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 June 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 August
8, 2006 was 5,176,566.



                                       1
<PAGE>
                FIRST CHESTER COUNTY CORPORATION AND SUBSIDIARIES

<TABLE>
<CAPTION>

                                                               INDEX


Part I.  FINANCIAL INFORMATION
         <S>        <C>                                                           <C>

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

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

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

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

                    Notes to Consolidated Financial Statements                     7-10

         Item 2 -   Management's Discussion and Analysis of
                    Financial Condition and Results of Operations                 11-25

         Item 3 -   Quantitative and Qualitative Disclosures About Market Risk       26

         Item 4 -   Controls & Procedures                                            26

Part II. OTHER INFORMATION

         Item 1 -    Legal Proceedings                                               27

         Item 1A -   Risk Factors                                                    27

         Item 2 -    Unregistered Sales of Equity Securities and Use of Proceeds     27

         Item 3 -    Defaults Upon Senior Securities                                 28

         Item 4 -    Submission of Matters to a Vote of Security Holders             28

         Item 5 -    Other Information                                               29

         Item 6 -    Exhibits                                                        29

         Signatures                                                                  30

         Index to Exhibits                                                           31

         Exhibits                                                                 32-37

</TABLE>


                                       2
<PAGE>



                FIRST CHESTER COUNTY CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>

                         PART I. FINANCIAL INFORMATION

ITEM 1.  Financial Statements

                      CONSOLIDATED STATEMENTS OF CONDITION

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

ASSETS
    Cash and due from banks                                                               $  27,380           $   37,401
    Federal funds sold and other overnight investments                                       52,300               31,000
    Interest bearing deposits in banks                                                          286                  542
                                                                                        -----------          -----------

                Total cash and cash equivalents                                              79,966               68,943
                                                                                        -----------          -----------

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

    Investment securities available-for-sale, at fair value                                  93,200               97,078

    Loans and leases                                                                        686,387              664,276
    Less:  Allowance for loan and lease losses                                               (8,251)              (8,123)
                                                                                        -----------           ----------
                Net loans and leases                                                        678,136              656,153

    Premises and equipment                                                                   13,460               13,786
    Other assets                                                                             10,324                9,564
                                                                                        -----------           ----------
                Total assets                                                            $   875,091            $ 845,534
                                                                                         ==========             ========
LIABILITIES
    Deposits
        Non-interest-bearing                                                               $133,790            $ 136,082
        Interest-bearing (including certificates of deposit over $100
           of $42,051 and $61,281 at June 30, 2006 and
           December 31, 2005, respectively)                                                 597,329              560,015
                                                                                          ---------             --------

        Total deposits                                                                      731,119              696,097

    Federal Home Loan Bank advances and other borrowings                                     61,621               68,900
    Subordinated Debt                                                                        15,465               15,465
    Other liabilities                                                                         5,871                6,395
                                                                                         ----------           ----------

        Total liabilities                                                                $  814,076            $ 786,857
                                                                                         ----------           ----------

STOCKHOLDERS' EQUITY
    Common stock, par value $1 - authorized, 10,000,000 shares;
        outstanding, 5,279,815 at June 30, 2006 and December 31, 2005                         5,280                5,280
    Additional paid-in capital                                                               12,038               12,441
    Retained earnings                                                                        49,042               46,503
    Accumulated other comprehensive loss                                                     (2,646)              (1,929)
    Treasury stock, at cost:  112,869 shares and 153,164 shares
       at June 30, 2006 and December 31, 2005, respectively                                  (2,699)              (3,618)
                                                                                         ----------           ----------

                Total stockholders' equity                                                   61,015               58,677
                                                                                         ----------           ----------

                Total liabilities and stockholders' equity                               $  875,091            $ 845,534
                                                                                          =========             ========


</TABLE>



The accompanying notes are an integral part of these statements.



                                       3
<PAGE>



                FIRST CHESTER COUNTY CORPORATION AND SUBSIDIARIES

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

(Dollars in thousands - except per share)                                         Three Months Ended             Six Months Ended
                                                                                        June 30,                     June 30,
                                                                                   2006         2005            2006          2005
                                                                                   ----         ----            ----          ----
<S>                                                                         <C>          <C>             <C>           <C>
INTEREST INCOME
    Loans and leases, including fees                                        $    11,511  $     9,637     $    22,290   $    18,555
    Investment securities                                                         1,053        1,041           2,157         2,278
    Federal funds sold and other overnight investments                              496           47             867            75
    Deposits in Banks                                                                 4            1               8             3
                                                                            -----------  -----------     -----------   -----------

                Total interest income                                            13,064       10,726          25,322        20,911
                                                                            -----------  -----------     -----------   -----------

INTEREST EXPENSE
    Deposits                                                                      3,937        2,216           7,134         3,968
    Subordinated debt                                                               319          244             617           465
    Federal Home Loan Bank advances and other borrowings                            635          639           1,274         1,233
                                                                            -----------  -----------     -----------   -----------

                Total interest expense                                            4,891        3,099           9,025         5,666
                                                                            -----------  -----------     -----------   -----------

                Net interest income                                               8,173        7,627          16,297        15,245

    Provision for loan and lease losses                                               0          504               3         1,010
                                                                            -----------  -----------     -----------   -----------

                Net interest income after provision
                for possible loan and lease losses                                8,173        7,123          16,294        14,235
                                                                            -----------  -----------     -----------   -----------

NON-INTEREST INCOME
    Trust and Investment Services                                                   900          715           1,710         1,584
    Service charges on deposit accounts                                             507          478             960           950
    Investment securities gains (losses), net                                         0           (8)            (80)           60
    Operating lease rental income                                                   278          243             546           471
    Gains (losses) on the sale of fixed assets and other real estate owned            9           (7)             19            (7)
    Gains and fees on the sale of residential mortgages                              87          113             165           194
    Other                                                                           644          618           1,223         1,183
                                                                            -----------  -----------     -----------   -----------
                Total non-interest income                                         2,425        2,152           4,543         4,435
                                                                            -----------  -----------     -----------   -----------

NON-INTEREST EXPENSE
    Salaries and employee benefits                                                4,139        4,089           8,526         8,181
    Occupancy, equipment and data processing                                      1,409        1,408           2,760         2,791
    Depreciation on operating leases                                                242          212             473           413
    FDIC Insurance                                                                   22           23              44            47
    Bank shares tax                                                                 155          147             429           320
    Professional services                                                           439          565             903         1,361
    Other                                                                         1,278        1,330           2,226         2,628
                                                                            -----------  -----------     -----------   -----------
                Total non-interest expense                                        7,684        7,774          15,361        15,741
                                                                            -----------  -----------     -----------   -----------

                Income before income taxes                                        2,914        1,501           5,476         2,929

INCOME TAXES                                                                        833          429           1,549           839
                                                                            -----------  -----------     -----------   -----------

NET INCOME                                                                  $     2,081  $     1,072     $     3,927   $     2,090
                                                                            ===========  ===========     ===========   ===========

PER SHARE DATA
    Basic earnings per common share                                         $      0.40  $      0.21     $      0.76   $      0.41
                                                                            ===========  ===========     ===========   ===========
    Diluted earnings per common share                                       $      0.40  $      0.21     $      0.75   $      0.40
                                                                            ===========  ===========     ===========   ===========
    Dividends declared                                                      $    0.1350  $    0.1300     $    0.2700   $    0.2595
                                                                            ===========  ===========     ===========   ===========

Basic weighted average shares outstanding                                     5,151,932    5,079,336       5,141,410     5,057,033
                                                                            ===========  ===========     ===========   ===========

Diluted weighted average shares outstanding                                   5,252,470    5,230,216       5,235,972     5,222,183
                                                                            ===========  ===========     ===========   ===========
</TABLE>

The accompanying notes are an integral part of these statements.

                                       4
<PAGE>


                FIRST CHESTER COUNTY CORPORATION AND SUBSIDIARIES

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

                                                                             Six Months Ended
 (Dollars in thousands)                                                          June 30,
                                                                              2006        2005
                                                                           --------    --------
<S>                                                                        <C>         <C>
OPERATING ACTIVITIES
    Net Income                                                             $  3,927    $  2,090
    Adjustments to reconcile net income to net cash
           provided by operating activities:
    Depreciation                                                              1,426       1,445
    Provision for loan and lease losses                                           3       1,010
    Amortization of investment security premiums
           and accretion of discounts                                           132         432
    Amortization of deferred net loan fees                                      (95)          2
    Investment securities (gains) and losses, net                                80         (60)
    Increase in other assets                                                   (390)       (627)
    Decrease in other liabilities                                              (524)       (264)
                                                                           --------    --------

           Net cash provided by operating activities                       $  4,559    $  4,028
                                                                           --------    --------

INVESTING ACTIVITIES
    Increase in loans                                                       (21,891)    (39,845)
    Proceeds from sales of investment securities available-for-sale           3,899      37,899
    Proceeds from maturities of investment securities available-for-sale      3,944      53,465
    Proceeds from maturities of investment securities held-to-maturity            5           0
    Purchases of investment securities available-for-sale                    (5,264)    (52,571)
    Purchase of premises and equipment, net                                  (1,101)     (1,264)
                                                                           --------    --------

    Net cash used in investing activities                                  $(20,408)   $ (2,316)
                                                                           --------    --------

FINANCING ACTIVITIES
    (Decrease) increase  in Federal Home Loan Bank advances                  (7,278)         23
    Increase in deposits                                                     35,022      14,845
    Cash dividends paid                                                      (1,388)     (1,311)
    Net increase in treasury stock                                              516         658
                                                                           --------    --------

           Net cash provided by financing activities                         26,872      14,215
                                                                           --------    --------

           NET INCREASE IN CASH AND CASH EQUIVALENTS                         11,023      15,927

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

Cash and cash equivalents at end of period                                 $ 79,966    $ 47,537
                                                                           ========    ========

</TABLE>

The accompanying notes are an integral part of these statements.



                                       5
<PAGE>



                FIRST CHESTER COUNTY CORPORATION AND SUBSIDIARIES

            CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>

                                        Common Stock        Additional             Accumulated                Total       Compre-
                                    ---------------------    Paid-in    Retained  Comprehensive  Treasury  Stockholders'  hensive
(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   $   2,052   $ 53,749     $   (78)     (5,121)   $  55,402

  Net income                                 -          -           -      2,090            -           -       2,090      $  2,090
  Cash dividends declared                    -          -           -     (1,311)           -           -      (1,311)
  Issuance of common stock             480,149        480      10,612    (11,092)           -           -
  Other comprehensive income
     Net unrealized (losses) gains
     on investment securities
     available-for-sale                      -          -           -          -          (825)          -       (825)         (825)
  Treasury stock transactions                -          -          18          -            -         640         658             -
                                     ---------  ---------   ---------   --------    ----------   --------   ---------      --------
  Comprehensive Income                                                                                                     $  1,265

Balance at June 30, 2005             5,279,815   $  5,280   $  12,682   $ 43,436     $    (903)  $ (4,481)  $  56,014
                                     =========  =========   =========   ========    ==========   ========   =========


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


    Net income                               -          -           -      3,927            -           -       3,927      $  3,927
    Cash dividends declared                  -          -           -     (1,388)           -           -      (1,388)
    Stock dividends declared                 -          -           -          -
    Other Comprehensive Income
       Net unrealized gain (loss)
       on investment securities
       available-for-sale                    -          -           -          -         (717)          -        (717)         (717)
    Treasury stock transactions              -          -        (403          -            -         919         516             -
                                     ---------  ---------   ---------   --------    ----------   --------   ---------      --------
  Comprehensive Income                                                                                                     $  3,210

Balance at June 30, 2006             5,279,815   $  5,280   $  12,038   $ 49,042     $  (2,646)  $ (2,699)  $  61,015
                                     =========   ========   =========   ========    ===========  ========   =========
</TABLE>

The accompanying notes are an integral part of these statements.


                                       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  six-month  periods ended June 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.


<TABLE>
<CAPTION>

2.  EARNINGS PER SHARE

          Three Months ended June 30, 2006

                                                           Income
                                                         (thousands)          Shares           Per Share
                                                         (numerator)       (denominator)         Amount
                                                         ----------        ------------        ---------
           <S>                                            <C>               <C>                 <C>
          Basic earnings per share
          Net income available to common stockholders        $2,081           5,151,932           $ 0.40
          Effect of Dilutive Securities
          Options to purchase common stock                        -             100,538                -
                                                         ----------        ------------        ---------
          Diluted earnings per share
          Net income available to common stockholders        $2,081           5,252,470           $ 0.40
                                                         ==========        ============        =========


          Six Months ended June 30, 2006

                                                             Income           Shares           Per Share
                                                         (numerator)       (denominator)         Amount
                                                         ----------        ------------        ---------
          Basic earnings per share
          Net income available to common stockholders        $3,927           5,141,410           $ 0.76
          Effect of Dilutive Securities
          Options to purchase common stock                        -              94,562             (.01)
                                                         ----------        ------------        ---------
          Diluted earnings per share
          Net income available to common stockholders        $3,927           5,235,972           $ 0.75
                                                         ==========        ============        =========


          Three Months ended June 30, 2005

                                                             Income           Shares           Per Share
                                                         (numerator)       (denominator)         Amount
                                                         ----------        ------------        ---------
          Basic earnings per share
          Net income available to common stockholders        $1,072           5,079,336             0.21
          Effect of Dilutive Securities
          Options to purchase common stock                        -             150,880               -
                                                         ----------        ------------        ---------
          Diluted earnings per share
          Net income available to common stockholders        $1,072           5,230,216            $0.21
                                                          ==========        ============        =========
</TABLE>

          17,866  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>
           Six Months ended June 30, 2005
           ------------------------------

                                                              Income           Shares           Per Share
                                                          (numerator)       (denominator)         Amount
                                                          ----------        ------------        ---------
           <S>                                            <C>               <C>                 <C>
           Basic earnings per share
           Net income available to common stockholders        $2,090           5,057,033           $ 0.41
           Effect of Dilutive Securities
           Options to purchase common stock                       -              165,150            (0.01)
                                                          ----------        ------------        ---------
           Diluted earnings per share
           Net income available to common stockholders        $2,090           5,222,183           $ 0.40
                                                          ==========        ============        =========
</TABLE>

           17,688 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             Six Months Ended
                                                              June 30,                     June 30,
                                                         2006         2005            2006          2005
                                                         -----------------            ------------------

    <S>                                              <C>          <C>             <C>            <C>
    Unrealized gains on securities:
       Unrealized gains (losses) arising in period   $   (803)    $   (726)       $ (1,007)      $(1,312)
       Reclassification adjustment                          0           60             (80)           60
                                                      -------     --------        --------       -------
       Net unrealized gains (losses)                     (803)        (666)         (1,087)       (1,252)
                                                      -------     --------        --------       -------
    Other comprehensive income before taxes              (803)        (666)         (1,087)       (1,252)
    Income tax benefit (expense)                          273          169             370           427
                                                      -------     --------        --------       -------
    Other comprehensive income                           (530)        (497)           (717)         (825)
                                                      -------     --------        --------       -------
    Comprehensive income (losses)                    $  1,551         $575         $ 3,210       $ 1,265
                                                     ========    =========       =========       =======

</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 June
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 elements,  net of goodwill. The amount of trust preferred securities and
certain  other  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.

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,


                                       8
<PAGE>


                FIRST CHESTER COUNTY CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

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 six-months ended June 30, 2006.

The  Corporation's  earnings  before  income taxes for the three and  six-months
ended June 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 June 30, 2006.  The  Corporation  did not have proforma stock based
compensation  expense for the six months ended June 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
six-months ended June 30, 2006 was not material.

6.  RECENT ACCOUNTING PRONOUNCEMENTS

In June,  2006, the Financial  Accounting  Standards  Board ("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.


                                       9
<PAGE>


                FIRST CHESTER COUNTY CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

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.

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  Sale 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.


                                       10
<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.


                                       11
<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 Management's 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  June 30,  2006 was $2.1  million,  an
increase of $1.0  million or 94% from $1.1  million for the same period in 2005.
Net income for the  six-month  period ended June 30, 2006 was $3.9  million,  an
increase of $1.8  million or 88% from $2.1  million for the same period in 2005.
Basic  earnings  per share  were  $0.40  and  $0.76 for the three and  six-month
periods ended June 30, 2006,  respectively,  compared to $0.21 and $0.41 for the
same  periods  in 2005.  Cash  dividends  declared  for the three and  six-month
periods of 2006 were $0.135 and $0.270 per share  compared to $0.130 and $0.2595
per share for the three and six-month periods ended June 30, 2005.

The increase in net income for the three and  six-month  periods  ended June 30,
2006 was primarily the result of increases in net interest  income and decreases
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.


                                 SELECTED RATIOS
<TABLE>
<CAPTION>

                              Three Months Ended             Six Months Ended
                                    June 30,                     June 30,
                               2006         2005            2006          2005
                               -----------------            ------------------
<S>                           <C>          <C>             <C>           <C>
SELECTED RATIOS
---------------
Return on Average Assets       0.97%        0.53%           0.92%         0.52%
Return on Average Equity      13.70%        7.65%          13.02%         7.47%
Earnings Retained             66.60%       39.18%          64.65%        37.27%
Dividend Payout Ratio         33.40%       60.82%          35.35%        62.73%
Book Value Per Share          $11.81       $10.99          $11.81        $10.99
</TABLE>


                               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 June 30,  2006 was $8.3  million,  an  increase  of 6.8% from $7.8
million for the same period in 2005.  Net  interest  income on a tax  equivalent
basis  for the  six-month  period  ended  June 30,  2006 was $16.5  million,  an
increase of 6.5% from $15.5 million for the same period in 2005. The


                                       12
<PAGE>


                FIRST CHESTER COUNTY CORPORATION AND SUBSIDIARIES

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

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,  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  June 30,  2006 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.  For the six-month  period ended June 30, 2006, the net yield on
interest  earning  assets  remained  constant at 4.07% when compared to the same
period in 2005.

The average yield on  interest-earning  assets for the three-month  period ended
June 30, 2006 was 6.43%,  an increase of 13.2% or 75 basis  points from 5.68% in
the same period in 2005. For the six-month  period ended June 30, 2006,  average
yield on  interest-earning  assets was 6.30%,  an  increase of 13.3% or 74 basis
points  from  5.56%  for the same  period in 2005.  The  average  yield  paid on
interest-bearing  liabilities for the three-month period ended June 30, 2006 was
2.93%, an increase of 46.5% or 93 basis points from 2.00% for the same period in
2005.  For the  six-month  period  ended June 30,  2006,  average  yield paid on
interest-bearing  liabilities was 2.75%, an increase of 50.3% or 92 basis points
from 1.83% for the same period in 2005.

Interest  rates 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 of the
balance  sheet.  Deposits  obtained  in this  manner are  higher  cost funds and
contribute to the increased  yield on  interest-bearing  liabilities  and impact
net-interest income.

Average interest-earning assets increased approximately $54.6 million or 7.1% to
$819.7 million for the  three-months  ended June 30, 2006 from $765.1 million in
the same  period  last year.  For the six months  ended June 30,  2006,  average
interest-earning  assets increased approximately $49.4 million or 6.5% to $811.7
million from $762.3  million in the same period in 2005. The increase in average
interest-earning  assets for the three-month  period ended June 30, 2006 was the
result of a 4.7% or $30.9 million  increase in average total loans combined with
a 518% or $33.5 million increase in average federal funds sold, partially offset
by a 9.0% or $9.3 million  decrease in average  investment  securities.  For the
six-month  period ended June 30, 2006,  the increase was the result of a 6.3% or
$40.2  million  increase in average  total loans,  combined with a 541% or $30.9
million increase in average federal funds sold,  partially offset by an 18.4% or
$21.4 million decrease in average investment securities.

Average  interest-bearing  liabilities increased  approximately $48.2 million or
7.8% to $667.8  million for the  three-months  ended June 30, 2006,  from $619.5
million in the same  period in 2005.  For the  six-month  ended  June 30,  2006,
average  interest-bearing  liabilities increased $37.0 million or 6.0% to $656.0
million from $619.1  million in the same period in 2005. The increase in average
interest-bearing  liabilities  for the  three-month  period  was the result of a
$55.9 million or 10.5% increase in interest-bearing deposits,  partially off-set
by a $7.6 million or 10.7% decrease in FHLB advances and other  borrowings.  The
increase in average  interest-bearing  liabilities for the six-month  period was
the result of a $40.5  million or 7.6%  increase in  interest-bearing  deposits,
partially  offset by a $3.6 million or 5.0%  decrease in FHLB advances and other
borrowings.


                                     13
<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 JUNE 30,
<TABLE>
<CAPTION>

        (Dollars in thousands)                                          2006                              2005
                                                           ------------------------------    ----------------------------
                                                            Daily                            Daily
                                                            Average                          Average
          ASSETS                                            Balance   Interest    Rate       Balance    Interest   Rate
                                                            -------   --------    ----       --------   --------   ----
<S>                                                        <C>        <C>         <C>        <C>        <C>        <C>
 Federal funds sold                                        $ 39,921   $    496    4.97%      $  6,465   $     47   2.91%
 Interest-bearing deposits in banks                             261          4    6.13%           719          1   0.56%
 Investment securities:
      Taxable                                                79,955        951    4.76%        85,542        909   4.25%
      Tax-exempt(1)                                          14,679        146    3.98%        18,425        193   4.18%
                                                             ------    -------    -----        ----

      Total investment securities                            94,634      1,097    4.64%       103,967      1,102   4.24%
                                                             ------    -------    -----        ----

 Loans and leases: (2)
      Taxable                                               670,384     11,355    6.78%       638,485      9,479   5.94%
      Tax-exempt(1)                                          14,494        228    6.29%        15,468        233   6.03%
                                                            -------     ------    -----        ----

      Total loans and leases                                684,878     11,583    6.76%       653,953      9,712   5.94%
                                                            -------     ------   ------         ----

 Total interest-earning assets                              819,694     13,180    6.43%       765,104     10,862   5.68%
 Non-interest earning assets:
      Allowance for possible loan
      and lease losses                                      (8,579)                            (7,216)
      Cash and due from banks                                23,334                            23,920
      Other assets                                           23,884                            22,571
                                                             -------                           ------

 Total assets                                              $ 858,33                          $804,379
                                                           ========                          ========

LIABILITIES AND STOCKHOLDERS' EQUITY

Savings, NOWS & money market deposits                      $375,868   $  1,800    1.92%      $385,608   $  1,123   1.16%
Certificates of deposits and other time                     212,875      2,137    4.02%       147,273      1,093   2.97%
                                                                                  -----      --------   --------

Total interest bearing deposits                             588,743      3,937    2.67%       532,881      2,216   1.66%
Junior subordinated debentures                               15,465        319    8.25%        15,465        244   6.31%
Federal Home Loan Bank advances and
 other borrowings                                            63,543        635    4.00%        71,178        640   3.60%
                                                            -------     ------    -----       -------

Total interest bearing liabilities                          667,751      4,891    2.93%       619,524      3,100   2.00%
                                                            -------     ------    -----       -------

Non-interest bearing liabilities:
      Non-interest bearing demand deposits                  125,117                           124,324
      Other liabilities                                       4,704                             4,512
                                                            -------                           -------

 Total liabilities                                          797,572                           748,360
 Stockholders' equity                                        60,761                            56,019
                                                            -------                           -------

 Total liabilities and stockholders' equity                $858,333                          $804,379
                                                           ========                          ========

 Net interest income                                                  $  8,289                          $  7,762
                                                                      ========                          ========

 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.

                                       14
<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
                            SIX MONTHS ENDED JUNE 30,
<TABLE>
<CAPTION>

        (Dollars in thousands)                                          2006                              2005
                                                           ------------------------------    ----------------------------
                                                           Daily                              Daily
                                                           Average                            Average
          ASSETS                                           Balance    Interest    Rate        Balance   Interest   Rate
                                                           -------    --------    ----       -------   --------    -----
<S>                                                        <C>        <C>         <C>        <C>        <C>        <C>
          Federal funds sold                               $ 36,641   $    867    4.73%      $  5,713   $     75   2.63%
          Interest-bearing deposits in banks                    306          8    5.23%           683          3   0.88%
          Investment securities:
               Taxable                                       80,224      1,951    4.86%        95,218      1,971   4.14%
               Tax-exempt(1)                                 14,678        296    4.03%        21,101        451   4.28%
                                                           --------   --------                -------   --------

          Total investment securities                        94,902      2,247    4.74%       116,319      2,422   4.16%
                                                           --------   --------                -------    -------

          Loans and leases: (2)
               Taxable                                      665,192     21,978    6.61%       626,167     18,283   5.84%
               Tax-exempt(1)                                 14,658        457    6.23%        13,445        400   5.94%
                                                           --------   --------                -------   --------
               Total loans and leases                       679,850     22,435    6.60%       639,612     18,683   5.84%
                                                           --------   --------                -------   --------
          Total interest-earning assets                     811,699     25,557    6.30%       762,327     21,183   5.56%
          Non-interest earning assets:
               Allowance for possible loan
                    and lease losses                         (8,567)                           (7,216)
               Cash and due from banks                       23,571                            24,150
               Other assets                                  23,703                            22,865
                                                           --------                           -------

          Total assets                                     $850,406                          $802,126
                                                           ========                          ========

          LIABILITIES AND STOCKHOLDERS' EQUITY

          Savings, NOWS & money market deposits            $372,624   $  3,299    1.77%      $402,672   $  2,178   1.08%
          Certificates of deposits and other time           200,799      3,835    3.82%       130,228      1,790   2.75%
                                                          ---------   ---------              --------   --------

          Total interest bearing deposits                   573,423      7,134    2.49%       532,900      3,968   1.49%
          Junior subordinated debentures                     15,465        617    7.98%        15,465        465   6.01%
          Federal Home Loan Bank advances and
          other borrowings                                   67,137      1,274    3.80%        70,700      1,233   3.49%
                                                           --------   --------                --------  --------

          Total interest bearing liabilities                656,025      9,025    2.75%       619,065      5,666   1.83%
                                                           --------   --------                 -------  --------

          Non-interest bearing liabilities:
               Non-interest bearing demand deposits         129,028                           122,268
               Other liabilities                              5,013                             4,819
                                                           --------                          --------

          Total liabilities                                 790,066                           746,152
          Stockholders' equity                               60,340                            55,974
                                                           --------                          --------

          Total liabilities and stockholders' equity       $850,406                          $802,126
                                                           ========                          ========

Net interest income                                                   $ 16,532                          $ 15,517
                                                                      ========                          ========

          Net yield on interest earning assets                                    4.07%                            4.07%
                                                                                  ====                             =====
</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.


                                       15
<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  six-month  periods June 30, 2006,  increased  $449  thousand and $792
thousand to $496 thousand and $867 thousand,  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
517.5%  or $33.5  million  increase  in  average  federal  funds  sold and other
overnight  investments  and a 70.8% or 206  basis  point  increase  on the rates
earned.  The increase for the six-month  period is the direct result of a 541.4%
increase  or $30.9  million  increase  in average  funds sold and a 79.9% or 210
basis point increase in the rates earned.

                    INTEREST INCOME ON INVESTMENT SECURITIES


On a tax equivalent basis,  interest income on investment  securities  decreased
0.5% or $5 thousand to $1.1  million for the  three-month  period ended June 30,
2006 when compared to the same period in 2005.  For the  six-month  period ended
June 30, 2006, interest income on investment  securities  decreased 7.2% or $175
thousand to $2.2 million  from $2.4 million when  compared to the same period in
2005. The decrease for the three-month period is primarily due to a 9.0% or $9.3
million  decrease of the average  balance of  investment  securities,  partially
offset by a 9.4% or 40 basis  point  increase  earned on such  investments.  The
decrease for the six-month  period ended June 30, 2006 is the result of an 18.4%
or $21.4  million  decrease of the  average  balance of  investment  securities,
partially  offset  by a  13.9%  or  58  basis  point  increase  earned  on  such
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  19.3% and 20.1% to $11.6  million and
$22.4 million for the three and six-month periods ended June 30, 2006,  compared
to the same periods in 2005,  respectively.  The increase in interest income for
these  periods is the direct result of a $30.9 million or 4.7% and $40.2 million
or 6.3% 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 13.8% or 82 basis point and 13.0% or 76 basis point for the
three and six-month  periods ended June 30, 2006 as compared to the same periods
in 2005.


                      INTEREST EXPENSE ON DEPOSIT ACCOUNTS

Interest expense on deposit accounts increased 77.7% and 79.8% for the three and
six-month periods ended June 30, 2006 to $3.9 million and $7.1 million, compared
to $2.2 million and $4.0 million for the same periods in 2005. This increase was
due in part to an increase in average total  interest-bearing  deposits of $55.9
million or 10.5% and $40.5 million or 7.6% for the three and  six-month  periods
June 30, 2006. In addition,  the average  interest  rates paid on these deposits
increased  by 60.8% or 101 basis  points  and 67.1% or 100 basis  points for the
three and six-month  periods ended June 30, 2006 as compared to the same periods
in 2005.


                                       16
<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 in a rising rate  environment,  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 $5 thousand or 0.8% to $635  thousand for the  three-month  period
ended  June 30,  2006  from $640  thousand  for the same  period  in 2005.  This
decrease  for the 3 month  period  ended June 30,  2006 is due to a decrease  of
10.7%  or $7.6  million  in the  average  balances  of  these  funding  sources,
partially  offset by an  increase  of 40 basis  points or 11.1%,  in the average
interest  rate  paid on these  borrowings.  Interest  expense  on FHLB and other
borrowings  increased by $41 thousand or 3.3% to $1.3 million for the  six-month
period ended June 30, 2006 from $1.2  million for the same period in 2005.  This
increase  for the six month  period ended June 30, 2006 is due to an increase of
31 basis points,  or 8.9%, in the average interest rate paid on these borrowing,
partially  offset by a decrease of 5.0% or $3.6 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  $75  thousand to $319
thousand for the  three-month  period ended June 30, 2006 from $244 thousand for
the same period in 2005. Interest expense on subordinated  debentures  increased
$152 thousand to $617 thousand for the six-month period ended June 30, 2006 from
$465  thousand  when  compared to the same period in 2005.  The increase for the
three  and  six-month  periods  ended  June 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  six-month  periods  ended June 30, 2006,  the  Corporation
recorded a $0 and a $3 thousand  provision for loan and lease losses compared to
$504  thousand  and a $1.0  million  for the same  periods in 2005.  The reduced
provision is a function of improved asset quality as reflected by a $2.5 million
and $1.2 million reduction in non-accrual loans as compared to June 30, 2005 and
December 31, 2005, respectively.

                       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 evaluations of the
collectability of loans. These evaluations take into consideration such


                                       17
<PAGE>


                FIRST CHESTER COUNTY CORPORATION AND SUBSIDIARIES

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

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. The allowance for loan and lease
losses as of  December  31,  2005 and June 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
$346 thousand at December 31, 2005 and June 30, 2005, respectively.

<TABLE>
<CAPTION>


(Dollars in thousands)                            Three Months Ended             Six Months Ended
                                                        June 30,                     June 30,
                                                 2006               2005     2006               2005
                                                 -----------------------     -----------------------

<S>                                              <C>           <C>           <C>           <C>
Balance at beginning of period                   $   8,579     $   7,447     $   8,549     $   7,213
                                                 ---------     ---------     ---------     ---------

Provision charged to operating expense                --             504             3         1,010
Allowance adjustments-other                           (523)         (346)         (523)         (346)
                                                 ---------     ---------     ---------     ---------

    Recoveries of loans previously charged-off         220           100           292           172
    Loans charged-off                                  (25)          (47)          (70)         (391)
                                                 ---------     ---------     ---------     ---------

Net recoveries (loans charged-off)                     195            53           222          (219)
                                                 ---------     ---------     ---------     ---------

Balance at end of period                         $   8,251     $   7,658     $   8,251     $   7,658
                                                 =========     =========     =========     =========
Period-end loans outstanding                     $ 686,387     $ 657,283     $ 686,387     $ 657,283
Average loans outstanding                        $ 684,878     $ 653,953     $ 679,850     $ 639,612
Allowance for loan and lease losses as a
  percentage of period-end loans outstanding         1.20%         1.17%         1.20%         1.17%

Net charge-offs to average loans
    outstanding                                     (0.03%)       (0.01%)       (0.03%)        0.03%

</TABLE>



       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 June 30, 2006, the level of non-performing  assets has decreased $2.5 million
from June 30, 2005, and non-performing


                                       18
<PAGE>


                FIRST CHESTER COUNTY CORPORATION AND SUBSIDIARIES

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

assets decreased $1.0 million 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:

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

             (Dollars in thousands)                                      June 30,                  December 31,
                                                                  ----------------------      ----------------------
                                                                    2006          2005                  2005
                                                                  --------      --------      ----------------------

             <S>                                                  <C>           <C>                   <C>
             Past due over 90 days and still accruing             $    222      $    168              $      0

             Non-accrual loans and leases                            7,136         9,646                 8,358
                                                                  --------      --------                ------

             Total non-performing loans and leases                   7,358         9,814                 8,358

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

             Total non-performing assets                          $  7,358      $ 9,814               $  8,358
                                                                  ========      ========              ========

             Non-performing loans and leases as a percentage
             of total loans and leases                               1.07%         1.49%                 1.26%

            Allowance for loan and lease losses as a percentage
            of non-performing loans and leases                     112.14%        78.03%                97.19%

            Non-performing assets as a percentage of
            total loans and other real estate owned                  1.07%         1.49%                 1.26%

            Allowance for loan and lease losses as a
            percentage of non-performing assets                    112.14%        78.03%                97.19%
</TABLE>

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


                                 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 $7.1
million, $8.4 million, and $9.6 million at June 30, 2006, December 31, 2005


                                       19
<PAGE>


                FIRST CHESTER COUNTY CORPORATION AND SUBSIDIARIES

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

and June 30, 2005, respectively. The associated allowance for impaired loans was
$881 thousand,  $897 thousand,  and $1.0 million at June 30, 2006,  December 31,
2005, and June 30, 2005, respectively.

For the three  and  six-month  periods  ended  June 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 six-month periods ended June 30, 2006.  Contractual interest
amounted  to $167  thousand  for the  three-months  ended June 30, 2006 and $315
thousand  for the  six-months  ended  June 30,  2006.  Total cash  collected  on
non-accrual  loans for the three and  six-month  periods ended June 30, 2006 was
$23  thousand  and $1.1  million,  respectively,  all of which  was  applied  to
principal. Loans returned to performing for the three month and six-month period
ended June 30, 2006 was $0 thousand and $222 thousand.

                               NON-INTEREST INCOME

Total  non-interest  income increased 12.7% or $273 thousand to $2.4 million for
the three months ended June 30, 2006,  when compared to the same period in 2005.
For the  six-month  period  ended  June  30,  2006,  total  non-interest  income
increased 2.4% or $108 thousand to $4.5 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  increased  25.9% and 8.0% to $900 thousand and $1.7 million for
the three and six-month periods June 30, 2006,  respectively,  compared with the
same periods in 2005. The increase in trust and investment  services  revenue 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  $29  thousand  or 6.1% to $507
thousand  for the  three-month  period  ended  June 30,  2006  compared  to $478
thousand for the same period in 2005.  For the  six-month  period ended June 30,
2006, service charges on deposit accounts increased 1.1% to 960 thousand for the
three month  period ended June 30, 2006  compared to $950  thousand 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.

The  corporation  recognized a net loss of $80  thousand on sales of  investment
securities  during the six-month  period ended June 30, 2006 compared with a net
gain of $60 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 six-month  period ended June 30,
2006  increased  14.4% and 15.9%,  to $278  thousand and $546 thousand from $243
thousand and $471 thousand,  respectively,  when compared to the same periods in
2005.

Gains on the sale of premises and OREO were $9 thousand and $19 thousand for the
three and  six-months  ended June 30,  2006 as compared to losses of $7 thousand
for the same periods in 2005. The  Corporation  held no OREO  properties at June
30, 2006.


                                       20
<PAGE>


                FIRST CHESTER COUNTY CORPORATION AND SUBSIDIARIES

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

Gains and fee income  generated  on the sale of  residential  mortgages  for the
three and  six-month  period ended June 30, 2006  decreased $26 thousand and $29
thousand  from $113 thousand and $194 thousand to $87 thousand and $165 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 June 30, 2006 as compared to the same period in 2005.

Other  non-interest  income  increased 4.2% or $26 thousand for the  three-month
period  ended June 30,  2006  compared to $618  thousand  for the same period in
2005. For the six-month  period ended June 30, 2006, other  non-interest  income
increased  3.4% or $40 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  decreased $90 thousand or 1.1% to $7.7 million and
$380 thousand or 2.4% to $15.4 million for the three and six-month periods ended
June 30, 2006,  compared to the same periods in 2005. The various  components of
non-interest expense are discussed below.

Salaries and employee  benefits  increased  1.2% or $50 thousand to $4.1 million
and 4.2% or $345  thousand to $8.5  million for the  three-month  and  six-month
periods ended June 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 plan 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 remained constant at $1.4
million  for the  three-month  period  ended  June 30,  2006 and  decreased  $31
thousand or 1.1% to $2.8  million for the  six-month  period ended June 30, 2006
when compared to the same periods in 2005. The decrease for the six months ended
June 30,  2006 can be  attributed  to higher  costs  during the first and second
quarters of 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.

Depreciation  on  operating  leases  increased  $30  thousand  or  14.2% to $242
thousand and $60 thousand or 14.5% to $473  thousand for the three and six-month
periods  ended June 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  $126  thousand or 22.3% to $439
thousand and $458 thousand or 33.7% to $903 thousand for the three and six-month
periods  ended June 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.


                                       21
<PAGE>


                FIRST CHESTER COUNTY CORPORATION AND SUBSIDIARIES

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

Total other  non-interest  expense decreased $52 thousand or 3.9% to 1.3 million
and $402 thousand or 15.3% to $2.2 million for the three and  six-month  periods
ended June 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 largely 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  six-month  periods ended June 30, 2006 was
$833 thousand and $1.5 million,  compared to $429 thousand and $839 thousand for
the same periods in 2005.  This  represents  an effective  tax rate of 28.6% and
28.3% for the three and  six-month  periods  ended June 30, 2006  compared  with
28.6% and 28.6% 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:



                                       22
<PAGE>


                FIRST CHESTER COUNTY CORPORATION AND SUBSIDIARIES

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

                                DEPOSIT ANALYSIS

<TABLE>
<CAPTION>
                                    For the Six Months Ended        For the Year Ended
(Dollars in thousands)                     June 30, 2006              December 31, 2005
                                     ------------------------     ------------------------
                                     Average      Effective        Average       Effective
DEPOSIT TYPE                         Balance        Yield          Balance         Yield
------------                        ---------     ---------       ---------      ---------

<S>                                 <C>             <C>           <C>              <C>
NOW Accounts                        $ 123,878       1.41%         $ 125,755        1.20%
Money Market                           76,052       3.47%            53,946        1.17%
Statement Savings                      52,116       0.79%            56,653        0.80%
Other Savings                             886       0.45%               932        0.75%
CD's Less than $100,000               155,692       3.85%           129,058        2.63%
                                    ---------                     ---------

Total Core Deposits                   408,624       2.64%           366,344        1.64%

Non-Interest Bearing
Demand Deposit Accounts               129,028         --            128,404          --
                                    ---------                     ---------

Total Core and Non-Interest
  Bearing Deposits                    537,652       2.01%           494,748        1.21%
                                    ---------                     ---------

Tiered Savings                        119,693       1.50%           133,158        1.58%
CD's Greater than $100,000             45,107       3.73%            78,684        2.41%
                                    ---------                     ---------

Total Deposits                      $ 702,452       2.03%         $ 706,590        1.42%
                                    ---------                     ---------
</TABLE>


The Bank, as a member of the FHLB,  maintains several credit facilities.  During
the three and six-month periods ending June 30, 2006, average FHLB advances were
approximately  $63.5 million and $67.1 million,  respectively,  and consisted of
term advances representing a variety of maturities. The average interest rate on
these advances was 4.0% and 3.8%, respectively. The Bank currently has a maximum
borrowing capacity with the FHLB of approximately $221.7 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  $263.9 million or
30.2% of total assets at June 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


                                       23
<PAGE>


                FIRST CHESTER COUNTY CORPORATION AND SUBSIDIARIES

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

management uses to evaluate  interest rate risk is a computer  simulation  model
that  assesses the impact of changes in 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,  all  results are within  policy
limits and  indicate  an  acceptable  level 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 JUNE 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                        $  52,300     $       0    $       0    $       0    $   52,300
   Investment securities                        20,850        45,445       26,910            0        93,205
   Interest bearing deposits in banks              286             0            0            0           286
   Net loans and leases                        237,488       326,517      122,382       (8,251)      678,136
   Cash and due from banks                           0             0            0       27,380        27,380
   Premises and equipment                            0             0            0       13,460        13,460
   Other assets                                      0             0            0       10,324        10,324
                                             ---------     ---------    ---------    ---------    ----------
   Total assets                              $ 310,924     $ 371,962    $ 149,292    $  42,913    $  875,091
                                              ========     =========    =========    =========    ==========

LIABILITIES AND CAPITAL
   Non-interest bearing deposits             $       0     $       0    $       0    $ 133,790    $  133,790
   Interest bearing deposits                   548,223        39,406        9,700            0       597,329
   FHLB advances and other                      11,170        43,022        7,429            0        61,621
   Junior subordinated debentures               15,465             0            0            0        15,465
   Other liabilities                                 8             0        5,863            0         5,871
   Capital                                           0             0            0       61,015        61,015
                                             ---------     ---------    ---------    ---------    ----------

   Total liabilities & capital               $ 574,866     $  82,428    $  22,992    $ 194,805    $  875,091
                                             =========     =========    =========    =========    ==========

   Net interest rate
      sensitivity gap                        $(263,942)    $ 289,534    $ 126,300    $(151,892)
                                              ========     =========    =========    ========
   Cumulative interest rate
      sensitivity gap                        $(263,942)    $  25,592    $ 151,892   $        0
                                              ========     =========    =========    =========
   Cumulative interest rate
      sensitivity gap divided
      by total assets                         (30.2%)           2.9%        17.4%
                                            ========       =========    =========

</TABLE>


                                       24
<PAGE>


                FIRST CHESTER COUNTY CORPORATION AND SUBSIDIARIES

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

                        BRANCHING AND TECHNOLOGY 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.

                                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 June 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>

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

     Corporation
     -----------
<S>                                    <C>         <C>               <C>                       <C>
Leverage Ratio                          9.16%        8.91%            8.80%                      N/A
Tier I Capital Ratio                   11.06%       10.50%           10.94%                      N/A
Total Risk-Based Capital Ratio         12.22%       11.67%           12.19%                      N/A
     Bank
     ----
Leverage Ratio                          8.45%        8.19%            8.14%                     5.00%
Tier I Capital Ratio                   10.15%        9.61%           10.08%                     6.00%
Total Risk-Based Capital Ratio         11.32%       10.78%           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.


                                       25
<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  two  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.


                                       26
<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

                      ISSUER PURCHASES OF EQUITY SECURITIES
<TABLE>
<CAPTION>

                              (a)           (b)             (c)                      (d)
                           ----------    ----------   -----------------   -------------------------
                             Total                   Total Number of         Maximum Number (or
                           Number of     Average     Shares (or Units)   Approximate Dollar Value)
         Period            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>
April 1 to April 30, 2006     --            --              --                  $10,000,000

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

June 1 to June 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.


                                       27
<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

The Annual Meeting of Shareholders of the Corporation was held on April 18, 2006
(the  "Meeting").  Notice of the Meeting was mailed to shareholders of record on
or about March 17, 2006, together with proxy solicitation  materials prepared in
accordance  with  Section  14(a) of the  Securities  Exchange  Act of  1934,  as
amended, and the regulations promulgated there under.

The only  matter  submitted  to a vote of  shareholders  at the  meeting was the
election of four Class I directors.

There  was no  solicitation  in  opposition  to the  nominees  of the  Board  of
Directors for election to the Board of Directors.  All four of the nominees were
elected.  The  number of votes  cast for or  withheld  as well as the  number of
abstentions  and broker  non-votes  for each of the nominees for election to the
Board of Directors were as follows:

                Nominee                     For          Withheld
           -------------------------    -----------    ------------
           John J. Ciccarone             3,999,927       176,322

           Clifford E. DeBaptiste        3,994,081       182,168

           John B. Waldron               3,997,959       178,290

           Lynn Marie Johnson-Porter     3,989,837       186,442


The names of the other  directors  whose terms of office as directors  continued
after the meeting are as follows:  M. Robert Clarke,  David L. Peirce,  Kevin C.
Quinn,  John A. Featherman,  III, John Halsted,  J. Carol Hanson,  and Edward A.
Leo.

There was no other business that came before the meeting or matters  incident to
the conduct of the Meeting.



                                       28
<PAGE>



                FIRST CHESTER COUNTY CORPORATION AND SUBSIDIARIES

                     PART II - OTHER INFORMATION - CONTINUED

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*


                                       29
<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
                                    -----------------------------------
         August 8, 2006            John A. Featherman, III
                                    Chief Executive Officer




          August 8, 2006           /s/ John E. Balzarini
                                    -----------------------------------
                                    John E. Balzarini
                                    Chief Financial Officer
                                    (Principal Financial and Accounting Officer)


                                       30
<PAGE>


                FIRST CHESTER COUNTY CORPORATION AND SUBSIDIARIES

                                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, 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*


                                       31
<PAGE>