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 September 30, 2004
                               ------------------
                                       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. 0-12870


                        FIRST CHESTER COUNTY CORPORATION
             (Exact name of Registrant as specified in its charter)


          Pennsylvania                                       23-2288763
          ------------                                       ----------
 (State or other jurisdiction of                            (IRS Employer
  incorporation or organization)                             Identification No.)


      9 North High Street, West Chester, Pennsylvania                 19380
      -----------------------------------------------                 -----
          (Address of principal executive office)                   (Zip code)


                                 (484) 881-4000
              (Registrant's telephone number, including area code)


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 -

The number of shares outstanding of Common Stock of the Registrant as of
November 9, 2004 was 4,557,478.

                                       2
<PAGE>


                FIRST CHESTER COUNTY CORPORATION AND SUBSIDIARIES

                                      INDEX

<TABLE>
<CAPTION>
                                                                                                                       PAGE
<S>               <C>                                                                                               <C>

Part I.  FINANCIAL INFORMATION

                  Item 1 -  Financial Statements
                             Consolidated Statements of Condition
                             September 30, 2004 (unaudited) and December 31, 2003                                         4


                             Consolidated Statements of Income
                             Three and Nine-Months Ended September 30, 2004 and 2003 (unaudited)                          5


                             Consolidated Statements of Cash Flows
                             Nine-Months Ended September 30, 2004 and 2003 (unaudited)                                    6


                             Notes to Consolidated Financial Statements (unaudited)                                    7-10


                  Item 2 -   Management's Discussion and Analysis of
                             Financial Condition and Results of Operations                                          11 - 25

                  Item 3 -   Quantitative and Qualitative Disclosures About Market Risk                                  26

                  Item 4 -  Controls and Procedures                                                                 26 - 27


Part II. OTHER INFORMATION

                  Item 1 -   Legal Proceedings                                                                           28
                  Item 2 -   Unregistered Sales of Equity Securities and Use of Proceeds                                 28
                  Item 3 -   Defaults upon Senior Securities                                                             28
                  Item 4 -   Submission of Matters to a Vote of Security Holders                                         28
                  Item 5 -   Other Information                                                                           28
                  Item 6 -   Exhibits                                                                                    29

                  Signatures                                                                                             30
                  Exhibit Index                                                                                          31
                  Exhibits                                                                                          32 - 39


</TABLE>
                                       3
<PAGE>


                          PART I. FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

                FIRST CHESTER COUNTY CORPORATION AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CONDITION
<TABLE>
<CAPTION>

                                                                                        (Unaudited)
(Dollars in thousands)                                                                 September 30,          December 31,
                                                                                            2004                 2003
                                                                                       ------------           -----------
<S>                                                                                      <C>                  <C>
ASSETS
    Cash and due from banks                                                              $   25,245           $   28,509
    Federal funds sold and other overnight investments                                       38,000                2,500
    Interest bearing deposits in banks                                                           91                  374
                                                                                           --------             --------

    Total cash and cash equivalents                                                          63,336               31,383
                                                                                           --------             --------
    Investment securities held-to-maturity (market value of $11 at
       September 30, 2004 and $20 at December 31, 2003, respectively)                            10                   19

    Investment securities available-for-sale, at market value                               144,774              130,710

    Loans and Leases                                                                        603,865              511,249
    Less:  Allowance for loan losses                                                         (6,924)              (5,864)
                                                                                           --------             --------
    Net loans                                                                               596,941              505,385

    Premises and equipment                                                                   13,382               13,168
    Other assets                                                                              9,699                8,545
                                                                                           --------             --------

    Total assets                                                                          $ 828,142            $ 689,210
                                                                                           ========             ========
LIABILITIES
    Deposits
        Noninterest-bearing                                                               $ 124,877            $ 114,307
        Interest-bearing (including certificates of deposit over $100
           of $29,613 and $21,346 - September 30, 2004 and
           December 31, 2003 respectively)                                                  567,340              463,007
                                                                                           --------             --------

    Total deposits                                                                          692,217              577,314
    Federal Home Loan Bank advances and other borrowings                                     61,934               40,543
    Junior Subordinated Debentures                                                           15,465                    -
    Guaranteed preferred beneficial interest in Corporation's subordinated
          debentures                                                                              -               15,000
        Other liabilities                                                                     5,110                4,603
                                                                                           --------             --------

    Total liabilities                                                                       774,726              637,460
                                                                                           --------             --------

STOCKHOLDERS' EQUITY
    Common stock, par value $1.00; authorized, 10,000,000 shares;
    outstanding, 4,799,666 at September 30, 2004 and December 31, 2003.                       4,800                4,800
    Additional paid-in capital                                                                1,479                1,877
    Retained earnings                                                                        52,680               50,116
    Accumulated other comprehensive income (loss)                                               (47)                 307
    Treasury stock, at cost: 281,874 shares and 283,144 shares
        at September 30, 2004 and December 31, 2003, respectively.                           (5,590)              (5,350)
                                                                                           --------             --------

    Total stockholders' equity                                                               53,416               51,750
                                                                                           --------             --------

    Total liabilities and stockholders' equity                                            $ 828,142            $ 689,210
                                                                                           ========             ========

The accompanying notes are an integral part of these statements.

</TABLE>
                                       4
<PAGE>
                FIRST CHESTER COUNTY CORPORATION AND SUBSIDIARIES
                        CONSOLIDATED STATEMENTS OF INCOME

                                   (UNAUDITED)
<TABLE>
<CAPTION>

(Dollars in thousands - except per share data)                              Three Months Ended               Nine Months Ended
                                                                                September 30,                    September 30,
                                                                        -------------------------         --------------------------
                                                                         2004             2003              2004          2003
                                                                         ----             ----              ----          ----
<S>                                                                     <C>              <C>              <C>            <C>
INTEREST INCOME
    Loans, including fees                                              $   8,487         $  7,270         $  23,515      $ 21,416
    Investment securities                                                  1,265            1,084             3,900         3,318
    Federal funds sold and other overnight investments                        83               24               113           205
    Deposits in Banks                                                          -                1                 1             2
                                                                        --------          -------           -------       -------

                Total interest income                                      9,835            8,379            27,529        24,941
                                                                        --------          -------           -------       -------

INTEREST EXPENSE
    Deposits                                                               1,381            1,390             3,757         4,659
    Securities sold under repurchase agreements                                -                -                 -             3
    Interest on Trust-Preferred Securities                                   187               61               524           190
    Federal Home Loan Bank advances and other borrowings                     489              270             1,310           628
                                                                        --------          -------           -------       -------

                Total interest expense                                     2,057            1,721             5,591         5,480
                                                                        --------          -------         ---------       -------

                Net interest income                                        7,778            6,658            21,938        19,461

    Provision for loan and lease losses                                      454              860               810         1,627
                                                                        --------          -------           -------       -------

                Net interest income after provision
                  for loan and lease losses                                7,324            5,798            21,128        17,834
                                                                        --------          -------           -------       -------

NON-INTEREST INCOME
    Trust and Investment Services                                            834              825             2,655         2,477
    Service charges on deposit accounts                                      546              495             1,585         1,540
    Investment securities gains, net                                          17              130                70           389
    Operating lease rental income                                            227              221               610           669
    Losses on sale of premises and other real-estate owned                  (149)               -              (101)            -
    Gains and fees on the sale of residential mortgages                       93              131               283           935
    Gain on the sale of credit card portfolio                                  -                -                34           306
    Other                                                                    530              584             1,669         1,635
                                                                        --------          -------           -------       -------
                Total non-interest income                                  2,098            2,386             6,805         7,951
                                                                        --------          -------           -------       -------

NON-INTEREST EXPENSE
    Salaries and employee benefits                                         4,040            3,660            11,900        11,161
    Net occupancy, equipment and date processing                           1,332            1,394             3,995         4,105
    Depreciation expense on operating leases                                 199              172               534           511
    FDIC deposit insurance                                                    22               23                65            66
    Bank shares tax                                                          131              131               388           362
    Professional services                                                    494              306             1,114           816
    Other                                                                  1,249            1,058             3,682         3,175
                                                                        --------          -------           -------       -------
                Total non-interest expense                                 7,467            6,744            21,678        20,196
                                                                        --------          -------           -------       -------

                Income before income taxes and cumulative effect
                of change in accounting for income taxes                   1,955            1,440             6,255         5,589

INCOME TAXES                                                                 525              431             1,814         1,677
                                                                        --------          -------           -------       -------

NET INCOME                                                             $   1,430         $  1,009          $  4,441      $  3,912
                                                                        ========          =======           =======       =======

PER SHARE DATA
    Basic earnings per common share                                    $    0.32         $   0.22          $   0.99      $   0.88
                                                                        ========          =======           =======       =======
    Diluted earnings per common share                                  $    0.31         $   0.22          $   0.95      $   0.86
                                                                        ========          =======           =======       =======
    Dividends declared                                                 $  0.1375         $ 0.1350          $ 0.4130      $ 0.4050
                                                                        ========           ======           =======       =======

Basic weighted average shares outstanding                              4,511,248        4,489,097         4,507,069     4,462,303
                                                                       =========        =========         =========     =========
Diluted weighted average shares outstanding                            4,681,355        4,639,712         4,683,573     4,573,152
                                                                       =========        =========         =========     =========

The accompanying notes are an integral part of these statements.
</TABLE>
                                       5
<PAGE>


                FIRST CHESTER COUNTY CORPORATION AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)

<TABLE>
<CAPTION>

                                                                                                    Nine Months Ended
                                                                                                             September 30,

(Dollars in thousands)                                                                              2004               2003
                                                                                                    ----               ----
<S>                                                                                            <C>                 <C>

OPERATING ACTIVITIES
    Net Income                                                                                  $    4,441          $   3,912
    Adjustments to reconcile net income to net cash
           provided by operating activities:
        Depreciation                                                                                 1,726              2,128
           Provision for possible loan and lease losses                                                810              1,627
    Amortization of investment security premiums
           and accretion of discounts                                                                  560              1,551
    Amortization of deferred fees on loans                                                              56                277
    Investment securities gains, net                                                                   (70)              (389)
    Increase in other assets                                                                        (1,414)            (3,956)
    Increase in other liabilities                                                                      972               (508)
                                                                                                 ---------           ---------

           Net cash provided by operating activities                                                 7,081          $   4,642
                                                                                                 ---------           --------

INVESTING ACTIVITIES
    (Increase) decrease in loans                                                                   (92,422)           (56,717)
    Proceeds from sales of investment securities available-for-sale                                 30,744             15,604
    Proceeds from maturities of investment securities available-for-sale                            23,302             63,261
    Purchases of investment securities available-for-sale                                          (68,591)           (91,105)
    Purchase of premises and equipment, net                                                         (1,940)            (1,898)
                                                                                                 ---------           --------
      Net cash (used in) investing activities                                                     (108,907)         $ (70,855)
                                                                                                 ---------           --------

FINANCING ACTIVITIES
    Increase in Federal Home Loan Bank advances                                                     21,391             30,280
    Increase in deposits                                                                           114,903             15,437
    Cash dividends paid                                                                             (1,877)            (1,809)
    Net increase (decrease) in treasury stock                                                         (638)             1,308
                                                                                                 ---------           --------

           Net cash provided by financing activities                                               133,779             45,216
                                                                                                 ---------           --------

           NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                                     31,953            (20,997)

Cash and cash equivalents at beginning of period                                                    31,383             48,867
                                                                                                 ---------           --------

Cash and cash equivalents at end of period                                                      $   63,336          $  27,870
                                                                                                 =========           ========

The accompanying notes are an integral part of these statements.
</TABLE>
                                       6

<PAGE>


                FIRST CHESTER COUNTY CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                   (UNAUDITED)

1.       BASIS OF PRESENTATION

     The unaudited  financial  statements  have been prepared in accordance with
generally accepted accounting principles for interim financial  information.  In
the opinion of Management,  all adjustments (consisting only of normal recurring
adjustments) necessary for a fair presentation of the financial position and the
results of operations for the interim period presented have been included. These
interim financial statements should be read in conjunction with the consolidated
financial statements and footnotes thereto included in our Annual Report on Form
10-K for the fiscal year ended December 31, 2003.

     The  results  of  operations  for the three and  nine-month  periods  ended
September 30, 2004 are not necessarily  indicative of the results to be expected
for the full year.  Information  regarding  risks and  uncertainties  that could
cause actual results to vary materially from our prior  performance may be found
in  Management's  Discussion and Analysis of Financial  Condition and Results of
Operations in Part I, Item 2 of our Quarterly Report on Form 10-Q for the period
ending September 30, 2004.

2.       EARNINGS PER SHARE
         ------------------
<TABLE>
<CAPTION>

Three Months ended September 30, 2004
-------------------------------------                                  Income                Shares                 Per Share
                                                                     (numerator)        (denominator)                Amount
                                                                     -----------        -------------                ------
<S>                                                                     <C>                 <C>                      <C>

Basic earnings per share
       Net income available to common stockholders                      $1,430              4,511,248                $ 0.32
Effect of Dilutive Securities
       Options to purchase common stock                                     --                170,107                 (0.01)
                                                                         -----              ---------                 -----
Diluted earnings per share
       Net income available to common stockholders                      $1,430              4,681,355                $ 0.31
                                                                         =====              =========                 =====
</TABLE>

<TABLE>
<CAPTION>

Year to Date September 30, 2004
-------------------------------
                                                                       Income                Shares                 Per Share
                                                                     (numerator)        (denominator)                Amount
                                                                     -----------        -------------                ------
<S>                                                                     <C>                 <C>                      <C>

Basic earnings per share
       Net income available to common stockholders                      $4,441              4,507,069                $ 0.99
Effect of Dilutive Securities
       Options to purchase common stock                                     --                176,504                 (0.04)
                                                                         -----              ---------                 -----
Diluted earnings per share
       Net income available to common stockholders                      $4,441              4,683,573                $ 0.95
                                                                         =====              =========                 =====
</TABLE>
<TABLE>
<CAPTION>

Three Months ended September 30, 2003
-------------------------------------

                                                                       Income                Shares                 Per Share
                                                                     (numerator)        (denominator)                Amount
                                                                     -----------        -------------                ------
<S>                                                                     <C>                 <C>                      <C>

Basic earnings per share
       Net income available to common stockholders                      $1,009              4,489,097                $ 0.22
Effect of Dilutive Securities
       Options to purchase common stock                                     --                150,615                    --
                                                                         -----              ---------                 -----
Diluted earnings per share
       Net income available to common stockholders                      $1,009              4,639,712                $ 0.22
                                                                         =====              =========                 =====
</TABLE>

                                       7
<PAGE>
                FIRST CHESTER COUNTY CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

                                   (UNAUDITED)
<TABLE>
<CAPTION>

Year to Date September 30, 2003
-------------------------------

                                                                       Income                Shares                 Per Share
                                                                     (numerator)        (denominator)                Amount
                                                                    -----------        -------------                ------
<S>                                                                     <C>                 <C>                      <C>

Basic earnings per share
       Net income available to common stockholders                      $3,912              4,462,303                $ 0.88
Effect of Dilutive Securities
       Options to purchase common stock                                     --                110,849                 (0.02)
                                                                         -----              ---------                 -----
Diluted earnings per share
       Net income available to common stockholders                      $3,912              4,573,252                $ 0.86
                                                                         =====              =========                 =====
</TABLE>

3.       COMPREHENSIVE INCOME

     Components of comprehensive income are presented in the following chart:

<TABLE>
<CAPTION>

                                                                     Three Months Ended               Nine Months Ended
                                                                        September 30,                    September 30,
                                                                 ---------------------------        ----------------------
                                                                   2004              2003          2004              2003
                                                                   ----              ----          ----              ----
<S>                                                              <C>               <C>               <C>           <C>

Unrealized gains on securities:
       Unrealized gains (losses) arising in period               $ 1,558           $ (921)            $  417       $(1,408)
       Reclassification adjustment                                    --               --                 --            --
       Net unrealized gains (losses)                                  17              130                 70           389
                                                                  ------            -----              -----        ------
Other comprehensive income before taxes                            1,575             (791)               487        (1,019)
Income tax expense                                                   400              234                 88           258
                                                                  ------            -----              -----        ------
Other comprehensive income                                         1,975             (557)               575          (761)
                                                                  ------            -----              -----        ------
Comprehensive income (losses)                                    $ 3,405           $  452             $5,016       $ 3,151
                                                                  ======            =====              =====        ======
</TABLE>

4.       JUNIOR SUBORDINATED DEBENTURES

     Management  has  determined  that First Chester County Capital Trust I & II
qualify as variable interest entities under FASB  Interpretation  Number ("FIN")
46, as revised.  First  Chester  County  Capital  Trust I & II issued  mandatory
redeemable  preferred  securities  to  investors  and loaned the proceeds to the
Company.  First  Chester  County  Capital  Trust  I & II  are  included  in  the
Corporation's  consolidated balance sheet and statements of income as of and for
the year ended  December  31,  2003.  Subsequent  to the  issuance  of FIN 46 in
January 2003, the FASB issued a revised interpretation, FIN 46(R) "Consolidation
of Variable  Interest  Entities,"  the  provisions  of which were required to be
applied to certain variable interest entities by March 31, 2004. The Corporation
adopted the provisions under the revised  interpretation in the first quarter of
2004.  Accordingly,  as  of  September  30,  2004,  the  Corporation  no  longer
consolidates  First Chester  County  Capital  Trust I & II. The  deconsolidation
results  in the  Corporation's  investment  in the  common  securities  of First
Chester  County  Capital  Trust I & II  being  included  in other  assets  as of
September  30, 2004 and a  corresponding  increase in  outstanding  debt of $465
thousand.  In  addition,   the  income  received  on  the  Corporation's  common
securities investment is included in other income. The adoption of FIN 46(R) did
not have a material impact on the Corporation's financial position or results of
operations.  The Federal Reserve has issued proposed  guidance on the regulatory
capital treatment for the  trust-preferred  securities issued by the Corporation
as a result of the  adoption of FIN 46(R).  The  proposed  rule would retain the
current  maximum  percentage  of total  capital  permitted  for trust  preferred
securities  at 25%, but would enact other changes to the rules  governing  trust
preferred securities that affect their use as part of the collection of entities
known as "restricted  core capital  elements".  The rule would take effect March
31, 2007; however, a three-year transition period starting now and leading up to
that date  would  allow  bank  holding  companies  to  continue  to count  trust
preferred securities as Tier 1 Capital after applying FIN 46(R).  Management has
evaluated  the effects of the proposed  rule and does not  anticipate a material
impact on its capital ratios when the proposed rule is finalized.

                                       8
<PAGE>
                FIRST CHESTER COUNTY CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

                                   (UNAUDITED)

5.       STOCK-BASED COMPENSATION


     At  September  30,  2004,  the  Corporation  had one  stock-based  employee
compensation plan. The Corporation  accounts for that plan under the recognition
and measurement principles of APB 25, "Accounting for Stock Issued to Employees"
and  related  interpretations.  No  stock-based  employee  compensation  cost is
reflected in net income,  as all options  granted under the plan had an exercise
price equal to the market  value of the  underlying  common stock on the date of
grant.

     The  following  table  provides the  disclosures  required by SFAS No. 148,
"Accounting   for  Stock-Based   Compensation-Transition   and  Disclosure"  and
illustrates  the effect on net income and earnings per share if the  Corporation
had applied the fair value recognition  provisions of SFAS No. 123,  "Accounting
for Stock-Based Compensation" to stock-based employee compensation.

<TABLE>
<CAPTION>

                                                                            Three Months Ended             Nine Months Ended
                                                                               September  30,                 September 30,
                                                                          ----------------------         ---------------------
                                                                           2004           2003            2004           2003
                                                                           ----           ----            ----           ----
         <S>                                                             <C>            <C>             <C>          <C>
         Net income (in thousands)      As reported                       $  1,430    $  1,009           $ 4,441     $  3,912
         Stock-based compensation costs determined
           under fair value method for all awards                              (17)        (33)          $   (51)    $    (99)
                                                                           -------      ------            ------      -------
                                            Pro forma net income          $  1,413    $    976           $ 4,390     $  3,813

         Earnings per share (Basic)      As reported                      $  0.32     $  0.22            $  0.99     $  0.88
                                            Pro forma                     $  0.32     $  0.21            $  0.98     $  0.86
         Earnings per share (Diluted)   As reported                       $  0.31     $  0.22            $  0.95     $  0.86
                                            Pro forma                     $  0.31     $  0.21            $  0.94     $  0.84

         Note: There were no options granted during the three and nine-month
               periods ended September 30, 2004.
</TABLE>

     On March 31, 2004, the Financial Accounting Standards Board (FASB) issued a
proposed  Statement,  "Share-Based  Payment, an Amendment of FASB Statements No.
123 and APB No. 25," that  addresses  the  accounting  for  share-based  payment
transactions in which an enterprise  receives  employee services in exchange for
(a) equity  instruments of the enterprise or (b)  liabilities  that are based on
the fair value of the enterprise's  equity instruments or that may be settled by
the issuance of such equity instruments. Under the FASB's proposal, all forms of
share-based  payments to employees,  including employee stock options,  would be
treated the same as other forms of  compensation by recognizing the related cost
in the income statement. The expense of the award would generally be measured at
fair value at the grant date.  Current  accounting  guidance  requires  that the
expense  relating  to  so-called  fixed  plan  employee  stock  options  only be
disclosed in the footnotes to the financial statements.  The proposed Statement,
which would be effective  for fiscal years  beginning  after  December 15, 2004,
would eliminate the ability to account for share-based compensation transactions
using APB Opinion No. 25. On October 13, 2004,  FASB voted to delay the adoption
of this proposed  standard by public  Companies until their first fiscal quarter
beginning  after June 15, 2005.  The  Corporation is currently  evaluating  this
proposed statement and its effects on its results of operations.

                                       9
<PAGE>


                FIRST CHESTER COUNTY CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

                                   (UNAUDITED)

6.       RECENT ACCOUNTING PRONOUNCEMENTS

     The SEC recently released Staff Accounting  Bulletin No. 105,  "Application
of Accounting  Principles to Loan  Commitments." SAB 105 provides guidance about
the  measurement  of loan  commitments  recognized  at  fair  value  under  FASB
Statement No. 133, Accounting for Derivative Instruments and Hedging Activities.
SAB 105 also requires  companies to disclose their  accounting  policy for those
loan commitments  including  methods and assumptions used to estimate fair value
and associated hedging strategies. SAB 105 is effective for all loan commitments
accounted  for as  derivatives  that are entered into after March 31, 2004.  The
adoption of SAB 105 did not have a material effect on our consolidated financial
statements.


     In November 2003, the Emerging  Issues Task Force (EITF) of the FASB issued
EITF  Abstract  03-1,  The Meaning of  Other-Than-Temporary  Impairment  and its
Application to Certain Investments (EITF 03-1). The quantitative and qualitative
disclosure  provisions  of EITF  03-1 were  effective  for  years  ending  after
December 15, 2003 and were  included in the  Company's  2003 Form 10-K. In March
2004, the EITF issued a Consensus on Issue 03-1 requiring that the provisions of
EITF 03-1 be applied  for  reporting  periods  beginning  after June 15, 2004 to
investments  accounted for under SFAS No. 115 and 124.  EITF 03-1  establishes a
three-step   approach  for  determining  whether  an  investment  is  considered
impaired,  whether that impairment is other-than-temporary,  and the measurement
of an  impairment  loss.  In September  2004,  the FASB issued a proposed  Staff
Position,  EITF Issue 03-1-a,  Implementation  Guidance for the  Application  of
Paragraph  16  of  EITF  03-1  (EITF   03-1-a).   EITF  03-1-a   would   provide
implementation guidance with respect to debt securities that are impaired solely
due   to   interest    rates   and/or   sector    spreads   and   analyzed   for
other-than-temporary  impairment  under  paragraph 16 of EITF 03-1. In September
2004,  the FASB issued a Staff  Position,  EITF Issue 03-1-1,  Effective Date of
Paragraphs  10-20 of EITF  Issue No.  03-1  (EITF  03-1-1).  FSP EITF  Issue No.
03-1-1,  Effective Date of Paragraphs  10-20 of EITF Issue No. 03-1, The Meaning
of  Other-Than-Temporary  Impairment and Its Application to Certain  Investments
delays the effective  date of certain  provisions of EITF Issue 03-1,  including
steps two and three of the Issue's three-step  approach for determining  whether
an  investment is  other-than-temporarily  impaired.  However,  step one of that
approach must still be initially applied for impairment evaluations in reporting
periods  beginning  after June 15,  2004.  The delay of the  effective  date for
paragraphs  10-20 of EITF Issue 03-1 will be superseded  with the final issuance
of proposed FSP EITF Issue 03-1-a,  Implementation  Guidance for the Application
of  Paragraph  16 of EITF Issue No.  03-1,  The Meaning of  Other-Than-Temporary
Impairment and Its Application to Certain Investments. The Corporation is in the
process  of  determining  the impact  that this EITF will have on its  financial
statements.


                                       10
<PAGE>
ITEM 2.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                            AND RESULTS OF OPERATIONS

     This  discussion  is  intended  to  further  your   understanding   of  the
consolidated  financial  condition  and results of  operations  of First Chester
County Corporation and its direct and indirect  wholly-owned  subsidiaries,  The
First  National Bank of Chester  County (the "Bank"),  FNB Property  Management,
LLC,  First  National  Insurance  Services  (trading  as First  National  Wealth
Advisors),  LLC, Turks Head Properties,  Inc., Turks Head II, LLC, First Chester
County Capital Trust I and First Chester County Capital Trust II, (collectively,
the  "Corporation").  It should  be read in  conjunction  with the  consolidated
financial statements included in this report.

                             RISKS AND UNCERTAINTIES

     In  addition  to  historical  information,  this  discussion  and  analysis
contains  statements  relating  to future  results of the  Corporation  that are
considered  "forward-looking  statements"  within  the  meaning  of the  Private
Securities  Litigation  Reform  Act of  1995.  These  statements  can  often  be
identified  by the  use  of  forward-looking  terminology  such  as  "believes,"
"expects,"  "intends,"  "may,"  "will,"  "should"  "or  anticipates"  or similar
terminology.  These statements  involve risks and uncertainties and are based on
various assumptions. Although the Corporation believes that its expectations are
based  on  reasonable  assumptions,  investors  and  prospective  investors  are
cautioned that such statements are only projections. The risks and uncertainties
noted below, among others,  could cause the Corporation's  actual future results
to differ  materially  from our  historic  results or the results  described  in
forward-looking  statements  made in  this  report  or  presented  elsewhere  by
Management from time to time.

         These risks and uncertainties include, but are not limited to, the
following:

         o loan growth  and/or loan  margins  may be less than  expected  due to
           competitive  pressures in the banking  industry and/or changes in the
           interest rate environment;

         o general economic  conditions in the Corporation's  market area may be
           less  favorable  than expected  resulting  in, among other things,  a
           deterioration in credit quality causing increased loan losses;

         o costs of the  Corporation's  planned  training  initiatives,  product
           development,  branch expansion,  new technology and operating systems
           may exceed expectations;

         o competition  among  financial and  non-financial  institutions in the
           Corporation's  market area that may result in customer  turnover  and
           lower interest rate margins;

         o changes in the regulatory  environment,  securities markets,  general
           business  conditions and inflation may adversely  affect loan demand,
           credit  quality,  consumer  spending and saving habits,  and interest
           rate margins;

         o impact of changes in interest rates on customer behavior;

         o the impact of changes in demographics on branch locations;

         o technological changes;

         o changes in the value of securities and investments managed for others
           may affect the growth level of the Corporation's non-interest income;

         o changes  in the  credit of our  borrowers,  the  collateral  securing
           assets or other aspects of credit quality; and

         o our ability to manage the risks involved in the foregoing.

         These risks and uncertainties are all difficult to predict and most are
beyond the control of the Corporation's Management.

     The Corporation  undertakes no obligation to publicly release any revisions
to any  forward-looking  statements to reflect events or circumstances after the
date of this report.

                                       11
<PAGE>


           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                      AND RESULTS OF OPERATIONS - Continued


              CRITICAL ACCOUNTING POLICIES, JUDGMENTS AND ESTIMATES

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


                       ALLOWANCE FOR LOAN AND LEASE LOSSES

     The Corporation  considers that the determination of the allowance for loan
and lease losses  involves a higher degree of judgment and  complexity  than its
other  significant  accounting  policies.  The balance in the allowance for loan
losses is determined  based on  Management's  review and  evaluation of the loan
portfolio in relation to past loss  experience,  the size and composition of the
portfolio,  current economic events and conditions, and other pertinent factors,
including  Management's  assumptions as to future delinquencies,  recoveries and
losses.  All of these factors may be susceptible to significant  change.  To the
extent actual outcomes differ from Management's estimates, additional provisions
for loan and lease losses may be required that would  adversely  impact earnings
in future periods.

                                  INCOME TAXES

     Under the  liability  method,  deferred  tax  assets  and  liabilities  are
determined based on the difference between the financial statement and tax bases
of assets and  liabilities.  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 Corporation may be unable to realize
all or part of the 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.

                          EARNINGS AND DIVIDEND SUMMARY

     Net income for the  three-month  period ended September 30, 2004 was $1.430
million,  an increase of $421 thousand or 41.7% from $1.009 million for the same
period in 2003.  Net income for the nine-month  period ended  September 30, 2004
was $4.441  million,  an increase of $529 thousand or 13.5% from $3.912  million
for the same period in 2003.  Basic  earnings  per share was $0.32 and $0.99 for
the three  and  nine-month  periods  ended  September  30,  2004,  respectively,
compared  to $0.22  and  $0.88  for the same  periods  in 2003.  Cash  dividends
declared  during  2004  were  $0.1375  and  $0.4130  per share for the three and
nine-month  periods  compared  to $0.135  per share and $0.405 per share for the
three and nine-month  periods ended September 30, 2003. Over the past ten years,
the  Corporation's  practice has been to pay a dividend of at least 35.0% of net
income.

     Earnings  benefited from increases in net interest  income as the volume of
interest-earning  assets,  primarily  loans,  increased  for both the  three and
nine-month periods. These increases were partially offset by both an increase in
non-interest  expense and a decrease in non-interest income when compared to the
same  periods  last  year.  The  specific  components  of net  interest  income,
non-interest income and expense are discussed on the following pages.

                                       12

<PAGE>
           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                      AND RESULTS OF OPERATIONS - Continued

     The primary  component of this increase in earning assets can be attributed
to  strong  loan  growth in all  types of loan  products  for both the three and
nine-month  periods.  These increases were partially offset by both increases in
non-interest expenses and a decrease in non-interest income when compared to the
same period last year.

     Increases in  non-interest  expense for both periods can be  attributed  to
several items.  Professional  services fees related to the Corporations  cost of
compliance  with the Sarbanes  Oxley  legislation,  marketing and facility costs
resulting  from  the  introduction  of a  new  corporate  mark  and  advertising
campaign,  a write-down  of an other real estate owned  property to its expected
net value,  and salary and  benefit  costs  related to the  staffing  of new and
expected branch sites.

     Non-interest  income has also decreased for both periods;  these  decreases
are primarily  related to a on-time gain earned on the sale of the  Corporations
Credit  Card  portfolio  and  higher  gains  and  fees  earned  on the  sale  of
residential mortgages in 2003.

     Additionally, earnings for the three and nine-month periods ended September
30, 2004 benefited from a lower provision expense for loan and lease losses when
compared to the three and  nine-month  periods  ended  September  30, 2003.  The
Corporation  was able to  charge  this  lower  expense  and still  maintain  the
allowance for loan and lease losses at a level that management  believes will be
adequate to absorb loan losses on existing loans.

     The specific  components of net interest  income,  non-interest  income and
expenses are discussed in detail on the following pages.

<TABLE>
<CAPTION>

                                                                     Three Months Ended                Nine Months Ended
                                                                         September 30,                     September 30,
                                                                 ---------------------------        --------------------------
                                                                   2004             2003             2004             2003
                                                                   ----             ----             ----             ----
           <S>                                                <C>                 <C>              <C>              <C>
           SELECTED RATIOS
           Return on Average Assets                              0.72%              0.60%             0.80%           0.80%
           Return on Average Equity                             10.85%              8.01%            11.22%          10.39%
           Net Interest Margin                                   4.16%              4.32%             4.18%           4.28%
           Earnings Retained                                    56.50%             39.84%            57.73%          53.76%
           Dividend Payout Ratio                                43.50%             60.16%            42.27           46.24%
           Book Value Per Share                                $11.82             $11.35            $11.82          $11.35
</TABLE>

         The "Consolidated Average Balance Sheet" on pages 19 and 20 may assist
the reader in understanding the following discussion.

                               NET INTEREST INCOME

     Net  interest  income  is  the  difference   between   interest  income  on
interest-earning  assets and interest expense on  interest-bearing  liabilities.
Net  interest  income for the  three-months  ended  September  30, 2004 on a tax
equivalent basis,  increased 14.8% to $7.8 million from $6.8 million in the same
period last year.  For the  nine-months  ended  September 30, 2004, net interest
income  increased  12.0% to $21.9  million from $19.5 million in the same period
last year. The increase in tax  equivalent net interest  income for both periods
is  primarily  due to  increases  in average  interest-earning  assets and lower
average  yields  paid  on  interest-bearing  liabilities,  partially  offset  by
decreases in the average interest rates earned on interest-earning assets and an
increase in average interest-bearing liabilities, as discussed more fully below.

                                       13
<PAGE>

           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                     AND RESULTS OF OPERATIONS - Continued

     Average  interest-earning  assets increased approximately $120.6 million or
19.2% to $748.0  million  for the  three-months  ended  September  30, 2004 from
$627.4 million in the same period last year. For the nine-months ended September
30, 2004, average  interest-earning assets increased approximately $89.2 million
or 14.6% to $699.3 million from $610.1 million in the same period last year. The
increase in average  interest-earning  assets for the  three-month  period ended
September  30,  2004 was the  result of a 22.7% or $110.6  million  increase  in
average  total loans and a $14.0 million  increase in the average  federal funds
and other investments sold,  partially offset by a 2.9% or $3.7 million decrease
in  average  investment  security  balances.  For the  nine-month  period  ended
September  30, 2004,  the  increase  was the result of a 21.2% or $97.1  million
increase  in average  total loans and 2.1% or $2.8  million  increase in average
investment  securities  partially offset by a 47.9% or $10.7 million decrease in
average federal funds sold and other overnight investments.

     Average interest-bearing liabilities increased approximately $102.6 million
or 20.2% to $610.0 million for the  three-months  ended September 30, 2004, from
$507.4 million in the same period last year. For the nine-months ended September
30, 2004, average interest-bearing  liabilities increased $71.6 million or 14.6%
to $562.5 million from $490.9 million in the same period last year. The increase
in  average  interest-bearing  liabilities  for the  three-month  period was the
result of a $65.8 million or 14.2% increase in  interest-bearing  deposits and a
$26.4  million or 65.4%  increase in FHLB  advances  and other  borrowings.  The
increase in average  interest-bearing  liabilities for the nine-month period was
the result of a $29.8 million or 6.5% increase in interest-bearing  deposits and
a $31.5 million or 109.8% increase in FHLB advances and other borrowings.

     The average net yield on interest-earning assets, on a tax equivalent basis
for the three-months  ended September 30, 2004 decreased 3.7% or 16 basis points
(one basis point is equal to 1/100 of a percent) to 4.16% from 4.32% in the same
period last year. For the nine-month  period ended September 30, 2004, net yield
on interest earning assets decreased 2.3% or 10 basis points to 4.18% from 4.28%
in the same period in 2003. The average yield on interest-earning assets for the
three-month  period ended  September 30, 2004 decreased 3.00% or 16 basis points
to 5.26% from 5.42% in the same  period  last year.  For the  nine-month  period
ended September 30, 2004,  average yield on  interest-earning  assets  decreased
4.2% or 23 basis points to 5.25%  compared to 5.48% for the same period in 2003.
The  average  yield paid on  interest-bearing  liabilities  for the  three-month
period  ended  September  30,  2004  decreased  0.7% or 1 basis  points to 1.35%
compared to 1.36% for the same period in 2003. For the  nine-month  period ended
September 30, 2004, average yield paid on interest-bearing liabilities decreased
10.7% or 16 basis points to 1.33% compared to 1.49% for the same period in 2003.

     The low and decreasing  interest rate  environment  over the last 24 months
continues  to  adversely  impact the  companies'  net yield on interest  earning
assets. The recent fed funds rate increases over the past quarter, should have a
positive  impact on the net yield,  but pricing  competition  for both loans and
deposits  remains  strong and may  continue  to affect  net-interest  income for
future time periods.

               AVERAGE INTEREST RATES (ON A TAX EQUIVALENT BASIS)
<TABLE>
<CAPTION>

                                                                    Three Months Ended               Nine Months Ended
                                                                        September 30,                   September 30,
                                                                 ------------------------           ------------------
                                                                 2004               2003              2004          2003
                                                                 ----               ----              ----          ----
           <S>                                                  <C>                <C>               <C>           <C>
           YIELD ON
           Interest-Earning Assets                               5.26%              5.42%             5.25%         5.48%
           Interest Bearing Liabilities                          1.35%              1.36%             1.33%         1.49%
                                                                 ----               ----              ----          ----
           Net Interest Margin                                   3.91%              4.06%             3.92%         3.99%
           Contribution of Interest-Free Funds                   0.25%              0.26%             0.26%         0.29%
                                                                 ----               ----              ----          ----
           Net Yield on Interest-Earning Assets                  4.16%              4.32%             4.18%         4.28%
                                                                 ====               ====              ====          ====
</TABLE>
                                       14
<PAGE>
           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                      AND RESULTS OF OPERATIONS - Continued

      INTEREST INCOME ON FEDERAL FUNDS SOLD AND OTHER OVERNIGHT INVESTMENTS

     Interest income on Federal Funds sold and other  overnight  investments for
the three and  nine-month  periods  ended  September  30,  2004,  increased  $59
thousand  and  decreased  $92  thousand  to  $83  thousand  and  $112  thousand,
respectively,  when  compared to the same periods in 2003.  For the  three-month
period,  the increase in Federal  Funds sold and  overnight  investments  can be
attributed  to a 148.7% or $14.0  million  increase  in the  average  balance of
Federal  Funds sold and other  overnight  investments,  as well as a 39.2% or 40
basis  point  increase  on the  yield  earned  on  these  investments.  For  the
nine-month  period,  the  decrease  in Federal  Funds  sold and other  overnight
investments  can be  attributed  to a 47.9% or  $10.7  million  decrease  in the
average balance of Federal Funds sold and other overnight investments, partially
offset  by a 4.9% or 6  basis  point  increase  on the  yield  earned  on  these
investments.

                    INTEREST INCOME ON INVESTMENT SECURITIES

     On a  tax  equivalent  basis,  interest  income  on  investment  securities
increased 8.9% to $1.3 million for the  three-month  period ended  September 30,
2004,  and 13.2% to $3.9 million for the nine-month  period ended  September 30,
2004, respectively,  when compared to the same periods in 2003. The increase for
the three-month period is primarily due to a 12.1% or 43 basis point increase on
interest rates on such investments, offset by a 2.9% or $3.7 million decrease in
average  investment  balances.  The  increase  for the  nine-month  period ended
September  30,  2004 is the  result of an 11.0% or 39 basis  point  increase  on
interest rates on such investments compared to the same period last year as well
as a 2.1% or $2.7 million increase in average investment balances.

                       INTEREST INCOME ON LOANS AND LEASES

     Interest income on loans and leases, on a tax equivalent  basis,  generated
by the Corporation's loan portfolio increased 16.1% and 9.8% to $8.5 million and
$23.5 million for the three and  nine-month  periods  ended  September 30, 2004,
compared to the same  periods in 2003,  respectively.  The  increase in interest
income  for the  three-month  period is the  direct  result of a 22.7% or $110.6
million increase in the average balance of loans and leases, partially offset by
a 5.3% or 32 basis point  decrease  on the rates  earned on the  portfolio.  The
increase in interest income for the nine-month  period is the direct result of a
21.2% or $97.1  million  increase  in the  average  balance of loans and leases,
partially offset by a 9.5% or 59 basis point decrease on the rates earned on the
portfolio. Loan demand continues to be strong through the third quarter, this is
the primary  reason for the increase in this  component  of interest  income for
both periods.

                      INTEREST EXPENSE ON DEPOSIT ACCOUNTS

     Interest expense on deposit accounts decreased 0.7% and 19.4% for the three
and  nine-month  periods  ended  September  30,  2004 to $1.4  million  and $3.8
million, compared to $1.4 million and $4.7 million for the same periods in 2003.
The decrease for the three-month period is primarily the result of a 12.5% or 15
basis point decrease on rates paid on interest-bearing deposits partially offset
by a 14.2% or $65.8 million  increase in the average  interest-bearing  deposits
balance.  The decrease for the  nine-month  period is primarily  the result of a
24.3% or 33 basis  point  decrease  on rates paid on  interest-bearing  deposits
partially   offset  by  a  6.5%  or  $29.8  million   increase  in  the  average
interest-bearing  deposits  balance  compared to the same period last year.  The
increases in average  interest-bearing  deposit  balances for both  periods,  is
primarily related to one municipal customer. The recent increases in the Federal
Funds rate may put upward pressure on this component of interest  expense as our
need for deposits increase to fund strong loan demand.

     Competition for deposits from banking and non-banking institutions (such as
credit unions and mutual fund companies)  continues to be a strong.  Despite the
competition, the Corporation's deposit base continues to grow and is expected to
continue to grow as we continue to open new branches  and attract new  customers
with new services at existing branches. The Corporation continually explores for
new branch sites to expand its core deposit base.

                                       15
<PAGE>
           MANAGEMENT'S DISCUSSION ANDANALYSIS OF FINANCIAL CONDITION
                      AND RESULTS OF OPERATIONS - Continued

                         INTEREST EXPENSE ON BORROWINGS

     Borrowings consist primarily of Federal Home Loan Bank ("FHLB") borrowings.
Interest expense on borrowings  increased $219 thousand to $489 thousand for the
three-month  period  ended  September  30, 2004 from $270  thousand for the same
period in 2003. The increase is the direct result of a $65.4 million increase in
the average  balance of such borrowings and a 9.3% or 25 basis point increase in
rates paid on these  borrowings for the three-month  period ending September 30,
2004 when compared to the same period last year.  Interest expense on borrowings
increased  $684  thousand  to $1.3  million  for  the  nine-month  period  ended
September 30, 2004 from $626 thousand for the same period in 2003.  The increase
is a direct result of a $31.5 million or 109.8%  increase in the average balance
of  borrowings  partially  offset by an 0.3% or 1 basis point  decrease on rates
paid on borrowings  for the  nine-month  period ended  September  30, 2004.  The
increase in the level of borrowings for the three and nine-month  periods is the
direct result of the strong loan growth the  Corporation  has  experienced  over
both  periods.  The  borrowings  are  being  used to  supplement  the  growth in
deposits.  Borrowing  currently is an inexpensive  option when compared to other
funding  alternatives.  As a long term  solution,  the  Corporation  is pursuing
several   initiatives  to  increase  its  deposit  base.   Initiatives   include
researching and opening new branch sites,  introducing new deposit  products and
targeted marketing campaigns.  Borrowings at any time may consist of one or more
of the following:  FHLB Overnight or Term Advances and advances under agreements
with our correspondent banks.

               INTEREST EXPENSE ON JUNIOR SUBORDINATED DEBENTURES

     Interest expense on trust preferred  securities  increased $126 thousand to
$187  thousand  for the  three-month  period ended  September  30, 2004 from $61
thousand  for the  same  period  last  year.  For the  nine-month  period  ended
September 30, 2004,  interest  expense on trust preferred  securities  increased
$334 thousand from $190 thousand to $524 thousand as compared to the same period
last year. In accordance  with FIN 46, this interest  expense was  classified as
"Junior Subordinated Debt" in 2004 and "Guaranteed Preferred Beneficial Interest
in Corporation's  Subordinated  Debentures" in 2003. For more details on FIN 46,
see note #4 of the notes to  consolidated  financial  statements  on page 8. The
increase in interest expense on trust preferred  securities was primarily due to
the additional  issuance of $10.0 million trust preferred  securities in October
2003 to enhance capital.

                       PROVISION FOR LOAN AND LEASE LOSSES

     During the three and  nine-month  periods  ended  September  30, 2004,  the
Corporation  recorded a provision for loan and lease losses of $454 thousand and
an $810  thousand,  respectively,  compared  to an $860  thousand  and a  $1,627
thousand  for the same  periods  in 2003.  The  allowance  for loan  losses as a
percentage  of total loans was 1.15% at September  30, 2004,  1.09% at September
30, 2003 and 1.15% at December 31, 2003,  respectively.  See the section  titled
"Allowance For Loan and Lease Losses" for additional discussion.

                               NON-INTEREST INCOME

     Total  non-interest   income  decreased  12.1%  to  $2.1  million  for  the
three-month  period ended September 30, 2004 when compared to the same period in
2003. For the nine- month period ended  September 30, 2004,  total  non-interest
income decreased 14.4% to $6.8 million when compared to the same period in 2003.
The various components of non-interest income are discussed below.

     One of the primary reasons for the decrease in total non-interest income is
that in 2003, the  Corporation  sold its Credit Card portfolio to Elan Financial
Services and recognized a gain of $306 thousand. This was a one-time transaction
and there was no comparable  transaction in 2004 and only a residual gain of $34
thousand was earned in 2004. Also, gains and fee income generated on the sale of
residential mortgages for the three and nine-month period

                                       16
<PAGE>


           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                      AND RESULTS OF OPERATIONS - Continued

ended  September  30, 2004  decreased  $38 thousand and $652  thousand from $283
thousand and $935  thousand to $93 thousand  and $131  thousand  compared to the
same period last year,  respectively.  The decrease is primarily  due to a lower
volume of  originations  of  residential  mortgages in 2004 compared to the same
periods in 2003.

     The  largest  component  of  non-interest  income is Trust  and  Investment
Services  revenue,  which  increased  1.1%  and 7.2% to $834  thousand  and $2.7
million  for  the  three  and  nine-month  periods  ended  September  30,  2004,
respectively,  compared to the same  periods in 2003.  The increase in Trust and
Investment  Services  revenue is the result of new business  accounts and a 2.5%
increase in the market value of assets under management,  from $518.2 million at
September 30, 2003 to $531.3 million at September 30, 2004. Trust and Investment
Services revenue also increased due to an increase in estate revenue  recognized
during the  nine-month  period of 2004.  On October 28,  2004,  the  Corporation
entered into a strategic alliance with Haverford  Financial  Services,  Inc., an
affiliate of The Haverford Trust Company. Through this alliance, the Corporation
will offer the investment advisory services of Haverford Financial Services on a
sub-advisory  basis and  enable  the  Corporation  to expand  its  offerings  of
sophisticated investment, trust, and money management services.

     Service charges on deposit accounts increased  approximately  10.3% to $546
thousand for the three-months ended September 30, 2004 compared to $495 thousand
for the same period in 2003. For the nine-month period ended September 30, 2004,
service charges on deposit  accounts  increased 2.9% to $1.6 million compared to
$1.5 million for the same period in 2003.

     For the three-month  period ended September 30, 2004,  investment  security
gains decreased $113 thousand from $130 thousand to $17 thousand,  when compared
to the same period in 2003. For the nine-month  period ended September 30, 2004,
investment  security  gains  decreased  $319  thousand from $389 thousand to $70
thousand,  when  compared  to the same  period  in 2003.  The gains in 2003 were
realized as a result of normal portfolio management.

     The  Corporation  has  operating  lease  agreements  with  several  of  our
customers;  the income on these leases is classified as "Rental Income".  Rental
income on operating lease agreements for the three-month  period ended September
30, 2004 increased 2.7% to $227 thousand from $221 thousand when compared to the
same  period  in2003.  Rental  income  on  operating  lease  agreements  for the
nine-month period ended September 30, 2004, decreased 8.8% to $610 thousand from
$669 thousand when compared to the same period in 2003. The  Corporation did not
add on any new operating lease customers;  current  customers can enter into new
lease  agreements.  There was minimal new volume  added during the first half of
the year,  resulting  in lower  income for the  nine-month  period.  Several new
contracts were added in the third quarter  resulting in increased income for the
three-month period. See related depreciation expense in the non-interest expense
section for more details.

     Other  non-interest  income decreased $54 thousand or 9.3% to $530 thousand
for the three-months  ended September 30, 2004 compared to $584 thousand for the
same period in 2003. For the nine-month  period ended September 30, 2004,  other
non-interest  income  increased  $34 thousand or 2.1% when  compared to the same
period in 2003.  Other  non-interest  income  includes  ATM  surcharge  revenue,
merchant income,  safe deposit box income,  loan fee income,  retail mutual fund
income,   rental  income,   management  fees,  notary  fee  income,   and  other
miscellaneous  income.  Decreases in the three-month period were mostly affected
by lower loan fees. When compared to the same periods in 2003,  refinancings and
restructuring  of  commercial  loans and  mortgages in the third quarter of 2003
resulted in higher loan fee income for the period.  Increases for the nine-month
period in  retail  mutual  fund  largest  component  of the  increases  in other
non-interest income.

                                       17
<PAGE>
           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                      AND RESULTS OF OPERATIONS - Continued

                              NON-INTEREST EXPENSE

     Total  non-interest  expense  for the three and  nine-month  periods  ended
September 30, 2004  increased  10.7% to $7.5 million and 7.34% to $21.7 million,
compared to the same periods in 2003.  The various  components  of  non-interest
expense are discussed below.

     Employee salaries and benefits  increased 10.4% to $4.0 million and 6.6% to
$11.9  million for the three and  nine-month  periods  ended  September 30, 2004
compared to the same periods in 2003, respectively. Higher employment and annual
employee salary  increases and proportional  increases in employee  benefits are
primarily  responsible for the three and nine-month  increase.  At September 30,
2004, the Corporation employed 271 full time and 26 part time employees compared
to 258 full time and 34 part time  employees  at September  30,  2003.  Staffing
increases  are  related  to the  hiring  of  employees  to  staff  our  new  and
anticipated branches as well as the filling of current open positions during the
year.

     Net occupancy,  equipment,  and data processing  expense decreased 4.5% and
2.7% to $1.3 million and $4.0 million for the three and nine-month periods ended
September 30, 2004,  compared to the same periods last year,  respectively.  The
decreases  are primarily  the result of decreases in  depreciation  on core data
processing systems and hardware expense.

     Depreciation on operating  leases increased 15.7% and 4.5% to $199 thousand
and $534 thousand for the three and nine-month periods ended September 30, 2004,
compared to the same periods last year, respectively.  This depreciation expense
is the result of operating lease  agreements the Corporation has with several of
our customers.  The income  associated with these operating leases is classified
as Rental Income.

     Professional  services  expense  increased 61.4% and 36.5% to $494 thousand
and $1.1 million for the three and nine-month  periods ended  September 30, 2004
compared to the same periods in 2003, respectively. The increases are the result
of  increased  consultant,  accounting,  and  legal  fees.  Much of the fees are
attributed to the cost of complying with the Sarbanes Oxley legislation. Through
the  nine-month  period,  current  and  accrued  costs were  approximately  $167
thousand.  Management  expects the total cost of compliance  with Sarbanes Oxley
legislation for 2004 to be approximately $250 thousand.

     During  the third  quarter,  one of the  Bank's  other  real  estate  owned
properties was written down to what management believes is the actual realizable
value. It is anticipated that this property will be disposed if before year end.
No further write-down is expected.

     Other  non-interest  expense  increased 18.1% and 16.0% to $1.3 million and
$3.7  million for the three and  nine-month  periods  ended  September  30, 2004
compared to the same periods last year, respectively. Other non-interest expense
includes  marketing  expenses,  annual  meeting and reports,  trust  processing,
postage,  directors' costs, bank telephone,  dues and subscriptions,  travel and
mileage,  operating  supplies  and adjusted  loan costs.  Increases in marketing
expenses from the introduction of a new corporate mark tag-line, and advertising
campaign were the largest  components of the increases in  non-interest  expense
for both periods.  It is expected that this  marketing  expense will continue to
increase as more parts of the campaign are rolled out and expanded.

     In June 2004, the Corporation opened its 18th branch at the Freedom Village
at Brandywine  retirement community in West Brandywine  Township.  In the fourth
quarter  of 2004,  the  Corporation  anticipates  opening  a  temporary  modular
facility in the Oxford area.  This  facility will be equipped to meet all of our
customer's  needs and will  eventually  be  replaced  by a newly  designed  full
service branch.  The  Corporation  anticipates an increase in deposit base as we
open new branches.  This and other new branch sites will have a direct impact on
all the components of non-interest expense. It is anticipated that the increases
in costs will be offset over time by an increase in net  interest and fee income
generated by business in the new marketing areas.

                                       18
<PAGE>
           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                      AND RESULTS OF OPERATIONS - Continued

                       CONSOLIDATED AVERAGE BALANCE SHEET
             AND TAXABLE EQUIVALENT INCOME/EXPENSE AND RATES FOR THE
                      THREE MONTHS ENDED SEPTEMBER 30, 2004
<TABLE>
<CAPTION>

(Dollars in thousands)                                              2004                                      2003
                                                     --------------------------------        ----------------------------------
                                                       Daily                                    Daily
                                                      Average                                  Average
                                                      Balance        Interest   Rate           Balance     Interest       Rate
                                                      -------        --------   ----           -------     --------       ----
<S>                                                   <C>            <C>        <C>            <C>           <C>         <C>
ASSETS
Federal funds sold and other overnight investments    $ 23,388       $   83     1.42%          $  9,405      $    24     1.02%
Interest bearing deposits in banks                         300            -         -               617            1     0.65%
Investment securities

    Taxable                                            103,303        1,007     3.90%           109,200          917     3.36%
    Tax-exempt (1)                                      23,805          258     4.34%            21,650          245     4.53%
                                                       -------        -----                     -------       ------
        Total investment securities                    127,108        1,265     3.98%           130,850        1,162     3.55%
                                                       -------        -----                     -------       ------
Loans (2)
    Taxable                                            585,881        8,320     5.68%           476,879        7,182     6.02%
    Tax-exempt (1)                                      11,285          167     5.93%             9,652          130     5.39%
                                                       -------        -----                     -------       ------
        Total loans                                    597,166        8,487     5.69%           486,531        7,312     6.01%
                                                       -------        -----                     -------       -------
        Total interest-earning assets                  747,962        9,836     5.26%           627,403        8,499     5.42%
Non-interest earning assets
    Allowance for possible loan losses                  (6,877)                                  (6,223)
    Cash and due from banks                             26,463                                   27,562
    Other assets                                        23,878                                   25,129
                                                       -------                                  -------
        Total assets                                  $791,426                                 $673,871
                                                       =======                                  =======

LIABILITIES AND STOCKHOLDERS' EQUITY
Savings, NOWS & money market deposits                 $415,526       $  710     0.68%          $344,644         $591     0.69%
Certificates of deposits and other time                112,284          671     2.39%           117,394          800     2.73%
                                                       -------        -----                     -------       ------
   Total interest bearing deposits                     527,810        1,381     1.05%           462,038        1,391     1.20%
Securities sold under repurchase agreements                  -            -        -                  -            -        -
Junior subordinated debt                                15,465          187     4.84%
Guaranteed preferred beneficial interest in
   Corporation's subordinated debentures                     -            -        -              5,000           61     4.81%
Federal Home Loan Bank advances and
      other borrowings                                  66,713          489     2.93%            40,335          270     2.68%
                                                       -------        -----                     -------       ------

   Total interest bearing liabilities                  609,988        2,057     1.35%           507,373        1,722     1.36%
                                                       -------        -----                     -------       ------
Non-interest bearing liabilities
    Non-interest bearing demand deposits               124,024                                  111,154
    Other liabilities                                    4,651                                    4,967
                                                       -------                                  -------
        Total liabilities                              738,663                                  623,494
Stockholders' equity                                    52,763                                   50,377
                                                       -------                                  -------
        Total liabilities and stockholders' equity    $791,426                                 $673,871
                                                       =======                                  =======
Net interest income                                                  $7,779                                  $ 6,777
                                                                      =====                                   ======
Net yield on interest earning assets                                            4.16%                                    4.32%
                                                                                ====                                     ====

<FN>

(1) The indicated income and annual rate are presented on a taxable equivalent
    basis using the Federal marginal rate of 34% adjusted for the TEFRA penalty
    for 2004 and 2003
(2) Non-accruing loans are included in the average balance.

</FN>
</TABLE>
                                       19
<PAGE>
           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                      AND RESULTS OF OPERATIONS - Continued

                       CONSOLIDATED AVERAGE BALANCE SHEET
             AND TAXABLE EQUIVALENT INCOME/EXPENSE AND RATES FOR THE
                         NINE MONTHS ENDED SEPTEMBER 30,
<TABLE>
<CAPTION>


(Dollars in thousands)                                              2004                                     2003
                                                      -------------------------------          --------------------------------
                                                        Daily                                   Daily
                                                       Average                                  Average
                                                       Balance     Interest      Rate           Balance     Interest       Rate
                                                       -------     --------      ----           -------     --------       ----
<S>                                                   <C>           <C>          <C>           <C>           <C>         <C>
ASSETS
Federal funds sold and other overnight investments    $ 11,692      $   112      1.28%         $ 22,435      $   205     1.22%
Interest bearing deposits in banks                         478            1      0.28%              386            2     0.69%
Investment securities
Taxable                                                107,360        3,078      3.82%          118,252        3,069     3.46%
    Tax-exempt (1)                                      24,345          822      4.50%           10,698          377     4.70%
                                                       -------       ------                     -------       ------
        Total investment securities                    131,705        3,900      3.95%          128,950        3,446     3.56%
                                                       -------       ------                     -------       ------
Loans (2)
    Taxable                                            545,795       23,090      5.64%          451,297       21,078     6.23%
    Tax-exempt (1)                                       9,641          425      5.87%            7,009          338     6.42%
                                                       -------       ------                     -------       ------
        Total loans                                    555,436       23,515      5.64%          458,306       21,416     6.23%
                                                       -------       ------                     -------       ------
        Total interest-earning assets                  699,311       27,527      5.25%          610,077       25,069     5.48%
Non-interest earning assets
    Allowance for possible loan losses                  (6,333)                                  (6,390)
    Cash and due from banks                             23,608                                   25,651
    Other assets                                        23,147                                   22,886
                                                       -------                                  -------
        Total assets                                  $739,733                                 $652,224
                                                       =======                                  =======

LIABILITIES AND STOCKHOLDERS' EQUITY
Savings, NOWS & money market deposits                 $375,414        1,724      0.61%         $335,570      $ 1,990     0.79%
Certificates of deposits and other time                111,350        2,033      2.43%          121,432        2,669     2.93%
                                                       -------        -----                     -------       ------
Total interest bearing deposits                        486,764        3,757      1.03%          457,002        4,659     1.36%
Securities sold under repurchase agreements                  -            -         -               178            5     3.75%
Junior subordinated debt                                15,465          524      4.52%                -            -        -
Guaranteed preferred beneficial interest in
   Corporation's subordinated debentures                     -            -         -             5,000          190     5.07%
Federal Home Loan Bank advances and
     other borrowings                                   60,270        1,310      2.90%           28,724          626     2.91%
                                                       -------        -----                     -------       ------
   Total interest bearing liabilities                  562,499        5,591      1.33%          490,904        5,480     1.49%
                                                       -------        -----                     -------       ------
Non-interest bearing liabilities
    Non-interest bearing demand deposits               120,404                                  105,932
    Other liabilities                                    4,114                                    5,163
                                                       -------                                  -------
        Total liabilities                              687,017                                  601,999
Stockholders' equity                                    52,716                                   50,225
                                                       -------                                  -------
        Total liabilities and stockholders' equity    $739,733                                 $652,224
                                                       =======                                  =======
Net interest income                                                 $21,936                                  $19,589
                                                                     ======                                   ======
Net yield on interest earning assets                                             4.18%                                   4.28%
                                                                                 ====                                    ====

<FN>

(1) The indicated income and annual rate are presented on a taxable equivalent
    basis using the Federal marginal rate of 34% adjusted for the TEFRA penalty
    for 2004 and 2003.
(2) Non-accruing loans are included in the average balance.
</FN>
</TABLE>
                                       20
<PAGE>

           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                      AND RESULTS OF OPERATIONS - Continued

                                  INCOME TAXES

     Income tax expense for the three and nine-month periods ended September 30,
2004 was $535  thousand  and $1.8  million,  compared to $431  thousand and $1.7
million in the same periods last year.  This  represents  effective tax rates of
26.9% for the  three-month  period  and 29.0% for the  nine-month  period  ended
September 30, 2004. The effective tax rate for the three and nine-month  periods
ended September 30, 2003 were 30.0% and 30.0%, respectively.

               LIQUIDITY MANAGEMENT AND INTEREST RATE SENSITIVITY

     The  objective of liquidity  management  is to ensure the  availability  of
sufficient  cash flows to meet all  financial  commitments  and to capitalize on
opportunities  for  business  expansion.   Liquidity  management  addresses  the
Corporation's  ability  to meet  deposit  withdrawals  either  on  demand  or at
contractual  maturity,  to repay borrowings as they mature and to make new loans
and investments as  opportunities  arise.  Liquidity is managed on a daily basis
enabling  Management to monitor changes in liquidity and to react accordingly to
fluctuations  in market  conditions.  The primary  sources of liquidity  for the
Corporation are funding available from deposit growth,  FHLB borrowings and cash
flow  from  the  investment  and  loan  portfolios.  Deposits  consist  of  NOW,
money-market,  savings,  tiered savings,  large and small dollar certificates of
deposit and  non-interest  bearing  demand  deposit  accounts.  The  Corporation
considers funds from demand,  NOW, money market,  savings and certificates  less
than $100 thousand as "core"  deposits  because of the  historical  stability of
such sources of funds.  Details of core  deposits,  non-interest  bearing demand
deposit  accounts and other  deposit  sources are  highlighted  in the following
table:

<TABLE>
<CAPTION>

                                DEPOSIT ANALYSIS

(Dollars in thousands)                    September 30, 2004              December 31, 2003
                                      --------------------------       ----------------------
                                      Average         Effective        Average         Effective     Dollar             Percentage
DEPOSIT TYPE                          Balance            Yield          Balance           Yield      Variance            Variance
------------                          -------         ----------       ---------       ----------    --------           ----------
<S>                                  <C>                <C>             <C>               <C>        <C>                 <C>
NOW Accounts                         $111,308           0.32%           $ 88,518          0.19%      $22,790               25.75%
Money Market                           26,672           0.49%             26,051          0.70%          621                2.38%
Statement Savings                      65,934           0.55%             63,032          0.77%        2,902                4.60%
Other Savings                           1,455           0.55%              1,522          0.79%         ( 67)             (4.40)%
CD's Less than $100,000                86,873           2.47%             96,773          2.93%       (9,900)            (10.23)%
                                      -------                            -------                      ------

Total Core Deposits                   292,242           1.03%            275,896          1.33%        16,346                5.92%

Non-Interest Bearing
Demand Deposit Accounts               120,404             --             107,334            --         13,070               12.18%
                                      -------                            -------                       ------

Total Core and Non-Interest
  Bearing Deposits                    412,646           0.73%            383,230          0.96%        29,416                7.68%
                                      -------                            -------                       ------

Tiered Savings                        170,045           0.85%            159,220          1.04%        10,825                6.80%
CD's Greater than $100,000             24,477           2.30%             22,365          2.48%         2,112                9.44%
                                      -------                            -------                       ------

Total Deposits                       $607,168           0.83%           $564,815          1.04%       $42,353                7.50%
                                      -------                            -------                       ------

</TABLE>
                                       21
<PAGE>
           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                      AND RESULTS OF OPERATIONS - Continued

     The Bank, as a member of the FHLB,  maintains  several  credit  facilities.
During the three and nine-month  periods ending September 30, 2004, average FHLB
advances were approximately $66.7 million and $60.3 million,  respectively,  and
consisted of term  advances  representing  a  combination  of maturities in each
period. The average interest rate on these advances was approximately  2.93% and
2.90%,  respectively.  The Bank currently has a maximum borrowing  capacity with
the FHLB of approximately $133.7 million.  FHLB advances are collateralized by a
pledge on the Bank's portfolio of unencumbered  investment  securities,  certain
mortgage  loans and a lien on the Bank's FHLB  stock.  FHLB  advances  increased
significantly  during the first and second  quarter of 2004 as they were used to
supplement deposit growth to support strong loan growth.

     The goal of interest rate  sensitivity  management is to avoid  fluctuating
net interest  margins,  and to enhance  consistent growth of net interest income
through periods of changing  interest rates. Such sensitivity is measured as the
difference  in the volume of assets and  liabilities  in the existing  portfolio
that are subject to  repricing in a future time period.  The  Corporation's  net
interest rate  sensitivity  gap within one year is a negative  $117.6 million or
14.2% of total  assets at September  30, 2004  compared  with a negative  $108.3
million or 15.7% of total assets at September 30, 2003.  The  Corporation's  gap
position is one tool used to evaluate  interest  rate risk and the  stability of
net interest  margins.  Another tool that management  uses to evaluate  interest
rate risk is a computer  simulation model that assesses the impact of changes in
interest rates on net interest  income,  net-income  under various interest rate
forecasts and scenarios. Management has set acceptable limits of risk within its
Asset  Liability  Committee  ("ALCO")  policy and  monitors  the  results of the
simulations  against these limits quarterly.  As of the most recent quarter end,
all  results  are within  policy  limits and  indicate  an  acceptable  level of
interest rate risk.  Management monitors interest rate risk as a regular part of
corporate  operations  with the  intention of  maintaining a stable net interest
margin.

                                       22
<PAGE>
           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                      AND RESULTS OF OPERATIONS - Continued

                          INTEREST SENSITIVITY ANALYSIS
                            AS OF SEPTEMBER 30, 2004
<TABLE>
<CAPTION>

(Dollars in thousands)
                                                                    One              Over
                                                   Within        through              five          Non-rate
                                                  one year      five years            years         sensitive        Total
                                                ------------    ----------        ------------      ---------       -------
<S>                                            <C>              <C>               <C>              <C>            <C>
ASSETS
    Federal Funds and other overnight
       investments sold                        $     38,000     $        --       $        --      $        --    $    38,000
    Investment securities                            41,392          57,576            45,806               --        144,784
    Interest bearing deposits in banks                   91                --               --               --              91
    Loans and leases                                231,185         279,757            92,923           (6,924)       596,941
    Cash and due from banks                              --              --                --           25,245         25,245
    Premises & equipment                                 --              --                --           13,382         13,382
    Other assets                                         --              --                --            9,699          9,699
                                                -----------     -----------        ----------        ---------     ----------
       Total assets                            $    310,668    $    337,343       $   138,729      $    41,402    $   828,142
                                                ===========     ===========        ==========       ==========     ==========

LIABILITIES AND CAPITAL
    Interest bearing deposits                  $    407,031     $    39,700       $   120,609      $        --    $   567,340
    Non-interest bearing deposit                         --              --                --          124,877        124,877
    FHLB advances and other
       borrowings                                     5,696          53,878             2,360               --         61,934
    Junior Subordinated Debt                         15,465              --                --               --        15,465
    Other liabilities                                   109              --             5,001               --          5,110
    Capital                                             --               --                --          53,416          53,416
                                                -----------       ---------         ---------        --------      ----------
       Total liabilities & capital             $    428,301     $    93,578       $   127,970      $178,293       $   828,142
                                                ===========      ==========        ==========       ==========     ==========
    Net interest rate
      sensitivity gap                          $  (117,633)     $   243,765       $    10,759      $ (136,891)    $        --
                                                ==========       ==========        ==========       =========      ==========
    Cumulative interest rate
      sensitivity gap                          $  (117,633)     $   126,132       $   136,891      $        --    $        --
                                                ==========       ==========        ==========       ==========     ==========
    Cumulative interest rate
      sensitivity gap divided
      by total assets                               (14.2%)          (15.2%)             16.5%
                                                ==========       ==========        ==========
</TABLE>

                       ALLOWANCE FOR LOAN AND LEASE LOSSES

     The  allowance  for loan and  lease  losses is an  amount  that  Management
believes  will be adequate  to absorb  loan  losses on  existing  loans that may
become  uncollectible  based  upon  Management's  periodic  evaluations  of  the
collectibility of loans. The evaluations take into consideration such factors as
changes  in the  nature  and  volume of the loan  portfolio,  overall  portfolio
quality,  adequacy of collateral,  review of specific problem loans, and current
economic conditions that may affect our borrower's ability to pay.

                                       23
<PAGE>
           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                      AND RESULTS OF OPERATIONS - Continued

              ANALYSIS OF CHANGES IN THE ALLOWANCE FOR LOAN LOSSES
                       AND COMPARISON OF LOANS OUTSTANDING

<TABLE>

                                                                         Three Months                     Nine Months
                                                                            Ended                             Ended
                                                                         September 30,                    September 30,
                                                                         -------------                    -------------

(Dollars in thousands)                                                2004            2003            2004            2003
                                                                      ----            ----            ----            ----
<S>                                                               <C>             <C>              <C>            <C>

Balance at beginning of period                                    $    6,626      $    6,156       $    5,864        $  6,230
                                                                   ---------       ---------        ---------         -------

Provision charged to operating expense                                   454             860              810           1,627
                                                                   ---------       ---------        ---------         -------

    Recoveries of loans previously charged-off                           127              32            1,024             176
    Loans charged-off                                                   (283)         (1,575)            (774)         (2,560)
                                                                   ---------       ---------        ---------         -------

Net recoveries (loans charged-off)                                      (156)         (1,543)             250          (2,384)
                                                                   ---------       ---------        ---------         --------

Balance at end of period                                          $    6,924      $    5,473       $    6,924        $  5,473
                                                                   =========       =========        =========         ========
Period-end loans outstanding                                      $  603,865      $  502,377       $  603,865        $502,377
Average loans outstanding                                         $  597,166        $486,531       $  555,436        $458,306
Allowance for loan losses as a
    percentage of period-end loans outstanding                         1.15%           1.09%            1.15%           1.09%

Net charge-offs (recoveries) to average loans
    outstanding                                                        0.03%           0.32%          (0.05%)           0.52%
</TABLE>

     Non-performing loans include loans on non-accrual status and loans past due
90 days or more and still accruing.  The  Corporation's  policy is to write down
all non-performing loans to net realizable value based on current assessments of
the value of  collateral  securing  such loans and leases.  As of September  30,
2004, the level of  non-performing  loans  decreased $1.9 million from September
30, 2003 and $2.1 million  from  December  31,  2003.  In November of 2004,  the
Corporation transferred a $5.9 million loan to non-performing loans and reversed
$123.1  thousand in past due interest and late charges as the result of one loan
relationship.  This loan is well  secured  by real  estate  and the  Corporation
expects to collect the loan in full and not incur any losses.

     Management  is not aware of any loans  other  than  those  included  in the
following  table  that would be  considered  potential  problem  loans and cause
Management  to have  doubts as to the  borrower's  ability  to comply  with loan
repayment  terms.  Non-performing  loans and  leases  reduce  the  Corporation's
earnings  because  interest income is not earned on such assets.  Management has
taken aggressive steps to control current and future credit quality issues.  The
following chart represents detailed information  regarding  non-performing loans
and leases.

                                       24
<PAGE>
           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                      AND RESULTS OF OPERATIONS - Continued

                         NON-PERFORMING LOANS AND ASSETS
<TABLE>
<CAPTION>

                                                                    September 30,                December 31,
                                                                    -------------                ------------
(Dollars in thousands)                                         2004              2003                  2003
                                                               ----              ----                  ----
<S>                                                        <C>               <C>                  <C>
Past due over 90 days and still accruing                     $      69         $    714            $      597

Non-accrual loans                                                1,542            4,624                 3,093
                                                              --------          -------              --------

Total non-performing loans                                       1,661            5,338                 3,690

Other real estate owned                                          1,365            3,218                   965
                                                              --------          -------              --------

Total non-performing assets                                  $   3,026         $  8,556             $   4,655
                                                              ========          =======              ========

Non-performing loans as a percentage of period end loans         0.28%            1.06%                 0.72%

Allowance for loan losses as a
   percentage of non-performing loans                          416.86%          102.53%               158.92%

Non-performing assets as a percentage of
   total loans and other real estate owned                       0.50%            1.69%                 0.91%

Allowance for possible loan losses as a percentage
   of non-performing assets                                    228.82%           63.97%               125.97%
</TABLE>

     The allowance for loan losses as a percentage of non-performing loans ratio
indicates  that the  allowance  for  loan  losses  is  sufficient  to cover  the
principal of all  non-performing  loans at September 30, 2004. Other real estate
owned  ("OREO")  represents  residential  and  commercial  real  estate that had
secured  non-performing  loans that the Corporation acquired through foreclosure
or other  collection  efforts  and that is held for sale.  The value of OREO has
been written down to realizable value (net of estimated disposal costs) based on
professional appraisals.

                                 LOAN IMPAIRMENT

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

     The Corporation  examines commercial and non-residential  mortgage loans on
non-accrual  status  for  impairment.  The  balance of  impaired  loans was $1.5
million,  $3.1  million,  and $5.9 million at September  30, 2004,  December 31,
2003, and September 30, 2003 respectively. The associated allowance for impaired
loans was $149 thousand,  $309 thousand and $700 thousand at September 30, 2004,
December 31, 2003 and September 30, 2003, respectively.

     For the three and nine-month periods ended September 30, 2004,  activity in
the  allowance  for  impaired  loan  losses  include a  provision  of $0 and $43
thousand, charge offs of $40 thousand and $65 thousand, recoveries of $0 and $0,
respectively. Contractual interest amounted to $33 thousand for the three-months
ended September 30, 2004 and $126 thousand for the  nine-months  ended September
30, 2004.  Cash  collected on loans for the three and  nine-month  periods ended
September 30, 2004 was $47 thousand and $910 thousand,  respectively. The amount
applied to principal  was $47 thousand and $883 thousand for the three and nine-
month  periods,  respectively,  of  which $0 and $27  thousand  was  applied  to
interest  for the  three  and  nine-month  periods  ended  September  30,  2004,
respectively.

                                       25
<PAGE>
           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                      AND RESULTS OF OPERATIONS - Continued

     For the three and nine-month periods ended September 30, 2003,  activity in
the allowance for impaired loan losses  include a provision of $237 thousand and
$765 thousand, charge offs of $126 thousand and $216 thousand, respectively, and
recoveries of $2 thousand and $32 thousand,  respectively.  Contractual interest
amounted to $79 thousand for the three-months  ended September 30, 2003 and $277
thousand for the  nine-months  ended September 30, 2003. Cash collected on loans
for the three and nine-month  periods ended September 30, 2004 was $380 thousand
and $2.4  million,  respectively.  The  amount  applied  to  principal  was $364
thousand and $2.1 million for the three and nine-month  periods ended  September
30, 2003, of which $0 and $46 thousand was applied to interest, respectively.

                                CAPITAL ADEQUACY

     The Corporation is subject to Risk-Based  Capital Guidelines adopted by the
Federal  Reserve Board ("FRB") for bank holding  companies.  The  Corporation is
also  subject  to  similar  capital  requirements  adopted  by the Office of the
Comptroller of the Currency.  Under these requirements,  the regulatory agencies
have set minimum  thresholds  for Tier I Capital,  Total  Capital,  and Leverage
ratios.  At September 30, 2004,  both the  Corporation's  and the Bank's capital
exceeded all minimum regulatory requirements,  and the Bank was considered "well
capitalized"  as  defined  in  the  regulations  issued  pursuant  to  the  FDIC
Improvement Act of 1992. The  Corporation's  Risk-Based  Capital  Ratios,  shown
below, have been computed in accordance with regulatory accounting policies.

     The decrease in the  Corporation's  capital ratio from December 31, 2003 to
September 30, 2004 is due to changes in unrealized gains or losses on securities
held for sale and to the repurchasing of outstanding shares of the Corporation's
common stock.

<TABLE>
<CAPTION>

RISK-BASED                                        September 30,                December 31,           "Well Capitalized"
CAPITAL RATIOS                             -------------------------           ------------              Requirements
                                           2004               2003                  2003              ------------------
<S>                                       <C>                <C>                   <C>                           <C>


    Corporation
Leverage Ratio                             8.64%              8.26%                 9.71%                        N/A
Tier I Capital Ratio                      10.68%             10.19%                12.01%                        N/A
Total Risk-Based Capital Ratio            11.76%             11.19%                13.07%                        N/A

       Bank
Leverage Ratio                             8.18%              7.62%                 8.68%                    5.00%
Tier I Capital Ratio                      10.08%              9.34%                10.72%                    6.00%
Total Risk-Based Capital Ratio            11.16%             10.34%                11.79%                   10.00%

</TABLE>

     The Corporation is not under any agreement with the regulatory  authorities
nor is it aware of any current  recommendations  by the  regulatory  authorities
that, if they were to be implemented, would have a material affect on liquidity,
capital resources or operations of the Corporation.

                                       26
<PAGE>
ITEM 3.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     There have been no material changes in the Corporation's  assessment of its
sensitivity to market risk since its  presentation  in the 2003 Annual Report of
the Corporation,  filed as an exhibit to its Form 10-K for the fiscal year ended
December  31,  2003 with the SEC via EDGAR.  Please  refer to the  "Management's
Discussion and Analysis" section on pages 18-30 of the Corporation's 2003 Annual
Report for additional information.

ITEM 4. CONTROLS AND PROCEDURES

        o Certifications.  Included with this Quarterly Report as Exhibits 31.1,
          31.2,  31.3  and  31.4  are  four  certifications  (the  "Section  302
          Certifications"), one by each of our principal executive and financial
          officers (the  "Principal  Officers")  and our President and Assistant
          Treasurer.  This section of the Quarterly Report contains  information
          concerning the  evaluations of our disclosure  controls and procedures
          and internal control over financial  reporting that are referred to in
          the Section 302  Certifications.  This  information  should be read in
          conjunction  with the Section 302  Certifications  for a more complete
          understanding of the topics presented.

        o Evaluation of Our Disclosure  Controls and Procedures.  The Securities
          and Exchange Commission (the "SEC") requires that as of the end of the
          quarter covered by this Report,  the Principal  Officers  evaluate the
          effectiveness  of the design and operation of our disclosure  controls
          and  procedures  and  report on the  effectiveness  of the  design and
          operation of our disclosure controls and procedures.

          "Disclosure  controls  and  procedures"  mean the  controls  and other
          procedures  that are  designed  with the  objective  of ensuring  that
          information  required to be disclosed  in our reports  filed under the
          Securities  Exchange Act of 1934 (the  "Exchange  Act"),  such as this
          Quarterly  Report,  is recorded,  processed,  summarized  and reported
          within the time periods  specified in the rules and forms  promulgated
          by the SEC.  Disclosure controls and procedures are also designed with
          the objective of ensuring that such  information  is  accumulated  and
          communicated to our management,  including the Principal Officers,  as
          appropriate, to allow timely decisions regarding required disclosure.

        o Evaluation of Our Internal Control Over Financial  Reporting.  The SEC
          also requires  that the Principal  Officers  certify  certain  matters
          regarding our internal control over financial reporting.

          "Internal control over financial reporting" means the process designed
          by, or under the supervision of, our Principal Officers,  and effected
          by our board of directors,  management and other personnel, to provide
          reasonable  assurance regarding the reliability of financial reporting
          and the preparation of financial  statements for external  purposes in
          accordance with generally accepted accounting  principles and includes
          those policies and procedures  that:

          (i) pertain to the  maintenance  of records that in reasonable  detail
          accurately and fairly reflect the transactions and dispositions of the
          assets of the issuer;

          (ii) provide  reasonable  assurance that  transactions are recorded as
          necessary to permit preparation of financial  statements in accordance
          with generally accepted accounting  principles,  and that receipts and
          expenditures  of the  issuer are being  made only in  accordance  with
          authorizations of management and directors of the issuer; and

          (iii)  provide  reasonable  assurance  regarding  prevention or timely
          detection  of  unauthorized  acquisition,  use or  disposition  of the
          issuer's  assets  that could have a material  effect on the  financial
          statements.
                                       27
<PAGE>
ITEM 4. CONTROLS AND PROCEDURES - Continued

          Among the matters our  Principal  Officers  certify in the Section 302
          Certifications are whether all "significant deficiencies" or "material
          weakness"  in the design or  operation  of our  internal  control over
          financial reporting that are likely to adversely affect our ability to
          record, process,  summarize and report financial information have been
          disclosed  to our  auditors  and the Audit  Committee  of our Board of
          Directors. "Significant deficiencies" has the same meaning as the term
          "reportable  conditions" in auditing literature.  Both terms represent
          deficiencies  in the design or  operation  of  internal  control  over
          financial reporting that could adversely affect a company's ability to
          record,  process,  summarize and report financial data consistent with
          the assertions of management in a company's  financial  statements.  A
          "material  weakness"  is  defined  in  the  auditing  literature  as a
          particularly   serious  reportable   condition  where  the  design  or
          operation of one or more  internal  control over  financial  reporting
          components  does not  reduce to a  relatively  low level the risk that
          misstatements caused by error or fraud may occur in amounts that would
          be  material  in  relation  to the  financial  statements  and  not be
          detected  within a timely  period by employees in the normal course of
          performing their assigned functions. A "material weakness" constitutes
          a  greater   deficiency  than  a  "significant   deficiency,   but  an
          aggregation  of  significant  deficiencies  may  constitute a material
          weakness in a company's internal control over financial reporting.

        o Limitations  on  the   Effectiveness  of  Controls.   Our  management,
          including the Principal Officers,  does not expect that our disclosure
          controls  and  procedures  or  our  internal  control  over  financial
          reporting will prevent all error and all fraud. A control  system,  no
          matter how well conceived and operated,  can provide only  reasonable,
          as opposed to 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 an entity 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,  a  system  of  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.

        o Conclusions  about the  Effectiveness  of the Disclosure  Controls and
          Procedures.   As  required  by  Rule  13a-15(b),   the   Corporation's
          management,  including our Principal Officers, conducted an evaluation
          as  of  the  end  of  the  period  covered  by  this  report,  of  the
          effectiveness of the Corporation's disclosure controls and procedures.
          Based on that  evaluation,  the  Principal  Officers  concluded  that,
          subject to the limitations  noted above,  our disclosure  controls and
          procedures  are  effective to provide  reasonable  assurance  that the
          disclosure controls and procedures will meet their objectives.

        o Changes in Internal control over financial  reporting.  As required by
          Rule 13a-15(d), the Corporation's management,  including the Principal
          Officers conducted an evaluation of the Corporation's internal control
          over  financial  reporting to determine  whether any changes  occurred
          during  the  period  covered  by  this  report  that  have  materially
          affected,   or  are  reasonably  likely  to  materially   affect,  the
          Corporation's internal control over financial reporting. Based on that
          evaluation,  there has been no such change during the quarter  covered
          by this report.

                                       28
<PAGE>



                           PART II - OTHER INFORMATION

Item 1.      Legal Proceedings

             Various actions and proceedings are presently  pending to which the
             Corporation is a party.  These actions and proceedings arise out of
             routine operations and, in Management's  opinion,  will not, either
             individually or in the aggregate, have a material adverse effect on
             the  consolidated  financial  position of the  Corporation  and its
             subsidiaries.

Item 2.      Unregistered Sales of Equity Securities and Use of Proceeds

                      ISSUER PURCHASES OF EQUITY SECURITIES
<TABLE>
<CAPTION>

                                            (a)             (b)               (c)                            (d)
                                          Total           Average        Total Number of           Maximum Number (or
                                          Number of       Price          Shares (or Units)         Approximate Dollar Value)
                                          Shares (or      Paid           Purchased as Part         of Shares (or Units) that
                                          Units)          Per Share      of Publicly Announced     May Yet Be Purchased Under
                                          Purchased       (or Unit)      Plans or Programs         the Plans or Programs
                                          ---------       ---------      -----------------         ---------------------
    <S>                                     <C>           <C>               <C>                      <C>


    July 1 to July 30, 2004                   --             --                --                      $7,392,893

    August 1 to August 31, 2004             11,000         $23.92            11,000                    $7,129,783

    September 1 to September 30, 2004        6,000         $24.85             6,000                    $6,980,678

    Total                                   17,000         $24.25            17,000                    $6,980,678

<FN>

Note: All of the foregoing shares were purchased pursuant to the Corporation's
program to repurchase up to $10.0 million of the Corporation's common stock that
was publicly announced on October 16, 2003.
</FN>
</TABLE>

Item 3.     Defaults upon Senior Securities

                  None

Item 4.     Submission of Matters to Vote of Security Holders

                  None

Item 5.      Other Information

                  None

                                       29
<PAGE>
                     PART II - OTHER INFORMATION - Continued


Item 6.      Exhibits

             3(i).*  Certificate  of  Incorporation.  Copy of the  Corporation's
             Articles of Incorporation,  as amended,  is incorporated  herein by
             reference to Exhibit  3(i) to the  Corporation's  Annual  Report on
             Form 10-K for the year ended December 31, 2000.

             3(ii).*  Bylaws  of  the  Corporation,  as  amended.  Copy  of  the
             Corporation's   Bylaws,  as  amended,  is  incorporated  herein  by
             reference to Exhibit  3(ii) to the  Corporation's  Annual Report on
             Form 10-K for the year ended December 31, 2000.

             31.1       Rule 13a-14(a) Certification of Chief Executive Officer
             31.2       Rule 13a-14(a) Certification of President
             31.3       Rule 13a-14(a) Certification of Treasurer
             31.4       Rule 13a-14(a) Certification of Assistant Treasurer

             32.1       Section 906 Certification of the Chief Executive Officer
             32.2       Section 906 Certification of the President
             32.3       Section 906 Certification of the Treasurer
             32.4       Section 906 Certification of the Assistant Treasurer

             * Indicates document previously filed

                                       30
<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 CHESTER COUNTY CORPORATION


                                                       John A. Featherman III



November 15, 2004                                      /s/ John A Featherman III
                                                       -------------------------

                                                       John A. Featherman III
                                                       Chief Executive Officer



                                                       J. Duncan Smith



November 15, 2004                                      /s/ J. Duncan Smith
                                                       -------------------

                                                       J. Duncan Smith
                                                       Treasurer
                                                      (Principal Accounting and
                                                       Financial Officer)


                                       31
<PAGE>


                                  Exhibit Index
                                  -------------

             3(i).*  Certificate  of  Incorporation.  Copy of the  Corporation's
             Articles of Incorporation,  as amended,  is incorporated  herein by
             reference to Exhibit  3(i) to the  Corporation's  Annual  Report on
             Form 10-K for the year ended December 31, 2000.

             3(ii).*  Bylaws  of  the  Corporation,  as  amended.  Copy  of  the
             Corporation's   Bylaws,  as  amended,  is  incorporated  herein  by
             reference to Exhibit  3(ii) to the  Corporation's  Annual Report on
             Form 10-K for the year ended December 31, 2000.


             31.1     Rule 13a-14(a) Certification of Chief Executive Officer
             31.2     Rule 13a-14(a) Certification of President
             31.3     Rule 13a-14(a) Certification of Treasurer
             31.4     Rule 13a-14(a) Certification of Assistant Treasurer

             32.1     Section 906 Certification of the Chief Executive Officer
             32.2     Section 906 Certification of the President
             32.3     Section 906 Certification of the Treasurer
             32.4     Section 906 Certification of the Assistant Treasurer


             * Indicates document previously filed


                                       32