August 10, 2001
                                 VIA: EDGARLINK

OFIS Filer Support
SEC Operations Center
6432 General Green Way
Alexandria, VA  22312

                                                FIRST CHESTER COUNTY CORPORATION

                                                Commission File Number 0-12870

Gentlemen:

Pursuant to the reporting requirements of the Securities and Exchange Act of
1934, we are filing herewith the above listed Registrant's Quarterly Report on
Form 10-Q for the period ended June 30, 2001.



                                                     Very truly yours,


                                                     J. Duncan Smith, Treasurer
                                                     (Principal Accounting
                                                      and Financial Officer)
JDS/tbm
Enclosures

         John A. Featherman,  III, Esquire,  MacElree,  Harvey,  Gallagher,  and
         Featherman, Ltd., West Chester, PA

         Patricia A. Gritzan, Esquire, Saul Ewing LLP, Philadelphia, PA

         Barry M. Pelagatti, CPA, Grant Thornton LLP, Philadelphia, PA

         Joseph T. Mcgough, VP, First Union Bank, Philadelphia, PA

         James L. Bradshaw, VP, SunTrust Bank, Atlanta, GA

         James Shilling,  VP, Kish Bank, Belleville, PA


<PAGE>



                                  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, 2001, OR

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

For the transition period from ____________ to ____________.

Commission File No. 0-12870.


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


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


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


                                 (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, 2001 was 4,441,167.


<PAGE>


                FIRST CHESTER COUNTY CORPORATION AND SUBSIDIARIES

                                      INDEX

<TABLE>
<CAPTION>

                                                                                                                       PAGE
<S>                                                                                                                <C>

Part I.  FINANCIAL INFORMATION

                  Item 1 - Financial Statements
                             Consolidated Statements of Condition
                             June 30, 2001 and December 31, 2000                                                          3


                             Consolidated Statements of Income
                             Three and Six-Months Ended June 30, 2001 and 2000                                            4


                             Consolidated Statements of Changes in Stockholder's Equity                                   5



                             Consolidated Statements of Cash Flows
                             Six-Months Ended June 30, 2001 and 2000                                                      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                                                                           25
                  Item 2 -   Changes in Securities                                                                       25
                  Item 3 -   Defaults upon Senior Securities                                                             25
                  Item 4 -   Submission of Matters to a Vote of Security Holders                                         25
                  Item 5 -   Other Information                                                                           25
                  Item 6 -   Exhibits and Reports on Form 8-K                                                       25 - 26

                  Signatures                                                                                             27
</TABLE>


<PAGE>





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

                                                                                         (Unaudited)
(Dollars in thousands)                                                                     June 30,         December 31,
                                                                                             2001               2000
                                                                                          ---------         ------------
<S>                                                                                       <C>                  <C>

ASSETS
    Cash and due from banks                                                                $ 21,384             $ 30,311
    Federal funds sold                                                                       12,000                7,500
    Interest Bearing Deposits in banks                                                          130                  162
                                                                                            -------              -------
                Total cash and cash equivalents                                              33,514               37,973
                                                                                            -------              -------
    Investment securities held-to-maturity (market value of $885 and
        $4,535 at June 30, 2000 and December 31, 2000,
         respectively)                                                                          834                1,183
                                                                                            -------              -------
    Investment securities available-for-sale, at market value                                87,640               93,012
                                                                                            -------              -------
    Loans                                                                                   415,931              406,889
    Less:  Allowance for loan losses                                                         (6,704)              (6,609)
                                                                                            -------              -------
                Net loans                                                                   409,227              400,280
                                                                                            -------              -------
    Premises and equipment                                                                   11,832                9,564
    Other assets                                                                              9,475                8,677
                                                                                            -------              -------
                Total assets                                                               $552,522             $550,689
                                                                                            =======              =======
LIABILITIES
    Deposits
        Noninterest-bearing                                                                $ 93,303             $ 89,137
        Interest-bearing (including certificates of deposit over $100
           of $29,940 and $30,684 - June 30, 2001 and
           December 31, 2000 respectively)                                                  386,997              382,353
                                                                                            -------              -------
        Total deposits                                                                      480,300              471,490

    Securities sold under repurchase agreements                                               2,553                2,752
    Federal Home Loan Bank advances and other borrowings                                     20,844               27,157
    Other liabilities                                                                         4,444                6,278
                                                                                            -------              -------
        Total liabilities                                                                   508,141              507,677
                                                                                            -------              -------
STOCKHOLDERS' EQUITY
    Common stock, par value $1.00; authorized, 10,000,000 shares;
        outstanding, 4,799,666 at June 30, 2001 and December 31, 2000.                        4,800                4,800
    Additional paid-in capital                                                                  736                  610
    Retained earnings                                                                        43,835               42,353
    Accumulated other comprehensive income (loss)                                              (431)                (759)
    Treasury stock, at cost:  341,737 shares and 322,352 shares
        at June 30, 2001 and December 31, 2000, respectively.                                (4,559)              (3,992)
                                                                                            -------              -------
                Total stockholders' equity                                                   44,381               43,012
                                                                                            -------              -------
                Total liabilities and stockholders' equity                                 $552,522             $550,689
                                                                                            =======              =======


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

<PAGE>

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

                                   (UNAUDITED)


(Dollars in thousands - except per share data)                              Three Months Ended               Six Months Ended
                                                                                  June 30,                        June 30,
                                                                           ---------------------             ------------------
                                                                           2001             2000             2001          2000
                                                                           ----             ----             ----          ----
<S>                                                                       <C>              <C>              <C>           <C>

INTEREST INCOME
    Loans, including fees                                                 $8,478           $7,989           $17,086       $15,635
    Investment securities                                                  1,324            1,791             2,748         3,670
    Federal funds sold                                                        84                9               151            37
    Deposits in Banks                                                          1                1                 4             2
                                                                           -----            -----            ------        ------
                Total interest income                                      9,887            9,790            19,989        19,344
                                                                           -----            -----            ------        ------
INTEREST EXPENSE
    Deposits                                                               3,752            3,711             7,725         7,267
    Securities sold under repurchase agreements                               23               29                58            65
    Federal Home Loan Bank advances and other borrowings                     339              362               702           698
                                                                           -----            -----            ------        ------
                Total interest expense                                     4,114            4,102             8,485         8,030
                                                                           -----            -----            ------        ------
                Net interest income                                        5,773            5,688            11,504        11,314

    Provision for loan losses                                                135              177               370           467
                                                                           -----            -----            ------        ------
                Net interest income after provision
                for possible loan losses                                   5,638            5,511            11,134        10,847
                                                                           -----            -----            ------        ------
NON-INTEREST INCOME
    Financial management services                                            741              786             1,478         1,571
    Service charges on deposit accounts                                      295              268               569           517
    Investment securities gains (losses), net                                 40                3                65           (40)
    Other                                                                    393              339               948           686
                                                                           -----            -----            ------        ------
                Total non-interest income                                  1,469            1,396             3,060         2,734
                                                                           -----            -----            ------        ------
NON-INTEREST EXPENSE
    Salaries and employee benefits                                         3,038            2,691             5,958         5,322
    Net occupancy and  equipment                                           1,026              997             2,077         1,987
    FDIC deposit insurance                                                    22               23                43            45
    Bank shares tax                                                          119              106               244           213
    Professional Services                                                    257              309               585           578
    Other                                                                    849              731             1,645         1,389
                                                                           -----            -----            ------        ------
                Total non-interest expense                                 5,311            4,857            10,552         9,534
                                                                           -----            -----            ------        ------
                Income before income taxes and cumulative
                  effect of change in accounting for income taxes          1,796            2,050             3,642         4,047

INCOME TAXES                                                                 496              545               992         1,112
                                                                           -----            -----            ------        ------
                NET INCOME                                                $1,300           $1,505           $ 2,650       $ 2,935
                                                                           =====            =====            ======        ======
PER SHARE DATA
    Basic net income per common share                                     $ 0.30           $ 0.33           $  0.60       $  0.65
                                                                           =====            =====            ======        ======
    Diluted net income per common share                                   $ 0.30           $ 0.33           $  0.60       $  0.64
                                                                           =====            =====            ======        ======
    Dividends declared                                                    $0.130           $0.125           $ 0.260       $ 0.250
                                                                           =====            =====            ======        ======
Basic weighted average shares outstanding                              4,317,294        4,525,496         4,391,780     4,531,447
                                                                       =========        =========         =========     =========
Diluted weighted average shares outstanding                            4,365,638        4,543,329         4,435,693     4,551,945
                                                                       =========        =========         =========     =========


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

<PAGE>


                FIRST CHESTER COUNTY CORPORATION AND SUBSIDIARIES
           CONSOLIDATED STATEMENT'S OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>

                                   (UNAUDITED)
                                                                                                         Six Months Ended
                                                                                                        -------------------
                                                                                                              June 30,
                                                                                                        -------------------
(Dollars in thousands)                                                                                  2001           2000
----------------------                                                                                  ----           ----

<S>                                                                                                    <C>              <C>

Balance at January 1,                                                                                  $43,012          $38,182

    Net income to date                                                                                   2,650            2,935
    Cash dividends declared                                                                             (1,167)          (1,132)
    Net unrealized gain (loss) on securities available-for-sale                                            375               91
    Treasury stock transactions                                                                           (615)            (528)
    Paid in capital from treasury stock transactions                                                       126                1
                                                                                                        ------           ------
Balance at June 30,                                                                                    $44,381          $39,549
                                                                                                        ======           ======




























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



<PAGE>


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

                                                                                                           (Unaudited)
                                                                                                       Six Months Ended
                                                                                                            June 30,
                                                                                                 ----------------------------
(Dollars in thousands)                                                                              2001               2000
                                                                                                 ---------          ---------
<S>                                                                                              <C>                <C>

OPERATING ACTIVITIES
    Net Income                                                                                    $  2,650           $  2,935
    Adjustments to reconcile net income to net cash
           provided by operating activities:
        Depreciation                                                                                   870                802
    Provision for loan losses                                                                          370                467
    Amortization of investment security premiums
           and accretion of discounts                                                                   70                 58
    Amortization of deferred fees on loans                                                              67                151
    Investment securities (gains) losses, net                                                          (65)                40
    Increase in other assets                                                                          (798)              (248)
    Increase in other liabilities                                                                   (1,834)              (335)
                                                                                                   -------            -------
           Net cash provided by operating activities                                                 1,330              3,870
                                                                                                   -------            -------
INVESTING ACTIVITIES
    Increase in loans                                                                               (9,183)           (24,389)
    Proceeds from sales of investment securities available-for-sale                                  9,624              4,644
    Proceeds from maturities of investment securities available-for-sale                            24,071              6,184
    Purchases of investment securities available-for-sale                                          (27,979)            (6,127)
    Purchase of premises and equipment, net                                                         (3,138)              (771)
                                                                                                   -------            -------
        Net cash used in investing activities                                                       (6,605)           (20,459)
                                                                                                   -------            -------
FINANCING ACTIVITIES
    Decrease in securities sold under repurchase agreements                                           (199)              (834)
    Increase in deposits                                                                             8,810             12,863
    (Decrease) Increase in Federal Home Loan Bank advances and other borrowings                     (6,313)             5,963
    Cash dividends                                                                                  (1,041)            (1,132)
    Treasury stock transactions                                                                       (441)              (476)
                                                                                                   -------            -------
           Net cash provided by financing activities                                                   816             16,384
                                                                                                   -------            -------
           NET DECREASE IN CASH AND CASH
                 EQUIVALENTS                                                                        (4,459)              (205)

Cash and cash equivalents at beginning of period                                                    37,973             32,257
                                                                                                   -------            -------
Cash and cash equivalents at end of period                                                        $ 33,514           $ 31,937
                                                                                                   =======            =======



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


<PAGE>


                FIRST CHESTER COUNTY 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. These
           interim  financial  statements should be read in conjunction with the
           consolidated  financial  statements and footnotes thereto included in
           our Annual Report on Form 10-K for the fiscal year ended December 31,
           2000.

2.         The results of operations for the three- and six-month  periods ended
           June 30,  2001 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.

4.         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  year-end   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, 2001 was
           $(431)  thousand and $329 thousand,  compared to $82 thousand and $91
           thousand  in the same period last year.  Total  comprehensive  income
           (which  is the  sum of net  income  and  other  comprehensive  income
           mentioned above) for the three- and six-month  periods ended June 30,
           2001 was $869 thousand and $3.0 million, compared to $1.6 million and
           $3.0 million in the same period last year.

5.         On June 29, 2001,  the Financial  Accounting  Standards  Board (FASB)
           issued  Statement of Financial  Accounting  Standards (SFAS) No. 141,
           Business  Combinations,  and SFAS No. 142,  Goodwill  and  Intangible
           Assets.  These  statements  are  expected  to result  in  significant
           modifications  relative to the Company's  accounting for goodwill and
           other  intangible  assets.  SFAS No. 141  requires  that all business
           combinations  initiated  after June 30,  2001 must be  accounted  for
           under the purchase  method of accounting.  SFAS No. 141 was effective
           upon issuance. SFAS No. 142 modifies the accounting for all purchased
           goodwill and intangible assets. SFAS No. 142 includes requirements to
           test goodwill and indefinite lived intangibles  assets for impairment
           rather than amortize them.  SFAS No. 142 will be effective for fiscal
           years  beginning  after  December 31, 2001 and early  adoption is not
           permitted  except for business  combinations  entered into after June
           30, 2001. The Company is currently  evaluating the provisions of SFAS
           No. 142, but its preliminary assessment is that these Statements will
           not have a material  impact on the  Company's  financial  position or
           results of operations.
<PAGE>
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

6.         On July 6, 2001, the Securities and Exchange  Commission (SEC) issued
           Staff Accounting Bulletin (SAB) No. 102, Selected Loan Loss Allowance
           Methodology and Documentation  Issues.  SAB No. 102 provides guidance
           on the  development,  documentation,  and application of a systematic
           methodology  for  determining  the  allowance for loans and leases in
           accordance  with US GAAP. The adoption of SAB No. 102 is not expected
           to have a material  impact on the  Company's  financial  position  or
           results of operations.


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



<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 Chester
County Corporation (the  "Corporation") and its wholly-owned  subsidiaries,  The
First  National Bank of Chester  County (the "Bank") and Turks Head  Properties,
Inc. 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 and
timing 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 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; including the effects of trade
, monetary,  and fiscal policies of the government and interest rate policies of
the Federal Reserve  system;(f)  impact of changes in interest rates on customer
behavior; (g) estimated changes in net interest income; (h) anticipated pressure
on net yields;  (i) the impact of changes in demographics  on branch  locations;
and (i) technological  changes.  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,  2001 was $1.3
million, an decrease of 13.6% from $1.5 million for the same period in 2000. Net
income for the six-month period ended June 30, 2001 was $2.7 million, a decrease
of 9.7% from $2.9 million for the same period in 2000.  Basic earnings per share
was $0.30 and $0.60 for the  three-and  six-month  periods  ended June 30, 2001,
respectively,  compared  to $0.33 and $0.65 for the same  periods in 2000.  Cash
dividends  declared  during the second  quarter of 2001  increased to $0.130 per
share,  a 4.0%  increase  compared to $0.125 per share in the second  quarter of
2000.  Over the past ten years,  the  Corporation's  practice  has been to pay a
dividend of at least 35.0% of net income.
<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 Ended                 Six Months Ended
                                                                        June 30,                           June 30,
                                                                 -----------------------             -------------------
                                                                 2001               2000             2001           2000
                                                                 ----               ----             ----           ----

           <S>                                                  <C>                <C>               <C>           <C>

           SELECTED RATIOS
           Return on Average Assets                              0.95%              1.16%             0.98%         1.14%
           Return on Average Equity                             11.63%             15.46%            12.18%        15.21%
           Earnings Retained                                    55.08%             62.46%            55.96%        61.43%
           Dividend Payout Ratio                                44.92%             37.54%            44.04%        38.57%
           Book Value Per Share                                 $9.96              $8.76             $9.96         $8.76
</TABLE>

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

                               NET INTEREST INCOME

         Net  interest  income  is the  difference  between  interest  income on
interest-earning  assets and interest expense on  interest-bearing  liabilities.
Net interest income for the three- and six-month  periods ended June 30, 2001 on
a tax equivalent  basis,  was $5.8 million and $11.5  million,  compared to $5.7
million  and $11.3  million  for the same  periods  in 2000,  respectively.  The
increase in tax equivalent  net interest  income for both periods was the result
of an  increase  in the  average  interest-earning  assets  and lower  yields on
interest-earning  liabilities  partially  offset by a  decrease  in the yield on
average interest-bearing assets.

         Average  interest-earning  assets increased approximately $27.1 million
to $508.0  million  during the second quarter of 2001 from $481.0 million in the
same  period  last  year.  For the six  months  ended  June  30,  2001,  average
interest-earning  assets increased approximately $26.7 million to $505.1 million
from  $478.5  million in the same  period  last year.  The  increase  in average
interest-earning  assets was the direct  result of an  increase  in the  average
loans outstanding due to increased loan origination's  stemming from steady loan
demand, partially offset by a decrease in investment security balances.

         Net-yields on interest-earning  assets, on a tax equivalent basis, were
4.57 % and 4.59% for the  three- and  six-month  periods  ended  June 30,  2001,
respectively,  compared  to 4.78% for both  periods  ended  June 30,  2000.  The
decrease in the average net-yield on  interest-earning  assets for the three-and
six-month  periods ended June 30, 2001 was primarily the result of a decrease in
the  average   yield   earned  on  interest   bearing   assets.   The  yield  on
interest-earning  has been  negatively  impacted  by the falling  interest  rate
environment  of the first and second  quarters of 2001 and future  declines will
continue to put pressure on net-yield.  The Corporation  also  anticipates  that
strong  competition  for new loan business and the cost of  incremental  deposit
growth from other  funding  sources  will put pressure on  net-yield.  Yields on
interest-bearing  liabilities  decreased  primarily due to the lowering of rates
paid on deposit accounts as the Corporation reacted to external rate changes and
tried to off-set the decrease in asset yields.


<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,
         ---------                                            ------------------                  ------------------
                                                              2001          2000                   2001         2000
                                                              ----          ----                   ----         ----
<S>                                                           <C>           <C>                   <C>          <C>

Interest Earning Assets                                       7.81%         8.19%                 7.94%        8.14%
Interest Bearing Liabilities                                  4.04%         4.17%                 4.17%        4.10%
Net Interest Spread                                           3.77%         4.02%                 3.77%        4.04%
Contribution of Interest Free Funds                           0.80%         0.76%                 0.82%        0.74%
Net Yield on Interest Earning Assets                          4.57%         4.78%                 4.59%        4.78%
</TABLE>

                      INTEREST INCOME ON FEDERAL FUNDS SOLD

         Interest  income on federal  funds  sold for the  three- and  six-month
periods  ended June 30,  2001,  increased  833.3% and 308.1% to $84 thousand and
$151  thousand,  respectively,  when  compared to the same periods in 2000.  The
increase in interest  income on federal funds is the direct result of a 1,280.0%
and 376.0%  increase in the average balance of federal funds sold for the three-
and six- month  periods  ended June 30, 2001,  respectively.  Additionally,  the
interest  income earned on federal funds sold was partially  offset by a 204 and
78 basis point decrease (one basis point is equal to 1/100 of a percent) for the
three- and six- month periods ended June 30, 2001, respectively.

                    INTEREST INCOME ON INVESTMENT SECURITIES

         On a tax equivalent  basis,  interest  income on investment  securities
decreased 26.1 % to $1.3 million for the three-month period ended June 30, 2001,
and  decreased  25.1 % to $2.8 million for the  six-month  period ended June 30,
2001, respectively,  when compared to the same periods in 2000. The decrease for
the  three-month  period is  primarily  due to a decrease in average  investment
security  balances of 18.9 %, and a 58 basis point  decrease on rates  earned on
such  investments.  The decrease for the six-month period ended June 30, 2001 is
the result of a 19.0% decrease in the average investment security balance and 50
basis point decrease in the yield earned  compared to the same period last year.
Decreases  in average  investment  security  balances are the result of periodic
payments (securities paydowns) and normal maturities. These funds are being used
to support loan growth.

                            INTEREST INCOME ON LOANS

         Loan  interest  income,  on a tax  equivalent  basis,  generated by the
Corporation's  loan portfolio  increased 5.8% and 8.9% to $8.5 million and $17.1
million for the three- and six-month  periods  ended June 30, 2001,  compared to
the same  periods in 2000,  respectively.  The  increase in interest  income for
these periods is the direct result of a 10.9% and 11.7%  increase in the average
loans  outstanding  for the three- and  six-month  periods  ended June 30, 2001,
respectively.  For the three- and  six-month  period ended June 30,  2001,  loan
interest  income was  partially  offset by a 40 and 21 basis point  decreases in
rates earned on the portfolio as compared to last year.



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


                      INTEREST EXPENSE ON DEPOSIT ACCOUNTS

         Interest  expense on deposit  accounts  increased 1.1% and 6.3% for the
three- and  six-month  periods  ended  June 30,  2001 to $3.8  million  and $7.7
million,  compared to the same periods in 2000. The increase for the three-month
period   ended  June  30,   2001  is  the  result  of  an  increase  in  average
interest-bearing  deposits of $4.3 million  off-set by a 12 basis point decrease
in the rates paid on interest-bearing  deposits.  The increase for the six-month
period   ended  June  30,   2001  is  the  result  of  an  increase  in  average
interest-bearing deposits of $4.3 million and an 8 basis point increase in rates
paid  on  interest-bearing   deposits.  The  Corporation's   effective  rate  on
interest-bearing  deposits  decreased to 3.91% for the three-month  period ended
June 30, 2001 from 4.03% in 2000.  The  Corporations  effective rate on interest
bearing deposits increased to 4.05% from the six-month period June 30, 2001 from
3.97% in 2000.

         The recent falling  interest rate  environment has negatively  impacted
the  interest  income  earned on the  Corporation's  loan  portfolio  and caused
downward pressure on the Corporation's interest bearing deposits.  Interest rate
changes affect earnings on  floating-rate  loan portfolios in a relatively short
time,  and  the  impact  on  deposit  interest  expense  is  more  gradual.  The
Corporation  anticipates that the current falling rate environment will continue
to put downward pressure on deposit rates in future time periods.

         Competition  for  deposits  from  local  community  banks  as  well  as
non-banking  institutions  such  as  credit  union  and  mutual  fund  companies
continues to be a strong factor.  Despite this  competition,  the  Corporation's
deposit  base  continues  to grow  and is  expected  to  continue  to grow as we
continue to open new  branches and attract new  customers  with new products and
services.  Recent  growth can be  attributed  primarily  to our four new limited
service retirement  community branches located in Chester and Delaware counties.
Our newest branch site in the  Lionville  area opened for business in late June.
Two new sites are  currently  under  construction  and other sites are currently
under  review.  By  strategically  planning new branch sites in growing areas of
Chester County, the Corporation expects to expand its deposit core base.

         INTEREST EXPENSE ON SECURITIES SOLD UNDER REPURCHASE AGREEMENTS

         Interest  expense  on  securities  sold  under  repurchase   agreements
decreased  20.7% and 10.8% to $23  thousand  and $58 thousand for the three- and
six-month  periods  ended  June 30,  2001,  respectively,  compared  to the same
periods in 2000.  The decreases are primarily  attributable  to 28.5%,  or a 147
basis point decrease,  and 12.0%, or a 59 basis point decrease, on rates paid on
such contracts,  compared to the rates paid in the three- and six-month  periods
ended June 30, 2000, respectively.

    INTEREST EXPENSE ON FEDERAL HOME LOAN BANK ADVANCES AND OTHER BORROWINGS

         Interest  expense  on  borrowings  decreased  6.9% for the  three-month
period ended June 30, 2001. The decrease is a direct result of a $1.9 million or
8.3% decrease in borrowings for the three-month period ending June 30, 2001 when
compared to the same period last year. Interest expense on borrowings  increased
$3 thousand 0.4% for the six month period ended June 30, 2001. The increase is a
direct  result of a 0.5% or 3 basis  point  increase  on rates  paid,  partially
offset by a 0.1% or $12.0 thousand  decrease in average  borrowing when compared
<PAGE>
           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                            AND RESULTS OF OPERATIONS

to the same period last year.  During the three-and  six-month  periods  deposit
growth  and cash flow for the  Corporations  investment  portfolio  funded  loan
growth  enabling  the  Corporation  to put less  reliance  on funds  from  other
sources.  Borrowings  at any time may  consist of one or more of the  following:
FHLB  Overnight or Term  Advances and advances  under line  agreements  with our
correspondent banks.


                            PROVISION FOR LOAN LOSSES

         During the three-  and  six-month  periods  ended  June 30,  2001,  the
Corporation  recorded a $135  thousand and a $370  thousand  provision  for loan
losses  compared to a $177  thousand and a $467 thousand for the same periods in
2000.  The decrease in the  provision  expense can be  attributed to slower loan
growth when  compared to the same  periods  last year.  The  allowance  for loan
losses as a percentage of total loans was 1.61% at June 30, 2001,  1.73% at June
30, 2000 and 1.77% at December 31, 1999,  respectively.  See the section  titled
"Allowance For Loan Losses" for additional discussion.

                               NON-INTEREST INCOME

         Total non-interest income increased 5.2% to $1.5 million for the three-
month period ended June 30, 2001 when  compared to the same period in 2000.  For
the six- month period ended June 30, 2001, total  non-interest  income increased
11.9% to $3.1  million  when  compared to the same  period in 2000.  The primary
component  of  non-interest  income is  Financial  Management  Services  ("FMS")
revenue, which decreased 5.7% and 5.9% to $741 thousand and $1.5 million for the
three- and six-month periods ended June 30, 2001, respectively,  compared to the
same periods in 2000.  The market value of FMS assets under  management  custody
grew $23.2 million or 5.4% from $433.3 million at June 30, 2000 to 456.5 million
at June 30, 2001.  While the overall  value of FMS assets under  management  and
custody grew from period to period,  much of this growth was obtained from a few
new account  relationships,  which were  secured  late in the first  quarter and
income from these assets may not be fully  realized  until future  periods.  FMS
income is based  primarily on the market  value of the assets under  management.
Over the past several months the downturn in the financial  markets devalued the
portfolio and led to a lower than expected amount of fee income.

         Service charges on deposit accounts  increased  approximately  10.1% to
$295 thousand for the three-months ended June 30, 2001 compared to $268 thousand
for the same  period in 2000.  For the  six-month  period  ended June 30,  2001,
service charges on deposit accounts increased 10.1% to $569 thousand compared to
$517  thousand for the same period in 2000.  This  increase can be attributed to
the growth in the number and volume of deposit  accounts for the current periods
when  compared  with the same periods last year.  With the  introduction  of the
Bounce  Protection(R)  product in July,  Management  expects  this  component of
non-interest income to continue to grow.

         Investment  securities gains (losses) also contributed to the change in
non-interest income. For the three-month period ended June 30, 2001,  investment
security gains (losses) increased $37 thousand from $3 thousand to $40 thousand,
when compared to the same period in 2000.  For the  six-month  period ended June
30, 2001,  investment security gains (losses) increased $105 thousand from $(40)
thousand to $65 thousand, when compared to the same period in 2000.

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

         Other  non-interest  income  increased  15.9% to $393  thousand for the
three-months  ended June 30, 2001  compared to $339 thousand for the same period
in 2000. For the six-month period ended June 30, 2001, other non-interest income
increased  38.2% to $948 thousand  compared to $686 thousand for the same period
in 2000.  The  material  factors  include such items as an increase in ATM fees,
gains on the sale of mortgage loans, and increased loan fee income.

                              NON-INTEREST EXPENSE

         Total  non-interest  expense for the three- and six-month periods ended
June 30,  2001  increased  9.4% to $5.3  million  and  10.7%  to $10.6  million,
compared to the same periods in 2000.  The various  components  of  non-interest
expense changes are discussed below.

         Employee  salaries  and  benefits  increased  12.9% to $3.0 million and
12.0% to $6.0 million for the three-month  and six-month  periods ended June 30,
2001  compared to the same periods in 2000.  Increased  staff,  annual  employee
raises,  and  a  proportional   increase  in  employee  benefits  are  primarily
responsible for the increase.  Additional staff to work in our Lionville and New
Garden  Branches  hired  during  the  first  half  of 2001  contributed  to this
increase.  At June 30, 2001, the Corporation  employed 219 full time and 48 part
time employees  compared to 218 full time and 40 part time employees at June 30,
2000. The  preparation  for opening our Lionville and New Garden branches during
the first half of 2001 also contributed to the increase.

         Net occupancy,  equipment,  and data processing  expense increased 2.9%
and 4.5% to $1.0 million and $2.1 million for the three- and  six-month  periods
ended June 30, 2001, compared to the same periods last year,  respectively.  The
increase is the direct result of increased  computer and related equipment costs
associated with the expansion,  upgrading and maintenance of personal  computers
and our networking  infrastructure.  Increases in the  Corporation's  facilities
also  contributed  to the increase.  See "Building  Improvements  and Technology
Project" section for more detail.

         Total other  non-interest  expense  increased  16.1% and 18.4 % to $849
thousand and $1.6 million for the three-month  and six-month  periods ended June
30, 2001 compared to the same periods in 2000. These increases can be attributed
to increased  advertising and marketing  efforts to attract new customers and to
promote our corporate image and the cost of opening our new branch sites.

         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.

         The  Corporation  is currently  working on four new branch  sites,  one
located in New Garden  Township  (business  Route 1 south of Kennett  Square) is
planned to open on August 27, 2001. The other branch sites are in various stages
of  construction  and  development  and are expected to be completed  and opened
within the next 6 to 18 months.



<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)                                              2001                                      2000
                                                     --------------------------------           -------------------------------
                                                     Daily                                      Daily
                                                     Average                                    Average
                                                     Balance       Interest      Rate           Balance     Interest       Rate
                                                     -------       --------      ----           -------     --------       ----
<S>                                                  <C>            <C>         <C>         <C>             <C>          <C>

ASSETS
Federal funds sold                                   $   7,880      $    84     4.26%       $       571     $      9     6.30%
Interest bearing deposits in banks                         156            1     2.56%               169            2     4.73%
Investment securities

    Taxable                                             86,763        1,302     6.00%           106,973        1,761     6.58%
    Tax-exempt (1)                                       1,815           31     6.93%             2,279           43     7.55%
                                                       -------        -----                     -------        -----
        Total investment securities                     88,578        1,333     6.02%           109,252        1,804     6.60%
Loans (2)
    Taxable                                            408,944        8,437     8.25%           364,795        7,894     8.66%
    Tax-exempt (1)                                       2,480           60     9.60%             6,175          139     8.99%
                                                       -------        -----                     -------        -----
        Total loans                                    411,424        8,497     8.26%           370,970        8,033     8.66%
                                                       -------        -----                     -------        -----
        Total interest-earning assets                  508,038        9,915     7.81%           480,962        9,848     8.19%
Non-interest earning assets
    Allowance for loan losses                           (6,653)                                  (6,490)
    Cash and due from banks                             24,740                                   23,285
    Other assets                                        19,312                                   19,651
                                                       -------                                  -------
        Total assets                                  $545,437                                 $517,408
                                                       =======                                  =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Savings, NOWS & money market deposits                 $236,297       $1,600     2.71%          $231,599       $1,823     3.15%
Certificates of deposits and other time                147,426        2,152     5.84%           136,380        1,888     5.54%
                                                       -------        -----                     -------        -----
   Total interest bearing deposits                     383,723        3,752     3.91%           367,979        3,711     4.03%
Securities sold under repurchase agreements              2,501           23     3.68%             2,252           29     5.15%
Federal Home Loan Bank advances and
      other borrowings                                  21,455          338     6.30%            23,388          363     6.21%
                                                       -------        -----                     -------        -----
   Total interest bearing liabilities                  407,679        4,113     4.04%           393,619        4,103     4.17%
                                                       -------        -----                     -------        -----
Non-interest bearing liabilities
    Non-interest bearing demand deposits                87,279                                   80,094
    Other liabilities                                    5,775                                    4,763
                                                       -------                                  -------
        Total liabilities                              500,733                                  478,476
Stockholders' equity                                    44,704                                   38,932
                                                       -------                                  -------
        Total liabilities and stockholders' equity    $545,437                                 $517,408
                                                       =======                                  =======
Net interest income                                                  $5,802                                   $5,745
                                                                      =====                                    =====
Net yield on interest earning assets                                            4.57%                                    4.78%
                                                                                ====                                     ====




<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 2001 and 2000.
(2) Non-accruing loans are included in the average balance.
</FN>
</TABLE>


<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)                                              2001                                      2000
                                                       ------------------------------           -------------------------------
                                                       Daily                                    Daily
                                                       Average                                  Average
                                                       Balance     Interest      Rate           Balance     Interest     Rate
                                                       -------     --------      ----           -------     --------     ----

<S>                                                   <C>           <C>          <C>           <C>           <C>         <C>

ASSETS
Federal funds sold                                    $  6,431      $   151      4.70%         $  1,351      $    37     5.48%
Interest bearing deposits in banks                         123            3      4.88%              109            2     3.67%
Investment securities
Taxable                                                 88,450        2,703      6.11%          109,219        3,614     6.62%
    Tax-exempt (1)                                       1,812           68      7.48%            2,272           86     7.56%
                                                       -------       ------                     -------       ------
        Total investment securities                     90,262        2,771      6.14%          111,491        3,700     6.64%
                                                       -------       ------                     -------       ------
Loans (2)
    Taxable                                            405,068       16,979      8.38%          359,343       15,441     8.59%
    Tax-exempt (1)                                       3,248          161      9.94%            6,186          293     9.46%
                                                       -------       ------                     -------       ------
        Total loans                                    408,316       17,140      8.40%          365,529       15,734     8.61%
                                                       -------       ------                     -------       ------
        Total interest-earning assets                  505,132       20,065      7.94%          478,480       19,473     8.14%
Non-interest earning assets
    Allowance for loan losses                           (6,629)                                  (6,403)
    Cash and due from banks                             24,486                                   21,958
    Other assets                                        19,013                                   19,492
                                                       -------                                  -------
        Total assets                                  $542,002                                 $513,527
                                                       =======                                  =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Savings, NOWS & money market deposits                 $234,448     $  3,382      2.89%         $228,233     $  3,531     3.09%
Certificates of deposits and other time                147,309        4,343      5.90%          137,864        3,736     5.42%
                                                       -------       ------                     -------       ------
Total interest bearing deposits                        381,757        7,725      4.05%          366,097        7,267     3.97%
Securities sold under repurchase agreements              2,693           58      4.31%            2,652           65     4.90%
Federal Home Loan Bank advances and
     other borrowings                                   22,621          701      6.20%           22,633          698     6.17%
                                                       -------       ------                     -------       ------
   Total interest bearing liabilities                  407,071        8,484      4.17%          391,382        8,030     4.10%
                                                       -------       ------                     -------       ------
Non-interest bearing liabilities
    Non-interest bearing demand deposits                84,629                                   77,854
    Other liabilities                                    6,022                                    5,572
                                                       -------                                  -------
        Total liabilities                              497,722                                  474,808
Stockholders' equity                                    44,280                                   38,719
                                                       -------                                  -------
        Total liabilities and stockholders' equity    $542,002                                 $513,527
                                                       =======                                  =======
Net interest income                                                 $11,581                                  $11,443
                                                                     ======                                   ======
Net yield on interest earning assets                                             4.59%                                   4.78%
                                                                                 ====                                    ====







<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 2001 and 2000.
(2) Non-accruing loans are included in the average balance.
</FN>
</TABLE>


<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,
2001 was $496  thousand  and $992  million,  compared to $545  thousand and $1.1
million in the same periods last year.  This  represents  effective tax rates of
27.6% and 27.2% for the  three-  and  six-month  periods  ended  June 30,  2001,
respectively.  The effective tax rate for the three- and six-month periods ended
June 30, 2000 were 26.6% and 27.5%, respectively.

               LIQUIDITY MANAGEMENT AND INTEREST RATE SENSITIVITY

         The objective of liquidity  management is to ensure the availability of
sufficient  cash flows to meet all  financial  commitments  and to capitalize on
opportunities  for  business  expansion.   Liquidity  management  addresses  the
Corporation's  ability  to meet  deposit  withdrawals  either  on  demand  or at
contractual  maturity,  to repay borrowings as they mature and to make new loans
and investments as  opportunities  arise.  Liquidity is managed on a daily basis
enabling  Senior  Management  to  monitor  changes  in  liquidity  and to  react
accordingly  to  fluctuations  in  market  conditions.  The  primary  source  of
liquidity  for the  Corporation  is  funding  available  from the FHLB,  deposit
growth, and cash flow from the investment and loan portfolios.  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:


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

                                DEPOSIT ANALYSIS
<TABLE>
<CAPTION>

(Dollars in thousands)                     June 30, 2001                    December 31, 2000           Average Balance
                                           -------------                    -----------------           ---------------
                                      Average         Effective        Average         Effective     Dollar     Percentage
DEPOSIT TYPE                          Balance            Yield          Balance          Yield       Variance    Variance
------------                          -------            -----          -------          -----       --------    --------
<S>                                 <C>                 <C>            <C>               <C>         <C>        <C>

NOW Accounts                         $ 69,656           1.44%          $ 67,923          1.71%      $ 1,733       2.55%
Money Market                           22,786           2.76%            25,934          2.93%       -3,148     -12.14%
Statement Savings                      46,411           2.99%            48,514          3.04%       -2,103      -4.33%
Other Savings                           1,820           2.75%             2,092          2.72%         -272     -13.00%
CD's Less than $100,000               117,323           5.92%           112,287          5.69%        5,036       4.48%

Total Core Deposits                   257,996           3.88%           256,750          3.84%        1,246       0.49%

Non-Interest Bearing
Demand Deposit Accounts                84,629              -             80,415             -         4,214       5.24%

Total Core and Non-Interest
  Bearing Deposits                    342,625           2.92%           337,165          2.92%        5,460       1.62%

Tiered Savings                         93,775           3.94%            85,841          4.50%        7,934       9.24%
CD's Greater than $100,000             29,986           5.80%            27,457          5.80%        2,529       9.21%

Total Deposits                       $466,386           3.31%          $450,463          3.40%      $15,923       3.53%
</TABLE>

         The Bank, as a member of the FHLB, maintains several credit facilities.
As of June 30, 2001 the amount  outstanding under the Bank's line of credit with
the FHLB was $0.  Additionally,  the FHLB offers  several  other credit  related
product  which are  available  to the  bank.  The Bank  currently  has a maximum
borrowing  capacity with the FHLB of  approximately  $159.4 million.  During the
three- and six-month  periods  ending June 30, 2001,  average FHLB advances were
approximately  $21.5 million and $22.6 million,  respectively,  and consisted of
term  advances  representing  a combination  of  maturities in each period.  The
average  interest  rate on these  advances  was  approximately  6.30%  and 6.20%
respectively.  FHLB  advances  are  collateralized  by a  pledge  on the  Bank's
portfolio of unencumbered  investment  securities,  certain mortgage loans and a
lien on the Bank's FHLB stock.

         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
$165.2  million  or 29.9% of total  assets  at June  30,  2001  compared  with a
negative  $179.2  million  or 33.7%  of  total  assets  at June  30,  2000.  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.


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

                          INTEREST SENSITIVITY ANALYSIS
                               AS OF JUNE 30, 2001
<TABLE>
<CAPTION>

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

ASSETS
    Federal funds sold                         $     12,000     $        --       $        --      $        --    $    12,000
    Investment securities                            22,983          37,855            27,636               --         88,474
    Interest bearing deposits in banks                   --              --                --              130            130
    Loans and leases                                148,835         235,684            31,412           (6,704)       409,227
    Cash and cash equivalents                            --              --                --           21,384         21,384
    Premises & equipment                                 --              --                --           11,832         11,832
    Other assets                                        136              --                --            9,339          9,475
                                                -----------      ----------        ----------       ----------     ----------
       Total assets                            $    183,954     $   273,539       $    59,048      $    35,981    $   552,522
                                                ===========      ==========        ==========       ==========     ==========
LIABILITIES AND CAPITAL
    Interest bearing deposits                  $    340,368     $    44,594       $     2,035      $        --    $   386,997
    Non-interest bearing deposit                         --              --                --           93,303         93,303
    Repurchase Agreements                             2,553              --                --               --          2,553
    FHLB advances and other
       borrowings                                     6,236          11,112             3,496               --         20,844
    Other liabilities                                    --              --                --            4,444          4,444
    Capital                                             --               --                --           44,381         44,381
                                                -----------      ----------        ----------       ----------     ----------
       Total liabilities & capital             $    349,157     $    55,706       $     5,531      $   142,128    $   552,522
                                                ===========      ==========        ==========       ==========     ==========
    Net interest rate
      sensitivity gap                          $   (165,203)    $   217,833       $    53,571      $  (106,147)   $        --
                                                ===========      ==========        ==========       ==========     ==========
    Cumulative interest rate
      sensitivity gap                          $   (165,203)    $    52,630       $   106,147      $        --    $        --
                                                ===========      ==========        ==========       ==========     ==========
    Cumulative interest rate
      sensitivity gap divided
      by total assets                                (29.9%)           9.5%             19.2%
                                                     ======            ===              ====
</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 upon Management's periodic evaluations of the collectibility
of loans.  These periodic  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.


<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)                                                 2001            2000            2001            2000
                                                                       ----            ----            ----            ----
<S>                                                                 <C>             <C>             <C>              <C>

Balance at beginning of period                                      $  6,612        $  6,412        $   6,609        $   6,261
                                                                     -------         -------         --------         --------
Provision charged to operating expense                                   135             177              370             467
                                                                     -------         -------         --------         --------
    Recoveries of loans previously charged-off                            92              32              129              75
    Loans charged-off                                                   (135)            (80)            (404)           (262)
                                                                     -------         -------         --------         --------
Net loans charged-off                                                    (43)            (48)            (275)           (187)

Balance at end of period                                            $  6,704        $  6,541         $  6,704         $  6,541
                                                                     =======         =======          =======          =======
Period-end loans outstanding                                        $415,931        $378,389         $415,931         $378,389
Average loans outstanding                                           $411,424        $370,970         $408,316         $365,529
Allowance for loan losses as a
  Percentage of period-end loans outstanding                           1.61%           1.73%            1.61%            1.73%

Net charge-offs to average loans
    Outstanding                                                        0.01%           0.01%            0.07%            0.05%
</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 charge-off 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.


<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)                           2001                2000             2000
----------------------                           ----                ----             ----
<S>                                             <C>                 <C>              <C>

Past due over 90 days and still accruing        $3,902              $  426           $  134

Non-accrual loans                                1,869               1,659            1,364
                                                 -----               -----            -----
Total non-performing loans                       5,771               2,085            1,498

Other real estate owned                            727                 447              803

Total non-performing assets                     $6,498              $2,532           $2,301
                                                 =====               =====            =====
Non-performing loans as a percentage
   of total loans (gross)                        1.39%               0.55%            0.37%

Allowance for loan losses as a
   percentage of non-performing loans          116.17%             313.72%           441.2%

Allowance for loan losses as a
   percentage of total loans and other real
   estate owned                                  1.56%               0.67%            0.60%

Allowance for loan losses as a
   percentage of non-performing assets         103.17%             258.33%           287.2%
</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, 2001. Other real estate owned
("OREO")  represents  residential  and  commercial  real estate  written down to
realizable  value  (net of  estimated  disposal  costs)  based  on  professional
appraisals.  A significant  portion of the increase in the total  non-performing
loans is the result of one loan that has become 90 days past due.  The amount of
this loan is approximately $3.5 million and is currently being restructured.

                                 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 $1.4 million, $943 thousand, and $659
thousand at June 30, 2001,  December 31, 2000,  and June 30, 2000  respectively.
The associated allowance for impaired loans was $215 thousand, $242 thousand and
$301  thousand  at  June  30,  2001,   December  31,  2000  and  June  30,  2000
respectively.
<PAGE>
           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                            AND RESULTS OF OPERATIONS

         For the three-month and six-month period ended June 30, 2001,  activity
in the allowance for impaired loan losses  include a provision of $0, write offs
of $0 and $27  thousand,  respectively,  and  recoveries  of $6 thousand and $0,
respectively. No interest income was recorded for both periods while contractual
interest  amounted to $29 thousand for the three-months  ended June 30, 2001 and
$55 thousand for the six-months ended June 30, 2001. Cash collected on loans for
the three-month and six-month  period ended June 30, 2001 was $3 thousand and $8
thousand, respectively, all of which was applied to principal.

         For the three-month and six-month period ended June 30, 2000,  activity
in the  allowance  for impaired  loan losses  include a provision of $0 for both
periods, respectively,  write offs of $2 thousand and $7 thousand, respectively,
and recoveries of $3 thousand in each period. Interest income of $0 was recorded
for both periods  while  contractual  interest  amounted to $15 thousand for the
three-months  ended June 30, 2000 and $32 thousand for the six-months ended June
30, 2000. Cash collected on loans for the three-month and six-month period ended
June 30, 2000 was $29 thousand and $64 thousand,  respectively, all of which was
applied to principal.

                  BUILDING IMPROVEMENTS AND TECHNOLOGY PROJECTS

         In June, the Corporation  opened its 13th branch,  Lionville  (Route 13
and Sheree Boulevard). In addition the Corporation is currently working on plans
for several other new branch  sites.  Two of these sites,  New Garden  (business
Route 1 south  of  Kennett  Square)  and  Hershey's  Mill,  are  expected  to be
completed  and  opened in the next 90 and 180 days,  respectively.  In August of
2001, the  Corporation  installed a company wide  telecommunications  system and
upgraded their core system processor.

                                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,  2001,  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>

RISK-BASED                                       June 30,                       December 31,          "Well Capitalized"
CAPITAL RATIOS                             2001               2000                  2000                  Requirements
--------------                             ----               ----                  ----                  ------------
<S>                                       <C>                <C>                   <C>                      <C>

    Corporation
    -----------
Leverage Ratio                             8.29%              8.20%                 8.48%                    5.00%
Tier I Capital Ratio                      10.77%             10.82%                10.73%                    6.00%
Total Risk-Based Capital Ratio            12.03%             12.08%                11.98%                   10.00%

       Bank
       ----
Leverage Ratio                             8.01%              8.13%                 8.05%                    5.00%
Tier I Capital Ratio                      10.40%             10.72%                10.47%                    6.00%
Total Risk-Based Capital Ratio            11.66%             11.98%                11.73%                   10.00%
</TABLE>

<PAGE>

         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.

<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 2000 Annual Report
of the  Corporation,  filed as an exhibit  to its Form 10-K for the fiscal  year
ended  December  31,  2000  with  the  SEC  via  EDGAR.   Please  refer  to  the
"Management's   Discussion   and  Analysis"   section  on  pages  24-38  of  the
Corporation's 2000 Annual Report for additional information.


<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,
1999.

      3(i).  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, 1997.

      10.    Material contracts.

(a)          Copy of the  Corporation's  Amended and Restated  1995 Stock Option
Plan, is incorporated  herein by reference to the appendix to the  Corporation's
Proxy  Statement for the 2000 Annual Meeting of  Shareholders  as filed with the
SEC.
<PAGE>


                       PART II - OTHER INFORMATION (cont.)

         27.      Financial Data Schedule.

         (b)      Reports on Form 8-K

             A Form 8-K was filed with the SEC on May 18, 2001 reporting,  under
Item 5, the issuance of a press release regarding  announcing its second quarter
dividend.

             A Form  11-K was  filed  with the SEC on June 29,  2000  reporting,
under Item 5, the issuance of its annual report of employee stock purchase.

             A Form 8-K was filed with the SEC on July 27, 2001 reporting, under
item 5, the issuance of a press release announcing second quarter earnings.


<PAGE>


                                   SIGNATURES


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



                        FIRST CHESTER COUNTY CORPORATION


                                                     Charles E. Swope


                                                     /s/ Charles E. Swope
                                                     President


DATE:  August 10, 2001


                                                     J. Duncan Smith


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