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

                                    FORM 10Q

(Mark One)

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

For the quarterly period ended September 30, 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)


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

Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the Registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No

The number of shares outstanding of Common Stock of the Registrant as of
November 1, 2001 was 4,421,826.


<PAGE>

<TABLE>
<CAPTION>

                FIRST CHESTER COUNTY CORPORATION AND SUBSIDIARIES

                                      INDEX

                                                                                                           PAGE
<S>                                                                                                          <C>

Part I.  FINANCIAL INFORMATION

         Item 1 - Financial Statements

                  Consolidated Statements of Condition
                  September 30, 2001 and December 31, 2000                                                     3


                  Consolidated Statements of Income
                  Three- and Nine-Months Ended September 30, 2001 and 2000                                     4


                  Consolidated Statement of Changes in Stockholder's Equity                                    5


                  Consolidated Statements of Cash Flows
                  Nine-Months Ended September 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

                  Signatures                                                                                 26


                                        2
</TABLE>

<PAGE>



<TABLE>
<CAPTION>




                FIRST CHESTER COUNTY CORPORATION AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CONDITION



(Dollars in thousands - except per share data)
                                                                                              (Unaudited)
                                                                                             September 30,         December 31,
                                                                                                 2001                  2000
ASSETS
<S>                                                                                           <C>                 <C>
    Cash and due from banks                                                                    $   24,424          $     30,311
    Federal funds sold                                                                              1,000                 7,500
    Interest bearing deposits in banks                                                                109                   162
                                                                                               ----------            ----------

           Total cash and cash equivalents                                                         25,533                37,973
                                                                                               ----------            ----------

    Investment securities held-to-maturity (market value of $868 at September
        30, 2001 and $4,535 December 31,
        2000)                                                                                         814                 1,183
                                                                                               ----------            ----------
    Investment securities available-for-sale at market value                                       84,697                93,012
                                                                                               ----------            ----------

    Loans                                                                                         434,549               406,889
    Less allowance for loan losses                                                                 (6,282)               (6,609)
                                                                                               ----------            ----------

           Net loans                                                                              428,267               400,280
                                                                                               ----------            ----------

    Premises and equipment, net                                                                    13,121                 9,564
    Other assets                                                                                    7,949                 8,677
                                                                                               ----------            ----------
           TOTAL ASSETS                                                                       $   560,381           $   550,689
                                                                                               ==========            ==========
LIABILITIES
    Deposits
        Non-interest bearing                                                                   $   89,468           $    89,137
        Interest-bearing (including certificates of deposit over $100 of
           $30,341 and $30,684 - June 30, 2001 and December 31, 2000,
              respectively)                                                                       386,843               382,353
                                                                                               ----------            ----------

           Total deposits                                                                         476,311               471,490

    Securities sold under repurchase agreements                                                     3,811                 2,752
    Federal Home Loan Bank advances and other borrowings                                           30,786                27,157
    Other liabilities                                                                               4,683                 6,278
                                                                                               ----------            ----------

           Total liabilities                                                                      515,591               507,677
                                                                                               ----------            ----------

STOCKHOLDERS' EQUITY
    Common stock, par value $1.00; authorized, 10,000,000 shares;                                   4,800                 4,800
        Outstanding, 4,799,666 shares at September 30, 2001 and
        December 31, 2000.
    Additional paid-in capital                                                                        757                   610
    Retained earnings                                                                              43,361                42,353
    Accumulated other Comprehensive Income (Loss)                                                     955                  (759)
    Treasury stock, at cost: September 30, 2001 - 371,873 and
        December 31, 2000 - 322,352                                                                (5,083)               (3,992)
                                                                                               ----------           -----------

           Total stockholders' equity                                                              44,790                43,012
                                                                                               ----------           -----------

           Total liabilities and stockholders' equity                                          $  560,381           $   550,689
                                                                                                =========            ==========





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


                                        3
<PAGE>
<TABLE>
<CAPTION>

               FIRST CHESTER COUNTY CORPORATION AND SUBSIDIARIES
                        CONSOLIDATED STATEMENTS OF INCOME

                                   (UNAUDITED)

(Dollars in thousands - except per share data)                            Three Months Ended                   Nine Months Ended
                                                                             September 30,                       September 30,
                                                                         ---------------------------      --------------------------
                                                                          2001              2000              2001         2000
                                                                         -----              ----              ----         ----
<S>                                                                  <C>               <C>               <C>            <C>
INTEREST INCOME
    Loans, including fees                                                  8,203         $  8,317         $  25,288      $ 23,952
    Investment securities                                                  1,280            1,725             4,028         5,395
    Federal funds sold                                                        30                -               181            37
    Deposits in banks                                                          1                1                 5             4
                                                                        --------         --------          --------      --------

                Total interest income                                      9,514           10,043            29,502        29,388
                                                                        --------         --------          --------      --------

INTEREST EXPENSE
    Deposits                                                               3,501            3,964            11,226        11,232
    Securities sold under repurchase agreements                               22               35                80           100
    Federal Home Loan Bank advances and other borrowings                     259              423               961         1,120
                                                                        --------         --------          --------      --------

                Total interest expense                                     3,782            4,422            12,267        12,452
                                                                        --------         --------          --------      --------

                Net interest income                                        5,732            5,621            17,235        16,936

    Provision for loan losses                                              1,400              355             1,770           822
                                                                        --------         --------          --------      --------

                Net interest income after provision
                   for possible loan losses                                4,332            5,266            15,465        16,114
                                                                        --------         --------          --------      --------

NON-INTEREST INCOME
    Financial Management Services                                            735              718             2,213         2,290
    Service charges on deposit accounts                                      422              261               991           777
    Investment securities gains (losses), net                                 16                1                81           (40)
    Other                                                                    396              978             1,344         1,664
                                                                        --------         --------          --------      --------

                Total non-interest income                                  1,569            1,958             4,629         4,691
                                                                        --------         --------          --------      --------

NON-INTEREST EXPENSE
    Salaries and employee benefits                                         3,013            2,827             8,971         8,149
    Net occupancy and equipment                                            1,120            1,004             3,193         2,991
    FDIC deposit insurance                                                    21               22                64            67
    Bank shares tax                                                          119              106               363           319
    Professional Services                                                    231              257               736           474
    Other                                                                  1,165              890             2,892         2,640
                                                                        --------         --------          --------      --------

                Total non-interest expense                                 5,669            5,106            16,219        14,640
                                                                        --------         --------          --------      --------

                Income before income taxes                                   232            2,118             3,875         6,165

INCOME TAXES                                                                 130              590             1,123         1,701
                                                                        --------         --------          --------      --------

                NET INCOME                                               $   102         $  1,528          $  2,752     $   4,464
                                                                        ========         ========          ========      ========

PER SHARE DATA
    Basic earnings per common share                                      $  0.02          $  0.34           $  0.62       $  0.98
                                                                          ======           ======            ======        ======
    Diluted earnings per common share                                    $  0.02          $  0.33           $  0.61       $  0.98
                                                                          ======           ======            ======        ======
    Dividends declared                                                   $  0.13          $  0.13           $  0.39       $  0.38
                                                                          ======           ======            ======        ======

Basic weighted average shares outstanding                              4,416,814        4,546,678         4,444,229     4,536,580
                                                                       =========        =========         =========     =========

Diluted weighted average shares outstanding                            4,468,294        4,563,990         4,495,091     4,556,024
                                                                       =========        =========         =========     =========


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

                                       4
<PAGE>
<TABLE>
<CAPTION>

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

                                   (UNAUDITED)


(Dollars in thousands)                                                                                 2001            2000
                                                                                                     -------          ------
<S>                                                                                               <C>               <C>

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

    Net income to date                                                                                 2,752             4,464
    Cash dividends declared                                                                           (1,744)           (1,718)
    Net unrealized gain (loss) on securities available-for-sale                                        1,714               829
    Treasury stock transactions                                                                          147                 1
    Paid in capital from treasury stock transactions                                                  (1,091)             (798)
                                                                                                     --------          --------

Balance at September 30,                                                                           $  44,790          $ 40,960
                                                                                                     =======           =======



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

                                       5
<PAGE>

<TABLE>
<CAPTION>

                FIRST CHESTER COUNTY CORPORATION AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                                   (Unaudited)


                                                                                                  Nine Months Ended
                                                                                                         September 30,
                                                                                               -------------------------------
(Dollars in thousands)                                                                             2001               2000
                                                                                               ----------           ---------

<S>                                                                                           <C>                   <C>

OPERATING ACTIVITIES
    Net Income                                                                                 $   2,752             $  4,464
    Adjustments to reconcile net income to net cash
        provided by operating activities:
    Depreciation                                                                                   1,323                1,362
    Provision for loan losses                                                                      1,770                  822
    Amortization of investment security premiums
        and accretion of discounts                                                                   252                   89
    Amortization of deferred fees on loans                                                           278                  145
    Investment securities (gains) losses, net                                                        (81)                  40
    Increase in other assets                                                                        (214)                (900)
    (Decrease) increase in other liabilities                                                      (1,595)                 425
                                                                                                 --------            --------
           Net cash provided by operating activities                                               4,486                6,447
                                                                                                 --------            --------

INVESTING ACTIVITIES
    Increase in loans                                                                            (30,035)             (38,193)
    Proceeds from sales of investment securities available-for-sale                               15,187                8,129
    Proceeds from maturities of investment securities available-for-sale                          26,101                8,269
    Proceeds from maturities of investment securities held-to-maturity                               -                  1,468
    Purchases of investment securities available-for-sale                                        (30,177)              (7,505)
    Purchase of premises and equipment, net                                                       (4,823)              (1,220)
                                                                                                 --------             --------

           Net cash used in investing activities                                                 (23,747)             (29,052)
                                                                                                 --------             --------

FINANCING ACTIVITIES
    Increase (decrease) in securities sold under repurchase agreements                             1,059                 (231)
    Increase in deposits                                                                           4,821                1,368
    Increase in Federal Home Loan Bank advances and other borrowings                               3,629               17,262
    Cash dividends                                                                                (1,744)              (1,718)
    Treasury stock transactions                                                                     (944)                (798)
                                                                                                 --------             --------

           Net cash provided by financing activities                                               6,821               15,883
                                                                                                 --------             --------

              NET INCREASE (DECREASE) IN CASH AND CASH
                   EQUIVALENTS                                                                   (12,440)              (6,722)

Cash and cash equivalents at beginning of period                                                  37,973               32,257
                                                                                                 --------             --------

Cash and cash equivalents at end of period                                                      $ 25,533            $  25,535
                                                                                                 ========             ========







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

                                       6
<PAGE>


                FIRST CHESTER COUNTY CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                   (UNAUDITED)

     1.   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 nine-month  periods ended
          September 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.   We have adopted 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 nine-month  periods ended  September 30, 2001
          was $1.4 million and $1.7 million,  compared to $738 thousand and $829
          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 nine-month periods ended September
          30, 2001 was $1.5 million and $4.5  million,  compared to $2.3 million
          and $5.3 million in the same period last year.

     5.   On June 29, 2000,  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, 2000 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, 2000 and early  adoption is not
          permitted except for business combinations entered into after June 30,
          2000.  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.


                                        7
<PAGE>


                FIRST CHESTER COUNTY CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

                                   (UNAUDITED)

     6.   On July 6, 2000, 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.


                                       8
<PAGE>


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



     This  discussion  is  intended  to  further  your   understanding   of  the
consolidated  financial  condition  and results of  operations  of First Chester
County Corporation (the "Corporation") and its wholly-owned subsidiaries,  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 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  which  may  have  unanticipated  consequences,  such as
customer  turnover;  (e)  changes  in  the  regulatory  environment,  securities
markets, general business conditions and inflation may be adverse; (f) impact of
changes in interest  rates on customer  behavior;  (g) estimated  changes in net
interest  income;  (h)  anticipated  pressure on net  yields;  (i) the impact of
changes in  demographics on branch  locations;  and (j)  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  September  30, 2001 was $102
thousand, a decrease of 93.3% from $1.5 million for the same period in 2000. Net
income for the nine-month  period ended  September 30, 2001 was $2.8 million,  a
decrease of 38.4% from $4.5 million for the same period in 2000. The decrease in
net income in both periods is primarily  the direct result of an increase in the
provision  for loan  losses as  compared to the  provision  taken in 2000.  This
increase is primarily due to the  write-downs  and charge-offs of loans to three
commercial loan borrowers who have had operating  difficulties  and/or have been
impacted by the  slowdown in the national  and local  economies.  In addition to
impacting  earnings,  the situation with these  borrowers has also impacted loan
delinquencies as the remaining balance of these loans were placed on non-accrual
status.  Despite the problems  with these  borrowers,  the quality of the Bank's
loan portfolio and the underwriting standards Management applies to loans in the
portfolio  remain strong.  Other factors  impacting 2001 earnings were the rapid
interest  rate  decreases  engineered  by the Federal  Reserve over the first 10
months of this year and the costs  associated  with the Bank's branch  expansion
program.  These factors were  partially  offset by growth in earning  assets and
management's  strategic  innovation to offer  additional  services to the Bank's
customers to increase non-interest income components.

                                      9
<PAGE>
     During the third quarter of 2001 there was no change in the cash  dividends
declared  of $0.13  compared  to the third  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.



<TABLE>
<CAPTION>

                                                                       Three Months Ended               Nine Months Ended
                                                                          September 30,                   September 30,
                                                                   -------------------------         -----------------------
                                                                        2001       2000                2001         2000
                                                                        ----       ----                ----         ----
          <S>                                                     <C>            <C>             <C>            <C>

           PERFORMANCE RATIOS
           Return on Average Assets                                    0.07%       1.16%              0.67%         1.15%
           Return on Average Equity                                    0.90%      15.17%              8.19%        15.26%
           Earnings Retained                                        -464.71%      62.89%             36.66%        61.51%
           Dividend Payout Ratio                                     564.71%      37.11%             63.34%        38.49%
           Book Value Per Share                                    $  10.12      $ 9.12           $  10.12       $  9.12
</TABLE>

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

                               NET INTEREST INCOME

     Net  interest  income  is  the  difference   between   interest  income  on
interest-earning  assets and interest expense on  interest-bearing  liabilities.
Net interest  income for the three- and nine-month  periods ended  September 30,
2001, on a tax equivalent basis, was $5.8 million and $17.3 million, compared to
$5.7 million and $17.0 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 paid on
interest-earning  liabilities  partially  off set by a decrease  in the yield on
average interest earning assets.

     Average  interest-earning  assets increased  approximately $25.3 million to
$515.5  million during the third quarter of 2001 from $490.3 million in the same
period  last  year.  For the nine  months  ended  September  30,  2001,  average
interest-earning  assets increased approximately $26.2 million to $508.6 million
from  $482.4  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
4.47% and 4.53% for the three- and nine-month  periods ended September 30, 2001,
respectively,  compared  to 4.63% and 4.69% for the same  periods  in 2000.  The
decrease in the average net-yield on interest-earning  assets for the three- and
nine-month  periods  ended  September  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 10 months of 2001 and future  declines will continue to
put  pressure on the  net-yield.  Another  factor  impacting  the  net-yield  on
interest-earning  assets was the reversal of interest and fees  associated

                                       10
<PAGE>
with large loans placed on non-accrual during the quarter.  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.

<TABLE>
<CAPTION>

               AVERAGE INTEREST RATES (ON A TAX EQUIVALENT BASIS)

                                                               Three Months                 Nine Months
         Yield On:                                         Ended September 30,          Ended September 30,
         ---------                                         -------------------          -------------------
                                                           2001        2000               2001         2000
                                                           ----        ----               ----         ----
<S>                                                       <C>         <C>                <C>          <C>
Interest Earning Assets                                    7.40%       8.24%              7.74%        8.13%
Interest Bearing Liabilities                               3.53%       4.41%              4.00%        4.21%
                                                           ----        ----               ----         ----
Net Interest Spread                                        3.87%       3.83%              3.74%        3.92%
Contribution of Interest Free Funds                        0.60%       0.80%              0.79%        0.77%
                                                           ----        ----               ----         ----
Net Yield on Interest Earning Assets                       4.47%       4.63%              4.53%        4.69%
                                                           ====        ====               ====         ====
</TABLE>

                      INTEREST INCOME ON FEDERAL FUNDS SOLD

     Interest income on federal funds sold for the three- and nine-month periods
ended  September  30, 2001,  increased to $30 and $181  thousand from $0 and $37
thousand,  respectively, when compared to the same periods in 2000. The increase
in interest  income on federal  funds is the direct  result of  increases in the
average balance of federal funds sold for the three- and nine-month period ended
September 30, 2001, when compared to the same period in 2000,  partially  offset
by a 108 basis point (one basis point is equal to one  hundredth of one percent)
decrease in the rates earned on federal funds sold.

                    INTEREST INCOME ON INVESTMENT SECURITIES

     On a  tax  equivalent  basis,  interest  income  on  investment  securities
decreased 25.7% to $1.3 million for the  three-month  period ended September 30,
2001,  and  decreased  25.3% to $4.1  million for the  nine-month  period  ended
September 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 securities of 17.9%, and a 62 basis point decrease on rates earned on
such  investments.  The decrease for the nine-month  period ended  September 30,
2001 is the result of a decrease in average investment securities of 18.7% and a
54 basis  point  decrease in the yield  earned  compared to the same period last
year.  Decreases  in average  investment  securities  are the result of periodic
payments (securities  paydowns) and normal maturities and sales. These funds are
being used to support loan growth experienced throughout the year.

                            INTEREST INCOME ON LOANS

     Loan  interest  income,  on  a  tax  equivalent  basis,  generated  by  the
Corporation's loan portfolio  decreased 1.7% and increased 5.6%, to $8.2 million
and $25.3  million for the three- and  nine-month  periods  ended  September 30,
2001,  respectively,  compared to the same periods in 2000.  The decrease in the
three-month  period is a result of a 96 basis point  decrease in rates earned on
the portfolio compared to the same period last year,  partially off-set by 10.6%
or $40.8 million increase in the average loans outstanding.  The increase in the
nine-month  period is the direct result of a 11.3% or $42.2 million  increase in
the average loans outstanding  partially off-set by a 44 basis point decrease in
rates earned on the  portfolio  compared to the same period last

                                       11
<PAGE>
year.  Interest  income was also  impacted by the  reversal of interest and
fees associated with loans placed on non-accrual during the quarter.

                          INTEREST EXPENSE ON DEPOSIT
                                    ACCOUNTS

     Interest  expense  on  deposit  accounts  decreased  11.7% and 0.1% for the
three- and nine-month periods ended September 30, 2001 to $3.5 million and $11.2
million,  compared to the same periods in 2000. The decrease for the three-month
period  ended  September  30, 2001 is a result of an 80 basis point  decrease in
rates paid on interest bearing deposits,  off-set by a $31.8 million increase in
the average interest bearing  deposits.  The decrease for the nine-month  period
ended  September  30, 2001 is the result of a 16 basis  point  decrease in rates
paid on interest  bearing  deposits,  off-set by a $15.6 million increase in the
average  interest  bearing  deposits.   The  Corporation's   effective  rate  on
interest-bearing  deposits  decreased  to  3.5%  and  3.9%  for the  three-  and
nine-month  periods  ended  September  30,  2001 from 4.3% and 4.1% for the same
periods, respectively, in 2000.

     Competition  for deposits from local community banks as well as non-banking
institutions  such as credit  union and mutual  fund  companies  continue  to be
strong.  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 sites in
Lionville   and  Kennett   Square  opened  for  business  in  June  and  August,
respectively.  Other 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
37.1% and 23.9% to $22 thousand  and $80 thousand for the three- and  nine-month
periods ended September 30, 2001, respectively,  compared to the same periods in
2000. The decreases are primarily  attributable  to 43.6%,  or a 230 basis point
decrease,  and  23.9%,  or a 120 basis  point  decrease,  in rates  paid on such
contracts, compared to the rates paid in the three- and nine-month periods ended
September 30, 2000, respectively.

    INTEREST EXPENSE ON FEDERAL HOME LOAN BANK ADVANCES AND OTHER BORROWINGS

     Interest expense on borrowings decreased 38.8% and 14.2% for the three- and
nine-month  periods ended  September 30, 2001,  respectively.  The decrease is a
direct  result of a $4.9 million or 19.6% and a $1.7 million or 7.1% decrease in
average  borrowings for the three- and nine-month  periods ending  September 30,
2001 when  compared to the same  periods  last year.  A 161 basis point or 23.9%
decrease and a 49 basis point or 7.7% decrease in rates paid on  borrowings  for
the three- and nine-month periods ended September 30, 2001,  respectively,  also
contributed  to the  decrease.  Deposit  growth  and  proceeds  from  securities
transactions have decreased the need for borrowing through September 30, 2001.

                                       12

<PAGE>

                            PROVISION FOR LOAN LOSSES

     During the three- and  nine-month  periods ended  September  30, 2001,  the
Corporation recorded a $1.4 million and a $1.8 million provision for loan losses
compared to $355  thousand and $822  thousand for the same periods in 2000.  The
increased  provision  for loan losses was taken during the third quarter of 2001
to offset the loan  write-downs  and  charge-offs  of loans to three  commercial
borrowers who have had some operating  difficulties and/or have been impacted by
the slowdown in the national and local economies and to provide for the increase
in delinquent loans. The increased provision can also be attributed to increased
loan growth for the three- and  nine-month  periods  ended  September  30, 2001,
compared  to the same  periods  in 2000.  The  allowance  for loan  losses  as a
percentage of total loans was 1.45% at September 30, 2001, 1.62% at December 31,
2000 and 1.73% at September 30, 2000, respectively. Even though the level of the
allowance as a percentage of total loans decreased, Management believes that the
allowance for loan losses is adequate based on Management's  current  assessment
of probable  estimated  losses.  See the  sections  titled  "Allowance  For Loan
Losses" and "Non-Performing Loans and Assets" for additional information.


                               NON-INTEREST INCOME

     Total  non-interest  income  decreased 19.9% to $1.6 million for the three-
month period ended  September 30, 2001 when compared to the same period in 2000.
For the nine- month period ended September 30, 2001, total  non-interest  income
decreased  1.3% to $4.6  million when  compared to the same period in 2000.  The
primary  recurring  component of  non-interest  income is  Financial  Management
Services  revenue,  which increased 2.3% and decreased 3.4% to $735 thousand and
$2.2 million for the three- and  nine-month  periods  ended  September 30, 2001,
respectively,  compared to the same  periods in 2000.  The increase in the three
month period in Financial Management Services revenue is primarily the result of
an  increase  in assets  under  management  and  custody.  The  market  value of
Financial  Management  Services  assets under  management and custody grew $10.5
million or 2.3% from $446.6 million at September 30, 2000 to $477.10  million at
September 30, 2001. The increase in Financial  Management  Services  revenue and
growth in assets under  management and custody is primarily the result of market
appreciation  and new  account  relationships  acquired  through  marketing  and
business  development  efforts.  The  decrease in the  nine-month  period  ended
September  30,  2001 is  primarily  the result of the  decrease  in the value of
assets under management due to the downturn in the financial markets.

     Service charges on deposit accounts increased  approximately  61.7% to $422
thousand for the three-months ended September 30, 2001 compared to $261 thousand
for the same period in 2000. For the nine-month period ended September 30, 2001,
service charges on deposit accounts increased 27.5% to $991 thousand compared to
$777  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 and 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 also contributed to the change in non-interest
income. For the three-month period ended September 30, 2001, gains on investment
securities  increased  $15 thousand to $16  thousand,  when compared to the same
period in 2000. For the nine-month  period ended September 30, 2001,  investment
security gains  increased $121 thousand from a loss of $40 thousand to a gain of
$81 thousand,  when compared to the same period in 2000. The gains were taken as
a result of security sales for liquidity purposes.


                                       13
<PAGE>

     Other  non-interest  income  decreased  59.5%  to  $396  thousand  for  the
three-months  ended  September  30, 2001  compared to $978 thousand for the same
period in 2000.  For the  nine-month  period ended  September  30,  2001,  other
non-interest income decreased 19.2% to $1.3 million compared to $1.7 million for
the same period in 2000. This decrease is the direct result of gains on the sale
of fixed assets that occurred in 2000, which were not present in 2001.

                              NON-INTEREST EXPENSE

     Total  non-interest  expense for the three- and  nine-month  periods  ended
September 30, 2001 increased  11.0% to $5.7 million and $10.8% to $16.2 million,
compared to the same periods in 2000.  The various  components  of  non-interest
expense changes are discussed below.

     Employee salaries and benefits  increased 6.6% to $3.0 million and 10.1% to
$9.0 million for the three-month and nine-month periods ended September 30, 2001
compared to the same periods in 2000. Increased personnel hired to staff our two
new branches as well as additional  back office support staff,  annual  employee
raises,  and a  proportional  increase  in the  cost of  employee  benefits  are
primarily responsible for the increase.

     Net occupancy,  equipment,  and data processing expense increased 11.6% and
6.8% to $1.1  million  and $3.2  million for the three- and  nine-month  periods
ended September 30, 2001, compared to the same periods last year,  respectively.
The increase is the direct result of costs associated with  management's  branch
expansion  program.   Also,  increased  computer  and  related  equipment  costs
associated with the expansion,  upgrading and maintenance of personal  computers
and our networking infrastructure contributed to the increase.

     Total other  non-interest  expense increased 30.9% and 9.6% to $1.2 million
and $2.9 million for the three-month and nine-month  periods ended September 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 and  expanding
services  and  operations  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 several new branch sites.  Two
of these sites have  opened in 2001,  Lionville  and New  Garden.  A third site,
Hershey's  Mill,  is expected to open by the end of the year. On a ongoing basis
the Bank continually explores potential branch sites . Also contributing to this
increase is an increase in our operating  expenses as a result of the opening of
our new branches.


                                       14
<PAGE>
<TABLE>
<CAPTION>


                       CONSOLIDATED AVERAGE BALANCE SHEET
             AND TAXABLE EQUIVALENT INCOME/EXPENSE AND RATES FOR THE
                        THREE MONTHS ENDED SEPTEMBER 30,

(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                                      $3,549          $30      3.38%        $       -     $      -          -
Interest bearing deposits in banks                         141            1      2.84%              213            1       1.88%
Investment securities
    Taxable                                             85,491        1,258      5.89%          104,078        1,696       6.52%
    Tax-exempt (1)                                       1,822           32      6.96%            2,292           41       7.22%
                                                      --------     --------                    --------     --------
        Total investment securities                     87,313        1,290      5.91%          106,370        1,737       6.53%
                                                      --------     --------                    --------     --------
Loans (2)
    Taxable                                            422,143        8,164      7.74%          377,614        8,224       8.71%
    Tax-exempt (1)                                       2,391           57      9.52%            6,077          136       8.93%
                                                      --------     --------                    --------     --------
        Total loans                                    424,534        8,221      7.75%          383,691        8,360       8.71%
                                                      --------     --------                    --------     --------
        Total interest earning assets                  515,537        9,542      7.40%          490,274       10,098       8.24%
Non-interest earning assets
    Allowance for possible loan losses                  (6,724)                                  (6,612)
    Cash and due from banks                             21,574                                   25,693
    Other assets                                        21,159                                   19,301
                                                      --------                                 --------
        Total assets                                 $ 551,546                                $ 528,656
                                                      ========                                 ========

LIABILITIES AND STOCKHOLDERS' EQUITY
Savings, NOWS & money market deposits                 $242,516       $1,437      2.37%         $233,431       $1,895     3.25%
Certificates of deposits and other time                162,892        2,064      5.07%          140,138        2,069     5.91%
                                                      --------     --------                     -------     --------
   Total interest bearing deposits                     405,408        3,501      3.45%          373,569        3,964     4.25%
Securities sold under repurchase agreements             $2,957          $22      2.98%            2,652           35     5.28%
Federal Home Loan Bank advances and
   other borrowings                                     20,228          259      5.12%           25,154          423     6.73%
                                                      --------     --------                    --------     --------
   Total interest bearing liabilities                  428,593        3,782      3.53%          401,375        4,423     4.41%
                                                      --------     --------                    --------     --------
Non-interest bearing liabilities
    Non-interest bearing demand deposits                72,259                                   81,348
    Other liabilities                                    5,492                                    5,647
                                                      --------                                 --------
        Total liabilities                              506,344                                  488,370
Stockholders' equity                                    45,202                                   40,286
                                                      --------                                 --------

        Total liabilities and stockholders' equity   $ 551,546                                $ 528,656
                                                      ========                                 ========

Net interest income                                                 $ 5,760                                  $ 5,675
                                                                      =====                                    =====

Net yield on interest earning assets                                             4.47%                                   4.63%
                                                                                 ====                                    ====

</TABLE>


(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.


                                       15
<PAGE>
<TABLE>
<CAPTION>


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

(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                                   $   5,460      $   181      4.42%        $     897   $       37      5.50%
Interest bearing deposits in banks                         129            5      5.17%              144            4      3.70%
Investment securities
    Taxable                                             87,453        3,961      6.04%          107,492        5,309      6.59%
    Tax-exempt (1)                                       1,815          101      7.42%            2,279          130      7.58%
                                                      --------     --------                    --------     --------
        Total investment securities                     89,268        4,062      6.07%          109,771        5,439      6.61%
                                                      --------     --------                    --------     --------
Loans (2)
    Taxable                                            410,821       25,068      8.14%          365,480       23,518      8.58%
    Tax-exempt (1)                                       2,961          220      9.92%            6,147          434      9.42%
                                                      --------     --------                    --------     --------
        Total loans                                    413,782       25,288      8.15%          371,627       23,952      8.59%
                                                      --------     --------                    --------     --------
Total Interest Earning Assets                          508,639       29,536      7.74%          482,439       29,431      8.13%
Non-interest earning assets
    Allowance for possible loan losses                  (6,661)                                  (6,261)
    Cash and due from banks                             23,504                                   19,672
    Other assets                                        19,736                                   22,757
                                                      --------                                 --------
        Total assets                                 $ 545,218                                $ 518,607
                                                      ========                                 ========

LIABILITIES AND STOCKHOLDERS' EQUITY
Savings, NOWS & money market deposits                 $237,167       $4,820      2.71%         $229,978       $5,426     3.15%
Certificates of deposits and other time                147,010        6,406      5.81%          138,628        5,806     5.58%
                                                      --------     --------                    --------     --------
   Total interest bearing deposits                     384,177       11,226      3.90%          368,606       11,232     4.06%
Securities sold under repurchase agreements              2,782           80      3.83%            2,652          100     5.03%
Federal Home Loan Bank advances and
   other borrowings                                     21,815          961      5.87%           23,480        1,120     6.36%
                                                      --------     --------                    --------     --------
   Total interest bearing liabilities                  408,774       12,267      4.00%          394,738       12,452     4.21%
                                                      --------     --------                    --------     --------
Non-interest bearing liabilities
    Non-interest bearing demand deposits                86,010                                   79,027
    Other liabilities                                    5,843                                    5,597
                                                      --------                                 --------
        Total liabilities                              500,627                                  479,362
Stockholders' equity                                    44,791                                   39,245
                                                      --------                                 --------
        Total liabilities and stockholders' equity   $ 545,218                                $ 518,607
                                                      ========                                 ========
Net interest income                                                $ 17,269                                $ 16,979
                                                                    =======                                ========
Net yield on interest earning assets                                             4.53%                                   4.69%
                                                                                 =====                                   ====
</TABLE>

(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.


                                       16
<PAGE>
                                  INCOME TAXES

     Income tax expense for the three- and  nine-month  periods ended  September
30, 2001 was $130 thousand and $1.1 million,  compared to $590 thousand and $1.7
million in the same periods last year.  This  represents  effective tax rates of
56.0% and 28.9% for the three- and nine-month  periods ended September 30, 2001,
respectively. The effective tax rate for the three- and nine-month periods ended
September 30, 2000 was 27.9% and 27.6%, 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:
<TABLE>
<CAPTION>

                                DEPOSIT ANALYSIS

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

NOW Accounts                                  $ 70,791           1.32%    $  67,923          1.71%       $ 2,868          4.22%
Money Market                                    22,371           2.60        25,934          2.93         (3,563)       (13.74)
Statement Savings                               46,799           2.80        48,514          3.04         (1,715)        (3.54)
Other Savings                                    1,870           2.57         2,092          2.72           (222)       (10.61)
CD's Less than $100,000                        117,303           5.86       112,287          5.69         (5,016)        (4.47)
                                              --------                     --------                     --------

Total Core Deposits                            259,134           3.76       256,750          3.84          2,384          0.93

Non-Interest bearing
  Demand Deposit Accounts                       86,010            --         80,415            --          5,595          6.96
                                              --------                     --------                     --------

Total Core and Non-Interest
  Bearing Deposits                             345,144           2.83       337,165          2.92          7,979          2.37
                                              --------                     --------                     --------

Tiered Savings                                  95,336           3.72        85,841          4.50          9,495         11.06
CD's Greater than $100,000                      29,707           5.61        27,457          5.80          2,250          8.19
                                              --------                     --------                     --------

Total Deposits                               $ 470,187           3.18    $  450,463          3.40      $  19,724          4.38
                                              ========                     ========                     ========
</TABLE>

                                       17
<PAGE>
         The Bank, as a member of the FHLB, maintains several credit facilities.
As of September 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  products  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 nine-month periods ending September 30, 2001, average FHLB
advances were approximately $20.2 million and $21.8 million,  respectively,  and
consisted of term  advances  representing  a  combination  of maturities in each
period. The average interest rate on these advances was approximately  5.12% and
5.87%  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
$190.4  million or 34.0% of total assets at September  30, 2001,  compared  with
negative  $180.6  million or 33.8% at  September  30,  2000,  respectively.  The
Corporation's gap position is one factor used to evaluate interest rate risk and
the  stability  of  net  interest   margins.   Other  factors  include  computer
simulations of what might happen to net interest  income under various  interest
rate  forecasts  and  scenarios.  Management  monitors  interest  rate risk as a
regular part of bank  operations  with the intention of maintaining a stable net
interest margin.



                                       18
<PAGE>
<TABLE>
<CAPTION>


                          INTEREST SENSITIVITY ANALYSIS
                            AS OF SEPTEMBER 30, 2001

(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                         $      1,000     $        --       $        --      $        --    $     1,000
    Investment securities                            25,620          38,423            21,468               --         85,511
    Interest bearing deposits in banks                  109              --                --               --            109
    Loans and leases                                153,312         247,822            33,415           (6,282)       428,267
    Cash and cash equivalents                            --              --                --           24,424         24,424
    Premises & equipment                                 --              --                --           13,121         13,121
    Other assets                                          5              --                --            7,944          7,949
                                                  ---------       ---------         ---------        ---------     ----------
       Total assets                             $   180,046     $   286,245       $    54,883       $   39,207    $   560,381
                                                  =========       =========         =========        =========     ==========

LIABILITIES AND CAPITAL
    Non-interest bearing deposit               $         --     $        --       $        --      $    89,468    $    89,468
    Interest bearing deposits                       351,419          35,424                --               --        386,843
    Borrowed funds                                    3,811              --                --               --          3,811
    FHLB Term Advance                                15,241          11,134             4,411               --         30,786
    Other liabilities                                    --              --                --            4,683          4,683
    Capital                                             --               --                --           44,790         44,790
                                                -----------      ----------        ----------       ----------     ----------
       Total liabilities & capital             $    370,471     $    46,558       $     4,411      $   138,941    $   560,381
                                                ===========      ==========        ==========       ==========     ==========
    Net interest rate
      sensitivity gap                          $  (190,425)     $   239,687       $    50,472      $  (99,734)    $        --
                                                ==========       ==========        ==========       ==========     ==========
    Cumulative interest rate
      sensitivity gap                          $  (190,425)     $    49,262       $    99,734      $        --    $        --
                                                ==========       ==========        ==========       ==========     ==========
    Cumulative interest rate
      sensitivity gap divided
      by total assets                                (34.0%)          8.8%              17.8%
                                                ===========      ==========         ==========
</TABLE>

                            ALLOWANCE FOR LOAN LOSSES

         The  allowance  for possible  loan losses is an amount that  Management
believes will be adequate to absorb  possible loan losses on existing loans that
may become uncollectible and is established based on Management's evaluations of
the  collectibility  of  loans  in the  portfolio.  The  evaluations  take  into
consideration  such  factors  as  changes  in the  nature and volume of the loan
portfolio, overall portfolio quality, adequacy of collateral, review of specific
problem loans,  and current  economic  conditions  that may affect our borrowers
ability to pay. As described in the section titled  "Provision for Loan Losses,"
the  provision  for loan losses taken during the third  quarter of 2001 was $1.1
million  greater than the  provision  taken during the same period of 2000.  The
increased  provision was taken due to the  write-down  and charge-off of certain
commercial loans.


                                       19
<PAGE>

<TABLE>
<CAPTION>

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

                                                                       Three Months                        Nine Months
                                                                           Ended                               Ended
                                                                       September 30,                        September 30,
(Dollars in thousands)                                            2001              2000              2001                2000
                                                                  ----              ----              ----                ----

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

Balance at beginning of period                                   $  6,704        $  6,541           $ 6,609             $ 6,261
                                                                  -------         -------            ------              ------
Provision charged to operating expense                              1,400             355             1,770                 822
                                                                  -------         -------            ------              ------
    Recoveries of loans previously charged-off                         18              25               147                 100
    Loans charged-off                                              (1,840)           (155)           (2,244)               (417)
                                                                  -------         -------            ------              ------
Net loans charged-off                                              (1,822)           (130)           (2,097)               (317)
                                                                  -------         -------            ------              ------
Balance at end of period                                          $ 6,282        $  6,766           $ 6,282             $ 6,766
                                                                  =======         =======            ======              ======

Period-end loans outstanding                                    $ 434,549       $ 392,070         $ 434,549           $ 392,070

Average loans outstanding                                       $ 424,534       $ 383,691         $ 413,782           $ 371,627

Allowance for possible loan losses as a
    percentage of period-end loans outstanding                      1.45%           1.73%              1.45%              1.73%

Ratio of net charge-offs to average loans
    outstanding (annualized)                                        0.43%           0.03%              0.51%              0.09%
</TABLE>

                         NON-PERFORMING LOANS AND ASSETS


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




                                       20
<PAGE>
<TABLE>
<CAPTION>


                                                                             September 30,                     December 31,

Dollars in thousands)                                                    2001              2000                      2000
                                                                        -----              ----                      ----
<S>                                                                    <C>              <C>                      <C>

Past due over 90 days and still accruing                                 $ 58            $  346                   $   134

Non-accrual loans                                                       9,092             1,784                     1,364
                                                                        -----             -----                     -----
Total non-performing loans                                              9,150             2,130                     1,498

Other real estate owned                                                   727               385                       803
                                                                        -----             -----                     -----

Total non-performing assets                                          $  9,877          $  2,515                  $  2,301
                                                                        =====             =====                     =====

Non-performing loans as a percentage
     of total loans                                                     2.11%             0.54%                     0.37%

Allowance for possible loan losses as a
   percentage of non-performing loans                                  68.66%           317.65%                    441.2%

Non-performing assets as a percentage
   of total loans and other real estate owned                           2.27%             0.64%                     0.60%

Allowance for possible loan losses as a
  percentage of non-performing assets                                  63.60%           269.03%                    287.2%
</TABLE>

         Even though the above ratios  indicate the allowance for loan losses as
a percentage of non-performing  loans does not exceed the principal  balances of
all  non-performing  loans at  September  30,  2001,  management  feels that the
allowance for loan losses is adequate based on Management's  current  assessment
of probable  estimated  losses.  Other Real  Estate  Owned  ("OREO")  represents
residential  and commercial  real estate owned by the Bank following  default by
borrowers  and has been  written  down to  realizable  value  (net of  estimated
disposal costs) based on professional appraisals.

         The increase in total non-performing loans, specifically  non-accruals,
is the direct result of Management's  decision to place on non-accrual  status a
few commercial  borrowers who have had some operating  difficulties  and/or have
been  impacted by the  slowdown in the national  and local  economies.  With the
associated  write-down of these loans,  management  estimates that the remaining
loan balances are well secured and there is little exposure to additional losses
on these loans.  In addition,  as of the date this report was filed, of the $9.2
million of the non-performing loans at September 30, 2001, loans of $3.5 million
related to one project are expected to be restructured within the next 180 days.


                                 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.

                                       21
<PAGE>
         The balance of impaired loans was $ 8.6 thousand,  $943  thousand,  and
$1,167 thousand at September 30, 2001, December 31, 2000, and September 30, 2000
respectively.  The  associated  allowance for impaired  loans was $865 thousand,
$242  thousand  $287  thousand at  September  30, 2001,  December 31, 2000,  and
September 30, 2000, respectively.

         For the  three-month  and nine-month  period ended  September 30, 2001,
activity in the allowance  for impaired loan losses  include a provision of $680
thousand,  write  off's of $30  thousand  and $57  thousand,  respectively,  and
recoveries of $0 and $0 thousand, respectively. Contractual interest amounted to
$99 for the  three-months  ended  September  30, 2001 and $154  thousand for the
nine-months   ended  September  30,  2001.  Cash  collected  on  loans  for  the
three-month  and  nine-month  period  ended  September  30, 2001 was $57 and $65
thousand,  respectively,  all of which $57 thousand and $65 thousand was applied
to principal and interest  income of $0 was recorded.  For the  three-month  and
nine-month  period ended  September  30,  2000,  activity in the  allowance  for
impaired loan losses  include a provision of $0, write off's of $15 thousand and
$22 thousand,  respectively, and recoveries of $1 and $4 thousand, respectively.
Contractual  interest  amounted to $22 for the three-months  ended September 30,
2000 and $54  thousand  for the  nine-months  ended  September  30,  2000.  Cash
collected on loans for the three-month and nine-month period ended September 30,
2000 was $17 and $81 thousand,  respectively,  all of which $13 thousand and $77
thousand was applied to principal and interest income of $4 was recorded.

                  BUILDING IMPROVEMENTS AND TECHNOLOGY PROJECTS

     In August,  the Corporation  opened its 14th branch,  New Garden  (business
Route 1 south of Kennett  Square).  In addition  the  Corporation  is  currently
working  on plans  for  several  other new  branch  sites.  One of these  sites,
Hershey's Mill is expected to be completed and opened in the next 90. In July of
2001, the  Corporation  opened its 13th branch,  Lionville  (Route 13 and Sheree
Boulevard). The bank continually explores new branch opportunties.

         In  August  of  2001,   the   Corporation   installed  a  company  wide
telecommunications system and upgraded their core system processor. In addition,
the Bank is currently installing a new check imaging system.

                                CAPITAL ADEQUACY

         The Corporation is subject to Risk-Based  Capital Guidelines adopted by
the Federal Reserve Board ("FRB") for bank holding companies. The Corporation is
also subject to similar  capital  requirements  adopted by the OCC.  Under these
requirements,  the  regulatory  agencies have set minimum  thresholds for Tier I
Capital,  Total Capital,  and Leverage  ratios.  At September 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.


                                       22
<PAGE>
<TABLE>
<CAPTION>


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

Leverage Ratio                             7.74%              8.14%            8.48%                       5.00%
Tier I Capital Ratio                      10.06%             10.75%           10.73%                       6.00%
Total Risk-Based Capital Ratio            11.33%             12.00%           11.98%                      10.00%

Bank
Leverage Ratio                             7.66%              8.13%            8.05%                       5.00%
Tier I Capital Ratio                       9.81%             10.72%           10.47%                       6.00%
Total Risk-Based Capital Ratio            11.06%             11.98%           11.73%                      10.00%
</TABLE>

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

                                       23
<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 this assessment.


                                       24
<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

                  (a)       Exhibits

                            The following is a list of exhibits incorporated by
reference into this report:

         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, 2000.

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

         27.      Financial Data Schedule.
                  -----------------------

                  (b)       Reports on Form 8-K

                            A Form 8-K was filed with the SEC on July 26, 2001
reporting, under item 5, the issuance of a press
release announcing the third quarter dividend.

                            A Form 8-K was filed with the SEC on October 31,
2001 reporting, under item 5, the issuance of a press
release announcing second quarter earnings.



                                       25
<PAGE>


                                   SIGNATURES


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



                        FIRST CHESTER COUNTY CORPORATION


                                Charles E. Swope


                                ----------------
                              /s/ Charles E. Swope
                                    President


DATE: November 14, 2001


                                 J. Duncan Smith


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


                                       26
<PAGE>











                                November 14, 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 September 30, 2001.



                                Very truly yours,


                           J. Duncan Smith, Treasurer
                              (Principal Accounting
                             and Financial Officer)
JDS/tbm
Enclosures
<TABLE>
<CAPTION>
<S>     <C>

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

         Patricia A. Gritzan, Esquire, Saul, Ewing, Remick and Saul 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, Sun Trust, Atlanta, GA

         James Shilling, VP, Kish Bank, Belleville, PA
</TABLE>

                                       27