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 March 31, 1998
                                       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
  INCORPORATION OR ORGANIZATION)                          IDENTIFICATION NO.)

    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:  1,655,102  SHARES OF COMMON
STOCK, $5 PAR VALUE, OUTSTANDING ON MARCH 31, 1998.

<PAGE>

                   FIRST COLONIAL GROUP, INC. AND SUBSIDIARIES

                                      INDEX

PART I - FINANCIAL INFORMATION                               PAGE NO.

      ITEM 1  -  Financial Statements

        Consolidated Balance Sheet                               2
        Consolidated Statement of Income                         3
        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  12

      ITEM 3  -  Quantitative and Qualitative Discussion About
                 Market Risk                                    23

PART II  -  OTHER INFORMATION

      ITEM 5  -  Other Information                              27
      ITEM 6  -  Exhibits and Reports on Form 8-K               27


SIGNATURES                                                      28

<PAGE>

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

                                                       March 31      Dec. 31
 ASSETS                                                  1998          1997
                                                     ---------     ---------
<S>                                                 <C>           <C>    
  Cash and Due From Banks                            $  12,911     $  12,629
  Federal Funds Sold                                       --          2,200
                                                     ---------     ---------
    Total Cash and Cash Equivalents                     12,911        14,829
  Interest-Bearing Deposits With Banks                   4,211           395
  Investment Securities Held-to-Maturity
    (Fair Value:  Mar. 31, 1998 - $20,623;
      Dec. 31, 1997 - $17,946)                          20,506         7,756
  Securities Available-for-Sale at Fair Value           83,418        73,024
  Mortgage Loans Held-for-Sale                           1,407           759
  Total Loans, Net of Unearned Discount                217,757       229,587
  LESS:  Allowance for Possible Loan Losses             (2,674)       (2,664)
                                                     ---------     ---------
  Net Loans                                            215,083       226,923
  Premises and Equipment, Net                            7,136         7,299
  Accrued Interest Income                                2,521         2,232
  Other Real Estate Owned                                  194           284
  Other Assets                                           4,033         3,237
                                                     ---------     ---------
      TOTAL ASSETS                                   $ 351,420     $ 346,738
                                                     =========     =========
LIABILITIES
  Deposits
    Non-Interest Bearing Deposits                    $  35,998     $  32,800
    Interest-Bearing Deposits                          254,377       249,455
                                                     ---------     ---------
      Total Deposits                                   290,375       282,255
  Securities Sold Under Agreements to Repurchase         4,544         8,804
  Short-Term Borrowing
  Long-Term Debt                                        18,374        18,390
  Accrued Interest Payable                               3,361         3,466
  Other Liabilities                                      3,962         3,466
                                                     ---------     ---------
      TOTAL LIABILITIES                                320,616       316,381
                                                     ---------     ---------
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 -      1,655,411 shares at Mar. 31, 1998
    and 1,655,413 shares at Dec. 31, 1997                8,277         8,277
  Additional Paid in Capital                            11,014        11,014
  Retained Earnings                                     10,708        10,250
  Less Treasury Stock at Cost: 309 shares at
       Mar. 31, 1998 and
       2,779 shares at Dec. 31, 1997                       (10)          (94)
  Employee Stock Ownership Plan Debt                      (374)         (390)
  Net Unrealized Gain on Securities Available-for-Sale   1,189         1,300
                                                     ---------     ---------
Total Shareholders' Equity                              30,804        30,357
                                                     ---------     ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY           $ 351,420     $ 346,738
                                                     =========     =========
</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
                                            Mar. 31    Mar. 31,
                                              1998      1997
<S>                                        <C>       <C>    
INTEREST INCOME
    Interest and Fees on Loans              $ 4,913   $ 4,718
    Interest on Investment Securities
      Taxable                                 1,170     1,104
      Tax-Exempt                                259       190
    Interest on Deposits with Banks and
      Federal Funds Sold                         43        18
                                            -------   -------
        Total Interest Income                 6,385     6,030
                                            -------   -------
INTEREST EXPENSE
    Interest on Deposits                      2,327     2,213
    Interest on Short-Term Borrowings            66        69
    Interest on Long-Term Debt                  146       275
                                            -------   -------
        Total Interest Expense                2,686     2,557
                                            -------   -------
NET INTEREST INCOME                           3,699     3,473
    Provision for Possible Loan Losses          112       113
                                            -------   -------
    Net Interest Income After Provision
        for Possible Loan Losses              3,587     3,360
                                            -------   -------
OTHER INCOME
    Trust Revenue                               211       187
    Service Charges on Deposit Accounts         350       293
    Investment Securities Gains, Net            100       140
    Gain (Loss) on Sale of Mortgage Loans        40        (1)
    Other Operating Income                      159       142
                                            -------   -------
        Total Other Income                      860       761
                                            -------   -------
OTHER EXPENSES
    Salaries and Employee Benefits            1,614     1,481
    Net Occupancy and Equipment Expense         551       532
    Other Operating Expenses                  1,243     1,141
                                            -------   -------
        Total Other Expenses                  3,408     3,154
                                            -------   -------
Income Before Income Taxes                    1,039       967
Applicable Income Taxes                         271       263
                                            -------   -------
NET INCOME                                  $   768   $   704
                                            =======   =======
PER SHARE DATA
    Basic and Diluted Net Income            $  0.47   $  0.44
    Cash Dividends                          $  0.47   $  0.44
</TABLE>

 See accompanying notes to interim consolidated financial statements.

<PAGE>

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

                                                       Three Months Ended
                                                     Mar. 31,      Mar. 31,
                                                       1998          1997
<TABLE>
<S>                                                 <C>          <C>   

Net Income                                           $  768       $  704

Other Comprehensive Income, Net of Tax
 Unrealized gains (losses) on securities
  Unrealized gains (losses) arising in period           (73)        (237)
  Reclassification adjustment; gain included
  in net income                                         (78)         (94)

Other Comprehensive Income                             (151)        (331)
                                                     ------        -----

Comprehensive Income                                 $  617       $  373
                                                     ======       ======

</TABLE>

Other  comprehensive  income  is shown  net of tax of $78 and $171 for March 31,
1998 and March 31, 1997, respectively.




See accompanying notes to interim consolidated financial statements.

<PAGE>

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

                                                      Three Months Ended
                                               March 31, 1998    March 31, 1997
OPERATING ACTIVITIES                                      (Unaudited)
<S>                                              <C>               <C>   
Net Income                                        $  768            $  704
Adjustments to Reconcile Net Income to Net Cash
 Provided by Operating Activities:
  Provision for Possible Loan Losses                 112               113
  Depreciation and Amortization                      243               202
  Amortization of Security Discounts                 (20)              (16)
  Amortization of Security Premiums                   28                40
  Amortization of Deferred Fees on Loans            (107)               (7)
  Mortgage Loans Originated for Sale             (19,929)           (4,201)
  Mortgage Loan Sales                             19,281             3,487
  (Gain) Loss on Sale of Mortgage Loans              (40)                1
  Investment Securities Gains, Net                  (100)             (140)
 Changes in Assets and Liabilities:
  Increase in Accrued Interest Income               (289)             (431)
  Decrease in Accrued Interest Payable              (105)             (134)
  Net Increase in Other Assets                      (846)             (471)
  Net Increase in Other Liabilities                  586               291
                                                 -------           -------
Net Cash (Used In) Operating Activities             (478)             (562)
                                                 -------           -------
INVESTING ACTIVITIES
Proceeds from Maturities of Securities 
  Available-for-Sale                               6,542             1,281
Proceeds from Maturities of Securities 
  Held-to-Maturity                                 3,523               415
Proceeds from Sales of Securities 
  Available-for-Sale                               1,430             2,556
Proceeds from Sales of Securities 
  Held-to-Maturity                                   248               ---
Purchase of Securities Available-for-Sale        (18,423)          (10,808)
Purchase of Securities Held-to-Maturity           (6,540)           (1,004)
Net Decrease in Interest Bearing Deposits
  With Banks                                      (3,816)              143
Net Increase in Loans                             11,935            (4,397)
Purchase of Premises and Equipment, Net              (63)             (378)
Proceeds from Sale of Other Real Estate Owned         90               184
                                                 -------           -------
Net Cash (Used In) Investing Activities           (5,074)          (12,008)
                                                 -------           -------
FINANCING ACTIVITIES
Net Increase in Interest and Non-Interest
 Bearing Demand Deposits and Savings Accounts      7,218             3,105
Net Increase in Certificates of Deposits             902             3,931
Proceeds from Sale of Treasury Stock                  84                20
Net (Decrease) in Repurchase Agreements           (4,260)             (682)
Net Increase in Short-Term Borrowings               ---              3,330
Proceeds from Issuance of Stock                     ---                 45
Cash Dividends Paid                                 (310)             (276
                                                 -------           -------
Net Cash Provided by Financing Activities          3,634             9,473
                                                 -------           -------
(Decrease) in Cash and Cash Equivalents           (1,918)           (3,097)
Cash and Cash Equivalents, January 1              14,829            13,929
                                                 -------           -------
Cash and Cash Equivalents, March 31,             $12,911           $10,832
                                                 =======           =======
</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, 1997.

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  months  ended  March 31,  1998 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-KSB  for the year  ended  December  31,  1997,  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,  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 as to  management's  beliefs, expectations or opinions.  Such forward

<PAGE>

looking statements are subject to risks and uncertainties and may be affected by
carious  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, 1997, 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 February  20, 1998 the Company  paid its 1998 first  quarter  dividend on its
common stock of $.19 per share to shareholders of record on February 6, 1998.


NOTE F  -  STOCK DIVIDEND

On June 19, 1997 the Company paid a 5% stock dividend to  shareholders of record
on May 30, 1997.  Fractional shares were paid in cash based on the closing price
of $23.875 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.  There is no  difference  between  basic and diluted  earnings per
share for the three  month  period  March 31,  1998 and 1997.  Basic and diluted
earnings per share are calculated as follows.

<PAGE>

For the Three Months Ended March 31,
<TABLE>
                                                         Average
                                             Income       Shares      Per Share
                                          (numerator) (denominator)     Amount
         1998
<S>                                        <C>         <C>            <C>   

Net Income                                  $  768

Basic Earnings Per Share
  Income Available to Common Shareholders   $  768      1,633,328      $  0.47

Effect of Dilutive Securities
  Stock Options                                             7,370
                                            ------      ---------      -------
Diluted Earnings Per Share
  Income Available to Common Shareholders
  plus Assumed Exercise of Options          $  768      1,640,688      $  0.47
                                            ------      ---------      -------
         1997

Net Income                                  $  704

Basic Earnings Per Share
  Income Available to Common Shareholders   $  704      1,614,039      $  0.44

Effect of Dilutive Securities
  Stock Options                                             5,430
                                            ------      ---------      -------
Diluted Earnings Per Share
  Income Available to Common Shareholders
  plus Assumed Exercise of Options          $  704      1,619,469      $  0.44
                                            ------      ---------      -------
</TABLE>


Average  common  shares  outstanding  in the three month period ending March 31,
1998 and 1997 do not include 22,034 and 29,419, 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 May
1997.

<PAGE>

NOTE H  -  ALLOWANCE FOR POSSIBLE LOAN LOSSES

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

     Three Month Period Ended March 31,             1998               1997
<S>                                            <C>                <C>   

     Beginning Balance                          $2,664,000         $2,532,000

     Additions
       Provision for loan losses charged to
        operating expenses                         112,000            113,000
       Recoveries of loans                          24,000             20,000
                                                ----------         ----------
        Total Additions                            136,000            133,000

     Deductions
       Loans charged off                           126,000            128,000
                                                ----------         ----------

     Ending Balance                             $2,674,000         $2,537,000
</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 March 31,                                1998            1997
<S>                                               <C>               <C>    

           Principal amount of impaired loans      $1,428,000        $721,000
           Deferred loan costs                          1,000           6,000
                                                     --------        --------
                                                    1,429,000         727,000
           Less valuation allowance                   504,000         197,000
                                                     --------        --------
                                                   $  926,000        $530,000
</TABLE>

On January 1, 1995 a valuation for credit losses  related to impaired  loans was
established. The activity in this allowance account for the quarter ending March
31, 1998 is as follows:
<TABLE>

                                                      1998               1997
<S>                                               <C>                <C>   

      Valuation allowance at January 1,            $138,000         $128,000
      Provision for loan impairment                 112,000           95,000
      Transfer from Unallocated Allowance           279,000              ---
      Direct charge-offs                             25,000          (26,000)
                                                   --------         --------
      Valuation allowance at March 31,             $504,000         $197,000
</TABLE>

Total cash  collected on impaired  loans during the quarter ended March 31, 1998
was $9,000, of which $8,000 was credited to the principal balance outstanding on
such loans and $1,000 was  recognized  as interest  income.  Interest that would
have been accrued on impaired  loans  during the quarter was  $45,000.  Interest
income recognized during the quarter was $6,385,000. The valuation allowance for
impaired  loans of $504,000 at March 31, 1998 is included in the  "Allowance for
Possible  Loan  Losses"  which  amounts to  $2,674,000  at March 31,  1998.  The
provision for loan impairment of $112,000 for the three month period ended March
31, 1998 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
consist 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  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.

<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 month period ended March 31, 1998.

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 March
31, 1998, cash, due from banks, Federal funds sold and interest bearing deposits
with banks totaled $17,122,000,  and securities maturing within one year totaled
$3,730,000.  At December 31, 1996, cash, due from banks,  Federal funds sold and
interest  bearing  deposits  with banks,  totaled  $15,224,000,  and  securities
maturing within one year were $3,861,000.  Securities sold under an agreement to
repurchase  totaled  $4,544,000 at March 31, 1998 and $8,804,000 at December 31,
1997. 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 $4,189,000 at March 31, 1998 and $110,000 at December 31, 1997.
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.  There were no
Federal  funds sold at March 31,  1998.  At December 31, 1997 there were Federal
funds sold totaling $2,200,000.

The Federal Home Loan Bank of Pittsburgh provides the Bank with a line of credit
in the amount of  $14,288,000 at March 31, 1998,  subject to certain  collateral
requirements.  The Bank had no short-term  (overnight)  borrowings  against this
line at March  31,  1998 or at  December  31,  1997.  The  Bank  had  additional
borrowings  from  the  Federal  Home  Loan  Bank  at  March  31,  1998  totaling
$18,000,000 of which  $5,000,000 is due in November  1998,  $8,000,000 is due in
August 2000 and $5,000,000 is due in December 2001.

<PAGE>

         Cash flows for the three months ended March 31, 1998  consisted of cash
used in operating  activities of $478,000 and cash used in investing  activities
of  $5,074,000,  offset in part by cash  provided  by  financing  activities  of
$3,634,000 resulting in a decrease in cash and cash equivalents of $1,918,000.

         Cash used in  operating  activities  was the result of  mortgage  loans
originated for sale of $19,929,000,  an increase in other assets of $846,000, an
increase  in accrued  interest  income of  $289,000  and a  decrease  in accrued
interest  payable  of  $105,000,  partially  reduced by  mortgage  loan sales of
$19,281,000, net operating income of $768,000, increases in other liabilities of
$586,000, depreciation and amortization of $243,000 and a provision for possible
loan losses of $112,000.  Cash was used in investing activities for the purchase
of  securities   available-for-sale  and  held-to-maturity  of  $18,243,000  and
$6,540,000,  respectively,  net increase in interest-bearing deposits with banks
of  $3,816,000  and the net  purchase  of  premises  and  equipment  of $63,000,
partially  offset  by  decreases  in loans  of  $11,935,000,  proceeds  from the
maturities of  available-for-sale  securities  of  $6,542,000  and proceeds from
maturities  of  held-to-maturity  securities  of  $3,523,000.  Cash  provided by
financing  activities  consisted   principally  of  increases  in  interest  and
non-interest  bearing  demand  deposits  and  savings  accounts  of  $7,218,000,
increases in certificates of deposit of $902,000 offset in part by a decrease in
repurchase  agreements  of  $4,260,000  and the  payment  of cash  dividends  of
$310,000. Also affecting financing activities was the issuance of 2,470 treasury
shares of common stock pursuant to the Dividend  Reinvestment  Plan for proceeds
of $84,000.

         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 March 31, 1998 was $30,804,000 as
compared to  $30,357,000  at December 31,  1997,  for an increase of $447,000 or
1.5%. This increase was attributable to a $458,000 increase in retained earnings
during  the  first  three  months  of 1998 as a result  of  operating  income of
$768,000 less the payment of a cash  dividend of $310,000.  Proceeds of the sale
of treasury stock in the Dividend  Reinvestment Plan of $84,000,  a reduction in
the  unrealized  gain of  securities  available-for-sale  of  $111,000  due to a
decrease in the fair value of these  securities  (see  discussion on "Investment
Securities"),  and a  reduction  of  $16,000 of debt  related  to the  Company's
Employee Stock Ownership Plan contributed to the change in shareholder equity.

         The Company maintains a Dividend  Reinvestment and Stock Purchase Plan.
During  the first  three  months of 1998,  2,470  shares  of common  stock  were
purchased from  authorized and unissued shares at an average price of $33.90 per
share for proceeds of approximately $84,000.

<PAGE>

         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 March 31, 1998, 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 March 31, 1998           Amount   Ratio     Amount   Ratio   Amount  Ratio
<S>                        <C>       <C>      <C>       <C>    <C>      <C>
Total Capital
(To Risk-Weighted Assets)
  Company, (Consolidated)   $31,808   16.33%   $15,583   8.00%      ---    ---
  Bank                      $27,847   14.40%   $15,471   8.00%  $19,338  10.00%

Tier 1 Capital
(To Risk-Weighted Assets)
  Company, (Consolidated)   $29,369   15.08%   $ 7,790   4.00       ---    ---
  Bank                      $24,827   12.84%   $ 7,734   4.00%  $11,601   6.00%

Tier 1 Capital
(To Average Assets,
 Leverage)
  Company, (Consolidated)   $29,369   8.48%    $13,853   4.00%      ---    ---
  Bank                      $24,827   7.26%    $13,679   4.00%  $17,098   5.00%
</TABLE>

<TABLE>
                                                                 To Be Well
                                                                 Capitalized
                                                 Required        Under Prompt
                                                For Capital       Corrective
                                Actual           Adequacy           Action
(Dollars in Thousands)
 At December 31, 1997        Amount   Ratio     Amount   Ratio   Amount  Ratio
<S>                        <C>      <C>       <C>       <C>    <C>      <C>
Total Capital
(To Risk-Weighted Assets)
  Company, (Consolidated)   $31,271  16.03%    $15,609   8.00%      ---    ---
  Bank                      $27,200  13.97%    $15,576   8.00%  $19,470  10.00%

Tier 1 Capital
(To Risk-Weighted Assets)
  Company, (Consolidated)   $28,829  14.78%    $ 7,804   4.00%      ---    ---
  Bank                      $24,163  12.41%    $ 7,788   4.00%  $11,682   6.00%

Tier 1 Capital
(To Average Assets,
 Leverage)
  Company, (Consolidated)   $28,829   8.33%    $13,551   4.00%      ---    ---
    Bank                    $24,163   7.06%    $13,416   4.00%  $16,770   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 March  31,  1998 were  $351,420,000,  representing  an
increase  of 1.4% over  total  assets of  $346,738,000  at  December  31,  1997.
Deposits  increased by $8,120,000 or 2.9% from $282,255,000 on December 31, 1997
to $290,375,000 on March 31, 1998.  Contributing to this increase were increases
in  interest-bearing  checking  deposits  of  $3,648,000,  non-interest  bearing
checking deposits of $3,198,000, certificates of deposit of $637,000 and savings
and money market deposits of $637,000.  Loans outstanding at March 31, 1998 were
$217,757,000  as  compared  to  $229,587,000  at December  31,  1997.  This is a
decrease of  $11,830,000  or 5.2%. The decline in loans was primarily the result
of a decrease of $13,380,000 or 14.5% in residential  real estate loans.  During
the first quarter of 1998,  $19,281,000  of  residential  real estate loans were
sold.  Most of the loans  sold were  fixed  rate with 30 or 15 year  maturities.
These loans were sold to reduce the Company's  interest-rate risk and to provide
liquidity  for  future  lending  opportunities.  Most  of the  loans  sold  were
originated  in years prior to 1998.  The Bank  continues to service all of these
loans.  There were  $1,407,000 of  residential  real estate loans  identified as
held-for-sale  at  March  31,  1998.   Partially   offsetting  the  decrease  in
residential  real  estate  loans was an increase of $521,000 or 0.8% in consumer
loans and  $1,033,000 or 1.5% in commercial  loans during the first three months
of 1998.  The loan to  deposit  ratio was  75.0% at March 31,  1998 and 81.3% at
December 31, 1997.

         Premises and equipment decreased by $163,000 to $7,136,000 at March 31,
1998 from $7,299,000 at December 31, 1997.

         The Company had long-term  debt totaling  $18,374,000 at March 31, 1998
as compared to  $18,390,000  at December 31,  1997.  Included in this total were
outstanding  borrowings  of  $18,000,000  from the  Federal  Home  Loan  Bank of
Pittsburgh  at March 31, 1998 and December 31, 1997.  Of this amount  $5,000,000
matures in November  1998,  $8,000,000  matures in August 2000 and the remaining
$5,000,000  matures in December 2001. The interest rates  associated  with these
loans are 5.96% fixed,  5.89% fixed and 5.99% variable (changes  quarterly based
on the three  month  LIBOR  plus 8 basis  points),  respectively.  The loans are
secured  by  the  Bank's  investment  and  residential  real  estate  loans  and
securities. These funds were borrowed to improve liquidity and to fund loans.

<PAGE>

         At March 31,  1998 and  December  31,  1997 the Bank had no  short-term
borrowings  from the  Federal  Home  Loan Bank of  Pittsburgh  against a line of
credit of $12,148,000.

Results of Operations
         Net income  for the three  months  ended  March 31,  1998 was  $768,000
compared to $704,000 for the same period in 1997.  The earnings  improvement  is
primarily  attributable to an increase in net interest income.  During the first
quarter of 1998, net interest income  increased  $226,000 or 6.5% as compared to
March 31, 1997. Also affecting  earnings was a $139,000  increase in total other
income  exclusive  of  security  gains of  $100,000,  an increase in total other
expenses of $254,000 and and increase in Federal income taxes of $8,000.

         Basic and diluted  earnings  per share for the three months ended March
31,  1998 were  $0.47  compared  to $0.44 for the  first  three  months of 1997.
Average shares outstanding during this three month period were 1,640,698 in 1998
and  1,618,717  in 1997.  Shares  outstanding  and  earnings per share have been
adjusted to reflect the 5% stock dividend of May 1997. (see Note G)

Net Interest Income
         The fully taxable-equivalent net interest income was $3,838.000 for the
first three months of 1998,  compared to $3,579,000 for the same period in 1997,
a 7.2% or $259,000  increase as shown in the  following  "Rate/Volume  Analysis"
table. This increase in taxable-equivalent net interest income was primarily due
to a $802,000 increase related to volume partially offset by a $543,000 decrease
related to interest rates.

         Total  taxable-equivalent  interest income grew $388,000  primarily the
result  of the  higher  volumes  in both the  security  and loan  earning  asset
categories.  Income from securities for the first quarter increased  $169,000 or
12.1% over the first quarter of 1997. This was comprised of an $885,000 increase
due to volume partially  offset by a $710,000  decrease due to rates as a result
of declining yields.  Income from loans for the first quarter increased $194,000
or 4.1% over the first  quarter  of 1997.  Increased  income  due to volume  was
$307,000 partially offset by a $113,000 decrease  attributable to rates. Average
year-to-date  earning assets  increased to  $322,528,000  at March 31, 1998 from
$303,106,000 at March 31, 1997 a 6.4% increase.

         Total interest  expense grew $129,000  during the first three months of
1998,  compared to the same  period in 1997.  This  growth was  principally  the
result  of  higher  volumes,  primarily  due to an  increase  in time  deposits.
Interest expense attributed to time deposits increased $153,000 during the first
three months of 1998,  compared to the first three months of 1997.  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
savings  accounts  as a  result  of  repricing  due to  market  conditions  (see
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 innet
interest  income for the three months ended March 31, 1998. 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>
                                                     Three Months Ended
                                                       March 31, 1998
                                                       Over / (Under)
                                                       March 31, 1997
                                                       CHANGE DUE TO:
                                                TOTAL      RATE     VOLUME
<S>                                         <C>        <C>        <C>  
(Fully Taxable Equivalent)
INTEREST INCOME
Interest-Bearing Balances With Banks         $    11    $   (85)   $    96
Federal Funds Sold                                14        (43)        57
Investment Securities                            169       (716)       885
Loans Held for Sale                              (10)       (10)        --
Loans                                            204       (103)       307
                                             -------    -------    -------
Total Interest Income                            388       (957)     1,345
                                             -------    -------    -------

INTEREST EXPENSE
Demand Deposits, Savings & Clubs                 (39)       (88)        49
Time Deposits                                    153       (359)       512
Federal Funds Purchased and Securities
   Sold Under Agreements to Repurchase            32        (80)       112
Short-Term Borrowings                            (29)        96       (125)
Long-Term Borrowings                              12         17         (5)
                                             -------    -------    -------
Total Interest Expense                           129       (414)       543
                                             -------    -------    -------

Net Increase (Decrease) in Interest Income   $   259    $  (543)   $   802

</TABLE>

<PAGE>

 Other Income and Other Expenses
         Other  income  for the three  months  ended  March 31,  1998  including
service  charges,  trust  fees,  gains on the sale of  mortgage  loans and other
miscellaneous  income, but exclusive of securities gains or losses, was $760,000
as  compared  to  $621,000  for the same  period in 1997 This was an increase of
$139,000 or 22.4%.  In the three  month  period  ended  March 31,  1998  service
charges  were  $350,000,  a $57,000 or 19.5%  increase  over the 1997  amount of
$293,000.   The  increase  in  service  charge  income  is  the  result  of  the
implementation  of fees assessed to  noncustomers  use of the Bank's ATM network
and the  introduction  of a new Debit Card program.  The revenues from the Trust
Department operations were $211,000 for the three months ended March 31, 1998 as
compared to $187,000 for the three  months ended March 31, 1997,  an increase of
$24,000  or 12.8%.  During  the three  months  ended  March 31,  1998,  sales of
mortgage loans resulted in a gain of $40,000 as compared to a loss of $1,000 for
the  same  period  in  1997.  The  gain in 1998  was the  result  of the sale of
$19,281,000  of  residential  real  estate  loans  in  the  first  quarter  (see
discussion on Assets and  Liabilitites).  Other  operating  income for the three
months  ended March 31, 1998 was  $159,000 as compared to $142,000  for the same
period in 1997, an increase of $17,000 or 12.0%.

         Other  expenses for the three months ended March 31, 1998  increased by
$254,000 or 8.1%, to  $3,408,000  from  $3,154,000  for the same period in 1997.
Salaries and employee  benefits were $1,614,000 for the three months ended March
31, 1997 as compared to  $1,481,000  for the three  months  ended March 31, 1997
representing an increase of $133,000or  9.0%.  These increases are primarily due
to  general  salary   increases  of   approximately   4%  and  additional  staff
necessitated  by current and planned  future  growth.  Occupancy  and  equipment
expenses  were  $551,000  for the three months ended March 31, 1998 and $532,000
for the three months ended March 31, 1997, a decrease of $19,000 or 3.6%.  Other
operating  expenses for the three months ended March 31, 1998 were $1,243,000 in
relation to $1,141,000 for the three months ended March 31, 1997, an increase of
$102,000 or 8.9%.

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 March 31,
1998 and December 31, 1997.

         Available-for-sale  securities  are  carried at fair value with the net
unrealized  gains or losses  reported in equity.  The Company had $83,418,000 in
available-for-sale  securities at March 31, 1998 with a net  unrealized  gain of
$1,189,000.  At December  31,  1997  available-for-sale  securities  amounted to
$73,024,000 with a net unrealized gain of $1,300,000.

<PAGE>

         During the three  month  period  ended  March 31,  1998  $1,430,000  of
securities  available-for-sale  were sold for a net gain of $100,000 as compared
to  $2,556,000  of  securities  available-for-sale  were  sold for a net gain of
$140,000 for the same time period in 1997.

         Held-to-maturity  securities totaling $20,506,000 at March 31, 1998 are
carried at cost. At December 31, 1997 the  held-to-maturity  securities  totaled
$17,756,000. The Company has the intent and ability to hold the held-to-maturity
securities  until  maturity.  The Company,  at March 31, 1998,  did not hold any
securities identified as derivatives.

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  facators.  At  present,  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 three months of 1998,  the  provision for loan losses was
$112,000  compared to $113,000 for the same period in 1997. Net charge offs were
$102,000 for the three months ended March 31, 1998  compared  with  $108,000 for
the three  months  ended March 31,  1997.  The ratio of the  allowance  for loan
losses to total  loans at March 31,  1998 was  1.22%  compared  to 1.16% at both
December 31, 1997 and March 31, 1997. This was primarily the result of a decline
in total loans to $217,757,000  at March 31, 1998 from  $229,587,000 at December
31,  1997.  This decline was the result of the sale of  $19,281,000  of mortgage
loans during the first  quarter of 1998.  The allowance for possible loan losses
at March 31, 1998  totaled  $2,674,000,  an increase of $10,000 or 0.4% over the
December 31, 1997 amount of  $2,664,000  and $137,000 or 5.4% over the March 31,
1997 balance of $2,537,000.

         As provided  by SFAS No.  114, as amended by SFAS No. 118,  $504,000 of
the Allowance  for Possible Loan Losses is allocated to impaired  loans at March
31, 1998 (See Note I "Impaired Loans").

         Transactions in the allowance for loan losses are as follows:
<TABLE>

ALLOWANCE FOR LOAN LOSSES
                                               1998           1997
<S>                                      <C>            <C>   

Balance, January 1,                       $ 2,664,000    $ 2,532,000
Provision charged to Operating Expenses       112,000        113,000
Loans Charged Off                            (126,000)      (128,000)
Recoveries                                     24,000         20,000
                                          -----------     ----------
Balance March 31,                         $ 2,674,000    $ 2,537,000
</TABLE>

<PAGE>

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

         At March 31, 1998
<S>     <C>                                      <C>    

         Commercial                               $1,346,000
         Residential Real Estate                     110,000
         Consumer                                    652,000
         Unallocated                                 566,000
                                                  ----------
              Total                               $2,674,000
</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.

         Non  performing  assets (non accruing  loans and loans past due over 90
days) were 1.13% of total loans at March 31, 1998 compared to 0.90% at March 31,
1997.  The increase in this ratio is the result of a $428,000 or 20.9%  increase
in non performing  loans to $2,457,000 over the one year period ending March 31,
1998.  The ratio of the allowance for loan losses to non  performing  assets was
108.8% at March 31, 1998 compared to 125.2% at March 31, 1997.

         Non accruing loans at March 31, 1998 of $1,926,000 increased from March
31, 1997 level of $1,006,000. This $920,000 increase was primarily the result of
three  commercial  loans  being  placed on non accrual  status  during the first
quarter of 1998.  These loans are secured by commercial  real estate and various
guarantees.  At the present time,  management is of the opinion that these loans
present a minimal amount of exposure to the bank.

<PAGE>

         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 March 31,  1998,  loans past due 90 days or more and
still accruing  interest were $531,000 compared to $1,020,000 at March 31, 1997.
The $489,000 decrease in loans past due 90 days from March 31, 1997 to March 31,
1998 was primarily the result of declines in all categories of loans past due 90
days or more.  Consumer,  commercial and mortgage loans past due 90 days or more
declined  $209,000,  $162,000 and $118,000,  respectively from March 31, 1997 to
March 31, 1998.
<TABLE>

NON-PERFORMING LOANS
                                            March 31,  December 31,   March 31,
                                              1998        1997          1997
<S>                                      <C>          <C>           <C>    

Non-accrual loans on a cash basis         $1,926,000   $ 813,000     $1,006,000
Non-accrual loans as a percentage
  of total loans                                .88%        .35%           .45%
Accruing loans past due 90 days
  or more                                 $  531,000   $ 802,000     $1,020,000
Accruing loans past due 90 days
  or more as a percentage of total
  loans                                         .24%        .35%           .49%
Other Real Estate Owned from
  Foreclosed Property                     $  194,000   $ 284,000     $  670,000
Allowance for loan losses to
  nonperforming loans                        108.83%     163.64%        125.22%
Nonperforming assets to total loans            1.13%        .71%           .90%
Allowance for loan losses to total loans       1.23%       1.16%          1.13%

</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 March 31, 1998.

<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.

         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  inthe  "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)
 Three Months Ended, March 31,               1998                   1997
                                             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  $  2,393  $   28   4.68% $   538  $  17  5.20%
Federal Funds Sold                  1,067      15   5.64       49      1  5.60
Investment Securities
      Taxable                      74,798   1,169   6.24   67,430  1,104  6.56
      Non-Taxable (1)              20,615     392   7.60   14,917    288  7.72
Net Loans Held for Sale             1,360       9   2.64    1,353     19  5.60
Loans (1) (2)                     225,002   4,911   8.72  221,396  4,707  8.52
Reserve for Loan Losses            (2,707)     --     --   (2,577)    --    --
                                ---------   -----        --------  -----     
Net Loans                         222,295   4,911   8.84  218,819  4,707  8.60
                                ---------   -----        --------  -----     
  Total Interest-Earning Assets   322,528   6,524   8.08  303,106  6,136  8.08
Non-Interest Earning Assets        24,162      --     --   23,225     --    --
                                ---------   -----        --------  -----     
  TOTAL ASSETS, INT INCOME      $ 346,690   6,524   7.52 $326,331  6,136  7.52
                                ---------   -----        --------  -----     

LIABILITIES
INTEREST-BEARING LIABILITIES
Interest-Bearing Deposits
  Demand Deposits               $  47,463     136   1.16 $ 42,823    129  1.20
  Money Market Deposits            14,423     101   2.80   14,330     99  2.76
  Savings & Club Deposits          60,801     331   2.16   63,090    379  2.40
  CD's over $100,000                4,780      46   3.84    5,274     57  4.32
  All Other Time Deposits         123,367   1,713   5.56  113,439  1,549  5.48
                                ---------   -----        --------  -----     
   Total Int-Bearing Deposits     250,834   2,327   3.72  238,956  2,213  3.72
Federal Funds Purchased 
 and Securities Sold Under 
 Agreements to Repurchase           7,141      66   3.68    3,930     34  3.48
Short-Term Borrowings                 321       6   7.48    2,901     35  4.84
Long-Term Borrowings               18,374     287   6.24   18,459    275  5.96
                                ---------   -----        --------  -----     
  Total Int-Bearing Liabilities   276,670   2,686   3.88  264,246  2,557  3.88

NON-INTEREST-BEARING LIABILITIES
Non-Interest-Bearing Deposits      32,315      --     --   29,184     --    --
Other Liabilities                   7,365      --     --    5,870     --    --
                                ---------   -----        --------  -----     
   TOTAL LIABILITIES              316,350   2,686   3.40  299,300  2,557  3.40
   SHAREHOLDERS' EQUITY            30,340      --     --   27,031     --    --
                                ---------   -----        --------  -----     
   TOTAL LIABILITIES AND EQUITY $ 346,690   2,686   3.08 $326,331  2,557  3.12

NET INTEREST INCOME                        $3,838                 $3,579 
                                            -----                  -----     

    Net Interest Spread                             4.20                  4.20
    Effect of Interest-Free Sources
      Used to Fund Earnings Assets                  0.56                  0.52
    Net Interest Margin                             4.76%                 4.72%
                                                    ----                  ----
</TABLE>

<PAGE>

         The net interest margin of 4.76% for the three month period ended March
31,  1998,  increased  from the 4.72% net  interest  margin for the first  three
months of 1997. The yield on interest  earning assets was 8.08% during the first
three  months of 1998 and 1997. A decrease in yields on  investments  securities
was partially  offset by an increase in loan yields.  The average  interest rate
paid on interest  bearing  deposits and other borrowings was 3.88% for the first
three  months of 1998 and 1997.  The  increase  in the net  interest  margin was
supported  by an  increase in the effect of  interest  from  sources of funds to
0.56% for the first three  months of 1998 from 0.52% in the same period in 1997.
This increase is the result of higher non-interest bearing deposits in 1998.

Interest Rate Sensitivity

         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 March 31, 1998,
assets of  $158,964,000  (45% of total  assets)  were  subject to interest  rate
changes within one year. Liabilities subject to rate change within one year were
$168,497,000. A negative one-year gap position of $9,533,000 existed as of March
31, 1998. The rato of rate-sensitive  assets to  rate-sensitive  liabilities for
the one-year  time frame was .94.  The  "Interest  Sensitivity  Analysis" in the
following table presents a sensitivity gap analysis of the Company's  assets and
liabilities at March 31, 1998.

<PAGE>

Interest Sensitivity Analysis
(Dollars in Thousands) as of March 31, 1998
<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 $ 4,211  $   ---  $    ---   $    ---   $    ---    $ 4,211
Federal Funds Sold      ---      ---       ---        ---        ---        ---
Inv Securities       14,288   18,622    22,901     33,502     14,611    103,924
Loans Held-for-Sale   1,407      ---       ---        ---        ---      1,407
Loans                42,737   15,916    25,971     71,676     58,783    215,083
Other Assets         12,911      ---       ---        ---     13,884     26,795
                    ------- --------  --------    -------   --------   --------
  TOTAL ASSETS      $75,554  $34,538  $ 48,872   $105,178   $ 87,278   $351,420
                    ------- --------  --------    -------   --------   --------
Non-Interest-Bearing
  Deposits (1)      $   ---  $   ---  $    ---    $   ---   $ 35,998   $ 35,998
Int-Bearing 
 Deposits            88,118   17,755    39,706     47,139     61,659    254,377
Time Deposits           ---      ---       ---        ---        ---        ---
Securities Sold 
 Under Agreements 
 to Repurchase        4,544      ---       ---        ---        ---      4,544
Long-Term Debt          374   13,000     5,000        ---        ---     18,374
Other                   ---      ---       ---        ---      7,323      7,323
Capital                 ---      ---       ---        ---     30,804     30,804
                    ------- --------  --------    -------   --------   --------
  TOTAL LIABILITIES 
  AND CAPITAL      $ 93,036  $30,755 $ 44,706    $47,139    $135,784   $351,420
                    ------- --------  --------    -------   --------   --------
Net Interest  
  Sensitivity Gap  $(17,482) $(3,783)$  4,166    $58,039   $(48,506)  $    ---

Cumulative Int
  Sensitivity Gap  $(17,482)$(13,699)$( 9,533)   $48,506   $    ---   $    ---

Cumulative Gap
  RSA/RSL             81.2%    88.9%    94.3%     122.5%     100.0%
</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:       May 15, 1998                    BY: /S/  S. ERIC BEATTIE
       -----------------------                  --------------------
                                                S. ERIC BEATTIE
                                                PRESIDENT
                                               (PRINCIPAL EXECUTIVE OFFICER)


DATE:       May 15, 1998                    BY: /S/  REID L. HEEREN
       ----------------------                   -------------------
                                                REID L. HEEREN
                                                VICE PRESIDENT
                                               (PRINCIPAL FINANCIAL OFFICER)