FORM 10-Q

                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D. C. 20549

                      ------------------------------------
         (Mark One)

          [ x ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

                For the quarterly period ended September 30, 1999
                                       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. 0-11526
             -----------------------------------------------------

                           FIRST COLONIAL GROUP, INC.
------------------------------------------------------------------------------
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

       PENNSYLVANIA                                  23-2228154
-----------------------------                  -----------------------
(STATE OR OTHER JURISDICTION OF            (I.R.S. EMPLOYER IDENTIFICATION NO.)
 INCORPORATION OR ORGANIZATION)

  76 S. MAIN ST., NAZARETH, PA                          18064
------------------------------------------------------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE               (ZIP CODE)

REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE:  610-746-7300

INDICATE BY CHECK MARK WHETHER THE 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 _____

INDICATE THE NUMBER OF SHARES  OUTSTANDING  OF EACH OF THE  ISSUER'S  CLASSES OF
COMMON  STOCK AS OF THE  LATEST  PRACTICABLE  DATE:  1,844,019  SHARES OF COMMON
STOCK, $5 PAR VALUE, OUTSTANDING ON SEPTEMBER 30, 1999.

<PAGE>

                   FIRST COLONIAL GROUP, INC. AND SUBSIDIARIES



                                      INDEX
PART 1  -  FINANCIAL INFORMATION                                 PAGE NO.

ITEM 1 - Financial Statements

         Consolidated Balance Sheet                                  2
         Consoliated Statement of Income                             3
         Consolidated Statement of Comprehensive Income              4
         Consolidated Statement of Cash Flows                        5
         Notes to Consolidated Financial Statements                  6

ITEM 2 - Management's Discussion and Analysis of
         Financial Condition and Results of Operations              13


ITEM 3 - Quantitative and Qualitative Discussion About
         Market Risk                                                30


PART 11 - OTHER INFORMATION

ITEM 5 - Other Information                                          34

ITEM 6 - Exhibits and Reports on Form 8-K                           34


SIGNATURES                                                          35

<PAGE>

<TABLE>

             FIRST COLONIAL GROUP, INC. AND SUBSIDIARIES
                     CONSOLIDATED BALANCE SHEETS
                       (Dollars in Thousands)
                             (Unaudited)

                                                     Sept. 30,    Dec. 31
                                                       1999        1998
<S>                                               <C>          <C>

ASSETS
  Cash and Due From Banks                          $  13,722    $  12,259
  Federal Funds Sold                                   2,000        2,000
                                                   ---------    ---------
    Total Cash and Cash Equivalents                   15,722       14,259
  Interest-Bearing Deposits With Banks                 6,476        3,301
  Investment Securities Held-to-Maturity              20,289       17,723
    (Fair Value: Sept. 30, 1999 $19,909
     Dec. 31, 1998 - $17,920)
  Securities Available-for-Sale at Fair Value        132,544       98,389
  Mortgage Loans Held-for-Sale                           484          603
  Total Loans, Net of Unearned Discount              200,987      212,437
  LESS:  Allowance for Possible Loan Losses           (2,496)      (2,691)
                                                   ---------    ---------
  Net Loans                                          198,491      209,746
  Premises and Equipment, Net                          7,051        6,885
  Accrued Interest Income                              2,627        2,542
  Other Real Estate Owned                                678          636
  Other Assets                                         5,984        4,412
                                                   ---------    ---------
    TOTAL ASSETS                                   $ 390,346    $ 358,496
                                                   ---------    ----------

LIABILITIES
  Deposits
    Non-Interest Bearing Deposits                  $  41,485    $  38,885
    Interest-Bearing Deposits                        275,976      255,664
                                                   ---------    ---------
      Total Deposits                                 317,461      294,549
  Securities Sold Under Agreements to Repurchase       7,949        5,094
  Long-Term Debt                                      30,000       20,000
  Accrued Interest Payable                             3,725        3,536
  Other Liabilities                                    1,965        3,600
                                                   ---------    ---------
    TOTAL LIABILITIES                                361,100      326,779

SHAREHOLDERS' EQUITY
  Preferred Stock, Par Value $5.00 a share
    Authorized - 500,000 shares, none issued             ---          ---
  Common Stock, Par Value $5.00 a share
    Authorized - 10,000,000 shares
    Issued - 1,844,019 shares at Sept. 30, 1999
    and 1,745,725 shares at Dec. 31, 1998              9,220        8,729
  Additional Paid in Capital                          15,634       13,873
  Retained Earnings                                    8,621        9,023
  Employee Stock Ownership Plan Debt                  (1,435)        (435)
  Accumulated Other Comprehensive Income (Loss)       (2,794)         527
                                                   ---------    ---------

Total Shareholders' Equity                            29,246       31,717
                                                   ---------    ---------

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY         $ 390,346    $ 358,496
                                                   ---------    ---------
</TABLE>

See accompanying notes to interim consolidated financial statements.

<PAGE>

                  FIRST COLONIAL GROUP, INC. AND SUBSIDIARIES
                        CONSOLIDATED STATEMENTS OF INCOME
                             (Dollars in Thousands)
                                   (Unaudited)
<TABLE>

                                          Three Months Ended  Nine Months Ended
                                          Sept 30,  Sept 30,  Sept 30, Sept 30,
                                            1999      1998      1999     1998
                                       ----------  --------  --------  --------
<S>                                     <C>       <C>        <C>       <C>

INTEREST INCOME:
 Interest and Fees on Loans              $ 4,738   $ 4,722    $13,566   $14,382
 Investment Securities Income
  Taxable                                  1,808     1,244      4,796     3,683
  Tax-Exempt                                 366       333      1,146       893
 Interest on Deposits with Banks and
  Federal Funds Sold                          22        94        140       175
                                         -------   -------    -------   -------
   Total Interest Income                   6,934     6,393     19,648    19,133
                                         -------   -------    -------   -------
INTEREST EXPENSE:
 Interest on Deposits                      2,502     2,422      7,294     7,101
 Interest on Short-Term Borrowing            107        48        229       193
 Interest on Long-Term Debt                  345       280        904       847
                                         -------   -------    -------   -------
   Total Interest Expense                  2,954     2,750      8,427     8,141
                                         -------   -------    -------   -------
NET INTEREST INCOME:                       3,980     3,643     11,221    10,992
 Provision for Possible Loan Losses          ---       113        250       338
                                         -------   -------    -------   -------
  Net Interest Income After Provision
   For Possible Loan Losses                3,980     3,530     10,971    10,654
                                         -------   -------    -------   -------
OTHER INCOME:
 Trust Revenue                               271       275        874       750
 Service Charges on Deposit Accounts         432       419      1,229     1,180
 Investment Securities Gains (Losses), Net    (4)      ---        557       463
 Gains on the Sale of Mortgage Loans          63       135        154       307
 Other Operating Income                      175       162        512       477
                                         -------   -------    -------   -------
   Total Other Income                        937       991      3,326     3,177
                                         -------   -------    -------   -------
OTHER EXPENSES:
 Salaries and Employee Benefits            1,726     1,612      5,019     4,844
 Net Occupancy and Equipment Expense         560       501      1,610     1,582
 Other Operating Expenses                  1,470     1,233      4,302     3,972
                                         -------    -------   -------   -------
   Total Other Expenses                    3,756     3,346     10,931    10,398
                                         -------   -------    -------   -------

Income Before Income Taxes                 1,161     1,175      3,366     3,433
Provision for Income Taxes                   276       304        771       899
                                         -------   -------    -------   -------

NET INCOME                               $   885   $   871    $ 2,595   $ 2,534
                                         =======   =======    =======   =======
 Per Share Data
   Basic Net Income                      $  0.49   $  0.48    $  1.45   $  1.41
                                         =======   =======    =======   =======
   Diluted Net Income                    $  0.49   $  0.48    $  1.44   $  1.40
                                         =======   =======    =======   =======
   Cash Dividends                        $  0.19   $  0.18    $  0.55   $  0.52
                                         =======   =======    =======   =======
</TABLE>

 See accompanying notes to interim financial statements.

<PAGE>

                  FIRST COLONIAL GROUP, INC. AND SUBSIDIARIES
                 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
                             (Dollars in Thousands)
                                   (Unaudited)


<TABLE>
                                     Three Months Ended     Nine Months Ended
                                    Sept 30,   Sept 30,    Sept 30,    Sept 30,
                                      1999       1998        1999        1998
                                    ------     ------       ------      ------
<S>                                <C>        <C>          <C>         <C>

Net Income                         $   885     $  871      $ 2,595      $2,534

Other Comprehensive Income (Loss),
  Net of Tax
 Unrealized gains (losses)
  on securities
   Unrealized gains (losses)
    arising in period                 (366)       (22)      (3,689)       (180)
   Reclassification adjustment;
    gain included in net income         (3)         5          368        (422)
                                    ------     ------       ------      ------
Other Comprehensive Income (Loss)     (369)       (17)      (3,321)       (602)
                                    ------     ------       ------      ------
Comprehensive Income (Loss)        $   516     $  888      $  (726)     $1,932
                                    ======     ======       ======      ======
</TABLE>


Other comprehensive  income (loss) is shown net of tax (benefit) expense for the
nine  months  ended  Sept.  30,  1999 and Sept.  30,  1998 of  $(1,712,000)  and
$310,000,  respectively  and the three months ended Sept. 30, 1999 and Sept. 30,
1998 of $(191,000) and $9,000, respectively.










See accompanying notes to interim consolidated financial statements.



<PAGE>

                  FIRST COLONIAL GROUP, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (Dollars in Thousands)
                                   (Unaudited)
<TABLE>

                                                      Nine Months Ended
                                               Sept 30, 1999    Sept 30, 1998
OPERATING ACTIVITIES                                    (Unaudited)
<S>                                              <C>               <C>
Net Income                                        $2,595            $2,534
Adjustments to Reconcile Net Income to Net Cash
 Provided by Operating Activities:
  Provision for Possible Loan Losses                 250               338
  Depreciation and Amortization                      763               750
  Amortization of Security Discounts                (167)              (60)
  Amortization of Security Premiums                  192               151
  Amortization of Deferred Fees on Loans             (92)             (178)
  Mortgage Loans Originated for Sale             (36,799)          (36,949)
  Mortgage Loan Sales                             36,922            36,402
  Gain on Sale of Mortgage Loans                    (154)             (307)
  Investment Securities Gains, Net                  (557)             (463)
 Changes in Assets and Liabilities:
  Increase in Accrued Interest Income                (85)             (256)
  Increase (Decrease) in Accrued Interest Payable    189               (76)
  Net Increase in Other Assets                    (1,357)           (1,498)
  Net Decrease in Other Liabilities                 (227)             (207)
                                                 -------           -------
Net Cash Provided By Operating Activities          1,473               181
                                                 -------           -------
INVESTING ACTIVITIES
Proceeds from Maturities of Securities
  Available-for-Sale                              11,467            22,796
Proceeds from Maturities of Securities
  Held-to-Maturity                                 3,622             7,173
Proceeds from Sales of Securities
  Available-for-Sale                              16,857             4,571
Proceeds from Sales of Securities
  Held-to-Maturity                                   ---               248
Purchase of Securities Available-for-Sale        (66,957)          (54,627)
Purchase of Securities Held-to-Maturity           (6,211)           (7,284)
Net Increase in Interest Bearing
  Deposits With Banks                             (3,176)           (4,176)
Net Decrease in Loans                             11,029            16,839
Purchase of Premises and Equipment, Net             (840)             (422)
Proceeds from Sale of Other Real Estate Owned        176               232
                                                 -------           -------
Net Cash Used In Investing Activities            (34,033)          (14,650)
                                                 -------           -------
FINANCING ACTIVITIES
Net Increase in Interest and Non-Interest
 Bearing Demand Deposits and Savings Accounts      4,803            10,629
Net Increase in Certificates of Deposits          18,110             5,013
Net Increase (Decrease) in Long-Term Debt         10,000              (390)
Proceeds from Sale of Treasury Stock                 ---                94
Net Increase in ESOP Debt                         (1,000)             (110)
Net Increase (Decrease) in Repurchase Agreements   2,855              (999)
Proceeds from Issuance of Stock                      240               150
Cash Dividends Paid                                 (981)             (948)
Cash in Lieu of Fractional Shares                     (4)               (6)
                                                 -------           -------
Net Cash Provided by Financing Activities         34,023            13,433
                                                 -------           -------
Increase (Decrease) in Cash and Cash Equivalents   1,463            (1,036)
Cash and Cash Equivalents, January 1              14,259            14,829
                                                 -------           -------
Cash and Cash Equivalents, September 30,         $15,722           $13,793
                                                 =======           =======
</TABLE>

See accompanying notes to interim consolidated financial statements.

<PAGE>


                   FIRST COLONIAL GROUP, INC. AND SUBSIDIARIES

               NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

                                   (Unaudited)


NOTE A  -  GENERAL

The accompanying  financial statements,  footnotes and discussion should be read
in conjunction with the audited financial statements,  footnotes, and discussion
contained in the Company's Annual Report for the year ended December 31, 1998.

The financial information presented herein is unaudited; however, in the opinion
of management, all adjustments (which include only normal recurring adjustments)
necessary to present fairly the unaudited financial  information have been made.
The  results  for the three and nine  months  ended  September  30, 1999 are not
necessarily  indicative of results to be expected for the full year or any other
interim period.

NOTE B  -  SUBSIDIARIES

First  Colonial  Group,   Inc.  (the  "Company")  is  a  Pennsylvania   business
corporation which is registered as a bank holding company under the Bank Holding
Company Act of 1956.  The Company has two  wholly-owned  subsidiaries,  Nazareth
National  Bank and Trust  Company (the  "Bank")  founded in 1897 and First C. G.
Company, Inc. founded in 1986.

NOTE C  -  INVESTMENT CONSIDERATIONS

In analyzing  whether to make,  or to continue,  an  investment  in the Company,
investors   should   consider,   among   other   factors,   certain   investment
considerations  more  particularly  described in the Company's  Annual Report on
Form 10-K for the year ended  December 31, 1998, a copy of which can be obtained
from Reid L. Heeren,  Vice  President,  First Colonial  Group,  Inc., 76 S. Main
Street, Nazareth, PA 18064.

NOTE D  -  FORWARD LOOKING STATEMENTS

The  information  contained in this Quarterly  Report  contains  forward looking
statements (as such term is defined in the  Securities  Exchange Act of 1934 and
the regulations thereunder), including, without limitation, statements as to the
allowance  and provision for possible  loan losses,  future  interest  rates and
their effect on the Company's financial condition or results of operations,  the
classification of the Company's investment portfolio,  the discussion in "Item 3
Quantitative  and  Qualitative  Discussion  About Market  Risk",  statements  or
estimates  concerning  the  effect of the "Year  2000"  issues on the  Company's
systems and software and the Company's plans with regard to "Year 2000" issues

<PAGE>

and  other  statements  which  are not  historical  facts or as to  management's
beliefs,  expectations or opinions.  Such forward looking statements are subject
to risks and  uncertainties  and may be  affected by various  factors  which may
cause  actual  results to differ  materially  from those in the forward  looking
statements.  Certain  of  these  risks,  uncertainties  and  other  factors  are
discussed in this  Quarterly  Report or in the  Company's  Annual Report on Form
10-K for the year ended  December 31, 1998, a copy of which may be obtained from
the Company upon request and without charge (except for the exhibits thereto).

NOTE E  -  CASH DIVIDENDS

On August 20,  1999 the  Company  paid its 1999 third  quarter  dividend  on its
common stock of $.19 per share to shareholders of record on August 6, 1999.

NOTE F  -  STOCK DIVIDEND

On June 24, 1999 the Company paid a 5% stock dividend to  shareholders of record
on June 4, 1999.  Fractional shares were paid in cash based on the closing price
of $23.312 per share on the record date. Net income per share and average shares
outstanding have been restated to reflect the 5% stock dividend.

NOTE G -  EARNINGS PER SHARE

During  1997,  the Company  adopted the  provisions  of  Statement  of Financial
Accounting  Standards  No.  128,  "Earnings  Per  Share  (SFAS  128)".  SFAS 128
eliminates   primary  and  fully   diluted   earnings  per  share  and  requires
presentation  of basic and diluted  earnings per share in  conjunction  with the
disclosures of the methodology used in computing such earnings per share.  Basic
earnings  per  share  excludes  dilution  and is  computed  by  dividing  income
available  to  common  shareholders  by  the   weighted-average   common  shares
outstanding during the period. Diluted earnings per share takes into account the
potential  dilution that could occur if  securities or other  contracts to issue
common stock were  exercised  and  converted  into common  stock.  Prior periods
earnings per share  calculations  have been  restated to reflect the adoption of
SFAS No. 128. Basic and diluted earnings per share were calculated as follows.

<PAGE>

For the Three Months Ended Sept. 30,
<TABLE>
                                                         Average
                                             Income       Shares      Per Share
                                          (numerator) (denominator)     Amount
         1999
<S>                                        <C>         <C>            <C>

Net Income                                  $  885

Basic Earnings Per Share
  Income Available to Common Shareholders   $  885      1,784,423      $  0.49

Effect of Dilutive Securities
  Stock Options                                             4,108
                                            ------      ---------      -------
Diluted Earnings Per Share
  Income Available to Common Shareholders
  plus Assumed Exercise of Options          $  885      1,788,531      $  0.49
                                            ------      ---------      -------
         1998

Net Income                                  $  871

Basic Earnings Per Share
  Income Available to Common Shareholders   $  871      1,805,430      $  0.48

Effect of Dilutive Securities
  Stock Options                                             7,485
                                            ------      ---------      -------
Diluted Earnings Per Share
  Income Available to Common Shareholders
  plus Assumed Exercise of Options          $  871      1,812,915      $  0.48
                                            ------      ---------      -------
</TABLE>


Average common shares  outstanding in the three month period ended September 30,
1999 and  1998 did not  include  57,520  and  23,572,  respectively  of  average
weighted unallocated shares held by the ESOP. The exclusion of these unallocated
shares held by the ESOP is due to the Company's  adoption of SOP 93-6. Share and
per share  information  have been  restated to reflect the 5% stock  dividend of
June 1999.

<PAGE>

For the Nine Months Ended Sept 30,
<TABLE>
                                                         Average
                                             Income       Shares      Per Share
                                          (numerator) (denominator)     Amount
         1999
<S>                                        <C>         <C>            <C>

Net Income                                  $2,595

Basic Earnings Per Share
  Income Available to Common Shareholders   $2,595      1,784,866      $  1.45

Effect of Dilutive Securities
  Stock Options                                             4,015
                                            ------      ---------      -------
Diluted Earnings Per Share
  Income Available to Common Shareholders
  plus Assumed Exercise of Options          $2,595      1,788,881      $  1.44
                                            ------      ---------      -------
         1998

Net Income                                  $2,534

Basic Earnings Per Share
  Income Available to Common Shareholders   $2,534      1,801,925      $  1.41

Effect of Dilutive Securities
  Stock Options                                             6,826
                                            ------      ---------      -------
Diluted Earnings Per Share
  Income Available to Common Shareholders
  plus Assumed Exercise of Options          $2,534      1,808,751      $  1.40
                                            ------      ---------      -------
</TABLE>

Average common shares  outstanding in the nine month period ended  September 30,
1999 and  1998 did not  include  51,581  and  22,582,  respectively  of  average
weighted unallocated shares held by the ESOP. The exclusion of these unallocated
shares held by the ESOP is due to the Company's  adoption of SOP 93-6. Share and
per share  information  have been  restated to reflect the 5% stock  dividend of
June 1998.

<PAGE>

NOTE H  -  ALLOWANCE FOR POSSIBLE LOAN LOSSES

Transactions in the allowance for possible loan losses were as follows:

<TABLE>

     Nine Month Period Ended September 30,          1999               1998
<S>                                            <C>                <C>

     Beginning Balance                          $2,691,000         $2,664,000

     Additions
       Provision for loan losses charged to
        operating expenses                         250,000            338,000
       Recoveries of loans                          68,000             74,000
                                                ----------         ----------
        Total Additions                            318,000            412,000

     Deductions
       Loans charged off                           513,000            432,000
                                                ----------         ----------

     Ending Balance                             $2,496,000         $2,644,000

</TABLE>


NOTE I  -   IMPAIRED LOANS

The Company measures impairment of a loan based on the present value of expected
future cash flows discounted at the loan's effective  interest rate, except that
as a  practical  expedient,  impairment  may  be  measured  based  on  a  loan's
observable  market  price,  or the fair value of the  collateral  if the loan is
collateral  dependent.  Regardless of the  measurement  method,  a creditor must
measure  impairment  based on the fair value of the collateral when the creditor
determines that  foreclosure is probable.  SFAS No. 118 allows  creditors to use
existing methods for recognizing interest income on impaired loans.

The Company has  identified a loan as impaired when it is probable that interest
and principal will not be collected  according to the  contractual  terms of the
loan  agreement.  The accrual of interest is  discontinued  on such loans and no
income is  recognized  until all recorded  amounts of interest and principal are
recovered in full.

Loan  impairment  is measured by estimating  the expected  future cash flows and
discounting  them at the  respective  effective  interest rate or by valuing the
underlying collateral.  The recorded investment in these loans and the valuation
for credit loses related to loan impairment are as follows:

<PAGE>

<TABLE>

           At September 30,                            1999            1998
          <S>                                     <C>               <C>

           Principal amount of impaired loans      $  532,000      $  808,000
           Deferred loan costs                            ---           2,000
                                                     --------        --------
                                                      532,000         810 000
           Less valuation allowance                  (111,000)       (188,000)
                                                     --------        --------
                                                   $  421,000      $  622,000
</TABLE>

The activity in this allowance  account for the nine months ended  September 30,
1999 and 1998 was as follows:

<TABLE>

                                                     1999               1998
<S>                                               <C>                <C>

      Valuation allowance at January 1,            $303,000         $138,000
      Provision for loan impairment                  28,000          179,000
      Transfer from Unallocated Allowance for
         Possible Loan Losses                       (61,000)             ---
      Direct charge-offs                           (159,000)        (129,000)
                                                   --------         --------
      Valuation allowance at September 30,         $111,000         $188,000

</TABLE>


Total cash  collected  on  impaired  loans  during the nine month  period  ended
September 30, 1999 was $111,000,  of which $87,000 was credited to the principal
balance outstanding on such loans and $24,000 was recognized as interest income.
Interest  that would have been  accrued on impaired  loans during the first nine
months of 1999 was  $44,000.  The  valuation  allowance  for  impaired  loans of
$111,000 at September 30, 1999 is included in the  "Allowance  for Possible Loan
Losses" which  amounts to  $2,496,000  at September 30, 1999.  The provision for
loan impairment of $28,000 for the nine month period ended September 30, 1999 is
included  in the  "Provision  for  Possible  Loan  Losses" as  reflected  on the
"Consolidated Statement of Income" for the same period.

NOTE J  -  REPORTING OF COMPREHENSIVE INCOME

On January 1, 1998, the Corporation adopted the Financial  Accounting  Standards
Board issued (SFAS) No. 130, "Reporting  Comprehensive  Income",  which requires
presenting  a  complete  set of  financial  statements  to  include  details  of
comprehensive  income that arises in the reporting period.  Comprehensive income
consists  of net income or loss for the current  period and other  comprehensive
income - income, expenses, gains and losses that bypass the income statement and
are reported  directly in a separate  component of equity.  Other  comprehensive
income includes, for example,  foreign currency items, minimum pension liability
adjustments and unrealized  gains and losses on certain  investment  securities.
The  Corporation  has  elected  to report  comprehensive  income  on a  separate
scheduled titled "Statement of Comprehensive Income".

<PAGE>

NOTE K - DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION

On January 1, 1998, the Corporation adopted the Financial  Accounting  Standards
Board issued (SFAS) No. 131,  "Disclosures  about  Segments of an Enterprise and
Related Information". This statement provides users of financial statements with
information  about an entity's  different  types of business  activities and the
different  economic  environments in which it operates to better  understand the
entity's  performance  and its prospects for future net cash flows,  and to make
more informed judgments about the entity as a whole. The effect of adopting SFAS
No. 131 is not  expected to have a material  impact on the  Company's  financial
statements.

NOTE L - ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITY

In June, 1998, the Financial  Accounting Standards Board (FASB) issued Statement
of Financial  Accounting  Standards  (SFAS) No. 133,  "Accounting for Derivative
Instruments  and Hedging  Activity".  SFAS No. 133  establishes  accounting  and
reporting  standards for derivative  instruments,  including certain  derivative
instruments imbedded in other contracts, and for hedging activities. It requires
that an entity  recognize all derivatives as either assets or liabilities in the
statement of financial  position and measure those instruments at fair value. If
certain  conditions  are met, a derivative may be  specifically  designated as a
hedge.  The accounting for changes in the fair value of a derivative  (gains and
losses) depends on the intended use of the derivative and resulting designation.
SFAS No. 133 is  effective  for all fiscal  quarters of fiscal  years  beginning
after June 15, 1999.  Earlier  application is permitted only as of the beginning
of any fiscal quarter. The Company is currently reviewing the provisions of SFAS
No. 133.

NOTE M - COMMITMENTS AND CONTINGENCIES

The Company has  reserved  $1.5  million  against  possible  claims which may be
asserted  against the Bank in connection  with certain  pre-need  funeral trusts
which were allegedly  directed by funeral  directors to be invested in a private
placement  annuity issued by EA  International  Trust. As of September 30, 1999,
six funeral  directors  whose funds were invested in this annuity have commenced
suit against the Bank;  if all funeral  directors  whose funds were  invested in
this  annuity  were to pursue  claims,  the  Bank's  maximum  exposure  would be
approximately $5.5 million plus interest,  costs and attorney fees. The Bank has
been  advised  that it has  significant  defenses to these claims and intends to
vigorously defend against such claims. The Bank has discontinued its involvement
in this  annuity  and is  pursuing  indemnification  for  some  or all of  these
possible losses from its insurance carriers and from EA International Trust.

<PAGE>

ITEM 2.

                     Management's Discussion and Analysis of

                  Financial Condition and Results of Operations



The following  financial  review and analysis is of the financial  condition and
earnings  performance of the Company and its wholly owned  subsidiaries  for the
three and nine month period ended September 30, 1999

The  information  contained in this Quarterly  Report  contains  forward looking
statements (as such term is defined in the  Securities  Exchange Act of 1934 and
the regulations thereunder), including, without limitation, statements as to the
allowance  and provision for possible  loan losses,  future  interest  rates and
their effect on the Company's financial condition or results of operations,  the
classification of the Company's investment portfolio,  the discussion in "Item 3
Quantitative  and  Qualitative  Discussion  About Market  Risk",  statements  or
estimates  concerning  the  effect of the "Year  2000"  issues on the  Company's
systems and software and the  Company's  plans with regard to "Year 2000" issues
and  other  statements  which  are not  historical  facts or as to  management's
beliefs,  expectations or opinions.  Such forward looking statements are subject
to risks and  uncertainties  and may be  affected by various  factors  which may
cause  actual  results to differ  materially  from those in the forward  looking
statements.  Certain  of  these  risks,  uncertainties  and  other  factors  are
discussed in this  Quarterly  Report or in the  Company's  Annual Report on Form
10-KSB for the year ended December 31, 1998 a copy of which may be obtained from
the Company upon request and without charge (except for the exhibits thereto).

In analyzing  whether to make,  or to continue,  an  investment  in the Company,
investors   should   consider,   among   other   factors,   certain   investment
considerations  more  particularly  described in the Company's  Annual Report on
Form 10-K for the year ended  December 31, 1998, a copy of which can be obtained
from Reid L. Heeren,  Vice  President,  First Colonial  Group,  Inc., 76 S. Main
Street, Nazareth, PA 18064.

Liquidity and Capital Resources

Liquidity is a measure of the Company's  ability to raise funds to support asset
growth,  meet deposit  withdrawal and other borrowing  needs,  maintain  reserve
requirements and otherwise  operate the Company on an ongoing basis. The Company
manages its assets and liabilities to maintain liquidity and earnings stability.
Among  the  sources  of  liquidity  are  money  market  investments,  securities
available-for-sale,  funds  received  from the  repayment  of loans,  short-term
borrowings  and  borrowings  from the Federal Home Loan Bank.  At September  30,
1999,  cash, due from banks,  Federal funds sold and interest  bearing  deposits
with banks totaled $22,198,000,  and securities maturing within one year totaled

<PAGE>

$3,552,000.  At December 31, 1998, cash, due from banks,  Federal funds sold and
interest  bearing  deposits  with banks,  totaled  $17,560,000,  and  securities
maturing within one year were $4,493,000.  Securities sold under an agreement to
repurchase  totaled  $7,949,000 at September 30, 1999 and $5,094,000 at December
31, 1998. The Bank is a member of the Federal Home Loan Bank of Pittsburgh.  The
Bank had  interest  bearing  demand  deposits at the  Federal  Home Loan Bank of
Pittsburgh in the amount of  $6,329,000 at September 30, 1999 and  $3,193,000 at
December  31,  1998.  These  deposits  are  included  in due  from  banks on the
Company's financial  statements.  As a result of this relationship,  the Company
places most of its short-term funds at the Federal Home Loan Bank of Pittsburgh.
At  September  30,  1999 and  December  31, 1998 there were  Federal  funds sold
totaling $2,000,000.

The Federal Home Loan Bank of Pittsburgh provides the Bank with a line of credit
in the  amount  of  $25,000,000  at  September  30,  1999,  subject  to  certain
collateral  requirements.  The Bank  had no  short-term  (overnight)  borrowings
against  this line at September  30, 1999 or at December 31, 1998.  The Bank had
additional  borrowings  from the Federal  Home Loan Bank at  September  30, 1999
totaling  $30,000,000 of which  $8,000,000 is due in August 2000,  $5,000,000 is
due in December 2001, $10,000,000 is due in August 2004 and $7,000,000 is due in
October 2008.

Cash flows for the nine  months  ended  September  30,  1999  consisted  of cash
provided by operating  activities of  $1,473,000  and cash provided by financing
activities of $34,023,000,  offset in part by cash used in investing  activities
of  $34,033,000  resulting  in an  increase  in cash  and  cash  equivalents  of
$1,463,000.

Cash provided by operating  activities  was the result of mortgage loan sales of
$36,922,000,  net operating income of $2,595,000,  depreciation and amortization
of $763,000  and a provision  for possible  loan losses of  $250,000,  partially
reduced by mortgage  loans  originated for sale of  $36,799,000,  an increase in
other assets of $1,357,000,  an increase in accrued  interest  income of $85,000
and a decrease in other  liabilities  of  $227,000.  Cash was used in  investing
activities   for   the   purchase   of   securities    available-for-sale    and
held-to-maturity of $66,957,000 and $6,211,000,  respectively, plus net increase
in  interest-bearing  deposits  with banks of  $3,176,000,  partially  offset by
proceeds from maturities of securities  available-for-sale  and held-to-maturity
of  $11,467,000  and  $3,622,000,   respectively,  net  decreases  in  loans  of
$11,029,000,  and  proceeds  from  sales  of  securities  available-for-sale  of
$16,857,000.  Cash provided by financing  activities  consisted  principally  of
increases  in interest  and  non-interest  bearing  demand  deposits and savings
accounts of $4,803,000 an increase in certificates of deposit of $18,110,000, an
increase  in  long-term  debt with the  Federal  Home Loan Bank of  $10,000,  an
increase in repurchase  agreements of $2,855,000  and the proceeds from the sale
of  common  stock of  $240,000,  offset in part by an  increase  in ESOP debt of
$1,000,000,  the payment of cash  dividends of $981,000 and cash paid in lieu of
fractional shares of $4,000.

<PAGE>

The Company recognizes the importance of maintaining  adequate capital levels to
support  sound,  profitable  growth  and to  encourage  depositor  and  investor
confidence.  Shareholders'  equity at  September  30,  1999 was  $29,246,000  as
compared to $31,717,000 at December 31, 1998, for a decrease of $2,471,000. This
decline was  attributable to a decrease of $3,321,000 in the value of securities
available-for-sale (see discussion on "Investment  Securities"),  an increase of
$1,000,000 in the debt related to the Employee Stock Ownership Plan, the payment
of cash  dividends  of  $981,000  and the  payment  of $4,000 in cash in lieu of
fractional shares from the 5% stock dividend of June 24, 1999, offset in part by
net income for the first nine months of 1999 of $2,595,000 and proceeds from the
sale of common stock pursuant to the Dividend Reinvestment Plan of $240,000.

On June 24, 1999, the Company paid a 5% stock dividend to shareholders of record
on June 4, 1999.  Fractional shares were paid in cash based on the closing price
of $23.312 per share on the record date.

The Company  maintains a Dividend  Reinvestment and Stock Purchase Plan.  During
the first nine months of 1999, 10,643 shares of common stock were purchased from
authorized  and  unissued  shares at an  average  price of $22.55  per share for
proceeds of approximately $240,000.

The Company and the Bank are subject to various regulatory capital  requirements
administered  by the Federal banking  agencies.  Failure to meet minimum capital
requirements   can  initiate   certain   mandatory   and   possibly   additional
discretionary  actions by regulators  that, if  undertaken,  could have a direct
material effect on the Company's  financial  statements.  Under capital adequacy
guidelines  and the  regulatory  framework  for prompt  corrective  action,  the
Company  and the  Bank  must  meet  specific  capital  guidelines  that  involve
quantitative measures of the Company's and the Bank's assets,  liabilities,  and
certain  off-balance-sheet  items  as  calculated  under  regulatory  accounting
practices.  The Company's and the Bank's capital amounts and  classification are
also subject to qualitative  judgments by the regulators about components,  risk
weightings, and other factors.

Quantitative  measures  established  by  regulation to ensure  capital  adequacy
require the Company and the Bank to maintain  minimum amounts and ratios of Tier
I  capital  of at  least  4% and  total  capital,  Tier I and  Tier  2, of 8% of
risk-adjusted  assets  and of Tier 1 capital  of at least 4% of  average  assets
(leverage  ratio).  Tier 1 capital  includes  common  shareholders'  equity  and
qualifying  perpetual  preferred  stock  together  with  related  surpluses  and
retained  earnings.  Tier 2 capital may be comprised  of limited life  preferred
stock, qualifying debt instruments,  and the allowance for possible loan losses.
Management believes, that as of September 30, 1999, the Company and the Bank met
all capital adequacy requirements to which they were subject.

<PAGE>

Capital Ratios

<TABLE>
                                                                  To Be Well
                                                                 Capitalized
                                                 Required        Under Prompt
                                                For Capital       Corrective
                                Actual           Purposes         Provisions
(Dollars in Thousands)
 At Sept 30, 1999           Amount   Ratio     Amount   Ratio   Amount  Ratio
<S>                        <C>       <C>      <C>       <C>    <C>      <C>
Total Capital
(To Risk-Weighted Assets)
  Company, (Consolidated)   $33,917   16.50%   $16,471   8.00%      ---    ---
  Bank                      $30,571   14.85%   $16,467   8.00%  $20,583  10.00%

Tier 1 Capital
(To Risk-Weighted Assets)
  Company, (Consolidated)   $31,421   15.29%   $ 8,235   4.00       ---    ---
  Bank                      $27,875   13.54%   $ 8,233   4.00%  $12,350   6.00%

Tier 1 Capital
(To Average Assets,
 Leverage)
  Company, (Consolidated)   $31,421   7.99%    $15,714   4.00%      ---    ---
  Bank                      $27,875   7.12%    $15,658   4.00%  $19,572   5.00%
</TABLE>

<TABLE>
                                                                 To Be Well
                                                                 Capitalized
                                                 Required        Under Prompt
                                                For Capital       Corrective
                                Actual           Adequacy           Action
(Dollars in Thousands)
 At December 31, 1998        Amount   Ratio     Amount   Ratio   Amount  Ratio
<S>                        <C>      <C>       <C>       <C>    <C>      <C>
Total Capital
(To Risk-Weighted Assets)
  Company, (Consolidated)   $33,555  16.97%    $15,819   8.00%      ---    ---
  Bank                      $29,450  15.02%    $15,684   8.00%  $19,667  10.00%

Tier 1 Capital
(To Risk-Weighted Assets)
  Company, (Consolidated)   $30,938  15.64%    $ 7,906   4.00%      ---    ---
  Bank                      $26,596  13.57%    $ 7,842   4.00%  $11,800   6.00%

Tier 1 Capital
(To Average Assets,
 Leverage)
  Company, (Consolidated)   $30,938   8.60%    $14,114   4.00%      ---    ---
    Bank                    $26,596   7.47%    $13,951   4.00%  $17,514   5.00%
</TABLE>


<PAGE>


The Company is not aware of any trends, events or uncertainties that will have a
material  effect on the Company's  liquidity,  capital  resources or operations,
except for higher interest rates which could cause deposit disintermediation and
an increase in interest expense and the possibility of inflationary  trends, the
results of which cannot be determined at this time. The Company is not under any
agreement  with  the  regulatory  authorities  nor is it  aware  of any  current
recommendation by regulatory authorities which, if they were implemented,  would
have  a  material  adverse  effect  on  liquidity,  capital  resources,  or  the
operations of the Company.

Assets and Liabilities

Total assets at September 30, 1999 were  $390,346,000,  representing an increase
of $31,850,000 or 8.9% over total assets of  $358,496,000  at December 31, 1998.
Deposits increased by $22,912,000 or 7.8% from $294,549,000 on December 31, 1998
to  $317,461,000  on September  30, 1999.  Contributing  to this  increase  were
increases in certificates of deposit of $18,110,000,  interest  bearing checking
deposits of $2,249,000,  non-interest  bearing checking  deposits of $2,600,000,
and money market deposits of $699,000,  partially offset by a decline in savings
deposits of $746,000.  Loans outstanding at September 30, 1999 were $200,987,000
as  compared  to  $212,437,000  at  December  31,  1998.  This is a decrease  of
$11,450,000 or 5.7%. The decline in loans was primarily the result of a decrease
of $24,502,000 or 30.5% in residential real estate loans.  During the first nine
months of 1999, $36,922,000 of residential real estate loans were sold. Included
in those  sales  was the sale of  $20,977,000  of  adjustable  rate  residential
mortgage loans in September, 1999. These loans were originated in years prior to
1999 and were sold to provide  liquidity and reduce the Company's  interest rate
risk.  The  remaining  $15,945,000  of sold  residential  real estate loans were
primarily  originated  in 1999 and sold at various  times  during the nine month
period.  These loans were fixed rate and sold to provide funds for other lending
opportunities.  The Bank  continues  to service all of these  loans.  There were
$484,000 of  residential  real  estate  loans  identified  as  held-for-sale  at
September  30,  1999.  Additionally,  the net decrease in loans during the first
nine months of 1999 included a $2,960,000  or 4.9% decrease in commercial  loans
partially  offset by a $16,011,000 or 22.4% increase in consumer loans. The loan
to deposit ratio was 63.3% at September 30, 1999 and 72.1% at December 31, 1998.

Premises and equipment decreased by $166,000 to $7,051,000 at September 30, 1999
from $6,885,000 at December 31, 1998.

The Company had  long-term  debt totaling  $30,000,000  at September 30, 1999 as
compared to  $20,000,000  at December  31,  1998.  Of the loans  outstanding  at
September 30, 1999,  $8,000,000  matures in August 2000,  $5,000,000  matures in
December  2001,  $10,000,000  matures in August 2004 and  $7,000,000  matures in
October  2008.  The  interest  rates  associated  with these loans are  variable
(changes quarterly based on the three month LIBOR plus 6 basis points), variable
(changes  quarterly  based on the three month LIBOR plus 8 basis points),  6.06%
fixed and  4.86%  fixed,  respectively.  The loans  are  secured  by the  Bank's

<PAGE>

investment and residential  real estate loans and  securities.  These funds were
borrowed to improve  liquidity and to fund loans.  The $10,000,000 loan maturing
in August 2004 was  originated in August 1999 at an interest rate of 6.06% fixed
for 2 years at which time it can convert to a quarterly adjustable rate of LIBOR
plus 15 basis points if the LIBOR rate is 7.5% or higher. The proceeds from this
new loan were used in the investment  portfolio for the purpose of improving the
Company's earnings.

During the first half of 1999,  the  Company's  Employee  Stock  Ownership  Plan
(ESOP) borrowed $1,000,000 from the Company's  subsidiary,  First C. G. Company,
payable over twenty years with interest due quarterly and principal  annually in
October.  The  interest  rate on this loan is at the Bank's prime rate (7.75% at
September  30, 1999).  The proceeds from this loan were used to purchase  35,500
shares of the Company's common stock. This loan is due in 2005 with interest due
quarterly and principal  annually in October.  The interest rate on this loan is
at the Bank's  prime rate (7.75% at September  30, 1999 and December 31,  1998).
The balance outstanding on these ESOP loans was $1,435,000 at September 30, 1999
and $435,000 at December 31, 1998.

At  September  30,  1999 and  December  31,  1998  the  Bank  had no  short-term
borrowings  from the  Federal  Home  Loan Bank of  Pittsburgh  against a line of
credit of $25,000,000.

Results of Operations

The net income for the three months ended  September  30, 1999 was  $885,000,  a
$14,000 or 1.6% increase  compared to net income of $871,000 for the same period
in 1998.  The  earnings  improvement  was  attributable  to an  increase  in net
interest  income of  $337,000 or 9.3%,  an  increase  in total  other  income of
$22,000 or 2.6%, exclusive of gains on the sale of mortgage loans and net losses
on the sale of investment  securities,  a decrease in the provision for possible
loan losses of $113,000 and a $28,000 or 9.2% decrease in Federal  income taxes,
partially  offset by an  increase  in total  operating  expenses  of $410,000 or
12.3%,  lower gains on the sale of  residential  real estate loans of $72,000 or
53% and $4,000 in net losses on the sale of investment securities.

Net income for the nine months ended September 30, 1999 was $2,595,000  compared
to  $2,534,000  for the same  period in 1998,  this is an increase of $61,000 or
2.4%. The earnings improvement was primarily  attributable to increases in total
other income and net interest income.  During the first nine months of 1999, net
interest  income  increased  $229,000 or 2% as compared to  September  30, 1998.
During this period,  the  provision  for possible loan losses was $88,000 or 26%
lower than that in 1988. Also affecting earnings was a $208,000 or 8.6% increase
in total other  income  exclusive  of $94,000  increase in security  gains and a
$153,000 reduction in gains on the sale of mortgages, an increase in total other
expenses of $533,000 or 5.1% and a decrease in Federal  income taxes of $128,000
or 14.2%.

<PAGE>

Basic and diluted  earnings per share for the three months ended  September  30,
1999  were  $0.49 as  compared  to $0.48 for the  corresponding  period in 1998.
Average basic shares  outstanding  during this three month period were 1,784,423
in 1999 and  1,803,416  in 1998.  Basic  earnings  per share for the nine months
ended  September 30, 1999 were $1.45 as compared to $1.41 for the  corresponding
period in 1998.  Average basic shares  outstanding during this nine month period
were 1,784,866 in 1999 and 1,801,925 in 1998. Diluted earnings per share for the
nine  month  period  ended  September  30 were $1.44 and $1.40 in 1999 and 1998,
respectively.  Per share  earnings  and  average  shares  outstanding  have been
restated to reflect the 5% stock dividend paid on June 24, 1999. (see Note F)

Net Interest Income

The "Rate/Volume  Analysis" table segregates,  in detail, the major factors that
contributed  to the  changes in net  interest  income,  for the quarter and nine
months  ended  September  30, 1999 as compared to the same period in 1998,  into
amounts  attributable  to both rate and volume  variances.  In  calculating  the
variances,  the changes were first segregated into (1) changes in volume (change
in volume  times the old rate),  (2) changes in rate  (changes in rate times the
old volume) and (3) changes in rate/volume  (changes in rate times the change in
volume). The changes in rate/volume have been allocated in their entirety to the
change in rates.  The interest  income  included in the  "Rate/Volume  Analysis"
table has been adjusted to a fully taxable  equivalent  amount using the Federal
statutory  tax rate of 34%.  Non  accruing  loans  have  been  used in the daily
average  balances to determine  changes in interest  income due to volume.  Loan
fees included in the interest income calculation are not material.

Net interest  income amounted to $3,980,000 for the three months ended September
30, 1999 as compared to  $3,643,000  for the three  months ended  September  30,
1998, an increase of $337,000 or 9.3%. This increase was primarily the result of
increases in interest earning assets and deposits.

The fully  taxable-equivalent  net interest income was $11,842,000 for the first
nine months of 1999, compared to $11,469,000 for the same period in 1998, a 3.3%
or $373,000  increase as shown in the following  "Rate/Volume  Analysis"  table.
This increase in  taxable-equivalent  net interest income was primarily due to a
$359,000  increase  related to volume and a $14,000 increase related to interest
rates.

For  the  nine  months  ended  September  30,  1999,  net  interest  income  was
$11,221,000  compared to $10,992,000 for the same period in 1994, an increase of
$229,000 or 2.1%.

Total  taxable-equivalent  interest income grew $659,000 primarily the result of
the higher volumes in the investment  security  earning asset  category.  Income
from investment  securities for the third quarter increased  $1,497,000 or 29.7%
over the same period in 1998. This was comprised of a $1,989,000 increase due to
volume  partially  offset  by a  $492,000  decrease  due to rates as a result of

<PAGE>

declining yields.  Average year-to-date earning assets increased to $351,179,000
at September 30, 1999 from $325,435,000 at September 30, 1998, a 7.9% increase.

Total  interest  expense  grew  $286,000  during the first nine  months of 1999,
compared to the same period in 1998.  This growth was  principally the result of
higher volumes, primarily due to an increase in time deposits.  Interest expense
attributed to time deposits  increased  $187,000 during the first nine months of
1999,  compared to the first nine months of 1998.  The increase in time deposits
was used to finance the earning asset growth.  Partially  offsetting this growth
in interest  expense were lower interest rates paid on all deposit accounts as a
result of repricing due to market  conditions  (see Item 3. -  Quantitative  and
Qualitative Discussion About Market Risk).

<PAGE>

The following  table sets forth a  "Rate/Volume  Analysis"  which  segregates in
detail the major factors that  contributed to the changes in net interest income
for the nine months ended  September 30, 1999. The interest  income  included in
the table has been  adjusted  to a fully  taxable  equivalent  amount  using the
Federal statutory tax rate of 34%.

                             RATE/VOLUME ANALYSIS
                             (Dollars in Thousands)
                                   (Unaudited)
<TABLE>
                                                      Nine Months Ended
                                                     September 30, 1999
                                                       Over / (Under)
                                                     September 30, 1998
                                                       CHANGE DUE TO:
                                                TOTAL      RATE     VOLUME
<S>                                         <C>        <C>        <C>
(Fully Taxable Equivalent)
INTEREST INCOME
Interest-Bearing Balances With Banks         $   (28)   $   (26)   $    (2)
Federal Funds Sold                                (7)       ---         (7)
Investment Securities                          1,497       (492)     1,989
Loans Held for Sale                               11         15         (4)
Loans                                           (814)      (423)      (391)
                                             -------    -------    -------
Total Interest Income                        $   659    $  (926)   $ 1,585
                                             -------    -------    -------

INTEREST EXPENSE
Demand Deposits, Savings & Clubs             $     6    $   (85)   $    91
Time Deposits                                    187       (517)       704
Federal Funds Purchased and Securities
   Sold Under Agreements to Repurchase           (19)       (31)        12
Short-Term Borrowings                             55        (39)        94
Long-Term Borrowings                              57       (143)       200
                                             -------    -------    -------
Total Interest Expense                           286       (815)     1,101
                                             -------    -------    -------

Net Increase (Decrease) in Interest Income   $   373    $  (111)   $   484

</TABLE>

<PAGE>

Other Income and Other Expenses

Other income for the three months ended  September  30, 1999  including  service
charges, trust fees, gains on the sale of mortgage loans and other miscellaneous
income, but exclusive of securities gains or losses, was $941,000 as compared to
$991,000 for the same period in 1998. This was a decrease of $50,000 or 5%. This
decrease  was the result of a $72,000 or 53% decline in the gains on the sale of
mortgage  loans  and a  $4,000  decline  in  Trust  revenue,  offset  in part by
increases in service  charges and other  income.  There were $63,000 in gains on
the sale of mortgage  loans for the three month period ended  September 30, 1999
as compared to $135,000  for the same period in 1998.  In the three month period
ended  September  30, 1999,  service  charges were  $432,000,  a $13,000 or 3.1%
increase  over the  1998  amount  of  $419,000.  The  revenues  from  the  Trust
Department  operations  were  $271,000 for the three months ended  September 30,
1999 as compared to $275,000 for the three months  ended  September  30, 1998, a
decline of $4,000 or 1.5%. Other miscellaneous income for the three months ended
September  30,  1999 was  $175,000,  an  increase  of $13,000 or 8%  compared to
$162,000 for the same period in 1998.

Other  income for the nine months ended  September  30, 1999  including  service
charges,  trust  revenues,  gains  on the  sale  of  mortgage  loans  and  other
miscellaneous   income,  but  exclusive  of  securities  gains  or  losses,  was
$2,769,000  as compared to $2,714,000  for the same period in 1999.  This was an
increase of $55,000 or 2%. In the nine month  period  ended  September  30, 1999
service charges were $1,229,000, a $49,000 or 4.2% increase over the 1998 amount
of  $1,180,000.  The increase in service  charge  income is the result of higher
fees  assessed to  noncustomer  use of the Bank's ATM network and an increase in
Debit Card fees. The revenues from the Investment  Management and Trust Division
operations  were  $874,000  for the nine  months  ended  September  30,  1999 as
compared to $750,000 for the nine months ended  September  30, 1998, an increase
of $124,000 or 16.5%.  This increase is due to growth in new Trust  accounts and
estate fees.  During the nine months ended September 30, 1999, sales of mortgage
loans resulted in a gain of $154,000 as compared to $307,000 for the same period
in 1998, a decrease of $153,000 or 49.8%. The gain was the result of the sale of
$36,922,000 and  $36,402,000 of residential  real estate loans in the first nine
months  of  1999  and  1998,   respectively   (see   discussion  on  Assets  and
Liabilities).  Other  operating  income for the nine months ended  September 30,
1999 was  $512,000  as  compared  to  $477,000  for the same  period in 1998,  a
increase of $35,000 or 7.3%.

Total  other  expenses  for the three  month  period  ended  September  30, 1999
increased by $410,000 or 12.2% to $3,756,000  over total other  expenses for the
same period in 1998 of  $3,346,000.  Included in this  increase is a $114,000 or
7.1% increase in salary and benefit  expenses which were  $1,726,000 as compared
to $1,612,000 in 1998.  These  increases  were  primarily due to general  salary
increases of approximately  3% and additional staff  necessitated by the opening
of our fourteenth  branch located on Main Street in  Stroudsburg,  Pennsylvania.
Occupancy  and  equipment  expenses  were  $560,000  for the three  months ended

<PAGE>

September  30, 1999 and $501,000 for the three months ended  September 30, 1998,
an increase of $59,000 or 11.8%. The increase in occupancy expenses were related
to the new branch and  renovations  to the Company's  Operations  Center.  Other
operating  expenses  for the three month period  ended  September  30, 1999 were
$1,470,000,  an  increase  of  $237,000  or 19.2% over the  $1,233,000  in other
expenses for the same period in 1998.  This increase was primarily the result of
higher legal and marketing expenses

Total other  expenses for the nine months ended  September 30, 1999 increased by
$533,000 or 5.1%, to $10,931,000  from  $10,398,000 for the same period in 1998.
Salaries  and  employee  benefits  were  $5,019,000  for the nine  months  ended
September 30, 1999 as compared to $4,844,000 for the nine months ended September
30, 1998  representing  an increase of  $175,000 or 3.6%.  These  increases  are
primarily due to general  salary  increases of  approximately  3% and additional
staff added during the third quarter for the new branch. Occupancy and equipment
expenses  were  $1,610,000  for the nine  months  ended  September  30, 1999 and
$1,582,000 for the nine months ended  September 30, 1998, an increase of $28,000
or 1.8%.  Other operating  expenses for the nine months ended September 30, 1999
were  $4,302,000 in relation to $3,972,000  for the nine months ended  September
30,  1998,  an increase of  $330,000  or 8.3%.  Included in the other  operating
expenses was a $299,000 increase in legal expenses.

Investment Securities

The Company classifies its debt and marketable securities into three categories:
trading,  available-for-sale,  and held-to-maturity as provided by the Financial
Accounting  Standards No. 115,  "Accounting for Certain  Investments in Debt and
Equity Securities".  The Company had no trading securities at September 30, 1999
and December 31, 1998.

Available-for-sale  securities are carried at fair value with the net unrealized
gains  or  losses   reported  in  equity.   The  Company  had   $132,544,000  in
available-for-sale  securities at September 30, 1999 with a net unrealized  loss
of $2,794,000.  At December 31, 1998  available-for-sale  securities amounted to
$98,389,000 with a net unrealized gain of $527,000.

During the nine month period ended September 30, 1999, $16,300,000 of securities
available-for-sale  were  sold  for  a net  gain  of  $557,000  as  compared  to
$4,571,000 of securities available-for-sale were sold for a net gain of $463,000
for the same time period in 1998.

Held-to-maturity  securities  totaling  $20,289,000  at  September  30, 1999 are
carried at cost. At December 31, 1998, the  held-to-maturity  securities totaled
$17,723,000. The Company has the intent and ability to hold the held-to-maturity
securities until maturity.  The Company, at September 30, 1999, did not hold any
securities identified as derivatives.

<PAGE>

Allowance and Provision for Possible Loan Losses

The provision is based on management's analysis of the adequacy of the allowance
for loan losses. In its evaluation,  management  considers past loan experience,
overall  characteristics of the loan portfolio,  current economic conditions and
other  relevant  factors.  Management  currently  believes that the allowance is
adequate to absorb known and inherent losses in the loan portfolio.  Ultimately,
however,  the  adequacy of the  allowance  is largely  dependent  upon  economic
conditions which are beyond the scope of management's control.

For the first nine months of 1999,  the  provision  for loan losses was $250,000
compared to $338,000 for the same period in 1998.  Net charge offs were $445,000
for the nine months ended September 30, 1999 compared with $358,000 for the nine
months ended  September 30, 1998.  The ratio of the allowance for loan losses to
total loans at  September  30, 1999 was 1.24%  compared to 1.27% at December 31,
1998 and  1.24%  at  September  30,  1998.  This was  primarily  the  result  of
management's  decision not to make a provision  to the reserve  during the third
quarter of 1999 due to a decline in total loans to $200,987,000 at September 30,
1999 from  $212,437,000 at December 31, 1998. This decline was the result of the
sale of  $36,922,000 of mortgage loans during the first nine months of 1999. The
allowance for possible loan losses at September 30, 1999 totaled  $2,496,000,  a
decrease of $195,000 or 7.2% over the December 31, 1999 amount of $2,691,000 and
$148,000 or 5.6% over the September 30, 1998 balance of $2,644,000.

As  provided  by SFAS No.  114,  as amended  by SFAS No.  118,  $111,000  of the
Allowance for Possible  Loan Losses is allocated to impaired  loans at September
30, 1999 (See Note I "Impaired Loans").

Transactions in the allowance for loan losses are as follows:

ALLOWANCE FOR LOAN LOSSES
<TABLE>

                                               1999           1998
<S>                                      <C>            <C>

Balance, January 1,                       $ 2,691,000    $ 2,664,000
Provision charged to Operating Expenses       250,000        338,000
Loans Charged Off                            (513,000)      (432,000)
Recoveries                                     68,000         74,000
                                          -----------     ----------
Balance September 30,                     $ 2,496,000    $ 2,644,000
</TABLE>

<PAGE>

The following table sets forth an allocation of the allowance for loan losses by
loan   category:

<TABLE>

         At September 30, 1999
        <S>                                      <C>

         Commercial                               $  940,000
         Residential Real Estate                     161,000
         Consumer                                    774,000
         Unallocated                                 621,000
                                                  ----------
              Total                               $2,496,000
</TABLE>

Non-Performing Loans

The  following  discussion  relates to the  Bank's  non-performing  loans  which
consist of those on a  non-accrual  basis and accruing  loans which are past due
ninety days or more.

Accrual of interest is discontinued on a loan when  management  believes,  after
considering  economic and business  conditions and collection  effort,  that the
borrower's  financial  condition  is such that the  collection  of  interest  is
doubtful.  The Company  views  these loans as  non-accrual,  but  considers  the
principal to be  substantially  collectible  because the loans are  protected by
adequate  collateral or other  resources.  Interest on these loans is recognized
only when  received.  The  following  table shows the balance of  non-performing
loans for each of the periods indicated.

Total non-performing assets (non-accruing loans and loans past due over 90 days)
amounted to  $2,489,000  at  September  30, 1999 as  compared to  $2,266,000  at
December   31,1998  and   $2,506,000  at  September  30,  1998.   The  ratio  of
non-performing  loans to total loans was 1.24% and 1.18% at  September  30, 1999
and 1998, respectively.  The increase in this ratio is primarily the result of a
decrease in total loans due to the sale of residential real estate loans.

Non-accruing loans at September 30, 1999 of $1,111,000  decreased from September
30, 1998 level of $1,554,000. This $443,000 decrease was primarily the result of
the charge off of a commercial  loan. These loans are secured by commercial real
estate.  At the present  time,  management  is of the  opinion  that these loans
present a minimal amount of exposure to the Bank.

Loans past due 90 days or more and still  accruing  interest  are loans that are
generally  well secured and  expected to be restored to a current  status in the
near future.  As of September 30, 1999, loans past due 90 days or more and still
accruing  interest were  $1,378,000  compared to $952,000 at September 30, 1998.
The  $426,000  increase  in loans past due 90 days from  September  30,  1998 to
September 30, 1999 was the result of increases in mortgage and commercial  loans
past due 90 days or more.

<PAGE>

NON-PERFORMING LOAN

NON-PERFORMING LOANS
<TABLE>
                                            Sept 30,  December 31,   Sept 30,
                                              1999        1998          1998
<S>                                      <C>          <C>           <C>

Non-accrual loans on a cash basis         $1,111,000  $1,245,000     $1,554,000
Non-accrual loans as a percentage
  of total loans                               0.55%       0.59%          0.73%
Accruing loans past due 90 days
  or more                                 $1,378,000  $1,021,000     $  952,000
Accruing loans past due 90 days
  or more as a percentage of total
  loans                                        0.69%       0.48%          0.45%
Other Real Estate Owned from
  Foreclosed Property                     $  678,000  $  636,000     $  209,000
Allowance for loan losses to
  nonperforming loans                        100.32%     118.80%        105.51%
Nonperforming assets to total loans            1.24%       1.07%          1.18%
Allowance for loan losses to total loans       1.24%       1.27%          1.24%

</TABLE>

There are no significant loans classified for regulatory  purposes that have not
been  included in the above table of  non-performing  loans.  The Company has no
significant  loans that qualify as "Troubled Debt  Restructuring"  as defined by
the Financial  Accounting  Standards Board's  Statement of Financial  Accounting
Standards  No. 15  "Accounting  for  Debtors and  Creditors  for  Troubled  Debt
Restructuring" at September 30, 1999.

YEAR 2000

The  Company  has  adopted a Year 2000  policy to address  the "Year 2000" issue
concerning the inability of certain  information systems and automated equipment
to properly  recognize and process dates containing the Year 2000 and beyond. If
not  corrected,   these  systems  and  equipment  could  produce  inaccurate  or
unpredictable  results  commencing on January 1, 2000.  The Company,  similar to
most financial services providers,  is particularly  vulnerable to the potential
impact  of the Year  2000  issue due to the  nature  of  financial  information.
Potential impacts to the Company may arise from software, computer hardware, and
other  equipment  both within the  Company's  direct  control and outside of the
Company's ownership,  yet with which the Company electronically or operationally
interfaces.

In order  to  address  the Year  2000  issue,  the  Company  has  developed  and
implemented  a five phase  compliance  plan  divided  into the  following  major
components:  (1) Awareness; (2) Assessment;  (3) Renovation;  (4) Validation and
Testing;  and (5)  Implementation.  The Company completed all five phases of the
plan for all of its mission-critical systems.

<PAGE>

The Company has identified its mission-critical systems as those that affect the
Company's  ability to process banking  transactions  and its general  accounting
systems.  Such systems include  deposit,  loan and trust  accounting,  check and
deposit processing and branch teller equipment.

The Company purchases most of its computer software from major outside providers
of bank software.  A significant  component of the Year 2000 plan was to install
the Year 2000  compliant  software  provided  by these  vendors and also to test
these supplied systems. The Company's major software providers have informed the
Company that, based on tests they have conducted,  they believe their respective
systems to be Year 2000  compliant.  In addition,  the Company has conducted its
own tests on these systems provided by vendors.  The Company  completed  testing
and implementation of all mission-critical systems in June, 1999.

The Company has reviewed the impact of Year 2000 on other  equipment and systems
such as heating, air conditioning, telecommunications, electric service, vaults,
photocopiers,  personal computers, printers and other equipment where necessary.
Some of this equipment,  such as personal  computers,  has been replaced.  Other
items such as vaults, heating, air conditioning,  photocopiers and printers have
been  tested  and  found  "not  date  sensitive".  The  Company's  providers  of
telecommunications  and electric  service have been  contacted.  These providers
have indicated they do not expect any interruption of service in the Year 2000.

Other  important  segments of the Year 2000 plan are to identify those suppliers
and customers  whose  possible lack of Year 2000  preparedness  might expose the
Company to financial loss.  Included in this process were  communications to all
the Company's  customers and  identification of loan and deposit customers whose
failure to address the Year 2000 Issue might impact their banking  relationship.
As a result of this  communication,  the Company has identified  those customers
who may be affected by the Year 2000.  Risk factors have been  assigned to these
customers.  The Company does not anticipate any significant  loss as a result of
these  risks.  The  Company  has  initiated   communications  with  all  of  its
significant suppliers to determine the extent to which the Company is vulnerable
to those third parties' failure to remediate their own Year 2000 issues.

The Company has also  assessed  the amount of currency  the Bank will require at
year-end as a result of expected increased customer demand. The Company has made
arrangements  with the Federal  Reserve Bank to obtain any  additional  currency
required.

The Company has developed  contingency plans to address any or all systems that,
despite  all  testing,  still do not  operate  correctly  in the Year 2000.  The
contingency  plans  provide for manual and personal  computer  based  systems to
process checks,  deposits and loan  transactions.  The Company will increase its
inventories  of the  various  required  supplies,  such as new  account and loan
forms,  deposit withdrawal forms and other pre-printed  forms,  available at the
Company's Main Office and branch  offices.  Alternative  communications  systems

<PAGE>

have been  established  and  alternative  power sources are being  investigated.
These plans have been  finalized and tested during the first half of 1999 except
the plans  with  respect  to the  alternative  power  source.  The  Company  has
purchased  an  electric  generator  for its  Operations  Center,  which  will be
installed in November.  At this time, the Company  cannot  estimate the cost, if
any, that might be required to implement such contingency plans.

During  the third  quarter  of 1999,  the  Company  spent  $28,000  on Year 2000
compliance  matters.  During the first nine months of 1999,  the  Company  spent
$126,000 on Year 2000 compliance  matters.  As of September 30, 1999, a total of
$977,000 has been spent on this  project.  These  expenses are  comprised of the
replacement of branch teller and new account  systems for $645,000,  replacement
of personal computers for $231,000, replacement of mortgage lending software for
$19,000,  replacement  of ATMs  for  $28,000,  customer  communication  $11,000,
alternative electric power system $11,000, and enhancements to banking and trust
systems of $32,000.  Additional expenses expected in 1999 include $80,000 for an
alternative  electric power system,  $25,000 for branch new account systems, and
$40,000  for  other  banking  systems.  The  expenses  related  to Year 2000 are
financed  by the  general  revenues  of the  Company  and  are  included  in the
Company's other operating expenses in the Company's financial statement.

The Company  anticipates  that its total Year 2000  project cost will not exceed
$1,250,000.  This  estimated  project  cost is based  upon  currently  available
information.  The aforementioned Year 2000 project cost estimate also may change
as the  Company  progresses  in its Year 2000  program  and  obtains  additional
information and conducts further testing. At this time, no significant  projects
have been delayed as a result of the Company's Year 2000 effort.

Financial  institution  regulators  have  intensively  focused  upon  Year  2000
exposures, issuing guidance concerning the responsibilities of senior management
and directors.  Year 2000 testing and  certification is being addressed as a key
safety and soundness  issue in conjunction  with regulatory  exams.  The Federal
banking agencies have highly  prioritized Year 2000 compliance in order to avoid
major disruptions to the operations of financial  institutions and the country's
financial systems when the new century begins.

The  Federal  banking   agencies  have  been  conducting  Year  2000  compliance
examinations.  The failure to  implement  an adequate  Year 2000  program can be
identified as an unsafe and unsound banking  practice.  The Company and the Bank
are subject to regulation and  supervision  by the Federal  Reserve Bank and the
Comptroller of the Currency which regularly  conducts  reviews of the safety and
soundness of the  Company's  operations,  including  the  Company's  progress in
becoming  Year  2000  compliant.   The  regulatory   agencies  have  established
examination    procedures   which   contain   three   categories   of   ratings:
"Satisfactory",  "Needs  Improvement" and  "Unsatisfactory".  Institutions  that
receive  a  Year  2000  rating  of  Unsatisfactory  may  be  subject  to  formal
enforcement action, supervisory agreements, cease and desist orders, civil money

<PAGE>

penalties,  or the  appointment of a conservator.  In addition,  Federal banking
agencies  will be  taking  into  account  Year  2000  compliance  programs  when
reviewing  applications  and may deny an application  based on Year 2000 related
issues.  Failure by the Company to adequately prepare for Year 2000 issues could
negatively impact the Company's banking operations,  including the imposition of
restrictions upon its operations by the Comptroller of the Currency.

Despite the Company's activities in regards to the Year 2000 Issue, there can be
no assurance that partial or total systems  interruptions or the costs necessary
to update  hardware and software  would not have a material  adverse effect upon
the Company's business, financial condition, results of operations, and business
prospects. There is also no guarantee that the hardware, software and systems of
third  parties such as utility  companies,  other banks,  computer  services and
supply  companies,  the Federal Reserve Bank,  other Federal  agencies and other
vendors  who  provide  services  and  supplies  to the  Company  will be free of
unfavorable  Year 2000 issues.  The failure of such third  parties  could have a
material adverse impact upon the Company.

<PAGE>


ITEM 3.  Quantitative and Qualitative Discussion About Market Risk

As a financial  institution,  the Company's  primary component of market risk is
interest rate volatility.  Fluctuations in interest will ultimately  impact both
the level of income and  expense  recorded on a large  portion of the  Company's
assets and  liabilities,  and the market value of all interest  earning  assets,
other  than those  which  possess a short  term to  maturity.  Since most of the
Company's  interest-bearing  assets and liabilities are located at the Bank, the
majority of the Company's  interest rate risk is at the Bank level. As a result,
most interest rate risk  management  procedures  are performed at the Bank level
(see discussion on "Interest Rate Sensitivity").

The Company and the Bank operate as a community banking institution primarily in
the counties of Northampton, Lehigh and Monroe, Pennsylvania. As a result of its
location  and  nature of  operations,  the  Company  is not  subject  to foreign
currency  exchange or  commodity  price risk.  The Bank makes real estate  loans
primarily  in the  counties  adjacent to its  operations  and thus is subject to
risks associated with those local  economies.  The Bank holds a concentration of
residential  real  estate  loans  (27.6% of total  loans) and  commercial  loans
supported  by real estate  (21.3% of total loans) in its loan  portfolio.  These
loans are subject to  interest  and  economic  risks.  The Bank also  originates
residential real estate loans for sale in the secondary  market.  Such loans are
identified as "Mortgage Loans  Held-for-Sale" on the Company's Balance Sheet and
are subject to interest rate risk (see discussion on "Assets and  Liabilities").
The  Company  does not own any  trading  assets  and  does not have any  hedging
transactions in place such as interest rate swaps.

The following table "Consolidated  Comparative  Statement Analysis" sets forth a
comparison of average daily balances,  interest income and interest expense on a
fully taxable  equivalent  basis and interest  rates  calculated  for each major
category of interest-earning  assets and interest-bearing  liabilities.  For the
purposes of this analysis,  the  computations in the  "Consolidated  Comparative
Statement Analysis" were prepared using the Federal statutory rate of 34%; there
were no state or local taxes on income applicable to the Company.

<PAGE>

<TABLE>

                   FIRST COLONIAL GROUP, INC. AND SUBSIDIARIES
                   CONSOLIDATED COMPARATIVE STATEMENT ANALYSIS
                             (Dollars in Thousands)
                                   (Unaudited)
Nine Months Ended, September 30,            1999                   1998
                                             Int    Avg       Int   Avg
                                     Avg     Inc/  Yield/     Avg   Inc/ Yield/
                                     Bal     Exp    Rate      Bal   Exp   Rate
<S>                             <C>       <C>      <C>   <C>      <C>    <C>

ASSETS:
INTEREST-EARNING ASSETS
Int-Bearing Deposits with Banks  $  3,250  $  117   4.80% $ 3,288  $ 145  5.88%
Federal Funds Sold                    659      23   4.65      791     30  5.05
Investment Securities
      Taxable                     101,426   4,796   6.31   78,718  3,683  6.24
      Non-Taxable (1)              32,206   1,737   7.19   24,385  1,353  7.40
Net Loans Held for Sale             1,946      51   3.49    2,088     40  2.56
Loans (1) (2)                     214,407  13,545   8.43  218,882 14,359  8.75
Reserve for Loan Losses            (2,715)     --     --   (2,717)    --    --
                                ---------   -----        --------  -----
Net Loans                         211,692  13,545   8.53  216,165 14,359  8.85
                                ---------   -----        --------  -----
  Total Interest-Earning Assets   351,179  20,269   7.69  325,435 19,610  8.04
Non-Interest Earning Assets        28,392      --     --   25,000     --    --
                                ---------   -----        --------  -----
  TOTAL ASSETS, INT INCOME      $ 379,571  20,269   7.12 $350,435 19,610  7.47
                                ---------   -----        --------  -----

LIABILITIES
INTEREST-BEARING LIABILITIES
Interest-Bearing Deposits
  Demand Deposits               $  52,092     412   1.05 $ 48,901    424  1.16
  Money Market Deposits            13,894     287   2.76   14,343    303  2.81
  Savings & Club Deposits          63,519   1,048   2.20   61,373  1,014  2.20
  CD's over $100,000                4,937     149   4.03    4,755    134  3.76
  All Other Time Deposits         134,175   5,398   5.25  124,610  5,226  5.59
                                ---------   -----        --------  -----
   Total Int-Bearing Deposits     271,617   7,294   3.59  253,982  7,101  3.73
Federal Funds Purchased
 and Securities Sold Under
 Agreements to Repurchase           5,973     140   3.12    5,654    159  3.75
Short-Term Borrowings               2,301      89   5.16      751     34  6.04
Long-Term Borrowings               21,355     904   5.64   18,151    847  6.23
                                ---------   -----        --------  -----
  Total Int-Bearing Liabilities   301,246   8,427   3.73  278,538  8,141  3.89

NON-INTEREST-BEARING LIABILITIES
Non-Interest-Bearing Deposits      41,132      --     --   34,021     --    --
Other Liabilities                   6,834      --     --    7,144     --    --
                                ---------   -----        --------  -----
   TOTAL LIABILITIES              349,212   8,427   3.21  319,703  8,141  3.40
   SHAREHOLDERS' EQUITY            30,359      --     --   30,732     --    --
                                ---------   -----        --------  -----
   TOTAL LIABILITIES AND EQUITY $ 379,571   8,427   2.96 $350,435  8,141  3.09

NET INTEREST INCOME                       $11,842                $11,469
                                            -----                  -----

    Net Interest Spread                             3.96                  4.15
    Effect of Interest-Free Sources
      Used to Fund Earnings Assets                  0.53                  0.54
    Net Interest Margin                             4.49%                 4.69%
                                                    ----                  ----
</TABLE>

<PAGE>

The net interest  margin of 4.49% for the nine month period ended  September 30,
1999,  decreased from the 4.69% net interest margin for the first nine months of
1998.  The yield on  interest  earning  assets  was 7.69%  during the first nine
months of 1999 as compared to 8.04% in 1998.  The average  interest rate paid on
interest  bearing  deposits  and other  borrowings  was 3.73% for the first nine
months of 1999 as compared to 3.89 in 1998.

Interest  rate  sensitivity  is a measure  of the  extent to which net  interest
income would change due to changes in the level of interest rates. The objective
of interest rate sensitivity  management is to reduce a company's  vulnerability
to future interest rate  fluctuations  and to enhance  consistent  growth of net
interest income

Rate sensitivity  arises from the difference between the volumes of assets which
are  rate-sensitive  as  compared  to  the  volumes  of  liabilities  which  are
rate-sensitive.  The mismatch of assets and liabilities in a specific time frame
is referred to as interest  sensitivity  gap.  Generally,  in an  environment of
rising interest rates, a negative gap will decrease net interest income,  and in
an  environment  of falling  interest  rates,  a negative gap will  increase net
interest income.

Assets and  liabilities  are  allocated to a specific time period based on their
scheduled  repricing  date or on an  historical  basis.  At September  30, 1999,
assets of  $135,829,000  (34.8% of total  assets) were subject to interest  rate
changes within one year. Liabilities subject to rate change within one year were
$176,881,000.  A negative  one-year  gap position of  $41,052,000  existed as of
September  30,  1999.  The  ratio of  rate-sensitive  assets  to  rate-sensitive
liabilities  for the one-year time frame was 76.8%.  The  "Interest  Sensitivity
Analysis" in the  following  table  presents a  sensitivity  gap analysis of the
Company's assets and liabilities at September 30, 1999.

<PAGE>

Interest Sensitivity Analysis
(Dollars in Thousands) as of September 30, 1999
<TABLE>

                      0-90   91-180   181-365       1-5        Over
                      Days    Days      Days        Years     5 years    Total
<S>                <C>      <C>     <C>         <C>        <C>         <C>
Interest-Bearing
Deposits with Banks $ 6,477  $   ---  $    ---   $    ---   $    ---    $ 6,477
Federal Funds Sold    2,000      ---       ---        ---        ---      2,000
Inv Securities       21,004   14,408    24,004     81,394     12,023    152,833
Loans Held-for-Sale     484      ---       ---        ---        ---        484
Loans                23,994   10,959    18,777     67,109     77,652    198,491
Other Assets         13,722      ---       ---        ---     16,339     30,061
                    ------- --------  --------    -------   --------   --------
  TOTAL ASSETS      $67,681  $25,367  $ 42,781   $148,503   $106,014   $390,346
                    ------- --------  --------    -------   --------   --------
Non-Interest-Bearing
  Deposits (1)      $   ---  $   ---  $    ---    $   ---   $ 41,485   $ 41,485
Int-Bearing
 Deposits            91,961   34,509    29,462     58,625     61,420    275,977
Securities Sold
 Under Agreements
 to Repurchase        7,949      ---       ---        ---        ---      7,949
Long-Term Debt       13,000      ---       ---     17,000        ---     30,000
Other                   ---      ---       ---        ---      5,689      5,689
Capital                 ---      ---       ---        ---     29,246     29,246
                    ------- --------  --------    -------   --------   --------
TOTAL LIABILITIES
  AND CAPITAL      $112,910  $34,509  $ 29,462    $75,625   $137,840   $390,346
                    ------- --------  --------    -------   --------   --------
Net Interest
  Sensitivity Gap  $(45,229) $(9,142) $ 13,319    $72,878   $(31,826)  $    ---

Cumulative Int
  Sensitivity Gap   (45,229) (54,371) (41,052)     31,826        ---        ---

Cumulative Gap
  RSA/RSL             59.94%   63.12%   76.79%     112.60%    100.00%
</TABLE>

(1) Historically, non-interest-bearing deposits reflect insignificant changes in
deposit trends and,  therefore,  the Company classifies these deposits over five
years.

<PAGE>


PART II - OTHER INFORMATION

ITEM 5.  Other Information

         None

ITEM 6.  Exhibits  and  Reports on Form 8-K

         (a)  Exhibits
              27.1  Financial  Data Schedule

         (b)  Reports on Form 8K
                   No  reports on Form 8K were filed for the  quarter  during
              which this report is filed.

<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.


                                            FIRST COLONIAL GROUP, INC.


DATE:       November 15, 1999               BY:  /S/  S. ERIC BEATTIE
       ----------------------------              --------------------
                                                  S. ERIC BEATTIE
                                                  PRESIDENT
                                                 (PRINCIPAL EXECUTIVE OFFICER)


DATE:       November 15, 1999               BY:  /S/  REID L. HEEREN
       ---------------------------               -------------------
                                                  REID L. HEEREN
                                                  VICE PRESIDENT