UNITED STATES

                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D. C. 20549

                                    FORM 10-Q

                      ____________________________________
(Mark One)

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

                  For the quarterly period ended March 31, 2003
                                       or
          [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

           For the transition period from ____________ to ____________

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

                           FIRST COLONIAL GROUP, INC.
--------------------------------------------------------------------------------
             (Exact Name of Registrant as Specified in its Charter)

         PENNSYLVANIA                               23-2228154
----------------------------------        --------------------------------------
(State or Other Jurisdiction of            (I.R.S. Employer Identification No.)
Incorporation or Organization)

  76 S. MAIN STREET, 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 by check mark whether the registrant is an accelerated filer as defined
in rule 12b-2 of the Exchange Act.

                                  YES _      NO X

Indicate the number of shares  outstanding  of each of the  issuer's  classes of
common  stock as of the  latest  practicable  date:  2,253,375  shares of common
stock, $5 Par Value, outstanding on May 9, 2003.


<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 Changes in Shareholders' Equity          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          11

     ITEM 3  -       Quantitative and Qualitative Discussion About          29
                     Market Risk
                                                                            29
     ITEM 4 -        Controls and Procedures


PART II  -  OTHER INFORMATION

     ITEM 1  -       Legal Proceedings                                      30

     ITEM 2  -       Changes in Securities and Use of Proceeds              30

     ITEM 3  -       Defaults Upon Senior Securities                        30

     ITEM 4  -       Submission of Matters to a Vote of Security Holders    30

     ITEM 5  -       Other Information                                      30

     ITEM 6  -       Exhibits and Reports on Form 8-K                       30


SIGNATURES                                                                  31

CERTIFICATIONS                                                              32



<PAGE>
<TABLE>
<CAPTION>

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

                                                                        (Unaudited)
                                                                         March 31,           December 31,
                                                                           2003                  2002
                                                                      ----------------      ---------------
ASSETS
<S>                                                                          <C>                  <C>
Total Cash and Cash Eqivalents                                               $ 20,698             $ 22,741
Interst-Bearing Deposits with Banks                                            10,547                5,002
Investment Securities Held-to-Maturity
    (Fair Value: March 31, 2003 $69,831
     Dec. 31, 2002 - $30,791)                                                  69,461               30,297
  Securities Available-for-Sale at Fair Value                                 254,930              283,481
  Mortgage Loans Held-for-Sale                                                    848                1,263
  Total Loans, Net of Uneamed Discount                                        252,624              255,844
  LESS:  Allowance for Possible Loan Losses                                    (3,112)              (3,084)
                                                                      ----------------      ---------------
  Net Loans                                                                   249,512              252,760
  Premises and Equipment, Net                                                   6,399                6,375
  Accrued Interest Income                                                       2,914                3,142
  Other Real Estate Owned                                                         180                    -
  Other Assets                                                                  5,229                6,531
                                                                      ----------------      ---------------
    TOTAL ASSETS                                                            $ 620,718            $ 611,592
                                                                      ================      ===============

LIABILITIES
  Deposits
    Non-Interest Bearing Deposits                                            $ 69,115             $ 64,150
    Interest-Bearing Deposits                                                 414,262              408,648
                                                                      ----------------      ---------------
      Total Deposits                                                          483,377              472,798
  Securities Sold Under Agreements to Repurchase                                8,774                8,801
  Long-Term Debt                                                               67,039               67,921
  Guaranteed Preferred Beneficial Interests in
    Company's Subordinated Debentures                                          15,000               15,000
  Accrued Interest Payable                                                      3,167                3,129
  Other Liabilities                                                             2,873                3,629
                                                                      ----------------      ---------------
    TOTAL LIABILITIES                                                         580,230              571,278

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 -
    2,239,861 shares at March 31, 2003
    and 2,217,971  shares at Dec. 31, 2002                                     11,199               11,090
  Additional Paid in Capital                                                   21,154               20,786
  Retained Earnings                                                             8,950                8,430
  Deferred Stock Compensation: None at March 31, 2003
    and 10,500 at Dec. 31, 2002                                                     -                 (220)
  Employee Stock Ownership Plan Debt                                           (1,093)              (1,093)
  Accumulated Other Comprehensive Income                                          278                1,321
                                                                      ----------------      ---------------

Total Shareholders' Equity                                                     40,488               40,314
                                                                      ----------------      ---------------

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                                  $ 620,718            $ 611,592
                                                                      ================      ===============
</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>
<CAPTION>

                                                                       Three Months Ended
                                                               March 31,               March 31,
                                                                  2003                   2002
                                                             ---------------        ----------------
INTEREST INCOME:
<S>                                                                 <C>                     <C>
   Interest and Fees on Loans                                       $ 4,176                 $ 4,264
   Investment Securities Income
     Taxable                                                          2,758                   2,368
     Tax-Exempt                                                         610                     438
   Interest on Deposits with Banks and
     Federal Funds Sold                                                  35                      40
                                                             ---------------        ----------------
        Total Interest Income                                         7,579                   7,110
                                                             ---------------        ----------------
INTEREST EXPENSE:
   Interest on Deposits                                               2,139                   2,479
   Interest on Short-Term Debt                                           27                      58
   Interest on Long-Term Debt                                           730                     498
   Interest on Trust-Preferred Securities                               181                       -
                                                             ---------------        ----------------
        Total Interest Expense                                        3,077                   3,035
                                                             ---------------        ----------------
NET INTEREST INCOME:                                                  4,502                   4,075
   Provision for Possible Loan Losses                                   200                     400
                                                             ---------------        ----------------
     Net Interest Income After Provision
        For Possible Loan Losses                                      4,302                   3,675
                                                             ---------------        ----------------
OTHER INCOME:
   Trust Revenue                                                        285                     284
   Service Charges on Deposit Accounts                                  619                     599
   Investment Securities Gains, Net                                     765                     369
   Gains on the Sale of Mortgage Loans                                  417                      76
   Other Operating Income                                               180                     229
                                                             ---------------        ----------------
        Total Other Income                                            2,266                   1,557
                                                             ---------------        ----------------
OTHER EXPENSES:
   Salaries and Employee Benefits                                     2,576                   2,047
   Net Occupancy and Equipment Expense                                  643                     666
   Impairment of Mortgage Servicing Rights                              637                       -
   Other Operating Expenses                                           1,645                   1,565
                                                             ---------------        ----------------
        Total Other Expenses                                          5,501                   4,278
                                                             ---------------        ----------------

Income Before Income Taxes                                            1,067                     954
Provision for Income Taxes                                              135                     143
                                                             ---------------        ----------------

NET INCOME                                                            $ 932                   $ 811
                                                             ===============        ================
Per Share Data
     Basic Net Income                                                $ 0.43                  $ 0.37
                                                             ===============        ----------------
     Diluted Net Income                                              $ 0.41                  $ 0.37
                                                             ===============        ----------------
     Cash Dividends                                                  $ 0.19                  $ 0.18
                                                             ===============        ================
</TABLE>


Per share data has been restated to reflect the 5% stock dividend of June 2002.


<PAGE>

<TABLE>
<CAPTION>

FIRST COLONIAL GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY

====================================================================================================================================
(Dollars in Thousands), (Unaudited)                   Additional             Deferred                      Accumulated
                                             Common     Paid-In   Retained    Stock     Treasury ESOP    Other Comprehensive
For the Three Months Ended March 31, 2003    Stock      Capital   Earnings Compensation   Stock  Debt         Income         Total
------------------------------------------------------------------------------------------------------------------------------------
<S>                 <C> <C>                <C>         <C>         <C>           <C>      <C>  <C>             <C>         <C>
Balance at December 31, 2002               $ 11,090    $ 20,786    $ 8,430       $ (220)  $ -  $ (1,093)       $ 1,321     $ 40,314

Comprehensive Income (Loss)
   Net Income                                                          932                                                      932
   Change in Unrealized
Securities Gains, Net                                                                                           (1,043)      (1,043)
                                                                                                                            --------
Total Comprehensive Income (Loss)                                                                                              (111)
Distribution of Stock Compensation
(10,000 shares)                                                                     220                                         220
Sale of Common Stock under
  Dividend Reinvestment Plan
(3,771 shares)                                   18          80                                                                  98
Sale of Common Stock under
  Stock Option Plans (18,119 shares)             91         288                                                                 379
Cash Dividends Paid                                                   (412)                                                    (412)
                                           --------    --------    --------  --------   ------ --------       --------     --------
Balance at March 31, 2003                  $ 11,199    $ 21,154    $ 8,950       $ -      $ -  $ (1,093)         $ 278     $ 40,488

====================================================================================================================================

</TABLE>


See accompanying notes to interim consolidated financial statements.


<PAGE>


<TABLE>
<CAPTION>

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

                                                                                            Three Months Ended
OPERATING ACTIVITIES                                                            March 31, 2003           March 31, 2002
                                                                             ---------------------     --------------------
<S>                                                                                         <C>                      <C>
Net Income                                                                                  $ 932                    $ 811
Adjustments to Reconcile Net Income to Net Cash
    Provided by Operating Activities:
      Provision for Possible Loan Losses                                                      200                      400
      Depreciation and Amortization                                                           370                      352
      Accretion of Security Discounts                                                         (29)                     (69)
      Amortization of Security Premiums                                                       562                      206
      Deferred Taxes                                                                         (226)                       -
      Amortization of Deferred Fees on Loans                                                  109                       58
      Gain on Sale of Other Real Estate Loans                                                   -                       (6)
      Investment Securities Gains, Net                                                       (765)                    (369)
      Gain on Sale of Mortgage Loans                                                         (417)                     (76)
      Mortgage Loans Originated for Sale                                                   (7,406)                  (4,889)
      Mortgage Loan Sales                                                                  16,154                    9,672
    Changes in Assets and Liabilities:
      Decrease (Increase) in Accrued Interest Income                                          228                     (108)
      Increase (Decrease) in Accrued Interest Payable                                          38                      (81)
      Decrease (Increase) in Other Assets                                                   1,168                     (792)
      (Decrease) Increase in Other Liabilities                                                (30)                      82
                                                                             ---------------------     --------------------
Net Cash Provided By Operating Activities:                                                 10,888                    5,191
                                                                             ---------------------     --------------------
INVESTING ACTIVITIES
Proceeds from Calls and Maturities of Securities Available-for-Sale                        23,366                   15,464
Proceeds from Calls and Maturities of Securities Held-to-Maturity                           4,555                    4,491
Proceeds from Sales of Securities Available-for-Sale                                       50,908                   28,053
Purchase of Securities Available-for-Sale                                                 (47,022)                 (30,789)
Purchase of Securities Held-to-Maturity                                                   (43,768)                 (15,959)
Net Increase in Interest Bearing Deposits With Banks                                       (5,545)                 (18,482)
Net Increase in Loans                                                                      (5,157)                 (11,196)
Purchase of Premises and Equipment, Net                                                      (223)                     (21)
Proceeds from Sale of Other Real Estate Owned                                                   -                       98
                                                                             ---------------------     --------------------
Net Cash Used In Investing Activities                                                     (22,886)                 (28,341)
                                                                             ---------------------     --------------------
FINANCING ACTIVITIES
Net Increase in Interest and Non-Interest Bearing
  Demand Deposits, Savings and Money Market Accounts                                        5,867                   24,813
Net Increase (Decrease) in Certificates of Deposit                                          4,712                   (4,524)
Proceeds from Long-Term Debt                                                                    -                       90
Payments on Long-TermDebt                                                                    (882)                      (2)
Net (Decrease) Increase in Repurchase Agreements                                              (27)                   3,399
Proceeds from Issuance of Common Stock                                                        477                      164
Proceeds from Sale of  Treasury Stock                                                           -                       80
Purchase of Treasury Stock                                                                      -                     (146)
Distribution of Deferred Stock Compensation                                                   220                        -
Cash Dividends Paid                                                                          (412)                    (380)
                                                                             ---------------------     --------------------

Net Cash Provided by Financing Activities                                                   9,955                   23,486
                                                                             ---------------------     --------------------

(Decrease) Increase in Cash & Cash Equivalents                                             (2,043)                     336
Cash and Cash Equivalents, January 1,                                                      22,741                   17,270
                                                                             ---------------------     --------------------
Cash and Cash Equivalents, March 31,                                                     $ 20,698                 $ 17,606
                                                                             =====================     ====================

See accompanying notes to interim consolidated financial statements.
</TABLE>


<PAGE>


                  FIRST COLONIAL GROUP, INC. AND SUBSIDIARIES

               NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
               --------------------------------------------------


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  on Form  10-K for the  year  ended
December 31, 2002.

The financial information presented herein is unaudited; however, in the opinion
of management, all adjustments (which include only normal recurring adjustments)
necessary to present fairly the unaudited financial  information have been made.
The  results  for the three  months  ended  March 31,  2003 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 three wholly-owned subsidiaries, Nazareth National Bank
and Trust Company (the "Bank") founded in 1897, First C. G. Company, Inc.
founded in 1986, and First Colonial Statutory Trust I (the "Statutory Trust I")
founded on June 3, 2002.

NOTE C  -  CASH  AND STOCK DIVIDENDS

On February 14, 2003,  the Company paid its 2003 first  quarter  dividend on its
common stock of $0.19 per share to  shareholders  of record on January 31, 2003.
On February 15, 2002,  the Company paid its 2002 first  quarter  dividend on its
common stock of $0.19 per share (adjusted for the 5% stock dividend of May 2002)
to shareholders of record on February 1, 2001.

On May 31, 2002, the Company paid a 5% stock dividend to  shareholders of record
on May 17, 2002. Net income per share and average shares  outstanding  have been
restated to reflect this 5% stock dividend.

NOTE D -  EARNINGS PER SHARE

The  Company  calculates  earning per share as  provided  by the  provisions  of
Statement of Financial  Accounting  Standards No. 128, "Earnings Per Share (SFAS
128)". Basic and diluted earnings per share were calculated as follows:

<PAGE>

<TABLE>
<CAPTION>

For the Three Months Ended March 31,                                                Average
                                                                  Income             Shares          Per Share
                                                                (numerator)      (denominator)        Amount
                                                              ---------------------------------------------------
2003
--------------------------------------------------------------
<S>                                                                    <C>
Net Income                                                             $ 932

Basic Earnings Per Share
   Income Available to Common Shareholders                             $ 932           2,177,482          $ 0.43

Effect of Dilutive Securities
   Stock Options                                                                          97,513         $ (0.02)
                                                              ---------------------------------------------------

Diluted Earnings Per Share
   Income Available to Common Shareholders
   plus Assumed Exercise of Options                                    $ 932           2,274,995          $ 0.41
                                                              ---------------------------------------------------
2002
--------------------------------------------------------------
Net Income                                                             $ 811

Basic Earnings Per Share
   Income Available to Common Shareholders                             $ 811           2,144,552          $ 0.37

Effect of Dilutive Securities
   Stock Options                                                                          33,602               -
                                                              ---------------------------------------------------

Diluted Earnings Per Share
   Income Available to Common Shareholders
   plus Assumed Exercise of Options                                    $ 811           2,178,154          $ 0.37
                                                              ---------------------------------------------------


</TABLE>

Average  common shares  outstanding  at March 31, 2003 and March 31, 2002 do not
include 48,943 and 57,413,  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.

There were no antidilutive  securities stock options at March 31, 2003. At March
31, 2002 there were 31,912 antidilutive securities stock options outstanding.


<PAGE>



NOTE E  -  STOCK BASED COMPENSATION

Under the  Company's  Stock Option  Plans,  options to acquire  shares of common
stock are granted to certain officers,  key employees and directors.  In January
of 2003,  options to purchase 59,950 shares of the Company's stock at an average
price of $23.83 per share were granted to certain  officers and directors of the
Company.  During the first  quarter of 2003,  options  for 18,119  shares of the
Company's  common stock issued pursuant to the Plan were exercised at an average
price of $20.90 per share.

The  Company's  Stock  Option  Plans  are  accounted  for  under  SFAS No.  123,
"Accounting  for  Stock-Based  Compensation".  This  standard  contains  a  fair
value-based   method  for  valuing   stock-based   compensation  which  measures
compensation  cost at the  grant  date  based  on the fair  value of the  award.
Compensation is then  recognized  over the service period,  which is usually the
vesting  period.  Alternatively,  the  standard  permits  entities  to  continue
accounting for employee stock options and similar  instruments under APB Opinion
No. 25.  Entities  that  continue to account for stock options using APB Opinion
No. 25 are required to make pro forma disclosures of net income and earnings per
share, as if the fair value-based  method of accounting  defined in SFAS No. 123
had been applied.  The Company's  stock option plans are accounted for under APB
Opinion No. 25. Had compensation cost for the Plans been determined based on the
fair value of the options at the grant dates consistent with the method required
by SFAS No. 123,  "Accounting for Stock-Based  Compensation",  the Company's net
income and earnings  per share would have been reduced to the pro forma  amounts
indicated below.

<TABLE>
<CAPTION>

-------------------------------------------------------------------------------------------
Three Months Ended, March 31,                                            2003         2002
===========================================================================================

<S>                                                                     <C>          <C>
Net Income (loss)                        As reported                    $ 932        $ 811
                                   Stock-based Compensation
                               Cost Determined under Fair Value
                                    Method for all Awards
                                  Net of Related Tax Effect            (1,161)         (95)
                                                                    ----------   ----------

                                          Pro forma                    $ (229)       $ 716
                                                                    ==========   ==========

Basic earnings (loss)                    As reported                   $ 0.43       $ 0.37
per share                                 Pro forma                    $(0.11)      $ 0.33

Diluted earnings (loss)                  As reported                   $ 0.41       $ 0.37
per share                                 Pro forma                    $(0.11)      $ 0.33
===========================================================================================

</TABLE>




The fair value of each option  grant is estimated on the date of grant using the
Black-Scholes   options-pricing   model  with  the  following   weighted-average
assumptions  used for grants in 2003 and 2002,  respectively:  dividend yield of
1.8% and 3.3%; expected volatility of 53.5% and 43.5%;  risk-free interest rates
of 4.1% and 4.9%; and expected lives of 7.7 years and 10 years.

The stock-based  compensation cost for the three months ended March 31, 2003 was
affected  by the  accelerated  vesting  of all stock  options as a result of the
execution of the merger agreement with Keystone Savings Bank.

<PAGE>


NOTE F -  MERGER AGREEMENT

On March 6, 2003, First Colonial Group, Inc. and Keystone Savings Bank announced
that they had signed an Agreement  and Plan of Merger to combine into a new bank
holding company to be formed, KNBT Bancorp,  Inc. In addition,  First Colonial's
subsidiary bank,  Nazareth  National Bank and Trust Company and Keystone Savings
Bank will combine into a new bank, Keystone Nazareth Bank & Trust Company.

The transaction  involves the conversion of Keystone  Savings Bank from a mutual
savings bank to a stock institution and the formation of a holding company, KNBT
Bancorp,  Inc. Each share of First  Colonial  Group,  Inc.  common stock will be
valued at $37.00 and  exchanged for shares of KNBT  Bancorp,  Inc.  common stock
based on the initial  public  offering  ("IPO")  price of KNBT  Bancorp,  Inc.'s
common stock.

The  transaction  is subject to certain  conditions,  including  the  receipt of
various   regulatory   approvals,   the  approval  of  First  Colonial   Group's
shareholders and the approval of Keystone Savings Bank's depositors.

NOTE G - NEW ACCOUNTING PRONOUNCEMENTS

In  November  2002,  the  Financial   Accounting  Standards  Board  issued  FASB
Interpretation  No. 45 ("FIN No. 45"),  "Guarantor's  Accounting  and Disclosure
Requirements for Guarantees,  Including  Indirect  Guarantees of Indebtedness of
Others."  The Company  adopted the  disclosure  provisions  of FIN No. 45 in the
fourth quarter of 2002 and, for guarantees issued or modified after December 31,
2002, adopted the initial  recognition and measurement  provisions on January 1,
2003.  Adoption of the initial  recognition and  measurement  provisions did not
materially impact the Company's  financial condition or results of operations at
or for the three months ended March 31, 2003.

While certain  guarantees are only subject to the disclosure  provisions of this
Interpretation,   others  are  subject  to  both  the   disclosure  and  initial
recognition  and  measurement  provisions.  For guarantees  that fall within the
scope of the initial recognition and measurement provisions, FIN No. 45 requires
a guarantor to recognize,  at the inception of a guarantee,  a liability for the
fair value of the  obligation  undertaken  in issuing the  guarantee.  Under the
previous  accounting  rules,  the  Company  did  not  record  a  liability  when
guaranteeing  obligations  unless it became probable that the Company would have
to perform under the guarantee.

The Company issues financial and performance  standby letters of credit, both of
which are subject to the  disclosure  and initial  recognition  and  measurement
provisions of FIN No. 45.  Financial and  performance  standby letters of credit
are  conditional  commitments  issued by the Bank to assure  the  financial  and
performance  obligations of a customer to a third party.  At March 31, 2003, the
Company was contingently  liable on financial and performance standby letters of
credit  totaling  $47,000  and  $1,297,000,  respectively,  none of  which  were
originated in the first quarter of 2003. The Company's commitments under standby
letters of credit expire at various dates through 2005.  Amounts due under these
letters of credit  would be reduced by any  proceeds  that the Company  would be
able to obtain  in  liquidating  the  collateral  for the  loans,  which  varies
depending on the customer.  The Bank generally holds  collateral  and/or obtains
personal guarantees supporting these commitments.  The extent of collateral held
for these  commitments  at March 31, 2003 varied from 0% to 100%,  and  averaged
92.9%.


<PAGE>


In  January  2003,  the FASB  issued  Interpretation  No. 46,  Consolidation  of
Variable  Interest  Entities  ("FIN 46").  FIN 46  requires a variable  interest
entity to be  consolidated by a Company if that Company is subject to a majority
of the risk of loss from the variable interest  entity's  activities or entitled
to receive a majority of the entity's  residual  returns,  or both.  FIN 46 also
requires  disclosures  about  variable  interest  entities that a Company is not
required to consolidate,  but in which it has a significant  variable  interest.
The consolidation  requirements of FIN 46 apply immediately to variable interest
entities created after January 31, 2003. The consolidation requirements apply to
existing  entities in the first fiscal year or interim  period  beginning  after
June 15, 2003.  Certain of the  disclosure  requirements  apply in all financial
statements  issued  after  January 31,  2003,  regardless  of when the  variable
interest entity was established.  The Company is currently evaluating the impact
that FIN 46 will have on its  consolidated  financial  position  and  results of
operations.

<PAGE>



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


The following  financial  review and analysis is of the financial  condition and
earnings  performance of the Company and its wholly owned  subsidiaries  for the
three-month period ended March 31, 2003.

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,  the discussion of
the planned merger with Keystone Savings Bank,  statements as to future loan and
deposit  volumes,  future  expansion  plans and new branches,  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 as to litigation and
the amount of reserves,  statements as to trends, and other statements which are
not  historical  facts  or as to  the  Company's,  the  Bank's  or  management's
intentions,  plans,  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,  including  without  limitation,  the risk that the
transactions  contemplated  by the  Agreement  and Plan of Merger with  Keystone
Savings Bank may not be completed, the effect of economic conditions and related
uncertainties, the effect of interest rates on the Company and the Bank, Federal
and state government  regulation,  competition,  changes in accounting standards
and policies,  and results of litigation.  These and other 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, 2002 a copy of which
may be obtained from the Company upon request and without charge (except for the
exhibits thereto) as described below.

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, 2002 a copy of which can be obtained
from Reid L. Heeren,  Vice  President,  First Colonial  Group,  Inc., 76 S. Main
Street, Nazareth, PA 18064.

Merger Agreement

On March 6, 2003, First Colonial Group, Inc. and Keystone Savings Bank announced
that they had signed an  Agreement  and Plan of Merger to  combine,  forming the
largest  locally  controlled  bank in the greater Lehigh  Valley-Poconos  market
area.

The  resulting  bank,  Keystone  Nazareth  Bank & Trust  Company,  and its newly
created bank holding company,  KNBT Bancorp,  Inc., will have combined assets of
more than $1.6 billion and 36 branches covering Lehigh, Northampton,  Monroe and
Carbon  counties.  Both banks will continue to operate  independently  until the
close of the  transaction,  which is expected to occur in the fourth  quarter of
2003.

<PAGE>


The transaction  involves the conversion of Keystone  Savings Bank from a mutual
savings bank to a stock  institution;  the formation of a holding company,  KNBT
Bancorp,  Inc., and the mergers of First Colonial Group into KNBT Bancorp,  Inc.
and Nazareth  National  Bank into  Keystone  Savings  Bank.  Each share of First
Colonial will be valued at $37 and  exchanged for shares of KNBT Bancorp,  Inc.,
common  stock  based  on the  initial  public  offering  ("IPO")  price  of KNBT
Bancorp's common stock.

The  transaction  is subject to certain  conditions,  including  the  receipt of
various regulatory approvals,  as well as the approval of First Colonial Group's
shareholders and Keystone Savings Bank's depositors.

Jeffrey P. Feather,  chairman of the board of trustees of Keystone Savings Bank,
will serve as  chairman  of the newly  created  holding  company  and bank.  Six
members of the First Colonial Group board will join nine members of the Keystone
Savings board to form a new 15-member KNBT Bancorp, Inc. board.

Scott V. Fainor,  currently  president and chief  executive  officer of Nazareth
National  Bank and First  Colonial  Group,  will become the  president and chief
executive  officer of Keystone  Nazareth  Bank & Trust Company and KNBT Bancorp,
Inc., effective upon completion of the transaction.

All branches  from both banks are slated to remain open.  Also,  within the past
six months, both banks have embarked on multi-branch expansion programs that are
expected to continue. Together, the banks currently employ 602 people.

As part of this transaction,  a multi-million dollar charitable  foundation will
be formed to help fund local  projects  and  programs of civic,  charitable  and
cultural organizations throughout the region.

Each of the directors of First Colonial Group has agreed to vote their shares of
First  Colonial  Group in  favor of the  merger,  and  each of the  trustees  of
Keystone  Savings  Bank  has  agreed  to vote  their  deposits  in  favor of the
conversion.

The proposed merger will be submitted to First Colonial Group's shareholders for
their  consideration.  KNBT  Bancorp  and  First  Colonial  Group  will  file  a
registration  statement,  a  proxy   statement/prospectus   and  other  relevant
documents  concerning the proposed  transaction  with the SEC.  Shareholders  of
First  Colonial  are  urged to read the  registration  statement  and the  proxy
statement/prospectus  when it becomes available and any other relevant documents
filed with the SEC, as well as any amendments or supplements to those documents,
because  they will contain  important  information,  before  making any decision
regarding the merger.  Shareholders  of First  Colonial will be able to obtain a
free copy of the proxy statement/prospectus, as well as other filings containing
information  about KNBT Bancorp,  Keystone  Savings and First Colonial Group, at
the   SEC's   Internet   site   (http://www.sec.gov).   Copies   of  the   proxy
statement/prospectus can be obtained,  without charge, by directing a request to
the  Secretary of First  Colonial,  First  Colonial  Group,  Inc., 76 South Main
Street, Nazareth, Pennsylvania 18064 (610-861-5721).

First Colonial  Group and its directors and executive  officers may be deemed to
be  participants in the  solicitation of proxies from the  shareholders of First
Colonial Group in connection  with the merger.  Information  about the directors
and  executive  officers of First  Colonial  Group and their  ownership of First
Colonial Group common stock is set forth in First Colonial Group's Annual Report
on Form 10-K for the year  ended  December  31,  2002,  as filed with the SEC on
March 28, 2003. Additional information about the interests of those participants
may be obtained from


<PAGE>


reading the definitive proxy statement/prospectus  regarding the proposed merger
when it becomes available.

Critical Accounting Policies, Judgments and Estimates

The accounting  and reporting  policies of the Company  conform with  accounting
principles  generally  accepted  in the  United  States of America  and  general
practices within the financial services  industry.  The preparation of financial
statements in conformity with accounting  principles  generally  accepted in the
United States  requires  management to make estimates and the  assumptions  that
affect the amounts  reported in the financial  statements  and the  accompanying
notes. Actual results could differ from those estimates.

The Company  considers that the  determination  of the allowance for loan losses
involves a higher degree of judgment and complexity  than its other  significant
accounting  policies.  The  allowance  for loan  losses is  calculated  with the
objective of maintaining a reserve level believed by management to be sufficient
to absorb estimated  probable credit losses.  Management's  determination of the
adequacy of the allowance is based on periodic evaluations of the loan portfolio
and other relevant factors. However, this evaluation is inherently subjective as
it requires  material  estimates,  including,  among  others,  expected  default
probabilities,  loss given default,  expected  commitment usage, the amounts and
timing of expected future cash flows on impaired loans,  mortgages,  and general
amounts for historical  loss  experience.  The process also  considers  economic
conditions,  uncertainties  in estimating  losses and inherent risks in the loan
portfolio. All of these factors may be susceptible to significant change. To the
extent actual outcomes differ from management  estimates,  additional provisions
for loan losses may be required that would  adversely  impact earnings in future
periods.

With the adoption of SFAS No. 142 on January 1, 2002,  the Company  discontinued
the amortization of goodwill resulting from acquisition. Goodwill is now subject
to impairment testing at least annually to determine whether  write-downs of the
recorded  balances are necessary.  The Company tests for impairment based on the
goodwill  maintained at each defined  reporting unit. A fair value is determined
for each reporting unit based on at least one of three various market  valuation
methodologies.  If the fair  values of the  reporting  units  exceed  their book
values,  no write-down of recorded  goodwill is necessary.  If the fair value of
the reporting unit is less, an expense may be required on the Company's books to
write down the related  goodwill to the proper  carrying  value. As of March 31,
2003,  the Company  determined  that no  impairment  write-offs of goodwill were
necessary.

The  Company  recognizes  deferred  tax  assets and  liabilities  for future tax
effects of temporary  differences,  net  operating  loss  carryforwards  and tax
credits.  Deferred tax assets are subject to  management's  judgment  based upon
available  evidence  that  future  realization  is  more  likely  than  not.  If
management  determines  that the Company may be unable to realize all or part of
net deferred tax assets in the future, a direct charge to income tax expense may
be required to reduce the  recorded  value of the net  deferred tax asset to the
expected realizable amount.

These and other significant  accounting  policies are described in Note A to the
Company's 2002 financial  statements contained in the Company's Annual Report on
form 10-K for the year ended December 31, 2002.

<PAGE>


Results of Operations

Basic earnings per share for the three months ended March 31, 2003 were $0.43 as
compared to $0.37 for the  corresponding  period in 2002.  Diluted  earnings per
share for the three  months ended March 31, 2003 were $0.41 as compared to $0.37
for the same  period in 2002.  Average  basic  shares  outstanding  during  this
three-month period were 2,177,482 in 2003 and 2,144,552 in 2002. Average diluted
shares  outstanding  during the  three-month  period were  2,274,995 in 2003 and
2,178,154 in 2002. Per share earnings and average shares  outstanding  have been
restated to reflect the 5% stock dividend paid on May 31, 2002. (see Note D)

The net income for the three months  ended March 31, 2003 was $932,000  compared
to  $811,000  for the same  period in 2002.  This was an increase of $121,000 or
14.9%.  The  earnings  increase  was due in part to an increase in net  interest
income of $427,000 or 10.5% (see discussion on Net Interest Income),  a $396,000
increase in net gains on the sale of available-for-sale  securities,  a $341,000
increase in the gains on the sales of mortgage  loans, a decrease of $200,000 in
the provision for loan losses,  a decrease of $8,000 in Federal income taxes and
a $1,000  increase  in Trust and  Wealth  Management  revenues.  These  earnings
increases were offset in part by an increase of total other  operating  expenses
of $1,223,000 or 28.6%.  This increase in total other operating expense included
a charge of $637,000 for the  impairment  of mortgage  servicing  rights in 2003
with no similar expense in 2002. Also affecting  earnings was a $49,000 decrease
in other operating income.

Net Interest Income

Net interest  income amounted to $4,502,000 for the three months ended March 31,
2003  compared to  $4,075,000  for the three  months  ended March 31,  2002,  an
increase of $427,000 or 10.5%.  This  increase  was  primarily  the result of an
increase  in interest  earned on  investments,  a decrease  in interest  paid on
deposits  reduced  in part by a  decrease  in  interest  earned  on loans and an
increase in interest paid on debt. The total interest income earned on loans and
investments amounted to $7,579,000 for the first quarter of 2003, an increase of
$469,000  or 6.6% over the  $7,110,000  earned in the same  period in 2002.  The
total  interest  expense paid on deposits and debt was $3,077,000 and $3,035,000
for the  three-month  period ended March 31, 2003 and 2002,  respectively.  This
increase in first quarter of 2003 from 2002 was $42,000 or 1.4%. The increase in
interest  income was  primarily  due to higher  volume of loans and  investments
reduced in part by declining  interest rates.  The increase in interest  expense
was  primarily  the  result of higher  volumes  of  deposits  reduced in part by
declining interest rates.

The fully  taxable-equivalent  net interest  income was $4,834,000 for the first
three  months of 2003,  compared to  $4,313,000  for the same period in 2002,  a
12.1% or $521,000  increase.  This increase in  taxable-equivalent  net interest
income was  primarily  due to a $877,000  increase  related to volume  partially
reduced by a $356,000 decrease due to lower interest rates.

<PAGE>


The "Rate/Volume  Analysis" table segregates,  in detail, the major factors that
contributed  to the changes in net interest  income,  for the three months ended
March 31, 2003 as compared to the same period in 2002, 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.
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.

The  following  table sets forth a  "Rate/Volume  Analysis" for the three months
ended  March  31,  2003.  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>
<CAPTION>

                                                                    Three Months Ended
                                                                      March 31, 2003
                                                                      Over / (Under)
                                                                      March 31, 2002

                                                    CHANGE DUE TO:
                                                       TOTAL             RATE             VOLUME
                                                   --------------------------------------------------
(Fully Taxable Equivalent)
INTEREST INCOME
<S>                                                         <C>              <C>                <C>
Interest-Bearing Balances With Banks                        $ (6)            $ (17)             $ 11
Federal Funds Sold                                             1                 1                 -
Investment Securities                                        651              (928)            1,579
Loans                                                        (83)             (502)              419
                                                   --------------    --------------    --------------
Total Interest Income                                      $ 563           $(1,446)          $ 2,009
                                                   --------------    --------------    --------------

INTEREST EXPENSE
Interest Bearing Deposits
   Demand Deposits                                         $ (31)            $ (39)              $ 8
   Money Market Deposits                                      96              (265)              361
   Savings & Club Deposits                                   (81)             (112)               31
   CD's Over $100,000                                        (28)               (9)              (19)
   All Other Time Deposits                                  (296)             (401)              105
                                                   --------------    --------------    --------------
   Total Interest-Bearing Deposits                          (340)             (826)              486
Securities Sold Under Agreements
   to Repurchase                                             (31)              (29)               (2)
Long-Term Debt                                               232              (235)              467
Guaranteed Preferred Beneficial Interests
  in Company's Subordinated Debentures                       181                 -               181
                                                   --------------    --------------    --------------
Total Interest Expense                                        42            (1,090)            1,132
                                                   --------------    --------------    --------------

Net Increase (Decrease) in Interest Income                 $ 521            $ (356)            $ 877
                                                   ==============    ==============    ==============

</TABLE>

<PAGE>



Total  taxable-equivalent  interest  income for the three months ended March 31,
2003  increased  by $563,000 or 7.7%  compared to the same period in 2002.  This
increase was primarily  the result of higher  volumes of  investments  and loans
reduced in part by lower interest rates earned on these  investments  and loans.
Interest income on investments on a fully taxable  equivalent basis was $651,000
or 21.5% higher  during the first quarter of 2003 as compared to the same period
in 2002.  This increase was  comprised of a $1,579,000  increase due to a higher
volume of investment securities reduced in part by a decrease of $928,000 due to
lower  interest  rates.  The interest  income earned on loans on a fully taxable
equivalent  basis  decreased by $83,000 or 1.9% for the three months ended March
31, 2003 as compared to the same period in 2002.  This decrease was comprised of
a $502,000  decrease due to lower  interest  rates reduced in part by a $419,000
increase  due to growth  in  average  loans  outstanding.  Average  year-to-date
earning assets increased to $577,529,000 at March 31, 2003 from  $445,787,000 at
March 31, 2002. This was an increase of $131,742,000 or 29.5%

Total  interest  expense  increased  by $42,000 or 1.4%  during the first  three
months of 2003,  over the same period in 2002.  The  increase  was the result of
growth in deposits,  long-term debt and the subordinated debentures,  reduced in
part by lower interest rates paid on deposits and debt. The interest  expense on
debt  increased  by $232,000 or 46.6%  during the first three  months of 2003 as
compared to the first three months of 2002. This was comprised of an increase of
$467,000 due to higher levels of debt offset in part by a $235,000  decrease due
to lower interest rates. Also affecting the increase in interest expense was the
$181,000 of interest paid on the $15,000,000 of subordinated  debentures  issued
in June 2002. The increase in interest expense were offset in part by a decrease
of $340,000  or 13.7% on the  interest  paid on  interest-bearing  deposits  and
$31,000 or 53.4% on the interest paid on the securities sold under agreements to
repurchase.  The reduction of the interest paid on interest-bearing deposits was
comprised of a decrease of $826,000 due to lower interest rates partially offset
by an  increase of $486,000  due to growth in  deposits.  The change in interest
paid on securities  sold under  agreements  to  repurchase  was due to a $29,000
decrease  related to lower  interest  rates and a $2,000  decrease  due to lower
volume.

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

<PAGE>

<TABLE>
<CAPTION>

    FIRST COLONIAL GROUP, INC. AND SUBSIDIARIES
    CONSOLIDATED COMPARATIVE STATEMENT ANALYSIS
               (Dollars in Thousands)
                    (Unaudited)

Three Months Ended March 31,                                    2003                                         2002
                                          ------------------------------------------   --------------------------------------------
                                                            Interest      Average                       Interest       Average
                                             Average         Income/       Yield/          Average       Income/       Yield/
                                             Balance         Expense        Rate           Balance       Expense        Rate
                                          ------------------------------------------   --------------------------------------------
ASSETS:
INTEREST-EARNING ASSETS
<S>                                           <C>             <C>               <C>    <C>            <C>              <C>
Interest-Bearing Deposits with Banks          $  13,298       $      34         1.02%  $  10,523      $      40        1.52%
Federal Funds Sold                                  333               1         1.01         178           --            --
Investment Securities
     Taxable                                    258,259           2,758         4.27     168,379          2,368        5.63
     Non-Taxable (1)                             53,898             925         6.86      36,872            664        7.20
Loans (1) (2)                                   254,925           4,193         6.58     232,172          4,276        7.37
Reserve for Loan Losses                          (3,184)           --             --      (2,337)          --            --
                                                ---------     ---------                ---------      ---------
Net Loans                                       251,741           4,193         6.66     229,835          4,276        7.44
                                                ---------     ---------                ---------      ---------
     Total Interest-Earning Assets              577,529           7,911         5.48     445,787          7,348        6.59
Non-Interest Earning Assets                      31,111            --             --      28,250           --            --
                                                ---------     ---------                ---------      ---------
     TOTAL ASSETS, INTEREST INCOME            $ 608,640           7,911         5.20   $ 474,037          7,348        6.20
                                                =========     ---------                =========       ---------

LIABILITIES
INTEREST-BEARING LIABILITIES
Interest-Bearing Deposits
     Demand Deposits                          $  61,987              69         0.44   $  57,265            100        0.70
     Money Market Deposits                       89,979             365         1.62      38,419            269        2.80
     Savings & Club Deposits                     76,206             165         0.86      67,751            246        1.45
     CD's over $100,000                           5,138              39         3.02       7,242             67        3.70
     All Other Time Deposits                    172,273           1,501         3.49     162,706          1,797        4.42
                                                ---------     ---------                ---------      ---------
       Total Interest-Bearing Deposits          405,583           2,139         2.11     333,383          2,479        2.97
Federal Funds Purchased and Securities
   Sold Under Agreements to Repurchase            9,637              27         1.12       9,951             58        2.33
Short-Term Debt                                      51            --           1.43           8           --            --
Long-Term Debt                                   67,523             730         4.32      34,842            498        5.72
Guaranteed Preferred Beneficial Interests
     in Company's Subordinated Debentures        15,000             181         4.84        --             --            --
                                                ---------     ---------                ---------      ---------
       Total Interest-Bearing Liabilities       497,794           3,077         2.47     378,184          3,035        3.21

NON-INTEREST-BEARING LIABILITIES
Non-Interest-Bearing Deposits                    63,211            --            --       53,775           --            --
Other Liabilities                                 7,007            --            --        7,304           --            --
                                                ---------     ---------                ---------      ---------
       TOTAL LIABILITIES                        568,012           3,077         2.17     439,263          3,035        2.76
       SHAREHOLDERS' EQUITY                      40,628            --            --       34,774           --            --
                                                ---------     ---------                ---------      ---------
       TOTAL LIABILITIES AND EQUITY           $ 608,640           3,077         2.02   $ 474,037          3,035        2.56
                                                =========     ---------                =========      ---------

NET INTEREST INCOME                                           $   4,834                               $   4,313
                                                              =========                               ==========

     Net Interest Spread (3)                                                    3.01                                   3.38
     Effect of Interest-Free Sources
       Used to Fund Earnings                                                    0.34                                   0.49
     Net Interest Margin (4)                                                    3.35%                                  3.87%
                                                                             ========                                ========
</TABLE>


(1)  The indicated interest income and average yields are presented on a taxable
     equivalent  basis.  The  tax  equivalent  adjustments  included  above  are
     $131,000  and  $239,000 for the three months ended March 31, 2003 and March
     31,  2002,  respectively.  The  effective  tax rate  used  for the  taxable
     equivalent adjustment was 34%.
(2)  Loan fees of $(49,000)  and  $(14,000) for the three months ended March 31,
     2003 and March 31, 2002,  respectively,  are  included in interest  income.
     Average  loan  balances  include   non-accruing  loans  and  average  loans
     held-for-sale of $3,851,000 and $5,167,000 for the three months ended March
     31, 2003 and March 31, 2002, respectively.
(3)  Net  interest  spread  is  the  arithmetic   difference  between  yield  on
     interest-earning assets and the rate paid on interest-bearing  liabilities.
(4)  Net interest margin is computed by dividing annualized net interest income
     by average interest-earning assets.


<PAGE>


The net  interest  margin of 3.35% for the  three-month  period  ended March 31,
2003, decreased from the 3.87% net interest margin for the first three months of
2002.  The yield on  interest  earning  assets was 5.48%  during the first three
months of 2003 as compared to 6.59% in 2002.  The average  interest rate paid on
interest  bearing  deposits and other  borrowings  was 2.47% for the first three
months of 2003 as compared to 3.21% in 2002.

Other Income and Other Expenses

Other  income for the three  months  ended  March 31,  2003,  including  service
charges,  trust and wealth  management  revenues,  gains on the sale of mortgage
loans,  net securities  gains and other  miscellaneous  income was $2,266,000 as
compared  to  $1,557,000  for the same  period in 2002.  This was an increase of
$709,000 or 45.4%.  This increase was the result of the  increased  gains on the
sale of securities  available-for-sale,  increased gains on the sale of mortgage
loans,  increases  in  service  charges,  and an  increase  in trust and  wealth
management  revenues,  reduced in part by a decrease in and other  miscellaneous
income.  The net  gains on  securities  available-for-sale  for the  three-month
period ended March 31 were  $765,000 in 2003 and  $369,000 in 2002.  This was an
increase of $396,000 or 107.3%.  In the three month period ended March 31, 2003,
the gains on the sale of  mortgage  loans  amounted  to  $417,000 as compared to
gains of $76,000 for the same period in 2002.  This was an increase of $341,000.
Mortgage loan sales amounted to $16,154,000  during the three-month period ended
March 31, 2003 as compared to $9,672,000 during the same period in 2002. Service
charges were  $619,000,  during the three months ended March 31, 2003, a $20,000
or 3.3%  increase  over the 2002  amount of  $599,000.  The  increase in service
charges  was due to higher  volumes  of debit card  transactions.  The trust and
wealth  management  revenues  were $285,000 for the three months ended March 31,
2003 as compared to  $284,000  for the three  months  ended March 31,  2002,  an
increase of $1,000.  Other miscellaneous income for the three months ended March
31, 2003 was $180,000,  a decrease of $49,000 or 21.4%  compared to $229,000 for
the same period in 2002.

Total  other  expenses  for the  three-month  period  ended  March 31, 2003 were
$5,501,000  as compared to $4,278,000  for the same period in 2002.  This was an
increase of $1,223,000 or 28.6%. A major factor  affecting the increase in total
other  expenses  was an expense  of  $637,000  for the  impairment  of  mortgage
servicing rights due to a larger than normal number of customers prepaying their
residential  mortgage loans as a result of lower interest rates.  Also affecting
the  increase  in total other  expenses  was an increase of $529,000 or 25.8% in
salary and  benefit  expenses,  which were  $2,576,000  in 2003 as  compared  to
$2,047,000  in 2002.  This  increase  was  primarily  the  result of a charge of
$175,000 due to  accelerated  vesting and  distribution  of the  deferred  stock
compensation as a result of the execution of the merger  agreement with Keystone
Savings  Bank,  general  salary  increases of  approximately  4%, the payment of
higher  commissions  and  incentives  to certain  loan  officers  as a result of
increased  new loan  business  and the  addition  of staff  during the third and
fourth quarters of 2002 in the commercial loan, and trust and wealth  management
areas of the Bank.  Other operating  expenses for the  three-month  period ended
March  31,  2003  were  $1,645,000,  an  increase  of  $80,000  or 5.1% from the
$1,565,000 for the same period in 2002. Partially offsetting these increases was
a decrease in occupancy and equipment expenses of $23,000 or 3.5%. Occupancy and
equipment  expenses  were $643,000 and $666,000 for the three months ended March
31, 2003 and 2002, respectively.


<PAGE>


FINANCIAL CONDITION
Assets and Liabilities

Total assets at March 31, 2003 were  $620,718,000,  representing  an increase of
$9,126,000  or 1.5% over total  assets of  $611,592,000  at December  31,  2002.
Deposits increased by $10,579,000 or 2.2% from $472,798,000 on December 31, 2002
to  $483,377,000  on March 31,  2003.  Contributing  to this  increase  in total
deposits were increases in  certificates of deposit over $100,000 of $5,715,000,
non-interest  bearing  checking  deposits  of  $4,965,000,  savings  deposits of
$4,551,000  and interest  bearing  checking  deposits of  $3,048,000,  partially
offset by a decrease in money market deposits of $6,696,000, and certificates of
deposit under $100,000 of $1,004,000.  Loans  outstanding at March 31, 2003 were
$252,624,000  as  compared to  $255,844,000  at December  31,  2002.  This was a
decrease of $3,220,000  or 1.3%.  The decrease in loans was primarily the result
of a decrease of  $4,069,000  or 8.3% in  residential  real  estate  loans and a
decrease of $2,390,000 or 2.3% in consumer loans. These decreases were offset in
part by an increase in commercial  loans of $3,239,000 or 3.2%. The reduction in
residential real estate loans was the result of the sale of $16,154,000 of these
loans during the three-month  period of 2003. There were $848,000 of residential
real estate loans  identified  as  held-for-sale  at March 31, 2003.  There were
$1,263,000 residential real estate loans held-for sale at December 31, 2002. The
loan to deposit  ratio was 52.3% and 54.1% at March 31,  2003 and  December  31,
2002, respectively.

Allowance and Provision for Possible Loan Losses

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

The  provision  for possible loan losses was $200,000 for the first three months
of 2003 as  compared to  $400,000  for the same period in 2002.  Net charge offs
were  $172,000 for the three months ended March 31, 2003  compared with $314,000
for the three months ended March 31, 2002.  The ratio of the  allowance for loan
losses to total  loans was 1.23% at March  31,  2003 and 1.21% at  December  31,
2002.  The  allowance  for  possible  loan  losses  at March  31,  2003  totaled
$3,112,000,  an increase of $28,000 or 0.9% over the December 31, 2002 amount of
$3,084,000.

At March 31,  2003,  $6,000 of the  allowance  for  possible  loans  losses  was
allocated to impaired loans.

<PAGE>



Transactions in the allowance for loan losses were as follows:

                                            2003                   2002
                                     -------------------    ===================
Balance, January 1,                         $ 3,084,000            $ 2,264,000
Loans Charged Off                              (191,000)              (359,000)
Loans Recovered                                  19,000                 45,000
                                     -------------------    -------------------
  Net Loans Charged Off                        (172,000)              (314,000)

Provision Charged to Expenses                   200,000                400,000
                                     -------------------    -------------------
Balance, March 31,                          $ 3,112,000            $ 2,350,000
                                     ===================    ===================



<PAGE>

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  substantially   collectible  because  adequate  collateral  or  other
resources  protect the loans.  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.

<TABLE>
<CAPTION>


                                                      March 31,          December 31,         March 31,
                                                        2003                 2002                2002
-------------------------------------------------------------------------------------------------------
<S>                                                  <C>                  <C>                <C>
Non-accrual loans on a cash basis                    $1,395,000           $ 1,351,000        $ 875,000
Non-accrual loans as a percentage
   of total loans                                         0.55%                 0.53%            0.38%
-------------------------------------------------------------------------------------------------------
Accruing loans past due 90 days or more               $ 432,000             $ 874,000      $ 1,794,000
Accruing loans past due 90 days or more
   as a percentage of total loans                         0.17%                 0.34%            0.78%
-------------------------------------------------------------------------------------------------------
Total nonperforming loans
   (Non-accrual loans plus accruing loans
      past due 90 days or more)                      $1,827,000           $ 2,225,000      $ 2,669,000
Allowance for loan losses to
   nonperforming loans                                  170.33%               138.60%           88.05%
Nonperforming loans to total loans                        0.72%                 0.87%            1.15%
Allowance for loan losses to total loans                  1.23%                 1.21%            1.02%
-------------------------------------------------------------------------------------------------------
</TABLE>



Total  non-performing loans (non-accruing loans and loans past due over 90 days)
amounted to  $1,827,000  at March 31, 2003 as compared to $2,225,000 at December
31, 2002 and $2,669,000 at March 31, 2002. The ratio of non-performing  loans to
total loans was 0.72%, 0.87% and 1.15% at March 31, 2003,  December 31, 2002 and
March 31,  2002,  respectively.  The  decrease in this ratio was  primarily  the
result of a decrease in total non-performing loans due to collection efforts.

Non-accruing  loans at March 31, 2003 of $1,395,000  increased from the December
31, 2002 amount of  $1,351,000  and  increased  over the March 31, 2002 level of
$875,000.  The amount of increase  from  December 31, 2002 to March 31, 2003 was
$44,000.  This  increase was  primarily  the result of the poor  performance  of
certain  consumer  and  residential  real estate  loans.  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 March 31,  2003,  loans  past due 90 days or more and still
accruing interest were $432,000 compared to

<PAGE>


$874,000 at December 31, 2002 and  $1,794,000  at March 31,  2002.  The $442,000
decrease in loans past due 90 days from  December 31, 2002 to March 31, 2003 was
the result of decreases in  commercial,  mortgage and consumer loans past due 90
days or more.

Other Real Estate Owned

Other Real Estate  Owned at March 31,  2003 was  $180,000 as compared to none at
December 31, 2002. This increase  resulted from the foreclosure of a residential
real estate property.

Investment Securities

The Company had $254,930,000 in available-for-sale  securities at March 31, 2003
with a net unrealized gain of $278,000. At December 31, 2002  available-for-sale
securities amounted to $283,481,000 with a net unrealized gain of $1,321,000.

During the  three-month  period ended March 31, 2003,  $50,908,000 of securities
available-for-sale  were  sold  for  a net  gain  of  $765,000  as  compared  to
$28,053,000 of securities available-for-sale sold for a net gain of $369,000 for
the same time  period in 2002.  Most of the  securities  sold were  longer  term
agency  mortgage-backed bonds and fixed rate agency bonds. These securities were
replaced with shorter-term  agency  mortgage-backed  securities.  The purpose of
these sales was to shorten the  investment  portfolio  and reduce the  Company's
interest rate risk.

Held-to-maturity  securities totaling  $69,461,000 at March 31, 2003 are carried
at amortized cost. At December 31, 2002, the held-to-maturity securities totaled
$30,297,000. The Company has the intent and ability to hold the held-to-maturity
securities  until  maturity.  The Company,  at March 31, 2003,  did not hold any
securities identified as derivatives.

<PAGE>


Capital Resources and Liquidity

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.  The $15  million of trust  preferred  securities  issued by
Statutory  Trust  I are  included  in  Tier 1  capital.  Tier 2  capital  may be
comprised of limited life preferred stock, qualifying debt instruments,  and the
allowance for possible loan losses.  Management  believes,  that as of March 31,
2003, the Company and the Bank met all capital  adequacy  requirements  to which
they were subject.

<PAGE>

CAPITAL RATIOS
<TABLE>
<CAPTION>

====================================================================================================================================
                                                                                   Required                To Be Well Capitalized
                                                                                  For Capital             Under Prompt Corrective
                                                        Actual                Adequacy Purposes               Action Provisions
                                            --------------------------   --------------------------  ------------------------------
(Dollars in Thousands)
  At March 31, 2003                            Amount       Ratio           Amount       Ratio           Amount          Ratio
====================================================================================================================================
Total Capital
(To Risk-Weighted Assets)
<S>                                             <C>            <C>           <C>             <C>
    Company, (Consolidated)                     $ 57,284       18.64%        $ 24,580        8.00%                 -
    Bank                                        $ 47,326       15.63%        $ 24,222        8.00%          $ 30,278        10.00%

Tier 1 Capital
(To Risk-Weighted Assets)
    Company, (Consolidated)                     $ 52,230       17.00%        $ 12,290        4.00%                 -
    Bank                                        $ 43,214       14.27%        $ 12,111        4.00%          $ 18,167         6.00%

Tier 1 Capital
(To Average Assets, Leverage)
    Company, (Consolidated)                     $ 52,230        8.58%        $ 24,341        4.00%                 -
    Bank                                        $ 43,214        7.16%        $ 24,157        4.00%          $ 30,196         5.00%

====================================================================================================================================
                                                                                   Required                 To Be Well Capitalized
                                                                                For Capital                Under Prompt Corrective
                                                       Actual                Adequacy Purposes               Action Provisions
                                            --------------------------   --------------------------  ------------------------------
(Dollars in Thousands)
  At December 31, 2002                         Amount       Ratio           Amount       Ratio           Amount          Ratio
====================================================================================================================================

Total Capital
(To Risk-Weighted Assets)
    Company, (Consolidated)                     $ 56,032       18.45%        $ 24,301        8.00%                 -
    Bank                                        $ 46,767       15.63%        $ 23,935        8.00%          $ 29,918        10.00%

Tier 1 Capital
(To Risk-Weighted Assets)
    Company, (Consolidated)                     $ 50,598       16.66%        $ 12,151        4.00%                 -
    Bank                                        $ 42,683       14.27%        $ 11,967        4.00%          $ 17,951         6.00%

Tier 1 Capital
(To Average Assets, Leverage)
    Company, (Consolidated)                     $ 50,598        8.81%        $ 22,978        4.00%                 -
    Bank                                        $ 42,683        7.48%        $ 22,833        4.00%          $ 28,541         5.00%
====================================================================================================================================

</TABLE>

<PAGE>


The Company is not aware of any trends, events or uncertainties that will have a
material  adverse  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.

Liquidity is a measure of the Company's  ability to raise funds to support asset
growth,  meet deposit  withdrawal and other borrowing  needs,  maintain  reserve
requirements and otherwise  operate the Company on an ongoing basis. The Company
manages its assets and liabilities to maintain liquidity and earnings stability.
Among  the  sources  of  liquidity  are  money  market  investments,  securities
available-for-sale,  funds  received  from the  repayment  of loans,  short-term
borrowings and borrowings from the Federal Home Loan Bank.

At March 31, 2003, cash, due from banks, Federal funds sold and interest bearing
deposits with banks totaled $31,245,000, and securities maturing within one year
totaled $126,000. At December 31, 2002, cash, due from banks, Federal funds sold
and interest bearing deposits with banks,  totaled  $27,743,000,  and securities
maturing within one year were $1,033,000.  Securities sold under an agreement to
repurchase  totaled  $8,774,000 at March 31, 2003 and $8,801,000 at December 31,
2002. 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  $10,491,000  at March 31, 2003 and  $4,968,000 at December 31,
2002.  These deposits are included in due from banks on the Company's  financial
statements.  As a result of this  relationship,  the Company  places most of its
short-term  funds at the  Federal  Home  Loan  Bank of  Pittsburgh.  There  were
$2,000,000 in Federal funds sold at March 31, 2003 and at December 31, 2002.

The Federal Home Loan Bank of Pittsburgh provided the Bank with a line of credit
in the amount of  $25,000,000 at March 31, 2003,  subject to certain  collateral
requirements.  The Bank had no short-term  (overnight)  borrowings  against this
line at March 31, 2003 and December 31, 2002.

The Company had  long-term  debt from the Federal  Home Loan Bank of  Pittsburgh
totaling $67,039,000 at March 31, 2003 and $67,921,000 at December 31, 2002. The
loans are secured by the Bank's  residential  real estate  loans and  investment
securities.  These  funds  were  used to fund  residential  real  estate  loans,
community reinvestment projects and securities in the investment portfolio.
<PAGE>

<TABLE>
<CAPTION>

The loans outstanding are as follows:

--------------------------------------------------------------------------------------------------------------------------
(Dollars in Thousands)

--------------------------------------------------------------------------------------------------------------------------
                                                                                                             Interest
                                              Balance at:         Balance at:                                Rate at:
         Date                Original          March 31,          December 31,             Due              March 31,
      Originated              Amount              2003                2002                 Date                2003
------------------------  ----------------  -----------------  -------------------  -------------------  -----------------

<S>     <C>                       <C>                <C>                  <C>                  <C>            <C>      <C>
October 1998                      $ 7,000            $ 7,000              $ 7,000      October 2008           4.86%    (1)
August 1999                        10,000             10,000               10,000      August 2004            6.06%    (2)
August 2000                        12,000             12,000               12,000      August 2010            6.23%    (3)
November 2001                         805                793                  795     November 2016           6.43%    (5)
December 2001                       5,000              5,000                5,000      January 2007           4.45%    (4)
February 2002                          90                 89                   89     February 2017           5.65%    (5)
October 2002                        3,050              3,016                3,037      October 2007           3.18%    (5)
December 2002                      15,000             14,300               15,000     December 2007           2.90%    (5)
December 2002                      10,000             10,000               10,000     December 2007           3.21%    (6)
December 2002                       5,000              4,841                5,000     December 2009           3.40%    (5)
                          ----------------  -----------------  -------------------

                                 $ 67,945           $ 67,039             $ 67,921
                          ================  =================  ===================

(1)   The interest rate on this loan is fixed until  October  2003,  after which
      the interest  rate may, on any quarter,  be converted at the option of the
      lender to a variable rate of  three-month  LIBOR plus 15 basis points.  If
      the lender elects to convert to a variable  rate, the Bank may pre-pay the
      loan without a penalty.
(2)   The interest  rate on this loan may, on any  quarter,  be converted at the
      option of the lender to a variable rate of three-month LIBOR plus 15 basis
      points if the three-month LIBOR is 7.5% or higher. If the lender elects to
      convert  to a  variable  rate,  the Bank may  pre-pay  the loan  without a
      penalty.
(3)   The interest  rate on this loan may, on any  quarter,  be converted at the
      option of the lender to a variable rate of three-month LIBOR plus 15 basis
      points if the three-month  LIBOR is 8% or higher.  If the lender elects to
      convert  to a  variable  rate,  the Bank may  pre-pay  the loan  without a
      penalty.
(4)   The interest rate on this loan is fixed until December,  2002, after which
      the interest  rate may, on any quarter,  be converted at the option of the
      lender to a variable rate of three-month LIBOR plus 15 basis points if the
      three-month  LIBOR is 7.5% or higher. If the lender elects to convert to a
      variable rate, the Bank may pre-pay the loan without a penalty.
(5)   The  interest  rate on this  loan  is  fixed  until  maturity.  This  loan
      amortizes with monthly principal and interest payments.
(6)   The interest rate on this loan is fixed until December,  2003, after which
      the interest  rate may, on any quarter,  be converted at the option of the
      lender to a variable rate of three-month LIBOR plus 15 basis points if the
      three-month  LIBOR is 7.5% or higher. If the lender elects to convert to a
      variable rate, the Bank may pre-pay the loan without a penalty.

--------------------------------------------------------------------------------

</TABLE>

<PAGE>


On June 26, 2002, the Company issued  $15,000,000 of subordinated  debentures to
First Colonial Statutory Trust I and the Statutory Trust I issued $15,000,000 in
pooled trust  preferred  securities.  The  subordinated  debentures are the sole
asset of the Statutory Trust.  The Trust Preferred  securities are classified as
long-term debt for the financial statements,  but are included as Tier I capital
for regulatory purposes.  The interest rate on this security (4.74% at March 31,
2003 and  4.85% at  December  31,  2002) is  variable,  adjusting  quarterly  at
three-month  LIBOR plus  3.45%.  The  interest is payable  quarterly.  The trust
preferred  securities  mature in June 2032, and may be redeemed at the option of
the  Company on or after June 2007,  or may be redeemed at any time in the event
that the  deduction  of related  interest  for  federal  income tax  purposes is
prohibited, treatment as Tier I capital is no longer permitted, or certain other
contingencies  arise. The net proceeds of the trust preferred  securities are to
be used to support the Company's  growth and  expansion  plans and other general
corporate purposes.

The Company also has an  obligation as a party to the Employee  Stock  Ownership
Plan (ESOP)  debt.  There were four loans to ESOP as March 31, 2003 and December
31, 2002. The total  outstanding on these loans was $1,093,000 at March 31, 2003
and December 31, 2002.

The ESOP  loans  outstanding  at March 31,  2003 and  December  31,  2002 are as
follows:

<TABLE>
<CAPTION>

--------------------------------------------------------------------------------------------------------------------------
(Dollars in Thousands)
--------------------------------------------------------------------------------------------------------------------------
                                                                                                             Interest
                                              Balance at:         Balance at:                                Rate at:
         Date                Original          March 31,          December 31,             Due               March 31,
      Originated              Amount              2003                2002                 Date                2003
------------------------  ----------------  -----------------  -------------------  -------------------  -----------------

<S>   <C>                           <C>                <C>                  <C>                <C>            <C>
April 1998                          $ 500              $ 175                $ 175      October 2005           4.25%
February 1999                       1,000                800                  800      October 2018           4.25%
October 2000                           72                 58                   58      October 2010           4.25%
December 2000                         100                 60                   60      October 2005           4.25%
                          ----------------  -----------------  -------------------

                                  $ 1,672            $ 1,093              $ 1,093
                          ================  =================  ===================


The interest rates on these loans are variable at the Bank's prime rate.
--------------------------------------------------------------------------------------------------------------------------

</TABLE>


Cash flows for the three months  ended March 31, 2003  consisted of cash used in
investing activities of $22,886,000 offset in part by cash provided by operating
activities  of  $10,888,000  and  cash  provided  by  financing   activities  of
$9,955,000.  The  result  was a net  decrease  in cash and cash  equivalents  of
$2,043,000.

Cash  was  used  in  investing   activities   for  the  purchase  of  securities
available-for-sale   and   held-to-maturity   of  $47,022,000  and  $43,768,000,
respectively,  a net  increase in loans of  $5,157,000,  an increase in interest
bearing deposits with banks of $5,545,000 and purchase of premises and equipment
of  $223,000.  These  were  partially  offset  by  proceeds  from  the  sales of
securities available-for-sale of $50,908,000, proceeds from calls and maturities
of securities  available-for-sale  of  $23,366,000,  and proceeds from calls and
maturities of securities held-to-maturity of $4,555,000.

Cash provided by operating  activities was the result of net income of $932,000,
proceeds  from the sale of  residential  real  estate  loans of  $16,154,000,  a
decrease in other assets of  $1,168,000,  amortization  of security  premiums of
$562,000, depreciation and amortization of

<PAGE>


$370,000,  the provision for possible loan losses of $200,000,  and amortization
of  deferred  fees on loans of  $109,000.  These were offset in part by mortgage
loans  originated  for sale of  $7,406,000,  net gains on the sale of investment
securities of $765,000,  gains on the sale of  residential  real estate loans of
$417,000, and deferred taxes of $226,000.

Cash provided by financing activities consisted principally of a net increase in
interest and  non-interest  bearing demand  deposits,  and savings  accounts and
money market  accounts of $5,867,000,  an increase in certificates of deposit of
$4,712,000,  proceeds from the issuance of stock of $477,000,  and a decrease in
deferred stock compensation of $220,000. These were partially offset by payments
on long-term debt of $882,000,  the payment of cash dividends of $412,000, and a
decrease in repurchase agreements of $27,000.

During the first quarter of 2003,  the Bank received final approval to establish
a full  service  branch  office  at  9th  and  Hamilton  Streets  in  Allentown,
Pennsylvania.  In addition, the Bank filed an application with the Office of the
Comptroller  of the  Currency  to  establish  a  branch  on  MacArthur  Road  in
Whitehall,  Pennsylvania.  It is expected that both of these  branches will open
during the third  quarter  of 2003.  In  addition,  the new branch at Rt. 248 in
Lower  Nazareth  Township,  Pennsylvania  that was  announced  during  the third
quarter  of 2002 is  expected  to open in the second  quarter of 2003.  The Bank
continues to investigate possible locations for additional branches.

The Company recognizes the importance of maintaining  adequate capital levels to
support  sound,  profitable  growth  and to  encourage  depositor  and  investor
confidence.  Shareholders'  equity at March 31, 2003 was $40,488,000 as compared
to $40,314,000  at December 31, 2002, for an increase of $174,000 or 0.4%.  This
increase  resulted  from net income of $932,000,  the proceeds  from the sale of
stock of $477,000,  the  distribution  of the  deferred  stock  compensation  of
$220,000,  reduced  in part by a decrease  in  accumulated  other  comprehensive
income   related  to  a  reduction  in  the   unrealized   gains  in  securities
available-for-sale of $1,043,000 and the payment of dividends of $412,000.

On February  14, 2003 the Company paid its 2003 first  quarter cash  dividend on
its common  stock of $0.19 per share to  shareholders  of record on January  31,
2003.

The Company  maintained a Dividend  Reinvestment  and Stock Purchase Plan.  This
Plan was suspended as of March 5, 2003 as a result of the merger  agreement with
Keystone Savings Bank. During the first quarter of 2003,  3,771,shares of common
stock were purchased from  authorized and unissued shares at an average price of
$25.99 per share for proceeds of approximately $98,000.

The Company has a Stock  Option Plan  adopted in 2001,  which  provides  for the
granting of options to acquire the  Company's  common  stock for  officers,  key
employees and directors of the Company.  In January of 2003, options to purchase
59,950  shares of the  Company's  common stock at an average price of $23.83 per
share were granted to certain officers and Company  directors.  During the first
three months of 2003,  options for 18,119 shares of the  Company's  common stock
issued  pursuant to the Plan were  exercised  at an average  price of $20.90 per
share.


<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.  Because  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.

There have been no material changes in the Bank's  assessment of its sensitivity
to market risk since its  presentation in the 2002 annual report to shareholders
and its 2002 Form 10-K for the year  ended  December  31,  2002  filed  with the
Securities and Exchange Commission.

ITEM 4. Controls and Procedures

Quarterly evaluation of the Company's Disclosure Controls and Internal Controls.
Within the 90 days prior to the date of this Quarterly  Report on Form 10-Q, the
Company  evaluated  the  effectiveness  of  the  design  and  operation  of  its
"disclosure controls and procedures"  ("Disclosure  Controls").  This evaluation
("Controls   Evaluation")   was  done  under  the   supervision   and  with  the
participation of management, including the Chief Executive Officer ("CEO") Scott
V. Fainor and Chief Financial Officer ("CFO") Reid L. Heeren.

Limitations  on  the  Effectiveness  of  Controls.   The  Company's  management,
including the CEO and CFO, does not expect that its Disclosure  Controls and its
"internal controls and procedures for financial reporting"  ("Internal Controls"
) will  prevent all error and all fraud.  A control  system,  no matter how well
conceived and operated,  can provide only  reasonable,  not absolute,  assurance
that the  objectives  of the control  system are met.  Further,  the design of a
control  system must reflect the fact that there are resource  constraints,  and
the benefits of controls must be considered relative to their costs.  Because of
the inherent  limitations in all control systems,  no evaluation of controls can
provide  absolute  assurance that all control issues and instances of fraud,  if
any, within the Company have been detected.  These inherent  limitations include
the  realities  that  judgments  in  decision-making  can be  faulty,  and  that
breakdowns can occur because of simple error or mistake. Additionally,  controls
can be circumvented by the individual acts of some persons,  by collusion of two
or more people,  or by  management  override of the  control.  The design of any
system of  controls  also is based in part upon  certain  assumptions  about the
likelihood of future events,  and there can be no assurance that any design will
succeed in achieving  its stated goals under all  potential  future  conditions;
over time,  controls may become inadequate because of changes in conditions,  or
the degree of  compliance  with the  policies  or  procedures  may  deteriorate.
Because  of  the  inherent  limitations  in  a  cost-effective  control  system,
misstatements due to error or fraud may occur and not be detected.

Conclusions.  Based upon the Controls Evaluation, the CEO and CFO have concluded
that,  subject to the  limitations  noted  above,  the  Disclosure  Controls are
effective to timely alert  management  to material  information  relating to the
Company during the period when its periodic reports are being prepared.

In accordance with SEC requirements,  since the date of the Controls  Evaluation
to the date of this Quarterly Report,  there have been no significant changes in
Internal Controls or in other factors that could  significantly  affect Internal
Controls,   including  any   corrective   actions  with  regard  to  significant
deficiencies and material weaknesses.

<PAGE>


PART II - OTHER INFORMATION

ITEM 1. Legal Proceedings

                From  time-to-time,  the  Company  and the Bank are  parties  to
routine litigation incidental to their business.

                Neither the  Company,  the Bank nor any of their  properties  is
subject to any other material legal proceedings.

ITEM 2.         Changes in Securities and Use of Proceeds

                None

ITEM 3.         Defaults Upon Senior Securities

                None

ITEM 4.         Submission of Matters to a Vote of Security Holders

                None

ITEM 5.         Other Information
                None
ITEM 6.         Exhibits and Reports on Form 8-K

                (a)  Exhibits
                      99.1 Certification  Pursuant to 18 U.S.C.  Section 1350 as
                        adopted  pursuant to Section  906 of the  Sarbanes-Oxley
                        Act of 2002.

                (b) Reports on Form 8K

                      On January 16, 2003, First Colonial filed a report on Form
                  8-K,  which  reported under Item 9 the release of its December
                  31, 2002 year-end earnings. A copy of the release was filed as
                  an exhibit.

                      On January 17, 2003, First Colonial filed a report on Form
                  8-K, which reported under Item 9 the announcement of its first
                  quarter 2003 dividend.  A copy of this  announcement was filed
                  as an exhibit.

                      On February 10,  2003,  First  Colonial  filed a report on
                  Form 8-K, which was reported under Item 9 an  announcement  of
                  branch expansion plans. A copy of this  announcement was filed
                  as an exhibit.

                      On March 7, 2003,  First  Colonial  filed a report on Form
                  8-K, which was reported  under Items 5 and 7 the  announcement
                  that First  Colonial had entered  into a definitive  agreement
                  with Keystone Savings Bank relating to a merger. The Agreement
                  and Plan of Merger and press releases were filed as exhibits.

                      On March 28, 2003,  First  Colonial filed a report on Form
                  8-K, which was reported under Item 9 an announcement of branch
                  expansion  plans. A copy of this  announcement was filed as an
                  exhibit.

<PAGE>

                                   SIGNATURES


Pursuant  to the  requirements  of the  Securities  Exchange  Act of  1934,  the
registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned, thereunto duly authorized.


                                             FIRST COLONIAL GROUP, INC.


DATE:    May 14, 2003                         BY: /S/  SCOTT V. FAINOR
         -------------                        ----------------------------------
                                                  SCOTT V. FAINOR
                                                  PRESIDENT
                                                 (PRINCIPAL EXECUTIVE OFFICER)


DATE:    May 14, 2003                        BY: /S/  REID L. HEEREN
        ---------------                      -----------------------------------
                                                 REID L. HEEREN
                                                 VICE PRESIDENT
                                                (PRINCIPAL FINANCIAL OFFICER)

<PAGE>


                                  CERTIFICATION

I, SCOTT V. FAINOR, President and Chief Executive Officer, certify that:

1.    I have  reviewed  this  quarterly  report on Form  10-Q of First  Colonial
      Group, Inc.;

2.    Based on my knowledge,  this quarterly  report does not contain any untrue
      statement of a material fact or omit to state a material fact necessary to
      make the statements made, in light of the  circumstances  under which such
      statements were made, not misleading with respect to the period covered by
      this quarterly report;

3.    Based on my  knowledge,  the  financial  statements,  and other  financial
      information  included  in this  quarterly  report,  fairly  present in all
      material respects the financial condition,  results of operations and cash
      flows of the  registrant  as of, and for,  the periods  presented  in this
      quarterly report;

4.    The  registrant's  other  certifying  officers and I are  responsible  for
      establishing  and  maintaining  disclosure  controls  and  procedures  (as
      defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we
      have:

              a) designed such disclosure controls and procedures to ensure that
              material  information  relating to the  registrant,  including its
              consolidated  subsidiaries,  is made known to us by others  within
              those  entities,  particularly  during  the  period in which  this
              quarterly report is being prepared;

              b)  evaluated  the  effectives  of  the  registrant's   disclosure
              controls and  procedures  as of a date within 90 days prior to the
              filing date of this quarterly report (the "Evaluation Date"); and

              c) presented in this quarterly  report our  conclusions  about the
              effectiveness  of the disclosure  controls and procedures based on
              our evaluation as of the Evaluation Date;

5.    The registrant's other certifying officers and I have disclosed,  based on
      our most recent  evaluation,  to the  registrant's  auditors and the audit
      committee of  registrant's  board of directors (or persons  performing the
      equivalent function):

              a) all  significant  deficiencies  in the design or  operation  of
              internal  controls which could adversely  affect the  registrant's
              ability to record,  process,  summarize and report  financial data
              and have  identified  for the  registrant's  auditors any material
              weaknesses in internal controls; and

              b) any fraud, whether or not material, that involves management or
              other  employees who have a significant  role in the  registrant's
              internal controls; and

6.    The registrant's  other  certifying  officers and I have indicated in this
      quarterly report whether or not there were significant changes in internal
      controls or in other  factors  that could  significantly  affect  internal
      controls  subsequent to the date of our most recent evaluation,  including
      any  corrective  actions  with  regard  to  significant  deficiencies  and
      material weaknesses.

     Date:  May 14, 2003              /s/ Scott V. Fainor
         ---------------------        ----------------------
                                      President and Chief Executive Officer


<PAGE>


                                  CERTIFICATION

I, REID L. HEEREN, Vice President and Treasurer, certify that:

1.    I have  reviewed  this  quarterly  report on Form  10-Q of First  Colonial
      Group, Inc.;

2.    Based on my knowledge,  this quarterly  report does not contain any untrue
      statement of a material fact or omit to state a material fact necessary to
      make the statements made, in light of the  circumstances  under which such
      statements were made, not misleading with respect to the period covered by
      this quarterly report;

3.    Based on my  knowledge,  the  financial  statements,  and other  financial
      information  included  in this  quarterly  report,  fairly  present in all
      material respects the financial condition,  results of operations and cash
      flows of the  registrant  as of, and for,  the periods  presented  in this
      quarterly report;

4.    The  registrant's  other  certifying  officers and I are  responsible  for
      establishing  and  maintaining  disclosure  controls  and  procedures  (as
      defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we
      have:

              a) designed such disclosure controls and procedures to ensure that
              material  information  relating to the  registrant,  including its
              consolidated  subsidiaries,  is made known to us by others  within
              those  entities,  particularly  during  the  period in which  this
              quarterly report is being prepared;

              b)  evaluated  the  effectives  of  the  registrant's   disclosure
              controls and  procedures  as of a date within 90 days prior to the
              filing date of this quarterly report (the "Evaluation Date"); and

              c) presented in this quarterly  report our  conclusions  about the
              effectiveness  of the disclosure  controls and procedures based on
              our evaluation as of the Evaluation Date;

5.    The registrant's other certifying officers and I have disclosed,  based on
      our most recent  evaluation,  to the  registrant's  auditors and the audit
      committee of  registrant's  board of directors (or persons  performing the
      equivalent function):

              a) all  significant  deficiencies  in the design or  operation  of
              internal  controls which could adversely  affect the  registrant's
              ability to record,  process,  summarize and report  financial data
              and have  identified  for the  registrant's  auditors any material
              weaknesses in internal controls; and

              b) any fraud, whether or not material, that involves management or
              other  employees who have a significant  role in the  registrant's
              internal controls; and

6.    The registrant's  other  certifying  officers and I have indicated in this
      quarterly report whether or not there were significant changes in internal
      controls or in other  factors  that could  significantly  affect  internal
      controls  subsequent to the date of our most recent evaluation,  including
      any  corrective  actions  with  regard  to  significant  deficiencies  and
      material weaknesses.

     Date:  May 14, 2003                            /s/ Reid L. Heeren
                                                    ----------------------------
                                                    Vice President and Treasurer