<SUBMISSION>
<ACCESSION-NUMBER>0001116502-01-501420
<TYPE>10-Q
<PUBLIC-DOCUMENT-COUNT>1
<PERIOD>20010930
<FILING-DATE>20011115
<FILER>
<COMPANY-DATA>
<CONFORMED-NAME>DONEGAL GROUP INC
<CIK>0000800457
<ASSIGNED-SIC>6331
<IRS-NUMBER>232424711
<STATE-OF-INCORPORATION>DE
<FISCAL-YEAR-END>1231
</COMPANY-DATA>
<FILING-VALUES>
<FORM-TYPE>10-Q
<ACT>34
<FILE-NUMBER>000-15341
<FILM-NUMBER>1792067
</FILING-VALUES>
<BUSINESS-ADDRESS>
<STREET1>1195 RIVER RD PO BOX 302
<CITY>MARIETTA
<STATE>PA
<ZIP>17547-0302
<PHONE>7174261931
</BUSINESS-ADDRESS>
<MAIL-ADDRESS>
<STREET1>1195 RIVER ROAD
<STREET2>BOX 302
<CITY>MARIETTA
<STATE>PA
<ZIP>17547
</MAIL-ADDRESS>
</FILER>
<DOCUMENT>
<TYPE>10-Q
<SEQUENCE>1
<FILENAME>donegal-10q.txt
<DESCRIPTION>QUARTERLY REPORT
<TEXT>
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                    FORM 10-Q

(Mark One)

[x]      Quarterly Report Pursuant to Section 13 of the Securities Exchange Act
         of 1934 For the Quarterly Period Ended September 30, 2001

                                       or

[ ]      Transition Report Pursuant to Section 13 or 15(d) of the Securities
         Exchange Act of 1934

For the transition period from _________________ to ___________________.

Commission File No. 0-15341
                    -------

                               DONEGAL GROUP INC.
                               ------------------
             (Exact name of registrant as specified in its charter)

             DELAWARE                                         23-2424711
             --------                                         ----------
  (State or other jurisdiction of                          (I.R.S. Employer
  incorporation or organization)                           Identification No.)

             1195 RIVER ROAD, P.O. BOX 302, MARIETTA, PA 17547-0302
             ------------------------------------------------------
          (Address of principal executive offices, including zip code)

                                 (717) 426-1931
                                 --------------
              (Registrant's telephone number, including area code)


              (Former name, former address and former fiscal year,
                         if changed since last report)

         Indicate by check mark whether registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 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  .
                                             ---    ---

                APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
                  PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

         Indicate by check mark whether the registrant has filed all documents
and reports required by Sections 12, 13, or 15(d) of the Securities Exchange Act
of 1934 subsequent to the distribution of securities under a plan confirmed by a
court. Yes __. No __.

                      APPLICABLE ONLY TO CORPORATE ISSUERS:

         Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date: 5,992,602 shares of
Class A Common Stock and 2,980,537 shares of Class B Common Stock, $0.01 par
value, outstanding on October 31, 2001.

<PAGE>
                       Part 1. Financial Information

Item 1.  Financial Statements.

                       DONEGAL GROUP INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                                   (Unaudited)
<TABLE>
<CAPTION>

                                                                          Sept. 30, 2001          Dec. 31, 2000 *
                                                                          --------------          ---------------
<S>                                                                       <C>                     <C>
ASSETS
------

Investments
      Fixed maturities
            Held to maturity, at amortized cost                           $  90,949,775           $ 143,181,718
            Available for sale, at market value                             179,863,548             114,611,183
      Equity securities, available for sale at market                        16,908,532              12,112,236
      Short-term investments, at cost, which
            approximates market                                              16,809,436              19,439,505
                                                                          -------------           -------------
                 Total investments                                          304,531,291             289,344,642
Cash                                                                          3,428,640               5,182,988
Accrued investment income                                                     3,691,298               4,002,464
Premiums receivable                                                          28,861,845              21,758,502
Reinsurance receivable                                                       64,200,319              54,543,884
Deferred policy acquisition costs                                            13,839,361              12,284,214
Federal income tax receivable                                                      --                   259,962
Deferred federal income taxes                                                 6,282,061               7,690,886
Prepaid reinsurance premiums                                                 31,424,599              24,712,384
Property and equipment, net                                                   4,736,932               5,236,483
Accounts receivable - securities                                                   --                   234,817
Other                                                                           648,950                 757,554
                                                                          -------------           -------------
                 Total assets                                             $ 461,645,296           $ 426,008,780
                                                                          =============           =============

LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------

Liabilities
      Losses and loss expenses                                            $ 171,615,749           $ 156,476,124
      Unearned premiums                                                     117,191,350              99,940,381
      Accrued expenses                                                        5,919,747               5,877,475
      Reinsurance balances payable                                            1,274,636               1,634,975
      Federal income taxes payable                                               93,483                    --
      Cash dividend declared to stockholders                                       --                   797,282
      Line of credit                                                         28,200,000              40,000,000
      Accounts payable - securities                                           7,566,092                 959,652
      Due to affiliate                                                        4,268,643               4,528,996
      Other                                                                   1,442,635               1,664,304
                                                                          -------------           -------------
                 Total liabilities                                          337,572,335             311,879,189
                                                                          -------------           -------------

STOCKHOLDERS' EQUITY
      Preferred stock, $1.00 par value, authorized
            2,000,000 shares; none issued
      Common stock, $1.00 par value, authorized none and
            20,000,000 shares, issued none and 8,980,977 shares
            and outstanding none and 8,858,689 shares                              --                 8,980,977
      Class A common stock, $.01 par value, authorized
            30,000,000 shares, issued 6,074,126 and 0 shares and
            outstanding 5,992,602 and 0 shares                                   60,741                    --
      Class B common stock, $.01 par value, authorized
            10,000,000 shares, issued 3,021,299 and 0 shares and
            outstanding 2,980,537 and 0 shares                                   30,213                    --
      Additional paid-in capital                                             57,017,352              46,969,840
      Accumulated other comprehensive income (loss)                           3,641,004                (199,063)
      Retained earnings                                                      64,215,399              59,269,593
      Treasury stock                                                           (891,748)               (891,756)
                                                                          -------------           -------------
                 Total stockholders' equity                                 124,072,961             114,129,591
                                                                          -------------           -------------
                 Total liabilities and stockholders' equity               $ 461,645,296           $ 426,008,780
                                                                          =============           =============
</TABLE>

* Restated - See note 9.

       See accompanying notes to consolidated financial statements.

                                       1
<PAGE>
                       DONEGAL GROUP INC. AND SUBSIDIARIES
                        CONSOLIDATED STATEMENTS OF INCOME
                                   (Unaudited)
<TABLE>
<CAPTION>

                                                                     Nine Months Ended September 30,
                                                                      2001                    2000 *
                                                                      ----                    ------
REVENUES:
<S>                                                              <C>                     <C>
      Net premiums earned                                        $ 124,291,595           $ 111,684,838
      Investment income, net of investment expenses                 11,988,347              12,009,023
      Net realized investment gains (losses)                          (448,462)                442,927
      Lease income                                                     599,564                 625,070
      Service charge income                                          1,223,937               1,157,898
                                                                 -------------           -------------
           Total revenues                                          137,654,981             125,919,756
                                                                 -------------           -------------

EXPENSES:
      Net losses and loss expenses                                  84,116,321              77,568,493
      Amortization of deferred policy acquisition costs             20,168,000              19,055,000
      Other underwriting expenses                                   20,144,001              16,772,418
      Policy dividends                                               1,182,481                 957,319
      Interest                                                       1,857,727               2,394,889
      Other expenses                                                 1,417,586                 852,754
                                                                 -------------           -------------
           Total expenses                                          128,886,116             117,600,873
                                                                 -------------           -------------

      Income before income taxes                                     8,768,865               8,318,883
Income taxes                                                         2,093,579               2,086,727
                                                                 -------------           -------------
      Net income                                                 $   6,675,286           $   6,232,156
                                                                 =============           =============

Earnings per common share
      Basic                                                      $        0.75           $        0.72
                                                                 =============           =============
      Diluted                                                    $        0.74           $        0.72
                                                                 =============           =============
</TABLE>




                 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
                                   (Unaudited)
<TABLE>
<CAPTION>

                                                                   Nine Months Ended September 30,
                                                                     2001                 2000 *
                                                                     ----                 ------

<S>                                                                <C>                  <C>
Net income                                                         $ 6,675,286          $ 6,232,156
Other comprehensive income, net of income tax
      Unrealized gains on securities:
           Unrealized holding gain during the period,
                net of income tax                                    3,544,082              901,414
           Reclassification adjustment, net of income tax              295,985             (292,332)
                                                                   -----------          -----------
Other comprehensive income                                           3,840,067              609,082
                                                                   -----------          -----------
Comprehensive income                                               $10,515,353          $ 6,841,238
                                                                   ===========          ===========
</TABLE>


* Restated - see note 9.

       See accompanying notes to consolidated financial statements.

                                       2
<PAGE>
                       DONEGAL GROUP INC. AND SUBSIDIARIES
                        CONSOLIDATED STATEMENTS OF INCOME
                                   (Unaudited)
<TABLE>
<CAPTION>

                                                                  Three Months Ended September 30,
                                                                      2001                  2000 *
                                                                      ----                  ------
REVENUES:
<S>                                                              <C>                    <C>
      Net premiums earned                                        $ 42,598,703           $ 39,149,006
      Investment income, net of investment expenses                 3,710,452              4,127,896
      Net realized investment gains (losses)                         (562,301)               333,720
      Lease income                                                    199,948                210,076
      Service charge income                                           419,184                408,362
                                                                 ------------           ------------
           Total revenues                                          46,365,986             44,229,060
                                                                 ------------           ------------

EXPENSES:
      Net losses and loss expenses                                 30,026,448             26,795,640
      Amortization of deferred policy acquisition costs             6,997,000              6,679,000
      Other underwriting expenses                                   6,944,584              5,820,077
      Policy dividends                                                465,779                370,084
      Interest                                                        465,726                813,901
      Other expenses                                                  339,871                284,747
                                                                 ------------           ------------
           Total expenses                                          45,239,408             40,763,449
                                                                 ------------           ------------

      Income before income taxes                                    1,126,578              3,465,611
Income taxes                                                          103,156                898,636
                                                                 ------------           ------------
      Net income                                                 $  1,023,422           $  2,566,975
                                                                 ============           ============

Earnings per common share
      Basic                                                      $       0.11           $       0.29
                                                                 ============           ============
      Diluted                                                    $       0.11           $       0.29
                                                                 ============           ============
</TABLE>



             CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
                                   (Unaudited)
<TABLE>
<CAPTION>

                                                                   Three Months Ended September 30,
                                                                       2001                2000 *
                                                                       ----                ------
<S>                                                                <C>                  <C>
Net income                                                         $ 1,023,422          $ 2,566,975
Other comprehensive income, net of income tax
      Unrealized gains on securities:
           Unrealized holding gain during the period,
                net of income tax                                    2,172,740              889,579
           Reclassification adjustment, net of income tax              371,119             (220,255)
                                                                   -----------          -----------
Other comprehensive income                                           2,543,859              669,324
                                                                   -----------          -----------
Comprehensive income                                               $ 3,567,281          $ 3,236,299
                                                                   ===========          ===========
</TABLE>


* Restated - see note 9.

      See accompanying notes to consolidated financial statements.

                                       3
<PAGE>
                       DONEGAL GROUP INC. AND SUBSIDIARIES
                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
                                   (Unaudited)
                  For the Nine Months Ended September 30, 2001

<TABLE>
<CAPTION>


                                                                               Common Stock

                                   Prior Shares     Class A Shares     Class B Shares    Prior Amount       Class A Amount
                                   ------------     --------------     --------------    ------------       --------------



<S>                                  <C>              <C>               <C>              <C>                <C>
Balance, December 31, 2000 *         8,980,977                                           $   8,980,977      $        --

Issuance of common stock                61,830             39,039              3,758            61,830                390

Recapitalization                    (9,042,807)         6,027,975          3,013,987        (9,042,807)            60,280

Net income

Cash dividends

Grant of stock options

Exercise of stock options                                   7,112              3,554                                  71

Other comprehensive income
                                  --------------------------------------------------------------------------------------------

Balance, September 30, 2001               --            6,074,126          3,021,299     $        --        $      60,741
                                  ============================================================================================

[restubbed table]

<CAPTION>

                                                                    Accumulated
                                                                      Additional          Other                           Total
                                                     Paid-In        Comprehensive       Retained     Treasury       Stockholders'
                                  Class B Amount     Capital        Income (Loss)       Earnings       Stock           Equity
                                  --------------   -------------    -------------       --------       ------      --------------



<S>                             <C>                <C>             <C>              <C>             <C>              <C>
Balance, December 31, 2000 *    $        --        $  46,969,840   $    (199,063)   $  59,269,593   $    (891,756)   $ 114,129,591

Issuance of common stock                   38            995,485                                                         1,057,743

Recapitalization                       30,140          8,949,361                                                8           (3,018)

Net income                                                                              6,675,286                        6,675,286

Cash dividends                                                                         (1,729,480)                      (1,729,480)

Grant of stock options                                                                                                         --

Exercise of stock options                 35             102,666                                                            102,772

Other comprehensive income                                             3,840,067                                          3,840,067
                              -----------------------------------------------------------------------------------------------------

Balance, September 30, 2001     $      30,213      $  57,017,352   $   3,641,004    $  64,215,399    $    (891,748)   $ 124,072,961
                              =====================================================================================================
</TABLE>


      See accompanying notes to consolidated financial statements.

 * Restated - see note 9.



                                       4
<PAGE>
                       DONEGAL GROUP INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Unaudited)
<TABLE>
<CAPTION>

                                                                            Nine Months Ended September 30,
                                                                             2001                    2000 *
                                                                             ----                    ------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S>                                                                      <C>                    <C>
       Net income                                                        $  6,675,286           $  6,232,156
                                                                         ------------           ------------
       Adjustments to reconcile net income to net cash
                 provided by operating activities:
            Depreciation and amortization                                     839,380                799,723
            Realized investment gain                                          448,462               (442,927)
       Changes in assets and liabilities:
            Losses and loss expenses                                       15,139,625              8,415,628
            Unearned premiums                                              17,250,969             15,019,978
            Premiums receivable                                            (7,103,343)            (4,380,245)
            Deferred policy acquisition costs                              (1,555,147)            (1,788,273)
            Deferred income taxes                                            (569,391)               162,627
            Reinsurance receivable                                         (9,656,435)            (4,278,936)
            Prepaid reinsurance premiums                                   (6,712,215)            (4,393,859)
            Accrued investment income                                         311,166               (520,900)
            Due to affiliate                                                 (260,353)               138,078
            Reinsurance balances payable                                     (360,339)                67,621
            Current income taxes                                              353,445                550,176
            Other, net                                                       (116,544)              (605,458)
                                                                         ------------           ------------
                 Net adjustments                                            8,009,280              8,743,233
                                                                         ------------           ------------
            Net cash provided by operating activities                      14,684,566             14,975,389
                                                                         ------------           ------------

CASH FLOWS FROM INVESTING ACTIVITIES:
       Purchase of fixed maturities
            Held to maturity                                              (36,895,097)           (11,725,356)
            Available for sale                                            (53,380,298)           (21,232,004)
       Purchase of equity securities, available for sale                  (10,046,952)           (23,163,599)
       Maturity of fixed maturities
            Held to maturity                                               40,209,398             10,860,429
            Available for sale                                             36,307,020              6,576,600
       Sale of fixed maturities, available for sale                        12,275,464              1,490,469
       Sale of equity securities, available for sale                        5,770,980             14,318,432
       Net purchase of property and equipment                                (140,233)              (194,001)
       Net sales of short-term investments                                  2,630,069              4,411,044
                                                                         ------------           ------------
            Net cash used in investing activities                          (3,269,649)           (18,657,986)
                                                                         ------------           ------------

CASH FLOWS FROM FINANCING ACTIVITIES:
       Cash dividends paid                                                 (2,526,762)            (2,333,081)
       Issuance of common stock                                             1,157,497              2,308,227
       Line of credit, net                                                (11,800,000)             3,000,000
                                                                         ------------           ------------
            Net cash provided by (used in) financing activities           (13,169,265)             2,975,146
                                                                         ------------           ------------

Net decrease in cash                                                       (1,754,348)              (707,451)
Cash at beginning of period                                                 5,182,988              4,500,570
                                                                         ------------           ------------
Cash at end of period                                                    $  3,428,640           $  3,793,119
                                                                         ============           ============

Cash paid during period - Interest                                       $  2,426,292           $  2,214,867
Net cash paid during period - Taxes                                      $  2,325,000           $  1,374,777
</TABLE>

* Restated - see note 9.

        See accompanying notes to consolidated financial statements.


                                       5
<PAGE>

                       DONEGAL GROUP INC. AND SUBSIDIARIES
                                   (Unaudited)
               Summary Notes to Consolidated Financial Statements

1 -    ORGANIZATION

       Donegal Group Inc. (the "Company") was organized as a regional insurance
holding company by Donegal Mutual Insurance Company (the "Mutual Company") on
August 26, 1986 and operates in the Mid-Atlantic and Southern states through its
wholly-owned stock insurance companies, Atlantic States Insurance Company
("Atlantic States"), Southern Heritage Insurance Company ("Southern Heritage"),
Southern Insurance Company of Virginia ("Southern"), Pioneer Insurance Company -
New York ("Pioneer - New York") and Pioneer Insurance Company - Ohio ("Pioneer -
Ohio") (collectively "Insurance Subsidiaries"). The Company has three operating
segments: the investment function, the personal lines of insurance and the
commercial lines of insurance. Products offered in the personal lines of
insurance consist primarily of homeowners and private passenger automobile
policies. Products offered in the commercial lines of insurance consist
primarily of commercial automobile, commercial multiple peril and workers'
compensation policies. The Insurance Subsidiaries are subject to regulation by
Insurance Departments in those states in which they operate and undergo periodic
examinations by those departments. The Insurance Subsidiaries are also subject
to competition from other insurance companies in their operating areas. Atlantic
States participates in an inter-company pooling arrangement with the Mutual
Company and assumes 70% of the pooled business (65% prior to July 1, 2000).
Southern cedes 50% of its business to the Mutual Company. At September 30, 2001,
the Mutual Company held 62% of the outstanding common stock of the Company.

       During 2000, the Company acquired 45% of the outstanding stock of Donegal
Financial Services Corporation ("DFSC"), a bank holding company, for $3,042,000
in cash. The remaining 55% of the outstanding stock of DFSC is owned by the
Mutual Company.

       Effective January 1, 2001, Southern Heritage entered into an agreement
with Mutual Company, under which Southern Heritage cedes, and then reassumes
back, 100% of their business net of reinsurance. The primary purpose of this
agreement is to provide Southern Heritage with the same A.M. Best rating
(currently "A") as the Mutual Company, which Southern Heritage could not achieve
without this contract in place. This agreement does not transfer insurance risk.
While this subsidiary ceded and reassumed premiums of $4,008,652 and $12,139,925
and losses and loss expenses of $1,610,080 and 5,654,699 under this agreement
for the three and nine months ended September 30, 2001, respectively, the
amounts are not reflected in the consolidated financial statements. The
aggregate unearned premiums and unpaid losses and loss expenses ceded and
reassumed under this agreement were $7,598,626 and $8,583,613 at September 30,
2001.

       The Company has announced plans to streamline its corporate structure by
merging a number of its subsidiaries together. Pending regulatory approval,
Southern Heritage Insurance Company will be merged into Southern Insurance
Company of Virginia. Regulatory approvals have been received for the mergers of
Delaware Atlantic Insurance Company and Pioneer - New York into Atlantic States
Insurance Company and these mergers are effective August 1, 2001 and October 1,
2001 respectively. These mergers are not anticipated to have a material impact
on the Company.

       On April 19, 2001 the Company's stockholders approved an amendment to the
Company's Certificate of Incorporation. Among other things, the amendment
reclassified the Company's common stock as Class B common stock and effected a
one-for-three reverse split of the Company's Class B common stock effective
April 19, 2001. The amendment also authorized a new class of common stock with
one-tenth of a vote per share designated as Class A common stock. The Company's
Board also approved a dividend of two shares of Class A common stock for each
share of Class B common stock, after the one-for-three reverse split, held of
record at the close of business April 19, 2001. The effect of the reverse split
and the stock dividend taken together is that the Company will have the same
total number of shares outstanding after the reverse split and the stock
dividend as it did before the reverse split and the stock dividend. Therefore,
there is no change in the historical earnings per share of the Class A common
stock and the Class B common stock after the reverse split and the stock
dividend compared to before the reverse split and the stock dividend.

       Each share of Class A common stock outstanding at the time of the
declaration of any dividend or other distribution payable in cash upon the
shares of Class B common stock is entitled to a dividend or distribution payable
at the same time and to stockholders of record on the same date in an amount at
least 10% greater than any dividend declared upon each share of Class B common
stock. In the event of a merger or consolidation of the Company with or into


                                       6
<PAGE>

another entity, the holders of Class A common stock and the holders of Class B
common stock are entitled to receive the same per share consideration in such
merger or consolidation. In the event of any liquidation, dissolution or
winding-up of the Company, any assets available to common stockholders will be
distributed pro-rata to the holders of Class A and Class B common stock.

2 -    BASIS OF PRESENTATION

       The financial information for the interim period included herein is
unaudited; however, such information reflects all adjustments, consisting only
of normal recurring adjustments, which, in the opinion of management, are
necessary to a fair presentation of the financial position, results of
operations and cash flow for the interim period included herein. The results of
operations for the three and nine months ended September 30, 2001, are not
necessarily indicative of results of operations to be expected for the twelve
months ended December 31, 2001.

       These financial statements should be read in conjunction with the
financial statements and notes thereto contained in the Registrant's Annual
Report on Form 10-K for the year ended December 31, 2000.

3 -    RECLASSIFICATIONS

       Certain amounts in these financial statements have been reclassified from
those previously presented. Gross and ceded premiums earned and losses and loss
adjustment expenses are no longer presented in the statements of income.
Reinsurance recoverable, prepaid reinsurance premiums, unearned premiums, and
the liabilities for losses and loss adjustment expenses have been reduced in the
consolidated balance sheet as they no longer include the amounts ceded and
reassumed under agreements between several subsidiaries and the Mutual Company.
The primary purpose of the agreements is to provide these subsidiaries with the
same A.M. Best rating (currently "A") as the Mutual Company, which these
subsidiaries could not achieve without these contracts in place. These
agreements do not transfer risk. The consolidated statements of cash flows have
been revised to conform to the changes in the consolidated balance sheet. These
reclassifications had no effect on total revenues, total expenses, net income,
net income per share, cash flows provided by operating activities, or
stockholders' equity.

4 -    EARNINGS PER SHARE

       The computation of basic and diluted earnings per share is as follows:

                                                      Weighted
                                                      Average        Earnings
                                        Net            Shares          Per
                                      Income        Outstanding       Share
                                      ------        -----------      -----

THREE MONTHS ENDED SEPTEMBER 30:

2001
         Basic                       $1,023,422      8,963,207     $    .11
         Effect of stock options           --          172,497         --
                                     ----------     ----------     --------
         Diluted                     $1,023,422      9,135,704     $    .11
                                     ----------     ----------     --------


2000
         Basic                       $2,566,975      8,768,751     $    .29
         Effect of stock options           --             --           --
                                     ----------     ----------     --------
         Diluted                     $2,566,975      8,768,751     $    .29
                                     ----------     ----------     --------

NINE MONTHS ENDED SEPTEMBER 30:

2001
         Basic                       $6,675,286      8,927,446     $    .75
         Effect of stock options           --          146,295          .01
                                     ----------     ----------     --------
         Diluted                     $6,675,286      9,073,741     $    .74
                                     ----------     ----------     --------


2000
         Basic                       $6,232,156      8,674,174     $    .72
         Effect of stock options           --             --           --
                                     ----------     ----------     --------
         Diluted                     $6,232,156      8,674,174     $    .72
                                     ----------     ----------     --------

                                       7
<PAGE>

       The following options to purchase shares of common stock were not
included in the computation of diluted earnings per share because the exercise
price of the options was greater than the average market price:
<TABLE>
<CAPTION>

                                            For The Three Months                          For The Nine Months
                                            Ended September 30,                           Ended September 30,
                                          2001                2000                     2001                 2000
                                          ----                ----                     ----                 ----

<S>                                      <C>                 <C>                      <C>                  <C>
Number of Options                        1,042,338           1,425,281                1,042,338            1,425,281
                                         =========           =========                =========            =========
</TABLE>

5 -    SEGMENT INFORMATION

       The Company evaluates the performance of the personal lines and
commercial lines based upon underwriting results as determined under statutory
accounting practices (SAP), which is used by management to measure performance
for the total business of the Company. Financial data by segment is as follows:
<TABLE>
<CAPTION>

                                                                         Three Months Ended September 30
                                                                             2001                2000
--------------------------------------------------------------------------------------------------------------------
                                                                                  ($ in thousands)
--------------------------------------------------------------------------------------------------------------------
Revenues:
       Premiums earned:
<S>                                                                      <C>                  <C>
           Commercial lines                                              $   16,078           $   14,183
           Personal lines                                                    26,521               24,966
--------------------------------------------------------------------------------------------------------------------
                Total net premiums earned                                    42,599               39,149
--------------------------------------------------------------------------------------------------------------------
       Net investment income                                                  3,710                4,128
       Realized investment gains (losses)                                     (562)                  334
       Other                                                                    619                  618
--------------------------------------------------------------------------------------------------------------------
Total revenues                                                           $   46,366           $   44,229
====================================================================================================================

Income before income taxes:
    Underwriting income (loss)
       Commercial lines                                                       $(113)               $(141)
       Personal lines                                                        (2,394)              (1,638)
--------------------------------------------------------------------------------------------------------------------
           SAP underwriting loss                                             (2,507)              (1,779)
       GAAP adjustments                                                         672                1,263
--------------------------------------------------------------------------------------------------------------------
           GAAP underwriting loss                                            (1,835)                (516)
    Net investment income                                                     3,710                4,128
    Realized investment gains (losses)                                         (562)                 334
    Other                                                                      (186)                (480)
--------------------------------------------------------------------------------------------------------------------
Income before income taxes                                               $    1,127           $    3,466
=====================================================================================================================

                                       8
<PAGE>

                                                                           Nine Months Ended September 30
                                                                             2001                 2000
--------------------------------------------------------------------------------------------------------------------
                                                                                   ($ in thousands)
--------------------------------------------------------------------------------------------------------------------
Revenues:
    Premiums earned:
       Commercial lines                                                  $   46,661           $   39,530
       Personal lines                                                        77,631               72,155
--------------------------------------------------------------------------------------------------------------------
           Total net premiums earned                                        124,292              111,685
--------------------------------------------------------------------------------------------------------------------
       Net investment income                                                 11,988               12,009
       Realized investment gains (losses)                                      (448)                 443
       Other                                                                  1,823                1,783
--------------------------------------------------------------------------------------------------------------------
Total revenues                                                           $  137,655           $  125,920
====================================================================================================================

Income before income taxes:
    Underwriting income (loss)
       Commercial lines                                                  $     (543)          $      317
       Personal lines                                                        (2,343)              (4,903)
--------------------------------------------------------------------------------------------------------------------
           SAP underwriting loss                                             (2,886)              (4,586)
       GAAP adjustments                                                       1,567                1,917
--------------------------------------------------------------------------------------------------------------------
                 GAAP underwriting loss                                      (1,319)              (2,669)
    Net investment income                                                    (1,988)              12,009
    Realized investment gains (losses)                                         (448)                 443
    Other                                                                    (1,452)              (1,464)
--------------------------------------------------------------------------------------------------------------------
Income before income taxes                                               $    8,769           $    8,319
--------------------------------------------------------------------------------------------------------------------
</TABLE>

6 -      RESTRUCTURING CHARGE

         On September 29, 1999, the Company announced a plan to consolidate
certain subsidiary support functions into its Marietta, Pennsylvania office. As
a result of this consolidation, the Company recorded a restructuring charge in
1999 of $2,044,000 for employee termination benefits, occupancy charges, lease
cancellation costs and asset impairments. The charge was included in other
underwriting expenses. The consolidation has been completed.

         Employee termination benefits include severance payments, which were
paid either in a lump sum or over a defined period, and related benefits for
approximately 60 employees. Of the terminated employees, approximately 50% were
from subsidiary support functions and approximately 50% were from the Marietta,
Pennsylvania office. By December 31, 1999, all of the terminated employees had
left the employment of the Company.

         Included in occupancy charges are future lease obligations, less
anticipated sublease benefits, for leased space that is no longer being used by
the Delaware Atlantic and Southern Heritage subsidiary support functions.

         Also included in the restructuring charges were contract cancellation
costs that represented the estimated cost to buy out of the remaining term on
printer, copier, and computer processing contracts that provided no future
benefits to the Company as a result of the restructuring. By December 31, 1999,
all such assets had been taken out of service.

         Asset impairments, which were a direct result of the consolidation of
subsidiary functions, amounted to $407,000. They consisted of capitalized
programming and data center costs, voice systems, and leasehold and office
improvements. These assets were written-down to zero in 1999. By December 31,
1999, all such assets were taken out of service.

         Activity in the restructuring accrual is as follows:
<TABLE>
<CAPTION>

                                                    Employee         Occupancy         Contract           Totals
                                                   Termination                      Cancellations
                                                    Benefits
  ---------------------------------------------- ---------------- ---------------- ----------------- -----------------
<S>                                                   <C>            <C>                <C>             <C>
  RESTRUCTURING CHARGE                                $782,000       $488,000           $529,000        $1,799,000
  CASH PAYMENT                                        (343,000)       (47,000)          (365,000)         (755,000)
  REVERSAL OF PRIOR ACCRUAL                            (71,000)             -            (91,000)         (162,000)
  ---------------------------------------------- ---------------- ---------------- ----------------- -----------------
  BALANCE AT DECEMBER 31, 1999                        $368,000       $441,000           $ 73,000        $  882,000
  ---------------------------------------------- ---------------- ---------------- ----------------- -----------------
  CASH PAYMENTS                                       (339,000)      (155,000)           (73,000)         (567,000)
  ACCRUAL ADJUSTMENT                                         -         12,000                  -            12,000
  ---------------------------------------------- ---------------- ---------------- ----------------- -----------------
  BALANCE AT DECEMBER 31, 2000                        $ 29,000       $298,000           $      -        $  327,000
  CASH PAYMENTS                                         (8,000)       (74,000)                 -           (82,000)
  ---------------------------------------------- ---------------- ---------------- ----------------- -----------------
  BALANCE AT SEPTEMBER 30, 2001                       $ 21,000       $224,000           $      -        $  245,000
  ---------------------------------------------- ---------------- ---------------- ----------------- -----------------
</TABLE>


                                       9
<PAGE>

7 -    RECENT ACCOUNTING STANDARDS -
       ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

       The Company has no derivative instruments or hedging activities as
defined in accordance with the Statement of Financial Accounting Standards
(SFAS) No. 133, "Accounting for Certain Derivative Instruments and Certain
Hedging Activities," and SFAS No. 138 "Accounting for Certain Derivative
Instruments and Certain Hedging Activities, an amendment of SFAS No 133", which
statements became effective January 1, 2001. On January 1, 2001, the Company
transferred investments with an amortized cost of $51,640,154 and fair value of
$52,444,675 from the held to maturity classification to the available for sale
classification under the provisions of SFAS No. 133 and 138. The unrealized
holding gain of $804,521 at January 1, 2001 was reported in other comprehensive
income. The transfer had no impact on net income.

       BUSINESS COMBINATIONS

       In July 2001, the FASB issued Statement No. 141, Business Combinations,
and Statement No. 142, Goodwill and Other Intangible Assets. SFAS No. 141
requires the purchase method of accounting to be used for all future business
combinations and contains provisions for the accounting for goodwill and
intangible assets. SFAS No. 142 is effective January 1, 2002, and will require
that goodwill and intangible assets with indefinite useful lives no longer be
amortized, but instead evaluated for impairment.

       As of the date of adoption, the Company expects to have unamortized
goodwill in the amount of $117,000 which will be subject to the transition
provisions of Statements 141 and 142, no unamortized identifiable intangible
assets, and no unamortized negative goodwill. Amortization expense related to
goodwill was $61,534 and $45,758 for the year ended December 31, 2000 and the
nine months ended September 30, 2001, respectively. The impact of adopting these
Statements on the Company's financial statements is not expected to be material.

8 -    IMPLEMENTATION OF CODIFICATION

       The National Association of Insurance Commissioners (NAIC) has adopted
the Codification of Statutory Accounting Principles with an effective date of
January 1, 2001. The codified principles are intended to provide a basis of
accounting recognized and adhered to in the absence of conflict with, or silence
of, state statutes and regulations. The impact of the codified principles on the
statutory capital and surplus of the Company's Insurance Subsidiaries as of
January 1, 2001 is as follows: Atlantic States - $5,922,449 increase; Southern
Heritage - $1,083,354 increase; Pioneer-Ohio - $313,638 increase; Delaware
Atlantic - $246,293 increase; Southern of Virginia - $1,171,204 increase; and
Pioneer - New York - 0.

9 -    BUSINESS COMBINATION

       In January 2001, the Company acquired all of the outstanding shares of
Pioneer - New York from the Mutual Company, which previously owned 100% of
Pioneer - New York. The acquisition has been accounted for as a reorganization
of entities under common control, similar to a pooling of interests, as both
Pioneer - New York and the Company are under the common management and control
of the Mutual Company. As such, all financial data prior to January 1, 2001 has
been restated to include the results of operations, financial position and cash
flows of Pioneer - New York.

       The following information presents certain income statement data of the
separate companies for the period preceding the merger:

         Three and nine months ended September 30, 2000 (unaudited):
<TABLE>
<CAPTION>

         Revenues                                       Three Months Ended               Nine Months Ended
                                                        September 30, 2000               September 30, 2000
                                                        ------------------               ------------------

<S>                                                          <C>                             <C>
                 Donegal Group, Inc.                         $43,630,503                     $124,177,637

                 Pioneer - New York                              598,557                        1,742,119
                                                           -------------                     ------------

                      Total                                  $44,229,060                     $125,919,756

         Net income (loss)

                 Donegal Group, Inc.                         $ 2,602,045                     $  6,322,679

                 Pioneer - New York                              (35,070)                         (90,523)
                                                            -------------                    ------------

                     Total                                   $ 2,566,975                     $  6,232,156
</TABLE>

                                       10
<PAGE>

       In connection with the transaction, the Company issued the Mutual Company
a $4,441,311 note, which bears a 6% rate and is due in one year. The Company
classifies this note in Due to Affiliate. There were no material transactions
between Donegal Group Inc. and Pioneer - New York prior to the merger. Pioneer -
New York's accounting policies, which were previously based on statutory
accounting principles, were conformed to the Company's accounting policies. Such
changes did not materially impact Pioneer - New York's net income.

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF
         FINANCIAL CONDITION AND RESULTS OF OPERATIONS
         ---------------------------------------------


RESULTS OF OPERATIONS -THREE MONTHS ENDED SEPTEMBER 30, 2001
TO THREE MONTHS ENDED SEPTEMBER 30, 2000
----------------------------------------


        In January 2001, the Company acquired all of the outstanding shares
of Pioneer Insurance Company of New York ("Pioneer - New York") from the
Mutual Company, which previously owned 100% of Pioneer-New York. The
Acquisition had been accounted for as a reorganization of entities under
common control, similar to a pooling of interests, as both Pioneer -New York
and the Company are under common management and control of the Mutual
Company. As such, all financial data prior to January 1, 2001 has been
restated to include the results of operation, financial position and cash
flows of Pioneer - New York.

        Revenues for the three months ended September 30, 2001 were
$46,365,986 an increase of $2,136,926 or 4.8%, over the same period of 2000.
An increase in premiums earned of $3,449,697, or 8.8% offset by a decrease in
investment income of $417,444, or 10.1%, along with realized losses of
$562,301 compared to realized gains of $333,720 in the third quarter of 2000
accounted for most of this change. A decrease in the annualized average
return on investments from 5.9% in the third quarter of 2000 to 5.1% in the
third quarter of 2001 offset by an increase in average invested assets from
$278.2 million in the third quarter of 2000 to $290.5 million in the third
quarter of 2001, accounted for most of the investment income change. The
realized loss in the third quarter of 2001 included $604,235 in losses, which
resulted from declines in the market value of securities that were determined
to be other then temporary. The realized gain in the third quarter of 2000
resulted from the normal turnover of the Company's portfolio.

        The GAAP combined ratio of insurance operations in the third quarter
of 2001 was 104.3% compared to 101.3% for the same period in 2000. The GAAP
combined ratio is the sum of the ratios of incurred losses and loss adjusting
expenses to premiums earned (loss ratio), policyholders dividends to premiums
earned (dividend ratio), and underwriting expenses to premiums earned
(expense ratio). The Company's loss ratio in the third quarter of 2001 was
70.5% compared to 68.4% for the same period of 2000. Weather related claims
of approximately $250,000 from one storm in August, 2001, an increase in the
severity of claims and a worsening loss ratio in the Company's Commercial
Automobile line of business accounted for most of the increase in the loss
ratio. The expense ratio for the third quarter of 2001 was 32.7% compared to
31.9% for the third quarter of 2000. The change in the expense ratio resulted
primarily from expenses related to a travel production incentive for agents
in 2001 which added 0.7% to the expense ratio compared to the third quarter
of 2000. The dividend ratio increased slightly to 1.1% for the third quarter
of 2001 compared to 0.9% for the same period of 2000.

                                    11
<PAGE>

        Federal income taxes for the three months ended September 30, 2001
represented 9.2% of the income before income taxes compared to a 25.9% for
the same period of 2000 due to tax exempt interest representing a much larger
percentage of pretax income in the third quarter of 2001. These rates vary
from the expected rate of 34% primarily due to the effect of tax-exempt
investment income.


RESULTS OF OPERATIONS -NINE MONTHS ENDED SEPTEMBER 30, 2001
TO NINE MONTHS ENDED SEPTEMBER 30, 2000
---------------------------------------


        In January 2001, the Company acquired all of the outstanding shares
of Pioneer Insurance Company of New York ("Pioneer - New York") from the
Mutual Company, which previously owned 100% of Pioneer-New York. The
Acquisition had been accounted for as a reorganization of entities under
common control, similar to a pooling of interests, as both Pioneer -New York
and the Company are under common management and control of the Mutual
Company. As such, all financial data prior to January 1, 2001 has been
restated to include the results of operation, financial position and cash
flows of Pioneer - New York.

        Revenues for the nine months ended September 30, 2001 were
$137,654,981 an increase of $11,735,225 or 9.3%, over the same period of
2000. An increase in premiums earned of $12,606,757, or 11.3% offset by a
realized loss of $448,462 compared to a realized gain of $442,927 for the
first nine months of 2000 accounted for most of the change. Premiums earned
were effected by an increase from 65% to 70% in Atlantic States Insurance
Company's share of the pooled business of itself and Donegal Mutual Insurance
Company which was effective July 1, 2000. This change accounted for
$4,273,297, or 3.8 percentage points of the earned premium increase with the
remaining increase coming from normal growth and rate increases. A decrease
in the annualized average return on investments from 5.8% for the first nine
months of 2000 to 5.3% for the first nine months of 2001 was offset by an
increase in average invested assets of approximately $21 million. The
realized loss in the first nine months of 2001 included $1,067,970 in losses,
which resulted from declines in the market value of securities that were
determined to be other then temporary. The realized gains in the nine month
period ended September 30, 2000 resulted from the normal turnover of the
Company's portfolio.

        The GAAP combined ratio of insurance operations in the nine months
ended September 30, 2001 was 101.1% compared to 102.4% for the same period in
2000. The GAAP combined ratio is the sum of the ratios of incurred losses and
loss adjusting expenses to premiums earned (loss ratio), policyholders
dividends to premiums earned (dividend ratio), and underwriting expenses to
premiums earned (expense ratio). The Company's loss ratio in the first nine
months of 200 was 67.7% compared to 69.5% for the same period of 2000. The
Company's expense ratio for the first nine months of 2001 was 32.4% compared
to 32.1% for the first nine months of 2000. The dividend ratio remained
virtually unchanged at 1.0% for the first nine months of both 2001 compared
to 0.9% for the first nine months of 2000.

        Federal income taxes for the three months ended September 30, 2001
represented 23.9% of the income before income taxes compared to a 25.1% for
the same period of 2000. These rates vary from the expected rate of 34%
primarily due to the effect of tax-exempt investment income.


LIQUIDITY AND CAPITAL RESOURCES
-------------------------------

       The Company generates sufficient funds from its operations and maintains
a high degree of liquidity in its investment portfolio. The primary source of
funds to meet the demands of claim settlements and operating expenses are
premium collections, investment earnings and maturing investments. The Company
had no significant commitments for capital expenditures as of September 30,
2001.

       In investing funds made available from operations, the Company maintains
securities maturities consistent with its projected cash needs for the payment
of claims and expenses. The Company maintains a portion of its investment
portfolio in relatively short-term and highly liquid assets to ensure the
availability of funds.

                                       12
<PAGE>

       As of September 30, 2001, pursuant to a credit agreement dated December
29, 1995, with Fleet National Bank of Connecticut, (the " Bank") the Company had
unsecured borrowings of $28.2 million. Per the terms of the credit agreement,
the Company may borrow up to $32 million at interest rates equal to the bank's
then current prime rate or the then current London interbank Eurodollar bank
rate plus 1.70%. At September 30, 2001, the interest rates on the outstanding
balances were 5.28% on an outstanding eurodollar balance of $13.2 million and
5.01% on an outstanding eurodollar rate balance of $15.0 million. In addition,
the Company pays a non-use fee at a rate of 3/10 of 1% per annum on the average
daily unused portion of the Bank's commitment. On each July 27, the credit line
is reduced by $8 million. Any outstanding loan in excess of the remaining credit
line, after such reduction, will then be payable.

       The Company's principal source of cash with which to pay stockholder
dividends is dividends from Atlantic States, Southern, Pioneer - Ohio, Pioneer -
New York, Southern Heritage and Delaware, which are required by law to maintain
certain minimum surplus on a statutory basis and are subject to regulations
under which payment of dividends from statutory surplus is restricted and may
require prior approval of their domiciliary insurance regulatory authorities.
Atlantic States, Southern, Pioneer - Ohio, Pioneer - New York, Southern Heritage
and Delaware are subject to Risk Based Capital (RBC) requirements effective for
1994. At December 31, 2000, each of the six Companies' capital was substantially
above the RBC requirements. At December 31, 2000, amounts available for
distribution as dividends to Donegal Group without prior approval of the
insurance regulatory authorities are $5,414,419 from Atlantic States, $908,259
from Southern, $581,132 from Pioneer - Ohio, $323,992 from Delaware, $973,796
from Southern Heritage and none from Pioneer - New York.

       In June 2000, Delaware made a $3.8 million dividend distribution to
Donegal Group, which was approved by the Delaware Insurance Department.

CREDIT RISK
-----------

       The Company provides property and liability coverages through its
subsidiaries' independent agency systems located throughout its operating area.
The majority of this business is billed directly to the insured although a
portion of Donegal Group's commercial business is billed through its agents who
are extended credit in the normal course of business.

       The Company's subsidiaries have reinsurance agreements in place with the
Mutual Company and with a number of other major authorized reinsurers.

IMPACT OF INFLATION
-------------------

       Property and casualty insurance premiums are established before the
amount of losses and loss settlement expenses, or the extent to which inflation
may impact such expenses, are known. Consequently, the Company attempts, in
establishing rates, to anticipate the potential impact of inflation.







                                       13
<PAGE>

                           PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.
------- ------------------

           On March 30, 2001, an action was filed in the Court of Chancery of
the State of Delaware against the Mutual Company, the Company and the
directors of the Company. The action was filed derivatively on behalf of the
Company and as a class action on behalf of the holders of the Company's
common stock other than the Company, the Company's directors, the Mutual
Company and their associates and affiliates.

           The action challenged the compliance of the Amendment to the
Company's Charter, the Reverse Split and the Stock Dividend with certain
provisions of the Delaware General Corporation Law and asserted a violation
of fiduciary duties by the Mutual Company and the directors of the Company.
The action also made certain allegations regarding the grant of stock options
to certain persons and the manner in which the Coordinating Committee of the
Boards of Directors of the Company and the Mutual Company operates.

           The Company, the Mutual Company and the Company's Board of
Directors deny the allegations in the action, and believe the actions taken
in connection with the Amendment to the Company's Charter, the Reverse Split
and the Stock Dividend were appropriate and in the best interest of all of
the Company's stockholders.

           However, rather than engage in protracted and extensive
litigation, the Company, the Mutual Company and the directors of the Company
entered into an agreement to settle the litigation. As part of the agreement,
the Company agreed to various administrative changes related to the Reverse
Spit and Stock Dividend, which were approved by the Company's Stockholders on
April 19, 2001. The Company and the Mutual Company paid legal fees and
expenses to the plaintiff's counsel of $245,000 as determined by the court.

ITEM 2. CHANGES IN SECURITIES.  (None)
------- ----------------------

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
------- --------------------------------

            QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
            ---------------------------------------------------------

           The Company's market risk generally represents the risk of gain or
loss that may result from the potential change in the fair value of the
Company's investment portfolio as a result of fluctuations in prices and
interest rates and, to a lesser extent, its debt obligations. The Company
attempts to manage its interest rate risk by maintaining an appropriate
relationship between the average duration of the investment portfolio and the
approximate duration of its liabilities, i.e., policy claims and debt
obligations.

           The Company has maintained approximately the same duration of its
investment portfolio to its liabilities from December 31, 2000 to September
30, 2001. In addition, the Company has maintained approximately the
investment mix during this period.

           There have been no material changes to the Company's quantitative
or qualitative market risk exposure from December 31, 2000 through September
30, 2001.

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)   EX -27 Financial Data Schedule
           (b)   Reports on 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.



                                 DONEGAL GROUP INC.


   November 10, 2001             By: /s/ Donald H. Nikolaus
                                     ------------------------------------------
                                       Donald H. Nikolaus, President
                                         and Chief Executive Officer




   November 10, 2001             By: /s/ Ralph G. Spontak
                                     ------------------------------------------
                                       Ralph G. Spontak, Senior Vice President,
                                         Chief Financial Officer and Secretary














</TEXT>
</DOCUMENT>
</SUBMISSION>
