UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-Q
(Mark One)

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

For the quarterly period ended June 30, 1999, OR

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

For the transition period from ____________ to ____________.

Commission File No. 0-12870.


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


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


      9 North High Street, West Chester, Pennsylvania              19380
           (Address of principal executive office)              (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 July
31, 1999 was 4,573,792.


<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
                             June 30, 1999 and December 31, 1998                                                          3


                             Consolidated Statements of Income
                             Three and Six-Months Ended June 30, 1999 and 1998                                            4


                             Consolidated Statements of Stockholder's Equity                                              5


                             Consolidated Statements of Cash Flows
                             Six-Months Ended June 30, 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                                             9-23

                  Item 3 -   Quantitative and Qualitative Disclosures About Market Risk                                  24



Part II. OTHER INFORMATION

                  Item 1 -   Legal Proceedings
                  Item 2 -   Changes in Securities
                  Item 3 -   Defaults upon Senior Securities
                  Item 4 -   Submission of Matters to a Vote of Security Holders
                  Item 5 -   Other Information
                  Item 6 -   Exhibits and Reports on Form 8-K                                                            25

                  Signatures                                                                                             26
</TABLE>


<PAGE>





                 FIRST WEST CHESTER CORPORATION AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CONDITION

<TABLE>
<CAPTION>

(Dollars in thousands - except per share data)                                                 (Unaudited)
                                                                                                 June 30             December 31,
                                                                                                   1999                  1998
                                                                                               ----------            -----------
<S>                                                                                           <C>                   <C>

ASSETS
    Cash and due from banks                                                                    $   25,266            $   25,006
    Federal funds sold                                                                             -                      5,675
                                                                                                ---------              --------

           Total cash and cash equivalents                                                         25,266                30,681
                                                                                                ---------              --------

    Investment securities held-to-maturity (market value of $5,303 and $7,606 at
        June 30, 1999 and December 31, 1998, respectively)                                          5,265                 7,406
    Investment securities available-for-sale at market value                                      112,308               102,380

    Loans                                                                                         327,554               320,395
    Less allowance for loan losses                                                                 (5,922)               (5,877)
                                                                                                ---------              --------

           Net loans                                                                              321,632               314,518

    Premises and equipment, net                                                                     9,465                 9,579
    Other assets                                                                                    7,921                 6,129
                                                                                                ---------              --------
           TOTAL ASSETS                                                                        $  481,857             $ 470,693
                                                                                                =========              ========

LIABILITIES
    Deposits
        Non-interest bearing                                                                   $   76,715             $  72,556
        Interest bearing                                                                          352,504               345,842
                                                                                                ---------              --------


           Total deposits                                                                         429,219               418,398

    Securities sold under repurchase agreements                                                     2,610                 2,795
    Federal Home Loan Bank advances and other borrowings                                            4,310                 5,027
    Other liabilities                                                                               5,991                 4,750
                                                                                                ---------              --------

           Total liabilities                                                                      442,130               430,970
                                                                                                ---------              --------

STOCKHOLDERS' EQUITY
    Common stock, par value $1.00; authorized, 10,000,000 shares;                                   4,800                 4,800
        Outstanding, 4,799,666 shares at June 30, 1999 and December 31, 1998.
    Additional paid-in capital                                                                        602                   542
    Retained earnings                                                                              37,054                35,675
    Accumulated other Comprehensive Income                                                           (188)                  292
    Treasury stock, at cost: 225,874 shares at June 30, 1999 and
        183,640 shares at December 31, 1998.                                                       (2,541)               (1,586)
                                                                                                ---------              --------

           Total stockholders' equity                                                              39,727                39,723
                                                                                                ---------              --------

           Total liabilities and stockholders' equity                                          $  481,857             $ 470,693
                                                                                                =========              ========

Book Value Per Share                                                                            $    8.69             $    8.61


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

                                       3
<PAGE>
                 FIRST WEST CHESTER CORPORATION AND SUBSIDIARIES
                        CONSOLIDATED STATEMENTS OF INCOME

                                   (UNAUDITED)
<TABLE>
<CAPTION>
(Dollars in thousands - except per share data)
                                                                            Three Months Ended               Six   Months Ended
                                                                                  June 30,                         June 30,
                                                                          ----------------------            ---------------------
                                                                          1999              1998             1999          1998
                                                                          ----              ----             ----          ----
<S>                                                                       <C>             <C>              <C>           <C>

INTEREST INCOME
    Loans, including fees                                                 $6,808           $7,117           $13,445       $14,118
    Investment securities                                                  1,817            1,138             3,476         2,308
    Federal funds sold                                                        34               83                95           152
                                                                           -----            -----            ------        ------

                Total interest income                                      8,659            8,338            17,016        16,578
                                                                           -----            -----            ------        ------

INTEREST EXPENSE
    Deposits                                                               3,444            3,383             6,855         6,674
    Securities sold under repurchase agreements                               22               23                53            60
    Federal Home Loan Bank advances and other borrowings                      91               76               176           172
                                                                           -----            -----            ------        ------

                Total interest expense                                     3,557            3,482             7,084         6,906
                                                                           -----            -----            ------        ------

                Net interest income                                        5,102            4,856             9,932         9,672

    Provision for loan losses                                                171              188               309           412
                                                                           -----            -----            ------        ------

                Net interest income after provision
                for loan losses                                            4,931            4,668             9,623         9,260
                                                                           -----            -----            ------        ------

NON-INTEREST INCOME
    Financial management services                                            629              560             1,258         1,121
    Service charges on deposit accounts                                      256              265               502           519
    Investment securities gains (losses), net                                198                0               202             0
    Other                                                                    319              327               629           588
                                                                           -----            -----            ------        ------

                Total non-interest income                                  1,402            1,152             2,591         2,228
                                                                           -----            -----            ------        ------

NON-INTEREST EXPENSE
    Salaries and employee benefits                                         2,401            2,268             4,747         4,481
    Net occupancy and  equipment                                             973              808             1,779         1,610
    FDIC deposit insurance                                                    12               11                24            22
    Bank shares tax                                                          117               87               217           175
    Other                                                                    827              809             1,881         1,667
                                                                           -----            -----            ------        ------
                Total non-interest expense                                 4,330            3,983             8,648         7,955
                                                                           -----            -----            ------        ------

                Income before income taxes                                 2,003            1,837             3,566         3,533

INCOME TAXES                                                                 609              561             1,087         1,078

                NET INCOME                                                $1,394           $1,276           $ 2,479       $ 2,455
                                                                           =====            =====            ======        ======

PER SHARE DATA
    Basic net income per common share(*)                                 $ 0.30            $ 0.27           $ 0.54         $ 0.53
                                                                          =====             =====            =====          =====
    Diluted net income per common share(*)                               $ 0.30            $ 0.27           $ 0.53         $ 0.53
                                                                          =====             =====            =====          =====
    Dividends declared                                                   $ 0.12            $ 0.11           $ 0.24         $ 0.22
                                                                          =====             =====            =====          =====

Basic weighted average shares outstanding(*)                           4,578,491        4,613,857         4,588,633     4,603,891
                                                                       =========        =========         =========     =========
Diluted weighted average shares outstanding(*)                         4,631,111        4,678,665         4,648,016     4,673,085
                                                                       =========        =========         =========     =========
<FN>

(*)Please refer to the footnote  titled  "Earnings Per Share" for information on
this calculation.
</FN>
</TABLE>


The accompanying notes are an integral part of these statements.

                                       4
<PAGE>



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

                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                                                           Six Months Ended
                                                                                                               June 30,
                                                                                                       ------------------------
(Dollars in thousands)                                                                                  1999              1998
                                                                                                       ------            ------
<S>                                                                                                    <C>              <C>

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

    Net income to date                                                                                   2,479            2,455
    Cash dividends declared                                                                             (1,101)            (967)
    Net unrealized gain (loss) on securities available-for-sale                                           (479)             177
    Treasury stock transactions                                                                             60              207
    Paid in capital from treasury stock transactions                                                      (955)              92
                                                                                                        ------           ------

Balance at June 30,                                                                                    $39,727          $38,177
                                                                                                       =======           ======

</TABLE>



























The accompanying notes are an integral part of these statements.

                                       5
<PAGE>


                 FIRST WEST CHESTER CORPORATION AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>

                                                                                                         (Unaudited)
                                                                                                       Six Months Ended
                                                                                                            June 30,
                                                                                                  ---------------------------
(Dollars in thousands)                                                                              1999              1998
                                                                                                    ----              ----
<S>                                                                                            <C>                <C>

OPERATING ACTIVITIES
    Net Income                                                                                  $    2,479         $    2,455
    Adjustments to reconcile net income to net cash
           provided by operating activities:
        Depreciation                                                                                   285                535
    Provision for loan losses                                                                          309                412
    Amortization of investment security premiums
           and accretion of discounts                                                                  116                 81
    Amortization of deferred fees on loans                                                              16                 13
    Investment securities (gains) losses, net                                                         (205)                 3
    (Increase) Decrease in other assets                                                             (2,271)               961
    Increase in other liabilities                                                                    1,240              1,175
                                                                                                 ---------          ---------

           Net cash provided by operating activities                                                 1,970              5,635
                                                                                                 ---------          ---------

INVESTING ACTIVITIES
    Increase in loans                                                                               (7,439)            (1,664)
    Proceeds from sales of investment securities available-for-sale                                 12,338              6,159
    Proceeds from maturities of investment securities available-for-sale                            16,903             12,687
    Proceeds from maturities of investment securities held-to-maturity                               2,375              1,394
    Purchases of investment securities available-for-sale                                          (39,314)           (20,668)
    Purchase of premises and equipment, net                                                           (170)            (1,223)
                                                                                                 ---------          ---------

        Net cash used in investing activities                                                      (15,307)            (3,315)
                                                                                                 ----------         ---------

FINANCING ACTIVITIES
    Decrease in securities sold under repurchase agreements                                           (185)            (5,651)
    Increase in deposits                                                                            10,821             13,513
    Decrease in Federal Home Loan Bank advances and other borrowings                                  (717)            (2,521)
    Cash dividends                                                                                  (1,101)              (967)
    Treasury stock transactions                                                                       (895)               299
                                                                                                 ---------          ---------

           Net cash provided by financing activities                                                 7,923              4,673
                                                                                                 ---------          ---------
           NET INCREASE (DECREASE) IN CASH AND CASH
                 EQUIVALENTS                                                                        (5,414)             6,993

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

Cash and cash equivalents at end of period                                                      $   25,266         $   33,441
                                                                                                 =========          =========




The accompanying notes are an integral part of these statements.
</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
           fiscal year ended December 31, 1998.

2.         The results of operations  for the three and  six-month  period ended
           June 30,  1999 are not  necessarily  indicative  of the results to be
           expected for the full year.

3.         Earnings per share is based on the weighted  average number of shares
           of common stock outstanding during the period. Diluted net income per
           share 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  has adopted the  provisions of FASB issued SFAS No.
           130, Reporting of Comprehensive  Income, which establishes  standards
           for reporting and display of comprehensive  income and its components
           (revenues,  expenses,  gains and  losses) in a full set of  financial
           statements.  This  statement  also  requires  that all items that are
           required to be recognized under accounting standards as components of
           comprehensive  income be reported in a  financial  statement  that is
           displayed with the same  prominence as others  financial  statements.
           Other  comprehensive  income/(loss)  net of taxes for the  three- and
           six-month  periods  ended June 30, 1999 was $106  thousand and $(479)
           thousand,  compared to $100  thousand  and $177  thousand in the same
           period last year.

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.  This  statement is not expected to have a
           material impact on the Corporation's financial statements.

                                       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. 137 an  amendment  of FASB  Statement  No. 133,
           "Accounting for Derivative  Instruments and Hedging Activities".  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,  2000.  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-month  period  ended June 30, 1999 was $1.394
million,  an increase of 9.25% from $1.276  million for the same period in 1998.
Net income for the six-month  period ended June 30, 1999 was $2.479 million,  an
increase of 1.0% from $2.455  million for the same period in 1998.  Increases in

                                       9
<PAGE>
           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                            AND RESULTS OF OPERATIONS

net income are the direct  result of  increases  in  interest  income  earned on
investment  securities, a reduction in the provision  for loan loss expense, and
gains on the sale of certain equity  securities.  Cash dividends declared during
the  second  quarter  of 1999  increased  to $0.12 per  share,  a 9.1%  increase
compared  to $0.11 per share in the second  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.

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

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

           SELECTED RATIOS
           Return on Average Assets                                 1.15%           1.18%             1.04%         1.14%
           Return on Average Equity                                14.10%          13.57%            12.52%        13.22%
           Earnings Retained                                       60.62%          61.99%            77.85%        60.61%
           Dividend Payout Ratio                                   39.38%          38.01%            44.41%        39.39%
            Book Value Per Share                                   $8.69          $16.53             $8.69        $16.53
</TABLE>

The  "Consolidated  Average  Balance  Sheet" on pages 15 and 16 may  assist  the
reader in following this discussion.

                               NET INTEREST INCOME

         Net  interest  income  is the  difference  between  interest  income on
interest-earning  assets and interest expense on  interest-bearing  liabilities.
Net interest income for the three- and six-month periods ended June 30, 1999, on
a tax equivalent  basis,  was $5.2 million and $10.1  million,  compared to $4.9
million and $9.8 million for the same periods in 1998, respectively.  Net yields
on interest-earning  assets, on a tax equivalent basis, were 4.58% and 4.51% for
the three- and six-month periods ended June 30, 1999 compared to 4.84% and 4.85%
for the same  periods in 1998,  respectively.  Average  interest-earning  assets
increased  approximately  $48.8  million  to $454.9  million  during  the second
quarter of 1999 from $48.8 million in the same period last year. The increase in
average earning assets was primarily the result of increased investment activity
and, to a lesser extent, an increase in average loans outstanding.

         The  decrease in the average net yield on  interest-earning  assets for
the three-and  six-month periods ended June 30, 1999 was primarily the result of
a decrease in the average  yield earned on  interest-earning  assets,  partially
offset 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.
While  loan  demand  through  the first  half of this year has been  light,  the
Corporation  started  experiencing  some  modest  growth  towards the end of the
second quarter. 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.

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

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

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

Interest Earning Assets                                       7.70%         8.27%                 7.64%        8.28%
Interest Bearing Liabilities                                  4.01%         4.30%                 3.97%        4.27%
                                                              ----          ----                  ----         ----
Net Interest Spread                                           3.69%         3.97%                 3.67%        4.01%
Contribution of Interest Free Funds                           0.89%         0.87%                 0.84%        0.84%
                                                              ----          ----                  ----         ----
Net Yield on Interest Earning Assets                          4.58%         4.84%                 4.51%        4.85%
                                                              ====          ====                  ====         ====
</TABLE>

                      INTEREST INCOME ON FEDERAL FUNDS SOLD

         Interest  income on federal  funds  sold for the  three- and  six-month
periods ended June 30, 1999,  decreased 59.0% and 23.0% to $34 thousand and $117
thousand,  respectively, when compared to the same periods in 1998. The decrease
in interest  income on federal  funds is the direct  result of a 53.6% and 27.9%
decrease  in the average  balance of federal  funds sold for the three- and six-
month  periods  ended June 30,  1999,  respectively,  when  compared to the same
periods in 1998. Additionally, a 66 basis point (one basis point is equal to one
hundredth  of one  percent)  decrease  in the rates  earned for the three  month
period ended June 30, 1999 contributed to the decrease. The decrease in interest
income for the six- month period ended June 30, 1999 was  partially  offset by a
37 basis  point  increase in rates  earned  when  compared to the same period in
1998.

                    INTEREST INCOME ON INVESTMENT SECURITIES

         On a tax equivalent  basis,  interest  income on investment  securities
increased  59.7% and 28.0% for the three and  six-month  periods  ended June 30,
1999 to $1.8 million and $3.0 million,  respectively,  when compared to the same
periods in 1998. The increases for the three- and six-month periods is primarily
due to an increase in average  investment  security balances of 56.1% and 55.9%.
For the three-  month  period,  a 14 basis point  increase  in the yield  earned
contributed to the increase in income.  For the six- month period,  the increase
in income was partially offset by a 111 basis point decrease in the yield earned
compared to the same period last year.  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 3.8% and 1.0% to $6.9 million and $14.0
million for the three- and six-month  periods  ended June 30, 1999,  compared to
the same  periods in 1998,  respectively.  The  decrease in interest  income for
these  periods is the direct  result of a 57 and 23,  respectively,  basis point
decrease in the rates earned on the loan portfolio. These rate reductions can be
attributed to increased  competition for new and existing loan relationships and
the generally lower interest rate environment through the second quarter of 1999
as compared to the corresponding periods in 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.

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

                      INTEREST EXPENSE ON DEPOSIT ACCOUNTS

         Interest  expense on deposit  accounts  increased 1.8% and 2.3% for the
three- and  six-month  periods  ended  June 30,  1999 to $3.4  million  and $6.8
million,  compared to the same periods in 1998. The increase for the three-month
period   ended  June  30,   1999  is  the  result  of  an  increase  in  average
interest-bearing deposits of $26.8 million, partially offset by a 26 basis point
decrease in the rates paid on  interest-bearing  deposits.  The increase for the
six-month  period  ended June 30,  1999 is the result of an  increase in average
interest-bearing deposits of $32.5 million, partially offset by a 31 basis point
decrease in rates paid on interest-bearing deposits.

         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  regional  institutions.
Additionally, growth can be attributed to the opening of the new branch sites in
the Frazer area and our new Matlack  Training  Center  branch,  which  opened on
August 30, 1998 and,  June 7, 1999  respectively.  Other future branch sites are
expected to expand the Bank's deposit base further. The Corporation's  effective
rate on  interest-bearing  deposits  decreased from 4.30% to 3.97% for the three
month  period  ended  June 30,  1999,  and from 4.27% to 3.97% for the six month
periods ended June 30, 1999,  when compared to the three- and six-month  periods
ended June 30, 1998.

         INTEREST EXPENSE ON SECURITIES SOLD UNDER REPURCHASE AGREEMENTS

         Interest  expense  on  securities  sold  under  repurchase   agreements
decreased  4.3% and 25.0% to $22  thousand  and $45  thousand for the three- and
six-month  periods  ended  June 30,  1999,  respectively,  compared  to the same
periods in 1998. The decreases are primarily  attributable  to $129 thousand and
$718 thousand decreases in average  securities sold under repurchase  agreements
outstanding,  partially  offset by a 5 basis point  increase  and 19 basis point
decrease in rates paid,  compared to the three- and six-month periods ended June
30, 1998, respectively.

    INTEREST EXPENSE ON FEDERAL HOME LOAN BANK ADVANCES AND OTHER BORROWINGS

         Interest  expense on borrowings  increased 19.7% and decreased 2.9% for
the three- and six-month periods ended June 30, 1999, respectively. The need for
borrowings  in the  three-months  ended  June  30,  1999 is due to a short  term
slowdown  of  deposit  growth and a modest  upturn in loan  demand  during  this
period.  Borrowings consist of overnight Fed Funds purchased,  Federal Home Loan
Bank  ("FHLB")  FlexLine,  FHLB term  advances  and FHLB Open Repo and Repo Plus
advances.

                            PROVISION FOR LOAN LOSSES

         During the three-  and  six-month  periods  ended  June 30,  1999,  the
Corporation  recorded a $171  thousand and a $309  thousand  provision  for loan
losses compared to $188 thousand and $412 thousand for the same periods in 1998.
The decrease in the  provision  expense is a result of a decreased  rate in loan
growth for the three- and six-month periods ended June 30, 1999, compared to the

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

same periods in 1998 and an overall decrease in total non performing assets. The
allowance  for loan losses as a percentage  of total loans was 1.81% at June 30,
1999, 1.83% at December 31, 1998 and 1.85% at June 30, 1998,  respectively.  See
the section titled "Allowance For Loan Losses" for additional discussion.

                               NON-INTEREST INCOME

         Total non-interest income increased 21.7% and 16.3% to $1.4 million and
$2.6  million  for the  three-  and  six-month  periods  ended  June  30,  1999,
respectively,  compared to the same  periods in 1998.  The primary  component of
non-interest income is Financial  Management  Services revenue,  which increased
12.3%  and 12.2% to $629  thousand  and $1.3  million  for both the  three-  and
six-month  periods  ended  June 30,  1999,  respectively,  compared  to the same
periods in 1998.  In addition,  gains on the sale of certain  equity  securities
partially offset by decreases in service charges on deposit accounts contributed
to the increase.  During the first and second  quarters  management  sold equity
securities that were purchased in 1998 with excess  liquidity.  Due to favorable
market   conditioning  the  Corporation   experienced  gains  on  the  sales  of
approximately  $198  thousand for the three- month period and $202  thousand for
the six month-period ended June 30, 1999,  compared to $0 during the same period
in 1998.  Service  charges  decreased  3.4% and 3.3% to $256  thousand  and $502
thousand for the three- and six-month period ended June 30, 1999,  respectively,
compared to the same periods in 1998.

                              NON-INTEREST EXPENSE

         Total  non-interest  expense for the three- and six-month periods ended
June 30, 1999  increased  8.71% to $4.3  million and $8.6 million as compared to
the same periods in 1998. The various components of non-interest expense changes
are discussed below.

         Employee  salaries  and  benefits  increased  5.86%  and  5.94% to $2.4
million and $4.8 million for the  three-month  and six-month  periods ended June
30, 1999 compared to the same periods in 1998.  Increased staff, annual employee
raises,  a new salary  administration  program,  and a proportional  increase in
employee benefits are primarily responsible for the increase.  Average full time
equivalent  staff  increased  from 197 for the period ended June 30, 1998 to 209
for the period ended June 30, 1999.

         Net occupancy,  equipment,  and data processing expense increased 20.4%
and 10.5% to $973 thousand and $1.8 million for the three- and six-month periods
ended June 30, 1999, compared to the same periods last year,  respectively.  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  Corporation's  facilities,  such  as our  newly  open
branches  in the Frazer  area and on Matlack  Street,  also  contributed  to the
increase.  See "Building  Improvements  and Technology  Projects" and "Year 2000
Issues" sections for more detail.

        Total  other  non-interest  expense  increased  2.2%  and  12.8% to $827
thousand and $1.8 million for the three-month  and six-month  periods ended June
30, 1999  compared to the same periods in 1998.  This increase can be attributed
to  increased  marketing  efforts to attract  new  customers  and to promote its
corporate image.

                                       13
<PAGE>
           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                            AND RESULTS OF OPERATIONS

       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.

                                       14
<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 JUNE 30,
<TABLE>
<CAPTION>

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

ASSETS
Federal funds sold                                  $    2,809       $   34      4.84%         $  6,035       $   83     5.50%
Investment securities
    Taxable                                            116,051        1,787      6.16%           74,353        1,119     6.02%
    Tax-exempt (1)                                       2,312           43      7.38%            1,490           27     7.29%
                                                     ---------        -----                     -------        -----
        Total investment securities                    118,363        1,830      6.18%           75,843        1,146     6.04%
                                                     ---------        -----                     -------        -----
Loans (2)
    Taxable                                            327,926        6,742      8.22%          317,760        7,003     8.82%
    Tax-exempt (1)                                       5,876          157     10.68%            6,489          166    10.20%
                                                     ---------        -----                     -------        -----
        Total loans                                    333,802        6,899      8.27%          324,249        7,169     8.84%
                                                     ---------        -----                     -------        -----
        Total interest earning assets                  454,974        8,763      7.70%          406,127        8,398     8.27%
Non-interest earning assets
    Allowance for loan losses                           (5,961)                                  (5,970)
    Cash and due from banks                             21,923                                   20,148
    Other assets                                        15,997                                   13,652
                                                     ---------                                 --------
        Total assets                                $  486,933                                 $433,957
                                                     =========                                  =======

LIABILITIES AND STOCKHOLDERS' EQUITY
Savings, NOWS & money market deposits               $  195,551       $1,477      3.02%         $181,542       $1,605     3.54%
Certificates of deposits and other time                147,988        1,967      5.32%          135,239        1,778     5.26%
                                                     ---------        -----                     -------        -----
   Total interest bearing deposits                     343,539        3,444      4.01%          316,781        3,383     4.27%
Securities sold under repurchase agreements              2,194           22      4.01%            2,323           23     3.96%
Federal Home Loan Bank advances and
      other borrowings                                   5,904           91      6.17%            4,853           76     6.26%
                                                     ---------        -----                     -------        -----
   Total interest bearing liabilities                  351,637        3,557      4.05%          323,957        3,482     4.30%
                                                     ---------        -----                     -------        -----

Non-interest bearing liabilities
    Non-interest bearing demand deposits                72,213                                   65,211
    Other liabilities                                   12,454                                    7,164
                                                     ---------                                  -------
        Total liabilities                              436,304                                  396,332
Stockholders' equity                                    50,629                                   37,625
                                                      --------                                  -------
        Total liabilities and stockholders' equity  $  486,933                                 $433,957
                                                       =======                                  =======
Net interest income                                                  $5,206                                   $4,916
                                                                      =====                                    =====
Net yield on interest earning assets                                             4.58%
                                                                                 ====                                   4.84%
                                                                                                                        ====


<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>

                                       15
<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
                            SIX MONTHS ENDED JUNE 30,
<TABLE>
<CAPTION>



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

ASSETS
Federal funds sold                                    $  3,989      $   117      5.87%         $  5,531     $    152     5.50%
Investment securities
Taxable                                                115,253        2,906      5.04%           73,910        2,268     6.14%
    Tax-exempt (1)                                       2,320           70      6.03%            1,484           57     7.73%
                                                       -------       ------                     -------      -------
        Total investment securities                    117,573        2,976      5.06%           75,394        2,325     6.17%
                                                       -------       ------
Loans (2)
    Taxable                                            321,738       13,745      8.54%          315,293       13,882     8.81%
    Tax-exempt (1)                                       5,816          323     11.11%            6,716          326     9.71%
                                                       -------       ------                     -------      -------
        Total loans                                    327,554       14,068      8.59%          322,009       14,208     8.82%
                                                       -------       ------                     -------      -------
Total Interest Earning Assets                          449,116       17,161      7.64%          402,934       16,685     8.28%
Non-interest earning assets
    Allowance for loan losses                           (5,937)                                  (5,946)
    Cash and due from banks                             21,301                                   19,635
    Other assets                                        12,662                                   13,666       13,666
                                                       -------                                  -------      -------
        Total assets                                  $477,142                                 $430,289
                                                       =======                                  =======

LIABILITIES AND STOCKHOLDERS' EQUITY
Savings, NOWS & money market deposits                 $198,244      $ 3,082      3.11%         $181,077     $  2,838     3.13%
Certificates of deposits and other time                148,754        3,745      5.04%          133,445        3,836     5.75%
                                                       -------       ------                     -------      -------
Total interest bearing deposits                        346,998        6,827      3.93%          314,522        6,674     4.24%
Securities sold under repurchase agreements              2,725           45      3.30%            3,443           60     3.49%
Federal Home Loan Bank advances and
     other borrowings                                    4,874          167      6.85%            5,469          172     6.29%
                                                       -------       ------                     -------      -------
   Total interest bearing liabilities                  354,597        7,039      3.97%          323,434        6,906     4.27%
                                                       =======                                  -------      -------
Non-interest bearing liabilities
    Non-interest bearing demand deposits                70,777                                   62,717
    Other liabilities                                    6,644                                    6,984
                                                       -------                                  -------
        Total liabilities                              432,018                                  393,135
Stockholders' equity                                    45,124                                   37,154
                                                       -------                                  -------
        Total liabilities and stockholders' equity    $477,142                                 $430,289
                                                       =======                                  =======
Net interest income                                                 $10,122                                 $  9,779
                                                                     ======                                  =======
Net yield on interest earning assets                                             4.51%                                   4.85%
                                                                                 ====                                    ====









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

                                  INCOME TAXES

         Income tax expense for the three- and six-month  periods ended June 30,
1999 was $609  thousand  and $1.1  million,  compared to $561  thousand and $1.1
million in the same periods last year.  This  represents  effective tax rates of
30.5% in each of these periods.

               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  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.  In addition,  new deposits to NOW,  money-market,
savings,  and smaller  denomination  certificates  of deposit  accounts  provide
additional  liquidity.  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:

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


                                DEPOSIT ANALYSIS
<TABLE>
<CAPTION>

(Dollars in thousands)                         June 30, 1999              December 31, 1998             Average Balances
                                      -------------------------      ----------------------------    -----------------------
                                      Average         Effective         Average         Effective     Dollar      Percentage
DEPOSIT TYPE                          Balance           Yield           Balance           Yield      Variance      Variance
------------                          -------           -----           -------           -----      --------      --------
<S>                                <C>                 <C>           <C>                 <C>        <C>            <C>

NOW Accounts                        $  57,266           1.70%         $  55,203           2.04%      $  2,063        3.74%
Money Market                           26,226           2.88             27,596           3.09         (1,370)      (4.96)
Statement Savings                      48,899           2.97             47,046           3.28          1,853        3.94
Other Savings                           2,290           2.71              2,382           2.73            (92)      (3.86)
CD's Less than $100,000               120,138           5.40            114,372           5.81          5,766        5.04
                                     --------                           -------                       -------

Total Core Deposits                   254,819           3.82            246,599           4.15          8,220        3.33

Non-Interest Bearing
  Demand Deposit Accounts              70,777             --             64,705             --          6,072        9.38
                                     --------                           -------                       -------

Total Core and Non-Interest
  Bearing Deposits                    325,596           2.99            311,304           3.29         14,292        4.59
                                     --------                           -------                       -------

Tiered Savings                         63,562           3.96             51,854           4.09         11,708       22.58
CD's Greater than $100,000             28,617           5.18             23,453           5.63          5,164       22.02
                                     --------                           --------                      -------

Total Deposits                       $417,775           3.29           $386,611           3.54       $ 13,678        8.06
                                      =======                           =======                       =======
</TABLE>


         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.  FHLB borrowings
provide additional funds to meet the Bank's liquidity needs. As of June 30, 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 three- and six-month  period of 1999,  average FHLB
advances were approximately $4.9 and $5.9 million  respectively and consisted of
term advances  representing a combination of  maturities.  The average  interest
rate on these  advances  was  approximately  6.9% and  6.2%  respectively.  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 a future time period.  The
Corporation's  net interest rate  sensitivity  gap within one year is a negative
$181.5  million  or 37.7% of total  assets  at June  30,  1999  compared  with a
negative  $104.1  million  or 23.7%  of  total  assets  at June  30,  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.

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

                          INTEREST SENSITIVITY ANALYSIS
                               AS OF JUNE 30, 1999

<TABLE>
<CAPTION>

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

ASSETS
    Investment securities                      $     33,351     $    55,668       $    28,554      $        --    $   117,573
    Loans and leases                                 90,777         179,611            57,164           (5,922)       321,630
    Cash and cash equivalents                            --              --                --           25,266         25,266
    Premises & equipment                                 --              --                --            9,465          9,465
    Other assets                                      4,392              --                --            3,530          7,922
                                                -----------      ----------        ----------        ---------     ----------
       Total assets                            $    128,520     $   235,279       $    85,718      $    32,339    $   481,857
                                                ===========      ==========        ==========       ==========     ==========

LIABILITIES AND CAPITAL
    Interest bearing deposits                  $    307,043         $45,461       $         --     $        --    $   352,504
    Non-interest bearing deposit                         --              --                 --          76,715         76,715
    Borrowed funds                                    2,610              --                --               --          2,610
    FHLB advances                                       331           2,634             1,345               --          4,310
    Other liabilities                                    --              --                --            5,991          5,991
    Capital                                             --               --                --           39,727         39,727
                                                -----------      ----------        ----------        ---------     ----------
       Total liabilities & capital             $    309,984     $    48,095       $     1,345      $   122,433    $   481,857
                                                ===========      ==========        ==========       ==========     ==========
    Net interest rate
      sensitivity gap                          $   (181,464)    $   187,184       $    84,373      $   (90,094    $       --
                                                ===========      ==========        ==========       ==========
 Cumulative interest rate
      sensitivity gap                          $   (181,464)    $     5,720       $    90,093      $        --    $       --
                                                ===========      ==========        ==========       ==========     =========
    Cumulative interest rate
      sensitivity gap divided
      by total assets                                (37.7%)           1.2%             19.4%
                                                    =======            ====            ======
</TABLE>

                            ALLOWANCE FOR LOAN LOSSES

         The  allowance  for loan losses is an amount that  Management  believes
will be  adequate  to absorb  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.

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

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

<TABLE>
<CAPTION>

                                                                         Three Months                      Six Months
                                                                            Ended                            Ended
                                                                           June 30,                         June 30,
                                                                  --------------------------       --------------------------
(Dollars in thousands)                                                1999            1998            1999             1998
                                                                      ----            ----            ----             ----
<S>                                                              <C>             <C>              <C>             <C>

Balance at beginning of period                                    $    5,937      $    5,940       $   5,877       $    5,900
                                                                   ---------       ---------        --------        ---------

Provision charged to operating expense                                   171             188              309             412
                                                                   ---------       ---------        ---------       ---------
    Recoveries of loans previously charged-off                            27              11               75              18
    Loans charged-off                                                   (213)           (227)            (339)           (418)
                                                                   ---------       ---------        ---------       ---------

Net loans charged-off                                                   (186)           (216)            (264)           (400)
                                                                   ---------       ---------        ---------       ---------

Balance at end of period                                          $    5,922      $    5,912       $   5,922       $    5,912
                                                                   =========       =========        =========       =========
Period-end loans outstanding                                      $  327,554      $  320,150       $ 327,554       $  320,150
Average loans outstanding                                         $  333,802      $  324,249       $ 327,003       $  322,009

Allowance for loan losses as a
  Percentage of period-end loans outstanding                           1.81%           1.85%           1.81%            1.85%

Net charge-offs to average loans
    Outstanding                                                        0.08%           0.07%           0.08%            0.12%
</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.


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

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

                                                         June 30,                 December 31,
                                               --------------------------         ------------
(Dollars in thousands)                           1999               1998             1998
                                                 ----               ----             ----
<S>                                            <C>                <C>              <C>

Past due over 90 days and still accruing       $  176             $   413          $   546

Non-accrual loans                               1,443               1,895            1,316
                                                -----              ------           ------
Total non-performing loans                      1,619               2,308            1,862

Other real estate owned                           192                 712              192
                                                -----               -----           ------

Total non-performing assets                    $1,811              $3,020          $ 2,054
                                                =====               =====           ======

Non-performing loans as a percentage
   of total loans (gross)                       0.49%               0.72%            0.58%

Allowance for loan losses as a
   percentage of non-performing loans         369.49%             256.15%          315.60%

Allowance for loan losses as a
   percentage of total loans and
   other real estate owned                      0.55%               0.94%            0.60%

Allowance for loan losses as a
   percentage of non-performing assets        330.31%             195.76%          286.10%
</TABLE>

         The allowance for loan losses as a percentage of  non-performing  loans
ratio  indicates  that the  allowance for loan losses is sufficient to cover the
principal of all non-performing  loans at June 30, 1999. Other Real Estate Owned
("OREO") represents residential and commercial real estate that has been 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  June 30,  1998,  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 Corporation  decided to withdraw from
third  party  automobile  lending  on July 10,  1998 due to less  than  expected
results. The Corporation will continue to service the existing portfolio but has
not added any  additional  volume.  This  portfolio  totaled  approximately  $16
million and $24 million as of June 30, 1999 and December 31, 1998  respectively.
Approximately  4.18% and 9.92% of this portfolio was past due 30 or more days as
of June 30, 1999 and December 31, 1998.

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

                                 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 $1,027,000,  $919,000, and $1,351,000
at June 30,  1999,  December  31,  1998,  and June 30,  1998  respectively.  The
associated  allowance for impaired loans was $296,000,  $286,000 and $297,000 at
June 30, 1999, December 31, 1998, and June 30, 1998, respectively.

         For the three-month and six-month period ended June 30, 1999,  activity
in the  allowance  for impaired  loan losses  include a provision of $10,000 and
$60,000, respectively, write offs of $0 and $3,000, respectively, and recoveries
of $0 and $0, respectively.  Interest income of $0 was recorded for both periods
while contractual  interest amounted to $25,000 for the three-months  ended June
30, 1999 and $48,000 for the six-months  ended June 30, 1999.  Cash collected on
loans for the three-month  and six-month  period ended June 30, 1999 was $51,000
and $76,000, respectively, all of which was applied to principal.

         For the three-month and six-month period ended June 30, 1998,  activity
in the  allowance  for impaired  loan losses  include a provision of $25,000 and
$75,000,  respectively,  write offs of $2,000  and  $84,000,  respectively,  and
recoveries of $0 and $0,  respectively.  Interest  income of $0 was recorded for
both periods while contractual interest amounted to $31,000 for the three-months
ended June 30, 1998 and $59,000 for the  six-months  ended June 30,  1998.  Cash
collected on loans for the three-month and six-month  period ended June 30, 1998
was $11,000 and $21,000, respectively, 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 new building at 887
Matlack Street, which opened on June 7, 1999 and houses a branch teller training
center  that  is  open  to the  public  as  well  as the  new  location  for 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 second  quarter of 1999  include the
building  and  upgrade of the  Corporation's  local and wide area  networks  and
payroll processing.

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

         First  National  Bank has begun the testing  phase for the JHA Internet
banking  solution,  Net-Teller.  This system will allow our  customers to access
their  accounts  and make  transactions  over the  Internet.  Also  included  in
Net-Teller  is a bill payment  option,  which allows our  customers to pay their
bills over the Internet. A fourth quarter roll out of Net-Teller 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 August 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  has documented and
evaluated the results of that test and is satisfied with the results.

         The  Corporation's  check processing and imaging systems,  operate on a
combination of NCR, Unisys, Novell and Microsoft hardware and software. Parts of
this system required certain upgrades.  These upgrades were installed and tested
in the second quarter of 1999. The  Corporation is satisfied with the results of
these tests.  The  Corporation  has completed Y2K testing on all PC hardware and
software.  Any machines failing these tests are being replaced or repaired.  The
PC hardware  and  software  repair and  replacement  process will be complete by
September 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
is relying  on  testing  conducted  by STS and is also  relying  on Proxy  Tests
conducted  by certain  STS  customers.  Testing and  related  documentation  was
completed by March 31, 1999.

                                       23
<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  incurred  direct Y2K  project  costs of $87  thousand
through June 30, 1999.  The  Corporation  has incurred total direct and indirect
Y2K project  costs of $230  thousand  through  June 30,  1999.  The  Corporation
anticipates  that its total Y2K  project  cost will not  exceed  $300,000.  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 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  completed  its  review  of  the  Y2K
capabilities  of its  significant  vendors  in the second  quarter of 1999.  The
Corporation is continuing its evaluation of each loan customer's response and is
formulating  a Y2K risk  assessment  for the  loan  portfolio  as a whole.  This
process is expected to continue through September 30, 1999.

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

         The  Corporation  has 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  has an ongoing  employee  awareness
program with similar objectives.

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

         The Corporation has developed several back-up system 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  utilize
secondary  computer systems and / or various manual tasks, which include but are
not limited to the following:

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

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;

5.   A  check   processing   contingency  plan  involving  the  use  of  a  used
     reader-sorter  and JHA's proof of deposit  program is being  developed  and
     should be operational by September 30, 1999.

The  Corporation is in the process of validating and testing its Y2K Contingency
plan and anticipates completion of this task by September 30, 1999. 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.

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

                                CAPITAL ADEQUACY

         The Corporation is subject to Risk-Based  Capital Guidelines adopted by
the Federal Reserve Board ("FRB") 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
June 30,  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 1991.
The Corporation's  Risk-Based Capital Ratios, shown below, have been computed in
accordance with regulatory accounting policies.
<TABLE>
<CAPTION>

                                                   June 30,                     December 31,
RISK-BASED                                -----------------------               ------------           "Well Capitalized"
CAPITAL RATIOS                             1999               1998                  1998                  Requirements
--------------                             ----               ----                  ----                ----------------
<S>                                      <C>                <C>                   <C>                      <C>

    Corporation
    -----------
Leverage Ratio                             8.20%              8.76%                 8.59%                    5.00%
Tier I Capital Ratio                      11.44%             11.48%                11.67%                    6.00%
Total Risk-Based Capital Ratio            11.69%             12.74%                12.95%                   10.00%

       Bank
       ----
Leverage Ratio                             7.96%              8.57%                 8.36%                    5.00%
Tier I Capital Ratio                      11.09%             11.23%                11.35%                    6.00%
Total Risk-Based Capital Ratio            12.33%             12.49%                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 that,
if they were to be  implemented,  would  have a  material  affect on  liquidity,
capital resources or operations of the Corporation.  The internal capital growth
rate for the  Corporation  was a negative .36% and a positive 10.85% for the six
months ended June 30, 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 June 30, 1999 and 1998, respectively.


                                       26
<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
of the  Corporation,  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 1998 Annual Report for additional information.

                                       27
<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 Vote of Security Holders
         -------------------------------------------------
                  None

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

Item 6.  Exhibits and Reports on Form 8-K
         --------------------------------
                  None

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


         27.      Financial Data Schedule.
                  ------------------------
         (b)      Reports on Form 8-K
                  -------------------

                  None

                                       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
                                President


DATE:  August 13, 1999


                                J. Duncan Smith

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

                                       29