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 June 30, 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:  1,740,168  SHARES OF COMMON
STOCK, $5 PAR VALUE, OUTSTANDING ON JUNE 30, 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
     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            26
              Market Risk

PART II - OTHER INFORMATION

   ITEM 4  -  Submission of Matters to a Vote of Security Holders      30
   ITEM 5  -  Other Information                                        30
   ITEM 6  -  Exhibits and Reports on Form 8-K                         31


SIGNATURES                                                             32


<PAGE>


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

                                                       June 30      Dec. 31
 ASSETS                                                  1998          1997
                                                     ---------     ---------
<S>                                                 <C>           <C>    
  Cash and Due From Banks                            $  11,516     $  12,629
  Federal Funds Sold                                       --          2,200
                                                     ---------     ---------
    Total Cash and Cash Equivalents                     11,516        14,829
  Interest-Bearing Deposits With Banks                   8,305           395
  Investment Securities Held-to-Maturity
    (Fair Value:  June 30, 1998 - $19,417;
      Dec. 31, 1997 - $17,946)                          19,293         7,756
  Securities Available-for-Sale at Fair Value           85,243        73,024
  Mortgage Loans Held-for-Sale                           1,470           759
  Total Loans, Net of Unearned Discount                216,957       229,587
  LESS:  Allowance for Possible Loan Losses             (2,680)       (2,664)
                                                     ---------     ---------
  Net Loans                                            214,277       226,923
  Premises and Equipment, Net                            7,055         7,299
  Accrued Interest Income                                2,522         2,232
  Other Real Estate Owned                                  238           284
  Other Assets                                           4,658         3,237
                                                     ---------     ---------
      TOTAL ASSETS                                   $ 354,577     $ 346,738
                                                     =========     =========
LIABILITIES
  Deposits
    Non-Interest Bearing Deposits                    $  36,259     $  32,800
    Interest-Bearing Deposits                          255,290       249,455
                                                     ---------     ---------
      Total Deposits                                   291,549       282,255
  Securities Sold Under Agreements to Repurchase         7,156         8,804
  Short-Term Borrowing
  Long-Term Debt                                        18,000        18,390
  Accrued Interest Payable                               3,177         3,466
  Other Liabilities                                      3,552         3,466
                                                     ---------     ---------
      TOTAL LIABILITIES                                323,434       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 -      1,740,168 shares at June 30, 1998
    and 1,655,413 shares at Dec. 31, 1997                8,701         8,277
  Additional Paid in Capital                            13,639        11,014
  Retained Earnings                                      8,309        10,250
  Less Treasury Stock at Cost: 0 shares at
       June 30, 1998 and
       2,779 shares at Dec. 31, 1997                       ---           (94)
  Employee Stock Ownership Plan Debt                      (500)         (390)
  Net Unrealized Gain on Securities Available-for-Sale     994         1,300
                                                     ---------     ---------
Total Shareholders' Equity                              31,143        30,357
                                                     ---------     ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY           $ 354,577     $ 346,738
                                                     =========     =========
</TABLE>

<PAGE>

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

                                          Three Months Ended   Six Months Ended
                                          June 30,  June 30,  June 30, June 30,
                                            1998      1997      1998     1997
                                       ----------  --------  --------  --------
<S>                                     <C>       <C>        <C>       <C>   

INTEREST INCOME:
 Interest and Fees on Loans              $ 4,747   $ 4,953    $ 9,660   $ 9,671
 Investment Securities Income
  Taxable                                  1,269     1,157      2,439     2,261
  Tax-Exempt                                 301       190        560       380
 Interest on Deposits with Banks and
  Federal Funds Sold                          38        12         81        30
                                         -------   -------    -------   -------
   Total Interest Income                   6,355     6,312     12,740    12,342
                                         -------   -------    -------   -------
INTEREST EXPENSE:
 Interest on Deposits                      2,352     2,273      4,679     4,486
 Interest on Short-Term Borrowing             73       116        145       185
 Interest on Long-Term Debt                  280       289        567       564
                                         -------   -------    -------   -------
   Total Interest Expense                  2,705     2,678      5,391     5,235
                                         -------   -------    -------   -------
NET INTEREST INCOME:                       3,650     3,634      7,349     7,107
 Provision for Possible Loan Losses          113       187        225       300
                                         -------   -------    -------   -------
  Net Interest Income After Provision
   For Possible Loan Losses                3,537     3,447      7,124     6,807
                                         -------   -------    -------   -------
OTHER INCOME:
 Trust Revenue                               264       192        475       379
 Service Charges on Deposit Accounts         411       321        761       614
 Investment Securities Gains, Net            363        94        463       234
 Gains on the Sale of Mortgage Loans         132       (50)       172        49
 Other Operating Income                      156       197        315       339
                                         -------   -------    -------   -------
   Total Other Income                      1,326       854      2,186     1,615
                                         -------   -------    -------   -------
OTHER EXPENSES:
 Salaries and Employee Benefits            1,618     1,473      3,232     2,954
 Net Occupancy and Equipment Expense         530       574      1,081     1,106
 Other Operating Expenses                  1,496     1,122      2,739     2,263
                                         -------    -------   -------   -------
   Total Other Expenses                    3,644     3,169      7,052     6,323
                                         -------   -------    -------   -------

Income Before Income Taxes                 1,219     1,132      2,258     2,099
Provision for Income Taxes                   324       320        595       583
                                         -------   -------    -------   -------

NET INCOME                               $   895   $   812    $ 1,663   $ 1,516
                                         =======   =======    =======   =======
 Per Share Data
   Basic Net Income                      $  0.52   $  0.48    $  0.97   $  0.89
                                         =======   =======    =======   =======

  Diluted Net Income                     $  0.51   $  0.48    $  0.96   $  0.89
                                         =======   =======    =======   =======
  Cash Dividends                         $  0.18   $  0.16    $  0.36   $  0.32
                                         =======   =======    =======   =======
</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      Six Months Ended
                                    June 30,   June 30,    June 30,    June 30,
                                      1998       1997        1998        1997
                                    ------     ------       ------      ------
<S>                                <C>        <C>          <C>         <C>   

Net Income                          $  895     $  812       $1,663      $1,516

Other Comprehensive Income, 
  Net of Tax
 Unrealized gains (losses) 
  on securities
   Unrealized gains (losses) 
    arising in period                 (129)       343         (202)       (106)
   Reclassification adjustment; 
    gain included in net income       (358)      (101)        (439)       (180)
                                    ------     ------       ------      ------
Other Comprehensive Income            (487)       242         (641)        (74)
                                    ------     ------       ------      ------
Comprehensive Income                $  408     $1,054       $1,022      $1,442
                                    ======     ======       ======      ======
</TABLE>


     Other  comprehensive  income is shown net of tax for the six  months  ended
June 30, 1998 and June 30, 1997 of $330,000  and $38,000,  respectively  and the
three  months  ended June 30, 1998 and June 30, 1997 of $251,000  and  $125,000,
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>

                                                      Six Months Ended
                                               June 30, 1998    June 30, 1997
OPERATING ACTIVITIES                                    (Unaudited)
<S>                                              <C>               <C>   
Net Income                                        $1,663            $1,516
Adjustments to Reconcile Net Income to Net Cash
 Provided by Operating Activities:
  Provision for Possible Loan Losses                 225               300
  Depreciation and Amortization                      491               417
  Amortization of Security Discounts                 (39)              (32)
  Amortization of Security Premiums                   98                66
  Amortization of Deferred Fees on Loans            (190)              (17)
  Mortgage Loans Originated for Sale             (28,418)           (7,587)
  Mortgage Loan Sales                             27,707             7,929
  (Gain) on Sale of Mortgage Loans                  (172)              (49)
  Investment Securities Gains, Net                  (463)             (234)
 Changes in Assets and Liabilities:
  Increase in Accrued Interest Income               (290)             (184)
  Decrease in Accrued Interest Payable              (289)               57 
  Net Increase in Other Assets                    (1,033)             (859)
  Net Increase in Other Liabilities                 (184)             (126)
                                                 -------           -------
Net Cash (Used In) Provided By 
  Operating Activities                              (894)            1,197 
                                                 -------           -------
INVESTING ACTIVITIES
Proceeds from Maturities of Securities 
  Available-for-Sale                              12,139             3,436
Proceeds from Maturities of Securities 
  Held-to-Maturity                                 5,474             3,623
Proceeds from Sales of Securities 
  Available-for-Sale                               4,571             6,692
Proceeds from Sales of Securities 
  Held-to-Maturity                                   248               ---
Purchase of Securities Available-for-Sale        (28,963)          (17,521)
Purchase of Securities Held-to-Maturity           (7,284)           (2,768)
Net Decrease (Increase) in Interest Bearing
  Deposits With Banks                             (7,910)              192
Net Increase in Loans                             12,711           (13,675)
Purchase of Premises and Equipment, Net             (208)             (987)
Proceeds from Sale of Other Real Estate Owned        118               546
                                                 -------           -------
Net Cash (Used In) Investing Activities           (9,104)          (20,462)
                                                 -------           -------
FINANCING ACTIVITIES
Net Increase in Interest and Non-Interest
 Bearing Demand Deposits and Savings Accounts      6,376             4,826
Net Increase in Certificates of Deposits           2,918            10,760
Net Decrease in Long-Term Debt                      (390)              ---
Proceeds from Sale of Treasury Stock                  94                20
Net Increase in ESOP Debt                           (110)              ---
Net (Decrease) Increase in Repurchase Agreements  (1,648)            3,071 
Net Increase in Short-Term Borrowings               ---              1,085
Proceeds from Issuance of Stock                       72               116
Cash Dividends Paid                                 (621)             (554)
Cash in Lieu of Fractional Shares                     (6)               (4)
                                                 -------           -------
Net Cash Provided by Financing Activities          6,685            19,320
                                                 -------           -------
(Decrease) Increase in Cash and Cash Equivalents  (3,313)               55 
Cash and Cash Equivalents, January 1              14,829            13,929
                                                 -------           -------
Cash and Cash Equivalents, March 31,             $11,516           $13,984
                                                 =======           =======
</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 and six months ended June 30, 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,  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

<PAGE>

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,  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 May 22, 1998 the Company paid its 1998 second quarter  dividend on its common
stock of $.19 per share to shareholders of record on May 8, 1998.


NOTE F  -  STOCK DIVIDEND

On June 25, 1998 the Company paid a 5% stock dividend to shareholders of record
on June 5, 1998. Fractional shares were paid in cash based on the closing price
of $36.00 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 are calculated as follows.

<PAGE>

For the Three Months Ended June 30,
<TABLE>
                                                         Average
                                             Income       Shares      Per Share
                                          (numerator) (denominator)     Amount
         1998
<S>                                        <C>         <C>            <C>   

Net Income                                  $  895

Basic Earnings Per Share
  Income Available to Common Shareholders   $  895      1,719,464      $  0.52

Effect of Dilutive Securities
  Stock Options                                             8,495
                                            ------      ---------      -------
Diluted Earnings Per Share
  Income Available to Common Shareholders
  plus Assumed Exercise of Options          $  895      1,727,959      $  0.51
                                            ------      ---------      -------
         1997

Net Income                                  $  812

Basic Earnings Per Share
  Income Available to Common Shareholders   $  812      1,700,227      $  0.48

Effect of Dilutive Securities
  Stock Options                                             5,867
                                            ------      ---------      -------
Diluted Earnings Per Share
  Income Available to Common Shareholders
  plus Assumed Exercise of Options          $  812      1,706,094      $  0.48
                                            ------      ---------      -------
</TABLE>

Average common shares outstanding in the three month period ending June 30, 1998
and 1997 do not include  21,919 and  29,664,  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>

For the Six Months Ended June 30,
<TABLE>
                                                         Average
                                             Income       Shares      Per Share
                                          (numerator) (denominator)     Amount
         1998
<S>                                        <C>         <C>            <C>   

Net Income                                  $1,663

Basic Earnings Per Share
  Income Available to Common Shareholders   $1,663      1,717,634      $  0.97

Effect of Dilutive Securities
  Stock Options                                             8,191
                                            ------      ---------      -------
Diluted Earnings Per Share
  Income Available to Common Shareholders
  plus Assumed Exercise of Options          $1,663      1,725,826      $  0.96
                                            ------      ---------      -------
         1997

Net Income                                  $1,516

Basic Earnings Per Share
  Income Available to Common Shareholders   $1,516      1,698,001      $  0.89

Effect of Dilutive Securities
  Stock Options                                             5,867
                                            ------      ---------      -------
Diluted Earnings Per Share
  Income Available to Common Shareholders
  plus Assumed Exercise of Options          $1,516      1,703,868      $  0.89
                                            ------      ---------      -------
</TABLE>

Average  common shares  outstanding in the six month period ending June 30, 1998
and 1997 do not include  22,527 and  30,277,  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
<TABLE>

     Six Month Period Ended June 30,             1998               1997
<S>                                            <C>                <C>   

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

     Additions
       Provision for loan losses charged to
        operating expenses                         225,000            300,000
       Recoveries of loans                          46,000             42,000
                                                ----------         ----------
        Total Additions                            271,000            342,000

     Deductions
       Loans charged off                           255,000            285,000
                                                ----------         ----------

     Ending Balance                             $2,680,000         $2,589,000
</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 June 30,                                 1998            1997
          <S>                                     <C>               <C>    

           Principal amount of impaired loans      $1,203,000        $377,000
           Deferred loan costs                          2,000           7,000
                                                     --------        --------
                                                    1,205,000         384,000
           Less valuation allowance                   446,000         105,000
                                                     --------        --------
                                                   $  759,000        $279,000
</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 June
30, 1998 is as follows:
<TABLE>

                                                      1998               1997
<S>                                               <C>                <C>   

      Valuation allowance at January 1,            $138,000         $128,000
      Provision for loan impairment                 225,000           17,000
      Transfer from Unallocated Allowance for
         Possible Loan Losses                       117,000              ---
      Direct charge-offs                            (34,000)         (40,000)
      Recoveries                                        ---              ---
                                                   --------         --------
      Valuation allowance at June 30,              $446,000         $105,000
</TABLE>

Total cash  collected  on impaired  loans during the six month period ended June
30, 1998 was $250,000,  of which $237,000 was credited to the principal  balance
outstanding  on such loans and  $130,000  was  recognized  as  interest  income.
Interest  that would have been  accrued on impaired  loans  during the first six
months of 1998 was $80,000.  Interest  income  recognized  for the first half of
1997 was $12,740,000.  The valuation allowance for impaired loans of $446,000 at
June 30, 1998 is included in the  "Allowance  for Possible  Loan  Losses"  which
amounts to  $2,680,000 at June 30, 1998.  The  provision for loan  impairment of
$225,000  for the six  month  period  ended  June 30,  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.

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.

<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 six month period ended June 30, 1998.

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,  1997,  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-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.

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 June
30, 1998, cash, due from banks, Federal funds sold and interest bearing deposits
with banks totaled $19,821,000,  and securities maturing within one year totaled

<PAGE>

$4,730,000.  At December 31, 1997, 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  $7,156,000 at June 30, 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  $8,047,000 at June 30, 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 June 30,  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  $25,000,000  at June 30,  1998,  subject  to  certain
collateral  requirements.  The Bank  had no  short-term  (overnight)  borrowings
against  this  line at June  30,  1998 or at  December  31,  1997.  The Bank had
additional  borrowings from the Federal Home Loan Bank at June 30, 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.

     Cash flows for the six months ended June 30, 1998 consisted of cash used in
operating  activities  of  $894,000  and cash used in  investing  activities  of
$9,104,000 offset in part by cash provided by financing activities of $6,685,000
resulting in a decrease in cash and cash equivalents of $3,313,000.

     Cash  used  in  operating  activities  was the  result  of  mortgage  loans
originated for sale of  $28,418,000,  an increase in other assets of $1,033,000,
an  increase  in accrued  interest  income of  $290,000,  a decrease  in accrued
interest  payable  of  $289,000,  partially  reduced by  mortgage  loan sales of
$27,707,000,  net operating income of $1,663,000,  depreciation and amortization
of $491,000 and a provision for possible loan losses of $225,000.  Cash was used
in investing  activities for the purchase of securities  available-for-sale  and
held-to-maturity of $28,963,000 and $7,284,000,  respectively, plus net increase
in interest-bearing  deposits with banks of $7,910,000,  partially offset by net
decreases  in loans of  $12,711,000,  proceeds  from  maturities  of  securities
available-for-sale   and   held-to-maturity   of  $12,139,000   and  $5,474,000,
respectively,  and  proceeds  from sales of  securities  available-for-sale  and
held-to-maturity  of  $4,571,000  and $248,000,  respectively.  Cash provided by
financing  activities  consisted   principally  of  increases  in  interest  and
non-interest  bearing demand deposits and savings  accounts of $6,376,000 and an
increase in certificates  of deposit of $2,918,000  offset in part by a decrease
in  repurchase  agreements  of  $1,648,000,  the  payment of cash  dividends  of
$621,000 and a decrease in long-term  debt of $390,000. 

     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 June 30, 1998 was $31,143,000 as
compared to  $30,357,000  at December 31,  1997,  for an increase of $786,000 or

<PAGE>

2.6%.  This increase was  attributable to net income for the first six months of
1998 of  $1,663,000,  proceeds  from the sale of treasury  stock in the Dividend
Reinvestment Plan of $94,000, proceeds from the sale of common stock pursuant to
the Dividend  Reinvestment Plan of $72,000 less the payment of cash dividends of
$621,000,  a decrease of $306,000 in the value of the  securities  available for
sale (see  discussion on  "Investment  Securities"),  an increase of $110,000 in
debt related to Employee Stock  Ownership Plan and the payment of $6,000 in cash
in lieu of fractional shares from the 5% stock dividend of June 25, 1998.

     On June 25, 1998, the Company paid a 5% stock dividend to  shareholders  of
record  on June 5,  1998.  Fractioinal  shares  were  paid in cash  based on the
closing price of $36.00 per share on the record date.

     The Company  maintains a Dividend  Reinvestment  and Stock  Purchase  Plan.
During the first six months of 1998, 4,834 shares of common stock were purchased
from  authorized and unissued shares at an average price of $34.34 per share for
proceeds of approximately $166,000.

     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 June 30, 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 June 30, 1998           Amount   Ratio     Amount   Ratio   Amount  Ratio
<S>                        <C>       <C>      <C>       <C>    <C>      <C>
Total Capital
(To Risk-Weighted Assets)
  Company, (Consolidated)   $32,383   16.33%   $15,864   8.00%      ---    ---
  Bank                      $28,724   14.57%   $15,772   8.00%  $19,714  10.00%

Tier 1 Capital
(To Risk-Weighted Assets)
  Company, (Consolidated)   $29,901   15.08%   $ 7,931   4.00       ---    ---
  Bank                      $25,657   13.01%   $ 7,888   4.00%  $11,833   6.00%

Tier 1 Capital
(To Average Assets,
 Leverage)
  Company, (Consolidated)   $29,901   8.55%    $13,989   4.00%      ---    ---
  Bank                      $25,657   7.44%    $13,794   4.00%  $17,243   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 June 30, 1998 were  $354,577,000,  representing an increase
of 2.3% over  total  assets of  $346,738,000  at  December  31,  1997.  Deposits
increased  by  $9,294,000  or 3.3% from  $282,255,000  on  December  31, 1997 to
$291,549,000  on June 30, 1998.  Contributing to this increase were increases in
non-interest bearing checking deposits of $3,459,000, certificates of deposit of
$2,654,000, savings and money market deposits of $1,606,000 and interest-bearing
checking  deposits  of  $1,575,000.  Loans  outstanding  at June 30,  1998  were
$216,957,000  as  compared  to  $229,587,000  at December  31,  1997.  This is a
decrease of  $12,630,000  or 5.5%. The decline in loans was primarily the result
of a decrease of $12,988,000 or 14.1% in residential  real estate loans.  During
the first half of 1998,  $27,707,000 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  $1,470,000 of  residential  real estate loans  identified as
held-for-sale at June 30, 1998.  Additionally,  the net decrease in loans during
the  first  six  months  of 1998  included  a  $1,937,000  or 2.8%  decrease  in
commercial  loans partially  offset by a $2,295,000 or 3.4% increase in consumer
loans.  The loan to  deposit  ratio  was  74.4% at June  30,  1998 and  81.3% at
December 31, 1997.

     Premises and equipment decreased by $244,000 to $7,055,000 at June 30, 1998
from $7,299,000 at December 31, 1997.

     The Company had  long-term  debt totaling  $18,000,000  at June 30, 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 June 30, 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.
Long-term  debt of $390,000  relating to Employee  Stock  Option Plan (ESOP) and

<PAGE>

payable to  another  bank was paid in full  during the first half of 1998.  This
debt was repaid by a loan from the Company's subsidiary,  First C. G. Company to
the ESOP in the  amount of  $500,000.  This new loan,  due in 2009,  carries  an
interest rate of prime plus 1/2 (currently 9%) and annual principal  payments of
$50,000 starting in June 1999.

     At June  30,  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 $25,000,000.

Results of Operations

     The net income for the three  months ended June 30, 1998 was  $895,000,  an
$83,000 or 10.2% increase compared to net income of $812,000 for the same period
in 1997. The earnings improvement is attributable to an increase in net interest
income of $16,000 or 0.4%,  a $74,000 or 39.6%  decrease  in the  provision  for
possible  loan  losses,  a $203,000 or 26.7%  increase  in total  other  income,
exclusive of net securities  gains of $269,000  partially offset by increases in
total other  expenses of $475,000 or 15.0% and Federal income taxes of $4,000 or
1.3%.

     Net income for the six months ended June 30, 1998 was  $1,663,000  compared
to $1,516,000 for the same period in 1997. The earnings improvement is primarily
attributable to increases in total other income and net interest income.  During
the first  half of 1998,  net  interest  income  increased  $242,000  or 3.4% as
compared to June 30, 1997.  Also affecting  earnings was a $219,000  increase in
total  other  income  exclusive  of  security  gains  and  gains  on the sale of
mortgages  of $463,000  and  $172,000,  an  increase in total other  expenses of
$729,000 and an increase in Federal income taxes of $12,000.

     Basic  earnings  per share for the three  months  ended June 30,  1998 were
$0.52 as compared to $0.48 for the corresponding  period in 1997. Average shares
outstanding  during this three month period were 1,727,959 in 1998 and 1,706,094
in 1997.  Basic  earnings  per share for the six months ended June 30, 1998 were
$0.97 and $0.96, respectively, as compared to $0.89 for the corresponding period
in 1997.  Average shares outstanding during this six month period were 1,725,826
in 1998 and  1,703,868 in 1997.  Diluted  earnings per share for the three month
period  ended June 30, 1998 were $0.51  compared to $0.48 for the same period in
1997.  Diluted  earnings  per share for the six month  period ended June 30 were
$0.96 and $0.89 in 1998 and 1997,  respectively.  Per share earnings and average
shares  outstanding  have been restated to reflect the 5% stock dividend paid on
June 25, 1998. (see Note F)

Net Interest Income

     Net interest  income amounted to $3,650,000 for the three months ended June
30, 1998 as compared to $3,634,000  for the three months ended June 30, 1997, an
increase of $16,000 or 0.4%.

<PAGE>

     The fully  taxable-equivalent  net interest  income was  $7,649,000 for the
first six months of 1998,  compared to $7,317,000 for the same period in 1997, a
4.5% or  $332,000  increase  as shown in the  following  "Rate/Volume  Analysis"
table. This increase in taxable-equivalent net interest income was primarily due
to a $674,000 increase related to volume partially offset by a $342,000 decrease
related to interest rates.

     Total taxable-equivalent interest income grew $488,000 primarily the result
of the higher volumes in the investment security earning asset category.  Income
from investment  securities for the second quarter  increased  $451,000 or 15.9%
over the second half of 1997. This was comprised of a $1,197,000 increase due to
volume  partially  offset  by a  $746,000  decrease  due to rates as a result of
declining yields.  Average year-to-date earning assets increased to $323,648,000
at June 30, 1998 from $307,464,000 at June 30, 1997, a 5.3% increase.

     Total interest  expense grew $156,000  during the first six 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  $262,000  during the first six months of
1998,  compared to the first six 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 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 six months ended June 30,  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>
                                                      Six Months Ended
                                                       June 30, 1998
                                                       Over / (Under)
                                                       June 30, 1997
                                                       CHANGE DUE TO:
                                                TOTAL      RATE     VOLUME
<S>                                         <C>        <C>        <C>  
(Fully Taxable Equivalent)
INTEREST INCOME
Interest-Bearing Balances With Banks         $    27    $   (49)   $    76
Federal Funds Sold                                24        (50)        74
Investment Securities                            451       (746)     1,197
Loans Held for Sale                               (7)       (44)        37
Loans                                             (7)       318        325
                                             -------    -------    -------
Total Interest Income                            488       (571)     1,059
                                             -------    -------    -------

INTEREST EXPENSE
Demand Deposits, Savings & Clubs                 (69)      (124)        55
Time Deposits                                    262       (171)       433
Federal Funds Purchased and Securities
   Sold Under Agreements to Repurchase            22        (15)        37
Short-Term Borrowings                            (62)        65       (127)
Long-Term Borrowings                               3         16        (13)
                                             -------    -------    -------
Total Interest Expense                           156       (229)       385
                                             -------    -------    -------

Net Increase (Decrease) in Interest Income   $   332    $  (342)   $   674

</TABLE>

<PAGE>


Other Income and Other Expenses

     Other  income for the three months  ended June 30, 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 $963,000 as compared to
$760,000 for the same period in 1997. This was an increase of $203,000 or 26.7%.
In the three month period ended June 30, 1998, service charges were $411,000,  a
$90,000 or 28.0%  increase  over the 1997 amount of $321,000.  The revenues from
the Trust  Department  operations  were $264,000 for the three months ended June
30, 1998 as compared to $192,000 for the three  months  ended June 30, 1997,  an
increase  of  $72,000  or 37.5%.  There  were  $132,000  in gains on the sale of
mortgage  loans for the three  month  period  ended June 30,  1998 and losses of
$50,000 for the same period in 1997.  Other  miscellaneous  income for the three
months  ended June 30,  1998 was  $156,000,  a decrease  of $41,000  compared to
$197,000 for the same period in 1997.

     Other  income for the six  months  ended June 30,  1998  including  service
charges,  trust  revenues,  gains  on the  sale  of  mortgage  loans  and  other
miscellaneous   income,  but  exclusive  of  securities  gains  or  losses,  was
$1,723,000  as compared to $1,381,000  for the same period in 1998.  This was an
increase  of  $342,000  or 24.8%.  In the six month  period  ended June 30, 1998
service charges were $761,000, a $147,000 or 23.9% increase over the 1998 amount
of  $614,000.  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
Investment  Management and Trust Division  operations  were $475,000 for the six
months ended June 30, 1998 as compared to $379,000 for the six months ended June
30, 1997, an increase of $96,000 or 25.3%.  During the six months ended June 30,
1998,  sales of  mortgage  loans  resulted  in a gain of $172,000 as compared to
$49,000 for the same period in 1997,  an increase of $123,000.  The gain in 1998
was the result of the sale of $27,707,000  of  residential  real estate loans in
the first half (see  discussion  on Assets  and  Liabilities).  Other  operating
income for the six months  ended  June 30,  1998 was  $315,000  as  compared  to
$339,000 for the same period in 1997, a decrease of $24,000 or 7.1%.

     Total  other  expenses  for the three  month  period  ended  June 30,  1998
increased by $475,000 or 15.0% to $3,644,000  over total other  expenses for the
same period in 1997 of  $3,169,000.  Included in this  increase is a $145,000 or
9.8% increase in salary and benefit  expenses which were  $1,618,000 as compared
to $1,473,000  in 1997.  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 $530,000 for the
three  months  ended June 30, 1998 and  $574,000 for the three months ended June
30, 1997, a decrease of $44,000 or 7.7%. Other operating  expenses for the three
month  period  ended June 30, 1998 were  $1,496,000,  an increase of $374,000 or
33.3% over the $1,122,000 in other expenses for the same period in 1997.
<PAGE>

     Total other  expenses for the six months  ended June 30, 1998  increased by
$729,000 or 11.5%,  to $7,052,000  from  $6,323,000 for the same period in 1997.
Salaries and employee benefits were $3,232,000 for the six months ended June 30,
1998  as  compared  to  $2,954,000  for the  six  months  ended  June  30,  1997
representing an increase of $278,000 or 9.4%.  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  $1,081,000  for the six months ended June 30, 1998 and $1,106,000
for the six months  ended June 30,  1997,  a decrease of $25,000 or 2.3%.  Other
operating  expenses  for the six months ended June 30, 1998 were  $2,739,000  in
relation to  $2,263,000  for the six months ended June 30, 1997,  an increase of
$476,000 or 21.0%.  Included in the other operating  expense total was a special
$300,000  provision  to a reserve for  possible  contingent  liabilities  in the
operation of the Trust Division.  This contingent reserve totals $800,000 and is
included in other liabilities on the Consolidated Balance Sheet Statement.

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 June 30,
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 $85,243,000 in
available-for-sale  securities  at June 30, 1998 with a net  unrealized  gain of
$994,000.  At  December  31,  1997  available-for-sale  securities  amounted  to
$73,024,000 with a net unrealized gain of $1,300,000.

     During the six month period ended June 30, 1998,  $4,571,000  of securities
available-for-sale  were  sold  for  a net  gain  of  $463,000  as  compared  to
$6,692,000 of securities available-for-sale were sold for a net gain of $234,000
for the same time period in 1997.

     Held-to-maturity  securities  totaling  $19,293,000  at June  30,  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 June 30,  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

<PAGE>

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  six  months  of 1998,  the  provision  for loan  losses  was
$225,000  compared to $300,000 for the same period in 1997. Net charge offs were
$209,000 for the six months ended June 30, 1998  compared  with $243,000 for the
six months ended June 30, 1997.  The ratio of the  allowance  for loan losses to
total  loans at June 30, 1998 was 1.24%  compared to 1.16% at December  31, 1997
and 1.11% at June 30, 1997.  This was primarily the result of a decline in total
loans to $216,957,000  at June 30, 1998 from  $229,587,000 at December 31, 1998.
This decline was the result of the sale of  $27,707,000 of mortgage loans during
the first half of 1998.  The allowance for possible loan losses at June 30, 1998
totaled  $2,680,000,  an increase of $16,000 or 0.6% over the  December 31, 1997
amount of  $2,664,000  and  $91,000  or 3.5% over the June 30,  1997  balance of
$2,589,000.

     As provided  by SFAS No.  114, as amended by SFAS No. 118,  $446,000 of the
Allowance  for Possible  Loan Losses is allocated to impaired  loans at June 30,
1998 (See Note I "Impaired Loans").

     Transactions in the allowance for loan losses are as follows:

ALLOWANCE FOR LOAN LOSSES
<TABLE>

                                               1998           1997
<S>                                      <C>            <C>   

Balance, January 1,                       $ 2,664,000    $ 2,532,000
Provision charged to Operating Expenses       225,000        300,000
Loans Charged Off                             255,000        285,000
Recoveries                                     46,000         42,000
                                          -----------     ----------
Balance June 30,                          $ 2,680,000    $ 2,589,000
</TABLE>

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

         At June 30, 1998
        <S>                                      <C>    

         Commercial                               $1,332,000
         Residential Real Estate                     143,000
         Consumer                                    709,000
         Unallocated                                 496,000
                                                  ----------
              Total                               $2,680,000
</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.

<PAGE>

     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 1.3% of total loans at June 30, 1998 compared to 0.7% at June 30, 1997. The
increase in this ratio is the result of a  $1,300,000  or 84.7%  increase in non
performing  loans to  $2,834,000  over the one year period ending June 30, 1998.
The ratio of the allowance for loan losses to non performing assets was 94.6% at
June 30, 1998 compared to 168.8% at June 30, 1997.

     Non accruing  loans at June 30, 1998 of $1,816,000  increased from June 30,
1997 level of $668,000.  This  $1,148,000  increase was  primarily the result of
three  commercial  loans being  placed on non accrual  status  during the second
quarter of 1998.  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 June 30, 1998,  loans past due 90 days or more and still
accruing  interest were  $1,018,000  compared to $866,000 at June 30, 1997.  The
$152,000  increase in loans past due 90 days from June 30, 1997 to June 30, 1998
was the result of increases in mortgage and commercial loans past due 90 days or
more of  $200,000  and  $113,000,  respectively.  This was  offset  in part by a
decline in consumer loans of $161,000.

<PAGE>

<TABLE>

NON-PERFORMING LOANS
                                            June 30,  December 31,   June 30,
                                              1998        1997          1997
<S>                                      <C>          <C>           <C>    

Non-accrual loans on a cash basis         $1,816,000   $ 813,000     $  668,000
Non-accrual loans as a percentage
  of total loans                                .89%        .35%           .29%
Accruing loans past due 90 days
  or more                                 $1,018,000   $ 802,000     $  866,000
Accruing loans past due 90 days
  or more as a percentage of total
  loans                                         .47%        .35%           .37%
Other Real Estate Owned from
  Foreclosed Property                     $  238,000   $ 284,000     $  513,000
Allowance for loan losses to
  nonperforming loans                         94.57%     163.64%        168.77%
Nonperforming assets to total loans            1.31%        .71%           .66%
Allowance for loan losses to total loans       1.24%       1.16%          1.11%

</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 June 30, 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)
Six Months Ended, June 30,                  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  $  1,733  $   56   6.46% $   750  $  29  7.74%
Federal Funds Sold                    917      25   5.46       24      1  8.34
Investment Securities
      Taxable                      78,048   2,439   6.26   68,369  2,261  6.62
      Non-Taxable (1)              22,824     849   7.44   14,941    576  7.70
Net Loans Held for Sale             1,801      24   2.66    1,131     31  5.48
Loans (1) (2)                     221,038   9,647   8.72  224,831  9,654  8.58
Reserve for Loan Losses            (2,713)     --     --   (2,582)    --    --
                                ---------   -----        --------  -----     
Net Loans                         218,325   9,647   8.84  222,249  9,654  8.68
                                ---------   -----        --------  -----     
  Total Interest-Earning Assets   323,648  13,040   8.06  307,464 12,552  8.16
Non-Interest Earning Assets        24,645      --     --   23,615     --    --
                                ---------   -----        --------  -----     
  TOTAL ASSETS, INT INCOME      $ 348,293  13,040   7.48 $331,079 12,552  7.58
                                ---------   -----        --------  -----     

LIABILITIES
INTEREST-BEARING LIABILITIES
Interest-Bearing Deposits
  Demand Deposits               $  48,165     277   1.16 $ 43,587    257  1.18
  Money Market Deposits            14,274     200   2.80   14,070    196  2.78
  Savings & Club Deposits          61,435     673   2.20   63,469    766  2.42
  CD's over $100,000                4,795      91   3.80    5,395    114  4.22
  All Other Time Deposits         123,308   3,438   5.58  114,743  3,153  5.50
                                ---------   -----        --------  -----     
   Total Int-Bearing Deposits     251,977   4,679   3.72  241,264  4,486  3.72
Federal Funds Purchased 
 and Securities Sold Under 
 Agreements to Repurchase           6,048     113   3.74    5,023     91  3.62
Short-Term Borrowings               1,132      32   5.66    3,510     94  5.36
Long-Term Borrowings               18,227     567   6.22   18,445    564  6.12
                                ---------   -----        --------  -----     
  Total Int-Bearing Liabilities   277,384   5,391   3.88  268,242  5,235  3.90

NON-INTEREST-BEARING LIABILITIES
Non-Interest-Bearing Deposits      33,130      --     --   29,949     --    --
Other Liabilities                   7,179      --     --    5,729     --    --
                                ---------   -----        --------  -----     
   TOTAL LIABILITIES              317,693   5,391   3.40  303,920  5,235  3.44
   SHAREHOLDERS' EQUITY            30,600      --     --   27,159     --    --
                                ---------   -----        --------  -----     
   TOTAL LIABILITIES AND EQUITY $ 348,293   5,391   3.10 $331,079  5,235  3.16

NET INTEREST INCOME                        $7,649                 $7,317 
                                            -----                  -----     

    Net Interest Spread                             4.18                  4.26
    Effect of Interest-Free Sources
      Used to Fund Earnings Assets                  0.54                  0.50
    Net Interest Margin                             4.72%                 4.76%
                                                    ----                  ----
</TABLE>

<PAGE>

     The net  interest  margin of 4.72% for the six month  period ended June 30,
1998,  decreased from the 4.76% net interest  margin for the first six months of
1997. The yield on interest earning assets was 8.06% during the first six months
of 1998 as  compared  to 8.16% in 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 six months of 1998 as compared to 3.90% in 1997.  The  decrease in
the net interest  margin was  supported by an increase in the effect of interest
free  sources  of funds to 0.54% for the first six  months of 1998 from 0.50% 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 June 30, 1998,
assets of  $159,970,000  (45% of total  assets)  were  subject to interest  rate
changes within one year. Liabilities subject to rate change within one year were
$177,528,000. A negative one-year gap position of $17,558,000 existed as of June
30, 1998. The ratio of rate-sensitive  assets to rate-sensitive  liabilities for
the one-year  time frame was 90%.  The  "Interest  Sensitivity  Analysis" in the
following table presents a sensitivity gap analysis of the Company's  assets and
liabilities at June 30, 1998.

<PAGE>

Interest Sensitivity Analysis
(Dollars in Thousands) as of June 30, 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 $ 8,305  $   ---  $    ---   $    ---   $    ---    $ 8,305
Federal Funds Sold      ---      ---       ---        ---        ---        ---
Inv Securities       20,565   11,436    21,211     36,473     14,851    104,536
Loans Held-for-Sale   1,470      ---       ---        ---        ---      1,470
Loans                43,465   16,351    25,651     71,884     56,926    214,277
Other Assets         11,516      ---       ---        ---     14,473     25,989
                    ------- --------  --------    -------   --------   --------
  TOTAL ASSETS      $85,321  $27,787  $ 46,862   $108,357   $ 86,250   $354,577
                    ------- --------  --------    -------   --------   --------
Non-Interest-Bearing
  Deposits (1)      $   ---  $   ---  $    ---    $   ---   $ 36,259   $ 36,259
Int-Bearing 
 Deposits            81,235   26,513    44,624     40,813     62,105    255,290
Time Deposits           ---      ---       ---        ---        ---        ---
Securities Sold 
 Under Agreements 
 to Repurchase        7,156      ---       ---        ---        ---      7,156
Long-Term Debt       13,000    5,000       ---        ---        ---     18,000
Other                   ---      ---       ---        ---      6,729      6,729
Capital                 ---      ---       ---        ---     31,143     31,143
                    ------- --------  --------    -------   --------   --------
TOTAL LIABILITIES
  AND CAPITAL      $101,391  $31,513  $ 44,624    $40,813   $136,236   $354,577
                    ------- --------  --------    -------   --------   --------
Net Interest  
  Sensitivity Gap  $(16,070) $(3,726)$  2,238    $67,544   $(49,986)  $    ---

Cumulative Int
  Sensitivity Gap  $(16,070)$(19,796)$(17,558)   $49,986   $    ---   $    ---

Cumulative Gap
  RSA/RSL             84.15%   85.11%   90.11%    122.89%    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 4.  Submission of Matters to a Vote of Security Holders

     On May 7, 1998, the Company held its annual meeting of shareholders. At the
annual meeting, the shareholders elected Gordon B. Mowrer and Maria Z. Thulin as
Class 4  Directors  of the  Company  to serve for a term of four years and until
their  successors are duly elected and qualified.  The following is a tabulation
of the vote for these directors.

                                                       Votes
                                                                 Withheld
                                            For                  Authority
                                       ---------------         --------------
        Gordon B. Mowrer                  1,349,912               4,619
        Maria Z. Thulin                   1,345,201               9,330

     The other directors whose terms of office as a director continued after the
meeting are S. Eric Beattie,  Robert Bergren,  Daniel B.  Mulholland,  Robert C.
Nagel, Charles J. Peischl, John J. Schlamp and Richard Stevens III.

ITEM 5.  Other Information

     Pursuant  to recent  amendments  to the proxy  rules  under the  Securities
Exchange Act of 1934, as amended,  the Company's  stockholders are notified that
the deadline for providing the Company timely notice of any stockholder proposal
to be  submitted  outside of the Rule 14a-8  process  for  consideration  at the
Company's 1999 Annual Meeting of Shareholders (the "Annual Meeting") will be May
6, 1999.  As to all such  matters  which the Company  does not have notice on or
prior to May 6, 1999, discretionary authority shall be granted to the designated
persons inthe Company's proxy statement for the Annual Meeting.

     Shareholder  proposals for the 1998 Annual Meeting of Shareholders  must be
submitted  to the Company by  November  30,  1998 to receive  consideration  for
inclusion in the Company's Proxy Statement.

<PAGE>

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:     August 14, 1998             BY: /S/  S. ERIC BEATTIE
     -----------------------------    -------------------------------
                                      S. ERIC BEATTIE
                                      PRESIDENT
                                     (PRINCIPAL EXECUTIVE OFFICER)


DATE:     August 14, 1998             BY: /S/  REID L. HEEREN
    ------------------------------    -------------------------------
                                      REID L. HEEREN
                                      VICE PRESIDENT
                                     (PRINCIPAL FINANCIAL OFFICER)