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, 1999
                                                              or
          [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

           For the transition period from ____________ to ____________

                           Commission File No. 0-11526
             -----------------------------------------------------

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

           PENNSYLVANIA                                  23-2228154
-----------------------------------                  ------------------------
(STATE OR OTHER JURISDICTION OF                      (I.R.S. EMPLOYER
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:  1,840,274  SHARES OF COMMON
STOCK, $5 PAR VALUE, OUTSTANDING ON JUNE 30, 1999.

<PAGE>

                   FIRST COLONIAL GROUP, INC. AND SUBSIDIARIES


                                      INDEX

PART 1  -  FINANCIAL INFORMATION                                 PAGE NO.

ITEM 1 - Financial Statements

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

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


ITEM 3 - Quantitative and Qualitative Discussion About
         Market Risk                                                30


PART 11 - OTHER INFORMATION

ITEM 4 - Submission of Matters to a Vote of Security Holders        34

ITEM 5 - Other Information                                          34

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


SIGNATURES                                                          35

<PAGE>

<TABLE>

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

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

ASSETS
  Cash and Due From Banks                          $  13,412    $  12,259
  Federal Funds Sold                                   2,000        2,000
                                                   ---------    ---------
    Total Cash and Cash Equivalents                   15,412       14,259
  Interest-Bearing Deposits With Banks                 5,054        3,301
  Investment Securities Held-to-Maturity              17,118       17,723
    (Fair Value: June 30, 1999 $16,794
     Dec. 31, 1998 - $17,920)
  Securities Available-for-Sale at Fair Value        114,939       98,389
  Mortgage Loans Held-for-Sale                         1,480          603
  Total Loans, Net of Unearned Discount              217,989      212,437
  LESS:  Allowance for Possible Loan Losses           (2,658)      (2,691)
                                                   ---------    ---------
  Net Loans                                          215,331      209,746
  Premises and Equipment, Net                          6,649        6,885
  Accrued Interest Income                              2,859        2,542
  Other Real Estate Owned                                593          636
  Other Assets                                         4,957        4,412
                                                   ---------    ---------
    TOTAL ASSETS                                   $ 384,392    $ 358,496
                                                   ---------    ----------

LIABILITIES
  Deposits
    Non-Interest Bearing Deposits                  $  41,889    $  38,885
    Interest-Bearing Deposits                        279,583      255,664
                                                   ---------    ---------
      Total Deposits                                 321,472      294,549
  Securities Sold Under Agreements to Repurchase       9,151        5,094
  Long-Term Debt                                      20,000       20,000
  Accrued Interest Payable                             3,237        3,536
  Other Liabilities                                    1,543        3,600
                                                   ---------    ---------
    TOTAL LIABILITIES                                355,403      326,779

SHAREHOLDERS' EQUITY
  Preferred Stock, Par Value $5.00 a share
    Authorized - 500,000 shares, none issued
  Common Stock, Par Value $5.00 a share
    Authorized - 10,000,000 shares
    Issued - 1,840,274 shares at June 30, 1999
    and 1,745,725 shares at Dec. 31, 1998              9,201        8,729
  Additional Paid in Capital                          15,573       13,873
  Retained Earnings                                    8,075        9,023
  Employee Stock Ownership Plan Debt                  (1,435)        (435)
  Accumulated Other Comprehensive Income (Loss)       (2,425)         527
                                                   ---------    ---------

Total Shareholders' Equity                            28,989       31,717
                                                   ---------    ---------

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY         $ 384,392    $ 358,496
                                                   ---------    ---------
</TABLE>


See accompanying notes to interim consolidated financial statements.

<PAGE>

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

                                          Three Months Ended   Six Months Ended
                                          June 30,  June 30,  June 30, June 30,
                                            1999      1998      1999     1998
                                       ----------  --------  --------  --------
<S>                                     <C>       <C>        <C>       <C>

INTEREST INCOME:
 Interest and Fees on Loans              $ 4,432   $ 4,747    $ 8,828   $ 9,660
 Investment Securities Income
  Taxable                                  1,647     1,269      2,988     2,439
  Tax-Exempt                                 392       301        780       560
 Interest on Deposits with Banks and
  Federal Funds Sold                          19        38        118        81
                                         -------   -------    -------   -------
   Total Interest Income                   6,490     6,355     12,714    12,740
                                         -------   -------    -------   -------
INTEREST EXPENSE:
 Interest on Deposits                      2,450     2,352      4,792     4,679
 Interest on Short-Term Borrowing             76        73        122       145
 Interest on Long-Term Debt                  279       280        559       567
                                         -------   -------    -------   -------
   Total Interest Expense                  2,805     2,705      5,473     5,391
                                         -------   -------    -------   -------
NET INTEREST INCOME:                       3,685     3,650      7,241     7,349
 Provision for Possible Loan Losses          125       113        250       225
                                         -------   -------    -------   -------
  Net Interest Income After Provision
   For Possible Loan Losses                3,560     3,537      6,991     7,124
                                         -------   -------    -------   -------
OTHER INCOME:
 Trust Revenue                               337       264        603       475
 Service Charges on Deposit Accounts         425       411        797       761
 Investment Securities Gains, Net            345       363        561       463
 Gains on the Sale of Mortgage Loans          13       132         91       172
 Other Operating Income                      155       156        337       315
                                         -------   -------    -------   -------
   Total Other Income                      1,275     1,326      2,389     2,186
                                         -------   -------    -------   -------
OTHER EXPENSES:
 Salaries and Employee Benefits            1,653     1,618      3,293     3,232
 Net Occupancy and Equipment Expense         515       530      1,050     1,081
 Other Operating Expenses                  1,459     1,496      2,832     2,739
                                         -------    -------   -------   -------
   Total Other Expenses                    3,627     3,644      7,175     7,052
                                         -------   -------    -------   -------

Income Before Income Taxes                 1,208     1,219      2,205     2,258
Provision for Income Taxes                   283       324        495       595
                                         -------   -------    -------   -------

NET INCOME                               $   925   $   895    $ 1,710   $ 1,663
                                         =======   =======    =======   =======
 Per Share Data
   Basic Net Income                      $  0.52   $  0.50    $  0.96   $  0.93
                                         =======   =======    =======   =======
  Diluted Net Income                     $  0.51   $  0.49    $  0.95   $  0.92
                                         =======   =======    =======   =======
  Cash Dividends                         $  0.18   $  0.17    $  0.36   $  0.34
                                         =======   =======    =======   =======
</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,
                                      1999       1998        1999        1998
                                    ------     ------       ------      ------
<S>                                <C>        <C>          <C>         <C>

Net Income                         $   925     $  895      $ 1,710      $1,663

Other Comprehensive Income (Loss),
  Net of Tax
 Unrealized gains (losses)
  on securities
   Unrealized gains (losses)
    arising in period               (2,570)      (129)      (3,322)       (202)
   Reclassification adjustment;
    gain included in net income        228       (358)         370        (439)
                                    ------     ------       ------      ------
Other Comprehensive Income (Loss)   (2,342)      (487)      (2,952)       (641)
                                    ------     ------       ------      ------
Comprehensive Income (Loss)        $(1,417)    $  408      $(1,242)     $1,022
                                    ======     ======       ======      ======
</TABLE>

Other  comprehensive  income is shown net of tax  (benefit)  for the six  months
ended June 30, 1999 and June 30, 1998 of $(1,521,000) and $330,000, respectively
and the three months ended June 30, 1999 and June 30, 1998 of  $(1,206,000)  and
$251,000, 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, 1999    June 30, 1998
OPERATING ACTIVITIES                                    (Unaudited)
<S>                                              <C>               <C>
Net Income                                        $1,710            $1,663
Adjustments to Reconcile Net Income to Net Cash
 Provided by Operating Activities:
  Provision for Possible Loan Losses                 250               225
  Depreciation and Amortization                      510               491
  Amortization of Security Discounts                 (96)              (39)
  Amortization of Security Premiums                  131                98
  Amortization of Deferred Fees on Loans              65              (190)
  Mortgage Loans Originated for Sale             (14,412)          (28,418)
  Mortgage Loan Sales                             13,534            27,707
  (Gain) on Sale of Mortgage Loans                   (91)             (172)
  Investment Securities Gains, Net                  (561)             (463)
 Changes in Assets and Liabilities:
  Increase in Accrued Interest Income               (319)             (290)
  Decrease in Accrued Interest Payable              (299)             (289)
  Net Increase in Other Assets                      (354)           (1,033)
  Net Decrease in Other Liabilities                 (788)             (184)
                                                 -------           -------
Net Cash Used In Operating Activities               (720)             (894)
                                                 -------           -------
INVESTING ACTIVITIES
Proceeds from Maturities of Securities
  Available-for-Sale                               8,572            12,139
Proceeds from Maturities of Securities
  Held-to-Maturity                                 3,460             5,474
Proceeds from Sales of Securities
  Available-for-Sale                              13,858             4,571
Proceeds from Sales of Securities
  Held-to-Maturity                                   ---               248
Purchase of Securities Available-for-Sale        (43,367)          (28,963)
Purchase of Securities Held-to-Maturity           (2,415)           (7,284)
Net Increase in Interest Bearing
  Deposits With Banks                             (1,753)           (4,910)
Net Increase (Decrease) in Loans                  (5,940)           12,711
Purchase of Premises and Equipment, Net             (211)             (208)
Proceeds from Sale of Other Real Estate Owned        176               118
                                                 -------           -------
Net Cash Used In Investing Activities            (27,620)           (9,104)
                                                 -------           -------
FINANCING ACTIVITIES
Net Increase in Interest and Non-Interest
 Bearing Demand Deposits and Savings Accounts      7,119             6,376
Net Increase in Certificates of Deposits          19,804             2,918
Net Decrease in Long-Term Debt                       ---              (390)
Proceeds from Sale of Treasury Stock                 ---                94
Net Increase in ESOP Debt                         (1,000)             (110)
Net (Decrease) Increase in Repurchase Agreements   4,057             (1,648)
Proceeds from Issuance of Stock                      160                72
Cash Dividends Paid                                 (643)             (621)
Cash in Lieu of Fractional Shares                     (4)               (6)
                                                 -------           -------
Net Cash Provided by Financing Activities         29,493             6,685
                                                 -------           -------
Increase (Decrease) in Cash and Cash Equivalents   1,153            (3,313)
Cash and Cash Equivalents, January 1              14,259            14,829
                                                 -------           -------
Cash and Cash Equivalents, June 30,              $15,412           $11,516
                                                 =======           =======
</TABLE>

See accompanying notes to interim consolidated financial statements.

<PAGE>


                   FIRST COLONIAL GROUP, INC. AND SUBSIDIARIES

               NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

                                   (Unaudited)


NOTE A  -  GENERAL

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

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

NOTE B  -  SUBSIDIARIES

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

NOTE C  -  INVESTMENT CONSIDERATIONS

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

NOTE D  -  FORWARD LOOKING STATEMENTS

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

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

NOTE E  -  CASH DIVIDENDS

On May 21, 1999 the Company paid its 1999 second quarter  dividend on its common
stock of $.19 per share to shareholders of record on May 7, 1999.


NOTE F  -  STOCK DIVIDEND

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

NOTE G -  EARNINGS PER SHARE

The Company  calculates  earnings  per share as provided  by 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.  Basic and diluted
earnings per share were calculated as follows.
<PAGE>

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

Net Income                                  $  925

Basic Earnings Per Share
  Income Available to Common Shareholders   $  925      1,779,710      $  0.52

Effect of Dilutive Securities
  Stock Options                                             6,747
                                            ------      ---------      -------
Diluted Earnings Per Share
  Income Available to Common Shareholders
  plus Assumed Exercise of Options          $  925      1,786,457      $  0.51
                                            ------      ---------      -------
         1998

Net Income                                  $  895

Basic Earnings Per Share
  Income Available to Common Shareholders   $  895      1,801,551      $  0.50

Effect of Dilutive Securities
  Stock Options                                             8,920
                                            ------      ---------      -------
Diluted Earnings Per Share
  Income Available to Common Shareholders
  plus Assumed Exercise of Options          $  895      1,810,417      $  0.49
                                            ------      ---------      -------
</TABLE>


Average common shares  outstanding in the three month period ended June 30, 1999
and 1998 did not include  55,844 and 24,250,  respectively  of average  weighted
unallocated  shares held by the ESOP. The exclusion of these unallocated  shares
held by the ESOP is due to the  Company's  adoption  of SOP 93-6.  Share and per
share  information  have been restated to reflect the 5% stock  dividend of June
1999.

<PAGE>

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

Net Income                                  $1,710

Basic Earnings Per Share
  Income Available to Common Shareholders   $1,710      1,785,287      $  0.96

Effect of Dilutive Securities
  Stock Options                                             6,876
                                            ------      ---------      -------
Diluted Earnings Per Share
  Income Available to Common Shareholders
  plus Assumed Exercise of Options          $1,710      1,792,163      $  0.95
                                            ------      ---------      -------
         1998

Net Income                                  $1,663

Basic Earnings Per Share
  Income Available to Common Shareholders   $1,663      1,801,323      $  0.93

Effect of Dilutive Securities
  Stock Options                                             8,600
                                            ------      ---------      -------
Diluted Earnings Per Share
  Income Available to Common Shareholders
  plus Assumed Exercise of Options          $1,663      1,809,923      $  0.92
                                            ------      ---------      -------
</TABLE>


Average  common shares  outstanding  in the six month period ended June 30, 1999
and 1998 did not include  48,562 and 23,183,  respectively  of average  weighted
unallocated  shares held by the ESOP. The exclusion of these unallocated  shares
held by the ESOP is due to the  Company's  adoption  of SOP 93-6.  Share and per
share  information  have been restated to reflect the 5% stock  dividend of June
1999.

<PAGE>

NOTE H  -  ALLOWANCE FOR POSSIBLE LOAN LOSSES

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

     Six Month Period Ended June 30,               1999               1998
<S>                                            <C>                <C>

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

     Additions
       Provision for loan losses charged to
        operating expenses                         250,000            225,000
       Recoveries of loans                          39,000             46,000
                                                ----------         ----------
        Total Additions                            289,000            271,000

     Deductions
       Loans charged off                           322,000            255,000
                                                ----------         ----------

     Ending Balance                             $2,658,000         $2,680,000

</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,                                 1999            1998
          <S>                                     <C>               <C>

           Principal amount of impaired loans      $  419,000        $1,203,000
           Deferred loan costs                            ---             2,000
                                                     --------          --------
                                                      419,000         1,205,000
           Less valuation allowance                   151,000           446,000
                                                     --------          --------
                                                   $  268,000        $  759,000
</TABLE>

On January 1, 1995 a valuation for credit losses  related to impaired  loans was
established.  The activity in this  allowance  account for the six months ending
June 30, 1999 was as follows:

<TABLE>

                                                     1999               1998
<S>                                               <C>                <C>

      Valuation allowance at January 1,            $303,000         $138,000
      Provision for loan impairment                  28,000          225,000
      Transfer from Unallocated Allowance for
         Possible Loan Losses                      (112,000)         117,000
      Direct charge-offs                            (68,000)         (34,000)
                                                   --------         --------
      Valuation allowance at June 30,              $151,000         $446,000

</TABLE>

Total cash  collected  on impaired  loans during the six month period ended June
30, 1999 was  $87,000 of which  $37,000 was  credited to the  principal  balance
outstanding  on such  loans and  $50,000  was  recognized  as  interest  income.
Interest  that would have been  accrued on impaired  loans  during the first six
months of 1999 was $27,000.  Interest  income  recognized  for the first half of
1998 was $80,000. The valuation allowance for impaired loans of $151,000 at June
30, 1999 is included in the  "Allowance  for Possible Loan Losses" which amounts
to $2,658,000 at June 30, 1999. The provision for loan impairment of $28,000 for
the six month  period  ended June 30,  1999 is included  in the  "Provision  for
Possible Loan Losses" as reflected on the "Consolidated Statement of Income" for
the same period.

NOTE J  -  REPORTING OF COMPREHENSIVE INCOME

On January 1, 1998, the Corporation adopted the Financial  Accounting  Standards
Board issued (SFAS) No. 130, "Reporting  Comprehensive  Income",  which requires
presenting  a  complete  set of  financial  statements  to  include  details  of
comprehensive  income that arises in the reporting period.  Comprehensive income
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  income  on a  separate
scheduled titled "Statement of Comprehensive Income".
<PAGE>

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

In June,  1997, the Financial  Accounting  Standards  Board issued  Statement of
Financial Accounting Standards (SFAS) No. 131, "Disclosures About Segments of an
Enterprise and Related Information".  SFAS No. 131 established standards for the
method that public business  enterprises report selected  information  regarding
operating  segments in financial reports issued to shareholders.  The disclosure
information  required consists of a measure of segment profit and loss,  certain
revenue and expense items and segment assets based upon  specified  quantitative
thresholds,  as it is reported  internally to the chief operating decision maker
on both an interim and annual basis. The statement is effective for fiscal years
beginning   after  December  15,  1997.   Management  has  determined  that  the
Corporation consists of one segment: community banking.

NOTE L - ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITY

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

NOTE M - COMMITMENTS AND CONTINGENCIES

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

<PAGE>

ITEM 2.

                     Management's Discussion and Analysis of

                  Financial Condition and Results of Operations


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

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

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

Liquidity and Capital Resources

Liquidity is a measure of the Company's  ability to raise funds to support asset
growth,  meet deposit  withdrawal and other borrowing  needs,  maintain  reserve
requirements and otherwise  operate the Company on an ongoing basis. The Company
manages its assets and liabilities to maintain liquidity and earnings stability.
Among  the  sources  of  liquidity  are  money  market  investments,  securities
available-for-sale,  funds  received  from the  repayment  of loans,  short-term
borrowings  and  borrowings  from the Federal Home Loan Bank.  At June 30, 1999,
cash,  due from banks,  Federal  funds sold and interest  bearing  deposits with
banks  totaled  $20,466,000,  and  securities  maturing  within one year totaled
$3,352,000.  At December 31, 1998, cash, due from banks,  Federal funds sold and
interest  bearing  deposits  with banks,  totaled  $17,560,000,  and  securities
<PAGE>


maturing within one year were $4,493,000.  Securities sold under an agreement to
repurchase  totaled  $9,151,000 at June 30, 1999 and  $5,094,000 at December 31,
1998. The Bank is a member of the Federal Home Loan Bank of Pittsburgh. The Bank
had interest bearing demand deposits at the Federal Home Loan Bank of Pittsburgh
in the amount of  $4,350,000  at June 30, 1999 and  $3,193,000  at December  31,
1998.  These deposits are included in due from banks on the Company's  financial
statements.  As a result of this  relationship,  the Company  places most of its
short-term funds at the Federal Home Loan Bank of Pittsburgh. Federal funds sold
totaled  $2,000,000  at June 30,  1999.  At December 31, 1998 there were Federal
funds sold totaling $2,000,000.

The Federal Home Loan Bank of Pittsburgh provides the Bank with a line of credit
in the amount of  $25,000,000  at June 30, 1999,  subject to certain  collateral
requirements.  The Bank had no short-term  (overnight)  borrowings  against this
line at  June  30,  1999 or at  December  31,  1998.  The  Bank  had  additional
borrowings from the Federal Home Loan Bank at June 30, 1999 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,  1999  consisted  of cash used in
operating  activities  of  $720,000  and cash used in  investing  activities  of
$27,620,000  offset  in  part  by  cash  provided  by  financing  activities  of
$29,493,000 resulting in an increase in cash and cash equivalents of $1,153,000.

Cash used in operating  activities was the result of mortgage  loans  originated
for sale of $14,412,000,  a decrease in other liabilities of $788,000,  gains on
investment  securities of $561,000,  an increase in accrued  interest  income of
$319,000, a decrease in accrued interest payable of $299,000, and an increase in
other  assets  of  $354,000   partially   reduced  by  mortgage  loan  sales  of
$13,534,000,  net operating income of $1,710,000,  depreciation and amortization
of $510,000 and a provision for possible loan losses of $250,000.  Cash was used
in investing  activities for the purchase of securities  available-for-sale  and
held-to-maturity of $43,367,000 and $2,415,000,  respectively, plus net increase
in  interest-bearing  deposits with banks of  $1,753,000,  and a net increase in
loans of $5,940,000,  partially offset by proceeds from maturities of securities
available-for-sale   and   held-to-maturity   of  $8,572,000   and   $3,460,000,
respectively,  and  proceeds  from  sales of  securities  available-for-sale  of
$13,858,000.  Cash provided by financing  activities  consisted  principally  of
increases  in interest  and  non-interest  bearing  demand  deposits and savings
accounts of $7,119,000,  an increase in  certificates  of deposit of $19,804,000
and an increase of  $4,057,000  in  repurchase  agreements  offset in part by an
increase in the ESOP Debt of  $1,000,000  and the payment of cash  dividends  of
$643,000.

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, 1999 was $28,989,000 as compared to
$31,717,000 at December 31, 1998,  for a decrease of  $2,728,000.  This decrease
<PAGE>


was  attributable  to a  decrease  of  $2,952,000  in the  value  of  securities
available-for-sale (see discussion on "Investment  Securities"),  an increase of
$1,000,000 in the debt related to the Employee Stock Ownership Plan, the payment
of cash  dividends  of  $643,000  and the  payment  of $4,000 in cash in lieu of
fractional  shares from the 5% stock dividend of June 24, 1999 offset in part by
net income for the first six months of 1999 of $925,000,  and proceeds  from the
sale of common stock pursuant to the Dividend Reinvestment Plan of $160,000.

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

The Company  maintains a Dividend  Reinvestment and Stock Purchase Plan.  During
the first six months of 1999,  6,569 shares of common stock were  purchased from
authorized  and  unissued  shares at an  average  price of $23.70  per share for
proceeds of approximately $156,000.

The Company has a Non-Employee  Director Stock Option Plan that provides for the
awarding of stock options to the Company's  non-employee  directors.  During the
first six months of 1999,  options to  purchase  7,650  shares of the  Company's
common  stock at an average  price of $21.81  per share were  granted to certain
non-employee  directors.  Options for 496 shares of the  Company's  common stock
were exercised at a price of $13.99 per share by a non-employee  director during
the first half of 1999.

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, 1999, the Company and the Bank met all
capital adequacy requirements to which they were subject.

<PAGE>

Capital Ratios

<TABLE>
                                                                  To Be Well
                                                                 Capitalized
                                                 Required        Under Prompt
                                                For Capital       Corrective
                                Actual           Purposes         Provisions
(Dollars in Thousands)
 At June 30, 1999           Amount   Ratio     Amount   Ratio   Amount  Ratio
<S>                        <C>       <C>      <C>       <C>    <C>      <C>
Total Capital
(To Risk-Weighted Assets)
  Company, (Consolidated)   $33,778   16.13%   $16,751   8.00%      ---    ---
  Bank                      $30,390   14.47%   $16,805   8.00%  $21,006  10.00%

Tier 1 Capital
(To Risk-Weighted Assets)
  Company, (Consolidated)   $31,160   14.88%   $ 8,375   4.00       ---    ---
  Bank                      $27,364   13.03%   $ 8,403   4.00%  $12,064   6.00%

Tier 1 Capital
(To Average Assets,
 Leverage)
  Company, (Consolidated)   $31,160   8.19%    $15,479   4.00%      ---    ---
  Bank                      $27,364   7.24%    $15,110   4.00%  $18,887   5.00%
</TABLE>

<TABLE>
                                                                 To Be Well
                                                                 Capitalized
                                                 Required        Under Prompt
                                                For Capital       Corrective
                                Actual           Adequacy           Action
(Dollars in Thousands)
 At December 31, 1998        Amount   Ratio     Amount   Ratio   Amount  Ratio
<S>                        <C>      <C>       <C>       <C>    <C>      <C>
Total Capital
(To Risk-Weighted Assets)
  Company, (Consolidated)   $33,555  16.97%    $15,819   8.00%      ---    ---
  Bank                      $29,450  15.02%    $15,684   8.00%  $19,605  10.00%

Tier 1 Capital
(To Risk-Weighted Assets)
  Company, (Consolidated)   $30,938  15.64%    $ 7,906   4.00%      ---    ---
  Bank                      $26,596  13.57%    $ 7,842   4.00%  $11,763   6.00%

Tier 1 Capital
(To Average Assets,
 Leverage)
  Company, (Consolidated)   $30,938   8.60%    $14,114   4.00%      ---    ---
    Bank                    $26,596   7.47%    $13,951   4.00%  $17,439   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  $384,392,000,  representing  an increase of
7.2% over total assets of $358,496,000 at December 31, 1998.  Deposits increased
by $26,923,000 or 9.1% from $294,549,000 on December 31, 1998 to $321,472,000 on
June 30, 1999.  Contributing  to this  increase were  increases in  non-interest
bearing checking deposits of $3,004,000, certificates of deposit of $19,804,000,
savings and money market  deposits of $3,423,000 and  interest-bearing  checking
deposits of $692,000.  Loans  outstanding at June 30, 1999 were  $217,989,000 as
compared to $212,437,000 at December 31, 1998. This is an increase of $3,552,000
or 1.7%.  The  increase  in loans was  primarily  the result of an  increase  of
$11,335,000  or 15.9% in consumer  loans.  This increase was offset in part by a
$1,542,000  or 2.5%  decrease  in  commercial  loans  and a  $4,240,000  or 5.3%
decrease  in  residential  real  estate  loans.  During  the first half of 1999,
$13,534,000 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  1999.  The  Bank
continues to service all of these loans.  There were  $1,480,000 of  residential
real estate loans  identified  as  held-for-sale  at June 30, 1999.  The loan to
deposit ratio was 67.8% at June 30, 1999 and 72.1% at December 31, 1998.

Premises and equipment decreased by $236,000 to $6,649,000 at June 30, 1999 from
$6,885,000 at December 31, 1998.

The Company had  long-term  debt  totaling  $20,000,000  at June 30, 1999 and at
December 31, 1998 from the Federal Home Loan Bank of Pittsburgh.  Of this amount
$8,000,000 matures in August 2000,  $5,000,000 matures in December 2001, and the
remaining $7,000,000 matures in October 2008. The interest rates associated with
these loans are 5.89% fixed,  5.41%  variable at LIBOR plus 3 basis points,  and
4.86% fixed until  December 2003, at which time the rate may be converted at the
option  of the  lender  to a  variable  rate  of  LIBOR  plus 15  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.

During the first half of 1999,  the  Company's  Employee  Stock  Ownership  Plan
(ESOP) borrowed $1,000,000 from the Company's  subsidiary,  First C. G. Company,
payable over twenty years with interest due quarterly and principal  annually in
October.  The  interest  rate on this loan is at the Bank's prime rate (7.75% at
<PAGE>

June 30, 1999).  The proceeds from this loan were used to purchase 35,500 shares
of the Company's  common stock. In the second quarter of 1998, the ESOP borrowed
$500,000  from First C. G.  Company.  This loan is due in 2005 with interest due
quarterly and principal  annually in October.  The interest rate on this loan is
at the Bank's  prime rate (7.75% at June 30, 1999 and December  31,  1998).  The
balance  outstanding  on these ESOP loans was  $1,435,000  at June 30,  1999 and
$435,000 at December 31, 1998.

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

Results of Operations

The net income for the three months ended June 30, 1999 was $925,000,  a $30,000
or 3.4% increase compared to net income of $895,000 for the same period in 1998.
The earnings  improvement was attributable to an increase in net interest income
of $23,000 or 0.6%,  a $17,000  or 0.4%  decrease  in total  other  expenses,  a
$41,000  or 12.7%  decrease  in  Federal  income  taxes  partially  offset by an
increase  in the  provision  for  possible  loan  losses of $12,000 or 10.6%,  a
decrease in total other income,  exclusive of net securities gains of $33,000 or
3.4% and an $18,000 decrease in net securities gains.

Net income for the six months  ended June 30,  1999 was  $1,710,000  compared to
$1,663,000 for the same period in 1998. The earnings  improvement  was primarily
attributable  to  increases in total other  income,  higher gains on the sale of
securities  and a reduction in Federal  income  taxes.  During the first half of
1999,  total other  income,  exclusive  of net  securities  gains,  increased by
$105,000 or 5.8% as compared to June 30,  1998.  Also  affecting  earnings was a
$98,000  or 21.2%  increase  in net  securities  gains and a  $100,000  or 16.8%
decline in Federal income taxes.  These were offset in part by a decrease in net
interest  income  of  $108,000  or 1.5% and an  increase  in the  provision  for
possible loan losses of $25,000 or 11.1% and total other expenses of $123,000 or
1.7%.

Basic  earnings per share for the three months ended June 30, 1999 were $0.52 as
compared  to  $0.50  for  the  corresponding  period  in  1998.  Average  shares
outstanding  during this three month period were 1,779,710 in 1999 and 1,801,551
in 1998.  Basic  earnings  per share for the six months  ended June 30, 1999 and
1998 were $0.96 and $0.95, respectively.  Average shares outstanding during this
six month period were 1,785,287 in 1999 and 1,801,323 in 1998.  Diluted earnings
per share for the three month period ended June 30, 1999 were $0.51  compared to
$0.49 for the same period in 1998.  Diluted earnings per share for the six month
period  ended June 30 were $0.95 and $0.92 in 1999 and 1998,  respectively.  Per
share earnings and average shares  outstanding have been restated to reflect the
5% stock dividend paid on June 24, 1999. (see Note F
<PAGE>

Net Interest Income

The "Rate/Volume  Analysis" table segregates,  in detail, the major factors that
contributed  to the  changes in net  interest  income,  for the  quarter and six
months ended March 31, 1999 as compared to the same period in 1998, into amounts
attributable  to both rate and volume  variances.  In calculating the variances,
the changes were first  segregated  into (1) changes in volume (change in volume
times the old rate),  (2) changes in rate (changes in rate times the old volume)
and (3) changes in rate/volume (changes in rate times the change in volume). The
changes in  rate/volume  have been  allocated in their entirety to the change in
rates. The interest income included in the "Rate/Volume Analysis" table has been
adjusted to a fully taxable  equivalent  amount using the Federal  statutory tax
rate of 34%. Non accruing loans have been used in the daily average  balances to
determine  changes in interest  income due to volume.  Loan fees included in the
interest income calculation are not material.

Net interest  income  amounted to $3,685,000 for the three months ended June 30,
1999 as compared to  $3,650,000  for the three months  ended March 31, 1998,  an
increase of $35,000 or 1.0%.  This  increase is the result of lower loan volumes
combined with a smaller decline in interest expense.

The fully  taxable-equivalent  net interest  income was $7,661,000 for the first
six months of 1999,  compared to $7,649,000  for the same period in 1998, a .16%
or $12,000 increase as shown in the following "Rate/Volume Analysis" table. This
increase  in  taxable-equivalent  net  interest  income was  primarily  due to a
$171,000  increase  related to volume  partially  offset by a $159,000  decrease
related to interest rates.

For the six  months  period  ended  June  30,  1999,  net  interest  income  was
$7,241,000  compared to  $7,349,000  for the same period in 1998,  a decrease of
$108,000 or 1.5%.

Total  taxable-equivalent  interest income grew $93,000  primarily the result of
the  higher  volumes  in  the  investment   security   earning  asset  category.
Taxable-equivalent  income from  investment  securities  for the second  quarter
increased $882,000 or 8.7% over the second half of 1998. This was comprised of a
$911,000  increase due to volume  partially  offset by a $29,000 decrease due to
rates as a result of  declining  yields.  The  increase  in  interest  earned on
investment  securities was partially reduced by a $855,000  reduction in taxable
equivalent  interest  earned on loans in the first half of 1999 as  compared  to
1998. This decrease was attributed to a $412,000 reduction due to a lower volume
of loans and  $443,000 due to a reduction  in interest  rates on loans.  Average
year-to-date  earning  assets  increased to  $345,119,000  at June 30, 1999 from
$323,648,000 at June 30, 1998, a 6.6% increase.

Total  interest  expense  grew  $81,000  during  the first  six  months of 1999,
compared to the same period in 1998.  This growth was  principally the result of
higher volumes, primarily due to an increase in time deposits.  Interest expense
attributed to time deposits  increased  $113,000  during the first six months of
1999,  compared to the first six months of 1998.  The increase in time  deposits
was used to finance the earning asset growth.  Partially  offsetting this growth
in interest  expense  were lower  interest  rates paid on savings  accounts  and
securities  sold under  agreements to repurchase 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,  1999.  The  interest  income  included in the
table has been adjusted to a fully taxable  equivalent  amount using the Federal
statutory tax rate of 34%.

                             RATE/VOLUME ANALYSIS
                             (Dollars in Thousands)
                                   (Unaudited)
<TABLE>
                                                      Six Months Ended
                                                       June 30, 1999
                                                       Over / (Under)
                                                       June 30, 1998
                                                       CHANGE DUE TO:
                                                TOTAL      RATE     VOLUME
<S>                                         <C>        <C>        <C>
(Fully Taxable Equivalent)
INTEREST INCOME
Interest-Bearing Balances With Banks         $    44    $   (35)   $    79
Federal Funds Sold                                (7)        (3)        (4)
Investment Securities                            882        (29)       911
Loans Held for Sale                               29         20          9
Loans                                           (855)      (443)      (412)
                                             -------    -------    -------
Total Interest Income                             93       (491)       584
                                             -------    -------    -------

INTEREST EXPENSE
Demand Deposits, Savings & Clubs                  (1)       (35)        34
Time Deposits                                    113       (206)       319
Federal Funds Purchased and Securities
   Sold Under Agreements to Repurchase           (25)       (22)        (3)
Short-Term Borrowings                              2         (6)         8
Long-Term Borrowings                              (8)       (63)        55
                                             -------    -------    -------
Total Interest Expense                            81       (332)       413
                                             -------    -------    -------

Net Increase (Decrease) in Interest Income   $    12    $  (159)   $   171

</TABLE>

<PAGE>

Other Income and Other Expenses

Other income for the three months ended June 30, 1999 including service charges,
trust fees, gains on the sale of mortgage loans and other miscellaneous  income,
but  exclusive  of  securities  gains or losses,  was  $930,000  as  compared to
$963,000  for the same  period in 1998.  This was a decrease of $33,000 due to a
$119,000  decline in the gains on the sale of mortgage loans,  offset in part by
increases in service charges and Trust Department  revenues.  There were $13,000
in gains on the sale of mortgage loans for the three month period ended June 30,
1999 and of  $132,000  for the same period in 1998.  In the three  month  period
ended June 30, 1999, service charges were $425,000,  a $14,000 increase over the
1998 amount of $411,000.  The revenues from the Trust Department operations were
$337,000  for the three  months  ended June 30, 1999 as compared to $264,000 for
the three  months ended June 30,  1998,  an increase of $73,000 or 27.7%.  Other
miscellaneous  income for the three months ended June 30, 1999 was $155,000,  as
compared to $156,000 for the same period in 1998.

Other income for the six months ended June 30, 1999 including  service  charges,
trust  revenues,  gains on the sale of  mortgage  loans and other  miscellaneous
income,  but exclusive of securities gains or losses, was $1,828,000 as compared
to $1,723,000  for the same period in 1998.  This was an increase of $105,000 or
6.1%. In the six month period ended June 30, 1999 service charges were $797,000,
a $36,000 or 4.7%  increase  over the 1998 amount of  $761,000.  The increase in
service  charge  income is the result of an  increase in deposit  accounts.  The
revenues from the  Investment  Management  and Trust  Division  operations  were
$603,000  for the six months ended June 30, 1999 as compared to $475,000 for the
six months ended June 30, 1998, an increase of $128,000 or 26.9%. During the six
months  ended June 30,  1999,  sales of  mortgage  loans  resulted  in a gain of
$91,000 as  compared  to  $172,000  for the same  period in 1998,  a decrease of
$81,000.  The  gain in 1999  was  the  result  of the  sale  of  $13,534,000  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, 1999 was
$337,000 as compared  to  $315,000  for the same period in 1998,  an increase of
$22,000 or 7.1%.

Total other expenses for the three month period ended June 30, 1999 decreased by
$17,000 or 0.5% to $3,627,000  over total other  expenses for the same period in
1998 of  $3,644,000.  Included in the total other  expenses  for the three month
period  ended June 30, 1999 is a $35,000 or 2.2%  increase in salary and benefit
expenses  to a total of  $1,653,000  as compared to  $1,618,000  in 1998.  These
increases were primarily due to general salary  increases of  approximately  3%.
Occupancy and  equipment  expenses were $515,000 for the three months ended June
30, 1999 and  $530,000  for the three  months ended June 30, 1998, a decrease of
$15,000 or 2.8%. Other operating  expenses for the three month period ended June
30, 1999 were  $1,459,000,  a decrease of $37,000 or 2.5% from the $1,496,000 in
other expenses for the same period in 1998.
<PAGE>

Total  other  expenses  for the six months  ended  June 30,  1999  increased  by
$123,000 or 1.7%, to  $7,175,000  from  $7,052,000  for the same period in 1998.
Salaries and employee benefits were $3,293,000 for the six months ended June 30,
1999  as  compared  to  $3,232,000  for the  six  months  ended  June  30,  1998
representing an increase of $61,000 or 1.9%.  These increases were primarily due
to general  salary  increases  of  approximately  3%.  Occupancy  and  equipment
expenses were  $1,050,000  for the six months ended June 30, 1999 and $1,081,000
for the six months  ended June 30,  1998,  a decrease of $31,000 or 2.9%.  Other
operating  expenses  for the six months ended June 30, 1999 were  $2,832,000  in
relation to  $2,739,000  for the six months ended June 30, 1998,  an increase of
$93,000 or 3.4%.

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, 1999 and
December 31, 1998.

Available-for-sale  securities are carried at fair value with the net unrealized
gains  or  losses   reported  in  equity.   The  Company  had   $114,939,000  in
available-for-sale  securities  at June 30, 1999 with a net  unrealized  loss of
$2,425,000.  At December  31,  1998  available-for-sale  securities  amounted to
$98,389,000 with a net unrealized gain of $527,000.

During the six month  period  ended June 30,  1999,  $13,297,000  of  securities
available-for-sale  were  sold  for  a net  gain  of  $561,000  as  compared  to
$4,571,000 of securities available-for-sale were sold for a net gain of $463,000
for the same time period in 1998.

Held-to-maturity securities totaling $17,118,000 at June 30, 1999 are carried at
cost. At December 31, 1998, the held-to-maturity securities totaled $17,723,000.
The Company has the intent and ability to hold the  held-to-maturity  securities
until  maturity.  The  Company,  at June 30, 1999,  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 six months of 1999,  the  provision  for loan losses was  $250,000
compared to $225,000 for the same period in 1998.  Net charge offs were $283,000
<PAGE>


for the six months ended June 30, 1999 compared with $209,000 for the six months
ended June 30, 1998.  The ratio of the  allowance for loan losses to total loans
at June 30, 1999 was 1.22%  compared to 1.27% at December  31, 1998 and 1.24% at
June 30, 1998.  This was  primarily  the result of an increase in total loans to
$217,989,000  at June 30, 1999 over  $216,957,000  at  December  31,  1998.  The
allowance  for  possible  loan losses at June 30,  1999  totaled  $2,658,000,  a
decrease of $33,000 or 1.2% from the December 31, 1998 amount of $2,691,000  and
$22,000 or 0.8% over the June 30, 1998 balance of $2,680,000.

As  provided  by SFAS No.  114,  as amended  by SFAS No.  118,  $151,000  of the
Allowance  for Possible  Loan Losses is allocated to impaired  loans at June 30,
1999 (See Note I "Impaired Loans").

Transactions in the allowance for loan losses are as follows:

ALLOWANCE FOR LOAN LOSSES
<TABLE>

                                               1999           1998
<S>                                      <C>            <C>

Balance, January 1,                       $ 2,691,000    $ 2,664,000
Provision charged to Operating Expenses       250,000        225,000
Loans Charged Off                             322,000        255,000
Recoveries                                     39,000         46,000
                                          -----------     ----------
Balance June 30,                          $ 2,658,000    $ 2,680,000
</TABLE>

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

         At June 30, 1999
        <S>                                      <C>

         Commercial                               $  952,000
         Residential Real Estate                     174,000
         Consumer                                    733,000
         Unallocated                                 799,000
                                                  ----------
              Total                               $2,658,000
</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
<PAGE>

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
1.16% of total loans at June 30, 1999  compared  to 1.3% at June 30,  1998.  The
decrease  in this  ratio is the result of a $302,000  or 10.6%  decrease  in non
performing  loans to  $2,532,000  over the one year period ending June 30, 1998.
The ratio of the allowance for loan losses to non performing  assets was 104.97%
at June 30, 1999 compared to 94.6% at June 30, 1998.

Non  accruing  loans at June 30, 1999 of $941,000  decreased  from June 30, 1998
level of  $1,816,000.  This  $875,000  decrease was  primarily the result of the
charge off of a  commercial  loan.  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,  1999,  loans  past due 90 days or more and  still
accruing  interest were $1,591,000  compared to $1,018,000 at June 30, 1998. The
$573,000  increase in loans past due 90 days from June 30, 1998 to June 30, 1998
was the result of increases in mortgage and commercial loans past due 90 days or
more.

<PAGE>

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

Non-accrual loans on a cash basis         $  941,000  $1,245,000     $1,816,000
Non-accrual loans as a percentage
  of total loans                               0.43%       0.59%          0.89%
Accruing loans past due 90 days
  or more                                 $1,591,000  $1,021,000     $1,018,000
Accruing loans past due 90 days
  or more as a percentage of total
  loans                                        0.73%       0.48%          0.47%
Other Real Estate Owned from
  Foreclosed Property                     $  593,000  $  636,000     $  238,000
Allowance for loan losses to
  nonperforming loans                        104.97%     118.80%         94.57%
Nonperforming assets to total loans            1.16%       1.07%          1.31%
Allowance for loan losses to total loans       1.22%       1.27%          1.24%

</TABLE>

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

Year 2000

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

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

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

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

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

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

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

The Company has developed  contingency plans to address any or all systems that,
despite  all  testing,  still do not  operate  correctly  in the Year 2000.  The
contingency  plans  provide for manual and personal  computer  based  systems to
process checks,  deposits and loan  transactions.  The Company will increase its
<PAGE>


inventories  of the  various  required  supplies,  such as new  account and loan
forms,  deposit withdrawal forms and other pre-printed  forms,  available at the
Company's Main Office and branch  offices.  Alternative  communications  systems
have been  established  and  alternative  power sources are being  investigated.
These plans have been  finalized and tested during the first half of 1999 except
the plans  with  respect  to the  alternative  power  source.  The  Company  has
purchased  an  electric  generator  for its  Operations  Center,  which  will be
installed in October.  At this time,  the Company  cannot  estimate the cost, if
any, that might be required to implement such contingency plans.

During  the second  quarter  of 1999,  the  Company  spent  $68,000 on Year 2000
compliance matters.  During the first half of 1999, the Company spent $98,000 on
Year 2000. As of June 30, 1999,  $949,000 has been spent on this project.  These
expenses  are  comprised  of the  replacement  of branch  teller and new account
systems  for  $645,000,   replacement   of  personal   computers  for  $231,000,
replacement of mortgage  lending  software for $19,000,  replacement of ATMs for
$28,000,  customer  communication  $5,000, and enhancements to banking and trust
systems of $20,000.  Additional expenses expected in 1999 include $80,000 for an
alternative  electric  power  system,  $25,000 for branch new  account  systems,
$15,000 for check processing software and $50,000 for other banking systems. The
expenses  related  to Year 2000 are  financed  by the  general  revenues  of the
Company  and are  included  in the  Company's  other  operating  expenses in the
Company's financial statement.

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

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

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


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

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

<PAGE>

ITEM 3.  Quantitative and Qualitative Discussion About Market Risk

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

The Company and the Bank operate as a community banking institution primarily in
the counties of Northampton, Lehigh and Monroe, Pennsylvania. As a result of its
location  and  nature of  operations,  the  Company  is not  subject  to foreign
currency  exchange or  commodity  price risk.  The Bank makes real estate  loans
primarily  in the  counties  adjacent to its  operations  and thus is subject to
risks associated with those local  economies.  The Bank holds a concentration of
residential  real  estate  loans  (34.8% of total  loans) and  commercial  loans
supported  by real estate  (21.3% of total loans) in its loan  portfolio.  These
loans are subject to  interest  and  economic  risks.  The Bank also  originates
residential real estate loans for sale in the secondary  market.  Such loans are
identified as "Mortgage Loans  Held-for-Sale" on the Company's Balance Sheet and
are subject to interest rate risk (see discussion on "Assets and  Liabilities").
The  Company  does not own any  trading  assets  and  does not have any  hedging
transactions in place such as interest rate swaps.

<PAGE>

<TABLE>

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

ASSETS:
INTEREST-EARNING ASSETS
Int-Bearing Deposits with Banks  $  4,185  $  100   4.78% $ 1,733  $  56  6.46%
Federal Funds Sold                    785      18   4.59      917     25  5.46
Investment Securities
      Taxable                      95,769   2,988   6.24   78,048  2,439  6.26
      Non-Taxable (1)              33,049   1,182   7.15   22,824    849  7.44
Net Loans Held for Sale             2,455      53   4.32    1,801     24  2.66
Loans (1) (2)                     211,599   8,792   8.31  221,038  9,647  8.72
Reserve for Loan Losses             2,723      --     --   (2,713)    --    --
                                ---------   -----        --------  -----
Net Loans                         208,876   8,792   8.42  218,325  9,647  8.84
                                ---------   -----        --------  -----
  Total Interest-Earning Assets   345,119  13,133   7.61  323,648 13,040  8.06
Non-Interest Earning Assets        27,366      --     --   24,645     --    --
                                ---------   -----        --------  -----
  TOTAL ASSETS, INT INCOME      $ 372,485  13,133   7.05 $348,293 13,040  7.48
                                ---------   -----        --------  -----

LIABILITIES
INTEREST-BEARING LIABILITIES
Interest-Bearing Deposits
  Demand Deposits               $  50,576     271   1.07 $ 48,165    277  1.16
  Money Market Deposits            13,785     188   2.73   14,274    200  2.80
  Savings & Club Deposits          63,160     690   2.19   61,435    673  2.20
  CD's over $100,000                4,631      91   3.93    4,795     91  3.80
  All Other Time Deposits         134,744   3,551   5.27  123,308  3,438  5.58
                                ---------   -----        --------  -----
   Total Int-Bearing Deposits     266,896   4,791   3.59  251,977  4,679  3.72
Federal Funds Purchased
 and Securities Sold Under
 Agreements to Repurchase           5,903      88   2.98    6,048    113  3.74
Short-Term Borrowings               1,398      34   4.86    1,132     32  5.66
Long-Term Borrowings               20,000     559   5.59   18,227    567  6.22
                                ---------   -----        --------  -----
  Total Int-Bearing Liabilities   294,197   5,472   3.72  277,384  5,391  3.88

NON-INTEREST-BEARING LIABILITIES
Non-Interest-Bearing Deposits      40,213      --     --   33,130     --    --
Other Liabilities                   7,196      --     --    7,179     --    --
                                ---------   -----        --------  -----
   TOTAL LIABILITIES              341,606   5,472   3.20  317,693  5,391  3.40
   SHAREHOLDERS' EQUITY            30,879      --     --   30,600     --    --
                                ---------   -----        --------  -----
   TOTAL LIABILITIES AND EQUITY $ 372,485   5,472   2.94 $348,293  5,391  3.10

NET INTEREST INCOME                        $7,661                 $7,649
                                            -----                  -----

    Net Interest Spread                             4.11                  4.18
    Effect of Interest-Free Sources
      Used to Fund Earnings Assets                  0.33                  0.54
    Net Interest Margin                             4.44%                 4.72%
                                                    ----                  ----
</TABLE>
<PAGE>

The net  interest  margin of 4.44% for the six month period ended June 30, 1999,
decreased  from the 4.72% net interest  margin for the first six months of 1998.
The yield on interest  earning  assets was 7.61%  during the first six months of
1999 as compared to 8.06% in 1998.  The average  interest  rate paid on interest
bearing deposits and other borrowings was 3.72% for the first six months of 1999
as compared to 3.88% in 1998.

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

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

Assets and  liabilities  are  allocated to a specific time period based on their
scheduled  repricing date or on an historical basis. At June 30, 1999, assets of
$161,016,000  (41.8% of total  assets)  were  subject to interest  rate  changes
within  one  year.  Liabilities  subject  to rate  change  within  one year were
$175,277,000. A negative one-year gap position of $14,261,000 existed as of June
30, 1999. The ratio of rate-sensitive  assets to rate-sensitive  liabilities for
the one-year time frame was 91.9%.  The "Interest  Sensitivity  Analysis" in the
following table presents a sensitivity gap analysis of the Company's  assets and
liabilities at June 30, 1999.

<PAGE>

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

                      0-90   91-180   181-365       1-5        Over
                      Days    Days      Days        Years     5 years    Total
<S>                <C>      <C>     <C>         <C>        <C>         <C>
Interest-Bearing
Deposits with Banks $ 5,054  $   ---  $    ---   $    ---   $    ---    $ 5,054
Federal Funds Sold    2,000      ---       ---        ---        ---      2,000
Inv Securities       15,608   16,387    20,055     67,553     12,454    132,057
Loans Held-for-Sale   1,480      ---       ---        ---        ---      1,480
Loans                48,421   13,939    24,660     78,211     50,100    215,331
Other Assets         13,412      ---       ---        ---     15,058     28,470
                    ------- --------  --------    -------   --------   --------
  TOTAL ASSETS      $85,975  $30,326  $ 44,715   $145,764   $ 77,612   $384,392
                    ------- --------  --------    -------   --------   --------
Non-Interest-Bearing
  Deposits (1)      $   ---  $   ---  $    ---    $   ---   $ 41,889   $ 41,889
Int-Bearing
 Deposits            80,889   21,275    50,962     61,709     64,748    279,583
Securities Sold
 Under Agreements
 to Repurchase        9,151      ---       ---        ---        ---      9,151
Long-Term Debt       13,000      ---       ---      7,000        ---     20,000
Other                   ---      ---       ---        ---      4,780      4,780
Capital                 ---      ---       ---        ---     28,989     28,989
                    ------- --------  --------    -------   --------   --------
TOTAL LIABILITIES
  AND CAPITAL      $103,040  $21,275  $ 50,962    $68,709   $140,406   $384,392
                    ------- --------  --------    -------   --------   --------
Net Interest
  Sensitivity Gap  $(17,065) $ 9,051  $ (6,247)   $77,055   $(62,794)  $    ---

Cumulative Int
  Sensitivity Gap  $(17,065) $(8,014)$(14,261)    $62,794   $    ---   $    ---

Cumulative Gap
  RSA/RSL             83.44%   93.55%   91.86%     125.74%    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 13, 1999,  the Company held its annual  meeting of  shareholders.  At the
annual meeting,  the shareholders elected Robert J. Bergren and Richard Stevens,
III as Class 3  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
                                       ---------------         --------------
Robert J. Bergren                        1,371,136                27,473
Richard Stevens, III                     1,371,261                27,348

The other  directors  whose  terms of office as a director  continued  after the
meeting are S. Eric Beattie,  Gordon B. Mowrer, Daniel B. Mulholland,  Robert C.
Nagel, Charles J. Peischl, and Maria Z. Thulin.

ITEM 5. Other Information

Pursuant to the  provision  of the  Company's  By-Laws,  the Board of  Directors
authorized an increase in the size of the Board of Directors of both the Company
and the Bank to ten members on June 17, 1999.  The Board of Directors  appointed
Mr. Christian F. Martin,  IV, Chairman and Chief Executive Officer of The Martin
Guitar  Company and Mr.  John H.  Ruhle,  Jr.,  President  and  Chairman of Reeb
Millwork Corporation as directors of both the Company and the Bank.

ITEM 6. Exhibits and Reports on Form 8-K

     (a) Exhibits

     10.20 Severance  Agreement dated March 1, 1999 by and between
     the Board and Robert McGovern

     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 13, 1999                BY:  /S/  S. ERIC BEATTIE
       --------------------------               --------------------
                                                S. ERIC BEATTIE
                                                PRESIDENT
                                               (PRINCIPAL EXECUTIVE OFFICER)


DATE:       August 13, 1999                BY:  /S/  REID L. HEEREN
       -------------------------                -------------------
                                                REID L. HEEREN
                                                VICE PRESIDENT
                                               (PRINCIPAL FINANCIAL OFFICER)