>              <C>  
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net Income                                                                $  1,180         1,119
Adjustments to reconcile net income to net cash
   provided by operating activities:
     Depreciation                                                                 227           195
     Provision for loan losses                                                    327           239
     (Profits) Loss on sale of securities available for sale                      (2)             3
     Changes in operating assets and liabilities:
       (Increase) in other assets                                               (617)         (774)
       Increase in other liabilities                                            (235)           540
                                                                             --------    ----------

          Net Cash Provided By Operating Activities                          $    880    $    1,322
                                                                             --------    ----------


CASH FLOWS FROM INVESTING ACTIVITIES:
   Net (increase) in loans                                                 ($  9,650)   ($  15,506)
   Purchase of securities available for sale                                  (1,894)      (16,912)
   Proceeds from sales of securities available for sale                         1,593        13,934
   Purchase of investment securities                                          (1,853)             0
   (Increase) decrease in federal funds sold - net                            (5,620)         3,277
   Purchase of premises and equipment                                           (850)        1,229)
                                                                             --------    ----------

          Net Cash (Used In) Investing Activities                          ($ 18,274)     ($16,436)
                                                                             --------    ----------

CASH FLOWS FROM FINANCING ACTIVITIES:
   Increase in deposits - net                                              $   13,532   $    15,094
   Dividends paid                                                                   0         (113)
   Proceeds from issuance of stock - net                                        3,348             0
   Curtailment of other borrowed funds                                           (82)           (9)
                                                                             --------    ----------

            Net Cash Provided by Financing Activities                      $   16,798   $    14,972
                                                                             --------    ----------

            Net Increase (Decrease) In Cash and Due From Banks                  (596)         (142)

CASH AND DUE FROM BANKS - BEGINNING OF PERIOD                                   6,015         4,580
                                                                             --------    ----------

CASH AND DUE FROM BANKS - END OF PERIOD                                    $    5,419   $     4,438
                                                                           ==========   ===========
</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
      September  30, 1997 and December 31, 1996,  and the results of  operations
      and cash flows for the nine months ended September 30, 1997 and 1996.

      The results of operations for the nine months ended September 30, 1997 and
      1996 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>

                                                                   September 30, 1997
                                                 ---------------------------------------------------
                                                                   Gross           Gross    Estimated
                                                  Amortized      Unrealized     Unrealized   Market
                                                     Cost           Gains         Losses     Value
                                                     ----           -----         ------     -----
                                                                 (In Thousands of Dollars)

<S>                                              <C>             <C>          <C>          <C>      
US Treasury Securities                                  633            --              5         628
US Government Agencies & Corporations                11,802            47             14      11,835
Obligations of States & Political Subdivisions        5,482            33             58       5,457
Mortgage-backed Securities                            4,456            20             --       4,476
Federal Reserve Bank Stock                              343            --             --         343
Other Equity Securities                                  57            --             --          57
                                                 ----------      --------     ----------   ---------
                                                 $   22,773      $    100     $       77   $  22,796
                                                 ==========      ========     ==========   =========
</TABLE>




      Amortized cost and carrying  amount  (estimated  fair value) of securities
      held to maturity are summarized as follows:
<TABLE>
<CAPTION>

                                                                   September 30, 1997
                                                 ---------------------------------------------------
                                                                   Gross           Gross    Estimated
                                                  Amortized      Unrealized     Unrealized   Market
                                                     Cost           Gains         Losses     Value
                                                     ----           -----         ------     -----
                                                                 (In Thousands of Dollars)

<S>                                              <C>             <C>          <C>          <C>      
US Government Agencies & Corporations                 3,833            15             --       3,848
Obligations of States & Political Subdivisions        2,248            25              4       2,269
Mortgage-backed Securities                              843            --             --         843
                                                 ----------      --------     ----------   ---------
                                                 $    6,924      $     40     $        4   $   6,960
                                                 ==========      ========     ==========   =========
</TABLE>

                                       7
<PAGE>


Securities available for sale at December 31, 1996 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                                  534            --              5         529
US Government Agencies and Corporations              15,650            35            211      15,474
Obligations of States & Political Subdivisions        7,468            40             87       7,421
Mortgage-backed Securities                            3,196             2             21       3,177
Federal Reserve Bank Stock                              343            --             --         343
Marketable Equity Securities                            351             2             --         353
                                                  ---------       -------         ------  ----------
                                                  $  27,542       $    79         $  324  $   27,297
                                                  =========       =======         ======  ==========
</TABLE>


                                                    Nine Months Ended
                                                       September 30,
                                                       -------------
                                                   1997             1996
                                                   ----             ----
                                               (In Thousands of Dollars)

Gross proceeds from sales of securities            1,593            13,934
                                                ========         =========

Gross Gains on Sale of Securities                      2                22
Gross Losses on Sale of Securities                    --              (25)
                                                --------         ---------
 Net Securities Losses                                 2               (3)
                                                ========         =========

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

                                                  September 30,     December 31,
                                                     1997               1996
                                                     ----               ----
                                                      (In Thousands of Dollars)

Commercial Mortgage                                  21,184               19,622
Residential Mortgage                                 28,988               25,056
Home Equity                                          10,098                9,318
Construction                                          6,092                6,915
Commercial                                           11,755               10,292
Installment                                          23,355               20,848
All Other                                               557                  522
                                               ------------          -----------
                                                    102,029               92,573
Less Unearned Income                                    521                  483
                                               ------------          -----------
                                                    101,508               92,090
Less Allowance for Loan and Lease Losses              1,339                1,112
                                               ------------          -----------
                                               $    100,169          $    90,978
                                               ============          ===========


                                       8
<PAGE>


The  following  schedule  summarizes  the changes in the  allowance for loan and
lease losses:
<TABLE>
<CAPTION>

                                                  Nine Months            Nine Months
                                                    Ending                  Ending
                                                 September 30,           September 30,          December 31,
                                                     1997                     1996                  1996
                                              --------------------     -------------------      -------------
                                                                (In Thousands of Dollars)

<S>                                                <C>                    <C>                  <C>      
Balance, Beginning                                    1,112                    865                   865
Provision Charged Against Income                        327                    239                   380
Recoveries                                               46                     23                    28
Loans Charged Off                                     (146)                   (79)                 (161)
                                                   --------               --------             ---------
Balance, Ending                                    $  1,339               $  1,048             $   1,112
                                                   ========               ========             =========
</TABLE>

Nonperforming assets consist of the following:
<TABLE>
<CAPTION>

                                                September 30,       December 31,
                                                      1997              1996
                                                      ----              ----
                                                     (In Thousands of Dollars)

<S>                                                  <C>                  <C>   
Nonaccrual Loans                                     $  486               $  190
Restructured Loans                                       --                  ---
                                                     ------               ------
Nonperforming Loans                                     486                  190
Foreclosed Properties                                   132                  ---
                                                     ------               ------
Nonperforming Assets                                 $  618               $  190
                                                     ======               ======
</TABLE>

Total loans past due 90 days or more and still  accruing  were $102 on September
30, 1997 and $88 on December 31, 1996.

4.  Earnings Per Share

        Earnings per share are computed on the weighted  average  common  shares
outstanding  of 1,075,151  and 975,247 for the three months ended  September 30,
1997 and 1996, respectively, and 1,010,326 and 974,791 for the nine months ended
September 30, 1997 and 1996, respectively.

5.  Capital Requirements

        A comparison of the Company's  capital as of September 30, 1997 with the
minimum requirements is presented below:

                                                      Minimum
                                     Actual         Requirements
                                     ------         ------------
Tier I Risk-based Capital            17.84 %            4.00  %
Total Risk-based Capital             19.09 %            8.00  %
Leverage Ratio                       12.63 %            4.00  %


                                       9
<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

After  experiencing  strong  asset  growth  during the  second  quarter of 1997,
Peninsula Trust Bank (the Bank) enjoyed  moderate balance sheet expansion during
the third quarter of 1997, with total assets  increasing  $6.4 million,  or 4.3%
over June 30, 1997 and $17.9  million,  or 13.1% over December 31, 1996.  Growth
was funded from a combination of new deposits,  which reflected $2.4 million and
$13.5 million  increases  for the three months and nine months ending  September
30, 1997,  respectively  and  proceeds  from the  Company's  July 24, 1997 stock
offering.

Loan demand  somewhat  mirrored the moderate growth in deposits during the third
quarter,  evidenced by net loans increasing $3.4 million (3.6%) and $9.2 million
(10.1%), respectively, over June 30, 1997 and December 31, 1996.

Asset  quality  continues  to be  strong.  Total  loans past due 30 days or more
equaled $2.3 million (2.25% of total outstandings). Included in the 30 day total
are  $102,000  which are 90 days or more past due and still  accruing  interest.
Non-accrual  loans  totaled  $486,000 at September 30, 1997,  which  represented
0.48% of total outstanding loans and 36.3% of the loan loss reserve. Included in
the  non-accrual  loan total are two loans  totaling  $314,000,  secured by real
estate,  one of which has been sold by the Bank at  auction,  with  little or no
expected  net loss.  The  provision  for loan  losses was  $117,000 in the third
quarter of 1997 and $327,000 in the first nine months of 1997. Gross charge-offs
for the quarter were $81,000, while total recoveries were $10,000.

The Bank  maintained  its practice  during the third quarter of selling  Federal
funds,  having sold  continuously  on a daily basis in amounts  averaging  $12.8
million,  8.47% of average total assets.  These figures  compare to $4.7 million
and 3.37%, respectively, for the second quarter 1997. The quarter-end balance of
$11.0 million  represented a $2.6 million increase from the second quarter 1997.
Management delayed aggressive employment of the proceeds of the July, 1997 stock
offering (discussed below), resulting in the buildup of excess funds sales.

The level of the investment  account increased modestly during the third quarter
of 1997,  ending  the  period at $29.7  million  or 19.2% of total  assets.  The
portfolio is comprised of 2% US  Treasuries,  71% US  Government  Agencies,  26%
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,

                                       10
<PAGE>

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  during the  remainder  of the quarter,  which were
classified as held to maturity.

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  99.1%  of  total   liabilities  of  the  Bank,   including
non-interest bearing checking accounts which represent 13.7% of total deposits.

Earnings

Net income for the third  quarter of 1997  increased  to  $416,000,  compared to
$349,000 for the second  quarter of 1997 and  $404,000 for the third  quarter of
1996. The increase in earnings  resulted from an increase in net interest income
and non-interest income while non-interest expense remained virtually unchanged.

Net interest  income for the third  quarter of 1997 totaled  $1,926,000 (a 16.4%
increase over a similar  period in 1996).  The net interest  margin  experienced
modest  contraction as the average yield on interest  earning assets declined by
30  basis  points  during a time  when  the  average  rate on  interest  bearing
liabilities  declined  by 1 basis  point.  As a result,  the 19.5%  increase  in
interest  income for the third  quarter 1997  compared to third quarter 1996 was
offset by a 24.0% increase in interest expense for the same period.  The quarter
over quarter decline 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 increased by 23 basis points,  their
absolute yield of 5.65% 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 third quarter totaled $1.4 million, compared to the
same amount in the second quarter of 1997 and $1.1 million for the third quarter
of 1996. The increase in  non-interest  expense  resulted from costs incurred in
connection  with opening the Company's  fifth banking  office and new operations
center in Glenns, during the first quarter of 1997, the full impact of which was
not realized until the second  quarter.  In addition,  the Bank completed  minor
renovations  and  improvements  at the  Main  Office.  Capitalization  of  these
improvements and increases in furniture,  fixtures and equipment relating to the
new branch,  operations  center and  

                                       11
<PAGE>

renovations  at the Main Office  resulted in increased  depreciation  expense of
approximately  $12,000 per month.  The Bank's rapid growth during the past three
years  necessitated  improved  facilities for the operations  support functions,
such as  Accounting,  Bookkeeping  and Data  Processing.  In May,  the loan loss
provision  was  increased  by $12,000 per month due to  increased  loan  volume,
resulting  in a $24,000  increase  in the  second  and third  quarters  of 1997.
Management is targeting a 1.26% loan loss reserve by year-end.

Capital and Liquidity

Equity capital at September 30, 1997 totaled $19.1 million,  representing 12.40%
of total assets.  The Company  completed  another  successful  stock offering in
July,  1997.  The offering  was  represented  by the sale of 149,500  additional
shares of common stock resulting in a net increase to total stockholders' equity
of  $3,347,835.  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 27.0% of total demand
deposits at September  30, 1997.  This  compares to 13.1% at September 30, 1996.
This is considered an adequate  level of liquidity to meet  anticipated  deposit
withdrawals and expected loan demand.

As mentioned  above,  future  purchases in the  investment  portfolio  will more
clearly   delineate  those  bonds  purchased  for  liquidity   purposes.   These
instruments  will be purchased  with greater  attention to minimizing  potential
price and market value volatility.

Future Plans

Construction of the permanent  facility for the Newport News office began during
the first  half of 1997.  The  branch  will be  located at the corner of Thimble
Shoals  Boulevard and J. Clyde Morris  Boulevard near the entrance to the Oyster
Point Industrial  Park. 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  plans to  establish  a  branch  office  in  Hampton,  Virginia  to
complement its Newport News office and is currently  evaluating available sites.
Although plans are incomplete and subject to change,  it is the Company's desire
to open a branch office in Hampton, Virginia in the second half of 1998.

The  Company  expects to enter into an  agreement,  subject to state and federal
regulatory  approval,  to acquire a 50% membership  interest in Johnson Mortgage
Company,  L.L.C.,  which  will be the  successor  to  Johnson  Mortgage  Company
("Johnson Mortgage"),  for a total of $500,000.  Half the purchase price will be
paid in cash and the other half will be paid in shares of the  Company's  common
stock with a market value of $250,000 at the time of closing.  Johnson  Mortgage
originates and sells long-term, fixed-rate mortgage loans, a product the Company
has not previously offered.



                                       12
<PAGE>


                           PART II. OTHER INFORMATION


Item 1. Legal Proceedings - None

Item 2. Changes in Securities

           d)  On July 24, 1997,  the  Commission  declared the  effectiveness 
               of  the  Company's  Registration  Statement  on  Form  SB-2  (the
               "Registration    Statement"),    file   number   333-25557.   The
               Registration  Statement  covered  130,000 shares of the Company's
               common stock, par value $5.00 per share ("Common Stock"),  and up
               to 19,500  additional  shares of Common  Stock  that the  Company
               granted  Davenport & Company LLC, as underwriter,  under a 30-day
               option to purchase solely to cover  over-allotments,  if any. The
               offering  commenced on July 24, 1997, and the sale of the 130,000
               shares  closed on July 30, 1997 and the sale of the 19,500 shares
               covering the over-allotment closed on August 21, 1997.

               The amount of Common Stock registered was 149,500 shares, and the
               aggregate   price  of  the   offering   amount   registered   was
               $3,830,937.50.  The  amount  of  Common  Stock  sold was  149,500
               shares,  and the aggregate  offering price of the amount sold was
               $3,662,750.

               Reasonable  estimates for the amount of expenses incurred for the
               Company's   account  in   connection   with  the   issuance   and
               distribution  of the  149,500  shares of Common  Stock  described
               above are  $246,675  in  underwriting  discounts  and  $50,000 in
               offering expenses,  neither of which represent direct or indirect
               payments to directors,  officers, general partners of the Company
               or their associates, to persons owning ten percent or more of any
               class of equity  securities  of the Company,  or to affiliates of
               the  Company.  The net  offering  proceeds to the  Company  after
               deducting total expenses was $3,416,075.

               The net  proceeds  from the  shares of Common  Stock  offered  as
               described  above are being used for general  corporate  purposes,
               including financing the opening of future branches and to support
               the growth of assets and deposits. Additional capital is expected
               to allow the Company to grow  internally and through new branches
               to  support  greater  loan and  deposit  volumes.  No  direct  or
               indirect payments have been made to directors,  officers, general
               partners of the Company or their  associates,  to persons  owning
               ten  percent  or more of any  class of equity  securities  of the
               Company, or to affiliates of the Company.


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

                  11             Statement re: computation of per share earnings

           b)  Form 8-K - None


                                       13
<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:  November 14, 1997               BY      /s/ W. J. Farinholt
                                         --------------------------------------
                                          W. J. Farinholt, President & CEO



Date:  November 14, 1997               BY         /s/ Kenneth E. Smith
                                         --------------------------------------
                                          Kenneth E. Smith, Exec. Vice President
                                          & Chief Financial Officer


Date:  November 14, 1997               BY         /s/ Kathleen C. Healy
                                         --------------------------------------
                                          Kathleen C. Healy, Vice President &
                                          Chief  Accounting Officer




                                       14