FIRST CHESTER COUNTY CORPORATION AND SUBSIDIARIES

                                   FORM 10-Q

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

(Mark One)

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

For the quarterly period ended September 30, 2006, OR
                               ------------------

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

For the transition period from ____________ to ____________.

Commission File No. 0-12870.
                    -------

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

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

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

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

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

Indicate by check mark whether the Registrant is a large  accelerated  filer, an
accelerated   filer,  or  a   non-accelerated   filer.  See  the  definition  of
"accelerated  filer and large  accelerated  filer" in Rule 12b-2 of the Exchange
Act.   (Check  one):   Large   accelerated   filer  ___   Accelerated   filer  X
Non-accelerated filer __

Indicate by check mark whether the  Registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes ___ No X

The  number  of  shares  outstanding  of Common  Stock of the  Registrant  as of
November 9, 2006 was 5,186,026.


                                       1
<PAGE>

                                      INDEX


Part I.  FINANCIAL INFORMATION

Item 1 -  Financial Statements
          Consolidated Statements of Condition
          September 30, 2006 (unaudited) and December 31, 2005            3

          Consolidated Statements of Income
          Three-Months Ended September 30, 2006 and 2005 (unaudited)      4

          Consolidated Statements of Cash Flows
          Nine-Months Ended September 30, 2006 and 2005 (unaudited)       5

          Consolidated Statements of Stockholders' Equity
          Nine-Months Ended September 30, 2006 and 2005 (unaudited)       6

          Notes to Consolidated Financial Statements                   7-11

Item 2 -  Management's Discussion and Analysis of
          Financial Condition and Results of Operations               12-27

Item 3 -  Quantitative and Qualitative Disclosures About Market Risk     28

Item 4 -  Controls & Procedures                                          28

Part II. OTHER INFORMATION
Item 1 -  Legal Proceedings                                              29

Item 1A - Risk Factors                                                   29

Item 2 -  Unregistered Sales of Equity Securities and Use of Proceeds    29

Item 3 -  Defaults Upon Senior Securities                                30

Item 4 -  Submission of Matters to a Vote of Security Holders            30

Item 5 -  Other Information                                              30

Item 6 -  Exhibits                                                       30

Signatures                                                               31

Index to Exhibits                                                        32

Exhibits                                                              33-38

                                       2
<PAGE>


                FIRST CHESTER COUNTY CORPORATION AND SUBSIDIARIES

                            I. FINANCIAL INFORMATION

ITEM 1.  Financial Statements

                      CONSOLIDATED STATEMENTS OF CONDITION
<TABLE>
<CAPTION>

 (Dollars in thousands)                                                                              September 30,
                                                                                                         2006       December 31,
                                                                                                      (unaudited)       2005
                                                                                                     -------------  ------------
<S>                                                                                                    <C>          <C>

ASSETS
    Cash and due from banks                                                                            $  23,228    $  37,401
    Federal funds sold and other overnight investments                                                    42,300       31,000
    Interest bearing deposits in banks                                                                       223          542
                                                                                                       ---------    ---------

                Total cash and cash equivalents                                                           65,751       68,943
                                                                                                       ---------    ---------

    Investment securities held-to-maturity (fair value of $5 at September 30,
        2006 and $10 at December 31, 2005, respectively)                                                       5           10

    Investment securities available-for-sale, at fair value                                              101,633       97,078

    Loans and leases                                                                                     679,399      664,276
    Less:  Allowance for loan and lease losses                                                            (8,174)      (8,123)
                                                                                                       ---------    ---------
                Net loans and leases                                                                     671,225      656,153

    Premises and equipment                                                                                13,791       13,786
    Other assets                                                                                          10,246        9,564
                                                                                                       ---------    ---------
                Total assets                                                                           $ 862,651    $ 845,534
                                                                                                       =========    =========
LIABILITIES
    Deposits
        Non-interest-bearing                                                                           $ 125,023    $ 136,082
        Interest-bearing (including certificates of deposit over $100
           of $44,636 and $61,281 at September 30, 2006 and
           December 31, 2005, respectively)                                                              590,546      560,015
                                                                                                       ---------    ---------

        Total deposits                                                                                   715,569      696,097

    Federal Home Loan Bank advances and other borrowings                                                  61,609       68,900
    Subordinated Debt                                                                                     15,465       15,465
    Other liabilities                                                                                      6,431        6,395
                                                                                                       ---------    ---------

        Total liabilities                                                                              $ 799,074    $ 786,857
                                                                                                       ---------    ---------

STOCKHOLDERS' EQUITY
    Common stock, par value $1 - authorized, 10,000,000 shares;
        outstanding, 5,279,815 at September 30, 2006 and December 31, 2005                                 5,280
                                                                                                                        5,280
    Additional paid-in capital                                                                            12,017       12,441
    Retained earnings                                                                                     50,199       46,503
    Accumulated other comprehensive loss                                                                  (1,580)      (1,929)
    Treasury stock, at cost:  97,527 shares and 153,164 shares
       at September 30, 2006 and December 31, 2005, respectively                                          (2,339)      (3,618)
                    --- ----              --- -----                                                       ------       ------

                Total stockholders' equity                                                                63,577       58,677
                                                                                                       ---------    ---------

                Total liabilities and stockholders' equity                                             $ 862,651    $ 845,534
                                                                                                       =========    =========


The accompanying notes are an integral part of these statements.

</TABLE>

                                       3
<PAGE>


                FIRST CHESTER COUNTY CORPORATION AND SUBSIDIARIES

                        CONSOLIDATED STATEMENTS OF INCOME
                                   (UNAUDITED)
<TABLE>
<CAPTION>

(Dollars in thousands - except per share)                                          Three Months Ended            Nine Months Ended
                                                                                       September 30,               September 30,
                                                                                    2006          2005          2006           2005
                                                                             --------------------------    -------------------------
<S>                                                                          <C>           <C>            <C>            <C>

INTEREST INCOME
    Loans and leases, including fees                                         $    11,741   $    10,257    $    34,031    $    28,812
    Investment securities                                                          1,083         1,062          3,240          3,340
    Federal funds sold and other overnight investments                               646           272          1,514            346
    Deposits in Banks                                                                  3             1             11              4
                                                                             -----------   -----------    -----------    -----------

                Total interest income                                             13,473        11,592         38,796         32,502
                                                                             -----------   -----------    -----------    -----------

INTEREST EXPENSE
    Deposits                                                                       4,468         2,853         11,602          6,821
    Subordinated debt                                                                343           264            960            728
    Federal Home Loan Bank advances and other borrowings                             611           639          1,885          1,873
                                                                             -----------   -----------    -----------    -----------

                Total interest expense                                             5,422         3,756         14,447          9,422
                                                                             -----------   -----------    -----------    -----------

                Net interest income                                                8,051         7,836         24,349         23,080

    Provision for loan and lease losses                                                0           311              3          1,322
                                                                             -----------   -----------    -----------    -----------

                Net interest income after provision
                for possible loan and lease losses                                 8,051         7,525         24,346         21,758
                                                                             -----------   -----------    -----------    -----------

NON-INTEREST INCOME
    Trust and Investment Services                                                    836           844          2,545          2,428
    Service charges on deposit accounts                                              530           483          1,489          1,434
    Investment securities gains (losses), net                                          0            (2)           (80)            58
    Operating lease rental income                                                    292           257            838            729
    Gains (losses) on the sale of fixed assets and other real estate owned             0            (0)            19            (7)
    Gains and fees on the sale of residential mortgages                               95           118            261            312
    Other                                                                            576           585          1,799          1,768
                                                                             -----------   -----------    -----------    -----------
                Total non-interest income                                          2,329         2,285          6,871          6,722
                                                                             -----------   -----------    -----------    -----------

NON-INTEREST EXPENSE
    Salaries and employee benefits                                                 4,284         3,756         12,810         11,937
    Occupancy, equipment and data processing                                       1,322         1,397          4,082          4,188
    Depreciation on operating leases                                                 240           226            713            638
    FDIC Insurance                                                                    22            21             66             68
    Bank shares tax                                                                  139            82            566            402
    Professional services                                                            515           629          1,418          1,990
    Other                                                                          1,180         1,302          3,407          3,931
                                                                             -----------   -----------    -----------    -----------
                Total non-interest expense                                         7,702         7,413         23,062         23,154
                                                                             -----------   -----------    -----------    -----------

                Income before income taxes                                         2,678         2,397          8,155          5,326

INCOME TAXES                                                                         822           554          2,371          1,393
                                                                             -----------   -----------    -----------    -----------

NET INCOME                                                                   $     1,856   $     1,843    $     5,784    $     3,933
                                                                             ===========   ===========    ===========    ===========

PER SHARE DATA
    Basic earnings per common share                                          $      0.36   $      0.36    $      1.12    $      0.77
                                                                             ===========   ===========    ===========    ===========
    Diluted earnings per common share                                        $      0.35   $      0.35    $      1.10    $      0.75
                                                                             ===========   ===========    ===========    ===========
    Dividends declared                                                       $    0.1350   $    0.1300    $    0.4050    $    0.4025
                                                                             ===========   ===========    ===========    ===========

Basic weighted average shares outstanding                                      5,175,519     5,114,517      5,152,905      5,083,311
                                                                             ===========   ===========    ===========    ===========

Diluted weighted average shares outstanding                                    5,263,900     5,209,347      5,244,369      5,226,232
                                                                             ===========   ===========    ===========    ===========

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

                                       4
<PAGE>


                FIRST CHESTER COUNTY CORPORATION AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)
<TABLE>
<CAPTION>

                                                                             Nine Months Ended
 (Dollars in thousands)                                                        September 30,
                                                                              2006        2005
                                                                            --------    --------
<S>                                                                       <C>         <C>

OPERATING ACTIVITIES
    Net Income                                                            $  5,784    $  3,933
    Adjustments to reconcile net income to net cash
           provided by operating activities:
    Depreciation                                                             2,097       1,979
    Provision for loan and lease losses                                          3       1,322
    Amortization of investment security premiums
           and accretion of discounts                                          189         184
    Amortization of deferred net loan fees                                      (2)         (4)
    Investment securities (gains) and losses, net                               80         (58)
    Increase in other assets                                                  (700)     (2,005)
    Increase in other liabilities                                               36         823
                                                                           --------    --------

           Net cash provided by operating activities                      $  7,487    $  6,174
                                                                          --------    --------

INVESTING ACTIVITIES
    Increase in loans                                                     (15,073)     (47,178)
    Proceeds from sales of investment securities available-for-sale         4,003      60,068
    Proceeds from maturities of investment securities available-for-sale    5,804      53,322
    Proceeds from maturities of investment securities held-to-maturity          5           0
    Purchases of investment securities available-for-sale                 (14,104)     (74,558)
    Purchase of premises and equipment, net                                (2,102)      (1,639)
                                                                          --------    --------

    Net cash used in investing activities                                 $(21,467)   $ (9,985)
                                                                          --------    --------

FINANCING ACTIVITIES
    (Decrease) increase in Federal Home Loan Bank advances                  (7,291)      3,471
    Increase in deposits                                                    19,472      26,241
    Cash dividends paid                                                     (2,088)     (1,973)
    Net increase in treasury stock                                             695       1,225
                                                                          --------    --------

           Net cash provided by financing activities                        10,788      28,964
                                                                          --------    --------

           NET INCREASE IN CASH AND CASH EQUIVALENTS                        (3,192)     25,153

Cash and cash equivalents at beginning of period                            68,943      31,610
                                                                          --------    --------

Cash and cash equivalents at end of period                                $ 65,751    $ 56,763
                                                                          ========    ========


The accompanying notes are an integral part of these statements.

</TABLE>

                                       5
<PAGE>


                FIRST CHESTER COUNTY CORPORATION AND SUBSIDIARIES

            CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>

                                                          Additional             Accumulated                Total
                                         Common Stock      Paid-in    Retained  Comprehensive  Treasury  Stockholders  Comprehensive
(Dollars in thousands)                 Shares  Par Value   Capital    Earnings     Equity        Stock      Equity        Income
                                       ------  ---------  ---------   --------  -------------  --------  ------------  -------------
<S>                                  <C>          <C>      <C>        <C>          <C>          <C>        <C>            <C>

Balance at December 31, 2004         4,799,666    $4,800   $ 2,053    $53,747      $   (77)     (5,121)    $55,402

 Net income                                 --        --        --      3,933           --          --       3,933        $3,933
 Cash dividends declared                    --        --        --     (1,973)          --          --      (1,973)
 Issuance of common stock              480,149       480    10,612    (11,092)          --          --
 Other comprehensive income
   Net unrealized (losses) gains on
   investment securities
   available-for-sale                       --        --        --         --       (1,565)         --      (1,565)       (1,565)
 Treasury stock transactions                --        --      (171)        --           --       1,396       1,225            --
                                     ---------    -------  -------    -------      -------     -------     -------        ------
 Comprehensive Income                                                                                                     $2,368

Balance at September 30, 2005        5,279,815    $5,280   $12,494    $44,615      $(1,642)    $(3,725)    $57,022
                                     =========    =======  =======    =======      =======     =======     =======        ======


Balance at December 31, 2005         5,279,815    $5,280   $12,441    $46,503      $(1,929)    $(3,618)    $58,677

 Net income                                 --        --        --      5,784           --          --       5,784        $5,784
 Cash dividends declared                    --        --        --     (2,088)          --          --      (2,088)
 Stock dividends declared                   --        --        --         --           --
 Other Comprehensive Income
   Net unrealized gain (loss)
   on investment securities
   available-for-sale                       --        --        --         --          349          --         349           349
 Treasury stock transactions                --        --      (584)        --           --       1,279         695            --
 Stock-based compensation
   tax benefit                              --        --       160         --           --          --         160            --
                                     ---------    -------  -------    -------      -------     -------     -------        ------
 Comprehensive Income                                                                                                     $6,133

Balance at September 30, 2006        5,279,815    $5,280   $12,017    $50,199      $(1,580)    $(2,339)    $63,577
                                     =========    =======  =======    =======      =======     =======     =======        ======


The accompanying notes are an integral part of these statements.

</TABLE>

                                       6
<PAGE>

                FIRST CHESTER COUNTY CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

1.  BASIS OF PRESENTATION
    ---------------------

The foregoing  unaudited  financial  statements have been prepared in accordance
with generally accepted accounting principles for interim financial information.
In the  opinion  of  Management,  all  adjustments  (consisting  only of  normal
recurring  adjustments)  necessary  for a fair  presentation  of  the  financial
position and the results of operations  for the interim  period  presented  have
been included.  These interim financial statements should be read in conjunction
with the consolidated financial statements and footnotes thereto included in our
Annual Report on Form 10-K for the year ended December 31, 2005.

The results of operations for the three and nine-month  periods ended  September
30, 2006 are not  necessarily  indicative  of the results to be expected for the
full year. Information regarding risks and uncertainties that could cause actual
results to vary  materially  from our prior  performance may be found in Part I,
Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2005.

2.  EARNINGS PER SHARE
    ------------------
<TABLE>
<CAPTION>

Three Months ended September 30, 2006
-------------------------------------
                                               Income
                                             (thousands)         Shares          Per Share
                                             (numerator)      (denominator)        Amount
                                             -----------      -------------      ----------
<S>                                            <C>              <C>                <C>

Basic earnings per share
Net income available to common stockholders    $1,856           5,175,519          $0.36
Effect of Dilutive Securities
Options to purchase common stock                   --              88,381          (.01)
                                               ------           ---------          -----
Diluted earnings per share
Net income available to common stockholders    $1,856           5,263,900          $0.35
                                               ======           =========          =====
</TABLE>

15,861  anti-dilutive  weighted shares have been excluded from this  computation
because the option  exercise  price was greater than the average market price of
the common shares

<TABLE>
<CAPTION>

Nine Months ended September 30, 2006
------------------------------------
                                               Income            Shares          Per Share
                                             (numerator)      (denominator)        Amount
                                             -----------      -------------      ----------
<S>                                            <C>              <C>                <C>
Basic earnings per share
Net income available to common stockholders    $5,784           5,152,905          $1.12
Effect of Dilutive Securities
Options to purchase common stock                   --              91,464          (.02)
                                               ------           ---------          -----
Diluted earnings per share
Net income available to common stockholders    $5,784           5,244,369          $1.10
                                               ======           =========          =====
</TABLE>

16,880  anti-dilutive  weighted shares have been excluded from this  computation
because the option  exercise  price was greater than the average market price of
the common shares

<TABLE>
<CAPTION>

Three Months ended September 30, 2005
-------------------------------------

                                              Income
                                             (thousands)         Shares          Per Share
                                             (numerator)      (denominator)        Amount
                                             -----------      -------------      ----------
<S>                                            <C>              <C>                <C>
Basic earnings per share
Net income available to common stockholders    $1,843           5,114,517          0.36
Effect of Dilutive Securities
Options to purchase common stock                   --              94,830          (.01)
                                               ------           ---------          -----
Diluted earnings per share
Net income available to common stockholders    $1,843           5,209,347          $0.35
                                               ======           =========          =====
</TABLE>

17,886  anti-dilutive  weighted shares have been excluded from this  computation
because the option  exercise  price was greater than the average market price of
the common shares.


                                       7
<PAGE>


                FIRST CHESTER COUNTY CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

<TABLE>
<CAPTION>

Nine Months ended September 30, 2005
------------------------------------
                                              Income             Shares          Per Share
                                             (numerator)      (denominator)        Amount
                                             -----------      -------------      ---------
<S>                                            <C>              <C>                <C>
Basic earnings per share
Net income available to common stockholders    $3,933           5,083,311          $0.77
Effect of Dilutive Securities
Options to purchase common stock                   --             142,921          (0.02)
                                               ------           ---------          -----
Diluted earnings per share
Net income available to common stockholders    $3,933           5,226,232          $0.75
                                               ======           =========          =====
</TABLE>

17,755  anti-dilutive  weighted shares have been excluded from this  computation
because the option  exercise  price was greater than the average market price of
the common shares.

3.  COMPREHENSIVE INCOME
    --------------------
    Components of comprehensive income are presented in the following chart:
<TABLE>
<CAPTION>

                                                 Three Months Ended     Nine Months Ended
                                                   September 30,           September 30,
                                                -------------------     -----------------
                                                 2006          2005     2006         2005
                                                -------------------     -----------------
<S>                                             <C>         <C>         <C>       <C>
Unrealized gains on securities:
   Unrealized gains (losses) arising in period  $1,615      $ (991)     $  608    $(2,039)
   Reclassification adjustment                       0           2         (80)       (58)
                                                -------      ------     -------   -------
   Net unrealized gains (losses)                 1,615        (989)        528     (2,097)
                                                -------      ------     -------
Other comprehensive income before taxes          1,615        (989)        528     (2,097)
Income tax benefit (expense)                      (549)        251        (179)       532
                                                -------      ------     -------   -------
Other comprehensive income                       1,066        (738)        349     (1,565)
Net income                                       1,856       1,843       5,784      3,933
                                                ------      -------     -------   -------
Comprehensive income (losses)                   $2,922      $1,105      $6,133    $ 2,368
                                                ======      =======     =======   =======
</TABLE>


4.  SUBORDINATED DEBT
    -----------------

Management has  determined  that First Chester  County  Corporation  Trust I and
Trust II (Trust I and Trust II,  collectively,  the  "Trusts")  each  qualify as
variable interest  entities under FASB  Interpretation 46 (FIN 46R). Each of the
Trusts  issued   mandatory   redeemable   preferred   stock  ("trust   preferred
securities")  to  investors  and loaned the proceeds to the  Corporation.  As of
September 30, 2006, the amount of trust  preferred  securities  outstanding  was
$15.0  million.  Each of the  Trusts  holds,  as its  sole  asset,  subordinated
debentures issued by the Corporation.

In accordance with FIN 46R, the Corporation deconsolidated the Trusts at the end
of the first quarter of 2004. In March 2005, the Federal Reserve Board adopted a
final rule that continues to allow the inclusion of trust  preferred  securities
in Tier I Capital, but with stricter  quantitative limits. Under the final rule,
after a five-year  transition  period,  the aggregate  amount of trust preferred
securities and certain other capital  elements would be limited to 25% of Tier I
Capital,  net of goodwill.  The amount of trust preferred securities and certain
other  capital  elements  in excess of the limit  could be  included  in Tier II
Capital,  subject  to  certain  restrictions.  Based  on  the  final  rule,  the
Corporation  expects to be able to continue to include all of the $15.0  million
in trust preferred securities in Tier I Capital.

                                       8
<PAGE>


                FIRST CHESTER COUNTY CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

5.  SHARE-BASED COMPENSATION
    ------------------------

Prior to January 1, 2006, the Corporation's  stock option plan was accounted for
under the recognition  and measurement  provisions of APB Opinion No.25 (Opinion
25), Accounting for Stock Issued to Employees, and related  Interpretations,  as
permitted by FASB Statement No.123,  Accounting for Stock-Based Compensation (as
amended by SFAS No.148,

Accounting for Stock-Based Compensation Transition and Disclosure) (collectively
SFAS 123).  No  stock-based  employee  compensation  cost was  recognized in the
Corporation's  Consolidated  Statements of Income through  December 31, 2005, as
all options  granted  under the plan had an  exercise  price equal to the market
value of the underlying common stock on the date of grant.

Effective  January 1, 2006, the Corporation  adopted the fair value  recognition
provisions of FASB Statement No.123R  Share-Based  Payment ("SFAS 123R"),  using
the  modified-prospective-transition   method.  Under  that  transition  method,
compensation  cost  recognized in 2006  includes:  (a)compensation  cost for all
share-based payments granted prior to, but not yet vested as of January 1, 2006,
based on the grant date fair value  calculated in  accordance  with the original
provisions of SFAS 123, and  (b)compensation  cost for all stock-based  payments
granted  subsequent  to December  31,  2005,  based on the grant date fair value
estimated  in  accordance  with the  provisions  of SFAS 123R.  The  Corporation
currently  uses the  Black-Scholes  option  pricing  model to determine the fair
value of stock  options  and  other  share-based  compensation  and  anticipates
continuing to use the Black-Scholes model going forward. Management will utilize
the  methodologies  under SFAS 123R to value future  grants.  As of December 31,
2005,  all stock options were fully vested.  The  Corporation  did not grant any
stock options during the three and nine-months ended September 30, 2006.

The  Corporation's  earnings  before income taxes for the three and  nine-months
ended  September 30, 2006 were not affected by the adoption of SFAS 123R, as the
Corporation  did not have any unvested  options as of January 1, 2006, or at any
time through  September 30, 2006.  The  Corporation  did not have proforma stock
based  compensation  expense for the nine months ended  September 30, 2005 under
Opinion 25 as there were no unvested options during this period.

For periods prior to the adoption of SFAS 123R, the Corporation presents any tax
benefits of deductions resulting from the exercise of stock options as operating
cash flows in the  statement  of cash flows.  SFAS 123R  requires  that the cash
flows resulting from tax benefits resulting from tax deductions in excess of the
compensation  cost  recognized  for  those  options  (excess  tax  benefits)  be
classified  as financing  cash flows.  The excess tax benefits for the three and
nine-months ended September 30, 2006 was not material.

6.  RECENT   ACCOUNTING   PRONOUNCEMENTS
    ------------------------------------

In  September  2006,   Financial  Accounting  Standards  Board  ("FASB")  Issued
Statement  No.157 (SFAS 157), "Fair Value  Measurements"  which is effective for
fiscal years  beginning  after November 15, 2007 and for interim  periods within
those years.  This  statement  defines fair value,  establishes  a framework for
measuring  fair value and  expands  the  related  disclosure  requirements.  The
Corporation is currently evaluating the impact the adoption of SFAS No. 157 will
have on its consolidated financial statements.

In September  2006,  the FASB Issued  Statement  No.158 (SFAS 158),  "Employers"
Accounting  for  Defined  Benefit  Pension and Other  Postretirement  Plans - an
amendment of FASB Statements No. 87, 88, 106, and 132(R)".  SFAS 158 requires an
employer to recognize the overfunded or underfunded  status of a defined benefit
postretirement  plan (other than a multiemployer  plan) as an asset or liability
in its statement of financial  position and to recognize  changes in that funded
status in the year in which the changes occur through comprehensive income. This
Statement also improves financial  reporting by requiring an employer to measure
the  funded  status  of a plan  as of the  date  of its  year-end  statement  of
financial position,  with limited  exceptions.  An employer with publicly traded
equity  securities  is required to initially  recognize  the funded  status of a
defined benefit  postretirement plan and to provide the required  disclosures as
of the end of the fiscal  year  ending  after  December  15,  2006.  Because the
Corporation  does not have a defined  benefit plan, it does not believe that the
adoption of SAB 108 will have a material effect on the financial statements.

                                       9
<PAGE>


               FIRST CHESTER COUNTY CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

In  September  2006,  the SEC staff  issued  Staff  Accounting  Bulletin  No.108
"Considering   the  Effects  of  Prior  Year   Misstatements   when  Quantifying
Misstatements  in  Current  Year  Financial  Statements".  SAB 108 was issued to
provide  consistency  among  registrants  in  the  quantification  of  financial
statement   misstatements.   SAB  108  established  an  approach  that  requires
quantification of financial statement  misstatements based on the effects of the
misstatement  on each of the  company's  financial  statements  and the  related
disclosures.  SAB 108 allows  registrants to initially apply the approach either
by (1) retroactively adjusting prior financial statements as if the approach had
always been used or (2) recording the  cumulative  effect of initially  applying
the approach as adjustments to the carrying  values of assets and liabilities as
of January 1, 2006 with the related  offset  recorded to the opening  balance of
retained  earnings.  Use of the  "cumulative  effect"  transition  requires full
disclosure as to the nature and amount of each individual error being corrected.
The  Corporation is currently  evaluating the impact the adoption of SAB No. 108
will have on its consolidated  financial statements.  Because the Corporation is
not aware of any material misstatement, it does not believe that the adoption of
SAB 108 will have a material effect on the financial statements.


In June,  2006,  the FASB issued FASB  Interpretation  No. 48,  "Accounting  for
Uncertainty in Income Taxes - an  interpretation of FASB Statement No. 109 ("FIN
48"). FIN 48 clarifies the accounting for uncertainty in income taxes recognized
in an  enterprise's  financial  statements  in  accordance  with  SFAS No.  109,
"Accounting  for Income  Taxes." FIN 48 prescribes a  recognition  threshold and
measurement attribute for the financial statement recognition and measurement of
a tax  position  taken or  expected  to be taken  in a tax  return.  Fin 48 also
provides  guidance on  de-recognition,  classification,  interest and penalties,
accounting in interim periods,  disclosure, and transition. FIN 48 will apply to
fiscal years beginning after December 15, 2006, with earlier adoption permitted.
The  Corporation  is in process of assessing  the impact of the adoption of this
statement on the Corporation's financial results.

In March 2006, the FASB issued SFAS No. 156, "Amending Accounting for Separately
Recognized Servicing Assets and Servicing Liabilities" ("SFAS 156"), to simplify
accounting for separately recognized servicing assets and servicing liabilities.
SFAS No. 156 amends SFAS No. 140,  "Accounting  for  Transfers  and Servicing of
Financial Assets and  Extinguishments of Liabilities" ("SFAS 140"), and requires
an entity to 1) separately  recognize  financial  assets as servicing  assets or
servicing  liabilities,  each time it  undertakes  an  obligation  to  service a
financial  asset by entering  into  certain  kinds of  servicing  contracts,  2)
initially  measure all  separately  recognized  servicing  assets and  servicing
liabilities at fair value,  if practicable and 3) separately  present  servicing
assets and  servicing  liabilities  subsequently  measured  at fair value in the
statement of financial  position and additional  disclosures  for all separately
recognized servicing assets and servicing  liabilities.  Additionally,  SFAS 156
permits  an entity to choose  either the  amortization  method or the fair value
measurement method for measuring each class of separately  recognized  servicing
assets and  servicing  liabilities.  SFAS 156 also permits a servicer  that uses
derivative financial  instruments to offset risks on servicing to use fair value
measurement when reporting both the derivative  financial instrument and related
servicing  asset or  liability.  SFAS 156 applies to all  separately  recognized
servicing  assets and  liabilities  acquired or issued after the beginning of an
entity's  fiscal year that begins  after  September  15,  2006,  although  early
adoption is permitted. The Corporation is in the process of assessing the impact
of the adoption of this statement on the Corporation's financial results.

In February 2006, the FASB issued SFAS No. 155,  "Accounting  for Certain Hybrid
Financial  Instruments--an  amendment of FASB Statements No. 133 and 140" ("SFAS
155"), to simplify and make more consistent the accounting for certain financial
instruments.   SFAS  155  amends  SFAS  No.  133,   "Accounting  for  Derivative
Instruments  and  Hedging  Activities"  ("SFAS  133")  and  permits  fair  value
re-measurement for any hybrid financial  instrument with an embedded  derivative
that otherwise would require bifurcation,  provided that the whole instrument is
accounted for on a fair value basis. Prior to fair value measurement,  interests
in  securitized  financial  assets  must  be  evaluated  to  identify  interests
containing embedded derivatives  requiring  bifurcation.  The amendments to SFAS
133 also clarify which  interest-only and principal-only  strips are not subject
to the requirements of SFAS 133, and that  concentrations  of credit risk in the
form of subordination are not embedded derivatives.  SFAS 155 amends SFAS 140 to
allow  a  qualifying  special-purpose  entity  to  hold a  derivative  financial
instrument that pertains to a beneficial  interest other than another derivative
financial instrument.  SFAS 155 applies to all financial instruments acquired or
issued after the  beginning  of an entity's  first fiscal year that begins after
September 15, 2006, with earlier application  allowed.  SFAS 155 is not expected
to  have a  material  impact  on the  Corporation's  results  of  operations  or
financial condition.

                                       10
<PAGE>


                FIRST CHESTER COUNTY CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

In November  2005, the FASB issued FSP FAS Nos. 115-1 and FAS 124-1 "The Meaning
of Other-Than-Temporary  Impairment and Its Application to Certain Investments,"
to give  guidance on  determining  when  investments  in certain debt and equity
securities  are  considered  impaired,  whether  that  impairment  is other than
temporary,  and on measuring such impairment  loss.  This FSP nullifies  certain
requirements of EITF Issue 03-1, "The Meaning of Other-Than-Temporary Impairment
and Its Application to Certain  Investments" and supersedes EITF Topic No. D-44,
"Recognition  of  Other-Than-Temporary  Impairment  upon  the  Planned  ale of a
Security Whose Cost Exceeds Fair Value." This FSP nullifies the  requirements of
paragraphs 10-18 of Issue 03-1, carries forward the requirements of paragraphs 8
and 9 of Issue 03-1 with respect to cost-method investments, carries forward the
disclosure  requirements  included  in  paragraphs  21 and 22 of Issue  03-1 and
related examples, and references existing  "other-than-temporary"  guidance. The
guidance in this FSP will apply to reporting  periods  beginning  after December
15,  2005.  The  adoption  of this FSP did not  have a  material  impact  on the
Corporation's results of operations or financial condition.

In  November  2005,  the  FASB  issued  FSP  FIN  45-3,   "Application  of  FASB
Interpretation No. 45 to Minimum Revenue Guarantees Granted to a Business or Its
Owners." The guidance in this FSP amends FIN No. 45, "Guarantor's Accounting and
Disclosure  Requirements  for  Guarantees,   Including  Indirect  Guarantees  of
Indebtedness of Others" to explicitly  state that the  recognition,  measurement
and disclosure provisions of FIN No. 45 apply to a minimum revenue guarantee.  A
minimum  revenue  guarantee  is a guarantee  granted to a business or its owners
that the revenue of the business will be at least a specified minimum amount for
a specified  period of time.  FSP FIN 45-3 is effective for new minimum  revenue
guarantees  issued or modified  on or after the  beginning  of the first  fiscal
quarter following  November 10, 2005 (the date posted to the FASB website).  The
disclosure  requirements are to be applied to all minimum revenue  guarantees in
financial  statements of interim or annual periods ending after the beginning of
the  first  fiscal  quarter  following  November  10,  2005,   although  earlier
application  is  permitted.  FSP FIN 45-3 did not have a material  impact on the
Corporation's financial position or results of operations.

In May  2005,  the FASB  issued  SFAS No.  154,  "Accounting  Changes  and Error
Corrections"  ("SFAS  154").  SFAS 154 replaces APB Opinion No. 20,  "Accounting
Changes"  and SFAS No. 3,  "Reporting  Accounting  Changes in Interim  Financial
Statements."  SFAS 154  requires  retrospective  application  to prior  periods'
financial statements of every voluntary change in accounting principle unless it
is  impracticable.  APB Opinion No. 20 previously  required that most  voluntary
changes in accounting  principle be recognized by including in net income of the
period of the change the  cumulative  effect of changing  to the new  accounting
principle.  SFAS 154 also requires that a change in depreciation,  amortization,
or depletion  method for  long-lived  nonfinancial  assets be accounted for as a
change in accounting estimate effected by a change in accounting principle. SFAS
154  carries  forward  without  change the  guidance  in APB  Opinion No. 20 for
reporting the correction of an error in previously  issued financial  statements
or a change in an accounting  estimate.  SFAS 154 carries forward the provisions
of SFAS No. 3 that  govern  reporting  accounting  changes in interim  financial
statements.  SFAS 154 is effective for  accounting  changes and  corrections  of
errors made in fiscal years beginning after December 15, 2005,  although earlier
application  is permitted for changes and  corrections  of errors made in fiscal
years  beginning  after  June 1,  2005.  SFAS 154 did not have any impact on the
Corporation's financial position or results of operations.

7.  RECLASSIFICATIONS
    -----------------

Certain  2005  numbers  have  been   reclassified   to  conform  with  the  2006
presentation.  These  reclassifications have no impact on net income or earnings
per share.

                                       11
<PAGE>


                FIRST CHESTER COUNTY CORPORATION AND SUBSIDIARIES

ITEM 2. MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

This discussion is intended to further your  understanding  of the  consolidated
financial   condition  and  results  of  operations  of  First  Chester   County
Corporation  and  its  direct  and  indirect  wholly-owned  subsidiaries,  First
National Bank of Chester  County (the  "Bank"),  FNB Property  Management,  LLC,
First National Insurance Services, LLC, Turks Head Properties,  Inc., Turks Head
II, LLC,  First Chester County Capital Trust I, and First Chester County Capital
Trust II,  (collectively,  the "Corporation").  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.
Although the Corporation  believes that its expectations are based on reasonable
assumptions,  investors  and  prospective  investors  are  cautioned  that  such
statements are only projections,  and that these risks and uncertainties are all
difficult  to  predict  and most are beyond  the  control  of the  Corporation's
Management.  Information  about the primary risks and  uncertainties  that could
cause the  Corporation's  actual future  results to differ  materially  from our
historic results or the results described in forward-looking  statements made in
this report or presented  elsewhere by Management from time to time are included
in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December
31, 2005.  Material changes to such "risk factors" may be reported in subsequent
Quarterly  Reports  on Form 10-Q in Part II,  Item 1A.  There  have been no such
changes from the risk factors set forth in our Annual Report.

The  Corporation  undertakes no obligation to publicly  release any revisions to
any forward-looking statements to reflect events or circumstances after the date
of this Report.

              CRITICAL ACCOUNTING POLICIES, JUDGMENTS AND ESTIMATES

The  accounting  and  reporting  policies of the  Corporation  conform  with the
accounting  principles  generally  accepted in the United  States of America and
general practices within the financial services industry. The preparation of the
financial statements in conformity with accounting principles generally accepted
in the United  States of  America  requires  management  to make  estimates  and
assumptions that affect the amounts reported in the financial statements and the
accompanying notes. Actual results could differ from those estimates.

                       ALLOWANCE FOR LOAN AND LEASE LOSSES

The Corporation  considers that the  determination of the allowance for loan and
lease losses  involves a higher degree of judgment and complexity than its other
significant accounting policies. The balance in the allowance for loan losses is
determined  based on  Management's  review and  evaluation of the loan and lease
portfolio in relation to past loss  experience,  the size and composition of the
portfolio,  current economic events and conditions, and other pertinent factors,
including  Management's  assumptions as to future delinquencies,  recoveries and
losses.  All of these factors may be susceptible to significant  change.  To the
extent actual outcomes differ from Management's estimates, additional provisions
for loan and lease losses may be required that would  adversely  impact earnings
in future periods.

                                       12
<PAGE>


                FIRST CHESTER COUNTY CORPORATION AND SUBSIDIARIES

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

                                  INCOME TAXES

Under the liability  method,  deferred tax assets and liabilities are determined
based on the difference between the financial  statement and tax bases of assets
and liabilities.  Deferred tax assets are subject to Managements  judgment based
upon  available  evidence  that future  realization  is more likely than not. If
Management  determines that the Corporation may be unable to realize all or part
of the net  deferred  tax assets in the  future,  a direct  charge to income tax
expense may be required to reduce the  recorded  value of the net  deferred  tax
asset to the expected realizable amount.

                          EARNINGS AND DIVIDEND SUMMARY

Net income for the three months ended  September 30, 2006 was $1.86 million,  an
increase  of $13  thousand  or 0.71% from $1.84  million  for the same period in
2005.  Net income for the  nine-month  period ended  September 30, 2006 was $5.8
million,  an  increase  of $1.9  million or 47% from $3.9  million  for the same
period in 2005.  Basic earnings per share were $0.36 and $1.12 for the three and
nine-month periods ended September 30, 2006, respectively, compared to $0.36 and
$0.77 for the same periods in 2005.  Cash  dividends  declared for the three and
nine-month  periods of 2006 were $0.135 and $0.405 per share  compared to $0.130
and $0.4025 per share for the three and nine-month  periods ended  September 30,
2005.

The increase in net income for the  three-month  period ended September 30, 2006
was primarily the result of an increase in net interest income and a decrease in
the provision for loan and lease losses,  offset by an increase in  non-interest
expense and an increase in income tax  expense.  Net interest  income  benefited
from  increases in the volume of  outstanding  loans and leases and the interest
rates earned on the Corporation's loan and lease portfolio. These increases were
partially  offset by  increases  in the volume of  outstanding  interest-bearing
liabilities and the interest rates paid on these  interest-bearing  liabilities.
The increase in  non-interest  expense was primarily due to higher  salaries and
employee  benefits  expense  due  to the  adoption  of a new  performance  based
incentive program in 2006.

The  increase in net income for the  nine-months  ended  September  30, 2006 was
primarily the result of an increase in net interest income and a decrease in the
provision for loan and lease losses,  combined with an increase in  non-interest
income and a decrease in non-interest  expense.  Net interest  income  benefited
from  increases in the volume of  outstanding  loans and leases and the interest
rates earned on the Corporation's loan and lease portfolio. These increases were
partially  offset by  increases  in the volume of  outstanding  interest-bearing
liabilities and the interest rates paid on these  interest-bearing  liabilities.
The increase in  non-interest  income was  primarily due to an increase in trust
investment  services  revenue,  while the decrease in non-interest  expenses was
primarily  related to  decreases  in  professional  service  expenses  and other
expenses.

                                       13
<PAGE>


               FIRST CHESTER COUNTY CORPORATION AND SUBSIDIARIES

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


                                 SELECTED RATIOS

                          Three Months Ended     Nine Months Ended
                             September 30,         September 30,
                          ------------------     -----------------
                            2006        2005        2006      2005
                          ------------------     -----------------
SELECTED RATIOS
---------------
Return on Average Assets    0.85%      0.87%       0.90%     0.64%
Return on Average Equity   11.88%     12.96%      12.63%     9.32%
Earnings Retained          62.28%     64.08%      63.91%    49.83%
Dividend Payout Ratio      37.72%     35.92%      36.09%    50.17%
Book Value Per Share      $12.27     $11.10      $12.27    $11.10

                               NET INTEREST INCOME

Net  interest  income  is the  difference  between  interest  income  earned  on
interest-earning   assets  and  interest   expense   paid  on   interest-bearing
liabilities.  Net interest income on a tax equivalent  basis for the three-month
period ended September 30, 2006 was $8.2 million,  an increase of 2.6% from $7.9
million for the same period in 2005.  Net  interest  income on a tax  equivalent
basis for the nine-month  period ended September 30, 2006 was $24.7 million,  an
increase of 5.2% from $23.5 million for the same period in 2005. The increase in
tax  equivalent  net  interest  income can be  attributed  to an increase in the
average  balance of  interest-earning  assets  and an  increase  in the  average
interest  rates  earned on interest  earning  assets  when  compared to the same
period last year.  These  increases were partially  offset by an increase in the
yields  paid on  interest-bearing  liabilities  and an  increase  in the average
balance of such liabilities outstanding.

The net yield on  interest-earning  assets,  on a tax  equivalent  basis for the
three-months  ended September 30, 2006 was 3.92%, a decrease of 1.26% or 5 basis
points (one basis  point is equal to 1/100 of a percent)  from 3.97% in the same
period in 2005.  For the  nine-month  period ended  September 30, 2006,  the net
yield on  interest  earning  assets  was 4.04%,  a decrease  of 0.49% or 2 basis
points (one basis  point is equal to 1/100 of a percent)  from 4.06% in the same
period in 2005.

The average yield on  interest-earning  assets for the three-month  period ended
September 30, 2006 was 6.53%, an increase of 11.8% or 69 basis points from 5.84%
in the same period in 2005. For the nine-month  period ended September 30, 2006,
the average yield on interest-earning  assets was 6.41%, an increase of 12.7% or
72 basis points from 5.69% for the same period in 2005.  The average  yield paid
on  interest-bearing  liabilities for the three-month period ended September 30,
2006 was 3.18%,  an increase of 39.5% or 90 basis points from 2.28% for the same
period in 2005.  For the  nine-month  period ended  September 30, 2006,  average
yield paid on interest-bearing liabilities was 2.91%, an increase of 45.6% or 91
basis points from 2.00% for the same period in 2005.

                                       14
<PAGE>

               FIRST CHESTER COUNTY CORPORATION AND SUBSIDIARIES

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

A flattened yield curve and pricing  competition may continue to put pressure on
our net interest  margin and may adversely  impact net interest income in future
time periods.  Additionally,  pressure to raise deposits to fund loan growth has
caused the  Corporation  to acquire  other  sources of funds,  such as  brokered
deposits,  and to  introduce  products  to retain  deposits  that were  formerly
"swept" off the balance sheet.  Deposits obtained in this manner are higher cost
funds and contribute to the increased yield paid on interest-bearing liabilities
and reduce net interest income.

Average interest-earning assets increased approximately $29.6 million or 3.7% to
$825.7 million for the three-months ended September 30, 2006 from $796.1 million
in the same period last year.  For the nine-  months ended  September  30, 2006,
average interest-earning assets increased approximately $42.7 million or 5.5% to
$816.4  million from $773.7  million in the same period in 2005. The increase in
average  interest-earning  assets for the three-month period ended September 30,
2006 was the result of a 3.3% or $21.7  million  increase in average total loans
combined with a 50.6% or $16.2 million  increase in average  Federal Funds sold,
partially  offset  by a 7.6% or $7.9  million  decrease  in  average  investment
securities. For the nine-month period ended September 30, 2006, the increase was
the result of a 5.3% or $34.0 million increase in average total loans,  combined
with a 178% or $26.0 million  increase in average federal funds sold,  partially
offset by an 15.0% or $16.9 million decrease in average investment securities.

Average  interest-bearing  liabilities increased  approximately $22.1 million or
3.4% to $676.1  million for the  three-months  ended  September  30, 2006,  from
$654.0 million in the same period in 2005. For the  nine-month  ended  September
30, 2006, average  interest-bearing  liabilities increased $31.9 million or 5.1%
to $662.8  million from $630.9  million in the same period in 2005. The increase
in  average  interest-bearing  liabilities  for the  three-month  period was the
result  of a  $28.2  million  or 4.9%  increase  in  interest-bearing  deposits,
partially  off-set by a $6.2 million or 9.1% decrease in FHLB advances and other
borrowings.  The  increase  in  average  interest-bearing  liabilities  for  the
nine-month  period  was the  result  of a $36.4  million  or  6.7%  increase  in
interest-bearing  deposits,  partially offset by a $4.4 million or 6.4% decrease
in FHLB advances and other borrowings.

                                       15
<PAGE>

                FIRST CHESTER COUNTY CORPORATION AND SUBSIDIARIES

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

                       CONSOLIDATED AVERAGE BALANCE SHEET
             AND TAXABLE EQUIVALENT INCOME/EXPENSE AND RATES FOR THE
                      THREE MONTHS ENDED SEPTEMBER 30, 2006
<TABLE>
<CAPTION>

(Dollars in thousands)                                      2006                                2005
                                              -------------------------------     -------------------------------
                                               Daily                               Daily
                                               Average                             Average
  ASSETS                                       Balance    Interest    Rate(3)      Balance    Interest    Rate(3)
                                              ---------   ---------   -------     ---------   ---------   -------
  <S>                                         <C>         <C>           <C>       <C>         <C>           <C>
  Federal funds sold                          $  48,119   $     646     5.33%     $  31,948   $     272     3.38%
  Interest-bearing deposits in banks                221           3     5.39%           559           1     0.71%
  Investment securities:
       Taxable                                   81,443         980     4.77%        88,810         956     4.27%
       Tax-exempt(1)                             14,680         147     3.96%        15,247         154     4.00%
                                              ---------   ---------     -----     ---------   ---------     -----

       Total investment securities               96,123       1,127     4.65%       104,057       1,110     4.23%
                                              ---------   ---------     -----     ---------   ---------     -----

  Loans and leases: (2)
       Taxable                                  667,076      11,587     6.89%       644,016      10,095     6.22%
       Tax-exempt(1)                             14,114         224     6.30%        15,474         238     6.11%
                                              ---------   ---------     -----     ---------     -------     -----

       Total loans and leases                   681,190      11,811     6.88%       659,490      10,333     6.22%
                                              ---------   ---------     -----     ---------     -------     -----

  Total interest-earning assets                 825,653      13,587     6.53%       796,054      11,716     5.84%
  Non-interest earning assets:
       Allowance for possible loan
       and lease losses                          (8,249)                             (8,174)
       Cash and due from banks                   26,794                              31,526
       Other assets                              24,111                              23,190
                                              ---------                             -------

  Total assets                                $ 868,309                           $ 842,596
                                              =========                           =========

 LIABILITIES AND STOCKHOLDERS' EQUITY

 Savings, NOWS & money market deposits        $ 371,275   $   2,016     2.15%     $ 371,405   $   1,179     1.26%
 Certificates of deposits and other time        227,751       2,452     4.27%       199,375       1,674     3.33%
                                              ---------   ---------     -----       -------   ---------     -----

 Total interest bearing deposits                599,026       4,468     2.96%       570,780       2,853     1.98%
 Junior subordinated debentures                  15,465         343     8.80%        15,465         264     6.77%
 Federal Home Loan Bank advances and
  other borrowings                               61,610         611     3.93%        67,804         639     3.74%
                                              ---------   ---------     -----     ---------    --------     -----

 Total interest bearing liabilities             676,101       5,422     3.18%       654,049       3,756     2.28%
                                              ---------   ---------     -----     ---------    --------     -----

 Non-interest bearing liabilities:
       Non-interest bearing demand deposits     123,155                             125,717
       Other liabilities                          6,580                               5,953
                                              ---------                           ---------

 Total liabilities                              805,836                             785,719
 Stockholders' equity                            62,473                              56,877
                                              ---------                           ---------

 Total liabilities and stockholders' equity   $ 868,309                           $ 842,596
                                              =========                           =========

 Net interest income                                      $   8,165                           $   7,960
                                                          =========                           =========

 Net yield on interest earning assets                                   3.92%                               3.97%
                                                                        =====                               =====
</TABLE>
     (1)  The  indicated  income  and  annual  rate are  presented  on a taxable
          equivalent  basis using the federal  marginal rate of 34% adjusted for
          the TEFRA 20% interest expense disallowance for 2006 and 2005.
     (2)  Non-accruing loans are included in the average balance.
     (3)  2006  rates are  calculated  using an  actual  over  actual  day count
          convention. 2005 rates shown above are also calculated using an actual
          over  actual day count  convention  to  conform  with  current  period
          presentation.

                                       16
<PAGE>


                FIRST CHESTER COUNTY CORPORATION AND SUBSIDIARIES

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

                       CONSOLIDATED AVERAGE BALANCE SHEET
             AND TAXABLE EQUIVALENT INCOME/EXPENSE AND RATES FOR THE
                      NINE MONTHS ENDED SEPTEMBER 30, 2006
<TABLE>
<CAPTION>

(Dollars in thousands)                                      2006                                2005
                                              --------------------------------     -------------------------------
                                               Daily                               Daily
                                               Average                             Average
  ASSETS                                       Balance    Interest    Rate(3)      Balance    Interest    Rate(3)
                                              ---------   ---------   -------     ---------   ---------    -------
 <S>                                          <C>         <C>           <C>       <C>         <C>           <C>
 Federal funds sold                           $  40,509   $   1,514     5.00%     $  14,554   $     346     3.18%
 Interest-bearing deposits in banks                 277          11     5.31%           641           4     0.83%
 Investment securities:
      Taxable                                    80,634       2,931     4.86%        93,058       2,927     4.21%
      Tax-exempt(1)                              14,679         443     4.03%        19,128         603     4.21%
                                              ---------   ---------     -----     ---------   ---------     -----

 Total investment securities                     95,313       3,374     4.73%       112,186       3,530     4.21%
                                              ---------   ---------     -----     ---------   ---------     -----

 Loans and leases: (2)
      Taxable                                   665,827      33,566     6.74%       632,181      28,377     6.00%
      Tax-exempt(1)                              14,475         679     6.28%        14,129         642     6.08%
                                              ---------   ----------    -----     ---------   ---------     -----
      Total loans and leases                    680,302      34,245     6.73%       646,310      29,019     6.00%
                                              ---------   ----------    -----     ---------   ---------     -----
 Total interest-earning assets                  816,401      39,144     6.41%       773,691      32,899     5.69%
 Non-interest earning assets:
      Allowance for possible loan
           and lease losses                      (8,460)                             (7,731)
      Cash and due from banks                    24,657                              26,635
      Other assets                               23,841                              23,168
                                              ---------                           ---------

 Total assets                                 $ 856,439                           $ 815,763
                                              =========                           =========

 LIABILITIES AND STOCKHOLDERS' EQUITY

 Savings, NOWS & money market deposits        $ 372,170   $   5,316     1.91%     $ 392,135   $   3,356     1.14%
 Certificates of deposits and other time        209,882       6,286     4.00%       153,531       3,465     3.02%
                                              ---------   ---------     -----     ---------   ---------     -----

 Total interest bearing deposits                582,052      11,602     2.67%       545,666       6,821     1.67%
 Junior subordinated debentures                  15,465         960     8.30%        15,465         728     6.29%
 Federal Home Loan Bank advances and
  other borrowings                               65,275       1,885     3.86%        69,724       1,873     3.59%
                                              ---------   ---------     -----     ---------   ---------     -----

 Total interest bearing liabilities             662,792      14,447     2.91%       630,855       9,422     2.00%
                                              ---------   ---------     -----     ---------   ---------     -----

 Non-interest bearing liabilities:
       Non-interest bearing demand deposits     127,048                             123,430
       Other liabilities                          5,540                               5,199
                                              ---------                           ---------

 Total liabilities                              795,380                             759,484
  Stockholders' equity                           61,059                              56,279
                                              ---------                           ---------

 Total liabilities and stockholders' equity   $ 856,439                           $ 815,763
                                              =========                           =========

 Net interest income                                      $  24,697                           $  23,477
                                                          =========                           =========

 Net yield on interest earning assets                                   4.04%                               4.06%
                                                                        ====                                ====
</TABLE>
     (1)  The  indicated  income  and  annual  rate are  presented  on a taxable
          equivalent  basis using the federal  marginal rate of 34% adjusted for
          the TEFRA 20% interest expense disallowance for 2006 and 2005.
     (2)  Non-accruing loans are included in the average balance.
     (3)  2006  rates are  calculated  using an  actual  over  actual  day count
          convention. 2005 rates shown above are also calculated using an actual
          over  actual day count  convention  to  conform  with  current  period
          presentation.

                                       17
<PAGE>

                FIRST CHESTER COUNTY CORPORATION AND SUBSIDIARIES

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

            INTEREST INCOME ON FEDERAL FUNDS SOLD AND OTHER OVERNIGHT
                                   INVESTMENTS

Interest  income on Federal Funds sold and other  overnight  investments for the
three and nine-month  periods ended September 30, 2006,  increased $374 thousand
and $1.2 million to $646 thousand and $1.5 million, respectively,  when compared
to the same periods in 2005.  The increase in interest  income on Federal  Funds
sold and other overnight  investments  for the three-month  period is the direct
result of a 50.6% or $16.2  million  increase in average  Federal Funds sold and
other overnight investments and a 57.7% or 195 basis point increase on the rates
earned.  The increase for the  nine-month  period is the direct result of a 178%
increase  or $26.0  million  increase  in average  Funds sold and a 57.3% or 182
basis point increase in the rates earned.

                    INTEREST INCOME ON INVESTMENT SECURITIES


On a tax equivalent basis,  interest income on investment  securities  increased
1.5% or $17 thousand to $1.1 million for the three-month  period ended September
30, 2006 when  compared to the same period in 2005.  For the  nine-month  period
ended  September 30, 2006,  interest income on investment  securities  decreased
4.4% or $156  thousand to $3.4 million  from $3.5  million when  compared to the
same period in 2005. The increase for the three-month period is primarily due to
an 9.9% or 42 basis point increase in the rate earned on investment  securities,
partially  offset by a 7.6% or $7.9 million  decrease in the average  balance of
these  investments.  The decrease for the  nine-month  period is the result of a
15.0% or $16.9 million decrease in the average balance of investment securities,
partially offset by 12.4% or 52 basis point increase in the rate earned on these
investments.


                       INTEREST INCOME ON LOANS AND LEASES

Interest income on loans and leases, on a tax equivalent basis, generated by the
Corporation's  loan  portfolio  increased  14.3% and 18.0% to $11.8  million and
$34.2 million for the three and  nine-month  periods  ended  September 30, 2006,
compared to the same  periods in 2005,  respectively.  The  increase in interest
income for these  periods is the  direct  result of a $21.7  million or 3.3% and
$34.0  million  or 5.3%  increase  in the  average  balance  of loans and leases
outstanding  compared to the same period in 2005. In addition,  average interest
rates earned on the portfolio  increased 10.6% or 66 basis point and 12.2% or 73
basis point for the three and nine-month  periods September 30, 2006 as compared
to the same periods in 2005.


                      INTEREST EXPENSE ON DEPOSIT ACCOUNTS

Interest expense on deposit accounts increased 56.6% and 70.1% for the three and
nine-month  periods ended  September 30, 2006 to $4.5 million and $11.6 million,
compared to $2.9  million and $6.8  million for the same  periods in 2005.  This
increase  was due in part  to an  increase  in  average  total  interest-bearing
deposits  of $28.2  million or 4.9% and $36.4  million or 6.7% for the three and
nine-month  periods ended September 30, 2006. In addition,  the average interest
rates paid on these deposits  increased by 49.4% or 98 basis points and 59.8% or
100 basis  points for the three and  nine-month  periods  September  30, 2006 as
compared to the same periods in 2005.

                                       18
<PAGE>


                FIRST CHESTER COUNTY CORPORATION AND SUBSIDIARIES

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

Interest rate  increases  have put pressure on the pricing of the  Corporation's
deposit base and on the cost of raising new deposits.  Competition  for deposits
from other banks and non-banking  institutions  such as credit unions and mutual
fund companies  continues to be strong. As the Corporation  competes for deposit
dollars to fund its growth,  this component of net interest income will continue
to rise.  Additionally,  alternative  funding  sources  continue to be explored.
There can be no  assurance  that such  alternative  sources  will be acquired on
terms and conditions that are satisfactory to the Corporation.

          INTEREST EXPENSE ON FEDERAL HOME LOAN BANK ADVANCES AND OTHER
                                   BORROWINGS

Interest  expense  on  Federal  Home Loan  Bank  ("FHLB")  and other  borrowings
decreased by $28 thousand or 4.4% to $611  thousand for the  three-month  period
ended  September 30, 2006 from $639  thousand for the same period in 2005.  This
decrease for the three-month period ended September 30, 2006 is primarily due to
a decrease  of 9.1% or $6.2  million in the average  balances  of these  funding
sources,  partially  offset by an  increase of 19 basis  points or 5.1%,  in the
average  interest rate paid on these  borrowings.  Interest  expense on FHLB and
other  borrowings  increased  by $12  thousand  or 0.6% to $1.9  million for the
nine-month period ended September 30, 2006 from $1.9 million for the same period
in 2005. This increase for the nine-month period ended September 30, 2006 is due
to a 27 basis  points,  or 7.5%  increase in the average  interest  rate paid on
these  borrowing,  partially offset by a decrease of 6.4% or $4.5 million in the
average  balances  of  these  funding  sources.   FHLB  borrowing  has  been  an
alternative to deposits to support loan growth.

                   INTEREST EXPENSE ON SUBORDINATED DEBENTURES

Interest  expense on  subordinated  debentures  increased  $79  thousand to $343
thousand for the three-month  period ended September 30, 2006 from $264 thousand
for the same  period  in  2005.  Interest  expense  on  subordinated  debentures
increased  $232  thousand  to $960  thousand  for the  nine-month  period  ended
September  30, 2006 from $728 thousand when compared to the same period in 2005.
The increase for the three and nine-month periods ended September 30, 2006 was a
direct  result  of an  increase  in the  average  interest  rate  paid on  these
debentures. Average balances between the two periods remained unchanged at $15.5
million.

                       PROVISION FOR LOAN AND LEASE LOSSES

During  the  three  and  nine-month   periods  ended  September  30,  2006,  the
Corporation  recorded a $0 and a $3 thousand provision for loan and lease losses
compared  to $311  thousand  and a $1.3  million  for the same  periods in 2005.
Management  continues to focus on asset  quality.  The percentage of non-accrual
loans to gross  loans was 1.26% at  September  30, 2006 as compared to 1.23% and
1.26% at September 30, 2005 and December 31, 2005,  respectively.  The allowance
for loan  losses  as a  percentage  of loans at  September  30,  2006 was  1.20%
compared  to 1.22%  and 1.22% at  September  30,  2005 and  December  31,  2005,
respectively.  Net charge-offs as a percentage of loans outstanding was .01% and
-.03% for the three and  nine-months  ended  September  30,  2006 as compared to
-.03% and .01% for the same periods in 2005. Negative net charge-offs  indicates
that recoveries for the period were greater than charge-offs for the period.

                                       19
<PAGE>

                FIRST CHESTER COUNTY CORPORATION AND SUBSIDIARIES

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

                       ALLOWANCE FOR LOAN AND LEASE LOSSES

The  allowance for loan and lease 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  evaluation of the
collectability of loans.  These evaluations take into consideration such factors
as changes in the nature  and volume of the loan  portfolio,  overall  portfolio
quality,  adequacy of collateral,  review of specific problem loans, and current
economic conditions that may affect our borrowers ability to pay.

At June 30, 2006 the Corporation reclassified $523 thousand of the allowance for
loan and lease  losses as other  liabilities  on the  consolidated  statement of
condition.  This amount  represents an allowance for possible losses on unfunded
loans and unused  lines of  credit.  These  loans and lines of credit,  although
unfunded,  have been  committed to by the Bank. At September 30, 2006, the total
amount recorded in other liabilities on the consolidated  statement of condition
as an  allowance  for possible  losses on unfunded  loans and lines of credit is
$553  thousand.  The allowance for loan and lease losses as of December 31, 2005
and  September  30,  2005  were  also  reclassified  to  conform  with  the 2006
presentation.  The amounts  reclassified  as allowance  for  possible  losses on
unfunded  loans and lines of credit  were $426  thousand  and $409  thousand  at
December 31, 2005 and September 30, 2005, respectively.

<TABLE>
<CAPTION>

                                                      Three Months               Nine Months
                                                         Ended                      Ended
                                                      September 30,             September 30,
                                                ---------------------     ----------------------
(Dollars in thousands)                             2006          2005         2006          2005
                                                   ----          ----         ----          ----
<S>                                             <C>          <C>          <C>          <C>
Balance at beginning of period                  $  8,251     $  8,004     $  8,549     $  7,213
                                                ---------     -------     ---------    ---------

Provision charged to operating expense                --          311            3        1,322
Allowance adjustments-other                          (30)        (409)        (553)        (409)
                                                ---------    ---------    ---------    ---------

    Recoveries of loans previously charged-off        24          225          316          396
    Loans charged-off                                (71)         (52)        (141)        (443)
                                                ---------    ---------    ---------    ---------

Net recoveries (loans charged-off)                   (47)         173          175          (47)
                                                ---------   ---------     ---------    ---------

Balance at end of period                        $  8,174     $  8,079     $  8,174     $  8,079
                                                =========    ========     =========    =========
Period-end loans outstanding                    $679,399     $664,731     $679,399     $664,731
Average loans outstanding                       $681,190     $651,358     $680,302     $646,310
Allowance for loan and lease losses as a
  percentage of period-end loans outstanding       1.20%        1.22%         1.20%       1.22%

Net charge-offs (recoveries) to average loans
    outstanding                                    0.01%       (0.03%)      (0.03%)       0.01%
</TABLE>

                                       20
<PAGE>

                FIRST CHESTER COUNTY CORPORATION AND SUBSIDIARIES

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

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

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 current assessments of the
value of  collateral  securing such loans and leases.  Non-performing  loans are
primarily collateralized by real estate and are in the process of collection. As
of September 30, 2006,  the level of  non-performing  assets has increased  $374
thousand from  September 30, 2005,  and  non-performing  assets  increased  $220
thousand from December 31, 2005. Management is not aware of any loans other than
those included in the following table that would be considered potential problem
loans and cause Management to have doubts as to the borrower's ability to comply
with  loan  repayment  terms.   Non-performing   loans  and  leases  reduce  the
Corporation's  earnings  because  interest  income is not earned on such assets.
Management  continues to focus on controlling  current and future credit quality
issues.   The  following  chart  represents   detailed   information   regarding
non-performing loans and leases:


<TABLE>
<CAPTION>

                         NON-PERFORMING LOANS AND ASSETS

    (Dollars in thousands)                                 September 30,   December 31,
                                                           -------------   ------------
                                                          2006      2005      2005
                                                         ------    ------    ------
    <S>                                                  <C>       <C>       <C>
    Past due over 90 days and still accruing             $   19    $   --    $   --

    Non-accrual loans and leases                          8,559     8,204     8,358
                                                         ------    ------    ------

    Total non-performing loans and leases                 8,578     8,204     8,358

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

    Total non-performing assets                          $8,578    $8,204    $8,358
                                                         ======    ======    ======

 Non-performing loans and leases as a percentage
 of total loans and leases                                1.26%     1.23%     1.26%

Allowance for loan and lease losses as a percentage
of non-performing loans and leases                       95.29%    98.48%    97.19%

Non-performing assets as a percentage of
total loans and other real estate owned                   1.26%     1.23%     1.26%

Allowance for loan and lease losses as a
percentage of non-performing assets                      95.29%    98.48%    97.19%
</TABLE>

The Corporation held no other real estate owned ("OREO") at this time.

                                       21
<PAGE>


                FIRST CHESTER COUNTY CORPORATION AND SUBSIDIARIES

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

                                 LOAN IMPAIRMENT

The Corporation  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.

FASB 114  "Accounting  by  Creditors  for  Impairment  of  Loans"  requires  the
Corporation  to  examine  commercial  and  non-residential   mortgage  loans  on
non-accrual  status  for  impairment.  The  balance of  impaired  loans was $8.6
million, $8.4 million, and $8.2 million at September 30, 2006, December 31, 2005
and  September 30, 2005,  respectively.  The  associated  allowance for impaired
loans was $877 thousand, $897 thousand, and $738 thousand at September 30, 2006,
December 31, 2005, and September 30, 2005, respectively.

For the three and nine-month  periods ended September 30, 2006,  activity in the
allowance  for impaired  loan losses  includes a provision of $0 and $0 thousand
and  charge-offs  of $1 thousand and $0 thousand.  There were no  recoveries  in
either the three or  nine-month  periods ended  September 30, 2006.  Contractual
interest amounted to $182 thousand for the three-months ended September 30, 2006
and $497  thousand for the  nine-months  ended  September  30, 2006.  Total cash
collected  on  non-accrual  loans  for the three and  nine-month  periods  ended
September  30, 2006 was $879  thousand and $2.0  million,  respectively,  all of
which was applied to  principal.  Loans  returned to  performing  for the three-
month and  nine-month  period ended  September 30, 2006 was $0 thousand and $222
thousand.

                               NON-INTEREST INCOME

Total  non-interest  income  increased 1.93% or $44 thousand to $2.3 million for
the three months ended  September 30, 2006,  when compared to the same period in
2005. For the nine-month  period ended  September 30, 2006,  total  non-interest
income increased 2.2% or $149 thousand to $6.9 million when compared to the same
period in 2005.  The various  components  of  non-interest  income are discussed
below.

The largest  component of non-interest  income is Trust and Investment  Services
revenue, which decreased $8 thousand or .9% to $836 thousand for the three-month
period and increased  $117  thousand or 4.8% to $2.5 million for the  nine-month
period ended September 30, 2006, respectively, compared with the same periods in
2005. The increase in trust and investment  services revenue for the nine months
ended is primarily the result of higher fees charged for certain trust services,
higher estate fee income and the addition of several higher yielding accounts.

Service  charges on deposit  accounts  increased  $47  thousand  or 9.7% to $530
thousand for the  three-month  period ended  September 30, 2006 compared to $483
thousand for the same period in 2005. For the nine-month  period ended September
30, 2006,  service charges on deposit accounts increased $55 thousand or 3.8% to
1.5 million for the nine month period ended  September 30, 2006 compared to $1.4
million for the same period in 2005. The increase in service charges is a result
of an increased  amount of  overdraft  charges on retail and  commercial  demand
deposit accounts partially offset by a decrease in the service charges for these
accounts.

                                       22
<PAGE>

                FIRST CHESTER COUNTY CORPORATION AND SUBSIDIARIES

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

The  corporation  recognized a net loss of $80  thousand on sales of  investment
securities during the nine-month period ended September 30, 2006 compared with a
net gain of $58 thousand  during the same period in 2005.  The losses were taken
as a result of normal portfolio management.

The  Corporation  has operating lease  agreements  with several  customers.  The
income on these  leases is  classified  as  "Rental  Income".  Rental  Income on
operating lease agreements for the three and nine-month  periods ended September
30, 2006  increased  $35 thousand or 13.6% and $109  thousand or 15.0%,  to $292
thousand and $838 thousand from $257 thousand and $729  thousand,  respectively,
when compared to the same periods in 2005.

Gains on the sale of fixed  assets  and OREO  were $0 and $19  thousand  for the
three and  nine-months  ended September 30, 2006 as compared to losses of $0 and
$7  thousand  for  the  same  periods  in  2005.  The  Corporation  held no OREO
properties at September 30, 2006.

Gains and fee income  generated  on the sale of  residential  mortgages  for the
three and nine-month periods ended September 30, 2006 decreased $23 thousand and
$51  thousand  from $118  thousand  and $312  thousand to $95  thousand and $261
thousand  compared to the same periods in 2005. The decrease is primarily due to
a lower volume of  originations  and sales of residential  mortgages  during the
three-months ended September 30, 2006 as compared to the same period in 2005.

Other  non-interest  income  decreased  1.5% or $9 thousand for the  three-month
period ended  September 30, 2006. For the nine-month  period ended September 30,
2006, other non-interest  income increased 1.8% or $31 thousand when compared to
the same  period in 2005.  Other  non-interest  income  includes  ATM  surcharge
revenue,  STAR/Visa  Check Card  revenue,  safe  deposit  box  income,  merchant
services income, loan fee income,  miscellaneous loan income,  rental income and
other miscellaneous income.

                              NON-INTEREST EXPENSE

Total  non-interest  expense increased $289 thousand or 3.9% to $7.7 million and
decreased  $92  thousand or 0.4% to $23.2  million for the three and  nine-month
periods  ended  September  30, 2006,  compared to the same periods in 2005.  The
various components of non-interest expense are discussed below.

Salaries and employee benefits  increased 14.1% or $528 thousand to $4.3 million
and 7.3% or $873 thousand to $12.8 million for the  three-month  and  nine-month
periods  ended  September  30, 2006  compared to the same  periods in 2005.  The
increase  in  salaries  and  benefit  expense is  primarily  the result of costs
associated with the  implementation of a new performance based incentive program
and the  accrual  of  expenses  associated  with  that  plan  which are based on
assumptions that targeted goals are attained.

Net occupancy,  equipment and data processing  expense decreased $75 thousand or
5.4% to $1.3 million for the  three-month  period ended  September  30, 2006 and
decreased $106 thousand or 2.5% to $4.1 million for the nine-month  period ended
September 30, 2006 when  compared to the same periods in 2005.  The decrease for
the nine months  ended  September  30, 2006 can be  attributed  to higher  costs
during 2005 associated with infrastructure improvements necessary for new branch
sites.  The  Corporation  currently  has a  variety  of branch  improvement  and
expansion projects planned throughout the remainder of 2006 and into 2007.



                                       23
<PAGE>

               FIRST CHESTER COUNTY CORPORATION AND SUBSIDIARIES

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

Depreciation on operating leases increased $14 thousand or 6.2% to $240 thousand
and $75 thousand or 11.8% to $713 thousand for the three and nine-month  periods
ended  September  30,  2006 when  compared  to the same  periods  in 2005.  This
depreciation expense is the result of operating lease agreements the Corporation
has with several of our customers.  The income  associated  with these operating
leases is classified as Rental Income.

Expenses for professional services decreased $114 thousand or 18.1% to $515
thousand and $572 thousand or 28.7% to $1.4 million for the three and nine-month
periods ended September 30, 2006 when compared to the same periods in 2005. The
decrease is largely the result of charges recognized in 2005 for other
consulting fees for real estate management, benefit plans, management planning
and the cost of complying with Sarbanes-Oxley legislation.

Total other non-interest  expense decreased $122 thousand or 9.4% to 1.2 million
and $524 thousand or 13.3% to $3.4 million for the three and nine-month  periods
ended  September  30,  2006  compared  to  the  same  periods  in  2005.   Other
non-interest  expense includes marketing  expenses,  annual meeting and reports,
trust processing, postage, directors' costs, telephone, travel and entertainment
and operating supplies.  The decrease is primarily the result of general expense
reductions  consistent  with the  Corporation's  effort to  reduce  non-interest
expense.  The decrease for the nine-months  ended September 30, 2006 is also the
result of  expenses  related  to the  development  and  introduction  of the new
corporate marketing program,  the costs of which were substantially  incurred in
2005.

                                  INCOME TAXES

Income tax expense for the three and nine-month periods ended September 30, 2006
was $822 thousand and $2.4  million,  compared to $554 thousand and $1.4 million
for the same periods in 2005. This represents an effective tax rate of 30.7% and
29.1% for the three and  nine-month  periods  ended  September 30, 2006 compared
with 23.1% and 26.2% for the same periods in 2005.

               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  Management to monitor changes in liquidity and to react accordingly to
fluctuations  in market  conditions.  The primary  sources of liquidity  for the
Corporation are funding available from deposit growth, FHLB Borrowings, and cash
flow  from  the  investment  and  loan  portfolios.  Deposits  consist  of  NOW,
money-market,  savings,  tiered savings,  large and small dollar certificates of
deposit,  and  non-interest  bearing demand deposit  accounts.  The  Corporation
considers  funds from NOW,  money  market,  savings and  certificates  less than
$100,000 as "core" deposits because of the historical  stability of such sources
of  funds.  Details  of  core  deposits,  non-interest  bearing  demand  deposit
accounts, and other deposit sources are highlighted in the following table:

                                       24
<PAGE>

                FIRST CHESTER COUNTY CORPORATION AND SUBSIDIARIES

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

                                DEPOSIT ANALYSIS

                              For the Nine Months Ended    For the year ended
(Dollars in thousands)            September 30, 2006       December 31, 2005
                              -------------------------   -------------------
                              Average  Effective          Average   Effective
DEPOSIT TYPE                  Balance    Yield            Balance     Yield
------------                  -------  ---------          -------   ---------

NOW Accounts                 $131,280    1.63%            $125,755     1.20%
Money Market                   77,742    3.71%              53,946     1.17%
Statement Savings              50,924    0.80%              56,653     0.80%
Other Savings                     793    0.67%                 932     0.75%
CD's Less than $100,000       165,108    4.04%             129,058     2.63%
                             --------                     --------
Total Core Deposits           425,847    2.84%             366,344     1.64%

Non-Interest Bearing
Demand Deposit Accounts       127,048       --             128,404
                             --------                     --------

Total Core and Non-Interest
  Bearing Deposits            552,895    2.19%             494,748     1.21%
                             --------                     --------

Tiered Savings                111,431    1.50%             133,158     1.58%
CD's Greater than $100,000     44,774    3.87%              78,684     2.41%
                             --------                     --------

Total Deposits               $709,100    2.19%            $706,590     1.42%
                             --------                     --------

The Bank, as a member of the FHLB,  maintains several credit facilities.  During
the three and  nine-month  periods  ending  September  30,  2006,  average  FHLB
advances were approximately $61.6 million and $65.3 million,  respectively,  and
consisted of term advances  representing  a variety of  maturities.  The average
interest  rate on  these  advances  was 3.9% and  3.9%,  respectively.  The Bank
currently has a maximum borrowing capacity with the FHLB of approximately $223.9
million. FHLB advances are collateralized by a pledge on the Bank's portfolio of
unencumbered  investment  securities,  certain mortgage loans, and a lien on the
Bank's FHLB stock.

To supplement  the  Corporation's  sources of  liquidity,  the  Corporation  has
initiated the use of alternative  funding sources such as brokered  deposits and
bringing  off-balance  sheet  "swept"  funds onto the balance sheet as deposits.
Management  has set limits for these funding  sources and will manage the impact
that such sources may have on liquidity and interest rate sensitivity.

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  $211.7 million or
24.5% of total  assets at September  30, 2006  compared  with a negative  $122.6
million or 14.5% of total  assets at December 31, 2005.  The  Corporation's  gap
position is one tool used to evaluate  interest  rate risk and the  stability of
net interest  margins.  Another tool that management  uses to evaluate  interest
rate risk is a computer simulation model that assesses the impact of changes in


                                       25
<PAGE>

               FIRST CHESTER COUNTY CORPORATION AND SUBSIDIARIES

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

interest rates on net interest  income,  net-income  under various interest rate
forecasts and scenarios. Management has set acceptable limits of risk within its
Asset  Liability  Committee  ("ALCO")  policy and  monitors  the  results of the
simulations  against these limits quarterly.  As of the most recent quarter-end,
certain  metrics  related to interest rate shock  scenarios  were not within the
policy  limits  set  by  ALCO.   These  results  do  not  necessarily   indicate
overexposure  to interest  rate risk,  rather,  these  policy  limits are one of
several  tools that  management  uses as a guide in the  overall  management  of
interest rate risk.  Management monitors interest rate risk as a regular part of
corporate  operations  with the  intention of  maintaining a stable net interest
margin.

                          INTEREST SENSITIVITY ANALYSIS
                            AS OF SEPTEMBER 30, 2006

<TABLE>
<CAPTION>
                                                       One         Over
(Dollars in thousands)                  Within       through       five      Non-rate
                                       one year     five years     years     sensitive     Total
                                       --------     ----------   --------    ---------    --------
<S>                                    <C>           <C>         <C>         <C>          <C>
ASSETS
   Federal funds sold                  $  42,300     $      0    $      0    $       0    $ 42,300
   Investment securities                  23,267       46,357      32,014            0     101,638
   Interest bearing deposits in banks        223            0           0            0         223
   Net loans and leases                  236,081      320,593     122,725       (8,174)    671,225
   Cash and due from banks                     0            0           0       23,228      23,228
   Premises and equipment                      0            0           0       13,791      13,791
   Other assets                                0            0           0       10,246      10,246
                                       ---------     --------    ---------   ---------    --------
   Total assets                        $ 301,871     $366,950    $154,739    $  39,091    $862,651
                                       =========     ========    ========    =========    ========

LIABILITIES AND CAPITAL
   Non-interest bearing deposits       $       0     $     0     $      0    $ 125,023    $125,023
   Interest bearing deposits             486,915       32,178      71,453            0     590,546
   FHLB advances and other                11,207       42,972       7,430            0      61,609
   Junior subordinated debentures         15,465            0           0            0      15,465
   Other liabilities                           0            0       6,431            0       6,431
   Capital                                     0            0            0      63,577      63,577
                                       ---------     --------    --------    ---------    --------
   Total liabilities & capital         $ 513,587     $ 75,150    $ 85,314    $ 188,600    $862,651
                                       =========     ========    ========    =========    ========

   Net interest rate
      sensitivity gap                  $(211,716)    $291,800    $ 69,425    $(149,509)
                                       =========    =========    ========    =========
   Cumulative interest rate
      sensitivity gap                  $(211,716)    $ 80,084    $149,509    $       0
                                       =========    =========    ========    =========
   Cumulative interest rate
      sensitivity gap divided
      by total assets                     (24.5%)        9.3%       17.3%
                                       =========     ========    ========
</TABLE>


                                       26
<PAGE>




                FIRST CHESTER COUNTY CORPORATION AND SUBSIDIARIES

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

                   BRANCHING, TECHNOLOGY AND CAPITAL PROJECTS

The  Corporation  intends to open a series of new  branches  throughout  Chester
County  over the next five  years.  A new  customer-focused  branch  design  was
introduced  when  construction  was  finished on the branch  building in Oxford,
Pennsylvania.  The new  "signature  look" will be rolled out to new and  certain
current  locations  over  the  next  five  years.  Technological   improvements,
including secure electronic delivery of customer checking and savings statements
and an improvement  of customer  service  issues,  are expected over the next 18
months  as the  Bank  utilizes  the  power  of  its  new  customer  relationship
management  system ("CRM").  Management  hopes to utilize the CRM along with the
Answer  Center to identify  service  issues and  customer  trends on a proactive
basis resulting in a higher degree of customer satisfaction.

The  Corporation  has entered  into an  agreement to purchase a building in West
Chester, PA for total  consideration of $3.8 million.  Settlement is to occur no
later than March 11, 2007. The  Corporation  intends to utilize the building for
administrative office space.

                                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 Office of the
Comptroller of the Currency.  Under these requirements,  the regulatory agencies
have set minimum  thresholds  for Tier I Capital,  Total  Capital,  and Leverage
ratios.  At September 30, 2006,  both the  Corporation's  and the Bank's capital
exceeded all minimum regulatory requirements,  and the Bank was considered "well
capitalized"  as  defined  in  the  regulations  issued  pursuant  to  the  FDIC
Improvement Act of 1992.


<TABLE>
<CAPTION>

RISK-BASED                      As of September 30,  As of December 31,  "Well Capitalized"
                                ------------------   ------------------
CAPITAL RATIOS                    2006      2005           2005             Requirements
------------------------------    ----      ----           ----          ------------------

     Corporation
     -----------
<S>                             <C>        <C>            <C>                  <C>
Leverage Ratio                   9.23%      8.64%          8.80%                  N/A
Tier I Capital Ratio            11.43%     10.68%         10.94%                  N/A
Total Risk-Based Capital Ratio  12.60%     11.76%         12.19%                  N/A

     Bank
     ----
Leverage Ratio                   8.47%      8.06%          8.14%                5.00%
Tier I Capital Ratio            10.46%      9.75%         10.08%                6.00%
Total Risk-Based Capital Ratio  11.67%     10.97%         11.32%               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.

                                       27
<PAGE>

                FIRST CHESTER COUNTY CORPORATION AND SUBSIDIARIES

ITEM 3.  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 2005 Annual  Report,
filed with the  Securities and Exchange  Commission  (the "SEC") via EDGAR as an
exhibit to its Form 10-K for the year ended  December 31, 2005.  Please refer to
the  "Management's  Discussion  and  Analysis"  section  on  pages  17-36 of the
Corporation's Annual Report for more information.

ITEM 4.  CONTROLS AND PROCEDURES

Disclosure  Controls and  Procedures.  Included  with this  Quarterly  Report as
Exhibits   31.1,   31.2,   and  31.3  are   certifications   (the  "Section  302
Certifications"),  one by each of our Chief Executive Officer, President and our
Chief  Financial  Officer (our  principal  executive,  operating  and  financial
officers,  respectively,  and,  collectively,  the "Principal  Officers").  This
section of the Quarterly Report contains information  concerning the evaluations
of our disclosure  controls and  procedures and internal  control over financial
reporting  that  are  referred  to  in  the  Section  302  Certifications.  This
information  should be read in conjunction  with the Section 302  Certifications
for a more complete understanding of the topics presented.

The SEC requires that as of the end of the quarter  covered by this Report,  our
CEO and CFO  evaluate  the  effectiveness  of the  design and  operation  of our
disclosure controls and procedures and report on the effectiveness of the design
and operation of our disclosure controls and procedures.

"Disclosure controls and procedures" mean the controls and other procedures that
are designed  with the  objective of ensuring  that  information  required to be
disclosed in our reports  filed under the  Securities  Exchange Act of 1934 (the
"Exchange  Act"),  such  as  this  Quarterly  Report,  is  recorded,  processed,
summarized and reported within the time periods specified in the rules and forms
promulgated  by the SEC.  Disclosure  controls and  procedures are also designed
with the  objective  of  ensuring  that  such  information  is  accumulated  and
communicated  to  our   management,   including  the  Principal   Officers,   as
appropriate, to allow timely decisions regarding required disclosure.

Management's Report on Disclosure  Controls and Procedures.  As required by Rule
13a-15(b), under the Exchange Act, Management, including our Principal Officers,
conducted an evaluation as of the end of the period  covered by this report,  of
the effectiveness of the Corporation's disclosure controls and procedures. Based
on that  evaluation,  the  Principal  Officers  concluded  that  our  disclosure
controls and procedures  were effective at the reasonable  assurance  level,  to
ensure that information required to be disclosed by us in the reports we file or
submit under the Exchange Act is  recorded,  processed  and reported  within the
time periods specified in the SEC rules and regulations.

Changes in internal  control over financial  reporting.  In connection  with the
ongoing review of the  Corporation's  internal control over financial  reporting
(as defined in Rule 13a-15(d),  under the Exchange Act),  Management,  including
the  Principal  Officers  regularly  assesses the adequacy of the  Corporation's
internal  control over  financial  reporting  to  determine  whether any changes
occurred during the period covered by this report that have materially affected,
or are  reasonably  likely to  materially  affect,  the  Corporation's  internal
control over financial reporting.  During the second quarter of 2006, there were
no such changes.

                                       28
<PAGE>

                FIRST CHESTER COUNTY CORPORATION AND SUBSIDIARIES

                           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 1A.  Risk Factors
          ------------

Information  regarding  risk  factors  appears  in Part 1, Item 1A of our Annual
Report on Form 10-K for the year ended  December  31,  2005.  There have been no
material changes from the risk factors as disclosed in that report.

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds
         -----------------------------------------------------------
<TABLE>
<CAPTION>

                      ISSUER PURCHASES OF EQUITY SECURITIES

                                      (a)           (b)               (c)                       (d)
                                   ----------    ----------    -----------------    -------------------------
                                     Total                     Total Number of          Maximum Number (or
                                   Number of     Average       Shares (or Units)    Approximate Dollar Value)
                                   Shares (or   Price Paid     Purchased as Part    Of Shares (or Units) that
                                    Units)       per Share      of Publicly           May Yet Be Purchased
                                   Purchased     (or Unit)     Announced Plans         Under the Plans or
                                                               or Programs                   Programs
                                   ----------    ----------    -----------------    -------------------------
<S>                                   <C>           <C>               <C>                <C>
July 1 to July 31, 2006               --            --                --                 $10,000,000


August 1 to August 31, 2006           --            --                --                 $10,000,000


September 1 to September 30, 2006     --            --                --                 $10,000,000

Total                                 --            --                --                 $10,000,000*
                                   ----------    ----------    -----------------    -------------------------
</TABLE>

* The  Corporation  announced on November 15, 2005 a program to repurchase up to
$10.0  million  of the  Corporation's  Common  Stock.  This  program  replaced a
previous program that expired in October 2005.

                                       29
<PAGE>

               FIRST CHESTER COUNTY CORPORATION AND SUBSIDIARIES

                     PART II - OTHER INFORMATION - CONTINUED

Item 3.  Defaults upon Senior Securities
         -------------------------------

         None

Item 4.  Submission of Matters to a Vote of Security Holders
         ---------------------------------------------------

         None

Item 5.  Other Information
         -----------------

         None

Item 6.  Exhibits
         --------

          Exhibits  marked as "(cp)" are  management  contracts or  compensatory
          plans,  contracts  or  arrangements  in which a director or  executive
          officer  participates  or may  participate.  Exhibits  marked  with an
          asterisk are filed with this report.

          3(i). Certificate 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  Quarterly Report On Form 10-Q for
          the quarter ended March 31, 2004.

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

              31.1    Rule 13a-14(a) Certification of Chief Executive Officer*
              31.2    Rule 13a-14(a) Certification of President*
              31.3    Rule 13a-14(a) Certification of Chief Financial Officer*

              32.1     Section 906 Certification of the Chief Executive Officer*
              32.2     Section 906 Certification of the President*
              32.3     Section 906 Certification of the Chief Financial Officer*


                                       30
<PAGE>

                FIRST CHESTER COUNTY CORPORATION AND SUBSIDIARIES

                                   SIGNATURES


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



                        FIRST CHESTER COUNTY CORPORATION





                                    /s/ John A. Featherman, III
                                    ---------------------------
    November 9, 2006                John A. Featherman, III
                                    Chief Executive Officer




    November 9, 2006                /s/ John E. Balzarini
                                    ---------------------
                                    John E. Balzarini
                                    Chief Financial Officer
                                    (Principal Financial and Accounting Officer)

                                       31
<PAGE>

                                INDEX TO EXHIBITS

The following is a list of the exhibits filed with, or incorporated by reference
into, this Report (those exhibits marked with an asterisk are filed herewith and
those marked "(cp)" are management contracts or compensatory plans, contracts or
arrangements  in which a  director  or  executive  officer  participates  or may
participate):

3(i).  Certificate  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  Quarterly Report On Form 10-Q for the quarter ended March
31, 2005.

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

31.1     Rule 13a-14(a) Certification of Chief Executive Officer*
31.2     Rule 13a-14(a) Certification of President *
31.3     Rule 13a-14(a) Certification of Chief Financial Officer*

32.1     Section 906 Certification of the Chief Executive Officer*
32.2     Section 906 Certification of the President*
32.3     Section 906 Certification of the Chief Financial Officer*


                                       32
<PAGE>