FORM 10-Q

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549


(Mark One)

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

For the quarterly period ended March 31, 1999, OR

(   )    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
         SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____________ to ____________.

Commission File No. 0-12870.


                         FIRST WEST CHESTER 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 offi              (Zip code)


                                 (610) 692-1423
              (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

The number of shares  outstanding of Common Stock of the Registrant as of May 1,
1999 was 4,581,182.



<PAGE>


                 FIRST WEST CHESTER CORPORATION AND SUBSIDIARIES

                                      INDEX


<TABLE>
<CAPTION>
                                                                                                                       PAGE

Part I.  FINANCIAL INFORMATION
                 <S>                                                                                                     <C>   

                  Item 1 - Financial Statements
                             Consolidated Statements of Condition
                             March 31, 1999 and December 31, 1998                                                         3


                             Consolidated Statements of Income
                             Three-Months Ended March 31, 1999 and 1998                                                   4


                             Consolidated Statements of Stockholder's Equity                                              5


                             Consolidated Statements of Cash Flows
                             Three-Months Ended March 31, 1999 and 1998                                                   6


                             Notes to Consolidated Financial Statements                                                 7-8


                  Item 2 - Management's Discussion and Analysis of
                            Financial Condition and Results of Operations                                              9-24

                  Item 3 - Quantitative and Qualitative Disclosures About Market Risk                                    25

Part II. OTHER INFORMATION

                  Item 1 - Legal Proceedings                                                                             26
                  Item 2 - Changes in Securities                                                                         26
20
                  Item 3 - Defaults upon Senior Securities                                                               26
                  Item 4 - Submission of Matters to a Vote of Security Holders                                        26-27
                  Item 5 - Other Information                                                                             27
                  Item 6 - Exhibits and Reports on Form 8-K                                                              28


                  Signatures                                                                                             28


<PAGE>

                                                       
                                                            
                 FIRST WEST CHESTER CORPORATION AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CONDITION

                                                                                        (Unaudited)
(Dollars in thousands)                                                                    March 31,          December 31,
                                                                                            1999                 1998       
                                                                                         ----------           ----------
ASSETS
    Cash and due from banks                                                              $   22,110           $   25,006
    Federal funds sold                                                                        8,000                5,675
                                                                                         ----------           ----------

                Total cash and cash equivalents                                              30,110               30,681
                                                                                          ---------            ---------

    Investment securities held-to-maturity (market value of $6,130 and
        $7,606 at March 31, 1999 and December 31, 1998, respectively)                         5,896                7,406

    Investment securities available-for-sale, at market value                               110,120              102,380

    Loans                                                                                   320,864              320,395
    Less:  Allowance for possible loan losses                                                (5,937)              (5,877)
                                                                                         ----------           ----------

                Net loans                                                                   314,927              314,518

    Premises and equipment                                                                    9,370                9,579
    Other assets                                                                              6,422                6,129
                                                                                         ----------           ----------

                Total assets                                                              $ 476,845            $ 470,693
                                                                                           ========             ========

LIABILITIES
    Deposits
        Noninterest-bearing                                                               $  72,161            $  72,556
        Interest-bearing                                                                    349,773              345,842
                                                                                           --------             --------

        Total deposits                                                                      421,934              418,398

    Securities sold under repurchase agreements                                               4,337                2,795
    Federal Home Loan Bank Advances                                                           4,988                5,027
        Other liabilities                                                                     6,209                4,750
                                                                                           --------             --------

        Total liabilities                                                                   437,468              430,970
                                                                                           --------             --------

STOCKHOLDERS' EQUITY
    Common stock, par value $1.00; authorized, 10,000,000 shares;
        outstanding, 4,799,666 at March 31, 1999 and December 31, 1998.                       4,800                4,800
    Additional paid-in capital                                                                  599                  542
    Retained earnings                                                                        36,209               35,675
    Accumulated other comprehensive income                                                       (3)                 292
    Treasury stock, at cost:  210,140 shares and 183,640 shares
        at March 31, 1999 and December 31, 1998, respectively.                               (2,228)              (1,586)
                                                                                           --------             --------

                Total stockholders' equity                                                   39,377               39,723
                                                                                           --------             --------

                Total liabilities and stockholders' equity                                $ 476,845            $ 470,693
                                                                                           ========             ========

<FN>

The accompanying notes are an integral part of these statements.
</FN>
</TABLE>
                                       3
<PAGE>
                 FIRST WEST CHESTER CORPORATION AND SUBSIDIARIES
                        CONSOLIDATED STATEMENTS OF INCOME
                                   (UNAUDITED)
<TABLE>
<CAPTION>

(Dollars in thousands - except per share)                                                        Three Months Ended
                                                                                                      March 31,
                                                                                             ---------------------------      
                                                                                               1999               1998    
                                                                                             --------          ---------
<S>                                                                                       <C>                <C>   
INTEREST INCOME
    Loans, including fees                                                                  $    6,636         $    7,001
    Investment securities                                                                       1,660              1,170
    Federal funds sold                                                                             61                 69
    Deposits in banks                                                                              --                 --
                                                                                            ---------          ---------

                Total interest income                                                           8,357              8,240
                                                                                            ---------          ---------

INTEREST EXPENSE
    Deposits                                                                                    3,411              3,290
    Securities sold under repurchase agreements                                                    31                 37
    Other borrowings                                                                               85                 97
                                                                                            ---------          ---------

                Total interest expense                                                          3,527              3,424
                                                                                            ---------          ---------

                Net interest income                                                             4,830              4,816

    Provision for loan losses                                                                     138                224
                                                                                            ---------          ---------

                Net interest income after provision for possible loan losses                    4,692              4,592
                                                                                            ---------          ---------

NON-INTEREST INCOME
    Financial Management Services                                                                 629                561
    Service charges on deposit accounts                                                           245                253
    Investment securities gains (losses), net                                                       4                 (3)
    Other                                                                                         311                265
                                                                                            ---------          ---------

                Total non-interest income                                                       1,189              1,076
                                                                                            ---------          ---------

NON-INTEREST EXPENSE
    Salaries and employee benefits                                                              2,346              2,213
    Net occupancy and equipment                                                                   958                802
    FDIC Bank insurance fund assessments                                                           12                 11
    Bank shares tax                                                                               100                 87
    Other                                                                                         903                860
                                                                                            ---------          ---------

                Total non-interest expense                                                      4,319              3,973
                                                                                            ---------          ---------

                Income before income taxes                                                      1,562              1,695

INCOME TAXES                                                                                      476                516
                                                                                            ---------          ---------

NET INCOME                                                                                 $    1,086         $    1,179
                                                                                            =========          =========

PER SHARE DATA
    Basic net income per common share                                                      $     0.24         $     0.26
                                                                                            =========          =========
    Diluted net income per common share                                                    $     0.23         $     0.25
                                                                                            =========          =========
    Dividends declared                                                                     $     0.12         $     0.11
                                                                                            =========          =========
Weighted average shares outstanding                                                         4,598,887          4,593,815
                                                                                            =========          =========
Diluted weighted average shares outstanding                                                 4,673,886          4,667,518
                                                                                          =========          =========
<FN>
The accompanying notes are an integral part of these statements.
</FN>
</TABLE>
                                       4

<PAGE>


                 FIRST WEST CHESTER CORPORATION AND SUBSIDIARIES
            CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY

                                   (UNAUDITED)
<TABLE>
<CAPTION>

(Dollars in thousands)                                                                      1999                   1998   
                                                                                        -----------            -----------
<S>                                                                                       <C>                   <C>    

Balance at January 1,                                                                      $ 39,723              $ 36,213

    Net income to date                                                                        1,086                 1,179
    Cash dividends declared                                                                    (553)                 (482)
    Net unrealized gain (loss) on securities available-for-sale                                (294)                   77
    Paid-in capital from treasury stock transactions                                             57                    17
    Treasury stock transactions                                                                (642)                   68
                                                                                            -------               -------

Balance at March 31,                                                                       $ 39,377              $ 37,072
                                                                                            =======               =======






























<FN>

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

                                       5
<PAGE>


                 FIRST WEST CHESTER CORPORATION AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                                   (UNAUDITED)
<TABLE>
<CAPTION>

                                                                                                       March 31,      
                                                                                              ---------------------------      
(Dollars in thousands)                                                                            1999            1998  
                                                                                              -----------      ----------
<S>                                                                                          <C>                <C>   

OPERATING ACTIVITIES
    Net Income                                                                                $   1,086          $  1,179
    Adjustments to reconcile net income to net cash
           provided by operating activities:
        Depreciation                                                                                342               265
        Provision for loan losses                                                                   138               224
        Amortization of investment security premiums
           and accretion of discounts                                                               119                34
        Amortization of deferred fees on loans                                                       14                 9
        Investment securities (gains) losses, net                                                    (4)                3
        (Increase) decrease in other assets                                                        (587)            1,289
        Increase (decrease) in other liabilities                                                  1,460              (293)
                                                                                               --------           -------

           Net cash provided by operating activities                                              2,568             2,710
                                                                                               --------           -------

INVESTING ACTIVITIES
    (Increase) decrease in interest bearing deposits in banks                                        --                --
    Increase in loans                                                                              (561)           (2,327)
    Proceeds from sale of investment securities available-for-sale                                2,441             8,408
    Proceeds from maturities of investment securities available-for-sale                          9,503             5,082
    Proceeds from maturities of investment securities held-to-maturity                            1,733             1,077
    Purchases of investment securities available-for-sale                                       (20,022)          (10,720)
    Purchase of premises and equipment, net                                                        (134)             (532)
                                                                                               --------           -------

           Net cash provided by (used) in investing activities                                   (7,040)              988
                                                                                               --------           -------

FINANCING ACTIVITIES
    Increase (decrease) in Federal Home Loan Bank advances                                        1,542            (3,987)
    Increase in deposits                                                                          3,536             6,596
    Decrease in securities sold under repurchase agreements                                         (39)           (2,898)
    Cash dividends                                                                                 (553)             (482)
    Treasury stock transactions                                                                    (585)               85
                                                                                               --------           -------

           Net cash provided by (used in) financing activities                                    3,901              (686)
                                                                                               --------           -------

           NET INCREASE (DECREASE) IN CASH AND CASH
                    EQUIVALENTS                                                                    (571)            3,012

Cash and cash equivalents at beginning of year                                                   30,681            26,448
                                                                                               --------           -------

Cash and cash equivalents at end of period                                                    $  30,110          $ 29,460
                                                                                               ========           =======
<FN>

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

                                       6

<PAGE>


                 FIRST WEST CHESTER CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                   (UNAUDITED)

1.        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.  For further
          information,  refer  to  the  consolidated  financial  statements  and
          footnotes  thereto  included  in First West  Chester  Corporation  and
          Subsidiaries  (the  "Corporation")  Annual Report on Form 10-K for the
          year ended December 31, 1998.

2.        The results of operations for the  three-month  period ended March 31,
          1999 are not necessarily  indicative of the results to be expected for
          the full year.

3.        Per share data is based on the  weighted  average  number of shares of
          common  stock  outstanding  during  the  period.  Diluted  net  income
          includes  the  effect of options  granted.  All per share data in this
          report has been restated to reflect the new  standards  imposed by the
          Financial  Accounting  Standards  Board  Statement  ("SFAS")  No. 128,
          "Earnings Per Share" which became  effective for financial  statements
          issued after December 15, 1997.

4.        The Corporation adopted SFAS No. 130, "Reporting Comprehensive Income"
          which became  effective  January 1, 1998.  This new standard  requires
          entities presenting a complete set of financial  statements to include
          details of comprehensive income.  Comprehensive income consists of net
          income or loss for the current period and income,  expenses, gains and
          losses that bypass the income statement and are reported directly in a
          separate component of equity.  Other  comprehensive  income/(loss) for
          the periods ending March 31, 1999 and 1998 is $(294)  thousand and $77
          thousand, respectively.

5.        On January 1, 1998, the Corporation adopted SFAS No. 131,  "Disclosure
          about Segments of an Enterprise and Related Information". SFAS No. 131
          redefines  how  operating   segments  are   determined   and  requires
          disclosure of certain  financial and descriptive  information  about a
          Company's  operating  segments.  Management  has concluded  that under
          current conditions, the corporation will report one business segment.

6.        The Financial Accounting Standards Board ("FASB") issued SFAS No. 132,
          "Employers   Disclosures  About  Pensions  and  Other   Postretirement
          Benefits"  which  amends  FASB  statements  No.  87,  88 and 106.  The
          statement  revises  employers'  disclosures  about  pension  and other
          postretirement  benefit plans and does not change the  measurement  of
          recognition   of  these  plans.   It   standardizes   the   disclosure
          requirements   and   requires   additional   information   on  benefit
          obligations  and the fair value of plan  assets  that will  facilitate
          financial  analysis,  and eliminate  certain  disclosures  that are no
          longer useful.  The statement is effective for fiscal years  beginning
          after December 15, 1997.  Adoption of the new standard is not expected
          to have a material impact on the Corporation's financial statement.

                                       7
<PAGE>




                 FIRST WEST CHESTER CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                                   (UNAUDITED)

7.        The  American  Institute  of Certified  Public  Accountants  ("AICPA")
          issued Statement of Option ("SOP") 98-1,  "Accounting for the Costs of
          Computer Software Developed or Obtained for Internal Use." The SOP was
          issued to provide authoritative  guidance on the subject of accounting
          for the costs  associated with the purchase or development of computer
          software.  The statement is effective for fiscal years beginning after
          December 15, 1998.  This  statement is not expected to have a material
          impact on the Corporation's financial statements.

8.        FASB issued SFAS No. 133,  "Accounting for Derivative  Instruments and
          Hedging  Activities" which amends FASB statements No. 52, 80, 105, 119
          and  107.  The  statement   requires   that  entities   recognize  all
          derivatives  as  either  assets or  liabilities  in the  statement  of
          financial  position and measure those  instruments at fair value.  The
          statement is effective  for quarters of fiscal years  beginning  after
          June 15, 1999. The statement is not expected to have a material impact
          on the Corporation's financial statements.

9.        Certain  prior year amounts have been  reclassified  to conform to the
          current year presentations.

                                       8
<PAGE>


           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 West Chester
Corporation (the  "Corporation")  and its wholly-owned  subsidiaries,  The First
National  Bank of West  Chester  (the  "Bank")  and 323  East  Gay  Street  Corp
("EGSC").  It  should be read in  conjunction  with the  consolidated  financial
statements included in this report.

         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. 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  those  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:  (a) 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;  (b) 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;  (c) costs of the
Corporation's   planned  training  initiatives,   product  development,   branch
expansion,  new technology and operating  systems may exceed  expectations;  (d)
volatility in the  Corporation's  market area due to recent mergers of competing
financial  institutions may have  unanticipated  consequences,  such as customer
turnover; (e) changes in the regulatory environment, securities markets, general
business  conditions  and  inflation  may be  adverse;  (f) impact of changes in
interest rates on customer behavior; (g) unforeseen difficulties in implementing
the Corporation's Year 2000 compliance plan or contingency plans; (h) failure of
suppliers and customers to be Year 2000 compliant;  (i) estimated changes in net
interest  income;  (j)  anticipated  pressure  on net  yields;  and  (k)  branch
locations.  These risks and  uncertainties are all difficult to predict and most
are beyond the control of the Corporation's Management.

         Although the Corporation  believes that its  expectations  are based on
reasonable  assumptions,  readers are cautioned  that such  statements  are only
projections.  The Corporation  undertakes no obligation to publicly  release any
revisions to the  forward-looking  statements to reflect events or circumstances
after the date of this report.

                          EARNINGS AND DIVIDEND SUMMARY

        Net income for the three months ended March 31, 1999 was $1.086 million,
a decrease of $93  thousand  or 7.9% from $1.179  million for the same period in
1998.  The decrease in net income can be partially  attributed to an increase in
staffing,   occupancy,   equipment,   data   processing  and  marketing   costs.
Additionally,  limited  loan growth and  competitive  pressures  on margins also
contributed  to the  decrease.  Basic  earnings  per share for the three  months
ending March 31, 1999 were $0.24 per share,  a $0.02 or 7.7%  decrease  over the
same period in 1998.  Cash dividends  declared  during the first quarter of 1999
increased  $0.01 per share, a 14.3% increase  compared to $0.11 per share in the
first quarter of 1998. Over the past ten years, the  Corporation's  practice has
been to pay a dividend of at least 35.0% of net income.

                                       9

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

<TABLE>
<CAPTION>


                                                              March                           December
                                                  ---------------------------                ----------
                                                   1999              1998                       1998    
                                                   ----              ----                    ----------
       <S>                                       <C>               <C>                         <C>   

        SELECTED RATIOS
       Return on average assets                    0.93%             1.11%                       1.14%
       Return on average equity                   10.98%            12.87%                      13.13%
       Earnings retained                          49.08%            59.12%                      57.26%
       Dividend payout ratio                      50.92%            40.88%                      42.74%
       Book value per share                       $8.58             $8.06                       $8.61
<FN>
The  "Consolidated  Average  Balance  Sheet" on page 14 may assist the reader in
following this discussion.
</FN>
</TABLE>

                               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 each of the three-month periods ended March 31, 1999 and
1998, on a tax  equivalent  basis,  was $4.9  million.  The average net yield on
interest-earning assets, on a tax equivalent basis was 4.45% for the three-month
period  ended  March 31,  1999  compared  to 4.88% for the same  period in 1998.
Average interest-earning assets increased approximately $37.0 million or 9.2% to
$436.7 million during the twelve-month  period ending March 31, 1999 compared to
$400.0 million during the same period last year. The increase in average earning
assets was the direct result of increased investment  activity.  The decrease in
the average net yield on  interest-earning  assets was primarily the result of a
decrease in the average yield earned on its  interest-earning  assets  partially
off set by a decrease in the average yield paid on interest bearing liabilities.
The decrease in the average net yield earned on  interest-earning  assets can be
attributed  to  decreases in loan  demand,  which  resulted in more assets being
reinvested in lower yielding  investments as opposed to higher  yielding  loans.
The   Corporation   anticipates   continued   pressure   on  the  net  yield  on
interest-earning assets as competition for new loan business remains very strong
and the cost of  incremental  deposit growth and other funding  sources  becomes
more expensive.

               AVERAGE INTEREST RATES (ON A TAX EQUIVALENT BASIS)

<TABLE>
<CAPTION>

                                                             Three-Months
                                                            Ended March 31,  
                                                      -------------------------  
YIELD ON                                               1999               1998 
--------                                              ------             ------
<S>                                                   <C>                <C>   

Interest-Earning Assets                                7.68%              8.31%
Interest Bearing Liabilities                           4.01%              4.24%
                                                       ----               ----
Net Interest Spread                                    3.67%              4.07%
Contribution of Interest-Free Funds                    0.78%              0.81%
                                                       ----               ----
Net Yield on Interest-Earning Assets                   4.45%              4.88%
                                                       ====               ====
</TABLE>

                      INTEREST INCOME ON FEDERAL FUNDS SOLD

         Interest income on federal funds sold for the three-month  period ended
March 31, 1999 decreased  11.6% to $61 thousand when compared to the same period
in 1998. The decrease in 1999's first quarter federal funds sold interest income
is primarily the result of a 79-basis  point (a basis point equals one hundredth
of one percent)  decrease in interest rates compared to the same period in 1998,
partially offset by a 3.2% increase in average balances.

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

                    INTEREST INCOME ON INVESTMENT SECURITIES

         On a tax equivalent  basis,  interest  income on investment  securities
increased 41.6% for the three-month period ended March 31, 1999 to approximately
$1.7 million compared to the same period in 1998. The increase was primarily the
result of a 48.6% increase in average  balances,  partially offset by a 29-basis
point  decrease in the yield earned.  Increases in average  investment  security
balances are the result of the combined  effect of modest loan growth  offset by
proportionally larger increases in deposits over the last twelve months.

                            INTEREST INCOME ON LOANS

         Loan  interest  income,  on a tax  equivalent  basis,  generated by the
Corporation's loan portfolio  decreased 5.7% to $6.7 million for the three-month
period ended March 31,  1999,  compared to $7.1 million for the same time period
in 1998. The decrease in interest income for the three-month  period ended March
31, 1999 is the direct result of a 52-basis  point  decrease in the rates earned
on the loan  portfolio.  This rate  reduction  can be  attributed  to  increased
competition  for new and existing loan  relationships  and the  generally  lower
interest rate  environment in the first quarter of 1999 as compared to the first
quarter of 1998. It is anticipated that pricing pressure will continue to reduce
overall  loan  yields and net  interest  margins for future  time  periods.  Fee
reductions will affect non-interest income.

                      INTEREST EXPENSE ON DEPOSIT ACCOUNTS

         Interest expense on deposit accounts increased 3.7% for the three-month
period ended March 31, 1999 to approximately $3.4 million,  compared to the same
period in 1998.  The increase is primarily  the result of an increase in average
interest-bearing deposits of $31.3 million, partially offset by a 24-basis point
decrease in the rates paid on interest  bearing  deposits,  compared to the same
period in 1998.

         Competition for deposits from non-banking  institutions  such as credit
union and mutual fund companies continues to grow. Despite the competition,  the
Corporation's  deposit base continues to grow and growth is expected to continue
for future time periods. The Corporation believes it has benefited from customer
fallout during the latest wave of merger activity of area regional institutions.
Additionally,  growth can be attributed to the Corporation's  decision to open a
new branch  site in the Frazer  area.  This site  opened on August 3, 1998.  The
Matlack  Street  Training  Center and other future  branch sites are expected to
expand  the  Bank's   deposit  base.   The   Corporation's   effective  rate  on
interest-bearing  deposits  decreased from 4.21% in the first quarter of 1998 to
3.97% for the first quarter of 1999.

         INTEREST EXPENSE ON SECURITIES SOLD UNDER REPURCHASE AGREEMENTS

         Interest  expense  on  securities  sold  under  repurchase   agreements
decreased 16.2% to $31 thousand for the three-month  period ended March 31, 1999
compared to the same time period in 1998. The decrease is attributable to a $1.3
million  decrease  in  average  securities  sold  under  repurchase   agreements
outstanding,  partially  offset by a 57-basis  point  increase  in rates paid on
securities sold under repurchase agreements.

                                       11
<PAGE>
           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                            AND RESULTS OF OPERATIONS

    INTEREST EXPENSE ON FEDERAL HOME LOAN BANK ADVANCES AND OTHER BORROWINGS

         Interest  expense on  borrowings  decreased  12.4% for the  three-month
period ended March 31, 1999.  The need for  borrowings has decreased as a result
of increased  deposit growth and a decrease in the loan growth rate.  Borrowings
at any  time  consist  of one or  more of the  following:  Overnight  Fed  Funds
purchased,  Federal Home Loan Bank  ("FHLB") Term  Advances,  FHLB Open Repo and
Repo Plus Advances.

                       PROVISION FOR POSSIBLE LOAN LOSSES

         During  the first  quarter  of 1999,  the  Corporation  recorded a $138
thousand  provision for possible  loan losses  compared to $224 thousand for the
same period in 1998. The decrease in the provision  expense for the  three-month
period ended March 31, 1999 is  attributed  to the modest loan growth rate and a
$106 thousand  reduction in net charge-offs  compared to the same time period in
1998.  The allowance for possible loan losses as a percentage of total loans was
1.85% as of March 31, 1999 and March 31, 1998.
See the section  titled  "Allowance  For Possible  Loan  Losses" for  additional
discussion.

                               NON-INTEREST INCOME

         Total non-interest income increased 10.5% to $1.2 million for the three
months  ended March 31, 1999,  compared to the same period in 1998.  The primary
component of non-interest income is Financial Management Services revenue, which
increased  $68  thousand or 12.1% to $629  thousand for the  three-months  ended
March 31,  1999  compared  with the same  period in 1998.  The  market  value of
Financial Management Services assets under management grew $24.7 million or 6.4%
from $385.2  million at March 31, 1998 to $409.9  million at March 31, 1999. The
increase in  Financial  Management  Services  revenue and growth in assets under
management  is  primarily  the  result of market  appreciation  and new  account
relationships   acquired  through  strong  marketing  and  business  development
efforts.

        Service charges on deposit accounts  decreased 3.2% to $245 thousand for
the  three-months  ended March 31, 1999  compared to $253  thousand for the same
period in 1998. Other  non-interest  income increased 17.4% to $311 thousand for
the  three-months  ended March 31, 1999  compared to $265  thousand for the same
period in 1998.  This can be attributed to an increase in various sources of fee
income  such as  service  charges  from  non-customer  ATM  transactions,  which
commenced during the second quarter of 1998.

                              NON-INTEREST EXPENSE

        Total non-interest  expense for the first quarter of 1999 increased 8.7%
to $4.3 million  compared to the same period in 1998. The various  components of
non-interest expense changes are discussed below.

        First quarter 1999 salaries and employee benefits increased 6.0% to $2.3
million for the  three-month  period  ended March 31, 1999  compared to the same
period in 1998. Annual employee raises, a new salary administration program, and
a proportional  increase in employee benefits are primarily  responsible for the
increase.  The hiring of additional staff for the Frazer Branch during the third
quarter of 1998 also contributed to this increase.  Average full time equivalent
staff  increased  from 195 for the period  ended  March 31,  1998 to 205 for the
period ended March 31, 1999.

                                       12
<PAGE>
           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                            AND RESULTS OF OPERATIONS

        Net occupancy,  equipment and data processing expense increased 19.5% to
$958  thousand for the  three-month  period ended March 31, 1999 compared to the
same period last year.  The increase is the direct result of increased  computer
and related  equipment  costs  associated with the completion of the Core-System
conversion process, the phase out of certain main-frame related costs, a payroll
conversion and direct Y2K costs.  Increases in the Corporations  facilities also
contributed the increase.  See "Building  Improvements and Technology  Projects"
and "Year 2000 Issues" sections for more detail.

        Total other non-interest expense increased 5.0% to $903 thousand for the
three  months  ended  March 31, 1999  compared to the same period in 1998.  This
increase  can be  partially  attributed  to an  increase  in  the  Corporation's
marketing  efforts to attract new customers  and to promote its corporate  image
and a one-time non-cash loss on disposal of the asset.

        Planning for additional branch sites continues. The Corporation believes
that the costs  associated  with the  opening  of 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.

                                       13

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

                       CONSOLIDATED AVERAGE BALANCE SHEET
             AND TAXABLE EQUIVALENT INCOME/EXPENSE AND RATES FOR THE
                          THREE MONTHS ENDED MARCH 31,
<TABLE>
<CAPTION>

(Dollars in thousands)                                                 1999                                  1998    
                                                            ----------------------------       ---------------------------
                                                              Daily                               Daily
                                                             Average                             Average
ASSETS                                                       Balance    Interest   Rate          Balance   Interest  Rate
                                                             --------   --------  ------         -------   --------  ----
   <S>                                                      <C>        <C>        <C>          <C>         <C>      <C>

    Federal funds sold                                       $  5,181   $   61     4.71%        $  5,022    $   69   5.50%
    Investment securities
        Taxable                                               109,422    1,634     5.97%          73,460     1,150   6.26%
        Tax-exempt(1)                                           1,938       36     7.40%           1,479        29   7.76%
                                                              -------    -----                   -------     -----
           Total investment securities                        111,360    1,670     6.00%          74,939     1,179   6.29%
                                                              -------    -----                   -------     -----
    Loans(2)
        Taxable                                               316,716    6,568     8.30%         312,797     6,879   8.80%
        Tax-exempt(1)                                           3,412       84     9.89%           6,947       177  10.21%
                                                              -------    -----                   -------     -----
           Total loans                                        320,128    6,652     8.31%         319,744     7,056   8.83%
                                                              -------    -----                   -------     -----
           Total interest-earning assets                      436,669    8,383     7.68%         399,705     8,304   8.31%
    Non-interest earning assets
        Allowance for possible loan losses                     (5,913)                            (5,920)
        Cash and due from banks                                20,672                             19,115
        Other assets                                           15,816                             13,678
                                                              -------                            -------
           Total assets                                      $467,244                           $426,578
                                                              =======                            =======

LIABILITIES AND STOCKHOLDERS' EQUITY
    Savings, NOWS & money market deposits                    $194,008    1,393     2.87%        $180,607    $1,409   3.12%
    Certificates of deposits and other time                   149,531    2,018     5.40%         131,631     1,881   5.72%
                                                              -------    -----                   -------     -----
        Total interest bearing deposits                       343,539    3,411     3.97%         312,238     3,290   4.21%
    Securities sold under repurchase agreements                 3,263       31     3.80%           4,575        37   3.23%
    Federal Home Loan Bank advances and
       Other borrowings                                         5,274       85     6.45%           6,093        97   6.37%
                                                              -------    -----                   -------     -----
        Total interest bearing liabilities                    352,076    3,527     4.01%         322,906     3,424   4.24%
                                                              -------    -----                   -------     -----
    Non-interest bearing liabilities
        Non-interest bearing demand deposits                   69,324                             60,195
        Other liabilities                                       6,285                              6,834
                                                              -------                            -------
           Total liabilities                                  427,685                            389,935
    Stockholders' equity                                       39,559                             36,643
                                                              -------                            -------
           Total liabilities and stockholders' equity        $467,244                           $426,578
                                                              =======                            =======
    Net interest income                                                 $4,856                              $4,880
                                                                         =====                               =====
    Net yield on interest earning assets                                           4.45%                             4.88%
                                                                                   ====                              ====











<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 20%
    interest expense  disallowance for 1999 and 1998. 
(2) Non-accruing loans are included in the average balance.
</FN>
</TABLE>

                                       14
<PAGE>
           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                            AND RESULTS OF OPERATIONS

                                  INCOME TAXES

        Income tax expense for the  three-month  period ended March 31, 1999 was
$476  thousand,  compared to $516  thousand  in the same period last year.  This
represents  an  effective  tax rate of 30.5% and 30.4% for the first  quarter of
1999 and 1998, 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  Senior  Management to effectively  monitor changes in liquidity and to
react  accordingly to fluctuations in market  conditions.  The primary source of
liquidity  for the  Corporation  is its  available-for-sale  portfolio of liquid
investment grade securities. Funding sources include NOW, money-market,  savings
and smaller  denomination  certificates  of deposit  accounts.  The  Corporation
considers funds from such sources to comprise its "core" deposit base because of
the historical  stability of such sources of funds.  Additional  liquidity comes
from the Corporation's  non-interest  bearing demand deposit accounts and credit
facilities.  Other deposit  sources  include a three-tiered  savings product and
certificates  of  deposit  in  excess of  $100,000.  Details  of core  deposits,
non-interest  bearing  demand  deposit  accounts and other  deposit  sources are
highlighted in the following table:



                                DEPOSIT ANALYSIS
<TABLE>
<CAPTION>


(Dollars in thousands)                          March 31, 1999        December 31, 1998          Average       Balance  
                                           --------------------     -----------------------     ------------------------
                                            Average  Effective      Average       Effective       Dollar     Percentage
Deposit Type                                Balance      Yield      Balance         Yield        Variance      Variance 
------------                                -------  ----------     --------      ---------     ---------    -----------
<S>                                       <C>           <C>        <C>             <C>           <C>          <C>

NOW Accounts                               $ 56,609      1.69%      $ 55,203        2.04%         $ 1,406       2.55%
Money Market                                 25,724      2.86         27,596        3.09           (1,872)     -6.78
Statement Savings                            48,528      2.94         47,046        3.28            1,482       3.15
Other Savings                                 2,215      2.71          2,382        2.73             (167)     -7.01
CD's Less than $100,000                     121,021      5.44        114,372        5.81            6,649       5.81
                                            -------                  -------                       ------

Total Core Deposits                         254,097      3.84        246,599        4.15            7,498       3.04

Non-Interest Bearing
    Demand Deposit Accounts                  69,324         -         64,705           -            4,619       7.14
                                            -------                  -------                       ------

Total Core and Non-Interest
    Bearing Deposits                        323,421      3.02        311,304        3.29          12,117        3.89
                                            -------                  -------                      ------

Tiered Savings                               60,933      3.93         51,854        4.09           9,079       13.83
CD's Greater than $100,000                   28,509      5.21         23,453        5.63           5,056       17.51
                                            -------                  -------                     -------

Total Deposits                             $412,863      3.30       $386,611           -        $ 26,252        6.79
                                            =======                  =======                     =======
</TABLE>
                                       15
<PAGE>
           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                            AND RESULTS OF OPERATIONS

       The Bank, as a member of the FHLB, maintains a credit facility secured by
the Bank's mortgage-related assets. Additionally,  the FHLB offers several other
credit  related  products  which are available to the Bank. As of March 31, 1999
the amount outstanding under the Bank's line of credit with the FHLB was $0. The
Bank currently has a maximum  borrowing  capacity with the FHLB of approximately
$117.0  million.  During the first  quarter of 1999,  average FHLB advances were
approximately  $6.1  million  and  consisted  of term  advances  representing  a
combination  of  maturities.  The average  interest  rate on these  advances was
approximately  6.5%. FHLB advances are  collateralized by a pledge on the Bank's
entire portfolio of unencumbered  investment securities,  certain mortgage loans
and a lien on the Bank's FHLB stock.

       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 future time  periods.  The  Corporation's  net
interest rate  sensitivity  gap within one year is a negative  $165.7 million or
34.7% of total assets at March 31, 1999 compared with a negative  $151.8 million
or 32.2% of total assets at December 31, 1998. The Corporation's gap position is
one factor used to evaluate interest rate risk and the stability of net interest
margins.  Other factors include computer simulations of what might happen to net
interest income under various interest rate forecasts and scenarios.  Management
monitors  interest  rate  risk as a  regular  part of bank  operations  with the
intention of maintaining a stable net interest margin.

                                       16
<PAGE>
           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                            AND RESULTS OF OPERATIONS

                          INTEREST SENSITIVITY ANALYSIS
                              AS OF MARCH 31, 1999

<TABLE>
<CAPTION>

                                                                One               Over
(Dollars in thousands)                       Within           through             five          Non-rate
                                            one year         five years           years         sensitive          Total  
                                           ------------      ----------         ---------       ---------        ---------
<S>                                       <C>              <C>                 <C>             <C>              <C>   

ASSETS
    Federal funds sold                     $   8,000        $        --         $     --        $     --         $  8,000
    Investment securities                     38,792             56,611           20,613              --          116,016
    Interest bearing deposits in banks            --                 --               --              --               --
    Loans and leases                          87,226            171,215           62,421          (5,937)         314,925
    Cash and cash equivalents                     --                 --               --          22,110           22,110
    Premises and equipment                        --                 --               --           9,371            9,371
    Other assets                               2,616                 --               --           3,807            6,423
                                            --------          ---------          -------         -------          -------
    Total assets                           $ 136,634         $  227,826         $ 83,034        $ 29,351         $476,845
                                            ========            =======          =======        ========          =======

LIABILITIES AND CAPITAL
    Interest bearing deposits              $ 297,187         $   50,805         $  1,781        $     --         $349,773
    Non-interest bearing deposits                 --                 --               --          72,161           72,161
    Borrowed funds                             4,337                 --               --              --            4,337
    FHLB Advances                                812              2,142            2,034              --            4,988
    Other liabilities                             --                 --               --           6,209            6,209
    Capital                                       --                 --               --          39,377           39,377
                                            --------          ---------          -------         -------          -------
    Total liabilities & capital            $ 302,336         $   52,947         $  3,815        $117,747         $476,845
                                            ========          =========          =======         =======          =======

    Net interest rate
      sensitivity gap                      $(165,702)        $  174,879         $ 79,219        $(88,396)        $     --
                                            ========          =========          =======         =======          =======
    Cumulative interest rate
      sensitivity gap                      $(165,702)        $    9,177         $ 88,396        $     --    $          --
                                            ========          =========          =======         =======     ============
    Cumulative interest rate
      sensitivity gap divided
      by total assets                        (34.7%)               1.9%            18.5%
                                            =======           =========          =======
</TABLE>


                       ALLOWANCE FOR POSSIBLE LOAN LOSSES

         The  allowance  for possible  loan losses is an amount that  Management
believes will be adequate to absorb  possible loan losses on existing loans that
may become  uncollectible  based on 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 the borrower's ability to pay.

                                       17

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

          ANALYSIS OF CHANGES IN THE ALLOWANCE FOR POSSIBLE LOAN LOSSES
                       AND COMPARISON OF LOANS OUTSTANDING
<TABLE>
<CAPTION>

     (Dollars in thousands)                                                     March 31,                     December 31, 
                                                                        ------------------------              ------------
                                                                          1999           1998                     1998     
                                                                        ---------       --------              ------------
    <S>                                                                 <C>            <C>                   <C>   

     Balance at beginning of period                                      $  5,877       $  5,900              $    5,900
                                                                          -------        -------                 -------

     Provision charged to operating expense                                   138            224                     911
                                                                          -------        -------                 -------

        Recoveries of loans previously charged-off                             48              7                     245
        Loans charged-off                                                    (126)          (191)                 (1,179)
                                                                          -------        -------                 -------

     Net loans charged-off                                                    (78)          (184)                   (934)
                                                                          -------        -------                 -------

     Balance at end of period                                            $  5,937       $  5,940                $  5,877
                                                                          =======        =======                 =======

     Period-end loans outstanding                                        $320,864       $321,034                $320,395

     Average loans outstanding                                           $320,128       $319,744                $320,366

     Allowance for possible loan losses as a
        percentage of period-end loans outstanding                          1.85%          1.85%                   1.83%

     Ratio of net charge-offs to average loans
        Outstanding (annualized)                                            0.10%          0.23%                   0.29%
</TABLE>

              Non-performing loans include loans on non-accrual status and loans
     past due 90 days or more and still accruing.  The Bank's policy is to write
     down all  non-performing  loans to net  realizable  value  based on updated
     appraisals.  Non-performing  loans  are  generally  collateralized  by real
     estate and are in the process of collection. 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.

                                       18

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

                         NON-PERFORMING LOANS AND ASSETS

<TABLE>
<CAPTION>

(Dollars in thousands)                                                March 31,               December 31,  
                                                               -----------------------       -------------
                                                                 1999            1998             1998
                                                                -----            ----             ----
<S>                                                           <C>              <C>             <C>    

Past due over 90 days and still accruing                       $  909           $  389          $   546

Non-accrual loans                                               1,372            1,763            1,316
                                                                -----            -----           ------

Total non-performing loans                                      2,281            2,152            1,862

Other real estate owned                                           192            1,600              192
                                                                -----            -----           ------

Total non-performing assets                                    $2,473           $3,752          $ 2,054
                                                                =====            =====           ======

Non-performing loans as a percentage
     of total loans                                             0.71%            0.67%            0.58%

Allowance for possible loan losses as a
   percentage of non-performing loans                          260.3%           276.0%           315.6%

Non-performing assets as a percentage of
   total loans and other real estate owned                       0.8%             1.2%             0.6%

Allowance for possible loan losses as a
  percentage of non-performing assets                          240.1%           158.3%           286.1%

</TABLE>
         The   allowance   for  possible   loan  losses  as  a   percentage   of
non-performing  loans  indicates  that the allowance for possible loan losses is
sufficient to cover the principal of all non-performing loans at March 31, 1999.
Other real estate owned ("OREO")  represents  residential  and  commercial  real
estate written down to realizable value (net of estimated  disposal costs) based
on  professional  appraisals.  Management  intends to liquidate OREO in the most
expedient and cost-effective  manner.  This process could take up to twenty-four
months, although swifter disposition is anticipated.  The decrease in other real
estate owned for the period  ended March 31, 1999,  is the result of a 1998 sale
of foreclosed property.

         Management is not aware of any loans other than those included in these
tables  and  mentioned  in this  paragraph  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.  The increase in the past due 90 days and
accruing  category  can be  attributed  to two  borrowers  with  loans  totaling
approximately  $720  thousand  of which $269  thousand  has since  been  brought
current.

         The Corporation continues to service its third party automobile lending
portfolio  but has not added any  additional  volume since June 30,  1998.  This
portfolio totaled approximately $19 million as of March 31, 1999 and $24 million
as of December 31, 1998. These loans have become more seasoned as evidenced by a
decrease  in  the  portfolios   past  due  numbers,   but  continue  to  inflate
non-performing loan numbers. As of March 31, 1999 and December 31, 1998 5.5% and
9.9% of the portfolio was past due 30 days or more.

                                       19
<PAGE>
           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                            AND RESULTS OF OPERATIONS

In  addition,  $20  thousand at March 31, 1999 and $51  thousand at December 31,
1998 in  repossessed  vehicles are included in other  assets.  These assets have
been charged down and recorded at their estimated realizable value. At March 31,
1999 there were no  concentrations  of loans  exceeding 10% of total loans which
are not otherwise disclosed.

                                 LOAN IMPAIRMENT

         The  bank  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 balance of impaired loans was $1,078,000,  $919,000, and $1,377,000
at March 31,  1999,  December  31, 1988,  and March 31, 1998  respectively.  The
associated  allowance for impaired loans was $333,000,  $286,000 and $274,000 at
March 31, 1999, December 31, 1998, and March 31, 1998, respectively.

         For the three months ended March 31,  1999,  activity in the  allowance
for impaired  loan losses  include a provision of $50,000,  write offs of $3,000
and  recoveries of $0.  Interest  income of $0 was recorded for the period while
contractual interest amounted to $23,000. Cash collected on loans for the period
was $25,000 all of which was applied to principal.

         For  the  twelve  months  ended  December  31,  1998,  activity  in the
allowance for impaired loan losses  include a provision of $150,000,  write offs
of $170,000 and  recoveries of $0.  Interest  income of $25,000 was recorded for
the period while contractual  interest  amounted to $129,000.  Cash collected on
loans for the period was $836,000 of which $811,000 was applied to principal and
$25,000 was applied to interest.

         For the three months ended March 31,  1998,  activity in the  allowance
for impaired loan losses  include a provision of $50,000,  write offs of $82,000
and  recoveries of $0.  Interest  income of $0 was recorded for the period while
contractual interest amounted to $28,000. Cash collected on loans for the period
was $10,000 all of which was applied to principal.

                  BUILDING IMPROVEMENTS AND TECHNOLOGY PROJECTS

         During 1998, the Corporation  completed  construction of a 2,750 square
foot branch office in the Frazer area.  The branch opened for business on August
3, 1998. In September of 1998,  the  Corporation  purchased a 25,000 square foot
office building adjacent to the Corporation's  existing Operation Center in West
Chester, Pennsylvania for approximately $1.7 million. The Corporation expects to
occupy the  building  in the second  quarter of 1999.  The new  building  at 887
Matlack Street,  will house a branch teller training center that will be open to
the public in June as well as be the new location for the and the administrative
services,  audit,  compliance  and  facilities  departments.  During  1998,  the
Corporation  also entered into an agreement to purchase  additional  land in the
Lionville area to accommodate future expansion.

         In November  1998, the  Corporation  completed a conversion of its Core
Processing  system to the Jack Henry and  Associates,  Inc.  ("JHA")  Silverlake
system.  JHA is a major  provider of  community  bank core  processing  systems.
Technology projects in process during the first quarter of 1999 include the

                                       20
<PAGE>
           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                            AND RESULTS OF OPERATIONS

building  and  upgrade of the  Corporation's  local and wide area  networks  and
payroll  processing.  FNB  recently  entered into  contracts  with JHA for their
Internet banking  solution,  Net-Teller.  Net-Teller will be used for retail and
commercial customers. A January 2000 roll-out is anticipated.

                                YEAR 2000 ISSUES

State of Readiness
------------------

         The  Corporation  has adopted a Year 2000 ("Y2K") policy to address the
inability of certain  information  systems and  automated  equipment to properly
recognize and process dates containing the Y2K and beyond, (the "Y2K Issue"). If
not corrected, these systems and automated equipment could produce inaccurate or
unpredictable results commencing on January 1, 2000. The Corporation, similar to
most financial services providers,  is particularly  vulnerable to the potential
impact of the Y2K Issue due to the nature of  financial  information.  Potential
impacts to the Corporation may arise from software, computer hardware, and other
equipment  failure both within the  Corporation's  direct control and outside of
the  Corporation's  ownership yet with which the Corporation  electronically  or
operationally  interfaces.  The Corporation has no internally generated software
coding to correct. Substantially all of the software utilized by the Corporation
is purchased or licensed from external providers.

         In order to address the Y2K Issue,  the  Corporation  has developed and
implemented a five phase  compliance  plan. The compliance  plan is divided into
the following major components:  (1) Awareness; (2) Assessment;  (3) Renovation;
(4)  Validation  and  Testing;  and  (5)  Implementation.  The  Corporation  has
completed  the first  three  phases of the plan for all of its  mission-critical
systems  and is  currently  working  on the final two  phases.  The  Corporation
anticipates  that  the  validation,   testing  and   implementation   phases  of
mission-critical systems will be substantially completed by June 30, 1999.

         JHA has tested the unmodified  version of its Silverlake system and the
Federal Financial  Institutions  Examination  Council ("FFIEC") has reviewed JHA
test procedures and has provided the Corporation with a copy of the results. The
Corporation  conducted an independent test on the Silverlake  system and related
hardware  during the week of March 7, 1999. The Corporation is in the process of
documenting and evaluating the results of that test.  Documentation  is expected
to be completed by May 25, 1999.

         The  Corporation's  check  processing and imaging system,  operate on a
combination of NCR, Unisys, Novell and Microsoft hardware and software. Parts of
this system require certain upgrades.  These upgrades are being installed in the
second  quarter of 1999.  The  Corporation  has  completed Y2K testing on all PC
hardware and software.  Any machines  failing these tests are being  replaced or
repaired. This process will be complete by June 30, 1999.

         The Corporation's  Financial Management Services Department  outsources
its core processing to Sunguard Trust System Inc.'s ("STS") Charlotte.  STS is a
provider of data processing services to the financial services industry. STS has
informed the Corporation  that, based upon tests,  which it has conducted and is
currently conducting, it believes its systems are Y2K compliant. The Corporation
will  rely on  testing  conducted  by STS and  will  also  rely on  Proxy  Tests
conducted  by certain  STS  customers.  Testing and  related  documentation  was
completed by March 31, 1999.

                                       21
<PAGE>
           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                            AND RESULTS OF OPERATIONS


The Costs to Address the Corporation's Year 2000 Issues
-------------------------------------------------------

         The  Corporation  has  incurred  direct  Y2K  project  costs of $79,000
through March 31, 1999. The  Corporation  has incurred total direct and indirect
Y2K  project  costs  of  $184,000   through  March  31,  1999.  The  Corporation
anticipates  that its total Y2K  project  cost will not  exceed  $275,000.  This
estimated  project  cost is  based  upon  currently  available  information  and
includes  expenses  for the  review  and  testing  by third  parties,  including
government  entities.  However,  there can be no  guarantee  that the  hardware,
software,  and systems of such third  parties  will be free of  unfavorable  Y2K
issues and therefore not present a material adverse impact upon the Corporation.
The  aforementioned Y2K project cost estimate also may change as the Corporation
progresses  in its Y2K  program and obtains  additional  information  associated
with, and conducts further testing  concerning,  third parties. At this time, no
significant  projects  have been  delayed as a result of the  Corporation's  Y2K
effort.

Risk Assessment
---------------

         In  assessing  the   Corporation's  Y2K  exposure  the  Corporation  is
identifying   those   suppliers  and  customers   whose  possible  lack  of  Y2K
preparedness  might expose the  Corporation  to financial  loss.  Financial loss
includes but is not limited to the  following:  (1) monies paid to suppliers for
which no  performance  is  rendered;  (2)  inability  of  suppliers  to  furnish
necessary items potentially resulting in costly business interruptions;  and (3)
inability of loan customers to repay amounts due.

         The Corporation  has initiated  formal  communications  with all of its
significant  vendors and large loan customers  (over  $250,000) to determine its
vulnerability  as a result of the  failure of those third  parties to  remediate
their own Y2K Issues.  The Corporation  will review the Y2K  capabilities of all
significant  vendors by June 30, 1999.  The  Corporation  will take  appropriate
action based upon each large loan customer's  response to the  Corporation's Y2K
communication.

Cash Contingency and Customer Awareness Programs
------------------------------------------------

         The  Corporation  is  preparing  a  cash   contingency   plan  to  meet
anticipated  year-end  customer needs. The Corporation is also  participating in
several customer / community awareness seminars.  These seminars are designed to
educate  our  customers  and the  community  about  Y2K risk and the  steps  the
Corporation  is taking to prepare  itself.  The  Corporation  is also  preparing
several employee awareness programs with similar objectives.

The Corporation's Contingency Plan
----------------------------------

         The Corporation has developed labor intensive  contingency plans, which
are designed to render the Corporation operational for a period of one to thirty
days should a Y2K problem surface.  These  contingency  plans consist of various
manual tasks, which include but are not limited to the following:

1.   Maintenance of loan data on Microsoft Excel  spreadsheets or paper ledgers;
  
2.   Maintenance  of  core  deposit  account   information  on  Microsoft  Excel
     spreadsheets  or paper ledgers;

3.   Manual  sorting of deposit  tickets  and checks by account  number;  and 

4.   Maintenance of FMS account  information on Microsoft Excel  spreadsheets or
     manual ledgers;

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

         A  check  processing  contingency  plan  involving  the  use  of a used
reader-sorter  and JHA's proof of deposit  program is being  developed.  At this
time the Corporation cannot estimate the cost, if any, that might be required to
implement such contingency Y2K preparedness plans.

Other
-----

         Financial  institution  regulators  have  intensively  focused upon Y2K
exposures, issuing guidance concerning the responsibilities of senior management
and  directors in addressing  the Y2K Issue.  Y2K testing and  certification  is
being  addressed  as a key  safety  and  soundness  issue  in  conjunction  with
regulatory exams. In May 1997, the FFIEC issued an interagency  statement to the
chief  executive  officers of all federally  supervised  financial  institutions
regarding Y2K project management awareness. The FFIEC has highly prioritized Y2K
compliance in order to avoid major  disruptions  to the  operations of financial
institutions  and the country's  financial  systems when the new century begins.
The FFIEC statement  provides guidance to financial  institutions,  providers of
data  services,  and all  examining  personnel of the federal  banking  agencies
regarding the Y2K Issue.

         The federal  banking  agencies,  including the OCC have been conducting
Y2K  compliance  examinations.  The failure to implement an adequate Y2K program
can be identified as an unsafe and unsound banking practice. The Corporation and
the Bank are subject to regulation and  supervision  by the OCC which  regularly
conducts  reviews of the safety and soundness of the  Corporation's  operations,
including  the  Corporation's  progress in becoming Y2K  compliant.  The OCC has
established an examination procedure which contains three categories of ratings:
"Satisfactory",  "Needs Improvement",  and  "Unsatisfactory".  Institutions that
receive a Y2K rating of  Unsatisfactory  may be  subject  to formal  enforcement
action, supervisory agreements,  cease and desist orders, civil money penalties,
or the appointment of a conservator.  In addition, federal banking agencies will
be taking into account Y2K compliance  programs when reviewing  applications and
may deny an application based on Y2K related issues.  Failure by the Corporation
to adequately  prepare for Y2K issues could negatively  impact the Corporation's
banking operations, including the imposition of restrictions upon its operations
by the OCC.

         Despite the Corporation's activities in regards to the Y2K Issue, there
can be no assurance  that partial or total  systems  interruptions  or the costs
necessary  to update  hardware and  software  would not have a material  adverse
effect  upon  the  Corporation's  business,   financial  condition,  results  of
operations, and business prospects.

                                CAPITAL ADEQUACY

         The Corporation is subject to Risk-Based  Capital Guidelines adopted by
the Federal Reserve Board for bank holding  companies.  The Bank 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 March 31,
1999,  both the  Corporation's  and the  Bank's  capital  exceeded  all  minimum
regulatory  requirements,  and were 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.

                                       23

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

<TABLE>
<CAPTION>


                                                  March 31,                   December 31,          
RISK-BASED                                ------------------------            ------------         "Well Capitalized"
CAPITAL RATIOS                              1999             1998                1998                  Requirements   
--------------                              ----             ----             ---------             -----------------
<S>                                       <C>              <C>                  <C>                     <C>    

   Corporation
   -----------
Leverage Ratio                              8.43%            8.68%                8.59%                   5.00%
Tier I Capital Ratio                       11.44%           11.33%               11.67%                   6.00%
Total Risk-Based Capital Ratio             12.70%           12.59%               12.95%                  10.00%
     Bank
     ----
Leverage Ratio                              8.20%            8.42%                8.36%                   5.00%
Tier I Capital Ratio                       11.12%           11.01%               11.35%                   6.00%
Total Risk-Based Capital Ratio             12.37%           12.27%               12.62%                  10.00%
</TABLE>

         The Bank is not under any agreement with the regulatory authorities nor
is it aware of any current  recommendations by the regulatory authorities which,
if they were to be  implemented,  would  have a  material  affect on  liquidity,
capital resources or operations of the Corporation.  The internal capital growth
for the  Corporation  was (0.87)% and 9.98% for the three months ended March 31,
1999 and 1998,  respectively.  The growth rate is computed  by  annualizing  the
change in equity  during the last period and dividing it by total  stockholder's
equity at March 31, 1999 and 1998, respectively.

                                       24

<PAGE>
           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 1998 Annual Report,
filed as an exhibit to its Form 10-K for the fiscal year ended December 31, 1998
with  the SEC via  EDGAR.  Please  refer  to the  "Management's  Discussion  and
Analysis"  section on pages 27-28 of the  Corporation's  Annual  Report for more
information.

                                       25
<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.  Changes in Securities
         ---------------------
                  None

Item 3.  Defaults upon Senior Securities
         -------------------------------
                  None

Item 4.  Submission of Matters to a Vote of Security Holders
         ---------------------------------------------------
                  The Annual Meeting of Shareholders of the Corporation was held
                  on March 16, 1999 (the  "Meeting").  Notice of the Meeting was
                  mailed to shareholders of record on or about February 3, 1999,
                  together  with  proxy   solicitation   materials  prepared  in
                  accordance  with Section 14(a) of the Securities  Exchange Act
                  of  1934,  as  amended,   and  the   regulations   promulgated
                  thereunder.

                  The matters submitted to a vote of shareholders at the meeting
                  were the following:

                    1.  The  election  of three Class III  directors,  with each
                        director  to serve  until  the 2002  Annual  Meeting  of
                        Shareholders and until the election and qualification of
                        his respective successor;

                    2.  The approval of certain  amendments to the Corporation's
                        1995 Stock  Option Plan to grant  additional  options to
                        non-employee directors of the Corporation;

                    3.  The  approval  of  an  amendment  to  the  Corporation's
                        Articles  of  Incorporation  to  increase  the number of
                        authorized shares of the Corporation; and

                    4.  The  ratification  of the appointment of Grant Thornton,
                        LLP as the Corporation's  independent public accountants
                        for the year ending December 31, 1999; and

                  There was no solicitation in opposition to the nominees of the
                  Board of  Directors  for  election to the Board of  Directors.
                  Prior  to  the  meeting,  one of the  incumbent  nominees  for
                  election to the Board of Directors,  Devere Kauffman, resigned
                  from the Board and  withdrew  from the  election.  Both of the
                  other  nominees were elected.  The number of votes cast for or
                  withheld  as well as the  number  of  abstentions  and  broker
                  non-votes  for each of the  nominees for election to the Board
                  of Directors were as follows:

                                       25

<PAGE>
                     PART II - OTHER INFORMATION - CONTINUED
<TABLE>
<CAPTION>

                                                                                          Abstentions and
                           Nominee               For               Withheld               Broker Non-Votes
                           -------               ---               --------               ----------------
                 <S>                       <C>                     <C>                           <C> 

                  John A. Featherman, III   3,413,412               552,458                       0

                  John S. Halsted           3,414,029               551,841                       0
</TABLE>

               The  names  of the  other  directors  whose  terms of  office  as
               directors  continued  after the Meeting  are as follows:  John J.
               Ciccarone,  M.  Robert  Clarke,  Edward J.  Cotter,  Clifford  E.
               DeBaptiste,  J. Carol Hanson,  David L. Peirce,  Charles E. Swope
               and John B. Waldron.

               The proposal to make certain amendments to the Corporation's 1995
               Stock Option Plan was  approved.  The number of votes cast for or
               against as well as the number of abstentions and broker non-votes
               for the proposal were as follows:

<TABLE>
<CAPTION>

                           For                   Against               Abstentions          Broker non-votes
                           ---                   -------               -----------          ----------------
                       <S>                      <C>                      <C>                       <C>    

                        3,800,605                73,455                   91,810                    0
</TABLE>

               The proposal to amend the Corporation's Articles of Incorporation
               was approved.  The number of votes cast for or against as well as
               the number of abstentions  and broker  non-votes for the proposal
               were as follows:
<TABLE>
<CAPTION>

                           For                   Against               Abstentions          Broker non-votes
                           ---                   -------               -----------          ----------------
                       <S>                      <C>                      <C>                       <C>   

                        3,875,561                23,243                   67,066                    0
</TABLE>


               The proposal to ratify the appointment of Grant Thornton,  LLP as
               the  Corporation's  independent  public  accountants for the year
               ending  December 31, 1999 was ratified.  The number of votes cast
               for or against as well as the  number of  abstentions  and broker
               non-votes for the ratification were as follows:
<TABLE>
<CAPTION>

                           For                   Against               Abstentions          Broker non-votes
                           ---                   -------               -----------          ----------------
                       <S>                       <C>                     <C>                       <C>  

                        3,914,843                 2,042                   48,985                    0
</TABLE>

               There was no other  business  that came  before  the  Meeting  or
               matters incident to the conduct of the Meeting.

Item 5.  Other Information
         -----------------
                  None

                                       27
<PAGE>


                     PART II - OTHER INFORMATION - CONTINUED

Item 6.  Exhibits and Reports on Form 8-K
         --------------------------------

                  (a) Exhibits
                      --------
         3(i).   Certificate  of   Incorporation.   Copy  of  the  Corporation's
Certificate 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, 1998.

         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, 1998.

         10.      Material contracts.
                  ------------------
              (a) Copy of the  Corporation's  Amended  and  Restated  1995 Stock
Option  Plan,  is  incorporated  herein  by  reference  to the  appendix  to the
Corporation's  Proxy  Statement for the 1999 Annual Meeting of  Shareholders  as
filed with the SEC via EDGAR (File No. 000-12870).

         27.      Financial Data Schedule.
                  -----------------------
                  (b) Reports on Form 8-K
                      -------------------
                      A Form 8-K was filed on  February  17,  1999  with the SEC
                   via EDGAR  pertaining  to a press  release  on 1998 earnings.

                                       28

<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 WEST CHESTER CORPORATION


                                            Charles E. Swope



                                            /S/ Charles E. Swope
                                            --------------------
                                            
DATE:  May 14, 1999                         Charles E. Swope
                                            President



                                            J. Duncan Smith


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


                                       29