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, 1999, OR

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

For the transition period from ____________ to ____________.

Commission File No. 0-12870.


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


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



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


                                 (610) 692-1423
              (Registrant's telephone number, including area code)

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

The  number  of  shares  outstanding  of Common  Stock of the  Registrant  as of
November 1, 1999 was 4,589,526.


<PAGE>


                 FIRST WEST CHESTER CORPORATION AND SUBSIDIARIES

                                      INDEX
<TABLE>
<CAPTION>

<S>                                                                                                                  <C>
                                                                                                                       PAGE

Part I.  FINANCIAL INFORMATION

                  Item 1 - Financial Statements
                             Consolidated Statements of Condition
                             September 30, 1999 and December 31, 1998                                                     3


                             Consolidated Statements of Income
                             Three- and Nine-Months Ended September 30, 1999 and 1998                                     4


                             Consolidated Statement of Changes in Stockholder's Equity                                    5


                             Consolidated Statements of Cash Flows
                             Nine-Months Ended September 30, 1999 and 1998                                                6


                             Notes to Consolidated Financial Statements                                                 7-8


                  Item 2 -   Management's Discussion and Analysis of
                             Financial Condition and Results of Operations                                             9-25

                  Item 3 -   Quantitative and Qualitative Disclosures About Market Risk                                  26



Part II. OTHER INFORMATION

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

                  Signatures                                                                                             28

</TABLE>

<PAGE>








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

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

ASSETS
    Cash and due from banks                                                                    $   20,141            $   25,006
    Federal funds sold                                                                                 --                 5,675
                                                                                                ---------             ---------

           Total cash and cash equivalents                                                         20,141                30,681
                                                                                                ---------             ---------

    Investment securities held-to-maturity (market value of $4,792 and $7,606 at
        September 30, 1999 and December 31,
        1998, respectively)                                                                         4,777                 7,406
    Investment securities available-for-sale at market value                                      113,959               102,380

    Loans                                                                                         334,084               320,395
    Less allowance for loan losses                                                                 (6,037)               (5,877)
                                                                                                ---------             ---------

           Net loans                                                                              328,047               314,518

    Premises and equipment, net                                                                    10,630                 9,579
    Other assets                                                                                    6,685                 6,129
                                                                                                ---------             ---------
           TOTAL ASSETS                                                                        $  484,239            $  470,693
                                                                                                =========             =========

LIABILITIES
    Deposits
        Non-interest bearing                                                                   $   72,860            $   72,556
        Interest bearing                                                                          355,412               345,842
                                                                                                ---------             ---------


           Total deposits                                                                         428,272               418,398

    Securities sold under repurchase agreements                                                     3,516                 2,795
    Federal Home Loan Bank advances and other borrowings                                            8,367                 5,027
    Other liabilities                                                                               5,718                 4,750
                                                                                                ---------             ---------

           Total liabilities                                                                      445,873               430,970
                                                                                                ---------             ---------

STOCKHOLDERS' EQUITY
    Common stock, par value $1.00; authorized, 10,000,000 shares;                                   4,800                 4,800
        Outstanding,  4,799,666  shares at  September  30, 1999 and December 31,
        1998.
    Additional paid-in capital                                                                        602                   542
    Retained earnings                                                                              37,836                35,675
    Accumulated other Comprehensive Income (Loss)                                                  (1,966)                  292
    Treasury stock, at cost: 250,009 shares at September 30, 1999 and
        183,640 shares at December 31, 1998.                                                       (2,906)               (1,586)
                                                                                                ---------             ---------

           Total stockholders' equity                                                              38,366                39,723
                                                                                                ---------             ---------

           Total liabilities and stockholders' equity                                          $  484,239            $  470,693
                                                                                                =========             =========

Book Value Per Share                                                                           $     8.43            $     8.61
</TABLE>





The accompanying notes are an integral part of these statements.

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

                                   (UNAUDITED)
<TABLE>
<CAPTION>

(Dollars in thousands - except per share data)                              Three Months Ended                Nine Months Ended
                                                                               September 30,                     September 30,
                                                                         ------------------------           ---------------------
                                                                           1999             1998              1999          1998
                                                                           ----             ----              ----          ----
<S>                                                                     <C>              <C>               <C>           <C>
INTEREST INCOME
    Loans, including fees                                                $ 6,979          $ 7,041           $20,423       $21,136
    Investment securities                                                  1,912            1,265             5,388         3,573
    Federal funds sold                                                        14              166               109           319
    Deposits in banks                                                          3               --                 3            --
                                                                          ------           ------            ------        ------

                Total interest income                                      8,908            8,472            25,923        25,028
                                                                          ------           ------            ------        ------

INTEREST EXPENSE
    Deposits                                                               3,495            3,477            10,350        10,151
    Securities sold under repurchase agreements                               28               25                80            86
    Federal Home Loan Bank advances and other borrowings                     119               86               295           258
                                                                          ------           ------            ------        ------

                Total interest expense                                     3,642            3,588            10,725        10,495
                                                                          ------           ------            ------        ------

                Net interest income                                        5,266            4,884            15,198        14,533

    Provision for loan losses                                                184              201               493           613
                                                                          ------           ------            ------        ------

                Net interest income after provision
                   for possible loan losses                                5,082            4,683            14,705        13,920
                                                                          ------           ------            ------        ------

NON-INTEREST INCOME
    Financial Management Services                                            650              573             1,907         1,693
    Service charges on deposit accounts                                      246              270               748           788
    Investment securities gains, net                                          --               --               202            --
    Other                                                                    316              334               946           946
                                                                          ------           ------            ------        ------

                Total non-interest income                                  1,212            1,177             3,803         3,427
                                                                          ------           ------            ------        ------

NON-INTEREST EXPENSE
    Salaries and employee benefits                                         2,457            2,250             7,172         6,731
    Net occupancy, equipment and data processing                             915              838             2,846         2,448
    FDIC deposit insurance                                                    12               31                35            34
    Bank shares tax                                                          117               (3)              334           172
    Other                                                                    848            1,017             2,609         2,702
                                                                          ------           ------            ------        ------

                Total non-interest expense                                 4,349            4,133            12,996        12,087
                                                                          ------           ------            ------        ------

                Income before income taxes and cumulative effect
                   of change in accounting for income taxes                1,945            1,727             5,512         5,260

INCOME TAXES                                                                 594              475             1,681         1,552
                                                                          ------           ------            ------        ------
                NET INCOME                                               $ 1,351          $ 1,252           $ 3,831       $ 3,708
                                                                          ======           ======            ======        ======

PER SHARE DATA (*)
    Basic earnings per common share                                      $ 0.300          $ 0.280           $ 0.840       $ 0.810
                                                                          ======           ======            ======        ======
    Diluted earnings per common share                                    $ 0.290          $ 0.260           $ 0.830       $ 0.790
                                                                          ======           ======            ======        ======
    Dividends declared                                                   $ 0.125          $ 0.115           $ 0.365       $ 0.330
                                                                          ======           ======            ======        ======

Basic weighted average shares outstanding                              4,563,431        4,619,450         4,580,140     4,609,135
                                                                       =========        =========         =========     =========

Diluted weighted average shares outstanding                            4,586,577        4,675,068         4,625,196     4,673,635
                                                                       =========        =========         =========     =========

(*) Please refer to the footnote entitled "Earnings Per Share" for information on this calculation

</TABLE>

The accompanying notes are an integral part of these statements.

                                       4
<PAGE>


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

                                   (UNAUDITED)
<TABLE>
<CAPTION>

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

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

    Net income to date                                                                                   3,831            3,708
    Cash dividends declared                                                                             (1,671)          (1,498)
    Net unrealized gain (loss) on securities available-for-sale                                         (2,257)           1,051
    Treasury stock transactions                                                                             60              225
    Paid in capital from treasury stock transactions                                                    (1,320)              94
                                                                                                       -------         --------

Balance at September 30,                                                                               $38,366          $39,793
                                                                                                        ======           ======
</TABLE>
































The accompanying notes are an integral part of these statements.

                                       5
<PAGE>


                 FIRST WEST CHESTER CORPORATION AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                                   (Unaudited)
<TABLE>
<CAPTION>

                                                                                                      Nine Months Ended
                                                                                                         September 30,
                                                                                               ------------------------------
(Dollars in thousands)                                                                            1999                 1998
                                                                                               ----------           ---------
<S>                                                                                           <C>                  <C>

OPERATING ACTIVITIES
    Net Income                                                                                 $   3,831            $   3,708
    Adjustments to reconcile net income to net cash
        provided by operating activities:
    Depreciation                                                                                   1,094                  889
    Provision for loan losses                                                                        493                  613
    Amortization of investment security premiums
        and accretion of discounts                                                                   287                  150
    Amortization of deferred fees on loans                                                            53                   47
    Investment securities gains, net                                                                (202)                  (2)
    (Increase) decrease in other assets                                                             (556)               1,210
    Increase in other liabilities                                                                    968                2,194
                                                                                                --------             --------
           Net cash provided by operating activities                                               5,968                8,809
                                                                                                --------             --------

INVESTING ACTIVITIES
    (Increase) decrease in loans                                                                 (14,074)                 560
    Proceeds from sales of investment securities available-for-sale                               13,338               12,640
    Proceeds from maturities of investment securities available-for-sale                          22,692               19,794
    Proceeds from maturities of investment securities held-to-maturity                             2,874                3,859
    Purchases of investment securities available-for-sale                                        (51,674)             (48,465)
    Purchase of premises and equipment, net                                                         (668)              (3,609)
                                                                                                --------             --------

           Net cash used in investing activities                                                 (27,512)             (15,221)
                                                                                                --------             --------

FINANCING ACTIVITIES
    Increase (decrease) in securities sold under repurchase agreements                               721               (2,525)
    Increase in deposits                                                                           9,874               15,262
    (Decrease) increase in Federal Home Loan Bank advances and other borrowings                    3,340               (2,559)
    Cash dividends                                                                                (1,671)              (1,498)
    Treasury stock transactions                                                                   (1,260)                 318
                                                                                                --------             --------

           Net cash provided by financing activities                                              11,004                8,998
                                                                                                --------             --------

              NET INCREASE (DECREASE) IN CASH AND CASH
     EQUIVALENTS                                                                                 (10,540)               2,586

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

Cash and cash equivalents at end of period                                                     $  20,141            $  29,034
                                                                                                ========             ========
</TABLE>







The accompanying notes are an integral part of these statements.

                                       6
<PAGE>


                 FIRST WEST CHESTER CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                   (UNAUDITED)

1.         The unaudited  financial  statements have been prepared in accordance
           with generally accepted  accounting  principles for interim financial
           information.   In  the  opinion  of   Management,   all   adjustments
           (consisting  only of normal  recurring  adjustments)  necessary for a
           fair  presentation  of the  financial  position  and the  results  of
           operations for the interim period  presented have been included.  For
           further information,  refer to the consolidated  financial statements
           and footnotes thereto included in First West Chester  Corporation and
           Subsidiaries' (the "Corporation")  Annual Report on Form 10-K for the
           fiscal year ended December 31, 1998.

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

3.         Earnings per share is based on the weighted  average number of shares
           of common stock outstanding during the period. Diluted net income per
           share includes the effect of options granted.

4.         The  Corporation  has adopted the  provisions of FASB issued SFAS No.
           130, Reporting of Comprehensive  Income, which establishes  standards
           for reporting and display of comprehensive  income and its components
           (revenues,  expenses,  gains and  losses) in a full set of  financial
           statements.  This  statement  also  requires  that all items that are
           required to be recognized under accounting standards as components of
           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, 1999 was $(2,072)
           thousand and $(2,257) thousand,  compared to $874 thousand and $1,051
           thousand in the same period last year.

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

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

7.         In 1999, the Financial  Accounting  Standards  Board ("FASB")  issued
           SFAS No. 137 which  defined the adoption of FASB  statement  133. The
           statement is effective for quarters of fiscal years  beginning  after
           June 15,  2000.  The  statement  is not  expected  to have a material
           impact on the Corporation's financial statements.

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

                                       7
<PAGE>


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



         This  discussion  is  intended  to further  your  understanding  of the
consolidated financial condition and results of operations of First West Chester
Corporation (the  "Corporation")  and its wholly-owned  subsidiaries,  The First
National  Bank of West  Chester  (the  "Bank")  and 323  East  Gay  Street  Corp
("EGSC").  It  should be read in  conjunction  with the  consolidated  financial
statements included in this report.

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

         These  risks and  uncertainties  include,  but are not  limited to, the
following:  (a) loan growth and/or loan margins may be less than expected due to
competitive  pressures in the banking  industry  and/or  changes in the interest
rate environment;  (b) general economic  conditions in the Corporation's  market
area may be less  favorable  than expected  resulting in, among other things,  a
deterioration in credit quality causing increased loan losses;  (c) costs of the
Corporation's   planned  training  initiatives,   product  development,   branch
expansion,  new technology and operating  systems may exceed  expectations;  (d)
volatility in the  Corporation's  market area due to recent mergers of competing
financial  institutions may have  unanticipated  consequences,  such as customer
turnover; (e) changes in the regulatory environment, securities markets, general
business  conditions  and  inflation  may be  adverse;  (f) impact of changes in
interest rates on customer behavior; (g) unforeseen difficulties in implementing
the Corporation's Year 2000 compliance plan or contingency plans; (h) failure of
suppliers and customers to be Year 2000 compliant;  (i) estimated changes in net
interest income;  (j) competive  pressure on net yields; and (k) the impact of a
change in demographics on branch  locations.  These risks and  uncertainties are
all  difficult  to predict and most are beyond the control of the  Corporation's
Management.

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

                         EARNINGS SUMMARY AND HIGHLIGHTS

         Net income for the  three-month  period  ended  September  30, 1999 was
$1.35  million,  an increase  of 7.9% from $1.25  million for the same period in
1998.  Net income for the nine-month  period ended  September 30, 1999 was $3.83
million, an increase of 3.3% from $3.71 million for the same period in 1998. The
increases  in net income  are the direct  result of  increases  in net  interest
income,  gains on the sale of certain  investment  securities,  and increases in
non-interest  income  partially  offset by increases in operating  expenses.  In
addition,  net income  benefited from a reduction in the provision for loan loss
expense in both the  three-month  and the  nine-month  periods.  Cash  dividends
declared  during the third quarter of 1999 increased to $0.125 per share, a 8.7%
increase  compared to the third  quarter of 1998.  Over the past ten years,  the
Corporation's  practice  has been to pay a  dividend  of at  least  35.0% of net
income.

The  "Consolidated  Average  Balance  Sheet" on pages 14 and 15 may  assist  the
reader in the following discussion.
                                       8
<PAGE>

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

<TABLE>
<CAPTION>


                                                                       Three Months Ended                Nine Months Ended
                                                                          September 30,                    September 30,
                                                                       -------------------              -------------------
                                                                       1999           1998               1999          1998
                                                                       ----           ----               ----          ----
          <S>                                                        <C>            <C>                <C>           <C>

           PERFORMANCE RATIOS
           Return on Average Assets                                    1.11%          1.13%              1.06%         1.14%
           Return on Average Equity                                   13.90%         13.06%             13.07%        13.07%
           Earnings Retained                                          57.81%         57.59%             56.38%        59.60%
           Dividend Payout Ratio                                      42.19%         42.41%             43.62%        40.40%
</TABLE>


                               NET INTEREST INCOME

         Net  interest  income  is the  difference  between  interest  income on
interest-earning  assets and interest expense on  interest-bearing  liabilities.
Net interest  income for the three- and nine-month  periods ended  September 30,
1999, on a tax equivalent basis, was $5.3 million and $15.2 million, compared to
$4.9 million and $14.5 million for the same periods in 1998,  respectively.  The
increase  in net  interest  income  for the three- and  nine-month  periods  can
primarily be  attributed  to the growth of interest  earning  assets,  partially
offset  by a  decrease  in the  average  net yield on  interest-earning  assets.
Average interest earning assets increased approximately $36.7 million or 8.9% to
$450.8  million during the third quarter of 1999 from $414.0 million in the same
period last year. The increase in average  interest earning assets was primarily
the result of increased investment activity and, to a lesser extent, an increase
in average loans outstanding.  Net yields on  interest-earning  assets, on a tax
equivalent  basis,  were 4.76% and 4.56% for the three- and  nine-month  periods
ended  September  30, 1999  compared to 4.77% and 4.82% for the same  periods in
1998, respectively.

         The  decrease in the average net yield on  interest-earning  assets for
the  three-and  nine-month  periods  ended  September 30, 1999 was primarily the
result of a decrease in the average  yield  earned on interest  earning  assets,
partially  offset by a decrease  in the average  yield paid on interest  bearing
liabilities.  The decrease in the average net yield  earned on interest  earning
assets can be  attributed  to lower average  interest  rates on loans.  However,
while loan demand was light during the first half of the year,  the  Corporation
experienced some modest growth during the third quarter of 1999. The Corporation
anticipates  continued pressure on the net yield on  interest-earning  assets as
competition  for new loan business  remains  strong and the cost of  incremental
deposit growth and other funding sources becomes more expensive.

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

                                                                Three Months                         Nine Months
         Yield On:                                           Ended September 30,                 Ended September 30,
         ---------                                           -------------------                 -------------------
                                                              1999          1998                  1999         1998
                                                              ----          ----                  ----         ----
<S>                                                          <C>           <C>                   <C>          <C>

Interest Earning Assets                                       7.99%         8.24%                 7.76%        8.27%
Interest Bearing Liabilities                                  3.97%         4.33%                 3.98%        4.29%
                                                              ----          ----                  ----         ----
Net Interest Spread                                           4.02%         3.91%                 3.78%        3.98%
Contribution of Interest Free Funds                           0.74%         0.86%                 0.78%        0.84%
                                                              ----          ----                  ----         ----
Net Yield on Interest Earning Assets                          4.76%         4.77%                 4.56%        4.82%
                                                              ====          ====                  ====         ====
</TABLE>

                      INTEREST INCOME ON FEDERAL FUNDS SOLD

         Interest  income on federal  funds  sold for the three- and  nine-month
periods ended September 30, 1999,  decreased 91.6% and 65.8% to $14 thousand and

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

$109  thousand,  respectively,  when  compared to the same periods in 1998.  The
decrease in  interest  income on federal  funds is the direct  result of reduced
balances and reduced  interest  rates as shown on the Average  Balance Sheets an
page 14 and 15.

                    INTEREST INCOME ON INVESTMENT SECURITIES

         On a tax equivalent  basis,  interest  income on investment  securities
increased  50.0% and 48.3% for the three and nine-month  periods ended September
30, 1999 to $1.9 million and $5.4  million,  respectively,  when compared to the
same periods in 1998.  The increases for the three- and  nine-month  periods are
primarily due to increases in average investment  security balances of 42.2% and
48.7%. For the three- and nine-month  periods ended September 30, 1999, a 38 and
3 basis point  increase in the yield earned also  contributed to the increase in
income.  Increases in average investment security balances are the result of the
combined effect of modest loan growth offset by proportionally  larger increases
in deposits over the last twelve months.

                            INTEREST INCOME ON LOANS

         Loan  interest  income,  on a tax  equivalent  basis,  generated by the
Corporation's  loan portfolio  decreased 0.3% and 3.5% to $7.1 million and $20.6
million for the three- and nine-month periods ended September 30, 1999, compared
to the same periods in 1998, respectively.  The decreases in interest income for
these  periods  are the direct  result of 34 and 49,  respectively,  basis point
decreases in the rates earned on the loan  portfolio.  These rate reductions can
be attributed to increased  competition for new and existing loan  relationships
and the generally lower interest rate  environment  through the third quarter of
1999 as compared to the  corresponding  periods in 1998. It is anticipated  that
pricing  pressure will  continue to reduce  overall loan yields and net interest
margins for future time periods.  However,  increases in the prime interest rate
is expected to have a positive  impact on interest  income.  Fee reductions will
affect non-interest income.

                      INTEREST EXPENSE ON DEPOSIT ACCOUNTS

         Interest  expense on deposit  accounts  increased 0.5% and 2.0% for the
three- and nine-month periods ended September 30, 1999 to $3.6 million and $10.7
million,  compared to the same periods in 1998. The increases for the three- and
nine-month  periods  ended  September  30, 1999 are the result of  increases  in
average interest bearing deposits of $31.9 million and $32.3 million,  partially
offset by a 36 and 32 basis point decrease in the rates paid on interest-bearing
deposits.

         Competition for deposits from non-banking  institutions  such as credit
union and mutual fund companies continues to grow. Despite the competition,  the
Corporation's  deposit base continues to grow and growth is expected to continue
for future time periods. The Corporation believes it has benefited from customer
fallout  during the latest  wave of merger  activity  of  regional  institutions
during the early part of 1999.  Additionally,  growth can be  attributed  to the
opening of the new branch sites in the Frazer area and our new Matlack  Training
Center  branch,  which  opened  on  August  30,  1998  and,  September  7,  1999
respectively.  Other  future  branch  sites are  expected  to expand  the Bank's
deposit base  further.  The  Corporation's  effective  rate on  interest-bearing
deposits  decreased  from  4.29% to  3.93%  for the  three  month  period  ended
September  30, 1999,  and from 4.26% to 3.94% for the nine month  periods  ended
September  30, 1999,  when compared to the three- and  nine-month  periods ended
September 30, 1998.

                                       10
<PAGE>

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

    INTEREST EXPENSE ON FEDERAL HOME LOAN BANK ADVANCES AND OTHER BORROWINGS

         Interest  expense on  borrowings  increased  38.4% to $119 thousand and
14.3% to $295 thousand for the three- and nine-month periods ended September 30,
1999,  respectively,  as compared to $86 thousand and $256 thousand for the same
period in 1998.  The need for  borrowings  has increased in the third quarter of
1999 as a result of a modest  increase in loan demand since the second  quarter.
As a result, average FHLB borrowings increased in the third quarter of 1999 from
5,093  thousand  to $8,477  thousand  when  compared to the same period in 1998.
Borrowings  at any point in time may  consist  of one or more of the  following:
Federal Home Loan Bank ("FHLB") Term  Advances,  FHLB Open Repo and overnight or
term advances.

                            PROVISION FOR LOAN LOSSES

         During the three- and nine-month  periods ended September 30, 1999, the
Corporation  recorded a $184  thousand and a $493  thousand  provision  for loan
losses,  compared to $201  thousand  and $613  thousand  for the same periods in
1998.  The decrease in the  provision  expense can be  attributed to a decreased
rate in loan growth for the three- and  nine-month  periods ended  September 30,
1999,  compared to the same periods in 1998 and the continued  decrease in total
non-performing  assets.  The  allowance for loan losses as a percentage of total
loans was 1.81% at September  30, 1999,  1.83% at December 31, 1998 and 1.82% at
September  30,  1998.  See the section  titled  "Allowance  For Loan Losses" for
additional discussion.

                               NON-INTEREST INCOME

         Total non-interest  income increased 3.0% and 11.0% to $1.2 million and
$3.8 million for the three- and  nine-month  periods  ended  September 30, 1999,
compared to the same  periods in 1998.  The primary  component  of  non-interest
income is Financial Management Services revenue, which increased 13.4% and 12.6%
to $650  thousand and $1.9 million for the three- and  nine-month  periods ended
September  30, 1999,  respectively,  compared to the same  periods in 1998.  The
Corporation took securities  gains of  approximately  $202 thousand for the nine
month-period ended September 30, 1999. These gains relate to the sale of certain
specialty  equity  securities  that were sold in the second quarter of 1999. The
market value of Financial Management Services' assets under management increased
$33.0  million to $403.0  million at September  30, 1999 from $370.0  million at
September 30, 1998. The increase in Financial  Management  Services assets under
management and revenues is primarily the result of market  appreciation  and new
account relationships acquired through stronger marketing efforts.

                              NON-INTEREST EXPENSE

         Total non-interest  expense for the three- and nine-month periods ended
September  30, 1999  increased  5.2% and 7.5% to $4.4 million and $13.0  million
compared  to 4.1  million and 12.1  million  for the same  periods in 1998.  The
various components of non-interest expense changes are discussed below.

         Salaries and employee  benefits  increased 9.2% and 6.6% for the three-
and nine-month periods ended September 30, 1999 to $2.5 million and $7.2 million
compared to the same periods in 1998, respectively.  Employee raises, promotions
and proportional  increases in employee  benefits are primarily  responsible for
the increases. The hiring of additional staff also contributed to the increases.
Average  full time  equivalent  staff  increased  from 203 for the period  ended
September 30, 1998 to 215 for the period ended September 30, 1999.

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

         Net occupancy,  equipment,  and data processing  expense increased 9.2%
and 16.3% for the three- and nine-month  period ended September 30, 1999 to $915
thousand  and $2.9 million  compared to the same periods in 1998,  respectively.
The increases are the direct result of increased  computer and related equipment
costs  associated  with the  completion  of the  conversion  of the bank's  core
computer System,  the phase out of certain  main-frame  related costs, a payroll
conversion and direct Y2K costs. Increases in the Corporation's facilities, such
as our newly open  branches  in the  Frazer  area and on  Matlack  Street,  also
contributed to the increase. See "Building Improvements and Technology Projects"
and "Year 2000 Issues" sections for more detail.

         Other  non-interest  expense  decreased 16.6% and 3.4% to $848 thousand
and $2.6 million for the three- and nine-month  periods ended September 30, 1999
compared  to the same  periods  in 1998.  This  decrease  can be  attributed  to
decreases in the  Corporation's  annual marketing  expenses of $47 thousand,  as
well as other non-interest expense.

                                       12

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

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

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

ASSETS
Federal funds sold                                    $  1,319       $   14      4.25%         $ 11,908      $   167     5.61%
Investment securities
    Taxable                                            117,274        1,885      6.43%           82,500        1,245     6.04%
    Tax-exempt (1)                                       2,154           39      7.23%            1,502           29     7.60%
                                                       -------        -----                     -------       ------
        Total investment securities                    119,428        1,924      6.44%           84,002        1,274     6.06%
                                                       -------        -----                     -------       ------
Loans (2)
    Taxable                                            324,031        6,925      8.55%          311,710        6,932     8.90%
    Tax-exempt (1)                                       5,980          144      9.62%            6,423          158     9.86%
                                                       -------        -----                     -------       ------
        Total loans                                    330,011        7,069      8.57%          318,133        7,090     8.91%
                                                       -------        -----                     -------       ------
        Total interest earning assets                  450,758        9,007      7.99%          414,043        8,531     8.24%
Non-interest earning assets
    Allowance for possible loan losses                  (5,999)                                  (5,881)
    Cash and due from banks                             22,466                                   21,056
    Other assets                                        17,864                                   13,907
                                                       -------                                  -------
        Total assets                                  $485,089                                 $443,125
                                                       =======                                  =======

LIABILITIES AND STOCKHOLDERS' EQUITY
Savings, NOWS & money market deposits                 $210,273       $1,556      2.96%         $186,108      $ 1,642     3.53%
Certificates of deposits and other time                145,767        1,939      5.32%          138,027        1,835     5.32%
                                                       -------        -----                     -------       ------
   Total interest bearing deposits                     356,040        3,495      3.93%          324,135        3,477     4.29%
Securities sold under repurchase agreements              2,645           28      4.08%            2,334           26     4.46%
Federal Home Loan Bank advances and
   other borrowings                                      8,477          119      5.62%            5,093           86     6.75%
                                                       -------        -----                     -------       ------
   Total interest bearing liabilities                  367,162        3,642      3.97%          331,562        3,589     4.33%
                                                       -------        -----                     -------       ------
Non-interest bearing liabilities
    Non-interest bearing demand deposits                72,910                                   65,047
    Other liabilities                                    6,114                                    8,168
                                                       -------                                  -------
        Total liabilities                              446,186                                  404,777
Stockholders' equity                                    38,903                                   38,348
                                                       -------                                  -------

        Total liabilities and stockholders' equity    $485,089                                 $443,125
                                                       =======                                  =======

Net interest income                                                  $5,365                                  $ 4,942
                                                                      =====                                   ======

Net yield on interest earning assets                                             4.76%                                   4.77%
                                                                                 ====                                    ====






<FN>


(1) The indicated  income and annual rate are presented on a taxable  equivalent
    basis  using the Federal  marginal  rate of 34%  adjusted  for the TEFRA 20%
    interest expense disallowance for 1999 and 1998.

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

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

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

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

ASSETS
Federal funds sold                                   $   3,089      $   108      4.70%        $   7,680      $   319     5.54%
Investment securities
    Taxable                                            114,278        5,255      6.13%           76,805        3,513     6.10%
    Tax-exempt (1)                                       2,136          120      7.47%            1,490           86     7.69%
                                                       -------       ------                     -------       ------
        Total investment securities                    116,414        5,375      6.16%           78,295        3,599     6.13%
                                                       -------       ------                     -------       ------
Loans (2)
    Taxable                                            322,079       20,128      8.33%          314,084       20,790     8.83%
    Tax-exempt (1)                                       5,937          429      9.63%            6,619          502    10.12%
                                                       -------       ------                     -------       ------
        Total loans                                    328,016       20,557      8.36%          320,703       21,292     8.85%
                                                       -------       ------                     -------       ------
Total Interest Earning Assets                          447,519       26,040      7.76%          406,678       25,210     8.27%
Non-interest earning assets
    Allowance for possible loan losses                  (5,878)                                  (5,924)
    Cash and due from banks                             21,599                                   20,113
    Other assets                                        16,581                                   13,747
                                                       -------                                  -------
        Total assets                                  $479,821                                 $434,614
                                                       =======                                  =======

LIABILITIES AND STOCKHOLDERS' EQUITY
Savings, NOWS & money market deposits                 $202,297      $ 4,426      2.92%         $182,773      $ 4,306     3.14%
Certificates of deposits and other time                147,748        5,924      5.35%          134,989        5,845     5.77%
                                                       -------       ------                     -------       ------
   Total interest bearing deposits                     350,045       10,350      3.94%          317,762       10,151     4.26%
Securities sold under repurchase agreements              2,698           80      3.95%            3,069           86     3.74%
Federal Home Loan Bank advances and
   other borrowings                                      6,564          295      5.99%            5,343          258     6.44%
                                                       -------       ------                     -------       ------
   Total interest bearing liabilities                  359,307       10,725      3.98%          326,174       10,495     4.29%
                                                       -------       ------                     -------       ------
Non-interest bearing liabilities
    Non-interest bearing demand deposits                71,496                                   63,502
    Other liabilities                                    5,990                                    7,124
                                                       -------                                  -------
        Total liabilities                              436,793                                  396,800
Stockholders' equity                                    43,028                                   37,814
                                                       -------                                  -------
        Total liabilities and stockholders' equity    $479,821                                 $434,614
                                                       =======                                  =======
Net interest income                                                 $15,315                                  $14,715
                                                                     ======                                   ======
Net yield on interest earning assets                                             4.56%                                   4.82%
                                                                                 ====                                    ====









<FN>


(1) The indicated  income and annual rate are presented on a taxable  equivalent
    basis  using the  Federal  marginal  rate of 34%  adjustedfor  the TEFRA 20%
    interest expense disallowance for 1999 and 1998.

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

                                  INCOME TAXES

         Income  tax  expense  for  the  three-  and  nine-month  periods  ended
September 30, 1999 was $594 thousand and $1.6 million, respectively, compared to
$475 thousand and $1.7 million for the same periods last year.  This  represents
effective tax rates of 30.5% in each of these periods.

               LIQUIDITY MANAGEMENT AND INTEREST RATE SENSITIVITY

         The objective of liquidity  management is to ensure the availability of
sufficient  cash flows to meet all  financial  commitments  and to capitalize on
opportunities  for  business  expansion.   Liquidity  management  addresses  the
Corporation's  ability  to meet  deposit  withdrawals  either  on  demand  or at
contractual  maturity,  to repay borrowings as they mature and to make new loans
and investments as  opportunities  arise.  Liquidity is managed on a daily basis
enabling  Senior  Management to effectively  monitor changes in liquidity and to
react  accordingly to fluctuations in market  conditions.  The primary source of
liquidity  for the  Corporation  is its  available-for-sale  portfolio of liquid
investment  grade  securities.  Funding sources also include NOW,  money-market,
savings,  and  smaller  denomination   certificates  of  deposit  accounts.  The
Corporation  considers  funds from such sources to comprise  its "core"  deposit
base because of the  historical  stability of such sources of funds.  Additional
liquidity  comes from the  Corporation's  non-interest  bearing  demand  deposit
accounts.  Other deposit  sources  include a  three-tiered  savings  product and
certificates  of  deposit  in  excess of  $100,000.  Details  of core  deposits,
non-interest  bearing  demand  deposit  accounts and other  deposit  sources are
highlighted in the following table:

                                DEPOSIT ANALYSIS
<TABLE>
<CAPTION>

                                                     (Annualized)
(Dollars in thousands)                           September 30, 1999           December 31, 1998               Average Balance
                                               -----------------------     ------------------------      ------------------------
                                               Average       Effective      Average       Effective        Dollar      Percentage
                                               Balance          Yield       Balance          Yield       Variance       Variance
                                               -------          -----       -------          -----       --------       --------
<S>                                          <C>               <C>        <C>               <C>          <C>           <C>

NOW Accounts                                  $ 57,994          1.71%      $  55,203         2.04%        $ 2,672         5.06%
Money Market                                    26,994          2.89          27,596         3.09            (387)       (1.36)
Statement Savings                               49,009          2.99          47,046         3.28          (1,658)       (3.43)
Other Savings                                    2,379          1.96           2,382         2.73            (476)      (15.89)
CD's Less than $100,000                        119,190          5.38         114,372         5.81           4,838         4.48
                                               -------                      --------                       ------

Total Core Deposits                            255,556          3.79         246,599         4.15           4,989         2.07

Non-Interest bearing
  Demand Deposit Accounts                       71,496            --          64,705           --           5,843        10.13
                                               -------                      --------                       ------

Total Core and Non-Interest
  Bearing Deposits                             327,062          2.97         311,304         3.29          10,832         3.63
                                               -------                      --------                       ------

Tiered Savings                                  65,921          3.95          51,854         4.09           8,870        21.54
CD's Greater than $100,000                      28,558          5.03          23,453         5.63           4,714        27.07
                                               -------                      --------                       ------

Total Deposits                                $421,541          3.26       $ 386,611         3.54         $24,416         6.84
                                               =======                      ========                       ======
</TABLE>
                                       15
<PAGE>

         The Bank, as a member of the FHLB,  maintains a credit facility secured
by the Bank's  mortgage-related  assets.  Additionally,  the FHLB offers several
other credit related  products which are available to the Bank.  FHLB borrowings
provide additional funds to meet the Bank's liquidity needs. As of September 30,
1999 the amount  outstanding  under the Bank's  line of credit with the FHLB was
$1.7  million  as  compared  to $0  during  the same  period  in 1998.  The Bank
currently has a maximum borrowing capacity with the FHLB of approximately $117.0
million.  During the three- and nine-month period of 1999, average FHLB advances
were  approximately  $8.5 and $6.6 million  respectively  and  consisted of term
advances representing a combination of maturities.  The average interest rate on
these advances was approximately 5.6% and 6.0%  respectively.  FHLB advances are
collateralized  by a pledge  on the  Bank's  entire  portfolio  of  unencumbered
investment  securities,  certain  mortgage  loans and a lien on the Bank's  FHLB
stock.

         The  goal  of  interest  rate   sensitivity   management  is  to  avoid
fluctuating  net  interest  margins,  and to  enhance  consistent  growth of net
interest income through periods of changing  interest rates. Such sensitivity is
measured  as the  difference  in the  volume of assets  and  liabilities  in the
existing  portfolio  that are subject to repricing in a future time period.  The
Corporation's  net interest rate  sensitivity  gap within one year is a negative
$210.1  million or 43.3% of total assets at September  30, 1999,  compared  with
negative  $109.2  million or 24.4% at  September  30, 1998,  respectively.  This
negative position  indicates that more liabilities than assets will be repricing
with in the next twelve months which in a rising  interest rate  environment may
result in an  increased  interest  expense that would not be offset be repricing
assets.  The data in this  analysis is static and  represents  the position at a
specific  point  in time  and may  not be  indicative  of  actual  results.  The
Corporation's gap position is one factor used to evaluate interest rate risk and
the  stability  of  net  interest   margins.   Other  factors  include  computer
simulations of what might happen to net interest  income under various  interest
rate  forecasts  and  scenarios.  Management  monitors  interest  rate risk as a
regular part of bank  operations  with the intention of maintaining a stable net
interest margin.
                                       16

<PAGE>


                          INTEREST SENSITIVITY ANALYSIS
                            AS OF SEPTEMBER 30, 1999
<TABLE>
<CAPTION>

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

ASSETS
    Investment securities                      $     27,246     $    58,577       $    32,913      $        --    $   118,736
    Loans and leases                                 87,137         185,421            61,524           (6,037)       328,045
    Cash and cash equivalents                            --              --                --           20,141         20,141
    Premises & equipment                                 --              --                --           10,630         10,630
    Other assets                                      3,551              --                --            3,135          6,686
                                                -----------      ----------        ----------       ----------     ----------
       Total assets                            $    117,934     $   243,998       $    94,437      $    27,869    $   484,238
                                                ===========      ==========        ==========       ==========     ==========

LIABILITIES AND CAPITAL
    Non-interest bearing deposit               $         --     $        --       $        --      $    72,860    $    72,860
    Interest bearing deposits                       322,418          32,994                --               --        355,412
    Borrowed funds                                    5,166              --                --               --          5,166
    FHLB Term Advance                                   408           1,644             4,664               --          6,716
    Other liabilities                                    --              --             1,651            4,067          5,719
    Capital                                             --               --                --           38,366         38,366
                                                  ---------       ---------         ---------        ---------       --------
       Total liabilities & capital             $    327,992     $    34,638       $     6,315      $   115,293    $   484,238
                                                ===========      ==========        ==========       ==========     ==========
    Net interest rate
      sensitivity gap                          $  (210,058)     $   209,360       $    88,122      $  (87,424)    $        --
                                                ==========       ==========        ==========       =========      ==========
    Cumulative interest rate
      sensitivity gap                          $  (210,058)     $     (698)       $    87,424      $        --    $        --
                                                ==========       =========         ==========       ==========     ==========
    Cumulative interest rate
      sensitivity gap divided
      by total assets                               (43.4%)         (0.1%)             18.1%
                                                ==========        =======          =========
</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 the borrower's
ability to pay.



<PAGE>


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

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

Balance at beginning of period                                       $ 5,922         $ 5,912            $ 5,877          $ 5,900
                                                                      ------          ------             ------           ------
Provision charged to operating expense                                   184             201                493              613
                                                                      ------          ------             ------           ------
    Recoveries of loans previously charged-off                            11               9                 86               26
    Loans charged-off                                                    (80)           (344)              (419)            (751)
                                                                      ------          ------             ------           ------
Net loans charged-off                                                    (69)           (335)              (333)            (725)
                                                                      ------          ------             ------           ------
Balance at end of period                                             $ 6,037         $ 5,788            $ 6,037          $ 5,788
                                                                      ======          ======             ======           ======

Period-end loans outstanding                                        $334,084        $317,568           $334,084         $317,568

Average loans outstanding                                           $330,011        $318,133           $328,016         $320,703

Allowance for possible loan losses as a
    percentage of period-end loans outstanding                         1.81%           1.82%              1.81%            1.82%

Ratio of net charge-offs to average loans
    outstanding (annualized)                                           0.02%           0.11%              0.10%            0.23%
</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 the  process of  collection.  The  following  chart  represents  detailed
information regarding non-performing loans:

                                       18
<PAGE>
<TABLE>
<CAPTION>


                                                                     September 30,            December 31,
                                                                ---------------------         ------------

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

Past due over 90 days and still accruing                        $  407         $  614           $  546

Non-accrual loans                                                1,402          2,183            1,316
                                                                 -----          -----            -----
Total non-performing loans                                       1,809          2,797            1,862

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

Total non-performing assets                                     $2,001         $2,989           $2,054
                                                                 =====          =====            =====

Non-performing loans as a percentage
     of total loans                                              0.54%          0.88%            0.58%

Allowance for possible loan losses as a
   percentage of non-performing loans                          333.72%        206.94%          315.60%

Non-performing assets as a percentage
   of total loans and other real estate owned                    0.60%          0.94%            0.60%

Allowance for possible loan losses as a
  percentage of non-performing assets                          301.70%            193.64%          286.10%
</TABLE>

         The allowance for loan losses as a percentage of  non-performing  loans
ratio  indicates  that the  allowance for loan losses is sufficient to cover the
principal of all  non-performing  loans at September 30, 1999. Other Real Estate
Owned ("OREO")  represents  residential  and commercial real estate owned by the
Bank  following  default  by  borrowers  by and what has  been  written  down to
realizable  value  (net of  estimated  disposal  costs)  based  on  professional
appraisals.  In October 1999, the Corporation  liquidated from OREO a commercial
property  for a net amount of $192  thousand  resulting in a recovery of certain
legal and tax expenses and a gain of approximately  $12.6 thousand.  In October,
the Bank took another property into OREO resulting in a balance of $470 thousand
as of the date of this report.

         Management is not aware of any loans other than those included in these
tables  and  mentioned  in this  paragraph  that would be  considered  potential
problem loans and cause  Management to have doubts as to the borrower's  ability
to comply with loan repayment  terms.  The Corporation  decided to withdraw from
third  party  automobile  lending  on July 10,  1998 due to less  than  expected
results. The Corporation will continue to service the existing portfolio but has
not added any additional volume. The portfolio totaled approximately $14 million
and $24 million as of September  30, 1999 and  December 31, 1998,  respectively.
Approximately  4.19% and 9.92% was past due 30 days or more as of September  30,
1999 and December 31, 1998.

                                 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.
                                       19
<PAGE>

         The balance of impaired  loans was $984 thousand,  $919  thousand,  and
$1.7 million at September  30, 1999,  December 31, 1998,  and September 30, 1998
respectively.  The  associated  allowance for impaired  loans was $365 thousand,
$286  thousand  $338  thousand at  September  30, 1999,  December 31, 1998,  and
September 30, 1998, respectively.

         For the  three-month  and nine-month  period ended  September 30, 1999,
activity  in the  allowance  for  impaired  loan losses  include a provision  of
$25,000   and   $85,000,   respectively,   write  offs  of  $4,000  and  $7,000,
respectively,  and recoveries of $0 for both time periods.  Contractual interest
amounted to $23,000 for the  three-months  ended  September 30, 1999 and $71,000
for the nine-months ended September 30, 1999. While no interest income of $0 was
recorded  for both  periods'  cash  collected on loans for the  three-month  and
nine-month period ended September 30, 1999 was $9,000 and $85,000, respectively,
all of which was applied to principal.

         For the  three-month  and nine-month  period ended  September 30, 1998,
activity  in the  allowance  for  impaired  loan losses  include a provision  of
$50,000  and  $125,000,   respectively,   write  offs  of  $9,000  and  $93,000,
respectively, and recoveries of $0 and $0, respectively.  Interest income of $20
thousand was recorded for both periods while  contractual  interest  amounted to
$31,000  for the  three-months  ended  September  30,  1998 and  $59,000 for the
nine-months   ended  September  30,  1998.  Cash  collected  on  loans  for  the
three-month and nine-month period ended September 30, 1998 was $102,000 thousand
and  $123,000  of which $81  thousand  and $102  thousand  was  credited  to the
principal balances outstanding.

                  BUILDING IMPROVEMENTS AND TECHNOLOGY PROJECTS

         During 1998, the  Corporation  opened a 2,750 square foot branch office
in the Frazer area on August 3, 1998.  In  September  of 1998,  the  Corporation
purchased a 25,000  square foot office  building  adjacent to the  Corporation's
existing  Operation Center in West Chester,  Pennsylvania for approximately $1.7
million. The new building at 887 Matlack Street was put in service in the second
quarter of 1999. It houses a branch teller  training  center that is open to the
public  as well as the new  location  for the  administrative  services,  audit,
compliance  and  facilities  departments.  During the third quarter of 1999, the
Corporation  purchased  additional  land in the  Lionville  area to  accommodate
future expansion.

         In November  1998, the  Corporation  completed a conversion of its core
processing  system to the Jack Henry and  Associates,  Inc.  ("JHA")  Silverlake
system.  JHA is a major  provider of  community  bank core  processing  systems.
Technology  projects in process at September 30, 1999 include an installation of
a bankwide e-mail system.

         On October 1, 1999,  the First  National  Bank  launched a full line of
retail Internet banking services, "Net Teller" and "BillPay". These new products
allow our retail  customers  the  convenience  to access their  accounts and pay
bills on-line  twenty-four  hours a day from home. A commercial  version of this
product is expected in early 2000.

         The First  National Bank plans to open limited  access  branch  banking
facilities  in four  local  retirement  communities  in  December  of 1999.  The
locations include Granite Farms Estates, Lima Estates, and Kendal and Crosslands
Communities.  These branch  locations  will serve the residents and employees of
their  communities  and bring the total  number of branches in First  National's
network to twelve.

                                       20
<PAGE>
                                YEAR 2000 ISSUES

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

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

         In order to address the Y2K Issue,  the  Corporation  has developed and
implemented a five phase  compliance  plan. The compliance  plan is divided into
the following major components:  (1) Awareness; (2) Assessment;  (3) Renovation;
(4) Validation and Testing;  and (5) Implementation.  The Corporation  completed
all five phases of the plan for all of its  mission-critical  systems by October
15, 1999.

         JHA has tested the unmodified  version of its Silverlake system and the
Federal Financial  Institutions  Examination  Council ("FFIEC") has reviewed JHA
test procedures and has provided the Corporation with a copy of the results. The
Corporation  conducted an independent test on the Silverlake  system and related
hardware  during the week of March 7, 1999. The  Corporation  has documented and
evaluated the results of that test and is satisfied with the results.

         The  Corporation's  check processing and imaging systems,  operate on a
combination of NCR, Unisys, Novell and Microsoft hardware and software. Parts of
this system required certain upgrades.  These upgrades were installed and tested
prior to October 15, 1999.  The  Corporation  is  satisfied  with the results of
these tests.  The  Corporation  has completed Y2K testing on all PC hardware and
software.  Any machines failing these tests are being replaced or repaired.  The
PC hardware  and  software  repair and  replacement  process will be complete by
November 30, 1999.

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

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

         The  Corporation  incurred  direct Y2K project  costs of $121  thousand
through  September  30, 1999.  The  Corporation  has  incurred  total direct and
indirect Y2K project costs of $297  thousand  through  September  30, 1999.  The
Corporation  anticipates  that its total Y2K  project  cost will not exceed $350

                                       21
<PAGE>

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

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

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

         The Corporation  has initiated  formal  communications  with all of its
significant  vendors and large loan customers  (over  $250,000) to determine its
vulnerability  as a result of the  failure of those third  parties to  remediate
their  own  Y2K  Issues.  The  Corporation  completed  its  review  of  the  Y2K
capabilities  of its  significant  vendors  in the second  quarter of 1999.  The
Corporation is continuing its evaluation of each loan customer's response and is
formulating  a Y2K risk  assessment  for the  loan  portfolio  as a whole.  This
process is expected to continue through November 30, 1999.

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

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

         As part of the Corporation's cash contingency plan the Bank has secured
several  sources of funds in the event they are needed in the fourth  quarter of
1999 or the first quarter of 2000.  Sources  include:  Unsecured credit lines at
our correspondent  banks, a guaranteed line of credit from the Federal Home Loan
Bank and availability under the "Special Y2K Liquidity Facility" provided by the
Federal Reserve.

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

         The Corporation has developed several back-up system contingency plans,
which are designed to render the Corporation  operational for a period of one to
thirty  days should a Y2K  problem  surface.  These  contingency  plans  utilize
secondary  computer systems and / or various manual tasks, which include but are
not limited to the following:

1.   Maintenance of loan data on Microsoft Excel spreadsheets or paper ledgers;
2.   Maintenance  of  core  deposit  account   information  on  Microsoft  Excel
     spreadsheets  or paper ledgers;
3.   Manual sorting of deposit tickets and checks by account number;  and
4.   Maintenance of FMS account  information on Microsoft Excel  spreadsheets or
     manual ledgers;
5.   A check  processing  contingency plan involving the use of a used reader-
     sorter and JHA's proof of deposit program has been developed, fine tuned
     and tested.

                                       22
<PAGE>

         The  Corporation  is in the process of  validating  and testing its Y2K
Contingency  plan and anticipates  completion of this task by November 30, 1999.
At this time the  Corporation  cannot  estimate the cost,  if any, that might be
required to implement the contingency Y2K preparedness plans.


Other
-----

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

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

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

                                CAPITAL ADEQUACY

         The Corporation is subject to Risk-Based  Capital Guidelines adopted by
the Federal Reserve Board ("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, 1999, both the
Corporation's   and  the  Bank's   capital   exceeded  all  minimum   regulatory
requirements,   and  were  considered  "well  capitalized"  as  defined  in  the
regulations   issued  pursuant  to  the  FDIC   Improvement  Act  of  1991.  The
Corporation's  Risk-Based  Capital  Ratios,  shown below,  have been computed in
accordance with regulatory accounting policies.

                                       23
<PAGE>

<TABLE>
<CAPTION>

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

Corporation
-----------
Leverage Ratio                             8.31%              8.75%              8.59%                         5.00%
Tier I Capital Ratio                      11.21%             11.71%             11.67%                         6.00%
Total Risk-Based Capital Ratio            12.47%             12.96%             12.95%                        10.00%

Bank
Leverage Ratio                             8.12%              8.56%              8.36%                         5.00%
Tier I Capital Ratio                      10.94%             11.46%             11.35%                         6.00%
Total Risk-Based Capital Ratio            12.19%             12.71%             12.62%                        10.00%
</TABLE>

         The Bank is not under any agreement with the regulatory authorities nor
is it aware of any current  recommendations by the regulatory  authorities that,
if they were to be  implemented,  would  have a  material  affect on  liquidity,
capital resources or operations of the Corporation.  The internal capital growth
rate for the Corporation was a negative 7.49% and a positive 13.18% for the nine
months  ended  September  30,  1999 and 1998,  respectively.  The growth rate is
computed by annualizing the change in equity during the last period and dividing
it by total stockholders equity at September 30, 1999 and 1998, respectively.

                                       24
<PAGE>



           QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         There have been no material changes in the Corporation's  assessment of
its sensitivity to market risk since its  presentation in the 1998 Annual Report
of the  Corporation,  filed as an exhibit  to its Form 10-K for the fiscal  year
ended  December  31,  1998,  with  the  SEC  via  EDGAR.  Please  refer  to  the
"Management's   Discussion   and  Analysis"   section  on  pages  27-28  of  the
Corporation's 1998 Annual Report for this assessment.

                                       25

<PAGE>



                           PART II - OTHER INFORMATION

Item 1.  Legal Proceedings

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

Item 2.  Changes in Securities

                  None

Item 3.  Defaults upon Senior Securities

                  None

Item 4.  Submission of Matters to 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,
1998.

         3(ii). Bylaws of the Corporation, as amended. Copy of the Corporation's
Bylaws, as amended,  is incorporated herein by reference to Exhibit 3(ii) to the
Corporation's Annual Report on Form 10-K for the year ended December 31, 1998.

         27.      Financial Data Schedule.

                  (b)       Reports on Form 8-K

                  A Form 8-K was  filed on  February  17,  1999 with the SEC via
                  EDGAR pertaining to a press release on 1998 earnings.

                  A Form 8-K was  filed on July 14,  1999 with the SEC via EDGAR
                  pertaining to a press release on second quarter earnings.

                  A Form 8-K was  filed on  October  18,  1999  with the SEC via
                  EDGAR pertaining to a press release on third quarter earnings.

                                       26
<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 WEST CHESTER CORPORATION


                                Charles E. Swope


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


                             DATE: November 15, 1999


                                 J. Duncan Smith


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

                                       27
<PAGE>