10-K

FIRST CHESTER COUNTY CORPORATION AND SUBSIDIARIES

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

(Mark One)

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

For the fiscal year ended December 31, 2007, OR

o 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	(I.R.S. Employer
incorporation or organization)	Identification No.)

     9 North High Street, West Chester, Pennsylvania         19380       

(Address of principal executive offices)          

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

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class	Name of Each Exchange on Which Registered
None	None

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, par value $1.00 per share

(Title of Class)

Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ___ No X

Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ___ No X

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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ( __ )

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one): Large accelerated filer _______ Accelerated filer X Non-accelerated filer (do not check if smaller reporting company) _______

Smaller reporting company _______

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FIRST CHESTER COUNTY CORPORATION AND SUBSIDIARIES

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 aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the Registrant’s most recently completed second fiscal quarter: $93,985,586.

The number of shares outstanding of Common Stock of the Registrant as of February 26, 2008, was 5,191,693.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrant’s definitive Proxy Statement for its 2008 Annual Meeting of Shareholders, which definitive Proxy Statement will be filed with the Securities and Exchange Commission not later than 120 days after the Registrant’s year end at December 31, 2007, are incorporated by reference into Part III of this Form 10-K.

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FIRST CHESTER COUNTY CORPORATION AND SUBSIDIARIES

		TABLE OF CONTENTS
			PAGE
PART I:	Item 1	Business	4 - 9
	Item 1A	Risk Factors	10 - 12
	Item 1B	Unresolved Staff Comments	12
	Item 2	Properties	13 - 14
	Item 3	Legal Proceedings	15
	Item 4	Submission of Matters to a Vote of Security Holders	15
PART II:	Item 5	Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	15 - 16
	Item 6	Selected Financial Data	17
	Item 7	Management’s Discussion and Analysis of Financial Condition and Results of Operation	18 - 36
	Item 7A	Quantitative and Qualitative Disclosures about Market Risk	36 - 38
	Item 8	Financial Statements and Supplementary Data	39 - 67
	Item 9	Changes In and Disagreements with Accountants on Accounting and Financial Disclosure	68
	Item 9A	Controls and Procedures	68-70
	Item 9B	Other Information	71
PART III:	Item 10	Directors, Executive Officers and Corporate Governance	71
	Item 11	Executive Compensation	71
	Item 12	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	71
	Item 13	Certain Relationships and Related Transactions and Director Independence	72
	Item 14	Principal Accountant Fees and Services	72
PART IV:	Item 15	Exhibits, Financial Statements and Schedules	72-75
SIGNATURES			76-77

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FIRST CHESTER COUNTY CORPORATION AND SUBSIDIARIES

PART I

Item 1. Business.

First Chester County Corporation (the “Corporation”) may, from time to time, make written or oral “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, including statements contained in the Corporation’s filings with the Securities and Exchange Commission (including this Report on Form 10-K), its reports to shareholders and in other communications by the Corporation. 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. Also, future results may differ materially from the Corporation’s historic results. The risks and uncertainties described in this Report, among others, could cause the Corporation’s actual future results to differ materially from those described in forward-looking statements made in this Report, or presented elsewhere by Management from time to time, or from the Corporation’s historic results. The most significant of these risks and uncertainties are discussed in Item 1A, “Risk Factors.” Additional discussion may be included in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and elsewhere in this Report. We are not obligated to update our forward-looking statements, even though our situation may change in the future.

GENERAL

The Corporation is a Pennsylvania corporation and a bank holding company registered under the Federal Bank Holding Company Act of 1956, as amended (the “BHC Act”). As a bank holding company, the Corporation’s operations are confined to the ownership and operation of banks and activities deemed by the Board of Governors of the Federal Reserve System (the “Federal Reserve Board”) to be so closely related to banking to be a proper incident thereto. The Corporation was incorporated on March 9, 1984, for the purpose of becoming a registered bank holding company pursuant to the BHC Act and acquiring First National Bank of Chester County, formerly known as The First National Bank of West Chester (the “Bank”), thereby enabling the Bank to operate within a bank holding company structure. On September 13, 1984, the Corporation acquired all of the issued and outstanding shares of common stock of the Bank. The principal activities of the Corporation are the owning and supervising of the Bank, which engages in a general banking business based in Chester County, Pennsylvania. The Corporation directs the policies and coordinates the financial resources of the Bank. In addition, the Corporation is the sole shareholder of Turks Head Properties, Inc., a Pennsylvania corporation, which was formed in 1994, and Turks Head II LLC, which was formed in 2003, each of which serves the purpose of holding the Bank’s interests in and operating foreclosed real property until liquidation of such properties. First Chester County Capital Trust I, which was formed on July 2, 2002, First Chester County Capital Trust II, which was formed on November 13, 2003, and First Chester County Capital Trust III, which was formed on June 29, 2007, are special purpose statutory trusts created expressly for the issuance of preferred capital securities and investing the proceeds therefrom in subordinated debt of the Corporation. The Bank has two other wholly-owned subsidiaries, FNB Insurance Services, LLC, doing business as First National Financial Advisory Services (formerly, First National Wealth Advisory Services), and FNB Properties, LLC. First National Wealth Advisory Services offers insurance, full-service brokerage, financial planning and mutual fund services. FNB Properties, LLC acts as property manager for the properties where the Bank’s Lionville and New Garden branches are located. On August 5, 2001, the Corporation became a financial holding company pursuant to the Gramm-Leach-Bliley Act of 1999.

The Corporation’s filings with the SEC including its annual report on Form 10-K, quarterly reports on Form 10-Q, periodic reports on Form 8-K, and amendments to these reports, are accessible free of charge at our website at http://www.1nbank.com as soon as reasonably practicable after filing with the SEC. By making this reference to our website, we do not intend to incorporate into this report any information contained in the website. The website should not be considered part of this Report.

The SEC maintains a website at http:///www.sec.gov that contains reports, proxy and information statements, and other information free of charge regarding issuers, including the Corporation, that file electronically with the SEC.

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FIRST CHESTER COUNTY CORPORATION AND SUBSIDIARIES

BUSINESS OF THE BANK

The Bank is engaged in the business of commercial and retail banking and was organized under the banking laws of the United States in December 1863. The Bank currently conducts its business through twenty two banking offices located in Chester and Delaware Counties, Pennsylvania, including its main office. In addition, the Bank operates 26 ATM facilities. The Bank is a member of the Federal Reserve System. At December 31, 2007, the Bank had total assets of $914.8 million, total loans of $743.4 million, total deposits of $704.9 million and employed 265 persons, of which 244 were full-time and 21 were part-time.

The Bank is a full service commercial bank offering a broad range of retail banking, commercial banking, Internet banking, trust and investment management and insurance services to individuals, businesses, governmental entities, nonprofit organizations, and community service groups. Retail services include checking accounts, savings programs, money-market accounts, certificates of deposit, safe deposit facilities, consumer loan programs, residential mortgages, overdraft checking, automated tellers and extended banking hours. Commercial services include revolving lines of credit, commercial mortgages, equipment leasing and letter of credit services.

These retail and commercial banking activities are provided primarily to consumers and small to mid-sized companies within the Bank’s market area. Lending services are focused on commercial, consumer, and real estate lending to local borrowers. The Bank attempts to establish a total borrowing relationship with its customers that may typically include commercial loans, a mortgage loan for the borrower’s residence, a consumer loan or a revolving personal credit line.

The Bank’s Wealth Management Division provides a broad range of trust and investment management services. It administers and provides services for estates, trusts, agency accounts, and individual and employer sponsored retirement plans. At December 31, 2007, the Bank’s Wealth Management Division administered or provided investment management services to accounts that held assets with an aggregate market value of approximately $591.3 million. For the year ended December 31, 2007, income from the Bank’s Wealth Management Division and related activities was approximately $3.6 million.

In addition to retail and commercial banking and wealth management services, the Bank offers an array of investment opportunities including mutual funds, annuities, retirement planning, education planning and insurance through the Financial Advisory Services subsidiary.

COMPETITION

The Bank’s service area consists primarily of greater Chester County, as well as the fringe of Delaware County, Pennsylvania. The core of the Bank’s service area is located within a fifteen-mile radius of the Bank’s main office in West Chester, Pennsylvania. The Bank encounters vigorous competition for market share in the communities it serves from bank holding companies, other community banks, thrift institutions, credit unions, Internet banks and other non-bank financial organizations such as mutual fund companies, brokerage firms, and the financing arms of corporate conglomerates. The Bank also competes with banking and financial institutions, some from out-of-state that have opened branches in the Bank’s market, which are substantially larger and have greater financial resources than the Bank.

The Bank’s Wealth Management Division competes with a variety of companies including private trust companies, banks with trust departments, private money managers, brokerage firms, mutual fund companies, attorneys, accountants and insurance companies.

Management believes that the Bank is able to effectively compete with its competitors because of its ability to provide responsive personalized services and competitive rates. This ability is a direct result of Management’s knowledge of the Bank’s market area and customer base. Management believes the needs of the small to mid-sized commercial business and retail customers are not adequately met by larger financial institutions, therefore creating a marketing opportunity for the Bank.

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FIRST CHESTER COUNTY CORPORATION AND SUBSIDIARIES

SUPERVISION AND REGULATION

General

The Corporation is a bank holding company and financial holding company subject to supervision and regulation by the Federal Reserve Board. In addition, the Bank is subject to supervision, regulation and examination by the Office of the Comptroller of the Currency (the “OCC”) and secondary regulation by the Federal Deposit Insurance Corporation (the “FDIC”). The OCC must approve bank mergers, if the surviving bank would be a national bank, as well as the establishment of new branches. Federal and state laws impose a number of requirements and restrictions on the operations of the Bank, including requirements to maintain reserves against deposits, restrictions on the types and amounts of loans that may be made and the types of services which may be offered, and restrictions on the ability to acquire deposits under certain circumstances. The Bank must also comply with various consumer laws and regulations. Certain aspects of the Bank’s operation are also subject to state laws. The following sections discuss more fully some of the principal elements of the regulatory framework applicable to the Corporation and the Bank. This discussion is not intended to be an exhaustive description of the statutes and regulations applicable to the Corporation and the Bank and is subject to and qualified by reference to the statutory and regulatory provisions. A change in these statutes, regulations or regulatory policies, or the adoption of new statutes, regulations or regulatory policies, may have a material effect on the Corporation’s business.

Bank Holding Company Act

The Corporation is required to file with the Federal Reserve Board an annual report, other periodic reports, and such additional information as the Federal Reserve Board may require pursuant to the BHC Act. The Federal Reserve Board also makes examinations of bank holding companies and their subsidiaries. The BHC Act requires each bank holding company to obtain the prior approval of the Federal Reserve Board before it may acquire substantially all of the assets of any bank, or if it would acquire or control more than 5% of the voting shares of such a bank. The Federal Reserve Board considers numerous factors, including its capital adequacy guidelines, before approving such acquisitions. For a description of certain applicable guidelines, see this Item “Capital,” Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations -- Capital Adequacy,” and Part II, Item 8, “Note K -- Regulatory Matters” in the consolidated financial statements.

The Community Reinvestment Act

The Community Reinvestment Act of 1977, as amended (the “CRA”), and the regulations promulgated to implement the CRA are designed to create a system for bank regulatory agencies to evaluate a depository institution’s record in meeting the credit needs of its community. The CRA regulations were completely revised in 1995 to establish performance-based standards for use in examining a depository institution’s compliance with the CRA (the “revised CRA regulations”). The revised CRA regulations establish new tests for evaluating both small and large depository institutions’ investment in the community. For the purposes of the revised CRA regulations, the Bank is deemed to be a large retail institution, based upon financial information as of December 31, 2007. In connection with its assessment of CRA performance, the FDIC assigns a rating of “outstanding,” “satisfactory,” “needs to improve,” or “substantial compliance.” The Bank has opted to be examined under a three-part test evaluating the Bank’s lending service and investment performance. The Bank received an outstanding rating at its last regulatory examination in May 2005.

Dividend Restrictions

The Corporation is a legal entity separate and distinct from the Bank. Virtually all of the revenue of the Corporation available for payment of dividends on its Common Stock will result from amounts paid to the Corporation from dividends received from the Bank. All such dividends are subject to limitations imposed by federal and state laws and by regulations and policies adopted by federal and state regulatory agencies.

The Bank, as a national bank, is required by federal law to obtain the approval of the OCC for the payment of dividends if the total of all dividends declared by the Board of Directors of the Bank in any calendar year will exceed the total of the Bank’s net income for that year and the retained net income for the preceding two years, less any required transfers to surplus or a fund for the retirement of any preferred stock. Under this formula, in 2008, the Bank, without affirmative governmental approvals, could declare aggregate dividends of approximately $8.8 million, plus an amount approximately equal to the net income, if any, earned by the Bank for the period from January 1, 2008, through the date of declaration of such dividend less dividends previously paid, subject to the further limitations that a national bank can pay dividends only to the extent that retained net profits (including the portion transferred to surplus) exceed bad debts and

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FIRST CHESTER COUNTY CORPORATION AND SUBSIDIARIES

provided that the Bank would not become “undercapitalized” (as these terms are defined under federal law). Dividends declared and paid in 2007 were $4.5 million.

If, in the opinion of the applicable regulatory authority, a bank or bank holding company under its jurisdiction is engaged in or is about to engage in an unsafe or unsound practice (which, depending on the financial condition of the bank or bank holding company, could include the payment of dividends), such regulatory authority may require such bank or bank holding company to cease and desist from such practice, or to limit dividends in the future. Finally, the several regulatory authorities described herein may, from time to time, establish guidelines, issue policy statements and adopt regulations with respect to the maintenance of appropriate levels of capital by a bank or bank holding company under their jurisdiction. Compliance with the standards set forth in such policy statements, guidelines and regulations could limit the amount of dividends which the Corporation and the Bank may pay.

Capital

The Corporation and the Bank are both subject to minimum capital requirements and guidelines. The Federal Reserve Board measures capital adequacy for bank holding companies on the basis of a risk-based capital framework and a leverage ratio. The Federal Reserve Board has established minimum leverage ratio guidelines for bank holding companies. These guidelines currently provide for a minimum leverage ratio of Tier I Capital to average total assets of 3% for bank holding companies that meet certain criteria, including that they maintain the highest regulatory rating. All other bank holding companies are required to maintain a leverage ratio of 3% plus an additional cushion of at least 100 to 200 basis points. The Federal Reserve Board has not advised the Corporation of any specific minimum leverage ratio under these guidelines which would be applicable to the Corporation. Failure to satisfy regulators that a bank holding company will comply fully with capital adequacy guidelines upon consummation of an acquisition may impede the ability of a bank holding company to consummate such acquisition, particularly if the acquisition involves payment of consideration other than common stock. In many cases, the regulatory agencies will not approve acquisitions by bank holding companies and banks unless their capital ratios are well above regulatory minimums.

The Bank is subject to capital requirements which generally are similar to those affecting the Corporation. The minimum ratio of total Risk-Based Capital to Risk-Weighted assets (including certain off-balance sheet items, such as standby letters of credit) is 8%. Capital may consist of equity and qualifying perpetual preferred stock, less goodwill (“Tier I Capital”), and certain convertible debt securities, qualifying subordinated debt, other preferred stock and a portion of the reserve for possible credit losses (“Tier II Capital”). Trust preferred securities may be included in Tier I Capital, subject to certain quantitative limits. The aggregate amount of trust preferred securities and certain other capital elements is 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 other restrictions. As described elsewhere in this report, the Corporation has $15.5 million in outstanding trust preferred securities which is includable in Tier I Capital.

A depository institution’s capital classification depends upon its capital levels in relation to various relevant capital measures, which include a Risk-Based Capital measure and a leverage ratio capital measure. A depository institution is considered well capitalized if it significantly exceeds the minimum level required by regulation for each relevant capital measure, adequately capitalized if it meets each such measure, undercapitalized if it fails to meet any such measure, significantly undercapitalized if it is significantly below any such measure and critically undercapitalized if it fails to meet any critical capital level set forth in the regulations. An institution may be placed in a lower capitalization category if it receives an unsatisfactory examination rating, is deemed to be in an unsafe or unsound condition, or engages in unsafe or unsound practices. Under applicable regulations, for an institution to be well capitalized it must have a Total Risk-Based Capital ratio of at least 10%, a Tier I Capital ratio of at least 6% and a Leverage ratio of at least 5% and not be subject to any specific capital order or directive. As of December 31, 2007 and 2006, the Corporation and the Bank had capital in excess of all regulatory minimums and the Bank was “well capitalized.”

Deposit Insurance Assessments

Prior to March 31, 2006, the Bank was subject to deposit insurance assessments by the FDIC’s Bank Insurance Fund (“BIF”). On February 8, 2006, the President signed The Federal Deposit Insurance Reform Act of 2005, and, on February 15, 2006, the President signed into law The Federal Deposit Insurance Reform Conforming Amendments Act of 2005 (collectively, the Reform Act). The Reform Act provided for various changes to the FDIC’s insurance program, including the merger of the BIF and the Savings Association Insurance Fund (“SAIF”) into a new fund, the Deposit Insurance Fund (“DIF”), effective March 31, 2006.

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FIRST CHESTER COUNTY CORPORATION AND SUBSIDIARIES

The Reform Act implemented a complex risk-based assessment system, under which the assessment rate for an insured depository institution varies according to its level of risk. An institution’s risk category is based upon whether the institution is well capitalized, adequately capitalized or undercapitalized and the institution’s “supervisory subgroups”: Subgroup A, B or C. Subgroup A institutions are financially sound institutions with a few minor weaknesses; Subgroup B institutions are institutions that demonstrate weaknesses which, if not corrected, could result in significant deterioration; and Subgroup C institutions are institutions for which there is a substantial probability that the FDIC will suffer a loss in connection with the institution unless effective action is taken to correct the areas of weakness. Based on its capital and supervisory subgroups, each DIF member institution is assigned an annual FDIC assessment rate per $100 of insured deposits varying between 5 basis points per annum (for well capitalized Subgroup A institutions) and 43 basis points per annum (for undercapitalized Subgroup C institutions). The Bank’s Subgroup for 2007 was A. Prior to enactment of the Reform Act, the Bank was not required to pay any FDIC assessments. To help offset the new DIF assessment, the Bank received a one-time assessment credit. The assessment credit offset $416 thousand of deposit insurance premiums for 2007 and will partially offset the cost of such premiums for 2008. At December 31, 2007, $66 thousand of assessment credit remained available to offset 2008 premiums. Such increases in FDIC assessments will be an additional expense to the Corporation and, thus, will affect the Corporation’s net income in 2008 and subsequent years.

In accordance with the Deposit Insurance Act of 1997 an additional assessment by the Financing Corporation (“FICO”) became applicable to all insured institutions as of January 1, 1998. This assessment is not tied to the FDIC risk classification. The FICO assessment rates effective for the fourth quarter 2007 and the first quarter of 2008 were 1.30 basis points per $100 of DIF assessable deposits and 1.29 basis points, respectively. FICO deposit insurance expense was $87 thousand, $88 thousand and $91 thousand for the years 2007, 2006 and 2005.

Financial Services Modernization Act of 1999

On November 12, 1999, the President signed into law the Gramm-Leach-Bliley Act (the “Act”) which became effective in 2000. Among the Act’s various provisions are some changes governing the operations of companies doing business in the financial services industry. The Act eliminates many of the restrictions previously placed on the activities of banks and bank holding companies, and through the creation of two new designations, financial holding companies and financial subsidiaries, bank holding companies and national banks may participate in a wider array of financial services and products (referred to as “financial activities” in the Act), including services and products that had been reserved only for insurance companies and securities firms. In addition, a bank holding company can now affiliate with an insurance company and a securities firm.

A “financial activity” is an activity that does not pose a safety and soundness risk and is financial in nature, incidental to an activity that is financial in nature, or complementary to a financial activity. Some examples of “financial activities” which are permitted under the Act are:

• Lending, investing or safeguarding money or securities;

• Underwriting insurance or annuities, or acting as an insurance or annuity principal, agent or broker;

• Providing financial or investment advice;

• Underwriting, dealing in or making markets in securities; and

• Insurance company portfolio investments.

The Corporation elected to become a financial holding company on August 5, 2001, and currently meets the qualifications set forth under the Act to be a financial holding company. The Bank, as a national bank, is authorized by the Act to use “financial subsidiaries” to engage in financial activities, subject to the limitations imposed by the Act. During 2000, First National Financial Advisory Services was formed as a wholly-owned subsidiary of the Bank for the purpose of offering insurance, full service brokerage, financial planning and mutual fund services. First National Financial Advisory Services has elected to become a financial subsidiary under the Act.

Control Acquisitions

The Change in Bank Control Act prohibits a person or group of persons from acquiring “control” of a bank holding company, unless the Federal Reserve Board has been notified and has not objected to the transaction. Under a rebuttable presumption established by the Federal Reserve Board, the acquisition of ten percent or more of a class of voting stock of a bank holding company with a class of securities registered under Section 12 of the Exchange Act, such as the Corporation, would, under the circumstances set forth in the presumption, constitute acquisition of control of the bank holding company.

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FIRST CHESTER COUNTY CORPORATION AND SUBSIDIARIES

In addition, as described above, under the BHC Act, the Federal Reserve Board must give its prior approval of any transaction pursuant to which any person or persons may acquire 25 percent (5 percent in the case of an acquirer that is a bank holding company) or more of any class of outstanding common stock of a bank holding company, such as the Corporation, or otherwise obtaining control or a “controlling influence” over that bank holding company. See this Item, “Bank Holding Company Act”.

The USA Patriot Act

The Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism of 2002 (the “USA Patriot Act”) gives the federal government new powers to address terrorist threats through enhanced domestic security measures, expanded surveillance powers, increased information sharing, and broadened anti-money laundering requirements. Through amendments to the Bank Secrecy Act, the USA Patriot Act takes measures intended to encourage information sharing among bank regulatory agencies and law enforcement agencies. Among other requirements, the USA Patriot Act requires banks to establish anti-money laundering policies, to adopt procedures and controls to detect and report money laundering, and to comply with certain enhanced recordkeeping obligations and due diligence standards with respect to correspondent accounts of foreign banks. Congress is currently considering some changes to the USA Patriot Act; however, these changes will generally not affect the provisions pertaining to commercial banking activities. Compliance with these new requirements has not had a material effect on the Corporation’s operations.

Other Matters

Federal and state law also contains a variety of other provisions that affect the operations of the Corporation and the Bank including certain reporting requirements, regulatory standards and guidelines for real estate lending, “truth in savings” provisions, the requirement that a depository institution give 90 days prior notice to customers and regulatory authorities before closing any branch, certain restrictions on investments and activities of nationally-chartered insured banks and their subsidiaries, limitations on credit exposure between banks, restrictions on loans to a bank’s insiders, guidelines governing regulatory examinations, and a prohibition on the acceptance or renewal of brokered deposits by depository institutions that are not well capitalized or are adequately capitalized and have not received a waiver from the FDIC.

EFFECT OF GOVERNMENTAL POLICIES

The earnings of the Bank and, therefore, of the Corporation are affected not only by domestic and foreign economic conditions, but also by the monetary and fiscal policies of the United States and its agencies (particularly the Federal Reserve Board), foreign governments and other official agencies. The Federal Reserve Board can and does implement national monetary policy, such as the curbing of inflation and combating of recession, by its open market operations in United States government securities, control of the discount rate applicable to borrowings from the Federal Reserve and the establishment of reserve requirements against deposits and certain liabilities of depository institutions. The actions of the Federal Reserve Board influence the level of loans, investments and deposits and also affect interest rates charged on loans or paid on deposits. The nature and impact of future changes in monetary and fiscal policies are not predictable.

From time to time, various proposals are made in the United States Congress and the Pennsylvania legislature and before various regulatory authorities, who would alter the powers of different types of banking organizations, remove restrictions on such organizations and change the existing regulatory framework for banks, bank holding companies and other financial institutions. It is impossible to predict whether any of such proposals will be adopted and the impact, if any, of such adoption on the business of the Corporation.

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FIRST CHESTER COUNTY CORPORATION AND SUBSIDIARIES

Item 1A. RISK FACTORS

The following are some of the factors that could materially and adversely affect our future performance or could cause actual results to differ materially from those expressed or implied in our forward-looking statements. The risks and uncertainties described below are not the only ones facing us and we cannot predict every event and circumstance that may adversely affect our business. However, these risks and uncertainties are the most significant factors that we have identified at this time. If one or more of these risks actually occurs, our business, results of operations, and financial condition could likely suffer, and the price of our stock would be negatively affected. Unless the context requires otherwise, references to “we,” “us,” or “our” in this “Risk Factors” section are intended to mean First Chester County Corporation, First National Bank of Chester County and its other wholly-owned subsidiaries, collectively.

Adverse changes in the economic conditions in our market area could materially and negatively affect our business.

Substantially all of our business is with consumers and small to mid-sized companies located within Chester and Delaware Counties, Pennsylvania. Our business is directly impacted by factors such as economic, political and market conditions, broad trends in industry and finance, legislative and regulatory changes, changes in government monetary and fiscal policies and inflation, all of which are beyond our control. A deterioration in economic conditions, whether caused by national, regional or local concerns, including an economic slowdown in southeastern Pennsylvania, could result in the following consequences, any of which could materially harm our business and operating results:

• customer’s credit quality may deteriorate;

• loan delinquencies and losses may increase;

• problem assets and foreclosures may increase;

• need to increase our allowance for loan and lease losses, thus reducing net income;

• more non-accrual loans may reduce net income;

• demand for our products and services may decrease;

• competition for low cost or non-interest bearing deposits may increase; and

• collateral securing loans may decline in value.

Competitive pressures from banks, financial services companies and other companies offering banking services could negatively impact our business.

We conduct banking operations primarily in southeastern Pennsylvania. Increased competition in our market area may result in reduced loans and deposits, a decline in loan growth and/or loan margins, high customer turnover, and lower interest rate margins. We may not be able to compete successfully against current and future competitors. Many competitors in our market area, including national banks, regional banks and other community banks, offer the same banking services as we offer. We also face competition from many other types of financial institutions, including without limitation, savings and loan institutions, finance companies, brokerage firms, insurance companies, credit unions, mortgage banks and other financial intermediaries. These competitors often have greater resources than we do, affording them competitive advantages, including the ability to maintain numerous banking locations and ATMs and conduct extensive promotional and advertising campaigns.

Changes in interest rates could reduce our net interest margin and net interest income.

Our income and cash flows and the value of our assets and liabilities depend to a great extent on the difference between the interest rates earned on interest-earning assets such as loans and investment securities, and the interest rates paid on interest-bearing liabilities such as deposits and borrowings. These interest rates are highly sensitive to many factors which are beyond our control, including general economic conditions and policies of various governmental and regulatory agencies, in particular, the Federal Reserve and the Office of Comptroller of Currency. Changes in monetary policy, including changes in interest rates, will influence the origination and market value of loans and investment securities and the amounts paid on deposits. If we are unable to timely adjust our interest rates on our loans and deposits in response to any such changes in monetary policy, our earnings could be adversely affected. If the rate of interest we pay on our deposits, borrowings, and other interest-bearing liabilities increases faster than the rate of interest we earn on our loans, investments and other interest-earning assets, our net interest income, and therefore our earnings will decrease. Conversely, our earnings could also be adversely affected if the interest rates on our loans or other investments decline more quickly than those on our deposits and other borrowings.

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FIRST CHESTER COUNTY CORPORATION AND SUBSIDIARIES

Significant increases in interest rates may affect customer loan demand and payment habits.

Significant increases in market interest rates, or the perception that an increase may occur, could adversely impact our ability to generate new variable interest rate loans. An increase in market interest rates may also adversely affect the ability of adjustable rate borrowers to meet repayment obligations, thereby causing non-performing loans and loan charge-offs to increase.

We may experience lower net interest income if our loan growth exceeds that of deposit growth requiring us to obtain other sources of funds at higher costs.

Our growth strategy depends upon generating an increasing level of loans while maintaining a low level of loan losses. As our loans grow, it is necessary for the deposits to grow at a comparable pace in order to avoid the need for us to obtain other sources of loan funds at higher costs. If our loan growth exceeds the deposit growth, we may have to obtain other sources of funds at higher costs, thus reducing our net interest income.

If our allowance for loan and lease losses is not adequate to cover actual or estimated future loan and lease losses, our earnings may decline.

We maintain an allowance for loan and lease losses to provide for loan defaults and non-performance by borrowers of their obligations. Our allowance for loan and lease losses may not be adequate to cover actual or estimated future loan and lease losses and future provisions for loan and lease losses could materially and adversely affect our operating results. Our allowance for loan and lease losses is based on prior experience, as well as an evaluation of risks in the current portfolio. However, losses may exceed our current estimates. The amount of future losses is susceptible to changes in economic, operating and other conditions that may be beyond our control, including changes in interest rates, changes in borrowers’ creditworthiness and the value of collateral securing loans and leases. Additionally, as our loan and lease portfolios grow, we may need to take additional provision expense to ensure that the allowance remains at levels deemed appropriate by Management for the size and quality of portfolio. Federal regulatory agencies review our loans and allowance for loan and lease losses and may require us to increase our allowance. While we believe that our allowance for loan and lease losses is adequate to cover our anticipated losses, we cannot assure that will be the case or that we will not further increase the allowance for loan and lease losses or that regulators will not require us to increase the allowance. Either of these occurrences could materially affect our earnings.

Adverse changes in the market value of securities and investments that we manage for others may negatively impact the growth level of our non-interest income.

We provide a broad range of trust and investment management services for estates, trusts, agency accounts, and individual and employer sponsored retirement plans. Fees for such services are typically based upon a percentage of the market value of such funds under management. The market value of such securities and investments may decline for a variety of factors, many of which are outside our control. Any such adverse changes in the market value of the securities and investments could negatively impact our non-interest income generated from providing these services.

Expansion of our branch network may increase our expenses without proportionate increases in income.

We continue to look for appropriate locations to open new branches. Such opportunities are attractive as a means to obtain additional core deposits and increase our customer base for new loans and services. However, the costs of opening a new branch may reduce our earnings before the benefits of the new branch are realized. Our decisions to open new branches are based upon demographic information and assumptions regarding the suitability of a particular location. There can be no assurance that such assumptions will be accurate and fully achievable.

Our branch locations may be negatively affected by changes in regional and local demographics.

We have strategically selected locations for our branches based upon regional and local demographics. Any unanticipated changes in such demographics may impact our ability to reach or maintain profitability at our branch locations. Changes in regional and local demographics may also affect the relative benefits of certain branch locations and Management may be required to reduce the number and/or locations of our branches, which may result in unanticipated expenses.

11

FIRST CHESTER COUNTY CORPORATION AND SUBSIDIARIES

Changes in the regulatory environment may adversely affect our business or the ability of the Bank to pay dividends to the Corporation.

The banking industry is highly regulated and we are subject to extensive state and federal regulation, supervision, and legislation. We are subject to regulation and supervision by the Board of Governors of the Federal Reserve System, the Offices of the Comptroller of the Currency, and the Securities and Exchange Commission and the FDIC. Laws restricting our activities include, but are not limited to, the Gramm-Leach-Blilely Act, the Bank Secrecy Act, the Truth-in-Lending Act, the Equal Credit Opportunity Act, the Fair Housing Act, the Bank Holding Company Act, the Community Reinvestment Act, the USA Patriot Act and the Real Estate Settlement Procedures Act. These laws may change from time to time, and new laws may be enacted, any of which may limit our ability to offer new products and services, obtain financing, attract deposits, and originate loans. Any changes to these laws may adversely affect loan demand, credit quality, consumer spending and saving habits, interest rate margins, FDIC assessments, and operating expenses, thus negatively affecting our results of operations and financial condition. In addition, if the Bank is restricted in its ability to pay dividends to the Corporation, the Corporation’s ability to pay dividends to its shareholders or to meet its financial obligations may be impaired.

Technology costs, new product development, and marketing costs may exceed our expectations and negatively impact our profitability.

The financial services industry is constantly undergoing technological changes in the types of products and services provided to customers to enhance customer convenience. Our future success will depend upon our ability to address the changing technological needs of our customers. We have invested a substantial amount of resources to update our technology. Our investment in such technology seeks to increase overall efficiency and improve accessibility to customers. We are also investing in the expansion of bank branches, improvement of operating systems, and the development of new marketing initiatives. The benefits of such investments may not be achieved as quickly as anticipated, or at all. The costs of implementing technological changes, new product development, and marketing costs may exceed our expectations and negatively impact our results of operations and profitability.

Changes to financial accounting standards may affect our reported results of operations.

We prepare our financial statements in accordance with accounting principles generally accepted in the United States of America (“GAAP”). GAAP is subject to the rules and interpretations of the Securities and Exchange Commission and various bodies formed to interpret and create appropriate accounting policies. A change in those policies can have a significant effect on our reported results and may even affect our reporting of transactions completed before a change is announced. Accounting rules affecting many aspects of our business, including rules relating to accounting for business combinations, asset impairment, revenue recognition, restructuring or disposal of long-lived assets and stock option grants have recently been revised or are currently under review. Changes to those rules or current interpretation of those rules may have a material adverse effect on our reported financial results or on the way we conduct our business.

If we fail to maintain an effective system of internal controls, we may not be able to accurately report our financial results or prevent fraud.

If we fail to maintain an effective system of internal controls, fail to correct any issues in the design or operating effectiveness of internal controls over financial reporting, or fail to prevent fraud, our shareholders could lose confidence in our financial reporting, which could harm our business and the trading price of our Common Stock.

Item 1B. Unresolved Staff Comments.

None.

12

FIRST CHESTER COUNTY CORPORATION AND SUBSIDIARIES

Item 2. Properties.

The Bank owns nine properties that are not subject to any mortgages. In addition, the Corporation leases the Westtown-Thornbury, Exton, Frazer, Kendal at Longwood, Crosslands, Lima Estates, Granite Farms Estates, Hershey’s Mill, Coatesville, Bradford Plaza, Freedom Village, Oxford, Wellington, Phoenixville, Royersford, Longwood, Downingtown, Operations Center, and Swope properties. Management of the Corporation believes the Corporation’s and the Bank’s facilities are suitable and adequate for their respective present needs. Set forth below is a listing of each banking office presently operated by the Bank, and other properties owned or leased by the Bank and the Corporation which may serve as future sites for branch offices. Management routinely evaluates all of its properties for ongoing use.

Current Banking Offices / Use	Address	Date Acquired or Opened
Main Office / Branch	9 North High Street	December 1863
and Corporate Headquarters *	West Chester, Pennsylvania
Goshen / Branch *	311 North Five Points Road	September 1956
	West Goshen, Pennsylvania
Kennett Square / Branch *	126 West Cypress Street	February 1987
	Kennett Square, Pennsylvania
Westtown-Thornbury /	Route 202 and Route 926	May 1994
Branch	Westtown, Pennsylvania
Exton / Branch	Route 100 and Boot Road	August 1995
	West Chester, Pennsylvania
Frazer / Branch	309 Lancaster Avenue	August 1999
	Frazer, Pennsylvania
Kendal at Longwood / Branch	1109 E. Baltimore Pike	December 1999
	Kennett Square, Pennsylvania
Crosslands / Branch	1660 E. Street Road	December 1999
	Kennett Square, Pennsylvania
Lima Estates / Branch	411 North Middletown Road	December 1999
	Media, Pennsylvania
Granite Farms Estates / Branch	1343 West Baltimore Pike	December 1999
	Wawa, Pennsylvania
Lionville / Branch *	Route 113 & Sheree Boulevard	December 2000
	Uwchlan Township, Pennsylvania
New Garden / Branch *	741 West Cypress Street	August 2001
	Kennett Square, Pennsylvania
Hershey’s Mill / Branch	1371 Boot Road	December 2001
	West Chester, Pennsylvania
Coatesville / Branch (A)	258A East Lincoln Highway	June 2003
	Coatesville, Pennsylvania
Bradford Plaza / Branch	700 Downingtown Pike	September 2003
	West Chester, Pennsylvania

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FIRST CHESTER COUNTY CORPORATION AND SUBSIDIARIES

Current Banking Offices / Use	Address	Date Acquired or Opened
Freedom Village / Branch	15 Freedom Village Blvd.	July 2004
	West Brandywine, Pennsylvania
Oxford / Branch	275 Limestone Road Oxford, Pennsylvania	December 2004
Wellington / Branch	1361 Boot Road	November 2005
	West Chester, Pennsylvania
Phoenixville / Loan Processing Office	347 Bridge St	April 2006
	Phoenixville, Pennsylvania
Phoenixville / Branch	700 Nutt Rd	November 2006
	Phoenixville, Pennsylvania
Royersford / Branch	967 Township Line Rd	December 2006
	Royersford, Pennsylvania
Longwood / Branch *	100 Old Forge Ln	(B)
	Kennett Square, Pennsylvania
Downingtown / Branch	99 Manor Ave	(B)
	Downingtown, Pennsylvania
Other		Date Acquired
Properties / Use	Address	or Opened
Market Street / Office Space	17 East Market Street	February 1978
and parking *	West Chester, Pennsylvania
Operations	202 Carter Drive	July 1988
Center / Operations	West Chester, Pennsylvania
Swope Building / Office Space	High & Market Streets	July 1995
	West Chester, Pennsylvania
Matlack Street /	887 South Matlack Street	September 1999
Operations *	West Chester, Pennsylvania
1N High Street / Office Space *	1 North High Street	April 2007 (C)
	West Chester, Pennsylvania

* Indicates properties owned by the Bank

(A) The lease in this location was terminated as of February 29, 2008. The branch was relocated to the 99 Manor Ave, Downingtown location.

(B) As of 12/31/07, these branches are being constructed or renovated and are therefore not in operation. Subsequently, the Longwood branch opened in February 2008 and the Downingtown branch opened in January 2008.

(C) As of 12/31/07, this building is being renovated and is not in use yet. The Bank intends to put this building into service in 2008.

14

FIRST CHESTER COUNTY CORPORATION AND SUBSIDIARIES

Item 3. Legal Proceedings.

There are no material pending legal proceedings, other than ordinary routine litigation incidental to the business, to which the Corporation, or any of its subsidiaries, is a party or of which any of their respective property is the subject. The Corporation and the Bank are not parties to any legal proceedings under federal and state environmental laws.

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

None.

PART II

Item 5. Market for the Corporation’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities.

The Corporation’s Common Stock is publicly traded over the counter under the symbol “FCEC”. As of January 31, 2008, there were approximately 949 shareholders of record of the Corporation’s Common Stock. The closing stock price as of January 31, 2008 was $17.25.

The authorized capital stock of the Corporation consists of 25,000,000 shares of Common Stock, par value $1.00 per share, of which 5,160,750 and 5,151,740 shares were outstanding (net of shares held in Treasury) at the end of 2007 and 2006, respectively. The following table shows the range of high and low bid prices for the Common Stock based upon transactions reported for each quarter respectively

	Bid Prices
	2007			2006
Quarter Ended	High		Low	High	Low
First	$21.35	$20.01		$22.00	$18.75
Second	$21.25	$19.75		$23.00	$21.12
Third	$20.25	$17.35		$22.75	$20.10
Fourth	$18.75	$17.10		$22.75	$20.80

The Corporation has prepared a graph comparing the cumulative shareholder return on the Corporation’s Common Stock as compared to the NASDAQ Composite Index and the SNL $500 Million to $1 Billion Bank Index for the years ended December 31, 2003, 2004, 2005, 2006 and 2007. This graph is included in the Corporation’s 2007 Annual Report to Shareholders and can be found immediately following the signature pages of the Form 10-K included in that Annual Report.

The Corporation declared cash dividends per share on its Common Stock during each quarter of the fiscal years ended December 31, 2007 and 2006, as set forth in the following table:

	Dividends Amount Per Share
	2007	2006
First Quarter	$ 0.135	$ 0.135
Second Quarter	0.135	0.135
Third Quarter	0.135	0.135
Fourth Quarter	0.140	0.135
Total	$ 0.545	$ 0.540

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FIRST CHESTER COUNTY CORPORATION AND SUBSIDIARIES

The holders of the Corporation’s Common Stock are entitled to receive such dividends as may be legally declared by the Corporation’s Board of Directors. See Item 1 of this Report, “Supervision and Regulation” for further discussion of the applicable laws regarding the payment of dividends. The amount, time, and payment of future dividends, however, will depend on the earnings and financial condition of the Corporation, government policies and other factors.

The following chart shows the purchases of the Corporation’s Common Stock during 2007:

Period	(a) Total Number of Shares (or Units) Purchased	(b) Average Price Paid per Share (or Unit)	(c) Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs	(d) Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs
October 1 to October 31, 2007	-	-	-	$7,267,233
November 1 to November 30, 2007	-	-	-	$10,000,000
December 1 to December 31, 2007	-	-	-	$10,000,000

Note: The Corporation announced on November 16, 2007 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 2007.

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FIRST CHESTER COUNTY CORPORATION AND SUBSIDIARIES

Item 6.Selected Financial Data

(Dollars in thousands, except per share data)

STATEMENTS OF CONDITION

	December 31
	2007	2006	2005	2004	2003
Assets	$  914,781	$  872,094	$  845,534	$  805,872	$  689,533
Gross loans and leases	743,440	694,343	664,276	618,005	511,249
Investment securities	97,977	88,714	97,088	140,029	130,729
Deposits	704,898	724,668	696,097	663,018	577,314
Borrowings	130,849	77,061	84,365	81,929	55,543
Stockholders’ equity	67,979	63,262	58,677	55,402	51,750
Allowance for loan and lease losses	7,817	8,186	8,123	6,816	5,541
Wealth Management assets (1)	591,297	562,952	561,030	555,644	550,217

STATEMENTS OF INCOME

	Year Ended December 31
	2007	2006	2005	2004	2003
Interest income	$      56,436	$   52,202	$  44,604	$  37,518	$  33,533
Interest expense	24,973	20,037	13,579	7,863	7,154
Net interest income	31,463	32,165	31,025	29,655	26,379
Provision for loan and lease losses	80	3	1,382	1,164	2,519
Net interest income after provision for loan and lease losses	31,383	32,162	29,643	28,491	23,860
Non-interest income	11,787	9,212	9,325	9,313	11,506
Non-interest expense	32,570	31,153	30,557	29,213	27,400
Income before income taxes	10,600	10,221	8,411	8,591	7,966
Income taxes	2,931	2,886	1,900	2,430	2,161
Net income	$       7,669	$    7,335	$   6,511	$   6,161	$   5,805

PER SHARE DATA ⁽²⁾

Net income per share (Basic)	$ 1.49	$ 1.42	$ 1.28	$ 1.24	$ 1.18
Net income per share (Diluted)	$ 1.47	$ 1.40	$ 1.24	$ 1.19	$ 1.14
Cash dividends declared	$ 0.545	$ 0.540	$ 0.525	$ 0.505	$ 0.493
Book value	$ 13.17	$ 12.28	$ 11.45	$ 11.04	$ 10.42
Weighted average shares     Outstanding (basic)	5,160,607	5,160,340	5,104,745	4,980,584	4,924,819
Weighted average shares     Outstanding (diluted)	5,219,940	5,249,200	5,240,497	5,174,926	5,082,166

PERFORMANCE RATIOS

Return on Average Assets	0.86%	0.86%	0.79%	0.81%	0.88%
Return on Average Equity	11.84%	11.85%	11.48%	11.59%	11.48%
Average Equity to Average Assets	7.22%	7.22%	6.86%	7.00%	7.66%
Dividend Payout Ratio	36.62%	37.98%	40.93%	41.05%	41.93%

Notes:

 

⁽¹⁾ These assets are managed by the Wealth Management Division of the Bank and are not assets of the Bank or the Corporation.

⁽²⁾    All per share data has been retroactively adjusted for stock dividends.

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FIRST CHESTER COUNTY CORPORATION AND SUBSIDIARIES

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.

DISCLOSURE ABOUT FORWARD LOOKING STATEMENTS

The Corporation may, from time to time, make written or oral "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, including statements contained in the Corporation's filings with the Securities and Exchange Commission (including this Report on Form 10-K), its reports to shareholders and in other communications by the Corporation. 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. Also, future results may differ materially from the Corporation’s historic results.

These risks and uncertainties are discussed in Item 1A, “Risk Factors”, in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and elsewhere in this Report. These risks, among others, could cause our actual future results to differ materially from those described in our forward-looking statements or from our prior results. We are not obligated to update our forward-looking statements, even though our situation may change in the future.

OVERVIEW

Net income for the year ended December 31, 2007 was $7.7 million, an increase of $335 thousand or 4.6% from $7.3 million in 2006. Basic and diluted net income per share in 2007 were $1.49 and $1.47, respectively, as compared to 1.42 and 1.40, respectively in 2006. Return on average equity in 2007 was 11.84%, as compared to 11.85% in 2006. Return on average assets remained constant at 0.86% for 2007 and 2006.

During 2007, total assets increased 4.9% to $914.8 million; loans and leases grew 7.1% to $743.4 million; and deposits decreased 2.7% to $704.9 million. Offsetting the decrease in deposits was an increase in Federal Home Loan Bank (“FHLB”) and other borrowings, which increased 87.3% to $115.4 million at December 31, 2007. The decrease in deposits and the offsetting increase in Federal Home Loan Bank and other borrowings is the result of a strategic decision to replace higher cost brokered CDs with lower cost FHLB borrowings. Loan growth in 2007 reflects the Bank’s focus on growing quality loan relationships.

The increase in net income for the year ended December 31, 2007 when compared to 2006 was primarily the result of an increase in non-interest income, partially offset by a decrease in net interest income and an increase in non-interest expense. Included in these results is the impact from several significant events that occurred during the year ended December 31, 2007. In the second quarter, the Bank recorded a gain related to the sale of a loan that had been on non-accrual status and, in the third quarter of 2007, the Bank recorded gains related to the sale of facilities.

The decrease in net interest income was primarily driven by an increase in interest income, offset by an increase in interest expense. During the year ended December 31, 2007 interest income benefited from a 7.1% growth in the loan portfolio and from increases in interest rates. The increase in interest expense was primarily attributable to a 4.8% growth in average interest-bearing deposits combined with an increase in the average rate paid on these deposits mainly due to a shift in the deposit mix and strong customer demand for higher priced deposits.

The increase in non-interest income for year ended December 31, 2007 was primarily due to a $1.39 million pre-tax gain recorded in the third quarter of 2007 related to the sale of facilities. The increase was also attributable to higher Wealth Management revenue, higher service fee income on deposit accounts and a $225 thousand pre-tax gain related to the sale of a loan that had been on non-accrual status.

During 2007, the Bank entered into a sale-leaseback agreement on an administrative office facility known as the "Swope Building." The Bank leased back the Swope Building for a period of one year following the September sale date. The Bank recognized a $1.39 million pre-tax gain in connection with this transaction in 2007. The after-tax impact to net income from this gain was $915 thousand. Also in 2007, the Bank entered into a sale-leaseback agreement on an administrative office facility known as the "Operations Center." As disclosed in our Form 8-K dated September 28, 2007, the lease agreement for the Operations Center was for fifteen years with two optional five year renewal periods. The resulting $2.7 million gain was deferred and is being amortized into non-interest income over the fifteen year lease term. Rent expense on the lease is being recorded in the non-interest expense section of the income statement. The sale and lease back of the Swope Building and Operations Center fits into Management's overall facilities strategy and complements the

18

FIRST CHESTER COUNTY CORPORATION AND SUBSIDIARIES

purchase of 1 North High Street, which was also completed in 2007. The purchase of the 1 North High Street building and the sale of the Swope Building and the Operations Center were structured as an IRS Code Section 1031 reverse like-kind exchange, effectively rolling the tax basis of the Swope Building and the Operations Center into the taxable basis of the 1 North High Street Building. Accordingly, the Bank was able to defer $772 thousand of taxes payable in the current year until such time as the 1 North High Street building is sold.

The increase in non-interest expense for the year ended December 31, 2007 was primarily due to higher salaries and employee benefits expense, mainly due to a higher average employee headcount; specifically, staffing for new branches as well as new key employees in the Wealth Management Division, Commercial Lending and Leasing areas.

NET INTEREST INCOME

Net interest income is the difference between interest income on interest-earning assets and interest expense on interest-bearing liabilities. Net interest income, on a tax equivalent basis, decreased 2.0% or $664 thousand from $32.6 million in 2006 to $32.0 million in 2007, compared to a 3.4% increase or $1.1 million from 2005 to 2006.

The decrease in tax equivalent net interest income for 2007 was primarily due to a larger increase in the average rate paid on interest-bearing liabilities, which increased 54 basis points, than the average yield earned on interest-earning assets, which increased by 23 basis points. The decrease in tax equivalent net interest income for 2007 was also due to an increase in interest-bearing liabilities that was higher than the increase in interest-earning assets. Average interest-bearing liabilities grew $39.5 million while average interest-earning assets increased by $35.4 million. Accordingly, net yields on interest-earning assets, on a tax equivalent basis, were 3.75% and 3.99% for 2007 and 2006, respectively.

The increase in tax equivalent net interest income for 2006 was largely the result of an increase in interest-earning assets that was higher than the increase in interest-bearing liabilities. The average interest-earning asset growth during 2006 was approximately $33.4 million while average interest-bearing liabilities increased by $23.9 million. Partially offsetting the increase in interest income generated from this growth in 2006 was a larger increase in the average rate paid on interest-bearing liabilities, which increased 90 basis points, than the average yield earned on interest-earning assets, which increased by 69 basis points. Accordingly, net yields on interest-earning assets, on a tax equivalent basis, were 3.99% and 4.03% for 2006 and 2005, respectively.

Average interest-earning assets in 2007 was $852.3 million, an increase of $35.4 million or 4.3% from $816.9 million in 2006. The increase in average interest-earning assets for 2007 was primarily due to a $33.6 million or 4.9% increase in average loans and leases combined with a $5.6 million or 13.7% increase in federal funds sold and deposits in banks. These increases were partially offset by a $3.7 million or 3.9% decrease in investment securities. In 2006, average interest-earning assets was $816.9 million, an increase of $33.4 million or 4.3% compared to 2005. The increase in average interest-earning assets for 2006 was the primarily due to a $29.5 million or 4.5% increase in average loans and leases combined with a $18.9 million or 87.3% increase in federal funds sold and deposits in banks. These increases were partially offset by a $15.0 million or 13.5% decrease in investment securities.

Average interest-bearing liabilities in 2007 was $702.5 million, an increase of $39.5 million or 6.0% from $663.0 million in 2006. The increase in 2007 was primarily due to a $28.0 million or 4.8% increase in average interest-bearing deposits combined with an $11.4 million or 17.6% increase in FHLB and other borrowings. In 2006, average interest-bearing liabilities was $663.0 million, an increase of $23.9 million or 3.7% from $639.1 million in 2005. The increase in 2006 was due to a $29.3 million or 5.3% increase in the average interest-bearing deposits partially offset by a $5.4 million or 7.7% decrease in FHLB and other borrowings.

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FIRST CHESTER COUNTY CORPORATION AND SUBSIDIARIES

CONSOLIDATED AVERAGE BALANCE SHEET AND TAX EQUIVALENT INCOME/EXPENSES

AND RATES FOR THE YEAR ENDED DECEMBER 31,

2007   2006                      2005                    

(Dollars in thousands)	Daily			Daily			Daily
	Average			Average			Average
	Balance	Interest	Rate%	Balance	Interest	Rate%	Balance	Interest	Rate%
ASSETS
Federal funds sold and interest	$46,098	$2,413	5.23	$40,535	$2,061	5.08	$21,645	$761	3.57
bearing deposits in banks
Investment securities
Taxable	80,129	3,852	4.81	81,608	3,955	4.85	92,772	3,923	4.23
Tax-exempt (1)	12,004	542	4.51	14,256	576	4.04	18,079	754	4.17
Total investment securities	92,133	4,394	4.77	95,864	4,531	4.73	110,851	4,677	4.22
Loans and leases (2)
Taxable	698,676	49,063	7.02	666,239	45,169	6.78	636,592	38,807	6.10
Tax-exempt (1)	15,413	1,058	6.87	14,235	895	6.29	14,346	877	6.11
Total loans and leases	714,089	50,121	7.02	680,474	46,064	6.77	650,938	39,684	6.10
Total interest-earning assets	852,320	56,928	6.68	816,873	52,656	6.45	783,434	45,122	5.76
Non-interest-earning assets
Allowance for possible loan and
lease losses	(8,058)			(8,388)				(7,930)
Cash and due from banks	24,381			24,791				27,187
Other assets	27,979			23,937				23,262
Total assets	$896,622			$857,213				$825,953
LIABILITIES AND STOCKHOLDERS'
EQUITY
Savings, NOW, and money market
deposits	$366,567	$9,061	2.47	$368,754	$7,389	2.00	$386,668	$4,712	1.22
Certificates of deposit and other time	244,578	11,468	4.69	214,425	8,848	4.13	167,195	5,297	3.17
Total interest-bearing deposits	611,145	20,529	3.36	583,179	16,237	2.78	553,863	10,009	1.81
Subordinated debt	15,606	1,460	9.35	15,465	1,304	8.43	15,465	1,015	6.56
Federal Home Loan Bank and
other borrowings	75,701	2,984	3.94	64,347	2,496	3.88	69,736	2,555	3.66
Total interest-bearing liabilities	702,452	24,973	3.56	662,991	20,037	3.02	639,064	13,579	2.12
Non-interest-bearing liabilities
Non-interest-bearing  demand             deposits	121,000			126,461			124,684
Other liabilities	8,398			5,857			5,514
Total liabilities	831,850			795,309			769,262
Stockholders' equity	64,772			61,904			56,691
Total liabilities and stockholders'
Equity	$896,622			$857,213			$825,953
Net interest income		$31,955			$32,619			$31,543
Net yield on interest-earning assets			3.75			3.99			4.03

 

⁽¹⁾ The indicated income and annual rate are presented on a tax equivalent basis using the federal marginal rate of 34%, adjusted for the TEFRA 20% penalty for 2007, 2006, and 2005.

  

⁽²⁾ Non-accruing loans are included in the average balance.

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FIRST CHESTER COUNTY CORPORATION AND SUBSIDIARIES

RATE VOLUME ANALYSIS
	Increase (decrease) in net interest income due to:
	Volume(1)	Rate(1)	Total	Volume(1)	Rate(1)	Total
(Dollars in thousands)	2007 Compared to 2006			2006 Compared to 2005
INTEREST INCOME
Federal funds sold and interest	$ 283	$ 69	$ 352	$ 681	$ 619	$ 1,300
bearing deposits in banks
Investment securities
Taxable	(72)	(31)	(103)	(472)	504	32
Tax-exempt(2)	(91)	57	(34)	(159)	(19)	(178)
Total investment securities	(163)	26	(137)	(631)	485	(146)
Loans and leases (3)
Taxable	2,199	1,694	3,893	1,808	4,554	6,362
Tax-exempt(2)	74	90	164	(7)	25	18
Total loans and leases	2,273	1,784	4,057	1,801	4,579	6,380
Total interest income	2,393	1,879	4,272	1,851	5,683	7,534
INTEREST EXPENSE
Savings, NOW and money market
deposits	(44)	1,716	1,672	(218)	2,895	2,677
Certificates of deposits and other time	1,245	1,375	2,620	1,497	2,054	3,551
Total interest bearing deposits	1,201	3,091	4,292	1,279	4,949	6,228
Subordinated debt	12	145	157	0	289	289
Federal Home Loan Bank and
other borrowings	441	46	487	(197)	138	(59)
Total Interest expense	1,654	3,282	4,936	1,082	5,376	6,458
Net Interest income	$739	$ (1,403)	$(664)	$769	$307	$1,076

NOTES:

 

⁽¹⁾ The changes in interest due to both rate and volume have been allocated to both rate and volume, respectively, in proportion to the relationship of the absolute dollar amounts of the change in each.

   

⁽²⁾ The indicated changes are presented on a tax equivalent basis.

   

⁽³⁾ Non-accruing loans have been used in the daily average balances to determine changes in interest due to volume. Loan fees included in the interest income computation are not material.

 

21

FIRST CHESTER COUNTY CORPORATION AND SUBSIDIARIES

INTEREST INCOME ON FEDERAL FUNDS SOLD AND DEPOSITS IN BANKS

Interest income on federal funds sold and interest bearing deposits in banks increased $352 thousand or 17.1% in 2007 to $2.4 million from $2.1 million in 2006. This follows an increase of 170.8% or $1.3 million from 2005 to 2006. The increases in interest income on these balances in 2007 and 2006 were partially due to increases in the average federal funds sold and interest bearing deposits in banks balances. In 2007, these balances increased $5.6 million or 13.7% from $40.5 million to $46.1 million. In 2006, these balances increased $18.9 million or 87.3% from $21.6 million to $40.5 million. The increases in interest on federal funds sold and interest bearing deposits in banks for 2007 and 2006 are also the result of market increases in the rates earned on these funds. The yield earned on federal funds sold and interest bearing deposits in banks in 2007 was 5.23%, compared to 5.08% and 3.57% in 2006 and 2005, respectively. Our strategy to increase federal funds sold and interest bearing deposits in banks in 2006, was intended to improve liquidity while at the same time remain in short-term funds during the rising rate environment. Also, in 2006 and the first half of 2007, the yield on federal funds sold and interest bearing deposits in banks, given the relatively flat yield curve, was very competitive with alternative short term investment securities. During the fourth quarter of 2007, as the yield curve became steeper, we began to reduce federal funds sold and interest bearing deposits in banks and increase longer term investment securities. While the average 2007 federal funds sold and interest bearing deposits in banks balance increased from 2006, the ending balance decreased, reflecting this strategy shift. Ending federal funds sold and interest bearing deposits in banks at December 31, 2007 was $24.5 million, down $20.3 million from $44.8 million at December 31, 2006.

INTEREST INCOME ON INVESTMENT SECURITIES

On a tax equivalent basis, interest income on investment securities decreased $137 thousand or 3.0% from $4.5 million in 2006 to $4.4 million in 2007, compared to a $146 thousand or 3.1% decrease from 2005 to 2006. The decrease in investment interest income in 2007 was primarily due to a $3.7 million or 3.9% decrease in average investment securities, partially offset by a 4 basis point increase in the yield on these assets from 4.73% in 2006 to 4.77% in 2007. From 2005 to 2006, the decrease in interest income on investment securities was primarily due to a $15.0 million or 13.5% decrease in average investment securities, partially offset by a 51 basis point increase in the yield on these assets from 4.22% in 2005 to 4.73% in 2006. The decrease in average investment securities for the year ended, December 31, 2006 from 2005 resulted from an increase in the amount of liquidity needed to provide for loan growth combined with management’s decision to invest in fed funds sold and interest bearing deposits in banks, given the rising interest rate environment and the relatively flat yield curve. In the fourth quarter of 2007, Federal Reserve Board actions to reduce interest rates contributed to a steeper yield curve, prompting us to change our strategy and shift funds from federal funds sold and interest bearing deposits in banks to longer term investments. While the average 2007 investment securities balance decreased from 2006, the ending balance increased, reflecting this strategy shift. Ending investment securities at December 31, 2007 was $98.0 million, up $9.3 million from $88.7 million at December 31, 2006.

22

FIRST CHESTER COUNTY CORPORATION AND SUBSIDIARIES

INVESTMENT SECURITIES AT DECEMBER 31,
	2007		2006		2005
(Dollars in thousands)	Amortized	Fair	Amortized	Fair	Amortized	Fair
	Cost	Value	Cost	Value	Cost	Value
Held-to-Maturity
State and municipal	$ -	$ -	$ 5	$ 5	$ 10	$ 10
Available-for-Sale
U.S. Treasury	-	-	1,000	998	2,504	2,476
U.S. Government agency	3,082	3,100	3,371	3,354	1,040	1,018
Mortgage-backed securities	56,925	56,654	56,439	55,052	57,456	56,020
State and municipal	13,686	13,650	9,906	9,602	15,672	15,160
Corporate securities	15,121	14,486	11,461	10,874	13,655	13,086
Other asset-backed securities	-	-	-	-	117	116
Mutual Funds	-	-	-	-	796	788
Other equity securities	10,993	10,087	8,764	8,829	8,758	8,414
Total Investment securities	$ 99,807	$ 97,997	$ 90,946	$ 88,714	$ 100,008	$ 97,088

INVESTMENT SECURITIES YIELD BY MATURITY AT DECEMBER 31, 2007
	Due	Due year 2	Due year 6	Due
	within	through	through	Over
(Dollars in thousands)	1 year	year 5	year 10	10 years	Total
Available-for-Sale
U.S. Government agency	$ --	$ --	$ --	$ 3,082	$ 3,082
Mortgage-backed securities(1)	2,245	6,875	3,353	44,452	56,925
State and municipal	2,488	10,279	919	--	13,686
Corporate securities	--	7,210	4,032	3,879	15,121
Other equity securities (2)	--	--	--	10,993	10,993
Total Investment securities	$4,733	$24,364	$8,304	$62,406	$99,807
Weighted average yield	4.40%	4.07%	4.65%	4.97%	4.70%

NOTES:

 

⁽¹⁾ Mortgage-backed and Other asset-backed securities are included in the above table based on their contractual maturity.

   

⁽²⁾  Other equity securities having no stated maturity have been included in "Due over 10 years".

23

FIRST CHESTER COUNTY CORPORATION AND SUBSIDIARIES

INTEREST INCOME ON LOANS AND LEASES

During 2007, interest income on loans and leases, on a tax equivalent basis, increased by $4.1 million or 8.8% from 2006. This increase was partially due to a $33.6 million or 4.9% increase in average loan and lease balances from $680.5 million in 2006 to $714.1 million in 2007. The increase in interest income on loans and leases was also due to a 25 basis point increase in the tax adjusted yield earned on loans and leases during 2007, from 6.77% in 2006 to 7.02% in 2007. During 2006, interest income on loans and leases, on a tax equivalent basis, increased by $6.4 million or 16.1% from 2005. This increase resulted from an increase in average loan balances of $29.5 million or 4.5% from $650.9 million in 2005 to $680.5 million in 2006. The increase in interest income on loans and leases was also due to a 67 basis point increase in the tax adjusted yield earned on loans and leases during 2007, from 6.10% in 2005 to 6.77% in 2006. The yield increases for 2007 and 2006 are a direct result of market rate increases and increases in the Federal Reserve Rates over the course of 2006. There were four Federal Reserve actions to raise interest rates in the first half of 2006 and four Federal Reserve actions to lower interest rates in the later part of 2007. The net impact of these actions to the Bank were higher average rates during 2007 as compared to 2006.

LOAN PORTFOLIO BY TYPE AT DECEMBER 31,
(Dollars in thousands)	2007	2006	2005	2004	2003
Commercial loans	$277,715	$243,651	$218,365	$187,903	$142,144
Real estate - construction	55,414	41,287	49,095	59,093	56,340
Real estate – commercial	235,880	222,300	199,191	186,949	159,874
Real Estate – residential	59,508	65,698	66,876	56,541	43,024
Consumer loans (3)	106,574	108,700	112,993	101,157	77,113
Lease financing receivables (2)	8,349	12,707	17,756	26,362	32,754
Total gross loans
and leases	743,440	694,343	664,276	618,005	511,249
Allowance for loans and
lease losses	(7,817)	(8,186)	(8,123)	(6,816)	(5,541)
Total net loans and leases (1)	$735,623	$686,157	$656,153	$611,189	$505,708

NOTES:

(1) There were no concentrations of loans exceeding 10% of total gross loans and leases which is not otherwise disclosed as a category of loans in the above table.

(2) As of December 31, 2007, we are no longer funding leases. Instead, we are acting as an agent for a third party that funds the lease, and we collect an upfront fee.

(3) Consumer loans consist of consumer installment loans, home equity loans, lines of credit, and loans to small businesses.

24

FIRST CHESTER COUNTY CORPORATION AND SUBSIDIARIES

MATURITIES AND RATE SENSITIVITY OF LOANS DUE TO CHANGES IN
INTEREST RATES AT DECEMBER 31, 2007 (1)
		Maturing
	Maturing	After 1 Year	Maturing
	Within	And Within	After
(Dollars in thousands)	1 Year (2)	5 Years	5 Years	Total
Commercial loans	$ 20,787	$ 74,175	$ 182,753	$ 277,715
Real Estate - construction	16,411	14,371	24,632	55,414
Total	$ 37,198	$88,546	$207,385	$333,129
Loans maturing after 1 year with:
Fixed interest rates
Commercial Loans		$ 44,603	$72,481
Commercial real estate – construction		4,324	5,298
Variable interest rates
Commercial Loans		29,572	110,272
Commercial Real Estate – construction		10,047	19,334
Total		$88,546	$207,385

NOTES:

 

⁽¹⁾ Determination of maturities included in the loan maturity table are based upon contract terms. This policy is used primarily in evaluating ongoing customer's use of their lines of credit with the Bank that are at floating interest rates.

    

⁽²⁾ Demand loans and overdrafts are reported maturing "Within 1 Year". Most construction real estate loans are reported maturing "Within 1 Year" because of their short term maturity or because they are indexed to the Bank's prime rate. An immaterial amount of loans has no stated schedule of repayments.

 

INTEREST EXPENSE

Interest expense on deposit accounts increased $4.3 million or 26.4% from $16.2 million in 2006 to $20.5 million in 2007. Increases in both the interest-bearing balances and the average rate paid on these balances contributed to the increase in interest expense. Average interest-bearing balances increased $28.0 million or 4.8% from $583.2 million in 2006 to $611.1 million in 2007. The average rate paid on these deposits increased 58 basis points from 2.78% in 2006 to 3.36% in 2007. Interest expense on deposit accounts increased $6.2 million or 62.2% from $10.0 million in 2005 to $16.2 million in 2006. Increases in both the interest-bearing balances and the average rate paid on these balances contributed to the increase in interest expense. Average interest-bearing balances increased from $553.9 million in 2005 to $583.2 million in 2006, an increase of $29.3 million or 5.3%. The average rate paid on these balances increased from 1.81% in 2005 to 2.78% in 2006.

The increase in the average rate paid in 2007 as compared to 2006 was primarily attributable to a customer driven shift from lower cost deposit products to higher cost deposit products coupled with an increase in many of our retail deposit product rates. In addition, market interest rate movements throughout 2005, 2006 and 2007 have contributed to the higher rates paid on deposits. Throughout 2005 and during the first half of 2006, the Bank increased rates paid on its interest bearing deposits in response to increases in Federal Reserve rates and the increase in competitive pressures in the Bank’s marketplace. In the second half of 2007, the Federal Reserve decreased interest rates. The Bank responded with decreases in some deposit rates in the fourth quarter of 2007. The net impact to the Bank from the 2006 rate increases and the 2007 rate decreases were higher rates paid in 2007 than in 2006. The Bank will continue to respond with necessary rate decreases in 2008 as Federal Reserve actions, market competition and consumer demand warrant. The increase in the average rate paid on deposit balances was mitigated by a significant reduction in higher cost brokered CDs and replaced with lower cost FHLB borrowings in the second half of 2007.

25

FIRST CHESTER COUNTY CORPORATION AND SUBSIDIARIES

Interest expense on FHLB and other borrowings increased $488 thousand or 19.6% from $2.5 million in 2006 to $3.0 million in 2007. This increase was primarily due to an $11.4 million or 17.6% increase in the average FHLB and other borrowings from $64.3 million in 2006 to $75.7 million in 2007.

Interest expense on subordinated debt increased $156 thousand or 11.96% for the year ended December 31, 2007 as compared to the same period in 2006. This increase was primarily due to a $161 thousand charge for accelerated amortization of issuance costs related to the early redemption of the $5.2 million Trust I issuance. The redemption of the debentures was coordinated with the $5.2 million Trust III issuance on June 29, 2007. The new issuance bears an interest rate of 3 month LIBOR plus 140 basis points while the redeemed issuance had an interest rate of 3 month LIBOR plus 365 basis points.

DEPOSIT ANALYSIS
(Dollars in thousands)
	2007		2006		2005
	Average	Average	Average	Average	Average	Average
	Balance	Rate	Balance	Rate	Balance	Rate
NOW	$159,572	2.30%	$134,076	1.76%	$145,201	1.04%
Money Market	97,726	4.19%	80,009	3.84%	34,967	1.81%
Statement Savings	43,270	0.79%	49,699	0.80%	60,570	0.75%
Other Savings	1,514	1.52%	636	0.56%	1,230	0.57%
Tiered Savings	64,485	1.45%	104,334	1.49%	144,700	1.46%
Total NOW, Savings,
and money market	366,567	2.47%	368,754	2.00%	386,668	1.22%
CD's Less than $100,000 (1)	192,236	4.72%	169,630	4.16%	110,407	3.08%
CD's Greater than $100,000	52,342	4.58%	44,795	3.99%	56,788	3.34%
Total CDs	244,578	4.69%	214,425	4.13%	167,195	3.17%
Total interest-bearing deposits	611,145		583,179		553,863
Non-Interest-Bearing
Demand Deposits	121,000	--	126,461	--	124,684	--
Total Deposits	$732,145		$709,640		$678,547

(1) Includes average Brokered CDs of $57,710, $51,892 and $19,833 for 2007, 2006 and 2005, respectively

MATURITIES OF CERTIFICATES OF DEPOSIT, $100,000 OR MORE
AT DECEMBER 31, 2007
	Due Within	Over 3 Months	Over 6 Months	Due Over
(Dollars in thousands)	3 Months	Through 6 Months	Through 12 Months	12 Months	Total
Certificates of Deposit
$100,000 or more	$ 18,646	$ 13,140	$ 23,235	$ 3,595	$ 58,616

26

FIRST CHESTER COUNTY CORPORATION AND SUBSIDIARIES

ASSET QUALITY AND ALLOWANCE FOR LOAN AND LEASE LOSSES

During 2007, the Corporation recorded an $80 thousand provision for loan and lease losses, compared to $3 thousand in 2006 and $1.4 million in 2005. Net charge-off’s in 2007 were $442 thousand, compared to $186 thousand of net recoveries in 2006 and $46 thousand of net charge-offs in 2005. The increase in the provision for the year ended December 31, 2007 over the same period in 2006 was determined in accordance with the Bank’s allowance for loan and lease loss policy. Non-accrual loans as a percentage of gross loans and leases was 0.16% at December 31, 2007, compared to 1.05% and 1.26% at December 31, 2006 and 2005, respectively. The allowance for loan and lease losses as a percentage of loans and leases at December 31, 2007 was 1.05% compared to 1.18% and 1.22% at December 31, 2006 and 2005, respectively. The reduced provision for the year ended December 31, 2006 as compared to the same period in 2005 was a direct result of improved asset quality in 2006.

The allowance for loan and lease losses is an amount that Management believes will be adequate to absorb loan and lease losses on existing loans and leases that may become uncollectible based on Management's evaluations of the collectability of loans and leases. These evaluations take into consideration such factors as changes in the nature and volume of the loan and lease portfolio, overall portfolio quality, adequacy of collateral, review of specific problem loans and leases, and current economic conditions that may affect the borrower's ability to pay.

Management evaluates the adequacy of the allowance on a quarterly basis to ensure the provision for loan and lease losses has been charged against earnings in an amount necessary to maintain the allowance at a level that is appropriate based on Management's assessment of probable estimated losses. The Bank’s methodology for assessing the appropriateness of the allowance for loan and lease losses consists of several key elements. These elements include a specific allowance for loan and lease classified list loans and an allowance based on historical trends. The Corporation consistently applies the following comprehensive methodology.

The allowance for loan and lease losses addresses those loans and leases maintained on the Bank’s loan and lease classified list, which are assigned a rating of substandard, doubtful, or loss. Substandard loans and leases are those with a well-defined weakness, which jeopardizes the repayment of the debt. A loan or lease may be classified as substandard as a result of impairment of the borrower's financial condition and repayment capacity. Loans and leases for which repayment plans have not been met or collateral equity margins do not protect the Bank may also be classified as substandard. Doubtful loans and leases have the characteristics of substandard loans and leases with the added characteristic that collection or liquidation in full, on the basis of presently existing facts and conditions, is highly improbable. Although the possibility of loss is extremely high for doubtful loans and leases, the classification of loss is deferred until pending factors, which might improve the loan or lease, have been determined. Loans and leases rated as doubtful in whole or in part are placed on non-accrual status. Loans and leases, which are classified as loss, are considered uncollectible and are charged to the allowance for loan and lease losses.

Loans and leases on the loan and lease classified list may also be impaired loans, which are defined as non-accrual loans and leases or troubled debt restructurings, which are not in compliance with the restructured terms. Each of the classified loans and leases on the watch list is individually analyzed to determine the level of the potential loss under the current circumstances. The specific reserve established for these criticized by management and impaired loans and leases is based on careful analysis of the loan's and lease’s performance, the related collateral value, cash flow considerations and the financial capability of any guarantor. The allowance for classified list loans and leases is equal to the total amount of potential unconfirmed losses for the individual classified loans and leases on the classified list. Classified loans and leases are managed and monitored by management.

27

FIRST CHESTER COUNTY CORPORATION AND SUBSIDIARIES

The allowance is based on historical trends and uses charge-off experience of the Bank to estimate potential unconfirmed losses in the balances of the loan and lease portfolios. The historical loss experience percentage is based on the charge-off history. Historical loss experience percentages are applied to all non-classified loans and leases to obtain the portion of the allowance for loan and lease losses which is based on historical trends. Before applying the historical loss experience percentages, loan and lease balances are reduced by amounts of government agency guarantees. Installment loan balances are also adjusted for unearned discounts.

Since all identified losses are immediately charged off, no portion of the allowance for loan and lease losses is restricted to any individual loan or groups of loans, or lease or groups of leases, and the entire allowance is available to absorb any and all loan and lease losses.

The following tables present information regarding the Bank’s total allowance for loan and lease losses as well as the allocation of such amounts to the various categories of loans at the dates indicated:

ALLOWANCE FOR LOAN AND LEASE LOSSES
(Dollars in thousands)	December 31,
	2007	2006	2005	2004	2003
Commercial loans and leases	$6,197	$6,505	$5,992	$4,320	$3,552
Residential real estate	294	355	361	276	199
Consumer loans	1,326	1,148	1,758	1,502	1,187
Unallocated	-	178	12	718	603
Total allowance for loan and lease losses	$7,817	$8,186	$8,123	$6,816	$5,541

PERCENTAGE OF ALLOWANCE IN EACH CATEGORY TO TOTAL ALLOWANCE
	December 31,
	2007	2006	2005	2004	2003
Commercial loans and leases	79%	80%	74%	63%	64%
Residential real estate	4%	4%	4%	4%	4%
Consumer loans	17%	14%	22%	22%	21%
Unallocated	-	2%	-	11%	11%
Total allowance for loan and lease losses	100%	100%	100%	100%	100%

28

FIRST CHESTER COUNTY CORPORATION AND SUBSIDIARIES

ANALYSIS OF CHANGES IN THE ALLOWANCE FOR LOAN AND LEASE LOSSES
	December 31
(Dollars in thousands)
	2007	2006	2005	2004	2003
Balance at beginning of year	$8,186	$8,123	$6,816	$5,541	$5,887
Provision charged to operating expense	80	3	1,382	1,164	2,519
Recoveries of loans and leases previously charged off
Commercial loans	94	291	178	955	175
Real estate – mortgages	-	6	196	31	9
Consumer loans	32	13	12	28	28
Lease financing receivables	14	49	51	81	2
Total recoveries	140	359	437	1,095	214
Loan charge-offs
Commercial loans	(173)	(32)	(59)	(261)	(1,045)
Real estate – mortgages	(48)	(51)	(245)	(294)	(545)
Consumer loans	(278)	(72)	(82)	(121)	(261)
Lease financing receivables	(83)	(18)	(97)	(234)	(1,248)
Total charge-offs	(582)	(173)	(483)	(910)	(3,099)
Net loan (charge-offs) recoveries	(442)	186	(46)	185	(2,885)
Allowance other adjustment (1)	(7)	(126)	(29)	(74)	20
Balance at end of year	$7,817	$8,186	$8,123	$6,816	$5,541
Year-end loans and leases outstanding	$743,440	$694,343	$664,276	$618,005	$511,249
Average loans and leases outstanding	$714,089	$680,474	$650,938	$567,755	$470,413
Allowance for loan and lease losses
as a percentage of year-end loans and leases
outstanding	1.05%	1.18%	1.22%	1.10%	1.08%
Ratio of net (charge-offs) recoveries to average
Loans and leases outstanding	(0.06)%	0.03%	(0.01)%	0.03%	(0.61)%

(1) “Allowance other adjustment” represents the reclassification of an allowance for possible losses on unfunded loans and unused lines of credit and is recorded in the other liabilities section of the balance sheet. These loans and lines of credit, although unfunded, have been committed to by the Bank.

29

FIRST CHESTER COUNTY CORPORATION AND SUBSIDIARIES

Non-performing loans and leases include those on non-accrual status and loans past due 90 days or more and still accruing. The Corporation’s policy is to write down all non-performing loans to net realizable value based on updated appraisals. Non-performing loans are generally collateralized and are in the process of collection. Non-accrual loans reduce the Corporation’s earnings because interest income is not earned on such assets. There are fifteen non-accrual loans making up the $1.2 million total non-accrual loan and lease balances at December 31, 2007 as compared to seventeen non-accrual loans making up the $7.3 million total non-accrual loan and lease balances at December 31, 2006. Included in the December 31, 2006 balance was one commercial loan of $5.9 million that was sold during 2007. Management continues to take steps to reduce non-accrual loan and lease levels and correct and control current and future credit quality issues. The Credit Administration Department assists Management in improving the components of the allowance of loans and lease losses including the provision for loan and lease losses, recoveries, and charged-off loans. The following chart represents detailed information regarding non-performing loans:

NON-PERFORMING LOANS AND ASSETS
	December 31
(Dollars in thousands)	2007	2006	2005	2004	2003
Past due over 90 days and still accruing	$ 142	$ 793	$ --	$ --	$ 597
Non-accrual loans and leases (1)	1,194	7,289	8,358	7,877	3,093
Total non-performing loans and leases	1,336	8,082	8,358	7,877	3,690
Other real estate owned	--	--	--	757	965
Total non-performing assets	$1,336	$8,082	$8,358	$8,634	$4,655
Interest income which would
have been recorded	$ 321	$ 682	$ 638	$ 209	$ 348
Interest income that was
received from customer	--	--	--	(27)	(46)
Total contractual interest
for non-accruing loans
and leases not collected	$321	$682	$638	$182	$302
Non-performing loans as a
percentage of total loans and leases	0.18%	1.16%	1.26%	1.27%	0.72%
Allowance for loan and lease losses
as a percentage of non-performing
loans and leases	585.10%	101.29%	97.19%	86.53%	150.16%
Non-performing assets as a percentage
of total loans and leases and other real
estate owned	0.18%	1.16%	1.26%	1.40%	0.91%
Allowance for loan and lease losses as a
percentage of non-performing
assets	585.10%	101.29%	97.19%	78.94%	119.03%

 

⁽¹⁾ Generally the Bank places a loan in non-accrual status when principal or interest has been in default for a period of 90 days or more unless the loan is both well secured and in the process of collection.

 

30

FIRST CHESTER COUNTY CORPORATION AND SUBSIDIARIES

            Management believes that the allowance for loan and lease losses is adequate based on its current assessment of probable estimated losses. OREO represents residential and commercial real estate owned by the Corporation following default by borrowers that has been written down to estimated realizable value (net of estimated disposal costs) based on professional appraisals. At December 31, 2007 and 2006, there were no properties held by the Corporation as OREO.

Management is not aware of any loans or leases other than those included in the foregoing tables and mentioned in this section as well as the “Asset Quality and Allowance for Loan and Lease Losses” section 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-INTEREST INCOME

Total non-interest income increased $2.6 million or 28.0%, to $11.8 million in 2007, compared to a decrease of $113 thousand or 1.2% from 2005 to 2006. The various components of non-interest income are discussed below.

The largest component of non-interest income is Wealth Management revenue which increased $197 thousand or 5.8% to $3.6 million in 2007. This compares to an increase of $30 thousand or 0.9% from $3.4 million in 2005. The primary reason for the increases in Wealth Management revenue for 2007 and 2006 is an increase in the market value of Wealth Management assets under management. These balances increased 5.0% in 2007 from $563.0 million at December 31, 2006 to $591.3 million at December 31, 2007. Wealth Management assets under management grew 0.3% or $1.9 million in 2006 from $561.0 million.

Service charges on deposit accounts increased $355 thousand or 17.7% to $2.4 million in 2007 compared to an increase of $53 thousand or 2.7% in 2006 from 2005. Service charges on deposit accounts consists mainly of overdraft and insufficient funds charges, combined with periodic and transaction-based service charges. The increases for 2007 and 2006 over 2006 and 2005, respectively, were primarily due to increases in charges for insufficient funds and overdraft charges.

Gains on the sales of investment securities were $2 thousand in 2007 as compared to $79 thousand of losses in 2006 and $58 thousand of gains in 2005. The sales of investment securities throughout 2007, 2006 and 2005 were the results of normal portfolio management.

During 2007, 2006 and 2005 the Corporation had operating lease agreements with several customers. The income on these agreements increased $120 thousand or 10.4% from $1.2 million in 2006 to $1.3 million in 2007 and increased $155 thousand or 15.5% in 2006 from 2005. The increases in 2007 and 2006 are due to an increased volume in operating leases with one customer. As of December 31, 2007, the Bank is no longer funding operating leases. Instead, we are acting as an agent for a third party that does fund the lease and we collect an upfront fee. See the discussion of related depreciation expense in the “Non-Interest Expense” section.

Gains and losses on the sale of fixed assets and OREO in 2007 was a $1.4 million gain as compared to a $19 thousand gain in 2006 and a $7 thousand loss in 2005. The $1.4 million gain recorded in 2007 was primarily related to the sales of facilities as discussed in the Overview section.

Gains and fee income generated from the sales of loans during 2007 increased by $241 thousand or 62.3% from $387 thousand in 2006 to $628 thousand in 2007. This compares with a decrease of $87 thousand or 18.3% from $474 thousand in 2005. Included in the $628 thousand gain in 2007 is a $225 thousand gain recorded related to the sale of a $5.9 million loan that had been on non-accrual status. Excluding this event, gains and fees on the sale of loans increased $16 thousand or 4% from $387 thousand to $403 thousand for 2007 compared to the same period in 2006. The $87 thousand decrease from 2005 to 2006 was mainly driven by a decrease in volume. During 2006, the volume of refinancing and originations of saleable loans had substantially decreased from 2005, resulting in a lower amount of gains and fees being collected when compared to 2005. When a mortgage is sold, all unamortized fees collected are recognized as income for that period and any gain or loss based on the current market value is recorded at the time of the sale. The Corporation retains the servicing on a portion of the loans sold and earns a servicing fee.

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FIRST CHESTER COUNTY CORPORATION AND SUBSIDIARIES

            Other non-interest income increased $175 thousand or 7.6% from $2.3 million in 2006 to $2.5 million in 2007. This compares with a decrease of $152 thousand or 6.2% from 2005. The primary components of other non-interest income over the past three years are as follows:

(Dollars in thousands)
	2007	2006	2005
Electronic Banking	$1,015	$ 994	$ 873
Wealth Advisory Services	468	373	367
Other	994	935	1,214
	$2,477	$2,302	$2,454

Other includes rental income, safe deposit box fees, merchant services income, and other commission and fee income. The lower Other Non-Interest Income in 2007 and 2006 as compared to 2005 was primarily due to a gain recorded in 2005 related to a forfeited deposit.

NON-INTEREST EXPENSE

Total non-interest expense increased $1.4 million or 4.5% from $31.2 million in 2006 to $32.6 million in 2007, compared to an increase of $596 thousand or 2.0% from 2005 to 2006. The various components of non-interest expense are discussed below.

Employee salaries and benefits increased $1.6 million or 9.1% from $17.4 million in 2006 to $19.0 million in 2007, compared to an increase of $1.6 million or 9.8% from $15.9 million in 2005. The increase during 2007 as compared to 2006 was primarily due to a higher average employee headcount; specifically, staffing for new branches as well as new key employees in the Wealth Management Division and the Commercial Lending and Leasing areas. The increase was also due to higher employee medical insurance expense premiums. The increase in 2006 as compared to 2005 was primarily higher salary expense related to the adoption of a new performance-based incentive program in 2006 combined with higher base salaries and benefits due to higher employee head count during the year.

Net occupancy, equipment and data processing expense decreased $207 thousand or 3.9% from $5.4 million in 2006 to $5.2 million in 2007, compared to a decrease of $246 thousand or 4.4% from $5.6 million in 2005. The lower expense in 2007 as compared to 2006 is primarily due to core systems and equipment that became fully depreciated in 2006 as well as lower building depreciation expense from the sale of facilities during 2007. The lower expense in 2006 as compared to 2005 is also due to lower depreciation on core systems and equipment that became fully depreciated in 2006.

Depreciation on operating leases increased $69 thousand or 6.9% from $987 thousand in 2006 to $1.1 million in 2007. This compares to an increase of $118 thousand or 13.6% from $869 thousand in 2005. This depreciation expense is associated with the operating lease agreements the Bank had with several customers. The income associated with these operating leases are classified as Operating Lease Rental Income.

Professional services expense increased $183 thousand or 9.9% from $1.8 million in 2006 to $2.0 million in 2007 compared to a decrease of $753 thousand or 29.0% from $2.6 million in 2005. The higher professional services expense in 2007 as compared with 2006 is primarily the result of higher legal and consulting fees in 2007. The higher professional services expense in 2005 as compared to 2006 was primarily due to the cost of complying with Sarbanes-Oxley legislation recorded in 2005 combined with certain consulting fees for demographic and branch site analysis, real estate management, benefit plans and management planning also recorded in 2005.

Bank Shares Tax was $705 thousand, $726 thousand, and $549 thousand for the years 2007, 2006, and 2005, respectively. Bank Shares Tax represented 1.08%, 1.17%, and .97% of average stockholders’ equity for 2007, 2006, and 2005, respectively. The Pennsylvania Bank Shares Tax is based primarily on a six year average of the Bank’s stockholders’ equity, and is paid on an annual basis.

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FIRST CHESTER COUNTY CORPORATION AND SUBSIDIARIES

Total other non-interest expense decreased $173 thousand or 4.5% from $3.9 million to $3.7 million in 2007 compared with a decrease of $214 thousand or 5.2% from $4.1 million in 2005. The primary components of other non-interest expense over the past three years are as follows:

(Dollars in thousands)
	2007	2006	2005
Telephone, Postage, and Supplies	$1,125	$1,190	$1,004
Loan and Deposit Supplies	548	504	569
Other	2,026	2,178	2,514
	$3,699	$3,872	$4,087

Other includes director fees, travel and mileage, Wealth Management processing fees, dues and subscriptions, FDIC Deposit Insurance premiums and assessments, and other general expenses. The decrease in 2007 as compared to 2006 is primarily due to a reduction in Wealth Management processing fees as well as a $125 thousand reimbursement for prior period overbilling by our third party Wealth Management processor.

Prior to March 31, 2006, the Bank was subject to deposit insurance assessments by the FDIC's Bank Insurance Fund ("BIF"). On February 8, 2006, the President signed The Federal Deposit Insurance Reform Act of 2005, and, on February 15, 2006, the President signed into law The Federal Deposit Insurance Reform Conforming Amendments Act of 2005 (collectively, the Reform Act). The Reform Act provides for various changes to the FDIC's insurance program, including the merger of the BIF and the Savings Association Insurance Fund ("SAIF") into a new fund, the Deposit Insurance Fund ("DIF"), effective March 31, 2006. Prior to enactment of the Reform Act, the Bank was not required to pay any FDIC assessments. To help offset the new DIF assessment, the Bank received a one-time assessment credit. The assessment credit offset $416 thousand of deposit insurance premiums for 2007 and will partially offset the cost of such premiums for 2008. At December 31, 2007, $66 thousand of assessment credit remained available to offset 2008 premiums. Such increases in FDIC assessments will be an additional expense to the Corporation and, thus, will affect the Corporation's net income in 2008 and subsequent years.

In accordance with the Deposit Insurance Act of 1997 an additional assessment by the Financing Corporation ("FICO") became applicable to all insured institutions as of January 1, 1998. This assessment is not tied to the FDIC risk classification. The FICO assessment rates effective for the fourth quarter 2007 and the first quarter of 2008 were 1.30 basis points per $100 of DIF assessable deposits and 1.29 basis points, respectively. FICO deposit insurance expense was $87 thousand, $88 thousand and $91 thousand for the years 2007, 2006 and 2005.

In the fourth quarter of 2005, the Corporation opened a newly designed full-service branch in the Oxford area. The Corporation also opened a mini-branch in the Wellington Retirement Community in late November 2005. In April 2006, the Corporation opened a new loan processing office in Phoenixville, Pennsylvania. In the fourth quarter of 2006, the Corporation opened two new grocery store branches in Phoenixville and Royersford, Pennsylvania. These branches have a direct impact on all the components of non-interest expense. It is anticipated that the increases in costs will be offset over time by increases in net interest and fee income generated by business in the new marketing areas. We are continuously looking for new branch opportunities and may open new branches in the future as circumstances permit. In January and February of 2008, the Corporation opened two new full service branches in Downingtown and Kennett Square, Pennsylvania, respectively.

INCOME TAXES

Income tax expense was $2.9 million in 2007 compared with $2.9 million in 2006 and $1.9 million in 2005, representing an effective tax rate of 27.7%, 28.2%, and 22.6%, respectively. The lower effective tax rates in 2007 as compared with 2006 and 2005 as compared to 2006 are primarily due to increases in permanent differences as a relative percentage of pretax income.

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FIRST CHESTER COUNTY CORPORATION AND SUBSIDIARIES

CAPITAL ADEQUACY

The Corporation is subject to Risk-Based Capital Guidelines adopted by the Federal Reserve Board for bank holding companies. The Bank is also subject to similar capital requirements adopted by the OCC. Under these requirements, the regulatory agencies have set minimum thresholds for Tier I Capital, Total Capital, and Leverage ratios. At December 31, 2007, 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 1994. The Corporation's and Bank’s Risk-Based Capital Ratios, shown below, have been computed in accordance with regulatory accounting policies.

RISK-BASED	December 31			"Well Capitalized"
CAPITAL RATIOS	2007	2006	2005	Requirements
Corporation
Leverage Ratio	9.22%	9.34%	8.80%	N/A
Tier I Capital Ratio	10.84%	11.26%	10.94%	N/A
Total Risk-Based Capital Ratio	11.92%	12.49%	12.19%	N/A
Bank
Leverage Ratio	8.58%	8.58%	8.14%	5.00%
Tier I Capital Ratio	10.08%	10.31%	10.08%	6.00%
Total Risk-Based Capital Ratio	11.18%	11.53%	11.32%	10.00%

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 effect on liquidity, capital resources or operations of the Corporation.

CONTRACTUAL OBLIGATIONS AND OTHER COMMITMENTS

The following table sets forth contractual obligations and other commitments representing required and potential cash outflows as of December 31, 2007:

(Dollars in thousands)	Total	Less than 1 year	1-3 years	3-5 years	More Than 5 Years
Minimum Annual Rentals on non-cancelable
operating leases	$ 9,333	$ 1,055	$ 1,820	$ 1,613	$ 4,845
Contractual maturities of time deposits	218,606	198,022	11,727	4,161	4,696
Loan commitments	193,777	193,777
Federal Home Loan Bank and other borrowings	115,384	23,816	79,143	10,159	2,266
Subordinated debt	15,465	-	-	-	15,465
Standby letter of credit	9,115	9,115	-	-	-
Total	$ 561,680	$ 425,785	$ 92,690	$ 15,933	$ 27,272

BRANCHING, TECHNOLOGY AND CAPITAL PROJECTS

The Corporation intends to open new branches throughout Chester County over the next several years. A new customer-focused branch design was introduced when construction was finished on the branch building in Oxford, Pennsylvania in 2005. The new "signature look" will be rolled out to new and certain current locations. Technological improvements, including enhanced security over customer information, a more proactive disaster recovery system, and an improved infrastructure to support more internet banking products are also expected in the future.

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FIRST CHESTER COUNTY CORPORATION AND SUBSIDIARIES

CRITICAL ACCOUNTING POLICIES, JUDGMENTS AND ESTIMATES

The accounting and reporting policies of the Corporation conform with GAAP and general practices within the financial services industry. The preparation of financial statements in conformity with GAAP 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.

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 and lease losses is determined based on Management's review and evaluation of the loan 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.

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.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In December 2007, the SEC released Staff Accounting Bulletin SAB 110 (“SAB 110”), “Share Based Payment.” This bulletin expresses the views of the SEC staff regarding the use of a simplified method, as discussed in SAB 107, in developing an estimate of the expected term of share options in accordance with SFAS 123R. This interpretation gives specific examples of when it may be appropriate to use the simplified method of determining the expected term. SAB 110 is effective for fiscal years beginning on or after January 1, 2008. The Corporation is evaluating the impact that the implementation of SAB 110 will have on its financial condition, results of operations and disclosures.

In December 2007, the FASB issued Statement No. 141(R) (“SFAS 141(R)”), “Business Combinations.” This Statement replaces SFAS 141, “Business Combinations.” This Statement retains the fundamental requirements in Statement 141 that the acquisition method of accounting (which Statement 141 called the purchase method) be used for all business combinations and for an acquirer to be identified for each business combination. This Statement also establishes principles and requirements for how the acquirer: a) recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree; b) recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase and c) determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. SFAS 141(R) will apply prospectively to business combinations for which the acquisition date is on or after the first annual reporting period beginning on or after December 15, 2008. While the Corporation has not yet evaluated SFAS 141(R) for the impact, if any, that SFAS 141(R) will have on our consolidated financial statements, we will be required to expense costs related to any acquisitions on or after January 1, 2009, rather than capitalize such costs as currently required.

In December 2007, the FASB issued Statement No. 160 (“SFAS 160”), “Noncontrolling Interests in Consolidated Financial Statements.” This Statement amends Accounting Research Bulletin 51 to establish accounting and reporting standards for the noncontrolling (minority) interest in a subsidiary and for the deconsolidation of a subsidiary. It clarifies that a noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements. SFAS 160 is effective for fiscal years beginning on or after December 15, 2008. The Corporation has not yet determined the impact, if any, that SFAS 160 will have on our consolidated financial statements.

In November 2007, the SEC released Staff Accounting Bulletin SAB 109 (“SAB 109”), “Written Loan Commitments Recorded at Fair Value Through Earnings.” This bulletin expresses the views of the SEC staff regarding written loan commitments that are accounted for at fair value through earnings under GAAP. SAB 09 is effective for fiscal years beginning after December 31, 2007. The Corporation is evaluating the impact that the implementation of SAB 109 will have on its financial condition, results of operations and disclosures.

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FIRST CHESTER COUNTY CORPORATION AND SUBSIDIARIES

In March 2007, the FASB ratified Emerging Issues Task Force, or EITF, Issue 06-11, “Accounting for Income Tax Benefits of Dividends on Share-Based Payment Awards.” EITF 06-11 requires companies to recognize the income tax benefit realized from dividends or dividend equivalents that are charged to retained earnings and paid to employees for nonvested equity-classified employee share-based payment awards as an increase to additional paid-in capital. EITF 06-11 is effective for fiscal years beginning after September 15, 2007 (our fiscal year beginning January 31, 2008). The Corporation does not expect EITF 06-11 to have a material impact on our financial position, results of operations or cash flows.

In February 2007, FASB issued Statement No. 159 (“SFAS 159”), "The Fair Value Option for Financial Assets and Financial Liabilities - Including an Amendment of FASB Statement No. 115." This statement permits entities to choose to measure many financial instruments and certain other items at fair value at specified election dates. The statement defines items eligible for the measurement option. A business entity shall report unrealized gains and losses on items for which the fair value option has been elected in earnings at each subsequent reporting date. This statement is effective for fiscal years beginning after November 15, 2007. The Corporation is currently evaluating the impact that SFAS 159 will have on our consolidated financial statements.

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

In June 2006, FASB issued FASB Interpretation No. 48 (“FIN 48”), “Accounting for Uncertainty in Income Taxes – an Interpretation of FASB Statement No. 109.” 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. The Corporation adopted FIN 48 as of January 1, 2007 and the adoption of FIN 48 did not have a material effect on our consolidated financial statements.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

LIQUIDITY MANAGEMENT AND INTEREST RATE SENSITIVITY

The objective of liquidity management is to ensure the availability of sufficient cash flows to meet all financial commitments and to capitalize on opportunities for business expansion. Liquidity management addresses the Corporation's ability to meet deposit withdrawals either on demand or at contractual maturity, to repay borrowings as they mature and to make new loans and investments as opportunities arise. Liquidity is managed on a daily basis enabling Senior Management to monitor changes in liquidity and to react accordingly to fluctuations in market conditions. The primary sources of liquidity for the Corporation are funding available from growth of our existing deposit base, new deposits, FHLB, and cash flow from the investment and loan portfolios. The Corporation considers funds from such sources to comprise its "core" deposit base because of the historical stability of such sources of funds. Additional liquidity comes from the Corporation's non-interest bearing demand deposit accounts and credit facilities. Other deposit sources include a tiered savings product and certificates of deposit in excess of $100,000. Details of deposits, non-interest-bearing demand deposit accounts and other deposit sources are highlighted in the “Deposit Analysis” table.

The Corporation utilizes borrowings from the FHLB and collateralized repurchase agreements in managing its interest rate risk and as a tool to augment deposits and in funding asset growth. The Corporation may utilize these funding sources to better match its assets that are subject to longer term repricing (i.e., between one and five years). The Bank, as a member of the FHLB, maintains several credit facilities (overnight lines of credit, amortizing and non-amortizing fixed rate term and variable rate term advances with FHLB). As of December 31, 2007, the amount outstanding under the Bank’s line of credit with the FHLB was $0.

FHLB borrowings totaled $115.4 million compared to $61.6 million at December 31, 2007 and 2006, respectively. These borrowings consist of short and long term borrowings representing a combination of maturities. The average interest rate for 2007 and 2006 on these borrowings was approximately 4.2% and 3.9%, respectively. The Bank currently has a maximum borrowing capacity with the FHLB of approximately $235.8 million.

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FIRST CHESTER COUNTY CORPORATION AND SUBSIDIARIES

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 of its "gap position" within one year is a negative $168.2 million or -18.7% of total assets at December 31, 2007, compared with a negative $241.1 million or -27.6% of total assets at the end of 2006. The Corporation’s gap position is just one tool used to evaluate interest rate risk and the stability of net interest margins. The data in the following chart represents the gap position at a specific point in time and may not be indicative of future gap positions. Another tool that 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 policy and monitors the results of the simulations against these limits quarterly. Management monitors interest rate risk as a regular part of corporate operations with the intention of maintaining a stable net interest margin.

INTEREST RATE SENSITIVITY GAP AS OF DECEMBER 31, 2007
(Dollars in thousands)	Within	Two Through	Greater Than	Non-Rate
	One Year	Five Years	Five Years	Sensitive	Total
ASSETS
Federal funds sold	$   24,260	$           -	$           -	$             -	$  24,260
Investment securities	26,960	47,616	23,401	-	97,977
Interest bearing deposits in banks	216	-	-	-	216
Loans and leases	263,086	368,856	111,498	(7,817)	735,623
Cash and due from banks	-	-	-	28,884	28,884
Premises & equipment	-	-	-	17,560	17,560
Other assets	-	-	-	10,261	10,261
Total assets	$  314,522	$416,472	$134,899	$     48,888	$ 914,781
LIABILITIES AND CAPITAL
Non-interest-bearing deposits	$              -	$           -	$            -	$   124,199	$ 124,199
Interest bearing deposits	443,474	15,887	121,338	-	580,699
FHLB and other borrowings	23,816	84,220	7,348	-	115,384
Subordinated debt	15,465	-	-	-	15,465
Other liabilities	-	-	11,055	-	11,055
Capital	-	-	-	67,979	67,979
Total liabilities and capital	$   482,755	$100,107	$139,741	$   192,178	$914,781
Net interest rate sensitivity gap	$(168,233 )	$316,365	$  (4,842)	$(143,290 )	$          -
Cumulative interest rate
sensitivity gap	$(168,233 )	$148,132	$143,290	$              -	$          -
Cumulative interest rate
sensitivity gap divided
by total assets	(18.4%)	16.2%	15.7%

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FIRST CHESTER COUNTY CORPORATION AND SUBSIDIARIES

The Corporation’s gap position is one factor used to evaluate interest rate risk and the stability of net interest margins. Other factors include computer simulations of what might happen to net interest income under various interest rate forecasts and scenarios. The Corporation's Asset Liability Management Policy requires quarterly calculation of the effects of changes in interest rates on net interest income. The table below summarizes estimated changes in net interest income over the twelve-month period ending December 31, 2007 under alternative interest rate scenarios. The change in interest rates was modeled to simulate the effect of a proportional shift in asset and liability ratios (rate ramp). The prime rate as reported in the Wall Street Journal as of December 31, 2007 of 7.25% is used as the “driver rate” in these simulations.

(Dollars in thousands)
Change in	Net	Dollar	Percent
Interest Rates	Interest Income	Change	Change
+200 Basis Points	$ 31,932	$ 305	0.96%
+100 Basis Points	31,798	171	0.54%
Flat Rate	31,627	-	-
-100 Basis Points	31,381	(246)	(0.78)%
-200 Basis Points	31,008	(619)	(1.96)%

Management believes that the assumptions utilized in evaluating the vulnerability of the Corporation's net interest income to changes in interest rates approximate actual experience; however, the interest rate sensitivity of the Corporation’s assets and liabilities, as well as the estimated effect of changes in interest rates on net interest income, could vary substantially if different assumptions are used or actual experience differs from the experience on which the assumptions were based.

In the event the Corporation should experience a mismatch in its desired gap position or an excessive decline in its net interest income subsequent to an immediate and sustained change in interest rates, it has a number of options which it could utilize to remedy such a mismatch. The Corporation could restructure its investment portfolio through sale or purchase of securities with more favorable repricing attributes. It could also promote loan products with appropriate maturities or repricing attributes. The Corporation could also solicit deposits or search for borrowings with more desirable maturities. However, market circumstances might make execution of these strategies cost prohibitive or unattainable.

The nature of the Corporation’s current operation is such that it is not subject to foreign currency exchange or commodity price risk. Additionally, neither the Corporation nor the Bank owns trading assets. At December 31, 2007, the Corporation did not have any hedging transactions in place such as interest rate swaps, caps or floors.

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FIRST CHESTER COUNTY CORPORATION AND SUBSIDIARIES

Item 8. Financial Statements and Supplementary Data.

Report of Independent Registered Public Accounting Firm

Stockholders and Board of Directors

First Chester County Corporation

We have audited the accompanying consolidated balance sheets of First Chester County Corporation and its subsidiaries as of December 31, 2007 and 2006, and the related consolidated statements of income, changes in stockholders' equity and cash flows for each of the three years in the period ended December 31, 2007. These financial statements are the responsibility of the Corporation’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of First Chester County Corporation and its subsidiaries as of December 31, 2007 and 2006, and the consolidated results of their operations and their consolidated cash flows for each of the three years in the period ended December 31, 2007, in conformity with accounting principles generally accepted in the United States of America.

Effective January 1, 2006, the Corporation adopted Statement of Financial Accounting Standards No. 123(R), “Share-Based Payments” and Securities and Exchange Commission Staff Accounting Bulletin No. 108, “Considering the Effects of Prior Year Misstatements When Quantifying Misstatements in the Current Year Financial Statements.”

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of First Chester County Corporation's internal control over financial reporting as of December 31, 2007, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and our report dated March 12, 2008 expressed an unqualified opinion.

/s/ Grant Thornton LLP

Philadelphia, Pennsylvania

March 12, 2008

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FIRST CHESTER COUNTY CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)	December 31
	2007	2006
ASSETS
Cash and due from banks	$ 28,884	$ 27,556
Federal funds sold and other overnight investments	24,260	44,500
Interest bearing deposits	216	285
Total cash and cash equivalents	53,360	72,341
Investment securities held-to-maturity (fair value of $5
at December 31, 2006)	-	5
Investment securities available-for-sale, at fair value	97,977	88,709
Loans and leases	743,440	694,343
Less allowance for loan and lease losses	(7,817)	(8,186)
Net loans and leases	735,623	686,157
Premises and equipment, net	17,560	13,988
Net deferred tax asset	4,418	4,447
Other assets	5,843	6,447
Total assets	$914,781	$872,094
LIABILITIES
Deposits
Non-interest-bearing	$ 124,199	$ 129,911
Interest-bearing (including certificates of deposit over $100 of
$58,616 and $43,825 at December 31, 2007 and 2006, respectively)	580,699	594,757
Total deposits	704,898	724,668
Federal Home Loan Bank and other borrowings	115,384	61,596
Subordinated debt	15,465	15,465
Other liabilities	11,055	7,103
Total liabilities	846,802	808,832
STOCKHOLDERS' EQUITY
Common stock, par value $1.00; authorized, 25,000,000 shares;
Outstanding 5,279,815 at December 31, 2007 and 2006.	5,280	5,280
Additional paid-in capital	11,113	11,939
Retained earnings	55,347	50,486
Accumulated other comprehensive loss	(1,207)	(1,473)
Treasury stock, at cost; 119,065 and 128,075 at
December 31, 2007 and 2006, respectively.	(2,554)	(2,970)
Total stockholders' equity	67,979	63,262
Total liabilities and stockholders' equity	$914,781	$872,094

The accompanying notes are an integral part of these statements.

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FIRST CHESTER COUNTY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share)	Years ended December 31
	2007	2006	2005
INTEREST INCOME
Loans and leases, including fees	$ 49,791	$ 45,783	$ 39,402
Investment securities	4,232	4,358	4,441
Federal funds sold and deposits in banks	2,413	2,061	761
Total interest income	56,436	52,202	44,604
INTEREST EXPENSE
Deposits	20,529	16,237	10,009
Subordinated debt	1,460	1,304	1,015
Federal Home Loan Bank and other borrowings	2,984	2,496	2,555
Total interest expense	24,973	20,037	13,579
Net interest income	31,463	32,165	31,025
PROVISION FOR LOAN AND LEASE LOSSES	80	3	1,382
Net interest income after provision for loan and lease losses	31,383	32,162	29,643
NON-INTEREST INCOME
Wealth Management	3,620	3,423	3,393
Service charges on deposit accounts	2,362	2,007	1,954
Gains (losses) on sales of investment securities, net	2	(79)	58
Operating lease rental income	1,273	1,153	998
Gains (losses) on the sales of fixed assets and OREO	1,425	19	(6)
Gains and fees on the sales of loans	628	387	474
Other	2,477	2,302	2,454
Total non-interest income	11,787	9,212	9,325
NON-INTEREST EXPENSE
Salaries and employee benefits	19,025	17,432	15,881
Occupancy, equipment, and data processing	5,152	5,359	5,605
Depreciation expense on operating leases	1,056	987	869
Bank shares tax	705	726	549
Professional services	2,031	1,848	2,601
Marketing	902	929	965
Other	3,699	3,872	4,087
Total non-interest expense	32,570	31,153	30,557
Income before income taxes	10,600	10,221	8,411
INCOME TAXES	2,931	2,886	1,900
NET INCOME	$7,669	$7,335	$6,511
PER SHARE DATA
Net income per share (Basic)	$1.49	$1.42	$1.28
Net income per share (Diluted)	$1.47	$1.40	$1.24
Dividends declared	$0.545	$0.540	$0.525

The accompanying notes are an integral part of these statements.

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FIRST CHESTER COUNTY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY

(Dollars in thousands)					Accumulated
			Additional		Other		Total
	Common Stock		Paid-in	Retained	Comprehensive	Treasury	Stockholders’	Comprehensive
	Shares	Par Value	Capital	Earnings	Income/(loss)	Stock	Equity	Income
Balances at January 1, 2005	4,799,666	$4,800	$2,052	$53,749	$(78)	$(5,121)	$55,402	$ -
Net Income				6,511			6,511	6,511
Cash dividends declared				(2,665)			(2,665)
Stock dividends declared	480,149	480	10,612	(11,092)
Other Comprehensive Income
Net unrealized gains on investment securities available-for-sale					(1,851)		(1,851)	(1,851)
Treasury stock transactions			(223)			1,503	1,280
Comprehensive Income								$ 4,660
Balances December 31, 2005	5,279,815	$5,280	$12,441	$46,503	$(1,929)	$(3,618)	$58,677
Cumulative effect under SAB No. 108 adjustments				(565)			(565)
Balance at January 1, 2006, as adjusted	5,279,815	$5,280	$12,441	$45,938	$(1,929)	$(3,618)	$58,112
Net Income				7,335			7,335	7,335
Cash dividends declared				(2,787)			(2,787)
Other Comprehensive Income
Net unrealized gains on investment securities available-for-sale					456		456	456
Treasury stock transactions			(733)			648	(85)
Share based compensation tax benefit			231				231
Comprehensive Income								$ 7,791
Balances December 31, 2006	5,279,815	$5,280	$11,939	$50,486	$(1,473)	$(2,970)	$63,262
Net Income				7,669			7,669	7,669
Cash dividends declared				(2,808)			(2,808)
Other Comprehensive Income
Net unrealized gains on investment securities available-for-sale					266		266	266
Treasury stock transactions			(917)			416	(501)
Share based compensation tax benefit			91				91
Comprehensive Income								$ 7,935
Balances December 31, 2007	5,279,815	$5,280	$11,113	$55,347	$(1,207)	$(2,554)	$67,979

The accompanying notes are an integral part of these statements.

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FIRST CHESTER COUNTY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)	Years ended December 31
	2007	2006	2005
OPERATING ACTIVITIES
Net income	$ 7,669	$ 7,335	$ 6,511
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation	2,498	2,777	2,615
Provision for loan and lease losses	80	3	1,382
Amortization of investment security premiums
and accretion of discounts, net	196	232	194
Amortization of deferred loan fees	(84)	459	(111)
(Gains) losses on sales of investment securities, net	(2)	79	(58)
Gains from the sales of assets	(1,425)	(19)	6
(Increase) decreases in other assets	497	(1,562)	(2,509)
Increase in other liabilities	1,267	143	872
Net cash provided by operating activities	10,696	9,447	8,902
INVESTING ACTIVITIES
Net increase in loans	(49,462)	(30,468)	(46,234)
Proceeds from sales of investment securities available-for-sale	4,583	13,631	85,784
Proceeds from maturities of investment securities available-for-sale	14,995	9,216	56,985
Proceeds from maturities of investment securities held to maturity	5	-	-
Purchases of investment securities available-for-sale	(28,637)	(14,094)	(99,964)
Purchases of premises and equipment	(7,214)	(3,031)	(2,330)
Proceeds from the sale of fixed assets	5,253	71	60
Net cash used in investing activities	(60,477)	(24,675)	(5,699)
FINANCING ACTIVITIES
Increase (decrease) in short term Federal Home Loan Bank
and other short term borrowings	(5,266)	(5,000)	750
Increase in long term Federal Home Loan Bank borrowings	65,000	-	1,686
Repayment of long term Federal Home Loan Bank borrowings	(5,946)	(2,304)	-
Net increase in deposits	(19,770)	28,571	33,079
Proceeds from issuance of subordinated debt	5,155	-	-
Repayment of subordinated debt	(5,155)	-	-
Cash dividends paid	(2,808)	(2,787)	(2,665)
Net increase (decrease) in treasury stock transactions	(501)	(85)	1,280
Share based compensation tax benefit	91	231	-
Net cash provided by financing activities	30,800	18,626	34,130
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS	(18,981)	3,398	37,333
Cash and cash equivalents at beginning of year	72,341	68,943	31,610
Cash and cash equivalents at end of year	$53,360	$72,341	$68,943

The accompanying notes are an integral part of these statements.

43

FIRST CHESTER COUNTY CORPORATION AND SUBSIDIARIES

NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

First Chester County Corporation (the "Corporation"), through its wholly-owned subsidiary, First National Bank of Chester County (the "Bank"), has been serving the residents and businesses of Chester County, Pennsylvania, since 1863. The Bank is a locally managed community bank providing loan, deposit, cash management and trust and investment services from its twenty two locations. The Bank encounters vigorous competition for market share in the communities it serves from bank holding companies, other community banks, Internet banks, thrift institutions, credit unions and other non-bank financial organizations such as mutual fund insurance and brokerage companies.

The Corporation and the Bank, and their wholly-owned subsidiaries FNB Properties, LLC, FNB Insurance Services, LLC, Turks Head Properties, Inc, Turks Head II, LLC, First Chester County Capital Trust I (“Trust I”), First Chester County Capital Trust II (“Trust II”), and First Chester County Capital Trust III (“Trust III”) are subject to regulations of certain state and federal agencies. These regulatory agencies periodically examine the Corporation and the Bank for adherence to laws and regulations.

1. Basis of Financial Statement Presentation

The accounting policies followed by the Corporation and its wholly-owned subsidiaries conform to generally accepted accounting principles generally accepted in the United States of America (“GAAP”) and predominant practices within the banking industry. The accompanying consolidated financial statements include the accounts of the Corporation, the Bank, Turks Head Properties, Turks Head II, FNB Insurance Services, and FNB Properties. All significant intercompany transactions have been eliminated.

In preparing the financial statements, Management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the balance sheets, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

The principal estimate that is susceptible to significant change in the near term relates to the allowance for loan and lease losses. The evaluation of the adequacy of the allowance for loan and lease losses includes an analysis of the individual loans and leases and overall risk characteristics and size of the different loan and lease portfolios, and takes into consideration current economic and market conditions, the capability of specific borrowers to pay specific loan and lease obligations, as well as current loan collateral values. However, actual losses on specific loans and leases, which also are encompassed in the analysis, may vary from estimated losses.

Statement of Financial Accounting Standards (“SFAS”) No. 131 establishes standards for public business enterprises reporting information about operating segments in annual financial statements and requires that those enterprises report selected information about operating segments in subsequent interim financial reports issued to shareholders. It also establishes standards for related disclosure about products and services, geographic areas, and major customers. Operating segments are components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and assess resources and performance. The Corporation has applied the aggregation criteria set forth in SFAS No. 131 for its operating segments to create one reporting segment, “community banking.”

The Corporation’s community banking segment consists of construction, commercial, retail, and mortgage banking. The community banking segment is managed as a single strategic unit, which generates revenue from a variety of products and services provided by the Corporation. For example, construction and commercial lending is dependent upon the ability of the Corporation to fund itself with retail deposits and other borrowings and to manage interest rate and credit risk. This situation is also similar for consumer and residential mortgage lending. Accordingly, all significant operating decisions are based upon analysis of the Corporation as one operating segment or unit.

44

FIRST CHESTER COUNTY CORPORATION AND SUBSIDIARIES

NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – continued

Management had previously determined that Trust I, Trust II and Trust III (Trust I, Trust II and Trust III, collectively, the "Trusts") each qualify as variable interest entities under FASB Interpretation 46 (“FIN 46”). Each of the Trusts issued mandatory redeemable preferred stock to investors and loaned the proceeds to the Corporation. The Trusts hold, as their sole asset, subordinated debentures issued by the Corporation. Subsequent to the issuance of FIN 46, the FASB issued a revised interpretation, FIN 46(R), the provisions of which must be applied to certain variable interest entities. The Corporation adopted the provisions under the revised interpretation in the first quarter of 2004 which required the Corporation to deconsolidate the Trusts.

2. Financial Instruments

The Corporation follows SFAS No. 107, "Disclosures about Fair Value of Financial Instruments," which requires all entities to disclose the estimated fair value of their assets and liabilities considered to be financial instruments. Financial instruments requiring disclosure consist primarily of investment securities, loans, and deposits and borrowings.

3. Investment Securities

The Corporation follows SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities," which requires investments in securities to be classified in one of three categories: held-to-maturity, trading, or available-for-sale. Debt securities that the Corporation has the positive intent and ability to hold to maturity are classified as held-to-maturity and are reported at amortized cost. As the Corporation does not engage in security trading, the balance of its debt securities and any equity securities are classified as available-for-sale. Net unrealized gains and losses for such securities, net of tax effect, are required to be recognized as a separate component of stockholders' equity and excluded from the determination of net income.

In November 2005, the FASB issued FASB Staff Position ("FSP") SFAS 115-1 and 124-1, "The meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments." This FSP nullifies certain requirements of EITF-03-01 on this topic and provides additional guidance on when an investment in a debt or equity security should be considered impaired and when that impairment should be considered other-than-temporary and recognized as a loss in earnings. Specifically, the guidance clarifies that an investor should recognize an impairment loss no later than when the impairment is deemed other-than-temporary, even if a decision to sell has not been made. The FSP also required certain disclosures about unrealized losses that have not been recognized as other-than-temporary impairments. FSP SFAS 115-1 and 124-1 was effective for reporting periods beginning after December 15, 2005. Adoption of the FSP did not have a material impact on the Company's consolidated financial statements.

The Corporation follows the provisions of SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activity,” as amended by SFAS No. 138. SFAS No. 133 establishes accounting and reporting standards for derivative instruments, including certain derivative instruments imbedded in other contracts, and for hedging activities. It requires that an entity recognize all derivatives either as assets or liabilities in the statement of financial position and measure those instruments at fair value. The Corporation did not have any derivative instruments at December 31, 2007, 2006, and 2005.

45

FIRST CHESTER COUNTY CORPORATION AND SUBSIDIARIES

NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – continued

4. Loans and Leases and Allowance for Loan and Lease Losses

Loans and leases that Management has the intent and ability to hold for the foreseeable future or until maturity or payoff are stated at the amount of unpaid principal, reduced by unearned discount and an allowance for loan and lease losses. The allowance for loan and lease losses is established through a provision for loan and lease losses charged to expense. Loan and lease principal considered to be uncollectible by Management is charged against the allowance for loan and lease losses. The allowance is an amount that Management believes will be adequate to absorb possible losses on existing loans and leases that may become uncollectible based upon an evaluation of known and inherent risks in the loan and lease portfolio. The evaluation takes into consideration such factors as changes in the nature and size of the loan and lease portfolio, overall portfolio quality, specific problem loans, loss experience, and current and future economic conditions which may affect the borrowers' ability to pay. The evaluation also details historical losses by loan category, the resulting loss rates for which are projected at current loan and lease total amounts. Loss estimates for specified problem loans and leases are also detailed. Interest on loans and leases is accrued and credited to operations based upon the principal amount outstanding. Certain origination and commitment fees and related direct loan or lease origination costs are deferred and amortized over the contractual life of the related loans and leases, resulting in an adjustment of the related loan's yield. Accrual of interest is discontinued on a loan when Management believes that the borrower's financial condition is such that collection of interest and principal is doubtful. Upon such discontinuance, all unpaid accrued interest is reversed.

The Corporation accounts for impairment in accordance with SFAS No. 114, "Accounting by Creditors for Impairment of a Loan," as amended by SFAS No. 118, "Accounting by Creditors for Impairment of a Loan - Income Recognition and Disclosures." SFAS No. 114 requires loan impairment to be measured based on the present value of expected future cash flows discounted at the loan's effective interest rate, its observable market price or the fair value of the collateral if the loan is collateral dependent. If it is probable that a creditor will foreclose on a property, the creditor must measure impairment based on the fair value of the collateral.

Residential mortgage loans originated and intended for sale in the secondary market are carried at the lower of aggregate cost or estimated fair value. Gains and losses and unamortized fees on sales of residential mortgage loans are included in non-interest income.

The Corporation accounts for its transfers and servicing of financial assets in accordance with SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities”. SFAS No. 140 revises the standards for accounting for securitizations and other transfers of financial assets and collateral.

The Corporation follows FASB Interpretation 45 (“FIN 45”) “Guarantor’s Accounting and Disclosure Requirements for Guarantees, including Indirect Guarantees of Indebtedness of Others.” FIN 45 requires a guarantor entity, at the inception of a guarantee covered by the measurement provisions of FIN 45, to record a liability for the fair value of the obligation undertaken in issuing the guarantee. The Corporation has issued financial and performance letters of credit. Financial letters of credit require the Corporation to make payment if the customer’s financial condition deteriorates, as defined in underlying agreements. Performance letters of credit require the Corporation to make payments if the customer fails to perform certain non-financial contractual obligations.

5. Premises and Equipment

Premises and equipment are stated at cost less accumulated depreciation. Assets are depreciated over their estimated useful lives, principally by the straight-line method.

The Corporation accounts for impairment of long-term assets in accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” The standard requires recognition and measurement of long-lived assets to be held and used or to be disposed of by sale. The Corporation had no impaired long-lived assets at December 31, 2007, 2006, or 2005.

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FIRST CHESTER COUNTY CORPORATION AND SUBSIDIARIES

NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – continued

6. Contributions

The Corporation accounts for contributions in accordance with SFAS No. 116, “Accounting for Contributions Received and Contributions Made.” SFAS No. 116 specifies that contributions made by the Corporation be recognized as expenses in the period made and as decreases of assets or increases of liabilities depending on the form of the benefits given. In accordance with SFAS No. 116, the Corporation incurred contribution expenses relating to long-term commitments to local not-for-profit organizations of $171 thousand, $78 thousand and $192 thousand during 2007, 2006 and 2005, respectively.

7. Income Taxes

The Corporation accounts for income taxes in accordance with SFAS No. 109, "Accounting for Income Taxes.” Under the liability method specified by SFAS No. 109, deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities as measured by the enacted tax rates which will be in effect when these differences reverse. Deferred tax expense and benefits are the result of changes in deferred tax assets and liabilities.

8. Employee Benefit Plans

The Corporation has certain employee benefit plans covering eligible employees. The Bank accrues such costs as earned by the employee.

9. Share Based Compensation Plan

Effective January 1, 2006, the Corporation adopted FASB Statement No. 123 (R), “Share-Based Payment”. Statement 123 (R) requires that compensation cost relating to share-based payment transactions be recognized in financial statements. The cost is measured based on the fair value of the equity or liability instruments issued. Statement 123 (R) replaces FASB Statement No. 123, “Accounting for Stock-Based Compensation” and supersedes APB Opinion No. 25, “Accounting for Stock Issued to Employees”. Statement 123 established as preferable a fair-value-based method of accounting for share-based payment transactions with employees. However, that Statement permitted entities the option of continuing to apply the guidance in Opinion 25, as long as the footnotes to financial statements disclosed what net income would have been had the preferable fair-value-based method been used.

Because the Corporation adopted Statement 123 (R) using the modified prospective transition method, prior periods have not been restated. Under this method, the Corporation is required to record compensation expense for all awards granted after the date of adoption for the unvested portion of previously granted awards that remain outstanding as of the beginning of the period of adoption. As of January 1, 2006, there were no unvested options. The Corporation measured share-based compensation cost using the Black-Scholes option pricing model for stock option grants prior to January 1, 2006 and anticipates using this pricing mode for future grants. Forfeitures did not affect the calculated expense based upon historical activities of option grantees.

The Corporation granted no stock options during 2007 and all grants prior to January 1, 2006 were fully vested.

47

FIRST CHESTER COUNTY CORPORATION AND SUBSIDIARIES

NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – continued

At December 31, 2007, the Corporation has one stock-based employee compensation plan. Reported net income, adjusting for share-based compensation that would have been recognized in the adoption of Statement 123 (R) did not change the way that the Corporation has accounted for stock awards in prior periods and therefore no such change is reflected in the pro forma table below. The Corporation expenses the grant date fair value of stock awards on a straight-line basis over the vesting period of the award.

The following table illustrates the effect on net income and net income per share if the Corporation had applied the fair value recognition provisions of SFAS No. 123 to stock-based employee compensation prior to January 1, 2006.

		2005
Net income (in thousands)	As reported	$ 6,511
Stock-based compensation
costs determined under fair
value method for all awards		114
	Pro forma	$6,397
Net income per share (Basic)	As reported	$1.28
	Pro forma	$1.23
Net income per share (Diluted)	As reported	$1.24
	Pro forma	$1.22

The fair value of an option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions used for grants in 2005: dividend yield of 2.74%; expected volatility of 0.66; risk-free interest rate of 4.34%; and an expected life of 2.14 years.

10. Wealth Management Division Assets and Income

Assets held by the Corporation in fiduciary or agency capacities for its customers are not included in the accompanying consolidated balance sheets since such items are not assets of the Bank or Corporation. Operating income and expenses of the Wealth Management Division are included under their respective captions in the accompanying consolidated statements of income and are recorded on the accrual basis.

11. Net income per share  

The Corporation follows the provisions of SFAS No. 128, "Earnings Per Share" requires presentations of basic and diluted net income per share (“EPS”) in conjunction with the disclosure of the methodology used in computing such EPS. Basic EPS excludes dilution and is computed by dividing income available to common shareholders by the weighted average common shares outstanding during the period. All per share data has been retroactively adjusted for stock dividends.

12. Cash Flow Information

For purposes of reporting cash flows, cash and cash equivalents include cash on hand, amounts due from banks, and federal funds sold and overnight investments. Generally, federal funds and overnight investments are purchased and sold for one-day periods. Cash paid for interest for the years ended December 31, 2007, 2006, and 2005 was $24.1 million, $19.7 million and $12.9 million, respectively. Cash paid for income taxes for the years ended December 31, 2007, 2006, and 2005 was $2.1 million, $3.7 million, and $2.3 million, respectively.

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FIRST CHESTER COUNTY CORPORATION AND SUBSIDIARIES

NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – continued

13. Reporting Comprehensive Income

The Corporation follows the provisions of SFAS No. 130, “Reporting of Comprehensive Income,” which requires the reporting of comprehensive income which includes net income as well as certain other items which result in a change to equity during the period.

	December 31, 2007
(Dollars in thousands)	Before	Tax	Net of
	Tax	(Expense)	Tax
	Amount	Benefit	Amount
Unrealized holding gains (losses) arising
during the period	$ 401	$ (136)	$ 265
Reclassification adjustment
for gains realized in net income	2	(1)	1
Other comprehensive loss	$403	$(137)	$266

	December 31, 2006
(Dollars in thousands)	Before	Tax	Net of
	Tax	(Expense)	Tax
	Amount	Benefit	Amount
Unrealized holding gains (losses) arising
during the period	$ 770	$ (262)	$ 508
Reclassification adjustment
for losses realized in net income	(79)	27	(52)
Other comprehensive loss	$691	$(235)	$456
	December 31, 2005
(Dollars in thousands)	Before	Tax	Net of
	Tax	(Expense)	Tax
	Amount	Benefit	Amount
Unrealized holding gains (losses) arising
during the period	$ (2,983)	$ 1,095	$ (1,888)
Reclassification adjustment
for gains realized in net income	58	(21)	37
Other comprehensive loss	$(2,925)	$(1,074)	$(1,851)

14. Advertising Costs

The Bank expenses advertising costs as incurred.

15. Reclassifications

Certain numbers have been reclassified to conform with the 2007 presentation. These reclassifications have no impact on net income or net income per share.

49

FIRST CHESTER COUNTY CORPORATION AND SUBSIDIARIES

NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – continued

16. New Accounting Pronouncements

In December 2007, the SEC released Staff Accounting Bulletin SAB 110 (“SAB 110”), “Share Based Payment.” This bulletin expresses the views of the SEC staff regarding the use of a simplified method, as discussed in SAB 107, in developing an estimate of the expected term of share options in accordance with SFAS 123R. This interpretation gives specific examples of when it may be appropriate to use the simplified method of determining the expected term. SAB 110 is effective for fiscal years beginning on or after January 1, 2008. The Corporation is evaluating the impact that the implementation of SAB 110 will have on its financial condition, results of operations and disclosures.

In December 2007, the FASB issued Statement No. 141(R) (“SFAS 141(R)”), “Business Combinations.” This Statement replaces SFAS 141, “Business Combinations.” This Statement retains the fundamental requirements in Statement 141 that the acquisition method of accounting (which Statement 141 called the purchase method) be used for all business combinations and for an acquirer to be identified for each business combination. This Statement also establishes principles and requirements for how the acquirer: a) recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree; b) recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase and c) determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. SFAS 141(R) will apply prospectively to business combinations for which the acquisition date is on or after the first annual reporting period beginning on or after December 15, 2008. While the Corporation has not yet evaluated SFAS 141(R) for the impact, if any, that SFAS 141(R) will have on our consolidated financial statements, we will be required to expense costs related to any acquisitions on or after January 1, 2009, rather than capitalize such costs as currently required.

In December 2007, the FASB issued Statement No. 160 (“SFAS 160”), “Noncontrolling Interests in Consolidated Financial Statements.” This Statement amends Accounting Research Bulletin 51 to establish accounting and reporting standards for the noncontrolling (minority) interest in a subsidiary and for the deconsolidation of a subsidiary. It clarifies that a noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements. SFAS 160 is effective for fiscal years beginning on or after December 15, 2008. The Corporation has not yet determined the impact, if any, that SFAS 160 will have on our consolidated financial statements.

In November 2007, the SEC released Staff Accounting Bulletin SAB 109 (“SAB 109”), “Written Loan Commitments Recorded at Fair Value Through Earnings.” This bulletin expresses the views of the SEC staff regarding written loan commitments that are accounted for at fair value through earnings under GAAP. SAB 09 is effective for fiscal years beginning after December 31, 2007. The Corporation is evaluating the impact that the implementation of SAB 109 will have on its financial condition, results of operations and disclosures.

In March 2007, the FASB ratified Emerging Issues Task Force, or EITF, Issue 06-11, “Accounting for Income Tax Benefits of Dividends on Share-Based Payment Awards.” EITF 06-11 requires companies to recognize the income tax benefit realized from dividends or dividend equivalents that are charged to retained earnings and paid to employees for nonvested equity-classified employee share-based payment awards as an increase to additional paid-in capital. EITF 06-11 is effective for fiscal years beginning after September 15, 2007 (our fiscal year beginning January 31, 2008). The Corporation does not expect EITF 06-11 to have a material impact on our financial position, results of operations or cash flows.

In February 2007, FASB issued Statement No. 159 (“SFAS 159”), "The Fair Value Option for Financial Assets and Financial Liabilities - Including an Amendment of FASB Statement No. 115." This statement permits entities to choose to measure many financial instruments and certain other items at fair value at specified election dates. The statement defines items eligible for the measurement option. A business entity shall report unrealized gains and losses on items for which the fair value option has been elected in earnings at each subsequent reporting date. This statement is effective for fiscal years beginning after November 15, 2007. The Corporation is currently evaluating the impact that SFAS 159 will have on our consolidated financial statements.

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FIRST CHESTER COUNTY CORPORATION AND SUBSIDIARIES

NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – continued

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

In June 2006, FASB issued FASB Interpretation No. 48 (“FIN 48”), “Accounting for Uncertainty in Income Taxes – an Interpretation of FASB Statement No. 109.” 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. The Corporation adopted FIN 48 as of January 1, 2007 and the adoption of FIN 48 did not have a material effect on our consolidated financial statements.

NOTE B - INVESTMENT SECURITIES

The amortized cost, gross unrealized gains and losses, and fair market value of the Corporation's available-for-sale and held-to-maturity securities at December 31, 2007 and 2006 are summarized as follows:

	Available-for-Sale
(Dollars in thousands)		Gross	Gross
2007	Amortized	Unrealized	Unrealized	Fair
	Cost	Gains	Losses	Value
U.S. Treasury	$ -	$ -	$ -	$ -
U.S. Government agency	3,082	30	(12)	3,100
Mortgage-backed securities	56,925	260	(531)	56,654
State and municipal	13,686	73	(109)	13,650
Corporate securities	15,121	30	(665)	14,486
Other equity securities	10,993	44	(950)	10,087
	$99,807	$437	$ (2,267)	$97,977

	Held-to-Maturity					Available-for-Sale
(Dollars in thousands)		Gross	Gross				Gross	Gross
2006	Amortized	Unrealized	Unrealized	Fair	Amortized		Unrealized	Unrealized	Fair
	Cost	Gains	Losses	Value	Cost		Gains	Losses	Value
U.S. Treasury	$ -	$ -	$ -	$ -	$ 1,000		$ -	$ (2)	$ 998
U.S. Government agency	-	-	-	-	3,371		8	(25)	3,354
Mortgage-backed securities	-	-	-	-	56,439		14	(1,401)	55,052
State and municipal	5	-	-	5	9,906		-	(304)	9,602
Corporate securities	-	-	-	-	11,461		-	(587)	10,874
Other equity securities	-	-	-	-	8,764		187	(122)	8,829
	$5	$-	$-	$5	$90,941		$209	$(2,441 )	$88,709

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FIRST CHESTER COUNTY CORPORATION AND SUBSIDIARIES

NOTE B - INVESTMENT SECURITIES – continued

The amortized cost and estimated fair value of debt securities classified as available-for-sale and held-to-maturity at December 31, 2007, by contractual maturity, are shown in the following table. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

	Available-for-Sale
(Dollars in thousands)	Amortized	Fair
	Cost	Value
Due in one year or less	$ 2,488	$ 2,479
Due after one year through five years	17,489	17,248
Due after five years through ten years	4,952	4,624
Due after ten years	6,960	6,885
	31,889	31,236
Mortgage-backed securities	56,925	56,654
Other equity securities	10,993	10,087
	$99,807	$97,977

Proceeds from the sale of investment securities available for sale were $4.6 million, $13.6 million and $85.8 million during 2007, 2006, and 2005, respectively. Gains of $21 thousand, $76 thousand and $112 thousand and losses of $19 thousand, $155 thousand and $54 thousand were realized on sales of securities in 2007, 2006, and 2005, respectively. The Corporation uses the specific identification method to determine the cost of the securities sold. The principal amount of investment securities pledged to secure public deposits and for other purposes required or permitted by law was $87.1 million and $78.1 million at December 31, 2007 and 2006, respectively. There were no securities held from a single issuer that represented more than 10% of stockholders' equity.

The table below indicates the length of time individual securities have been in a continuous unrealized loss position at December 31, 2007.

(Dollars in thousands)

		Less than 12 months		12 months or longer		Total
Description of	Number of	Fair	Unrealized	Fair	Unrealized	Fair	Unrealized
Securities	Securities	Value	Losses	Value	Losses	Value	Losses
U.S. Government
agency	1	$        -	$     -	$       784	$      (12)	$      784	$       (12)
Mortgage-backed
securities	24	3,039	(14)	30,726	(517)	33,765	(531)
State and municipal	24	-	-	8,372	(109)	8,372	(109)
Corporate securities	15	1,915	(77)	10,623	(588)	12,538	(665)
Other equity
securities	13	-	-	10,993	(950)	10,993	(950)
Total temporarily
impaired investment
securities	77	$ 4,954	$(91)	$ 61,498	$ (2,176)	$ 66,452	$ (2,267)

Management has considered factors regarding other than temporarily impaired securities and believes that there are no securities that were impaired as of December 31, 2007.

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FIRST CHESTER COUNTY CORPORATION AND SUBSIDIARIES

NOTE B - INVESTMENT SECURITIES – continued

The table below indicates the length of time individual securities have been in a continuous unrealized loss position at December 31, 2006.

(Dollars in thousands)

		Less than 12 months		12 months or longer		Total
Description of	Number of	Fair	Unrealized	Fair	Unrealized	Fair	Unrealized
Securities	Securities	Value	Losses	Value	Losses	Value	Losses
U.S. Treasury	1	$        -	$   -	$      998	$         (2)	$      998	$        (2)
U.S. Government
agency	3	1,828	(2)	990	(23)	2,818	(25)
Mortgage-backed
securities	30	3,086	(5)	47,765	(1,396)	50,851	(1,401)
State and municipal	28	-	-	9,602	(304)	9,602	(304)
Corporate securities	13	-	-	10,873	(587)	10,873	(587)
Other equity
securities	3	-	-	8,764	(122)	8,764	(122)
Total temporarily
impaired investment
securities	78	$ 4,914	$(7)	$ 78,992	$ (2,434)	$ 83,906	$ (2,441)

Management has considered factors regarding other than temporarily impaired securities and believes that there are no securities that were impaired as of December 31, 2006.

NOTE C – LOANS AND LEASES

Major classifications of loans are as follows:
(Dollars in thousands)	2007	2006
Commercial loans	$ 277,715	$ 243,651
Real estate – construction	55,414	41,287
Real estate – commercial	235,880	222,300
Real estate – residential	59,508	65,698
Consumer loans	106,574	108,700
Lease financing receivables	8,349	12,707
	743,440	694,343
Less: Allowance for loan and lease losses	(7,817)	(8,186)
	$735,623	$686,157

Loan and lease balances on which the accrual of interest has been discontinued amounted to approximately $1.2 million and $7.3 million at December 31, 2007 and 2006, respectively. Interest on these non-accrual loans and leases would have been approximately $321 thousand, $682 thousand and $638 thousand in 2007, 2006 and 2005, respectively. Loan and lease balances past due 90 days or more, which are not on a non-accrual status, but which Management expects will eventually be paid in full, amounted to $142 thousand, $793 thousand and $0 at December 31, 2007, 2006 and 2005, respectively.

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FIRST CHESTER COUNTY CORPORATION AND SUBSIDIARIES

NOTE C – LOANS AND LEASES - Continued

At June 30, 2006, the Corporation reclassified $523 thousand of the allowance for loan and lease losses as other liabilities on the consolidated balance sheet. This amount represents an allowance for possible losses on unfunded loans and unused lines of credit. These loans and lines of credit, although unfunded, have been committed to by the

Bank. At December 31, 2007 and 2006, the total amount recorded in other liabilities on the consolidated balance sheet as an allowance for possible losses on unfunded loans and lines of credit is $559 thousand and $552 thousand, respectively.

Changes in the allowance for loan and lease losses are summarized as follows:

(Dollars in thousands)	2007	2006	2005
Balance at beginning of year	$ 8,186	$ 8,123	$ 6,816
Provision charged to operating expenses	80	3	1,382
Recoveries	140	359	437
Loans charged-off	(582)	(173)	(483)
Allowance adjustment – Other	(7)	(126)	(29)
Balance at end of year	$7,817	$8,186	$8,123

The Bank identifies a loan as impaired when it is probable that interest and principal will not be collected according to the contractual terms of the loan agreement. The accrual of interest is discontinued on impaired loans and no income is recognized until all recorded amounts of interest and principal are recovered in full.

The balance of impaired loans was $1.2 million, $7.3 million, and $8.4 million at December 31, 2007, 2006, and 2005, respectively. The associated allowance for loan and lease losses for impaired loans was $72 thousand, $840 thousand and $897 thousand at December 31, 2007, 2006, and 2005, respectively.

During 2007, activity in the allowance for impaired loan and lease losses included a provision of $11, chargeoffs of $1 thousand, recoveries of $0, and loans paid off or returned to performing status of $0. Interest income of $0 was recorded in 2007, while contractual interest in the same period amounted to $321 thousand. Cash collected on impaired loans in 2007 was $6.9 million, of which $6.4 million was applied to principal and $282 thousand was applied to interest income and $225 thousand was recorded as a gain on sale.

During 2006, activity in the allowance for impaired loan and lease losses included a provision of $0, chargeoffs of $11 thousand, recoveries of $0, and loans paid off or returned to performing status of $0. Interest income of $0 was recorded in 2006, while contractual interest in the same period amounted to $682 thousand. Cash collected on impaired loans in 2006 was $3.2 million, of which $3.2 million was applied to principal and $0 was applied to past due interest.

During 2005, activity in the allowance for impaired loan and lease losses included a provision of $365 thousand, chargeoffs of $122 thousand, recoveries of $0, and loans paid off or returned to performing status of $0. Interest income of $0 was recorded in 2005, while contractual interest in the same period amounted to $638 thousand. Cash collected on impaired loans in 2005 was $1.9 million, of which $1.9 million was applied to principal and $0 was applied to past due interest.

In the normal course of business, the Bank makes loans to certain officers, directors, and their related interests. All loan transactions entered into between the Bank and such related parties were made on substantially the same terms and conditions as comparable transactions with all other parties. In Management's opinion, such loans are consistent with sound banking practices and are within applicable regulatory lending limitations. The balance of these loans at December 31, 2007 and 2006 was approximately $31.1 million and $28.4 million, respectively. In 2007 and 2006, principal payments on these loans were $29.0 million and $26.8 million, respectively. In 2007 and 2006, new loans to these individuals and their related interests were $2.3 million and $5.6 million, respectively.

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FIRST CHESTER COUNTY CORPORATION AND SUBSIDIARIES

NOTE D - PREMISES AND EQUIPMENT

Premises and equipment are summarized as follows:
(Dollars in thousands)	Useful Lives	2007	2006	2005
Premises	5 – 40 Years	$ 18,484	$ 17,154	$ 16,356
Equipment	1 - 5 Years	24,031	22,090	20,282
		42,515	39,244	36,638
Less Accumulated depreciation		(24,955)	(25,256)	(22,852)
		$17,560	$13,988	$13,786

Included in the equipment category above is $6.1 million of operating lease assets as of December 31, 2007 and 2006. Included in the accumulated depreciation line above is $2.6 million and $2.2 million of accumulated depreciation on these operating lease assets as of December 31, 2007 and 2006, respectively.

NOTE E – DEPOSITS

At December 31, 2007, the scheduled maturities of certificates of deposit are as follows:

(Dollars in thousands)
2008	$198,022
2009	7,863
2010	3,864
2011	1,853
2012	2,308
Thereafter	4,696
	$218,606

In the normal course of business, the Bank holds deposits from certain officers, directors, and their related interests. All deposit transactions entered into between the Bank and such related parties were made on substantially the same terms and conditions as comparable transactions with all other parties. At December 31, 2007 the balance of these deposits was $8.4 million.

NOTE F – BORROWINGS

The Bank, as a member of the FHLB, maintains several credit facilities secured by the Bank's mortgage-related assets. FHLB borrowings provide additional funds to meet the Bank’s liquidity needs. The Bank currently has a maximum borrowing capacity with the FHLB of approximately $235.8 million of which 51.1%, or $120.4 million, is currently available. FHLB borrowings are collateralized by a pledge on the Bank’s entire portfolio of unencumbered investment securities, certain mortgage loans and a lien on the Bank’s FHLB stock.

1. Short Term Borrowings

Short term FHLB borrowings generally have maturities of less than one year. The details of these short term borrowings are as follows:

(Dollars in thousands)	2007	2006	2005
Average balance outstanding	$ -	$ 4,000	$ 5,000
Maximum amount outstanding at any month-end during the period	$ -	$ 5,000	$ 5,000
Balance outstanding at period end	$ -	$         -	$ 5,000
Weighted-average interest rate during the period	-	0.94%	3.19%
Weighted-average interest rate at period end	-	-	3.74%

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FIRST CHESTER COUNTY CORPORATION AND SUBSIDIARIES

NOTE F – BORROWINGS - Continued

2. Long Term Borrowings

At December 31, 2007 and 2006, long term borrowings from the FHLB totaled $115,384 and $56,331. Long term borrowings consist of fixed-rate amortizing and non-amortizing borrowings that will mature within one to nine years. The amortizing borrowings had a weighted average interest rate of 5.31%, 5.43%, and 5.53% and the non-amortizing borrowings had a weighted average interest rate of 4.20%, 3.48%, and 3.39% for 2007, 2006 and 2005, respectively.

As of December 31, 2007, long term FHLB borrowings mature as follows:

(Dollars in thousands)
2008	$ 23,816
2009	34,070
2010	45,073
2011	5,077
2012	5,082
Thereafter	2,266
	$115,384

NOTE G - OTHER NON-INTEREST EXPENSE

The components of other non-interest expense are detailed as follows:

(Dollars in thousands)	2007	2006	2005
Telephone, postage, and supplies	$ 1,125	$ 1,190	$ 1,004
Loan and deposit supplies	548	504	569
Director costs	379	290	285
Travel and mileage	264	291	289
Dues and subscriptions	115	151	110
Wealth Management processing	122	317	300
General expenses	675	585	834
Other	471	544	696
	$3,699	$3,872	$4,087

NOTE H - INCOME TAXES

The components of income tax expense are detailed as follows:

(Dollars in thousands)	2007	2006	2005
Current expense	$ 3,039	$ 2,938	$ 2,401
Deferred expense (benefit)	(108)	52)	(501)
Total tax expense	$2,931	$2,886	$1,900

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FIRST CHESTER COUNTY CORPORATION AND SUBSIDIARIES

NOTE H - INCOME TAXES - Continued

The income tax provision reconciled to the statutory federal rate follows:

	2007	2006	2005
Statutory rate	34.0%	34.0%	34.0%
Increase (decrease) in tax rate from
Tax-exempt loan and investment income	(3.9)	(3.7)	(4.9)
Tax credits	(2.8)	(2.6)	(3.2)
Other, net	0.4	0.5	(3.3)
Applicable income tax rate	27.7%	28.2%	22.6%

The net deferred tax asset consists of the following:

(Dollars in thousands)	2007	2006
Allowance for loan and lease losses	$ 2,658	$ 2,783
Unrealized losses on investment securities available-for-sale	622	759
Prepaid expenses	(222)	(177)
Accrued pension and deferred compensation	246	199
Depreciation	880	775
Bond accretion	(32)	(69)
Allowance for unfunded loans
and unused lines of credit	190	188
Other	76	(11)
Total net deferred tax asset	$4,418	$4,447

NOTE I - ACCOUNTING FOR STOCK-BASED COMPENSATION PLANS

At December 31, 2007, the Corporation had one stock based compensation plan, pursuant to which, shares of the Corporation’s common stock could be issued, subject to certain restrictions. The plan, adopted in 2005, allows the Corporation to grant up to 150 thousand shares of restricted stock to employees. During the year ended December 31, 2007, the Corporation granted 22,900 shares valued at $21.05 per share at the grant date. One third of these shares vest on each of the first three anniversaries of the date of the grant. During the year ended December 31, 2006, the Corporation granted 1 thousand shares valued at $21.85 per share at the grant date. This award was fully vested as of December 31, 2006. A summary of the Corporation’s unvested restricted shares is as follows:

(Dollars in thousands, except per share data)

	Shares	Grant Date Fair Value	Aggregate Intrinsic Value of Unvested Shares
Unvested at January 1, 2007	-		-
Granted	22,900	$21.05
Vested	-
Forfeited	(1,500)	$21.05
Unvested at December 31, 2007	21,400	$21.05	$372

The Corporation recorded $125 thousand and $22 thousand of restricted stock expense in 2007 and 2006, respectively. As of December 31, 2007, there was a total of $325 thousand of unrecognized compensation cost related to unvested stock awards. This cost is expected to be recognized over a period of 2.17 years

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FIRST CHESTER COUNTY CORPORATION AND SUBSIDIARIES

NOTE I - ACCOUNTING FOR STOCK-BASED COMPENSATION PLANS - Continued

The Corporation’s ability to issue stock options under the 1995 Stock Option Plan has expired. Outstanding stock options, however, remain in effect according to their terms. Aggregated information regarding the Corporation’s Stock Option Plan as of December 31, 2007 is presented below

(Dollars in thousands, except per share data)

Options	Shares	Weighted- Average Exercise Price	Weighted-Average Remaining Contractual Term (years)	Aggregate Intrinsic Value
Outstanding at January 1, 2007	294,855	$14.81	-	$1,828
Granted	-	-	-	-
Exercised	(79,308)	13.98	-	-
Forfeited	(7,239)	18.56	-	-
Expired	-	-	-	-
Outstanding at December 31, 2007	208,308	$15.00	2.61	$496
Exercisable at December 31, 2007	208,308	$15.00	2.61	$496

There were no options granted during the year ended December 31, 2007. The total intrinsic value (market value on date of exercise less grant price) of options exercised during the year ended December 31, 2007 was $496 thousand. As of January 1, 2007, there were no unvested options under the Corporation’s one stock option plan. This plan no longer permits new grants of stock options to be made.

Cash received from option exercises under the stock option plan for the twelve months ended December 31, 2007 was $1.1 million. The actual tax benefit realized for the tax deductions from option exercises under the plan for the twelve months ended December 31, 2007 was $91 thousand. The impact of these cash receipts is included under “Financing Activities” in the accompanying Consolidated Statements of Cash Flows. The impact of the tax benefit realized is included in other liabilities under “Operating Activities” in the Corporation’s Consolidated Statements of Cash Flows.

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FIRST CHESTER COUNTY CORPORATION AND SUBSIDIARIES

NOTE J – NET INCOME PER SHARE

The following table illustrates the reconciliation of the numerators and denominators of the basic and diluted net income per share computations:

	For the Year Ended December 31, 2007
	Income	Shares	Per-Share
	(Numerator)	(Denominator)	Amount
Net income per share (Basic):	$7,669,250	5,160,607	$ 1.49
Effect of Dilutive Securities
Add options to purchase common stock	-	59,333	(0.02)
Net income per share (Diluted):	$7,669,250	5,219,940	$ 1.47

12,817 shares have been excluded in the computation of 2007 diluted EPS because the options’ exercise price was greater than the average market price of the common shares. The average market price on December 31, 2007 was $17.38.

	For the Year Ended December 31, 2006
	Income	Shares	Per-Share
	(Numerator)	(Denominator)	Amount
Net income per share (Basic):	$7,334,945	5,160,340	$ 1.42
Effect of Dilutive Securities
Add options to purchase common stock	-	88,860	(0.02)
Net income per share (Diluted):	$7,334,945	5,249,200	$ 1.40

16,399 shares have been excluded in the computation of 2006 diluted EPS because the options’ exercise price was greater than the average market price of the common shares. The average market price on December 31, 2006 was $20.96.

	For the Year Ended December 31, 2005
	Income	Shares	Per-Share
	(Numerator)	(Denominator)	Amount
Net income per share (Basic):	$6,510,718	5,104,745	$ 1.28
Effect of Dilutive Securities
Add options to purchase common stock	-	135,752	(0.04)
Net income per share (Diluted):	$6,510,718	5,240,497	$ 1.24

17,788 shares have been excluded in the computation of 2005 diluted EPS because the options’ exercise price was greater than the average market price of the common shares. The average market price on December 31, 2005 was $19.15.

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FIRST CHESTER COUNTY CORPORATION AND SUBSIDIARIES

NOTE K - REGULATORY MATTERS

The Bank is required to maintain average reserve balances with the Federal Reserve Bank based upon deposit levels and other factors. The required average amount of those reserve balances was $25 thousand and $1.5 million as of December 31, 2007 and 2006.

Dividends are paid by the Corporation from its assets which are mainly provided by dividends from the Bank. However, certain restrictions exist regarding the ability of the Bank to transfer funds to the Corporation in the form of cash dividends, loans or advances. The Bank, without the prior approval of regulators, can declare dividends to the Corporation totaling approximately $8.8 million plus additional amounts equal to the net earnings of the Bank for the period from January 1, 2008 through the date of declaration of such a dividend, less dividends previously paid subject to the further limitations that dividends may be paid only to the extent the retained net profits (including the portion transferred to surplus) exceed bad debts and provided that the Bank would not become "undercapitalized" (as defined by Federal law).

The Corporation and the Bank are subject to various regulatory capital requirements administered by federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Corporation's financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Corporation must meet specific capital guidelines that involve quantitative measures of the Corporation's assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The Corporation's capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

Quantitative measures established by regulation to ensure capital adequacy require the Corporation to maintain minimum amounts and ratios of Total and Tier I Capital to risk-weighted assets, and Tier I Capital to average quarterly assets (Total Risk Based Capital ratio, Tier I Capital ratio, and Leverage ratio, respectively). Management believes that the Corporation and the Bank meet all capital adequacy requirements to which it is subject, as of December 31, 2007.

Federal banking agencies categorized the Corporation and the Bank as well capitalized under the regulatory framework for corrective action. To be categorized as adequately capitalized the Corporation and the Bank must maintain minimum Total Risk-Based, Tier I Risk-Based, and Tier I leverage ratios as set forth in the table.

The Corporation's and Bank’s actual capital amounts and ratios are presented below:

					To Be Well
					Capitalized Under
			For Capital		Prompt Corrective
(Dollars in thousands)	Actual		Adequacy Purposes		Action Provisions
	Amount	Ratio	Amount	Ratio	Amount	Ratio
As of December 31, 2006:
Leverage Ratio
Corporation	$ 83,664	9.22%	$ 36,280	>4.00%	N/A	N/A
Bank	$ 77,537	8.58%	$ 33,130	>4.00%	$ 45,162	>5.00%
Tier I Capital Ratio
Corporation	$ 83,664	10.84%	$ 30,882	>4.00%	N/A	N/A
Bank	$ 77,537	10.08%	$ 30,755	>4.00%	$ 46,133	>6.00%
Total Risk Based Capital Ratio
Corporation	$ 92,040	11.92%	$ 61,764	>8.00%	N/A	N/A
Bank	$ 85,933	11.18%	$ 61,511	>8.00%	$ 76,889	>10.00%

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FIRST CHESTER COUNTY CORPORATION AND SUBSIDIARIES

NOTE K - REGULATORY MATTERS – continued

					To Be Well
					Capitalized Under
			For Capital		Prompt Corrective
(Dollars in thousands)	Actual		Adequacy Purposes		Action Provisions
	Amount	Ratio	Amount	Ratio	Amount	Ratio
As of December 31, 2006:
Leverage Ratio
Corporation	$ 80,266	9.34%	$ 34,380	>4.00%	N/A	N/A
Bank	$ 73,356	8.58%	$ 34,204	>4.00%	$ 42,755	>5.00%
Tier I Capital Ratio
Corporation	$ 80,266	11.26%	$ 28,504	>4.00%	N/A	N/A
Bank	$ 73,356	10.31%	$ 28,469	>4.00%	$ 42,704	>6.00%
Total Risk Based Capital Ratio
Corporation	$ 89,004	12.49%	$ 57,010	>8.00%	N/A	N/A
Bank	$ 82,094	11.53%	$ 56,939	>8.00%	$ 71,173	>10.00%

NOTE L - FAIR VALUE OF FINANCIAL INSTRUMENTS

SFAS No. 107, “Disclosures about Fair Value of Financial Instruments,” requires disclosure of the estimated fair value of an entity's assets and liabilities considered to be financial instruments. For the Corporation, as for most financial institutions, the majority of its assets and liabilities are considered financial instruments as defined in SFAS No. 107. However, many such instruments lack an available trading market, as characterized by a willing buyer and seller engaging in an exchange transaction. Also, it is the Corporation's general practice and intent to hold its financial instruments (other than certain Investment Securities) to maturity and not to engage in trading or sales activities. Therefore, the Corporation had to use significant estimations and present value calculations to prepare this disclosure.

Changes in the assumptions or methodologies used to estimate fair values may materially affect the estimated amounts. Also, Management is concerned that there may not be reasonable comparability between institutions due to the wide range of permitted assumptions and methodologies in the absence of active markets. This lack of uniformity gives rise to a high degree of subjectivity in estimating financial instrument fair values.

Fair values have been estimated using data which Management considered the best available and estimation methodologies deemed suitable for the pertinent category of financial instrument. The estimated fair value of cash and cash equivalents, deposits with no stated maturities, repurchase agreements and the fair value of commitments to extend credit, is estimated based upon the amount of unamortized deferred loan commitment fees. The fair value of letters of credit is based on the amount of unearned fees plus the estimated cost to terminate the letter of credit. Quoted market prices were used to determine the estimated fair value of investment securities held-to-maturity and available-for-sale. Fair values of net loans and deposits with stated maturities were calculated using estimated discounted cash flows based on the year-end offering rate for instruments with similar characteristics and maturities.

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FIRST CHESTER COUNTY CORPORATION AND SUBSIDIARIES

NOTE L - FAIR VALUE OF FINANCIAL INSTRUMENTS - continued

The estimated fair values and carrying amounts are summarized as follows:

	2007		2006
(Dollars in thousands)	Estimated	Carrying	Estimated	Carrying
	Fair Value	Amount	Fair Value	Amount
Financial Assets
Cash and cash equivalents	$ 53,360	$ 53,360	$ 72,341	$ 72,341
Investment securities	97,977	97,977	88,714	88,714
Net loans	728,037	743,440	672,557	694,343
Financial Liabilities
Deposits with no stated maturities	429,158	486,292	426,891	495,740
Deposits with stated maturities	214,854	218,606	228,929	222,139
FHLB and other borrowings	107,813	115,384	55,254	61,596
Subordinated debt	15,465	15,465	15,465	15,465
Off-Balance-Sheet Investments
Commitments for extended credit
and outstanding letters of credit	$ 202,893	$ 202,893	$ 266,498	$ 266,498

NOTE M – SUBORDINATED DEBT

In 2007, Trust III issued $5.0 million (net proceeds of $4.82 million) of preferred capital securities in a pooled institutional placement transaction. These securities were issued through Trust III, a special purpose statutory trust created expressly for the issuance of these securities and investing the proceeds in junior subordinated debentures of the Corporation. These subordinated debentures are subject to mandatory redemption in the year 2037. The debentures and securities will each be callable by the Corporation or Trust III, as applicable, at their option, five years after the date of issuance. At December 31, 2007, the rate paid on these subordinated debentures, based on three-month London Inter-bank offering rate (“LIBOR”) plus 140 basis points, was 6.52%.

In 2003, Trust II issued $10.0 million (net proceeds of $9.79 million) of preferred capital securities in a pooled institutional placement transaction. These securities were issued through Trust II, a special purpose statutory trust created expressly for the issuance of these securities and investing the proceeds in subordinated debentures of the Corporation. These subordinated debentures are subject to mandatory redemption in the year 2033. The debentures and securities will each be callable by the Corporation or Trust II, as applicable, at their option, five years after the date of issuance. At December 31, 2007, the rate paid on these subordinated debentures, based on three-month LIBOR plus 295 basis points, was 7.86%.

In 2002, Trust I issued $5.0 million (net proceeds of $4.82 million) of preferred capital securities in a pooled institutional placement transaction. These securities were issued through Trust I, a special purpose statutory trust created expressly for the issuance of these securities and investing the proceeds in junior subordinated debentures of the Corporation. These securities were redeemed by the Corporation on July 7, 2007, and, accordingly, Trust I was dissolved. The redemption of the debentures was coordinated with the $5.0 million Trust III issuance on June 29, 2007. The new issuance bears an interest rate of 3 month LIBOR plus 140 basis points while the redeemed issuance had an interest rate of 3 month LIBOR plus 365 basis points. The Corporation recorded a $161 thousand charge to interest expense for accelerated amortization of issuance costs on the redeemed issuance.

For 2007, 2006, and 2005, interest expense for Trust I, II & III was $1.5 million, $1.3 million and $1.0 million, respectively, with an average interest rate of 9.35%, 8.43%, 6.56%, respectively.

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

62

FIRST CHESTER COUNTY CORPORATION AND SUBSIDIARIES

NOTE M – SUBORDINATED DEBT AND GUARANTEED PREFERRED BENEFICIAL INTEREST IN THE CORPORATION’S SUBORDINATED DEBENTURES - continued

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 restriction. Based on the final rule, the Corporation includes all of its $15.5 million in trust preferred securities in Tier I Capital.

NOTE N - FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK AND CONCENTRATIONS OF

CREDIT RISK

The Corporation is a party to financial instruments with off-balance sheet risk to meet the financing needs of its customers and reduce its own exposure to fluctuations in interest rates. These financial instruments include commitments to extend credit and standby letters of credit. Such financial instruments are recorded in the financial statements when they become payable. Those instruments involve, to varying degrees, elements of credit and interest rate risks in excess of the amount recognized in the consolidated balance sheets. The contract or notional amounts of those instruments reflect the extent of involvement the Corporation has in particular classes of financial instruments.

The Corporation's exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters of credit is represented by the contractual or notional amount of those instruments. The Corporation uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments.

Unless noted otherwise, the Corporation does not require collateral or other security to support financial instruments with credit risk. The contract amounts are as follows:

(Dollars in thousands)	2007	2006
Financial instruments whose contract amounts represent credit risk
Commitments to extend credit	$ 193,777	$ 253,870
Standby letters of credit and financial guarantees written	9,115	12,628

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Corporation evaluates each customer's creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Corporation upon extension of credit, is based on Management's credit evaluation.

Standby letters of credit are conditional commitments issued by the Corporation to guarantee the performance of a customer to a third party. Those guarantees are primarily issued to support public and private borrowing arrangements, including commercial paper, bond financing, and similar transactions. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. The Corporation holds residential or commercial real estate, accounts receivable, inventory and equipment as collateral supporting those commitments for which collateral is deemed necessary. The extent of collateral held for those commitments at December 31, 2007 and 2006, varies up to 100%. Standby letters of credit are collateralized within Management policies. Commercial and standby letters of credit were granted primarily to commercial borrowers.

Substantially all of the Corporation's loans, commitments, and commercial and standby letters of credit have been granted to customers in the Corporation's primary market area, Chester County, Pennsylvania. Investments in state and municipal securities also involve governmental entities within the Corporation's market area. The concentrations of credit by type of loan are set forth in Note C - Loans. Although the Corporation has a diversified loan portfolio, a substantial portion of its debtors' ability to honor their contracts is dependent upon Chester County’s economy. The distribution of commitments to extend credit approximates the distribution of loans outstanding.

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FIRST CHESTER COUNTY CORPORATION AND SUBSIDIARIES

NOTE O - EMPLOYEE BENEFIT PLANS

1. Qualified

The Corporation has a qualified deferred salary savings 401(k) plan (the "401(k) Plan") under which the Corporation contributes $0.75 for each $1.00 that an employee contributes, up to the first 5% of the employee's salary. The Corporation's contribution expense was $306 thousand, $340 thousand and $324 thousand in 2007, 2006, and 2005, respectively. The Corporation also has a qualified discretionary contribution pension plan (the "QDCP Plan"). Under the QDCP Plan, the Corporation may make annual contributions into the 401(k) Plan on behalf of each eligible participant in an amount equal to 3% of salary up to $30,000 in salary plus 6% of salary in excess of $30 thousand up to $200 thousand. Contribution expense in 2007, 2006 and 2005 under the QDCP Plan was $512 thousand, $343 thousand and $406 thousand, respectively. The Corporation may make additional discretionary employer contributions subject to approval of the Board of Directors.

2. Non-Qualified

The Corporation makes contributions to a non-qualified supplemental benefit retirement plan (“SBRP”) equal to 3% of the participant's salary. Participation is limited to senior officers of the Bank. Contribution expense for 2007, 2006 and 2005 under the SBRP was $85 thousand, $72 thousand and $70 thousand, respectively. The Corporation may make additional discretionary employer contributions subject to the approval of the Board of Directors.

NOTE P – COMMITMENTS, CONTINGENCIES AND GUARANTEES

Future minimum rental payments are as follow:

(Dollars in thousands)
2008	$ 1,055
2009	945
2010	875
2011	802
2012	811
Thereafter	4,845
	$ 9,333

The Corporation leases facilities from a director for which it paid $356 thousand, $182 thousand and $39 thousand during the years ended December 31, 2007, 2006 and 2005, respectively.

The Corporation has agreements with several of the Corporation's officers that provide for severance payments upon termination of employment under certain circumstances or a change of control as defined.

The Corporation is involved in certain litigation arising in the ordinary course of business. In the opinion of Management, the outcome of this litigation will not have a significant effect on the accompanying financial statements.

The Bank currently guarantees to a third party the residual value of equipment that is leased by that third party to our customers. At December 31, 2007 the maximum amount that the Bank my have to pay under these guarantees is $31 thousand. The Bank’s leasing department management believes that the probability of payment on these guarantees is remote.

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FIRST CHESTER COUNTY CORPORATION AND SUBSIDIARIES

NOTE Q - CONDENSED FINANCIAL INFORMATION - PARENT COMPANY ONLY

Condensed financial information for First Chester County Corporation (Parent Company only) follows:

CONDENSED BALANCE SHEETS
(Dollars in thousands)	December 31
	2007	2006
ASSETS
Cash and cash equivalents	$    730	$  1,001
Investment securities available for sale, at fair value	2,763	3,730
Investment in subsidiaries	77,957	72,516
Intercompany loan	1,248	1,250
Other assets	1,227	726
Total assets	$ 83,925	$ 79,223
LIABILITIES AND STOCKHOLDERS' EQUITY
Subordinated debt	$ 15,465	$ 15,465
Other liabilities	481	496
Stockholders' equity	67,979	63,262
Total liabilities and stockholders' equity	$ 83,925	$ 79,223

CONDENSED STATEMENTS OF INCOME

(Dollars in thousands)	Years ended December 31
	2007	2006	2005
INCOME
Dividends from investment securities	$    155	$  166	$   158
Other income	291	195	276
Total income	446	361	434
EXPENSES
Other expenses	1,986	1,636	1,385
Total expenses	1,986	1,636	1,385
Income before income taxes	(1,540)	(1,275)	(951)
INCOME TAX (BENEFIT)	(524)	(434)	(323)
Income before equity in undistributed
income of subsidiaries	(1,016)	(841)	(628)
EQUITY IN UNDISTRIBUTED INCOME OF
SUBSIDIARIES	8,685	8,176	7,139
NET INCOME	$   7,669	$ 7,335	$ 6,511

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FIRST CHESTER COUNTY CORPORATION AND SUBSIDIARIES

NOTE Q - CONDENSED FINANCIAL INFORMATION - PARENT COMPANY ONLY - continued

CONDENSED STATEMENTS OF CASH FLOWS

	Years ended December 31
(Dollars in thousands)	2007	2006	2005
OPERATING ACTIVITIES
Net income	$   7,669	$  7,335	$   6,511
Adjustments to reconcile net income to net cash
provided by (used in) operating activities
Equity in undistributed income of subsidiary	(4,710)	(4,058)	(3,062)
(Increase) decrease in other assets	192	135	(14)
Increase (decrease) in other liabilities	(202)	(250)	258
Net cash provided by operating activities	2,949	3,162	3,693
INVESTING ACTIVITIES
Purchases of investment securities available for sale	(2)	(8)	(3,230)
Net cash used in investing activities	(2)	(8)	(3,230)
FINANCING ACTIVITIES
Dividends paid	(2,808)	(2,786)	(2,665)
Proceeds from issuance of subordinated debt	5,155	-	-
Repayment of subordinated debt	(5,155)	-	-
Net increase (decrease) in treasury stock transactions	(501)	(85)	1,280
Share based compensation tax benefit	91	231	-
Net cash used in financing activities	(3,218)	(2,640)	(1,385)
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS	(271)	514	(922)
Cash and cash equivalents at beginning of year	1,001	487	1,409
Cash and cash equivalents at end of year	$     730	$   1,001	$     487

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FIRST CHESTER COUNTY CORPORATION AND SUBSIDIARIES

NOTE R - QUARTERLY FINANCIAL DATA (UNAUDITED)

A summary of the unaudited quarterly results of operations is as follows:

2007
(Dollars in thousands, except per share)	December 31	September 30	June 30	March 31
Interest income	14,209	14,381	14,323	13,523
Interest expense	6,391	6,390	6,369	5,823
Net interest income	7,818	7,991	7,954	7,700
Net income	1,737	2,777	1,779	1,376
Net income per share (Basic)	0.34	0.54	0.34	0.27
Net Income per share (Diluted)	0.33	0.53	0.34	0.26
2006
(Dollars in thousands, except per share)
Interest income	13,405	13,473	13,064	12,259
Interest expense	5,589	5,422	4,891	4,135
Net interest income	7,816	8,051	8,173	8,124
Net income	1,552	1,856	2,081	1,846
Net income per share (Basic)	0.30	0.36	0.40	0.36
Net Income per share (Diluted)	0.29	0.35	0.40	0.35

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FIRST CHESTER COUNTY CORPORATION AND SUBSIDIARIES

Item 9.     Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

None.

Item 9A.     Controls and Procedures

Appearing as Exhibits 31.1, 31.2, and 31.3 (the "302 Certifications") to this Annual Report are three certifications, one by each of the Corporation’s Chairman and Chief Executive Officer (“CEO”), President, and Treasurer and Chief Financial Officer (“CFO”) (the Corporation’s principal executive, operating, and accounting and financial officer, and, collectively, the "Principal Officers"). This Item 9A contains information concerning the evaluation of the Corporation’s disclosure controls and procedures and matters regarding its 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 in the 302 Certifications.

Discussion of Disclosure Controls and Procedures

The SEC requires that as of the end of the period covered by this Annual Report on Form 10-K, the Corporation’s CEO and CFO/Treasurer evaluate the effectiveness of the design and operation of the Corporation's "disclosure controls and procedures" and report their conclusions on the effectiveness of the design and operation of the Corporation's disclosure controls and procedures in this Annual Report.

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

Management, including the 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 upon their evaluation of the disclosure controls and procedures, the Principal Officers have concluded that the Corporation’s disclosure controls and procedures are effective and allow timely decisions regarding required disclosure.

MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

Management of the Corporation is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended, as a process designed by, or under the supervision of, the Corporation's principal executive and principal financial officers and implemented by Management and other personnel, subject to the oversight of the Corporation’s Board of Directors, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:

• Pertain to the maintenance of records, that in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Corporation;

• Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Corporation are being made only in accordance with authorizations of management and directors of the Corporation; and

• Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Corporation's assets that could have a material effect on the financial statements.

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FIRST CHESTER COUNTY CORPORATION AND SUBSIDIARIES

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management's Assessment

Management assessed the effectiveness of the Corporation's internal control over financial reporting as of December 31, 2007. In making this assessment, Management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control-Integrated Framework.

Our independent registered public accounting firm, Grant Thornton LLP, audited the Corporation’s internal control over financial reporting as of December 31, 2007 and their report dated March 12, 2008, expressing an unqualified opinion, is included following this item 9A.

During the quarter ended December 31, 2007, there were no significant changes to the Corporation’s internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Corporation’s internal control over financial reporting.

Based upon this assessment, Management believes that, as of December 31, 2007, the Corporation's internal control over financial reporting is effective.

March 12, 2008

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FIRST CHESTER COUNTY CORPORATION AND SUBSIDIARIES

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Stockholders and Board of Directors First Chester County Corporation

We have audited First Chester County Corporation’s internal control over financial reporting as of December 31, 2007, based oncriteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).  The Corporation’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting.  Our responsibility is to express an opinion on the Corporation’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.  Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances.  We believe that our audit provides a reasonable basis for our opinion.

A corporation’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.  A corporation's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the corporation; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the corporation are being made only in accordance with authorizations of management and directors of the corporation; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the corporation’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.  Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, First Chester County Corporation maintained effective internal control over financial reporting as of December 31, 2007, based on criteria established in Internal Control—Integrated Framework issued by COSO.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of First Chester County Corporation and its subsidiaries as of December 31, 2007 and 2006, and the related consolidated statements of income, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2007 and our report dated March 12, 2008 expressed an unqualified opinion.

/s/ Grant Thornton LLP

Philadelphia, Pennsylvania

March 12, 2008

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FIRST CHESTER COUNTY CORPORATION AND SUBSIDIARIES

Item 9B. Other Information

None.

PART III

Item 10.         Directors, Executive Officers and Corporate Governance.

The information called for by this Item is incorporated herein by reference to the Corporation's Proxy Statement for its 2008 Annual Meeting of Shareholders.

Item 11.         Executive Compensation.

The information called for by this Item is incorporated herein by reference to the Corporation's Proxy Statement for its 2008 Annual Meeting of Shareholders.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

The information called for in Item 201(d) of Regulation S-K is set forth below. The other information called for by this Item is incorporated herein by reference to the Corporation's Proxy Statement for its 2008 Annual Meeting of Shareholders.

Equity Compensation Plan Information Form
	Number of securities to be issued upon exercise of outstanding options, warrants and rights*	Weighted-average exercise price of outstanding options, warrants and rights*	Number of securities remaining available for future issuance under equity compensation plans **
Equity compensation plans approved by     security holders	208,308***	$15.00	127,600
Equity compensation plans not approved by     security holders	--	--	--
Total	208,308***	$15.00	127,600

* The securities referred to in these columns are shares of the Corporation’s Common Stock issuable upon exercise of options issued pursuant to the Corporation’s 1995 Stock Option Plan.

** The securities referred to in this column are shares of the Corporation’s Common Stock which may be awarded pursuant to the Company’s 2005 Restricted Stock Plan.

*** Number of options issued and outstanding that were exercisable as December 31, 2007.

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FIRST CHESTER COUNTY CORPORATION AND SUBSIDIARIES

Item 13. Certain Relationships and Related Transactions, and Director Independence.

The information called for by this item is incorporated herein by reference to the Corporation's Proxy Statement for its 2008 Annual Meeting of Shareholders.

Item 14.     Principal Accountant Fees and Services

The information called for by this Item is incorporated herein by reference to the Corporation's Proxy Statement for its 2008 Annual Meeting of Shareholders.

PART IV

Item 15.      Exhibits, Financial Statements and Schedules.

1.     Financial Statements

The Consolidated Financial Statements, for the years ending December 31, 2007 and 2006, together with the report thereon of Grant Thornton LLP dated March 12, 2008, are filed as part of this Report under Item 8.

2.     Financial Statement Schedules

Financial Statement Schedules are not required under the related instructions of the Securities and Exchange Commission, are inapplicable or are included in the Consolidated Financial Statements or notes thereto.

3.     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 exhibits marked "(CP)" are management contracts or compensatory plans, contracts or arrangements in which a director or executive officer participates):

  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). By-Laws of the Corporation, as amended.

10. Material contracts.

 (a) Employment Agreement among the Corporation, the Bank and John A. Featherman, III, dated as of November 13, 2003, is incorporated herein by reference to Exhibit 10(a) to the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2004. (SEC File No. 00012870)(CP)

 (b) Employment Agreement among the Corporation, the Bank and Kevin C. Quinn, dated as of November 13, 2003, is incorporated herein by reference to Exhibit 10(b) to the Corporation's Annual Report on Form 10-K for the year ended December 31, 2004. (SEC File No. 00012870)(CP)

*  (c) Compensatory Arrangements of Executive Officers and Directors for 2008. (CP)

 (d) The Corporation's Dividend Reinvestment and Stock Purchase Plan, filed as an exhibit to the Corporation’s registration statement on Form S-3 filed August 7, 2003 (SEC File No. 333-107739) is incorporated herein by reference.

 (e) The Corporation's Amended and Restated Stock Bonus Plan, filed as an exhibit to the Corporation’s registration statement on Form S-8 filed August 12, 1997 (SEC File No. 333-33411) is incorporated herein by reference. (CP)

                   (f) The Bank's Amended and Restated Supplemental Benefit Retirement Plan, effective date January 1, 2005,

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FIRST CHESTER COUNTY CORPORATION AND SUBSIDIARIES

is incorporated herein by reference to Exhibit 10(f) to the Corporation's Annual Report on Form 10-K for the year ended December 31, 2006. (CP)

 (g) The Corporation's Amended and Restated 1995 Stock Option Plan, filed as an appendix to the Corporation's Proxy statement for the 2003 Annual Meeting of Shareholders as filed with the SEC via EDGAR is incorporated herein by reference. (CP)

 (h) Form of Stock Option Agreement (Directors) is incorporated herein by reference to Exhibit 10(j) to the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2004. (SEC File No. 00012870)(CP)

 (i) Form of Stock Option Agreement (Executive Officers) is incorporated herein by reference to Exhibit 10(k) to the Corporation's Annual Report on Form 10-K for the year ended December 31, 2004. (SEC File No. 00012870)(CP)

 (j) 2005 Restricted Stock Plan is incorporated herein by reference to Appendix A to the Corporation’s 2005 Proxy Statement filed March 17, 2005. (CP)

 (k) Form of Restricted Stock Award Agreement used for grants of restricted stock on March 8, 2007 is incorporated herein by reference to Exhibit 10(k) to the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2006.

 (l) Change of Control Agreement between the Bank and Deborah Pierce, dated February 18, 2005, is incorporated herein by reference to Exhibit 10.3 to the Corporation’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2005. (CP)

 (m) Change of Control Agreement between the Bank and Karen Walter, dated May 6, 2005, is incorporated herein by reference to Exhibit 10.4 to the Corporation’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2005. (CP)

 (n) Change of Control Agreement between the Bank and John Balzarini, dated June 3, 2005, is incorporated herein by reference to Exhibit 10.6 to the Corporation’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2005. (CP)

 (o) Change of Control Agreement between the Bank and Linda Hicks, dated May 23, 2005, is incorporated herein by reference to Exhibit 10.7 to the Corporation’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2005. (CP)

 (p) Change of Control Agreement between the Bank and Michelle Venema, dated June 10, 2005, is incorporated herein by reference to Exhibit 10.8 to the Corporation’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2005. (CP)

 (q) Change of Control Agreement between the Bank and Anthony Poluch, dated May 25, 2005, is incorporated herein by reference to Exhibit 10.9 to the Corporation’s Quarterly Report to Form 10-Q for the quarter ended June 30, 2005. (CP)

*                 (r) Executive Incentive Plan (incorporated herein by reference to Exhibit 10(x) to the Corporation's Annual Report on Form 10-K for the year ended December 31, 2006) with 2007 Exhibits. (CP)

*                 (s) Executive Incentive Plan as amended February 7, 2008 with 2008 Exhibits.  (CP)  Portions of the 2008 Exhibits have been redacted and are subject to a confidential treatment request filed with the Secretary of the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended.

 (t) Agreement for the Sale of Real Estate, dated as of May 10, 2006, between First National Bank of Chester County and TD Banknorth, N.A., is incorporated herein by reference to Exhibit 10.1 to the Corporation’s Quarterly Report on Form 10-Q/A for the quarter ended June 30, 2006.

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FIRST CHESTER COUNTY CORPORATION AND SUBSIDIARIES

                   (u) Letter of Employment to Clay T. Henry, dated September 6, 2006, is incorporated herein by reference to Exhibit 10(z) to the Corporation's Annual Report on Form 10-K for the year ended December 31, 2006. (CP)

(v) Supplemental Letter of Employment to Clay T. Henry, dated September 5, 2006, is incorporated herein by reference to Exhibit 10(aa) to the Corporation's Annual Report on  Form 10-K for the year ended December 31, 2006.  (CP)

(w) Separation Benefits Agreement, dated as of October 2, 2006, by and between the Bank and Clay T. Henry, is incorporated herein by reference to Exhibit 10(bb) to the Corporation's Annual Report on Form 10-K for the year ended December 31, 2006.  (CP)

(x) Restricted Stock Award Agreement for Clay T. Henry, dated as of October 2, 2006, is incorporated herein by reference to Exhibit 10(cc) to the Corporation's Annual Report on Form 10-K for the year ended December 31, 2006. (CP) 

*                  (y) Lease Agreement, dated December 19, 2007, between First National Bank of Chester County and Downingtown Medical Building Associates (an affiliate of John Ciccarone, a Director of the Corporation).

(z) Lease Agreement, dated as of March 28, 2005, by and between First National Bank of Chester County and B.K. Campbell, Inc. (an affiliate of Brian Campbell, a Director of the Corporation), is incorporated herein by reference to Exhibit 10.1 to the Corporation's Quarterly Report on Form 10-Q for the quarter ended March 31, 2007.

(aa) Joint Marketing Agreement, dated as of July 1, 2005, by and between First National Bank of Chester County, First National Wealth Advisory Services and the Elite Group, LLC (an affiliate of Matthew Naylor, a Director of the Corporation) is incorporated herein by reference to Exhibit 10.2 to the Corporation's Quarterly Report on Form 10-Q for the quarter ended March 31, 2007.

(bb) Lease Agreement, dated as of May 1, 2007, by and between First National Bank of Chester County and Beiler-Campbell Inc (an affiliate of Brian Campbell, a director of the Corporation) is incorporated herein by reference to Exhibit 10.1 to the Corporation's Quarterly Report on Form 10-Q for the quarter ended June 30, 2007.

(cc) Sale Agreement, dated as of September 28, 2007, by and between First National Bank of Chester County and FTN Ramp, LLC is incorporated herein by reference to Exhibit 10.1 to the Corporation's Quarterly Report on Form 10-Q for the quarter ended September 30, 2007.

(dd) Lease Agreement, dated as of September 28, 2007, by and between First National Bank of Chester County and FI Properties Pool I LP is incorporated herein by reference to Exhibit 10.2 to the Corporation's Quarterly Report on Form 10-Q for the quarter ended September 30, 2007.

* (ee) Change of Control Agreement between the Bank and Sheri Ashman, dated June 7, 2007. (CP)

    14. Code of Conduct (Ethics) is incorporated herein by reference to Exhibit 14 to the Corporation's Annual Report on Form 10-K for the year ended December 31, 2006.

*                    21. Subsidiaries of the Corporation. First National Bank of Chester County, formerly known as The First National Bank of West Chester, is a banking institution organized under the banking laws of the United States in December 1863. 323 East Gay Street Corporation was incorporated in 1996 in the State of Pennsylvania. Turks Head II, LLC was incorporated in 2003 in the State of Pennsylvania. FNB Insurance Services, LLC, doing business as First National Financial Advisory Services (formerly First National Wealth Advisory Services), a wholly-owned subsidiary of the Bank, is a limited liability company formed in 2000 under the laws of Pennsylvania. FNB Properties, LLC, a wholly-owned subsidiary of the Bank, is a limited liability company formed in 2000 under the laws of Pennsylvania. First Chester County Capital Trust II was formed on November 13, 2003. First Chester County Capital Trust III was formed on June 29, 2007.

* 23.  Consent of Grant Thornton LLP, dated March 12, 2008.

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FIRST CHESTER COUNTY CORPORATION AND SUBSIDIARIES

* 31.1 Certification of Chief Executive Officer.

* 31.2 Certification of President.

* 31.3 Certification of Treasurer and Chief Financial Officer.

* 32.1 Certification of Chief Executive Officer.

* 32.2 Certification of President.

* 32.3 Certification of Treasurer and Chief Financial Officer.

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FIRST CHESTER COUNTY CORPORATION AND SUBSIDIARIES

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Corporation has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

FIRST CHESTER COUNTY CORPORATION

By: /s/ John A. Featherman, III

John A. Featherman, III,

Chief Executive Officer and

Chairman of the Board

Date: March 12, 2008

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of the Corporation and in the capacities indicated as of March 12, 2008.

Signature	Title
/s/ John A. Featherman, III	Chief Executive Officer and
	Chairman of the Board
John A. Featherman, III
/s/ John Balzarini	Treasurer and Chief Financial Officer
	(Principal Accounting and Financial Officer)
John Balzarini

(Signatures continued on following page)

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FIRST CHESTER COUNTY CORPORATION AND SUBSIDIARIES

(Signatures continued from previous page)

Signature	Title
/s/ John A. Featherman, III	Director
John A. Featherman, III
/s/ John J. Ciccarone	Director
John J. Ciccarone
/s/ M. Robert Clarke	Director
M. Robert Clarke
/s/ Clifford E. DeBaptiste	Director
Clifford E. DeBaptiste
/s/ John S. Halsted	Director
John S. Halsted
/s/ J. Carol Hanson	Director
J. Carol Hanson
/s/ Lynn Johnson-Porter	Director
Lynn Johnson-Porter
/s/ Edward A. Leo	Director
Edward A. Leo
/s/ David L. Peirce	Director
David L. Peirce
/s/ John B. Waldron	Director
John B. Waldron
/s/ Kevin C. Quinn	Director
Kevin C. Quinn
/s/ Brian K. Campbell	Director
Brian K. Campbell
/s/ Matthew S. Naylor	Director
Matthew S. Naylor

77

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 exhibits marked "(CP)" are management contracts or compensatory plans, contracts or arrangements in which a director or executive officer participates):

1.  Financial Statements

The Consolidated Financial Statements, for the years ending December 31, 2007 and 2006, together with the report thereon of Grant Thornton LLP dated March 12, 2008, are filed as part of this Report under Item 8.

2. Financial Statement Schedules

Financial Statement Schedules are not required under the related instructions of the Securities and Exchange Commission, are inapplicable or are included in the Consolidated Financial Statements or notes thereto.

3. 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 exhibits marked "(CP)" are management contracts or compensatory plans, contracts or arrangements in which a director or executive officer participates):

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). By-Laws of the Corporation, as amended.

10. Material contracts.

 (a) Employment Agreement among the Corporation, the Bank and John A. Featherman, III, dated as of November 13, 2003, is incorporated herein by reference to Exhibit 10(a) to the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2004. (SEC File No. 00012870)(CP)

 (b) Employment Agreement among the Corporation, the Bank and Kevin C. Quinn, dated as of November 13, 2003, is incorporated herein by reference to Exhibit 10(b) to the Corporation's Annual Report on Form 10-K for the year ended December 31, 2004. (SEC File No. 00012870)(CP)

*  (c) Compensatory Arrangements of Executive Officers and Directors for 2008. (CP)

 (d) The Corporation's Dividend Reinvestment and Stock Purchase Plan, filed as an exhibit to the Corporation’s registration statement on Form S-3 filed August 7, 2003 (SEC File No. 333-107739) is incorporated herein by reference.

 (e) The Corporation's Amended and Restated Stock Bonus Plan, filed as an exhibit to the Corporation’s registration statement on Form S-8 filed August 12, 1997 (SEC File No. 333-33411) is incorporated herein by reference. (CP)

                   (f) The Bank's Amended and Restated Supplemental Benefit Retirement Plan, effective date January 1, 2005, is incorporated herein by reference to Exhibit 10(f) to the Corporation's Annual Report on Form 10-K for the year ended December 31, 2006. (CP)

 (g) The Corporation's Amended and Restated 1995 Stock Option Plan, filed as an appendix to the Corporation's Proxy statement for the 2003 Annual Meeting of Shareholders as filed with the SEC via EDGAR is incorporated herein by reference. (CP)

 (h) Form of Stock Option Agreement (Directors) is incorporated herein by reference to Exhibit 10(j) to the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2004. (SEC File No. 00012870)(CP)

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 (i) Form of Stock Option Agreement (Executive Officers) is incorporated herein by reference to Exhibit 10(k) to the Corporation's Annual Report on Form 10-K for the year ended December 31, 2004. (SEC File No. 00012870)(CP)

 (j) 2005 Restricted Stock Plan is incorporated herein by reference to Appendix A to the Corporation’s 2005 Proxy Statement filed March 17, 2005. (CP)

 (k) Form of Restricted Stock Award Agreement used for grants of restricted stock on March 8, 2007 is incorporated herein by reference to Exhibit 10(k) to the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2006.

 (l) Change of Control Agreement between the Bank and Deborah Pierce, dated February 18, 2005, is incorporated herein by reference to Exhibit 10.3 to the Corporation’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2005. (CP)

 (m) Change of Control Agreement between the Bank and Karen Walter, dated May 6, 2005, is incorporated herein by reference to Exhibit 10.4 to the Corporation’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2005. (CP)

 (n) Change of Control Agreement between the Bank and John Balzarini, dated June 3, 2005, is incorporated herein by reference to Exhibit 10.6 to the Corporation’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2005. (CP)

 (o) Change of Control Agreement between the Bank and Linda Hicks, dated May 23, 2005, is incorporated herein by reference to Exhibit 10.7 to the Corporation’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2005. (CP)

 (p) Change of Control Agreement between the Bank and Michelle Venema, dated June 10, 2005, is incorporated herein by reference to Exhibit 10.8 to the Corporation’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2005. (CP)

 (q) Change of Control Agreement between the Bank and Anthony Poluch, dated May 25, 2005, is incorporated herein by reference to Exhibit 10.9 to the Corporation’s Quarterly Report to Form 10-Q for the quarter ended June 30, 2005. (CP)

*                 (r) Executive Incentive Plan (incorporated herein by reference to Exhibit 10(x) to the Corporation's Annual Report on Form 10-K for the year ended December 31, 2006) with 2007 Exhibits. (CP)

*                 (s) Executive Incentive Plan as amended February 7, 2008 with 2008 Exhibits.  (CP)  Portions of the 2008 Exhibits have been redacted and are subject to a confidential treatment request filed with the Secretary of the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended.

  (t) Agreement for the Sale of Real Estate, dated as of May 10, 2006, between First National Bank of Chester County and TD Banknorth, N.A., is incorporated herein by reference to Exhibit 10.1 to the Corporation’s Quarterly Report on Form 10-Q/A for the quarter ended June 30, 2006.

(u) Letter of Employment to Clay T. Henry, dated September 6, 2006, is incorporated herein by reference to Exhibit 10(z) to the Corporation's Annual Report on Form 10-K for the year ended December 31, 2006. (CP)

(v) Supplemental Letter of Employment to Clay T. Henry, dated September 5, 2006, is incorporated herein by reference to Exhibit 10(aa) to the Corporation's Annual Report on  Form 10-K for the year ended December 31, 2006.  (CP)

(w) Separation Benefits Agreement, dated as of October 2, 2006, by and between the Bank and Clay T. Henry, is incorporated herein by reference to Exhibit 10(bb) to the Corporation's Annual Report on Form 10-K for the year ended December 31, 2006.  (CP)

(x) Restricted Stock Award Agreement for Clay T. Henry, dated as of October 2, 2006, is incorporated herein

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by reference to Exhibit 10(cc) to the Corporation's Annual Report on Form 10-K for the year ended December 31, 2006. (CP)

*                 (y) Lease Agreement, dated December 19, 2007, between First National Bank of Chester County and Downingtown Medical Building Associates (an affiliate of John Ciccarone, a Director of the Corporation).

(z) Lease Agreement, dated as of March 28, 2005, by and between First National Bank of Chester County and B.K. Campbell, Inc. (an affiliate of Brian Campbell, a Director of the Corporation), is incorporated herein by reference to Exhibit 10.1 to the Corporation's Quarterly Report on Form 10-Q for the quarter ended March 31, 2007.

(aa) Joint Marketing Agreement, dated as of July 1, 2005, by and between First National Bank of Chester County, First National Wealth Advisory Services and the Elite Group, LLC (an affiliate of Matthew Naylor, a Director of the Corporation) is incorporated herein by reference to Exhibit 10.2 to the Corporation's Quarterly Report on Form 10-Q for the quarter ended March 31, 2007.

(bb) Lease Agreement, dated as of May 1, 2007, by and between First National Bank of Chester County and Beiler-Campbell Inc (an affiliate of Brian Campbell, a director of the Corporation) is incorporated herein by reference to Exhibit 10.1 to the Corporation's Quarterly Report on Form 10-Q for the quarter ended June 30, 2007.

(cc) Sale Agreement, dated as of September 28, 2007, by and between First National Bank of Chester County and FTN Ramp, LLC is incorporated herein by reference to Exhibit 10.1 to the Corporation's Quarterly Report on Form 10-Q for the quarter ended September 30, 2007.

(dd) Lease Agreement, dated as of September 28, 2007, by and between First National Bank of Chester County and FI Properties Pool I LP is incorporated herein by reference to Exhibit 10.2 to the Corporation's Quarterly Report on Form 10-Q for the quarter ended September 30, 2007.

* (ee) Change of Control Agreement between the Bank and Sheri Ashman, dated June 7, 2007. (CP)

  14. Code of Conduct (Ethics) is incorporated herein by reference to Exhibit 14 to the Corporation's Annual Report on Form 10-K for the year ended December 31, 2006.

*                  21. Subsidiaries of the Corporation. First National Bank of Chester County, formerly known as The First National Bank of West Chester, is a banking institution organized under the banking laws of the United States in December 1863. Turks Head Properties, Inc., formerly known as 323 East Gay Street Corporation, was incorporated in 1996 in the State of Pennsylvania. Turks Head II, LLC was incorporated in 2003 in the State of Pennsylvania. FNB Insurance Services, LLC, doing business as First National Financial Advisory Services (formerly First National Wealth Advisory Services), a wholly-owned subsidiary of the Bank, is a limited liability company formed in 2000 under the laws of Pennsylvania. FNB Properties, LLC, a wholly-owned subsidiary of the Bank, is a limited liability company formed in 2000 under the laws of Pennsylvania. First Chester County Capital Trust II was formed on November 13, 2003. First Chester County Capital Trust III was formed on June 29, 2007.

* 23. Consent of Grant Thornton LLP, dated March 12, 2008.

* 31.1 Certification of Chief Executive Officer.

* 31.2 Certification of President.

* 31.3 Certification of Treasurer and Chief Financial Officer.

* 32.1 Certification of Chief Executive Officer.

* 32.2 Certification of President.

* 32.3 Certification of Treasurer and Chief Financial Officer.

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EX-3.(II)

FIRST CHESTER COUNTY CORPORATION

BY-LAWS

ARTICLE I

OFFICES

Section 1.01     Registered Office. The location and post office address of the registered office of the Corporation in Pennsylvania shall be as specified in the Articles of Incorporation.

Section 1.02     Other Offices. The Corporation shall also have offices at such other places within or without the Commonwealth of Pennsylvania as the Board of Directors may from time to time appoint and the business of the Corporation may require.

ARTICLE II

MEETINGS OF SHAREHOLDERS

Section 2.01     Place of Meetings. All meetings of the shareholders shall be held at such place, within or without the Commonwealth, as may be designated from time to time by the Board of Directors and stated in the notice of meeting or in a duly executed waiver of notice thereof.

Section 2.02     Date of Annual Meetings. An annual meeting of the shareholders commencing with the year 1985, shall be held in each calendar year within five months after the end of the fiscal year of the Corporation on such day and at such time and place as the Board of Directors shall fix, at which the shareholders shall elect a Board of Directors and transact such other business as may properly be brought before the meeting. Any business may be transacted at the annual meeting, irrespective of whether the notice of such meeting contains a reference thereto, except as otherwise provided in these By-Laws, or by statute.

Section 2.03     Special Meetings. Special meetings of the shareholders, for any purpose or purposes, unless otherwise prescribed by statute, may be called at any time by the Chairman of the Board or the President or a majority of the Board of Directors, or shareholders entitled to cast at least one-fifth of the votes which all shareholders are entitled to cast at the particular meeting, upon written request delivered to the Secretary of the Corporation. Such request shall state the purpose or purposes of the proposed meeting. Upon receipt of any such request, it shall be the duty of the Secretary to call a special meeting of the shareholders to be held at such time, not more than sixty days after the receipt of the request, as the Secretary may

fix. If the Secretary shall neglect or refuse to issue such call, the person or persons making the request may issue the call. Business transacted at all special meetings of shareholders shall be limited to the purposes stated in the notice.

Section 2.04     Notice. Written notice of every meeting of the shareholders, specifying the place, date and hour and the general nature of the business of the meeting, shall be given either personally or by mail or by telegram at least five days prior to the meeting, unless a greater period of notice is required by statute, to each shareholder entitled to vote thereat.

Section 2.05     List of Shareholders. The officer or agent having charge of the transfer books for shares of the Corporation shall prepare and make, at least five days before each meeting of shareholders, a complete list of the shareholders entitled to vote at the meeting, arranged in alphabetical order, with the address and the number of shares held by each, which list shall be kept on file at the registered office of the Corporation and shall be subject to inspection by any shareholder at any time during usual business hours. Such list shall also be produced and kept open at the time and place of the meeting and shall be subject to the inspection of any shareholder during the whole time of the meeting.

Section 2.06     Quorum. A shareholder’s meeting duly called shall not be organized for the transaction of business unless a quorum is present. Unless provided otherwise by statute, the Articles of Incorporation, or these By-Laws, the presence, in person or by proxy, of shareholders entitled to cast at least a majority of the votes which all shareholders are entitled to cast on the particular matter shall be requisite and shall constitute a quorum for the purpose of considering such matter. The shareholders present at a duly organized meeting can continue to do business until adjournment, notwithstanding the withdrawal of enough shareholders to leave less than a quorum. If a meeting of the shareholders cannot be organized because a quorum has not attended, the shareholders entitled to vote thereat, present in person or by proxy, shall have power, except as otherwise provided by statute, to adjourn the meeting to such time and place as they may determine. In the case of any meeting called for the election of directors, those who attend the second of such adjourned meetings, although less than a quorum, shall nevertheless constitute a quorum for the purpose of electing directors. At any adjourned meeting at which a quorum shall be present or represented any business may be transacted which might have been transacted at the meeting as originally notified.

Section 2.07     Voting. When a quorum is present or represented at any meeting, the vote of the holders of a majority of the shares having voting powers, present in person or represented by proxy, shall decide any question brought before such meeting, unless the question is one upon which, by express provision of the statutes or of the Articles of Incorporation or of these By-Laws, a different vote is required in which case such express provision shall govern and control the decision of such question. Except as otherwise provided by statute, or in the Articles of Incorporation, every shareholder of record shall have the right, at every shareholders’ meeting, to one vote for every share standing in his name on the books of the Corporation. Every shareholder may vote in person or by proxy as provided by law.

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Section 2.08     Conference Telephone. One or more shareholders may participate in a meeting of the shareholders by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other.

Section 2.09     Informal Action. Any action which may be taken at a meeting of the shareholders may be taken without a meeting if a consent or consents in writing, setting forth the action so taken, shall be signed by all of the shareholders who would be entitled to vote at a meeting for such purpose and shall be filed with the Secretary of the Corporation.

Section 2.10     Judges of Election. In advance of any meeting of shareholders, the Board of Directors may appoint Judges of Election, who need not be shareholders, to act at such meeting or any adjournment thereof. If Judges of Election be not so appointed, the Chairman of any such meeting may, and on the request of any shareholder or his proxy shall, make such appointment at the meeting. The number of Judges shall be one or three. If appointed at a meeting on the request of one or more shareholders or proxies, the majority of shares present and entitled to vote shall determine whether one or three judges are to be appointed. No person who is a candidate for office shall act as a Judge. If there are three Judges of Election the decision, act or certificate of a majority shall be effective in all respects as the decision, act or certificate of all.

Section 2.11     Manner of Voting. All elections and votes of shareholders shall be viva voce unless otherwise required by law, or unless any shareholder shall file with the Secretary of the meeting a written request that such election or vote shall be by ballot.

ARTICLE III

DIRECTORS

Section 3.01     Number of Directors and Election. The management, control and government of the Corporation shall be vested in a Board of Directors consisting of not less than five (5) nor more than twenty-five (25) members in number, as fixed from time to time by the Board of Directors of the Corporation. The Directors of the Corporation shall be divided into three classes: Class I, Class II and Class III. Each class shall be as nearly equal in number as possible. If the number of Class I, Class II or Class III Directors is fixed for any term of office, it shall not be increased during that term, except by a majority vote of the Continuing Directors. Except for the initial Board of Directors, the term of office of each class shall be three years; provided, however, that the term of office of the initial Class I Directors shall expire at the annual election of Directors by the shareholders of the Corporation in 1985; the term of office of the initial Class II Directors shall expire at the annual election of Directors by the shareholders of the Corporation in 1986; the term of office of the initial Class III Directors shall expire at the annual election of Directors by the shareholders of the Corporation in 1987, so that, after the expiration of each such initial term, the terms of office of one class of Directors shall expire each year when their respective successors have been duly elected by the shareholders and qualified. At each annual election of the Directors by the shareholders of the Corporation held during and after 1984, the Directors chosen to succeed those whose terms then expire shall be identified as

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being of the same class as the Directors they succeed. A Director must be a shareholder of the Corporation.

Section 3.02     Vacancies. If a vacancy occurs on the Board of Directors of the Corporation after the first annual election of Directors for the class in which such Director sits, a majority of the remaining Directors shall have the exclusive power to fill the vacancy by electing a Director to hold office for the unexpired term in respect of which the vacancy occurred.

Section 3.03     Powers. The business of the Corporation shall be managed by its Board of Directors which may exercise all such powers of the Corporation and do all such lawful acts and things as are not by statute or by the Articles of Incorporation or by these By-Laws directed or required to be exercised and done by the shareholders.

Section 3.04     Meetings. The Board of Directors may hold meetings, both regular and special, either within or without the Commonwealth of Pennsylvania.

Section 3.05     First Meeting. The first meeting of each newly elected Board of Directors shall be held immediately following the annual meeting of shareholders at which such directors are elected and no notice of such meeting shall be necessary or the meeting may be held at such time and place as shall be specified in a notice given as hereinafter provided for special meetings of the Board of Directors, or as shall be specified in a written waiver signed by all of the directors. At such regular annual meeting the Board of Directors shall organize itself and elect the officers of the Corporation for the ensuing year and may transact any other business.

Section 3.06     Regular Meetings. Regular meetings of the Board of Directors may be held without notice at such time and at such place as shall from time to time be designated by the directors.

Section 3.07     Special Meetings. Special meetings of the Board of Directors may be called by the Chairman of the Board or the President on two days’ notice to each director, given either personally or by mail or by telegram; special meetings shall be called by the Chairman of the Board or the President or the Secretary in like manner and on like notice on the written request of two directors.

Section 3.08     Quorum. At all meetings of the Board of Directors a majority of the directors in office shall be necessary to constitute a quorum for the transaction of business, and the acts of a majority of the directors at a meeting at which a quorum is present shall be the acts of the Board of Directors. If a quorum shall not be present at any meeting of directors, the directors present thereat may adjourn the meeting from time to time, without notice other than by announcement at the meeting, until a quorum shall be present.

Section 3.09     Conference Telephone. One or more directors may participate in a meeting of the Board of Directors (or a committee thereof) by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other.

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Section 3.10     Informal Action. Any action which may be taken at a meeting of the directors or the members of the executive committee may be taken without a meeting if a consent or consents in writing setting forth the action so taken shall be signed by all the directors or the members of the executive committee, as the case may be, and shall be filed with the secretary of the Corporation.

Section 3.11     Committees. The Board of Directors may, by resolution adopted by a majority of the whole Board of Directors, designate one or more committees, each committee to consist of two or more directors. The Board of Directors may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. Any such committee, to the extent provided by resolution of the Board of Directors, shall have and exercise the authority of the Board of Directors in the management of the business and affairs of the Corporation. Vacancies in the membership of any committee shall be filled by the Board of Directors at a regular or special meeting of the Board of Directors. Each Committee shall keep regular minutes of its proceedings and report the same to the Board of Directors when required.

Section 3.12     Compensation. Directors, as such, shall not receive any stated salary for their services but, by resolution of the Board of Directors, a fixed sum, and expenses of attendance, may be allowed for attendance at each regular or special meeting of the Board of Directors or at meetings of the Executive Committee. Nothing herein contained shall be construed to preclude any director from serving the Corporation in any other capacity and receiving compensation therefor.

ARTICLE IV

OFFICERS AND AGENTS

Section 4.01     Titles. The officers of the Corporation shall be chosen by the Board of Directors and shall be a President, a Secretary and a Treasurer who shall have such powers and duties as set forth herein and as from time to time determined by the Board of Directors. The board may also elect, at its discretion, a Chairman of the Board, one or more vice presidents, assistant secretaries and assistant treasurers, and such other officers, agents, trustees and fiduciaries as it shall deem appropriate who shall hold their offices for such terms and shall exercise such powers and perform such duties as shall be determined from time to time by the Board of Directors. The Chairman of the Board, President and Secretary shall be natural persons of full age; the Treasurer may be a corporation but, if a natural person, shall be of full age. Any number of the aforesaid offices may be held by the same person.

Section 4.02     Election of Officers. The Board of Directors, immediately after each annual meeting of shareholders, shall elect a President, a Secretary and a Treasurer, who need not be members of the Board of Directors.

Section 4.03     Salaries. The salaries of the executive officers of the Corporation shall be fixed by the Board of Directors. The President shall fix the compensation of all other officers, agents and employees of the Corporation.

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Section 4.04     Terms of Office. The officers of the Corporation shall hold office until their successors are chosen and qualify. Any officer elected or appointed by the Board of Directors may be removed at any time by the affirmative vote of a majority of the Board of Directors. Any vacancy occurring in any office of the Corporation shall be filled by the Board of Directors.

ARTICLE V

DUTIES OF OFFICERS

Section 5.01     Chairman of the Board. The Chairman of the Board, if any, shall have such powers and perform such duties as may be assigned to him by the Board of Directors.

Section 5.02     President. Unless provided otherwise by the Board of Directors, the President shall be the chief executive officer of the Corporation; shall preside at all meetings of the shareholders and the Board of Directors; shall have general and active management of the business of the Corporation; and shall see that all orders and resolutions of the Board of Directors are carried into effect. He shall execute bonds, mortgages and other contracts requiring a seal, under the seal of the Corporation, except where required or permitted by law to be otherwise signed and executed and except where the signing and execution thereof shall be expressly delegated by the Board of Directors to some other officer or agent of the Corporation.

Section 5.03     Vice Presidents. The Vice-President, or if there shall be more than one, the Vice Presidents in the order determined by the Board of Directors, shall, in the absence or disability of the President, perform the duties and exercise the powers of the President, and shall perform such other duties and have such other powers as the Board of Directors may from time to time prescribe.

Section 5.04     Secretary. The Secretary shall attend all meetings of the Board of Directors and all meetings of the shareholders and record all the proceedings of the meetings of the Corporation and of the Board of Directors in a book to be kept for that purpose and shall perform like duties for the Executive Committee when required. He shall give, or cause to be given, notice of all meetings of the shareholders and special meetings of the Board of Directors, and shall perform such other duties as may be prescribed by the Board of Directors or the President, under whose supervision he shall be. He shall keep in safe custody the seal of the Corporation and, when authorized by the Board of Directors, affix the same to any instrument requiring it and, when so affixed, it shall be attested by his signature.

Section 5.05     Assistant Secretaries. The Assistant Secretary, or if there be more than one, the Assistant Secretaries in the order determined by the Board of Directors, shall, in the absence or disability of the Secretary, perform the duties and exercise the powers of the Secretary and shall perform such other duties and have such other powers as the Board of Directors may from time to time prescribe.

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Section 5.06     Treasurer. The Treasurer shall have the custody of the corporate funds and securities and shall keep full and accurate accounts of receipts and disbursements in books belonging to the Corporation and shall deposit all moneys and other valuable effects in the name and to the credit of the Corporation in such depositories as may be designated by the Board of Directors. He shall disburse the funds of the Corporation as may be ordered by the Board of Directors, taking proper vouchers for such disbursements, and shall render to the President and the Board of Directors, at its regular meetings, or when the Board of Directors so requires, an account of all his transactions as Treasurer and of the financial condition of the Corporation.

Section 5.07     Assistant Treasurers. The Assistant Treasurer, or if there shall be more than one, the Assistant Treasurers in the order determined by the Board of Directors, shall, in the absence or disability of the Treasurer, perform the duties and exercise the powers of the Treasurer and shall perform such other duties and have such other powers as the Board of Directors may from time to time prescribe.

ARTICLE VI

SHARES OF CAPITAL STOCK

Section 6.01     Right to Certificate. Every shareholder of record of fully paid stock shall be entitled to a share certificate representing the shares owned by him.

Section 6.02     Form of Certificate. Share certificates shall be in such form as may be required by law and prescribed by the Board of Directors. Every share certificate shall show the name of the registered holder, the number and class of shares and the series, if any, represented thereby, and the par value of each share or a statement that such shares are without par value. Every share certificate shall be signed by the President or a Vice-President, and by the Secretary or an Assistant Secretary or the Treasurer or an Assistant Treasurer, and shall be sealed with the corporate seal, which may be a facsimile, either engraved or printed. Where a certificate is signed by a transfer agent or a registrar, the signature of any such corporate officer may be a facsimile, engraved or printed. If any officer whose signature appears on such certificate shall cease to be such officer of the Corporation for any reason, such certificate may nevertheless be adopted by the Corporation and be issued and delivered with the same effect as though the person had not ceased to be such officer of the Corporation.

Section 6.03     Registered Stockholders. Each shareholder, at the time of the issuance of the share certificate to him shall notify the Secretary of the Corporation in writing of the address to which such shareholder wishes notices relating to the business of the Corporation to be mailed to him. He shall thereafter notify the Secretary in writing of any changes in such address. The Corporation shall be entitled to treat the holder of record of any share or shares as the holder in fact thereof and shall not be bound to recognize any equitable or other claim to or interest in such share on the part of any other person, and shall not be liable for any registration or transfer of shares which are registered or to be registered in the name of a fiduciary or the nominee of a fiduciary unless made with actual knowledge that a fiduciary or nominee is committing a breach of trust in requesting such registration or transfer, or with knowledge of such facts that its participation therein amounts to bad faith.

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Section 6.04     Transfers of Stock. Shares of the capital stock of the Corporation shall be transferable on the books of the Corporation only upon delivery of the certificates representing the same duly endorsed by the person in whose name such shares are registered or by his duly authorized attorney or representative, or accompanied by proper evidence of succession, assignment or authority to transfer. In all cases of transfer by an attorney, the original letter of attorney, duly approved or an official copy thereof, duly certified, shall be deposited and remain with the Corporation. In case of transfer by executors, administrators, guardians or other legal representatives, duly authenticated evidence of their authority shall be produced, and may be required to be deposited and remain with the Corporation in its discretion.

Section 6.05     Lost and Destroyed Certificates. New certificates for shares of stock may be issued to replace certificates lost, stolen, destroyed or mutilated upon such terms and conditions, including proof of loss or destruction and the giving of a satisfactory bond of indemnity as the Board of Directors or the transfer agent of the corporation from time to time may determine.

Section 6.06     Record Date. Unless otherwise required by law, the Board of Directors may fix a time, not more than fifty days prior to the date of any meeting of the shareholders, or the date fixed for the payment of any dividend or distribution, or the date for the allotment of rights, or the date when any change or conversion or exchange of shares will be made or will go into effect, as a record date for the determination of the shareholders entitled to notice of, or to vote at, any such meeting, or entitled to receive payment of any such dividend or distribution, or entitled to receive any such allotment of rights, or to exercise the rights in respect to any such change, conversion, or exchange of shares. In any such case only such shareholders as shall be shareholders of record on the day fixed shall be entitled to notice of, or to vote at, such meeting or to receive payment of such dividend or distribution, or to receive such allotment of rights, or to exercise any such rights in respect to any such change, conversion or exchange of shares, as the case may be, notwithstanding any transfer of any shares on the books of the Corporation after the date so fixed. The Board of Directors may close the books of the Corporation against transfers of shares during the whole or any part of such period, and in such case written or printed notice thereof shall be mailed at least ten days before the closing thereof to each shareholder of record at the address appearing on the records of the Corporation or supplied by him to the Corporation for the purpose of notice. While the stock transfer books are closed, no transfer of shares shall be made thereon. Unless such a record date is fixed by the Board of Directors for the determination of shareholders entitled to receive notice of, or vote at, a shareholders’ meeting, transferees of shares which are transferred on the books of the Corporation within ten days next preceding the date of such meeting shall not be entitled to notice of or to vote at such meeting.

ARTICLE VII

DIVIDENDS

Section 7.01     Declaration of Dividends. Dividends upon the shares of the Corporation, subject to the provisions of the Articles of Incorporation, if any, may be declared by

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the Board of Directors at any regular or special meeting, pursuant to law. Dividends may be paid in cash, in property, or in its shares, subject to the provisions of the Articles of Incorporation.

Section 7.02     Reserves. Before payment of any dividend, there may be set aside out of any funds of the Corporation available for dividends such sum or sums as the directors from time to time, in their absolute discretion, think proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the Corporation, or for such other purpose as the directors shall think conducive to the interest of the Corporation, and the directors may modify or abolish any such reserve in the manner in which it was created.

ARTICLE VIII^*

INDEMNIFICATION AND INSURANCE

Section 8.01     Limitation of Liability. A director of this Corporation shall not be personally liable for monetary damages as such for any action taken, or any failure to take action, unless the director has breached or failed to perform the duties of his office under Section 8363 of the Pennsylvania Directors’ Liability Act, as from time to time amended, or any successor provision, and the breach or failure to perform constitutes self-dealing, willful misconduct or recklessness. This provision shall not apply to the responsibility or liability of a director pursuant to any criminal statute or the liability of a director for payment of taxes pursuant to local, State or Federal law. This Section 8.01 shall be applicable to any action taken or any failure to take any action on or after January 27, 1987.

Section 8.02     Indemnification. The Corporation shall indemnify any officer or director (or employee or agent designated by majority vote of the Board of Directors to the extent provided in such vote) who was or is a party or is threatened to be made a party to any threatened, pending or completed action, proceedings, whether civil, criminal, administrative or investigative (including action by or in the right of the Corporation) by reason of the fact that he is or was a director or officer (or employee or agent) of the Corporation or is or was serving at the request of the Corporation as a director, officer (or employee or agent) of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise, against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding. Officers and directors of subsidiaries of the Corporation shall be deemed to be persons acting as an officer or director of another corporation at the request of the Corporation. Indemnification pursuant to this Section shall not be made in any case where the act or failure to act giving rise to the claim for indemnification is determined by a court to have constituted willful misconduct or recklessness. Expenses incurred by an officer, director, employee or agent purportedly indemnified by this Section in defending a civil or criminal action, suit or proceeding may be paid by the Corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of such person to repay such amount if it shall ultimately be determined that he is not entitled to be indemnified by the Corporation. The indemnification and advancement of expenses provided by, or granted pursuant to, this Section 8.02 shall continue as

_________________________

^* Amended March 24, 1987 to add new Section 8.01, revise 8.02, and renumber 8.03 (formerly 8.02).

9

to a person who has ceased to be a director, officer, employee or agent of the Corporation and shall inure to the benefit of the heirs, executors and administrators of such person. This Section 8.02 shall not be effective with respect to any action, suit or proceeding commenced prior to January 27, 1987.

Section 8.03     Insurance. The Board of Directors may authorize, by a vote of a majority of the whole Board of Directors, the Corporation to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the Corporation would have the power to indemnify him against such liability under the provisions of this Article VIII.

ARTICLE IX

GENERAL PROVISIONS

Section 9.01     Financial Reports. The Board of Directors shall have discretion to determine whether financial reports shall be sent to shareholders, what such reports shall contain, and whether such reports shall be audited or accompanied by the report of an independent or certified public accountant.

Section 9.02     Corporate Seal. The Board of Directors shall prescribe the form of a suitable corporate seal, which shall contain the full name of the Corporation and the year and state of incorporation.

Section 9.03     Fiscal Year. The fiscal year of the Corporation shall be fixed by resolution of the Board of Directors.

Section 9.04     Checks. All checks or demands for money and notes of the Corporation shall be signed by such officer or officers or such other person or persons as the Board of Directors may from time to time designate.

Section 9.05     Waiver of Notice. Whenever any notice is required to be given under the provisions of the statutes or these By-Laws, a waiver thereof in writing signed by the person or persons entitled to said notice, whether before or after the time stated therein, shall be deemed equivalent to the giving of such notice. Attendance of a person, either in person or by proxy, at any meeting shall constitute a waiver of notice of such meeting.

ARTICLE X

AMENDMENTS

Section 10.01   Amendment. Any amendment, alteration, change or repeal of these By-Laws of the Corporation shall require the affirmative vote of the holders of at least seventy-five (75%) percent of the outstanding shares of capital stock of the Corporation entitled to vote

10

generally in the election of directors (taken as a single class); provided, however, that this Section 10.01 shall not apply to, and such seventy-five (75%) percent vote shall not be required for, and the affirmative vote or a majority of the outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors (taken together as a single class) shall be required for, any amendment, alteration, change or repeal recommended to the stockholders by three-fourths (3/4) of the entire Board of Directors (or if there is a person or persons serving on the Board other than Continuing Directors, by three-fourths (3/4) of the Continuing Directors). If any of the foregoing provisions are finally judicially determined to be invalid, then these By-Laws of the Corporation may only be amended, altered, changed or repealed by the affirmative vote of the holders of not less than two-thirds (2/3) of the outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors (taken together as a single class).

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EX-10

EXHIBIT 10(c)

Compensatory Arrangements of Executive Officers and Directors for 2008

Messrs. Featherman and Quinn are employed by the Corporation and the Bank pursuant to employment agreements included as exhibits to this Annual Report on Form 10-K. Each of our other executive officers is employed on an at will basis. The compensation to be paid in 2008 to the Corporation’s CEO, President, CFO, the Executive Vice Presidents who were Named Executive Officers in our last filed proxy statement and the Executive Vice President of the Wealth Management division will be based upon the annual salaries as set forth in the chart below.

Executive Officer	New Salary
John A. Featherman, III, CEO and Chairman of the Corporation and the Bank	$364,109
Kevin C. Quinn, President of the Corporation and the Bank	$275,734
John E. Balzarini, CFO of the Corporation and the Bank	$205,363
Clay T. Henry, Executive Vice President of the Wealth Management Division of the Bank	$196,267
Deborah R. Pierce, Executive Vice President of Human Resources and Administration	$170,288
Michelle E. Venema, Executive Vice President of Business Banking	$165,000

Messrs. Featherman and Quinn receive benefits, including benefits upon termination of service for certain events, as described in their respective Employment Agreements. Each of the other listed officers receives the Bank’s standard benefits package, is paid a car allowance and is a party to a separate agreement with the Bank that provides certain benefits upon a change of control and, in the case of Mr. Henry, termination of service for certain other events. Each of these agreements is included as exhibits to this Annual Report on Form 10-K. In addition, each executive officer is eligible to receive incentive compensation pursuant to the Executive Incentive Plan, filed as Exhibit 10(s).

In 2008, directors who are not also officers of the Corporation or Bank (each a “non-employee director”) will receive a fee of $750 for each Corporation or Bank board meeting attended and $400 for each committee meeting attended. Each non-employee director will also receive a $1,000 monthly retainer. Additionally, a quarterly fee of $250 will be paid to Mr. DeBaptiste for serving as Second Vice Chair of the Board, a quarterly fee of $250 will be paid to Mr. Waldron for serving as the Secretary of the Board, and a quarterly fee of $750 will be paid to Mr. Clarke for serving as the Chairman of the Audit Committee. Other Committee Chairmen will be paid a quarterly fee of $250 for such service. The non-employee directors receive a $1,000 fee for attending a training seminar.

EX-10

EXHIBIT A – Participation

Plan Year 2007

(Participating employees and their participant categories should be listed at the beginning of each year and adjusted for changes in participation throughout the year.)

Category 1 – John Featherman, III – Chief Executive Officer

Kevin Quinn – President

Category 2 – John Balzarini – CFO

Michelle Venema – EVP, Business Banking

Karen Walter – EVP, Retail Banking

Deborah Pierce – EVP, Human Resources

Clay Henry – EVP, Trust & Investment Services

Susan Bergen-Painter – EVP, Marketing

Tony Poluch – EVP, Business Development

Category 3 – Mike Steinberger – SVP, Commercial Real Estate

Rich Kaufmann – SVP, Credit Policy

Andrew Stump – SVP, Commercial Loan

Pat Travaglini – SVP, Residential Mortgage

Tom Imler – SVP, Trust Business Development

Donna Steigerwalt – SVP, Retail

Linda Hicks – SVP, Chief Fiduciary Office

Rick McMullen – SVP, Consumer Lending

1050232.1 3/6/08

EXHIBIT B – Bank Performance Factors and Award Schedule

Plan Year 2007

Category 1 – CEO and President Positions

COMPANY GOALS
Performance Measures
Net Income (50%)
Threshold	Budget Target	Stretch Target	Optimum
$7,364,000	$7,597,368	$7,799,100	$8,087,100
Return on Average Equity (50%)
Threshold	Budget Target	Stretch Target	Optimum
10.92%	11.25%	11.53%	11.93%
AWARDS (% of Base Pay)
Threshold	Budget Target	Stretch Target	Optimum
12%	15%	30%	35%

Parameters

1. Company measures will be 50% Net Income and 50% ROAE.

2. Both Financial Measures must meet threshold to initiate an award in the plan.

3. Will interpolate awards between threshold, budget target, stretch target and optimum.

4. Will pay for performance above optimum at a scale of one-half the increase between target and optimum.

5. Pay is defined as total base pay for the applicable plan year.

6. ROAE will exclude FAS115 impact on capital.

2

1050232.1 3/6/08

EXHIBIT B – Bank Performance Factors and Award Schedule

Plan Year 2007

Category 2 – EVP Positions

COMPANY GOALS
Performance Measures
Net Income (50%)
Threshold	Budget Target		Stretch Target		Optimum
$7,364,000	$7,597,368		$7,799,100		$8,087,100
Return on Average Equity (50%)
Threshold	Budget Target		Stretch Target		Optimum
10.92%	11.25%		11.53%		11.93%
COMPANY GOAL AWARD (% of Base Pay)
Threshold	Budget Target		Stretch Target		Optimum
6%	7%		16%		18%
FUNCTIONAL AREA/INDIVIDUAL GOAL AWARD (% of Base Pay)
Minimum Performance		Meets Goals/Target		Exceptional Performance
1%		2% ------6%		10%
TOTAL AWARDS (% of Base Pay)
Threshold	Budget Target		Stretch Target		Optimum
7%	9%		22%		28%

Parameters

1. Company measures will be 50% Net Income and 50% ROAE.

2. Both Financial Measures must meet threshold to initiate an award in the plan.

3. Will interpolate between threshold, budget target, stretch target and optimum.

4. Will pay for performance above optimum at a scale of one-half the increase between target and optimum.

5. Pay is defined as total base pay for the applicable plan year.

6. Functional area/individual goals will be established at the beginning of each year.

7. ROAE will exclude FAS115 impact on capital.

3

1050232.1 3/6/08

EXHIBIT B – Bank Performance Factors and Award Schedule

Plan Year 2007

Category 3– SVP Positions

COMPANY GOALS
Performance Measures
Net Income (50%)
Threshold	Budget Target		Stretch Target		Optimum
$7,364,000	$7,597,368		$7,799,100		$8,087,100
Return on Average Equity (50%)
Threshold	Budget Target		Stretch Target		Optimum
10.92%	11.25%		11.53%		11.93%
COMPANY GOAL AWARD (% of Base Pay)
Threshold	Budget Target		Stretch Target		Optimum
2%	3%		8%		10%
FUNCTIONAL AREA/INDIVIDUAL GOAL AWARD (% of Base Pay)
Minimum Performance		Meets Goals/Target		Exceptional Performance
2%		2% ------8%		10%
TOTAL AWARDS (% of Base Pay)
Threshold	Budget Target		Stretch Target		Optimum
4%	5%		16%		20%

Parameters

1. Company measures will be 50% Net Income and 50% ROAE.

2. Both Financial Measures must meet threshold to initiate an award in the plan.

3. Will interpolate between threshold, budget target, stretch target and optimum.

4. Will pay for performance above optimum at a scale of one-half the increase between target and optimum.

5. Pay is defined as total base pay for the applicable plan year.

6. Functional area/individual goals will be established at the beginning of each year.

7. ROAE will exclude FAS115 impact on capital.

4

1050232.1 3/6/08

EX-10

Portions of this exhibit have been redacted and are the subject of a confidential treatment request filed with the Secretary of the Securities and Exchange Commission.

FIRST CHESTER COUNTY CORPORATION

EXECUTIVE INCENTIVE PLANS

ANNUAL INCENTIVE PLAN

LONG TERM INCENTIVE PLAN

With Exhibits A, B and C effective for 2008

FIRST CHESTER COUNTY CORPORATION

EXECUTIVE INCENTIVE PLAN

ANNUAL INCENTIVE AND LONG TERM INCENTIVE PLANS

ARTICLE I – Introduction

A vital component of the success of First Chester County Corporation (“Corporation”) is the ability of the executive management team to meet and achieve performance objectives consistent with the strategic objectives of the Corporation and the best interests of its shareholders. The ability to grow and manage the Corporation in a positive manner is critical to the Corporation’s future success.

This Executive Incentive Plan (“Plan”), which includes both an Annual Incentive Plan and a Long Term Incentive Plan, has been developed as a meaningful compensation tool to encourage the growth and proper management of the Corporation. The major purposes of the Plan are:

• To motivate and reward executives for positive performance of the Corporation on an annual basis;

• To provide additional compensation to executives that is directly linked to their individual and collective performance; and

• To emphasize the long term growth and profitability of the Corporation.

The focus of this Plan is to provide an incentive for the executive team to achieve annual and longer term performance objectives that are coordinated with the objectives of the Corporation.

ARTICLE II – Definitions

2.1 The following definitions shall be used in this Plan:

“Board of Directors” means the Board of Directors of the Corporation.

“CEO” means the chief executive officer of the Corporation, as appointed by the Board

of Directors.

“Change in Ownership or Effective Control” has the meaning provided in regulations issued pursuant to Section 409A of the Code.

“Code” means the Internal Revenue Code of 1986, as amended from time to time.

“Corporation” means First Chester County Corporation.

“Disability” means that a person is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than twelve months. Disability shall be determined by the Board of Directors in consultation with the medical experts it selects.

The “Effective Date” of the Plan is January 1, 2006.

“Employee” means any individual regularly employed by the Corporation.

“Participant” means an Employee chosen to participate in this Plan pursuant to the terms of Article III.

“Plan” means the First Chester County Corporation Executive Incentive Plan, as set forth in this document, and any amendments adopted by the Board of Directors. The Plan includes within it two types of incentive arrangements – the Annual Incentive Plan and the Long Term Incentive Plan.

“Plan Year” means the calendar year.

“President” means the President of the Corporation, as appointed by the Board of Directors.

2

ARTICLE III – Participation

3.1       (a)       Participation in the Plan will be determined at the beginning of each Plan Year by the CEO and the President, and will be approved by the Board of Directors. To participate, an Employee must be a regular employee of the Corporation with on-going responsibilities that are executive in nature and that have a meaningful impact on the Corporation’s results. Participation in the Plan by the CEO and the President will be approved annually by the Board of Directors. Generally, Participants will include officers at the Senior Vice President level and above.

1.         Exhibit A will list Participants each year in the Annual Incentive Plan and Exhibit C, the Participants in the Long Term Incentive Plan. Those exhibits may include multiple levels of participation. These levels will generally be based upon position responsibility.

2.         An Employee may become a new Participant during the Plan Year if newly hired. Any awards will be pro-rated for the portion of the year in which participation occurs, unless otherwise approved by the Board. The CEO and the President will make the final determination (with Board approval) of new participation during the Plan Year for any position other than that of CEO or President. The Board of Directors will decide on the participation of any new CEO or President.

3.         A Participant’s eligibility will cease at the termination of employment (other than retirement, death or disability) and the Participant will not receive any awards under the Plan for the Plan Year of employment termination. Termination as a result of retirement (as defined in the Corporation’s retirement plans), death or disability will result in pro-rated awards under the Plan through the last working date for the Plan Year in which termination occurred.

3

ARTICLE IV – Performance Factors under the Annual Incentive Plan

4.1       (a)       The Annual Incentive benefits provided under the Plan are based upon the Corporation’s financial performance factors, which may be amended as provided in Section 7.2. In general, these factors will be measures such as return on assets, return on equity, net income, earnings per share or similar indicators. The factors and weighing of the factors are determined at the beginning of each Plan Year. Each factor has quantifiable objectives consisting of threshold, target and optimum goals. Additionally, a portion of each Participant’s award may be based on unit, team, functional area, and individual performance objectives that are determined by management at the beginning of each Plan Year. Generally, the CEO and President will have most or all of their performance based on the Corporation’s overall performance, and other Participants will have a proportionately greater level of their award based on individual performance or the performance of an area of responsibility.

(b)       The Corporation’s performance factors for each year’s Annual Incentive awards under the Plan will be set forth in Exhibit B, which may be changed from time to time. Individual Participant objectives will be established after discussion between the Participant and the Participant’s manager (usually the CEO or President).

ARTICLE V – Award Calculation and Distribution under the Annual Incentive Plan

5.1       Awards under the Plan are calculated according to determination of the established performance factors at the end of each Plan Year. The Corporation’s performance between the threshold and target, and between the target and optimum will be interpolated. Unit, team, and functional area performance, if applicable, is determined by the CEO and the President. Individual performance is determined by each Participant’s manager, as approved by the CEO and the President. An individual Participant’s performance that does not meet the position’s

4

requirements (an annual performance evaluation that is less than satisfactory) will result in no award granted to that Participant for that Plan Year even though the Corporation’s performance is above threshold. If the Corporation’s performance is below the threshold, no award (including no individual award) will be granted under the Annual Incentive portion of the Plan for that Plan Year.

5.2       Annual awards are paid in cash less required income tax withholding. Payment will be within two and a half months after the end of the Plan Year. Any Participant terminating employment (except by retirement, death, or disability) prior to the actual payment of the award will forfeit that award. The award schedule for each Plan Year is found with the performance factors in Exhibit B, as changed from time to time.

ARTICLE VI – Long Term Incentive Provisions

6.1       The Participants in the Long Term Incentive portion of the Plan will be chosen from time to time by the CEO and the President, subject to the approval of the Board of Directors. The participation of the CEO and the President will be determined each year by the Board of Directors.

6.2       The Employees chosen to participate will be listed on Exhibit C, which may be changed from time to time.

6.3       The Long Term Incentive portion of the Plan will consist of restricted stock grants, under the following terms:

(a)       Grants will be made within two and a half months after the end of the Plan year, following specific approval by the Board of Directors (or a committee thereof) based upon the performance for the prior year.

(b) The amount of each grant shall be determined as follows: Participants shall be

5

divided into categories as determined by the CEO and the President, subject to the approval of the Board of Directors (and, in the case of the CEO and President, as determined by the Board of Directors). Each category shall have a different range of grant sizes. The lowest level of grant will be the threshold, the middle level the target, and the highest level the optimum. The number of shares in each level of each category will be set forth in Exhibit C, which may be changed each year.

(c)       The determination of which level of grant will be made will be determined by the Corporation’s net income for each year, and based on the Corporation’s overall Annual Incentive Plan for that year.

(d)       The shares granted pursuant to the prior subparagraph will vest at the rate determined by the Board of Directors at the time each grant is approved. Vesting may occur at different rates for grants made in different years. It shall be a condition of vesting that the Participant has been continuously employed by the Corporation subsequent to the grant and is actively employed on each vesting date. Vesting will be accelerated to 100% in the event the Participant retires, dies or becomes disabled, and also upon a Change in Ownership or Effective Control of the Corporation.

(e)       Dividends on the shares granted will be paid to the Participant without regard to vested status.

6

ARTICLE VII – Administration

7.1       The Board of Directors may amend or terminate the Plan at any time and in any respect. This includes the right to terminate the participation of any or all Participants under the Plan during the Plan Year with respect to that Plan Year or to amend the amount of the awards which may be granted under the Plan with respect to any Plan Year at any time prior to the final determination and approval of any such grants.

7.2       Participation, performance factors, thresholds, targets and any other participation features may change from time to time, according to the performance of the Corporation and the strategic objectives of the Corporation, at the discretion of the Board of Directors. Any adjustments to the financial performance results used in this Plan because of extraordinary gains or losses or other items must be approved by the Board of Directors.

7.3       The Plan does not constitute a contract of employment, and participation in the Plan does not give any Employee the right to be retained in the service of the Corporation or any right or claim to an award under the Plan.

7.4       Any right of a Participant or his or her beneficiary to the payment of an award under this Plan may not be assigned, transferred, pledged or encumbered.

7.5       In the event that a Participant dies, his benefits payable under the Plan will be paid as soon as practicable to the beneficiaries chosen by the Participant or, if none are chosen, to the beneficiaries selected pursuant to the Corporation’s retirement plans.

7.6       This Plan will be administered and interpreted in accordance with the laws of the Commonwealth of Pennsylvania.

FIRST CHESTER COUNTY CORPORATION

By:_____________________

Title:

7

Exhibit A – Participation

Plan Year 2008

(Participating employees and their participant categories should be listed at the beginning of each year and adjusted for changes in participation throughout the year.)

Category 1 – John A. Featherman, III - Chief Executive Officer

Kevin C. Quinn – President

Category 2 – Sheri Ashman – Executive Office of Marketing

John E. Balzarini – Chief Financial Officer

Clay Henry – Executive Officer Trust & Investment Services

Deborah R. Pierce – Executive Officer of Human Resources and Administration

Anthony J. Poluch – Executive Officer of Business Development

Michelle E. Venema – Executive Officer of Business Banking

Karen D. Walter – Executive Officer of Retail Banking

Category 3 – Linda Hicks – Chief Fiduciary Officer

Tom Imler – Senior Trust Business Development Manager

Richard W. Kaufmann – Credit Policy Officer

Lynn Mander – Chief Investment Officer

Richard D. McMullen – Senior Mgr. Retail Lending

Donna J. Steigerwalt – Branch Administrator

Michael T. Steinberger – Senior Commercial Real Estate Loan Officer

Andrew H. Stump – Senior Commercial Loan Officer

Patricia A. Travaglini – Senior Residential Mortgage Loan Officer

8

EXHIBIT B - BANK PERFORMANCE FACTORS AND AWARD SCHEDULE

PLAN YEAR 2008

Category 1 – CEO and President Positions

COMPANY GOALS
Performance Measures
Net Income (50%)
Threshold	Budget Target	Stretch Target	Optimum
$ **	$ **	$ **	$ **
Return on Average Equity (50%)
Threshold	Budget Target	Stretch Target	Optimum
** %	** %	** %	** %
AWARDS (% of Base Pay)
Threshold	Budget Target	Stretch Target	Optimum
8%	** %	** %	40%

Parameters

1. Company measures will be 50% Net Income and 50% ROAE.

2. Both Financial Measures must meet threshold to initiate an award in the plan.

3. Will interpolate awards between threshold, budget target, stretch target and optimum.

4. Will pay for performance above optimum at a scale of one-half the increase between target and optimum.

5. Pay is defined as total base pay for the applicable plan year.

** This portion has been redacted pursuant to a confidential treatment request.

9

Category 2 – EVP Positions

COMPANY GOALS
Performance Measures
Net Income (50%)
Threshold	Budget Target		Stretch Target		Optimum
$ **	$ **		$ **		$ **
Return on Average Equity (50%)
Threshold	Budget Target		Stretch Target		Optimum
** %	** %		** %		** %
COMPANY GOAL AWARD (% of Base Pay)
Threshold	Budget Target		Stretch Target		Optimum
4%	** %		** %		20%
FUNCTIONAL AREA/INDIVIDUAL GOAL AWARD (% of Base Pay)
Minimum Performance		Meets Goals/Target		Exceptional Performance
1%		** %		10%
TOTAL AWARDS (ASSUMING INDIVIDUAL PERFORMANCE "MEETS GOALS")(% of Base Pay)
Threshold	Budget Target		Stretch Target		Optimum
8%	** %		** %		24%

Parameters

1. Company measures will be 50% Net Income and 50% ROAE.

2. Both Financial Measures must meet threshold and Individual Performance must meet Minimum Performance to initiate an award in the plan.

3. Will interpolate between threshold, budget target, stretch target and optimum.

4. Will pay for performance above optimum at a scale of one-half the increase between target and optimum.

5. Pay is defined as total base pay for the applicable plan year.

6. Functional area/individual goals will be established at the beginning of each year.

** This portion has been redacted pursuant to a confidential treatment request.

10

Category 3 – SVP Positions

COMPANY GOALS
Performance Measures
Net Income (50%)
Threshold	Budget Target		Stretch Target		Optimum
$ **	$ **		$ **		$ **
Return on Average Equity (50%)
Threshold	Budget Target		Stretch Target		Optimum
** %	** %		** %		** %
COMPANY GOAL AWARD (% of Base Pay)
Threshold	Budget Target		Stretch Target		Optimum
2%	** %		** %		12%
FUNCTIONAL AREA/INDIVIDUAL GOAL AWARD (% of Base Pay)
Minimum Performance		Meets Goals/Target		Exceptional Performance
2%		** %		8%
TOTAL AWARDS (ASSUMING INDIVIDUAL PERFORMANCE "MEETS GOALS") (% of Base Pay)
Threshold	Budget Target		Stretch Target		Optimum
6%	** %		** %		16%

Parameters

1. Company measures will be 50% Net Income and 50% ROAE.

2. Both Financial Measures must meet threshold and Individual Performance must meet Minimum Performance to initiate an award in the plan.

3. Will interpolate between threshold, budget target, stretch target and optimum.

4. Will pay for performance above optimum at a scale of one-half the increase between target and optimum.

5. Pay is defined as total base pay for the applicable plan year.

6. Functional area/individual goals will be established at the beginning of each year.

** This portion has been redacted pursuant to a confidential treatment request.

11

Exhibit C – Long Term Incentive Plan

Plan Year 2008

2008 GRANT PARAMETERS - RECOMMENDED

Following are the parameters for the 2008 restricted stock grant for executives at First Chester County Corporation:

I. Participants/Categories

Category 1	John A. Featherman Kevin C. Quinn
Category 2	Sheri Ashman John E. Balzarini Clay Henry Deborah R. Pierce Anthony J. Poluch Michelle E. Venema Karen D. Walter
Category 3	Linda M. Hicks Thomas A. Imler Richard W. Kaufmann Lynn Mander Richard D. McMullen Donna J. Steigerwalt Michael T. Steinberger Andrew H. Stump Patricia A. Travaglini

II. Grant Date: TBD in accordance with action of the Personnel and Compensation Committee

III. Grant Size

Threshold Target Maximum

v Category 1 1,500 3,000 4,500 shares

v Category 2 750 1,500 2,250 shares

v Category 3 325 650 975 shares

Numbers of shares will not be interpolated between points for performance between points.

12

IV. Restrictions

A. Performance – size of grant to be determined by company Earnings Per Share and Efficiency Ratio performance for 2010 – threshold, target, and maximum are outlined below

To be measured in 2011 based upon performance for the year ending 12/31/10
	Threshold	Target	Maximum
EPS (60%)	$ ** (** %)	$ ** (** %)	$ ** (** %)
Efficiency Ratio (40%)	** %	** %	** %

At least one performance measure threshold must be met for an award to be paid. EPS is weighted 60% of award and Efficiency Ratio is weighted 40%.

B. Vesting – the shares will vest on the third anniversary of date of grant as approved by the Board of Directors, subject to Participant’s continued employment as provided in Plan (assuming threshold performance is met)

V. Expense/Taxation

A. Fair market value will be expensed on pro rata basis over remainder of vesting period, when deemed that an award will be paid, according to accounting practices

B. Participant – ordinary income at fair market value as restrictions are met/vested; participant responsible for payment of tax withholding due upon vesting

VI. Dividends

v Paid immediately from date of grant on all shares awarded, including shares granted but not vested; taxable as ordinary income

VII. Change of Control, Retirement, Death, Disability

v Accelerate vesting of shares at Change of Control

v Possible acceleration of vesting at Retirement, Death & Disability – determined by Personnel & Compensation Committee

** This portion has been redacted pursuant to a confidential treatment request.

13

EX-10

LEASE AGREEMENT

THIS LEASE AGREEMENT is made in exchange for good and valuable consideration on this 19^th day of December, 2007 ,by and between the Landlord and Tenant set forth below.

1. Summary of Terms and Certain Definitions.

(a) “Landlord”: Downingtown Medical Building Associates

Address: 908 Sheridan Drive

West Chester, PA 19382

(b) “Tenant”: First National Bank of Chester County

Address: 9 North High Street, P.O. Box 523

West Chester, PA 19381

(c)  “Premises”           2,087 square feet of usable space on the first floor of the Building (the interior of which is depicted on the plan attached to this Lease as Exhibit “A”), along with access to a drive through teller window and exclusive use of 22 parking spaces on the Property (as highlighted on the plan attached as Exhibit “B”).

(d)  “Building” means the Building depicted in the drawing attached as Exhibit “A” hereto and located on the northeast corner of East Pennsylvania Avenue on the Property containing approximately 5,336 square feet of gross building space.

(e)  “Common Areas” shall mean those areas that the Tenant shall use in common with other users of the Property. Common Areas shall include, without limitation, all sidewalks, landscaping, parking areas, private roadways, drainage basins or other stormwater facilities associated with the Property.

(f)   “Property” means the parcels of land owned by Landlord known as Chester County UPI Numbers 11-7-342, 11-7-343, and 11-7-344, containing approximately 3.054 acres of land, improved with 2 buildings and associated parking areas.

(g) “Proportionate Share” equals: 39.1%.

(h) “Term”: 3 years

(i) Commencement Date: January 1, 2008.

(ii) Rent Commencement Date: April 1, 2008

 (iii)         Expiration Date: 11.59 p.m. of the day that precedes the 3rd anniversary of the Commencement Date.

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(i) “Renewal Period(s)” are: two (2) periods of 5 years each.

(j)   “Rent” §( 6): “Annual Rent”: The Annual Rent shall be equal to Thirty Eight Thousand, Six Hundred Nine Dollars and Fifty Cents ($38,609.50) for the three (3) year Term. Installments of the Annual Rent for the first three year Term shall be payable in equal monthly installments of Three Thousand Two Hundred Seventeen Dollars and Forty Six Cents ($3,217.46).

Annual Rent for the first five (5) year Renewal Term shall be $42,094.79, with equal monthly installments of $3,507.90.

Annual Rent for the second five (5) year Renewal Term shall be $48,418.40, with equal monthly installments of $4,034.87.

(k)  “Use” (§ 4): As a retail bank branch and other commercial uses consistent with the operation or administration of a state or federally chartered bank.

(l) “Security Deposit”: (§ 27): [Not Applicable]

2.         Premises. Landlord hereby leases to Tenant and Tenant hereby leases from Landlord the Premises described in 1(c) above for the Term, and any Renewal Periods exercised by Tenant.

Landlord hereby approves the alteration and improvement of the Premises in accordance with the plan attached hereto as Exhibit “C” (“Tenant’s Work”)

3. Acceptance of Premises. Tenant’s obligations under this Lease shall be contingent on it obtaining, on or before the Commencement Date: (i) approval of the terms of this Lease by the Office of the Comptroller of Currency or any other governmental agency applicable to Tenant as a national bank, (ii) a certificate of occupancy that permits the Tenant to fully use and enjoy the Premises for the Use,¹ (iii) tenant’s receipt of building permits and other governmental authorizations necessary to construct Tenant’s Work and the exterior signage that Tenant is permitted in accordance with this Lease, (iv) verification that the Use is permitted “by right” under applicable Laws and Requirements (without variance or other exception therefrom), including, without limitation, applicable zoning codes and receipt of any zoning permits that may be required by local law, and (v) approval of the lease by the Tenant’s Board of Directors. Otherwise, Tenant shall inspect the condition of the Premises before the Commencement Date and shall accept the Premises, the Common Areas, the streets, sidewalks, parking areas, curbs and access ways adjoining it, visible easements, any surface conditions and the present uses, in an “as is” condition, without relying on any representation, covenant or warranty of Landlord not expressly made in this Lease.

¹. Landlord acknowledges that Tenant must enter the Premises after execution of this Lease, but prior to the Commencement Date, in order to complete construction of Tenant’s Work (as hereinafter defined), and hereby grants to Tenant a license to complete such work. Landlord’s grant of the license as described in this note is conditioned on Tenant’s agreement to comply with Sections 7(b)(ii)(insurance requirements), 9 (construction of Tenant’s Work) and 15 (indemnification) hereof for the duration of the license.

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4. Use; Compliance; Common Areas.

(a)  Use. Tenant shall occupy and use the Premises, together with the Common Areas, for the Use. Tenant covenants and agrees that throughout the Term, Tenant shall use the Premises in accordance with the terms and conditions of this Lease and shall obtain Landlord’s prior written consent before engaging in any use other than the Use. Landlord may withhold or grant its consent within its sole and exclusive discretion. The parties acknowledge and agree that Tenant shall open for business in the Premises but thereafter shall have no obligation to continuously operate in the Premises.

(b)  Landlord Covenant. Landlord covenants and agrees that it will not grant any other Tenant on the Property the right to operate a bank branch or engage in any banking services (retail or otherwise) that is competitive with Tenant’s Use of the Leased Premises.

(c)        Compliance. The Landlord shall deliver the Premises (except for the interior fit out of the Building as described on Exhibit “C”) in a manner that permits the Use and complies with all laws (including the Americans with Disabilities Act), ordinances, notices, orders, rules, regulations and requirements regulating the Premises (the permits the Use and complies with all laws (including the Americans with Disabilities Act), ordinances, notices, orders, rules, regulations and requirements regulating the Premises (the “Laws and Requirements”).

(d)  Environmental. Tenant shall comply, at its sole expense, with all Laws and Requirements, all manufacturers’ instructions and all requirements of insurers relating to the treatment, production, storage, handling, transfer, processing, transporting use, disposal and release of hazardous substances, hazardous mixtures, chemicals, pollutants, petroleum products, toxic or radioactive matter (the “Restricted Activities”). Tenant shall be solely responsible for and shall defend; indemnify and hold harmless Landlord and its Agents from and against all claims, damages, liabilities and expenses (including fees of attorneys, investigators and experts), arising out of or in connection with (i) the Restricted Activities by Tenant or its agents and (ii) in the event of a violation of the foregoing by Tenant, the removal, clean-up and restoration work and materials necessary to return the Premises to the condition required by applicable law. Notwithstanding anything in this Lease to the contrary, Tenant shall have no liability or obligation to indemnify or protect Landlord, not to remediate or remove, hazardous materials or substances in, on, under or about the Property (including, without limitation, the Premises) that are (a) present or existing prior to the Commencement Date; or (b) brought onto the Property by any person (including Landlord, its employees, agents and contractors, and other tenants in the Building) other than Tenant, its agents, employees or contractors. Tenant’s obligations under this Section 4(d) shall survive the expiration or termination of this Lease.

(e)  Notice. If at any time during or after the Term, Tenant becomes aware of any inquiry, investigation or proceeding regarding the Restricted Activities or becomes aware of any claims, actions or investigations regarding the Laws and Requirements, Tenant shall give Landlord written notice, within 5 days after first learning thereof, providing all available information and copies of any notices.

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(f)   Landlord’s Representations. The Landlord’s representations set forth in Exhibit D are incorporated herein.

5.          Term; Renewal Option. The Term of this Lease shall commence on the Commencement Date and shall end on the Expiration Date.

Provided Tenant is not in default of its obligation under this Lease after the expiration of any applicable notice and cure period, Tenant shall have the right to extend the Term of this Lease (each an “Option”) for the number of separate, consecutive additional periods (“Renewal Periods”) which are specified in Section 1(i), on the terms and conditions set forth herein, except that the number of Option Periods remaining to be exercised shall, in each case, be reduced by one. If Tenant elects to exercise an Option, Tenant shall notify Landlord in writing at least sixty (60) days prior to the expiration of the Term, or the then current Renewal Period, as the case may be. If Tenant neglects to timely exercise any Option, Tenant’s right to exercise shall not expire or lapse unless Tenant fails to exercise such Option within fifteen (15) days after notice from Landlord of Tenant’s failure to timely exercise the Option. If Landlord does so notify Tenant, Tenant shall have the right at any time within fifteen (15) days after such notice to notify Landlord in writing of either Tenant’s exercise of its Option, or Tenant’s waiver of its Option. If Tenant fails to respond within such fifteen (15) day period, Tenant shall conclusively be deemed to have waived its Option and this Lease shall terminate on the then expiration date of the Term or the expiration of then applicable Renewal Period, if any.

6. Rent.

(a)  Annual Rent. Beginning on the Rent Commencement Date, Tenant agrees to pay to Landlord the Annual Rent in equal monthly installments in the amount set forth in Section 1(j), in advance, on the first day of each calendar month during the term, without notice, demand or setoff, at Landlord’s address designated at the beginning of this Lease unless Landlord designates otherwise. As used in this Lease, the term “lease year” means the period from the Commencement Date through the succeeding 12 full calendar months (including for the first lease year any partial month from the Commencement Date until the first day of the first full calendar month) and each successive 12 month period thereafter during the Term.

(i)         Additional Rent. Beginning on the Commencement Date, Tenant shall pay to Landlord as additional rent its Proportionate Share of any Taxes, Insurance, and Maintenance Costs, and any other impositions set forth in Section 9 below. Landlord shall estimate the additional rent annually as of January 1, based on actual charges or costs incurred by Landlord in the previous calendar year. Landlord shall calculate the Tenant’s actual liability for additional rent on or before March 31 of the year after which such additional rent was paid, and, in the event of overpayment, apply a credit against the next installment of Additional Rent; or, if no further, or insufficient, Additional Rent is thereafter due, refund the overpayment to Tenant. In the event of an underpayment, Tenant shall make such payment within thirty (30) days of its receipt of notice from the Landlord. The Tenant’s Additional Rent obligation for the first year of this Lease shall be charged by Landlord based on $6.00 per square foot of building space within the Premises, with electrical utility service charged separately at an estimated $2.25 per square foot (being a total estimated Additional Rent obligation for the first lease year of $8.25 per square foot of building space within the Premises).

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(b) Whenever used in this. Lease, the term “Rent” shall mean the Annual Rent, additional rent, and any other charges payable by Tenant hereunder. An itemization of Tenant’s total anticipated monthly Rent obligations is attached to this Lease as Exhibit “E.”

7. Taxes, Insurance and Maintenance.

(a) Taxes and Other Impositions.

(i)        “Taxes” shall mean all levies, taxes (including without limitation real property taxes imposed on the land and improvements thereon, ad valorum taxes, and any other taxes as may be levied in lieu of or in substitution for or supplementary to such taxes), assessments, (general and special) liens, license and permit fees, which are applicable to the Term, and which are imposed by any authority or under any law, ordinance or regulation thereof, and the reasonable cost of contesting any of the foregoing upon or with respect to the Premises or any part thereof, or any improvements thereto, or directly upon this Lease or the Rent or amounts payable by any subtenants or other occupants of the Premises.

(ii)      To the extent any Taxes are imposed upon the Premises as a separate entity or solely for the Tenants’ use of the Premises, Tenant shall pay all such Taxes and provide Landlord with evidence that it has paid such Taxes at least fifteen (15) days prior to the earlier of any discount period date or any such due date for such Taxes.

(iii)      Nothing herein contained shall be interpreted as requiring Tenant to pay any income, excess profits or corporate capital stock imposed or assessed upon Landlord. In no event shall Taxes include transfer, recording, inheritance, estate, succession, franchise, excise, business privilege, income, gross receipts or profit tax, or capital levy that is or may be imposed upon Landlord, nor shall Taxes include any interest, fine or penalty for late payment of Taxes. Any Taxes for the fiscal periods in which the Term commences or terminates shall be apportioned pro rata between Landlord and Tenant in accordance with the portion of the relevant fiscal period during which the Term is in effect. If any special assessment with respect to the Premises may be paid in installments, Tenant shall be obligated to pay only those installments which become due and payable during the Term. Tenant shall have the right to contest any Taxes or increase in Taxes levied against the Premises, and Landlord shall cooperate with any reasonable request by Tenant in connection with such contest and permit Landlord’s name to be used in such contest, to the extent reasonably necessary. Upon request, Landlord shall provide Tenant with copies of all bills for Taxes and evidence of payment.

(iv)      If it shall not be lawful for Tenant to reimburse Landlord for any of the Taxes, the Annual Rent shall be increased by the amount of the portion of such Taxes allocable to Tenant, unless prohibited by law.

(b) Insurance.

(i) Landlord.

(1)       “Insurance” shall mean any and all insurance premiums actually billed to or paid by the Landlord incident to insurance coverage which Landlord may in its sole and absolute discretion deem necessary or advisable or as may be required from time to time by any

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mortgagee with respect to the Premises, including, but not limited to, the following; (i) insurance against loss or damage by fire and such other casualties as may be included within either fire and extended coverage insurance or all-risk/special form insurance covering the full replacement cost of the Premises; (ii) insurance against abatement or loss of rent in case of fire or other casualty similarly insured’ against, in an amount at least equal to the Annual Rent and real estate taxes to be paid by all tenants as reasonably determined by Landlord; (iii) plate glass coverage on all building glass; (iv) broad form boiler and machinery coverage on all equipment and delivery systems for heat, cooling and water for the Premises; (v) comprehensive general public liability insurance with respect to the Premises, including contractual liability insurance, with such limits of liability for bodily injury (including death) or property damage as reasonably may be determined by Landlord from time to time; (vi) workers compensation insurance and other insurance as may be required by applicable laws or deemed necessary by Landlord with respect to the operation of the Premises.

(2)       Landlord shall keep and maintain at all times during the term of the Lease, as it may be extended, commercial general liability insurance meeting not less than the requirements imposed upon Tenant in accordance with Section 7(b)(ii), which insurance shall name Tenant as and additional insured party.

(3)       Landlord shall keep and maintain at all times during the term, as it may be extended, special form insurance insuring against damage to the Property and the Building (excluding tenants’ improvements), in the amount of the full replacement cost thereof. Such insurance shall meet the same requirements imposed on Tenant’s insurance in accordance with Section 7(b)(ii) .

(ii) Tenant. In addition, Tenant, at its own expense, shall keep in effect:

(1)       comprehensive general public liability insurance with respect to the Premises, including contractual liability insurance; with such limits of liability for bodily injury (including death) or property damage as reasonably may be. required by Landlord from time to time, but not less than a combined single limit of $500,000 per occurrence and a general aggregate limit of not less than $1,000,000 (which aggregate limit shall apply separately to each of Tenant’s locations if more than the Premises); however, such limits shall not limit the liability of Tenant hereunder. The policy of comprehensive general public liability insurance also shall name Landlord and Landlord’s agent as insured parties with respect to he Premises, shall be written on an “occurrence” basis and not on a “claims made” basis, shall provide that it is primary with respect to any policies carried by Landlord and that any coverage carried by Landlord shall be excess insurance;

(2)       property and casualty insurance with respect to Tenant’s personal property and any improvements by Tenant to the Premises.

(3)       workers compensation and other insurance as required by applicable law.

(4)       All insurance shall provide that it shall not be cancelable or reduced without at least 30 days prior written notice to Landlord and to any mortgagee named in an endorsement and shall be issued in form satisfactory to Landlord. The insurer shall be a responsible insurance carrier which is authorized to issue such insurance and licensed to do business in the state in which the Premises are located and which has at all times during the Term a rating of no less than

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A Vlll in the most current edition of Best’s Insurance Reports. Tenant shall deliver to Landlord on or before the Commencement Date, and subsequent renewals of, a certificate of insurance evidencing such coverage and the waiver of subrogation described below.

(iii)       Waiver of Subrogation. Landlord and Tenant, for themselves and their respective insurers, hereby release each other of and from any and all claims, demands, actions and causes of action, (including, without limitation, subrogation claims), for loss or damage to their respective property, even if the loss or damage shall have been caused by the fault or negligence of the other party, or anyone for whom such party may be responsible. The waiver and release provided in this Section shall be effective only with respect to loss or damage (a) covered by insurance or required to be covered by insurance pursuant to the terms of this Lease, and (b) occurring during such time as the relevant insurance policy contains either (i) a waiver of the insurer’s right of subrogation against the other party, or (ii) a clause or endorsement to the effect that the waiver and release provided in this Section shall not adversely affect or impair such insurance or prejudice the right of the insured to recover under the insurance policy. Each party will use its best efforts to obtain such a clause or endorsement, but if an additional premium is charged therefor, the party benefiting from such clause or endorsement, if it desires to have such waiver, will pay to the other the amount of such additional premium within ten (10) days after delivery of a statement for the amount due.

(iv)       Increase of Premiums; Deductibles. Tenant agrees not to do anything or fail to do anything which will increase the cost of Landlord’s insurance or which will prevent Landlord from procuring policies (including public liability) from companies and in a form satisfactory to Landlord. Notwithstanding anything to the contrary herein, Tenant shall pay, at its sole expense, any increases in insurance premiums and any deductibles under the applicable insurance coverage in the event of any loss, to the extent such increases or deductibles result from Tenant’s occupancy, Tenant’s use, or any act or omission of Tenant or its Agents.

(c) Maintenance.

(i)        Landlord shall maintain all Common Areas in first class condition, repair and cleanliness, including ice and snow removal, and sidewalk steam cleaning and shall keep the Common Areas free of any impediments and open for easy and safe movement within the Common Areas. Landlord shall keep the Common Areas well lighted until one hour after Tenant’s latest closing time and thereafter to maintain security lighting in the Common Areas, and otherwise keep such Common Areas safe and secure. Without limiting the foregoing, Landlord shall cause all snow and ice to be removed from the sidewalks in front of the Premises, the pedestrian pathways from the parking areas to the Premises, all parking for the building (including, but not limited to, the parking reserved for Tenant’s use), the vehicular and pedestrian entrances to and from the Building, and the drive-through lanes, as soon as practicable.

(ii)       Tenant shall pay as additional rent its Proportionate Share of the reasonable costs incurred by Landlord in maintaining the Common Areas (the “Maintenance Costs”), but in no event shall Tenant be responsible for: (A) interest on and amortization of debt, (B) Deleted; (C) wages or salaries of employees over the rank of property or building manager, and (D) legal fees in connection with the structure or ownership of Landlord or operation of Landlord as a limited partnership or relating to leasing and disputes with tenants or based upon Landlord’s negligence or willful misconduct or relating to Landlord’s defense its title to, or interest in, the Premises; (E)

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leasing commissions, marketing costs, disbursements, and other expenses incurred for leasing, renovating, or improving space for tenants; (F) costs of a capital nature including capital improvements, capital replacements, capital repairs, capital equipment, and capital tools, as determined under generally accepted accounting principles consistently applied; (G) any items to the extent reimbursed by tenants or users to Landlord; (H) overhead and profit paid to subsidiaries or affiliates of Landlord for management or other services on or to the Property or for supplies or other materials, to the extent that the costs of the services, supplies, or materials exceed the competitive costs of the services, supplies, or materials were they not provided by a subsidiary or affiliate; (I) rentals and other related expenses incurred in leasing air conditioning systems, elevators, or other equipment ordinarily considered to be of a capital nature; (J) items and services that Landlord provides selectively to one or more tenants or users of the Building other than Tenant without reimbursement; (K) advertising and promotional expenditures; (L) repairs or other work needed because of eminent domain, fire, windstorm, or other casualty or cause insured against by Landlord or to the extent Landlord’s insurance (as required above) would have provided insurance, whichever is the greater coverage; (M) costs incurred to remedy structural or other defects in original construction materials or installations; (N) any costs, fines, or penalties incurred because Landlord violated any governmental rule or authority; (O) costs incurred to test, survey, cleanup, contain, abate, remove, or otherwise remedy hazardous wastes or asbestos-containing materials; (P) repaving the parking lot; (Q) other expenses that under generally accepted accounting principles consistently applied would not be considered normal maintenance expenses.

(d) Utility Charges.

(i)        Landlord covenants and agrees to make available for Tenant’s use at the Premises all necessary utilities, utility lines, sprinklers, and water and sewerage lines all sufficient for Tenant’s operations. Without limitation:

(1)       Landlord shall furnish electrical service to the Premises sufficient for the Use.

(2)       Landlord shall provide heating, ventilating and air conditioning to the Premises year round during Tenant’s business hours, plus two hours before and after, so as to maintain the temperature within the Premises within a constant range of 68 degrees Fahrenheit to 73 degrees Fahrenheit. The parties understand and agree that the cost of providing said heating, ventilating and air conditioning shall be at Landlord’s sole cost and expense and Tenant shall have no obligation to reimburse Landlord any portion of such cost. If Tenant requires heating, ventilating or air conditioning outside said heating, ventilating and air conditioning hours, Tenant shall arrange for such additional services through Landlord. Tenant shall pay Landlord for such additional services at the rates established by Landlord from time to time, within thirty (30) days after delivery of a statement from Landlord for the amount due.

(iii)      Landlord shall provide hot and cold water for normal lavatory and employee breakroom/kitchen purposes.

(ii)       Tenant shall be responsible for utility connection fees; provided, however, that Landlord shall, at Landlord’s sole cost and expense, pay for all utility hookup, connection or impact fees and permits, pertaining to providing utility services to the Building.

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(iii)      Tenant, to the extent that utilities servicing the Premises can be separately metered (other than electric, which shall be provided by Landlord), shall make payment for water, sewer, gas, heat, power, telephone and other communication services and any other utilities supplied to or consumed in or on the Premises directly to the providers thereof. If such utilities cannot be measured, then Tenant shall pay its Proportionate Share of costs for such services, provided that Landlord may equitably apportion such costs among tenants if the Proportionate Share does not reasonably and fairly measure Tenant’s relative use of such utilities. In the event Tenant is prevented from using any material portion of the Premises to conduct its normal operations as a result of the interruption of any utility service (“Utility Interruption”), Tenant shall promptly deliver to Landlord notice of the interruption (the “Interruption Notice”) of such condition. If the Utility Interruption was caused by Landlord, Landlord shall have three (3) days after receipt of the Interruption Notice to cure the Utility Interruption caused by Landlord. If Landlord fails to cure the Utility Interruption caused by Landlord within three (3) days after delivery to it of the Interruption Notice, then all Rent and Additional Rent shall be abated from the date of the Interruption Notice until the date when such failure is cured. If the Utility Interruption was not caused by Landlord or Tenant, Landlord shall have thirty (30) days after receipt of the Interruption Notice to cause the Utility Interruption to be cured, failing which, Rent and Additional Rent shall be abated from the date of the Interruption Notice until the date such failure is cured. If the Utility Interruption shall not be cured within sixty (60) days after Landlord’s receipt of the Interruption Notice, then Tenant, unless Tenant caused the Utility Interruption, may terminate this Lease upon written notice to Landlord.

(e)  Net Lease. Except for the obligations of Landlord expressly set forth herein, this Lease is a “triple net lease^” and Landlord shall receive the Annual Rent as net income from the Premises, not diminished by any expenses, and Landlord is not and shall not be required to render any service of any kind to Tenant that is not expressly described in this Lease. The term “Rent” as used in this Lease means the Annual Rent and any other additional rent or sums payable by Tenant to Landlord pursuant to this Lease, all of which shall be deemed rent for purposes of Landlord’s rights and remedies with respect thereto. Tenant shall pay all additional rent to Landlord within 30 days after Tenant is billed, unless otherwise provided in this Lease, and interest shall accrue on all sums due but unpaid at the rate of 1.5% per month.

8.          Signs. Tenant may use any signage on the interior of the Premises that it desires and Landlord shall not have consent rights with regard to the same. Subject to Landlord’s consent, which shall not be unreasonably conditioned, withheld or delayed, Tenant shall be permitted exterior signs, subject to applicable law. In addition, Tenant shall have the exclusive use of a 10’ high lighted pylon sign on the Property (located at the corner of Manor and Pennsylvania Avenues in Downingtown Borough). All signs must comply with all applicable Laws and Regulations. All signs installed by Tenant shall be maintained by Tenant in good condition and Tenant shall remove all such signs at the termination of this Lease and shall repair any damage caused by such installation, existence or removal.

9. Alterations and Fixtures.

(a)  Subject to Section 10, Tenant shall have the right to install its trade fixtures in the Premises, provided that no such installation or removal thereof shall affect any structural portion of, or any electrical, plumbing, mechanical or other system serving, the Building or the Premises nor any utility lines, communications lines, equipment or facilities serving the Premises. At the

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expiration or termination of this Lease, the Tenant may, at its sole option, remove such installation(s) and, in the event of such removal, Tenant shall repair any damage caused by such installation or removal; if Tenant, with Landlord’s written consent, elects not to remove such installation(s) at the expiration or termination of this Lease, all such installations shall remain on the Premises and become the property of Landlord without payment by Landlord.

(b) Other than Tenant’s Work, Tenant shall not make or permit to be made any alterations to the Premises that exceed a value of $20,000 each year during the Term without Landlord’s prior written consent (“Alterations”). Tenant shall pay the costs of any required architectural/engineering reviews and local governmental approvals associated with such Alterations. In completing Tenant’s Work and making any Alterations, (i) Tenant shall deliver to Landlord the plans, specifications and necessary permits, together with certificates evidencing that Tenant, its contractors and subcontractors have adequate insurance coverage naming Landlord, Landlord’s agent and any mortgagee as additional insureds, at least 10 days prior to commencement thereof, (ii) such improvements or Alterations shall not impair the structural strength of the Building or any other improvements or reduce the value of the Premises or affect any utility lines, communications lines, equipment or facilities in the Building; (iii) Tenant shall comply with Section 10, and (iv) Tenant shall comply with all Laws and Regulations. All improvements to the Premises by Tenant shall be the property of Tenant until the expiration or termination of this Lease. Unless Tenant, at its sole option and at its expense, elects to remove any alterations or improvements installed by it during the Term, any such improvements shall remain on the Premises after Tenant delivers possession of the Premises to the Landlord at the end of this Lease and shall become the property of Landlord.

10.       Mechanics’ Liens. Tenant shall pay promptly any contractors and materialmen who supply labor, work or materials to Tenant at the Premises and shall take all steps permitted by law in order to avoid the imposition of any mechanic’s lien upon all or any portion of the Premises. Should any such lien or notice of lien be filed for work performed for Tenant other than by Landlord, Tenant shall bond against or discharge the same within 5 days after Tenant has notice that the lien or claim is filed regardless of the validity of such lien or claim, Nothing in this Lease is intended to authorize Tenant to do or cause any work to be done or materials to be supplied for the account of Landlord, all of the same to be solely for Tenant’s account and at Tenant’s risk and expense. Throughout this Lease the term “mechanic’s lien” is used to include any lien, encumbrance or charge levied or imposed upon all or any portion of interest in or income from the Premises on account of any mechanic’s, laborer’s_; materialman’s or construction lien or arising out of any debt or liability to or any claim of any contractor, mechanic, supplier, materialman or laborer and shall include any mechanic’s notice of intention to file a lien given to Landlord or Tenant, any stop order given to Landlord or Tenant, any notice of refusal to pay naming Landlord or Tenant and any injunctive or equitable action brought by any person claiming to be entitled to any mechanic’s lien.

11.        Landlord’s Riqht of Entry. Tenant shall permit Landlord and its Agents to enter the Premises at reasonable times following at least twenty-four (24) hours notice (except in the event of an emergency), for the purpose of inspection, maintenance or making repairs, alterations or additions as well as to exhibit the Premises for the purpose of sale or mortgage and, during the last 6 months of the Term to exhibit the Premises to any prospective tenant. Landlord shall not unreasonably interrupt Tenant’s business in exercising the foregoing rights. In no event shall Landlord have any right of access to the vault, teller desks, safety deposit box area, or other areas containing customer data or financial documents or instruments.

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12. Damage by Fire or Other Casualty.

(a) In the case of damage to the Premises or the Building by fire or other casualty, Tenant shall immediately notify Landlord in writing thereof and this Lease shall continue in full force and effect, notwithstanding such damage or destruction, except as hereinafter provided.

(b) If the Premises is damaged or rendered unusable to any extent by fire or other casualty, Landlord shall advise Tenant of the estimated time determined by Landlord needed to repair such damage. Such damage shall be promptly repaired by and at the expense of Landlord to the extent of Landlord’s receipt of insurance proceeds necessary to complete the repairs. If the Premises is destroyed or rendered wholly unusable, Landlord may elect either to repair such damage or to terminate this Lease, by written notice to Tenant within thirty (30) days after the date of such damage to terminate this Lease, provided that Tenant shall have the right to, within 30 days after the receipt of Landlord’s notice, to repair the damage to the Premises. Landlord shall, in such a case, assign its right to collect insurance proceeds to the Tenant, and Tenant shall repair or restore the Premises at its cost, using its own funds. Landlord’s obligations pursuant to this Paragraph shall be subject to any required consent or approval of Landlord’s Mortgagee(s). Any restoration shall be commenced within one hundred and twenty (120) days from the date of the casualty and shall be substantially completed within a reasonable time. Rent due hereunder shall be abated in part commencing on the day following the date that any such damage occurs until the date on which all repairs to the Leased Premises are completed in all material respects, based upon and in proportion to the part of the Leased Premises rendered unusable.

(c) Notwithstanding anything herein to the contrary, Tenant shall have the right to terminate this Lease, if

(i)        If the Premises are damaged or destroyed by any fire or other casualty which causes to such an extent that it would require one hundred twenty (120) days or more from the time of the fire or casualty event to restore the Premises to the condition which existed prior to the fire or other casualty event, then Tenant shall have the right to terminate this Lease; and/or

(ii)       If Landlord has not exercised its termination rights set forth in this Article 12 but fails to repair the damage within a reasonable time, and such failure continues for thirty (30) days after written notice from Tenant; and/or

(iii) If the Premises are damaged during the last twelve months of the Term.

13. Condemnations.

(a)  Termination. If (i) all of the Premises are taken by a condemnation or otherwise for any public or quasi-pubic use, (ii) any part of the Premises is so taken and the remainder thereof in insufficient for the reasonable operation of Tenant’s business or (iii) any of the Premises is so taken, and, in Landlord’s opinion, it would be impractical or the condemnation proceeds are insufficient to restore the remainder of the Premises, then this Lease shall terminate and all unaccrued obligations hereunder shall cease as of the day before possession is taken by the condemnor.

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(b)  Partial Taking. If there is a condemnation and this Lease has net been terminated pursuant to this Section, (i) Landlord shall restore the Buildings and the improvements which are a part of the Premises to a condition and size as nearly comparable as reasonably possible to the condition and size thereof immediately prior to the date upon which the condemnor took possession and (ii) the obligations of Landlord and Tenant shall be unaffected by such condemnation except that there shall be an equitable abatement of the Annual Rent according to the rental value of the Premises before and after the date upon which the condemnor took possession and/or the date Landlord completed such restoration.

(c)  Award. In the event of a condemnation affecting Tenant, Tenant shall have the right to make a claim against the condemnor for the loss of its leasehold, removal expenses, moving expenses, and/or any other damages permitted by applicable law.

(d)  Temporary Taking. No temporary taking of the Premises shall terminate this Lease, provided that Tenant shall be entitled to a rental abatement proportionate to the part of the Premises taken, and the duration for which it is taken. Any award in excess of the value of the rent abatement made to Tenant by reason of such temporary taking shall belong entirely to Tenant and Landlord shall not be entitled to share therein.

14.        No Abatement of Rent. Except as otherwise expressly provided expressly in this lease, including, without limitation, as to damage by fire or other casualty in Section 12 and as to condemnation in Section 13, there shall be no abatement or reduction of the Rent for any cause whatsoever (other than Landlord’s willful default of this Lease), and this Lease shall not terminate, and Tenant shall not be entitled to surrender the Premises.

15.        Indemnification of Landlord. Tenant will protect, indemnify and hold harmless Landlord and its Agents from and against any and all claims, actions, damages, liability and expense (including reasonable fees of attorneys, investigators and experts) in connection with loss of life, personal injury or damage to property in the Premises or arising out of the occupancy or use of the Premises by Tenant or its Agents or occasioned to the extent of any negligent act or omission of Tenant or its Agents at the Property, whether prior to, during or after the Term, except to the extent such loss, injury or damage was caused by the negligence of Landlord or its Agents. In case any action or proceeding is brought against Landlord and/or its Agents by reason of the foregoing, Tenant, at its expense, shall resist and defend such action or proceeding, or cause the same to be resisted and defended by counsel (reasonably acceptable to Landlord and its Agents) designated by the insurer whose policy covers such occurrence or by counsel designated by Tenant and approved by Landlord and its Agents. Tenant’s obligations pursuant to this Section 15 shall survive the expiration or termination of this Lease.

Landlord will protect, indemnify and hold harmless Tenant, its officers, directors, shareholders, employees and agents form and against any and all claims, actions, damages, liability and expenses (including reasonable fees of attorneys, investigators and experts) in connection with loss of life, personal injury or damage to or about the Common Areas (except to the extent caused by the negligent act or omissions of Tenant) or arising from or in connection with Landlord’s negligent acts or omissions, and those of its agents, employees and contractors; and breach of any representation or warranty (including, but not limited to, Landlord’s representations regarding hazardous materials at the Property). In any action or preceding is brought against Tenant, its officers, directors, shareholders, employees or agents by reason of the foregoing, Landlord, at its

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expense, shall resist and defend such action or proceeding or cause the same to be resisted and defended by counsel reasonably acceptable to Tenant. Landlord’s obligations set forth in this Section 16 shall survive the expiration or earlier termination of this Lease.

16.       Quiet Enjoyment. Landlord covenants that Tenant, upon performing all of its covenants, agreements and conditions of this Lease, shall have quiet and peaceful possession of the Premises as against anyone claiming by or through Landlord, subject, however, to the exceptions, reservations and conditions of this Lease. Landlord shall be obligated to obtain a subordination and non-disturbance agreement from any mortgagee of Landlord.

17.       Assignment and Subletting. Tenant shall not assign, transfer, or sublease this Lease or the Premises, voluntarily or by operation of law, without the prior written consent of Landlord, which consent shall not be unreasonably withheld, delayed, or conditioned. Notwithstanding the foregoing, Landlord’s consent shall not be required in the event of an assignment or sublet: (i) to an affiliate of Tenant; (ii) to the purchaser of all or substantially all of Tenant’s assets or ownership; or (iii) in the case of a merger or consolidation. Any transfer in violation of this Section 17 shall be void at the option of Landlord and shall be considered a default of this Lease, for which Landlord may exercise any or all of its rights hereunder. A consent to one transfer, assignment, or sublease Shall not be deemed to be a consent to any subsequent transfer.

18. Subordinations: Mortgagees’ Rights.

(a) Subject to Tenant’s rights to quiet enjoyment of the Premises (described in Paragraph 16), this Lease shall be subordinate to any mortgages or other primary encumbrances now or hereafter affecting the Premises. Although the subordination is self operative, within 10 days after written request, Tenant shall execute and deliver any further instruments confirming such subordination of this Lease and any further instruments of attornment that may be desired by any such mortgagee or Landlord. However, any mortgagee may at any time subordinate its mortgage to this Lease, Without Tenant’s consent, by giving written notice to Tenant, and thereupon this Lease shall be deemed prior to such mortgage. without regard to their respective dates of execution and delivery; provided, however, that such subordination shall not affect any mortgagee’s right to condemnation awards, casualty insurance proceeds, intervening liens or any right which shall arise between the recording of such mortgage and the execution of this Lease.

(b) It is understood and agreed that any mortgagee shall not be liable to Tenant for any funds paid by Tenant to Landlord unless such funds actually have been transferred to such mortgagee by Landlord.

(c) Notwithstanding the provisions of Sections 13 and 14 above, Landlord’s obligation to restore the Premises after a casualty or condemnation shall be subject to the consent and prior rights of Landlord’s mortgagees.

19.        Recording: Tenant’s Certificate. Tenant may record this Lease or a memorandum thereof, and Landlord agrees to cooperate therewith. Within 10 days after Landlord’s written request from time to time,

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(a) The parties shall execute, acknowledge and deliver to the other a written statement certifying the Commencement Date and Expiration Date of this Lease, that this Lease is in full force and effect and has not been modified and such other certifications as may be requested by a mortgagee or purchaser. The parties understands that its failure to execute such documents may cause the other serious financial damage by causing the failure of a financing or sale transaction.

(b) Deleted.

20. Surrender: Abandoned Property.

(a) Subject to the terms of Section 9(b), 12(a) and 13(b), at the expiration or termination of this Lease, Tenant promptly shall yield up in the same condition, order and repair in which they are required to be kept throughout the Term, the Premises and all improvements thereto, and all fixtures and equipment servicing the Building, ordinary wear and tear excepted.

(b) Upon or prior to the expiration or termination of this Lease, Tenant shall remove any personal property that is not affixed to the Building from the Premises. Any personal property remaining thereafter shall be deemed conclusively to have been abandoned, and Landlord, at Tenant’s expense, may remove, store, sell or otherwise dispose of such property in such manner as Landlord may see fit and/or Landlord may retain such property as its property: If any part thereof shall be sold, then Landlord may receive and retain the proceeds of such sale and apply the same, at its option, against the expenses of the sale, the cost of moving and storage and any Rent due under this Lease.

(c) If Tenant, or any person claiming through Tenant, shall continue to occupy the Premises after the expiration or termination of this Lease or any renewal hereof such occupancy shall be deemed to be under a month-to-month tenancy under the same terms and conditions set forth in this Lease, except that the monthly installment of the Annual Rent during such continued occupancy shall be equal to 115% of the rental amount applicable to the last month of the Term. Anything to the contrary notwithstanding, any holding over by Tenant without Landlord’s prior written consent shall constitute a default hereunder and shall be subject to all the remedies available to Landlord.

21.        Curing Tenant’s Defaults. If Tenant shall be in default in the performance of any of its obligations hereunder, Landlord, without any obligation to do so, in addition to any other rights it may have in law or equity, may elect to cure such default on behalf of Tenant after written notice and expiration of any applicable grace period (as described in Paragraph 22(d)) (except in the case of emergency) to Tenant. Tenant shall reimburse Landlord upon demand for any sums paid or costs incurred by Landlord in curing such default, including interest thereon from the respective dated of Landlord’s incurring such costs, which sums and costs together with interest shall be deemed additional rent.

22. Defaults - Remedies.

(a) Defaults. It shall be an event of default:

(i)        If Tenant does not pay in full any and all Rent when due and such failure continues for ten (10) days after written notice from Landlord.

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(ii)       If Tenant fails to observe and perform or otherwise breaches any other provision of this Lease and such failure continues for thirty (30) day after written notice from Landlord (or such longer period of time as may be reasonably required to perform the obligation).

(iii)     If Tenant abandons the Premises, it being understood and agreed that abandonment shall not be presumed by the Tenant’s closing of business for any period of time (so long as Tenant remains current with the payment of any Rent due and owing during the Term), and such abandonment continues for ten (10) days after written notice from Landlord; (Nothing herein shall be construed to impose an obligation that Tenant continuously operate its business in the Premises) or

(iv)      If Tenant becomes insolvent or bankrupt in any sense or makes a general assignment for the benefit of creditors or offers a settlement to creditors, or if a petition in bankruptcy or for reorganization or for an arrangement with creditors under any federal or state law is filed by or against Tenant, or a bill in equity or other proceeding for the appointment of a receiver for any of Tenant’s assets is commended, or if any of the real or personal property of Tenant shall be levied upon; provided, however, that any proceeding brought by anyone other than Landlord or Tenant under any bankruptcy, insolvency, receivership or similar law shall not constitute a default until such proceeding has continued unstayed for more than 60 consecutive days.

(b) Remedies. Then, and in any event, Landlord shall have the following rights:

(i)        To charge a late payment fee equal to 5% of any amount owed to Landlord pursuant to this Lease which is not paid within 10.5 days after the due date.

(ii)      To peaceably enter and repossess the Premises and remove all persons and all or any property therefrom, by action at law or otherwise, without being liable for prosecution or damages therefor, and Landlord may, at Landlord’s option, make alterations and repairs in order to relet the Premises and relet all or any part(s) of the Premises. for Tenant’s account. Tenant agrees to pay to Landlord on demand any deficiency that may arise by reason of such reletting. In the event of reletting without termination of this Lease, Landlord may at any time thereafter elect to terminate this Lease for such previous breach.

(iii) Deleted.

(iv)      To terminate this Lease and the Term without any right on the part of Tenant to save the forfeiture by payment of any sum due or by other performance of any condition, term or covenant broken. If Landlord elects to terminate this Lease instead of terminating only Tenant’s right to possession, Landlord shall have the right to immediately recover against Tenant as damages for loss of the bargain, and not as a penalty, the excess (if any), as determined by Landlord, of (i) the present value of the projected Rent payable by Tenant under this Lease that would have accrued for the balance of the Term plus any other amount necessary to compensate Landlord for all detriments proximately caused by Tenant’s failure to perform its obligations under this Lease, including reasonable attorney’s fees, less (ii) the then present fair market rental value of the Premises for the balance of the Term, taking into account among other things, the condition of the Premises, market conditions and the period of time the Premises may remain vacant before Landlord is able to relet the same to a suitable replacement tenant.

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(c)  Mitigation. Notwithstanding anything to the contrary in this Lease, after an event of default, Landlord shall be under an obligation to mitigate its damages, which obligation shall include, but shall not be limited to, commercially reasonably efforts to re-let the Premises at a reasonable price. Any Rent collected by Landlord for the balance of the Term shall be credited or reimbursed to Tenant, after deduction by Landlord of its reasonable costs (including, but not limited to reasonable attorney’s fees) incurred by Tenant in enforcing rights under this Lease.

(d)  Non-Waiver: Non-Exclusive. No waiver by Landlord of any breach by Tenant shall be a waiver of any subsequent breach, nor shall any forbearance by Landlord to seek a remedy for any breach by Tenant be a waiver by Landlord of any rights and remedies with respect to such or any subsequent breach. Efforts by Landlord to mitigate the damages caused by Tenant’s default shall not constitute a waiver of Landlord’s, right to recover damages hereunder. No right or remedy herein conferred upon or reserved to Landlord is intended to be exclusive of any other right or remedy provided herein or by law, but each shall be cumulative and in addition to every other right or remedy given herein or now or hereafter existing at law or in equity. No payment by Tenant or receipt or acceptance by Landlord of a lesser amount than the total amount due Landlord under this Lease shall be deemed to be other than on account, nor shall any endorsement or statement on any check or payment be deemed an accord and satisfaction, and Landlord may accept such check or payment without prejudice to Landlord’s right to recover the balance of Rent due, or Landlord’s right to pursue any other available remedy.

(e)  Costs and Attorney’s Fees. If either party commences an action against the other arising out of or in connection with this Lease, the substantially prevailing party shall be entitled to have and recover from the other any and all costs and expenses incurred in enforcing this Lease including without limitation reasonable attorneys’ fees, costs of suit, investigation expenses and discovery costs, including costs of appeal.

23. Representation of Tenant. Tenant represents to Landlord and agrees that:

(a) The word “Tenant” as used herein includes the Tenant named above as well as its successors and assigns, each of which shall be under the same obligations and liabilities and each of which shall have the same rights, privileges and powers as it would have possessed had it originally signed this Lease as Tenant. Each and every of the persons named above as Tenant shall be bound jointly and severally by the terms, covenants and agreements contained herein. However, no such rights, privileges or powers shall inure to the benefit of any assignee of Tenant immediate or remote, unless Tenant has complied with the terms of Section 18 and the assignment to such assignee is permitted or has been approved in writing by Landlord. Any notice required or permitted by the terms of this Lease may be given by or to any one of the persons names above as Tenant, and shall have the same force and effect as if given by or to all thereof.

(b) If Tenant is a corporation, partnership or any other form of business association or entity, Tenant is duly formed and in good standing, and has full corporate or partnership power and authority, as the case may be, to enter into this Lease and has taken all corporate or partnership action, as the case may be, necessary to carry out the transaction contemplated herein, so that when executed, this Lease constitutes a valid and binding obligation enforceable in accordance with its terms. Tenant shall provide Landlord with corporate resolutions or other proof in a form acceptable to Landlord, authorizing the execution of this Lease at the time of such execution.

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24.       Liability of Landlord. The word “Landlord” as used herein includes the Landlord named above as well as its successors and assigns, each of which shall have the same rights, remedies, powers, authorities and privileges as it would have had it originally signed this Lease as Landlord. Any such person or entity, whether or not named herein, shall have no liability hereunder after it ceases to hold title to the Premises except for obligations already accrued and Tenant shall look solely to Landlord’s successor-in-interest for the performance of the covenants and obligations of the Landlord hereunder which thereafter shall accrue. Neither Landlord nor any principal of Landlord nor any owner of the Premises, whether disclosed or undisclosed, shall have any personal liability with respect to any of the provisions of this Lease or the Premises, and if Landlord is in breach or default with respect to Landlord’s obligations under this Lease or otherwise, Tenant may offset its actual damages against any Rent obligations hereunder, but otherwise shall look solely to the equity of Landlord (which, for purposes hereof, shall include rents and proceeds (including sales proceeds and insurance proceeds) of any kind or nature derived from the Property or any part thereof) in the Premises for the satisfaction of Tenants claims. Notwithstanding the foregoing, no mortgagee or ground lessor succeeding to the interest of Landlord hereunder (either in terms of ownership or possessory rights) shall be (a) liable for any previous act or omission of a prior landlord, (b) subject to any rental offsets or defenses against a prior landlord or (c) bound by any amendment of this Lease made without its written consent, or by payment by Tenant of Annual Rent in advance in excess of one monthly installment.

25. Interpretation.

(a)  Captions. The captions in this Lease are for convenience only and are not a part of this Lease and do not in any way define, limit, describe or amplify the terms and provisions of this Lease or the scope or intent thereof.

(b)  Entire Agreement. This Lease represents the entire agreement between the parties hereto and there are no collateral or oral agreements or understandings between Landlord and Tenant with respect to the Premises. No rights, easements, or licenses are acquired in the Premises or any land adjacent to the Premises by Tenant by implication or otherwise except as expressly set forth in the provisions of this Lease. This Lease shall not be modified in any manner except by an instrument in writing executed by the parties.

(c)  Covenants. Each covenant, agreement, obligation, term, condition or other provision herein contained shall be deemed and construed as a separate and independent covenant of the party bound by, undertaking or making the same, not dependent on any other provision of this Lease unless otherwise expressly provided. All of the terms and conditions set forth in this Lease shall apply throughout the Term unless otherwise expressly set forth herein.

(d)  Interest. Wherever interest is required to be paid hereunder after an event of default of this Lease, such interest shall be at the highest rate permitted under law but not in excess of 12% per annum.

(e)  Severability: Governing Law. If any provisions of this Lease shall be declared unenforceable in any respect, such unenforceability shall not affect any other provision of this_. Lease, and each such provision shall be deemed to be modified. If possible, in such a manner as to render it enforceable and to preserve to the extent possible the intent of the parties as set forth

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herein. This Lease shall be construed and enforced in accordance with the laws of the state in which the Premises is located.

(f)   “Mortgage” and “Mortgagee.” The word “mortgage” as used herein includes any lien or encumbrance on the Premises or on any part of or interest in or appurtenance to any of the foregoing, including without limitation any ground rent or ground Lease if Landlord’s interest is or becomes a leasehold estate. The word “mortgagee” as used herein includes the holder of any mortgage, including any ground lessor if Landlord’s interest is orb come a leasehold estate. Wherever any right is given to a mortgagee, that right may be exercised on behalf of such mortgagee by any representative or servicing agent of such mortgagee.

(g)  “Person.” The word “person” is used herein to include a natural person, a partnership, a corporation, an association and any other form of business association or entity.

26.        Notices. Any notice or other communication under this Lease shall be in writing and addressed to Landlord or Tenant at their respective addresses specified at the beginning of this Lease (or to such other address as either may designate by notice to the other) with, in the case of the Landlord, a copy to any mortgagee or other party designated by Landlord. The parties agree that no notice shall be deemed delivered to the Tenant unless a copy has simultaneously been delivered to

(i) the branch manager at the Premises, and

(ii) First National Bank of Chester County

9 North High Street, P.O. Box 523

West Chester, PA 19381

Attn: Vice President, Real Estate

and

(iii) First National Bank of Chester County

9 North High Street, P.O. Box 523

West Chester, PA 19381

Attn: Chief Financial Officer

And

(iv) Saul Ewing, LLP

1500 Market Street

Philadelphia, PA 19102

Attn: Patricia Gritzan, Esquire

Each notice or other communication shall be deemed given if sent by prepaid overnight delivery service or by certified mail, return receipt requested, postage prepaid or in any other manner, with delivery in any case evidenced by a receipt, and shall be deemed received on the day of actual receipt by the intended recipient or on the business day delivery is refused. The giving of notice by Landlord’s attorneys, representatives and agents under this Section shall be deemed to be the acts of Landlord; however, the foregoing provisions governing the date on which a notice is deemed to have

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been received shall mean and refer to the date on which a party to this Lease and not its counsel or other recipient to which a copy of the notice may be sent, is deemed to have received the notice.

27.        Landlord’s Responsibilities. Landlord shall, at its sole cost and expense (not passed through to Tenant in any way), be responsible for correcting all defects in the Property (including, without limitation, sink holes) and the Building. Further, Landlord, at Landlord’s sole cost and expense (not passed through to Tenant in any way) shall maintain, repair and replace, in good and slightly and first class condition, the following components of the Building: the foundation, floors, HVAC, roof (including all structural elements and waterproofing membrane), roofing (including the interior ceiling, walls, floors and merchandise damaged from leaking), roof drainage system, including gutters and downspouts, exterior walls, all exterior doors, plate glass, all structural portions of the Building, sprinkler system (including the fire detection monitoring panel and the regular testing and inspection thereof and Landlord shall provide Tenant with copies of all testing and inspection reports), all concealed wiring and plumbing, pipes, conduits and utility systems and lines inside the Premises, including in the exterior walls and interior walls of the Premises, and Landlord shall maintain and repair all such wiring, plumbing, pipes, conduits and utility systems and lines outside the Premises, whether exclusively serving the Premises.

28.         Landlord’s Default. Except for a violation by Landlord of express provisions of this Lease which require specific notice provisions which are shorter or longer than thirty (30) days, the occurrence of the following shall constitute a default by Landlord pursuant to this Lease: Landlord’s failure to perform any of its obligations under this Lease, which default continues for a period of more than thirty (30) days (unless a shorter time is required to protect from danger to persons or property) after receipt of written notice from Tenant specifying such default and the corrective action required; however, such thirty (30) day period may be extended for such period of time as may be reasonably required to perform the obligation (not to exceed ninety (90) days after Landlord’s receipt of such notice) provided: (i) such obligation cannot be reasonably performed within thirty (30) days after such notice; (ii) Landlord commences efforts to cure the default within thirty (30) days after receipt of Tenant’s notice of default; and (iii) Landlord diligently pursues completion of the obligation; and (iv) such additional time does not expose Tenant to civil or criminal liability to any third parties. In the event of Landlord’s default, in addition to availing itself of any other remedies available at law and in equity, Tenant may, at its option, upon written notice to Landlord, terminate this Lease, or may incur any expense necessary to perform the obligation of Landlord specified in such notice and deduct such expense from the Rent, Additional Rent, or other charges coming due.

29.        Access to Premises. During the term, as it may be extended, Landlord shall do nothing, nor permit anything to be done on the Property, that limits or impairs the visibility Tenant’s signs (including, without limitation, the pylon sign), or limits or impairs vehicular and pedestrian access to and from the Premises.

30. Miscellaneous.

(a) Landlord and Tenant represent and warrant to each other that no broker or finder, was instrumental in arranging or bringing about this transaction and that there are no claims or rights for commissions, finders’ fees or other compensation (collectively, “compensation”) by any person or entity. If any broker or finder asserts a claim for compensation based upon any actual or alleged contact, dealings or communication with Landlord or Tenant, then the party through whom such

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broker or finder makes its claim shall indemnify and hold the other party (the “Indemnified Party”) harmless from and against any and all claims, damages, judgments, suits, liabilities, losses, costs and expenses (including without limitation, reasonable attorneys’ fees and court costs) suffered or incurred by or brought against the Indemnified Party in connection with such claim for compensation.

(b) Anytime a party’s consent or approval is required under the Lease, such consent shall not be unreasonably withheld, conditioned or delayed, unless some other standard is expressly provided.

[Signature Page follows]

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IN WITNESS WHEREOF, and in consideration of the mutual entry into this Lease and for other good and valuable consideration, and intending to be legally bound. Landlord and Tenant have executed this Lease.

LANDLORD:

Downingtown Medical Building Associates

A Pennsylvania General Partnership

Witness:

By: ___/s/ Robert F. Adams______ By:__/s/ John J. Ciccarone___________

Name: _Robert F. Adams________ Name: John J. Ciccarone

Title: _Attorney for Landlord_____ Its duly authorized General Partner

TENANT:

First National Bank of Chester County

Witness:

By: __/s/ Jennifer Farry_________ By:_____/s/ Carlos Questell___________

Name: __Jennifer Farry_________ Name: _Carlos Questell_____________

Title: __Sr. Admin. Assistant_____ Title: __Vice President of Real Estate_

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Exhibit “A”

Interior Floor Plan

[Graphic Omitted]

Exhibit “B”

Plot Plan and Parking

[Graphic Omitted]

Exhibit “C”

Tenant’s Work

[Graphic Omitted]

Exhibit “D”

Landlord’s Representations and Warranties

Landlord represents and warrants to Tenant:

(i)        Landlord is the fee simple owner of the Property and the person executing this Lease, has full power, authority and legal right to (a) execute and deliver this Lease and render it legally binding upon the Landlord and (b) comply with the terms of this Lease. Further, no consent, approval or other authorization of or by any other person, entity or governmental authority is required in connection with Landlord’s execution and delivery of this Lease.

(ii)       As of the Commencement Date, the Premises shall be free of all possessors, tenancies, leases, licenses, rights of access, and any other occupancy or use agreements and Tenant shall have exclusive possession of the Premises.

(iii)      To the best of Landlord’s knowledge (i) no Restricted Activity has occurred on the Property, including, without limitation the Premises, and no hazardous material has been released, discharged or disposed of on, under or about the Property or any part thereof; and (ii) the Property is in compliance with all Environmental Laws. The term “Environmental Laws” means all Federal, state and local laws, statutes, ordinances, codes, rules, regulations and other requirements respecting the environment. No friable asbestos, or any substance containing any type of asbestos, is in or on the Premises.

(iv)      Landlord has not been notified that the Property or any part thereof is in violation of any applicable law, ordinance, or governmental regulation, and Landlord has no reason to believe that the Property is in violation thereof.

(v)       Landlord has received no notice from any insurance company or Board of Fire Underwriters that the condition of the Property is unsatisfactory or that any work or repairs must be undertaken.

(vi)      Landlord has not received any notice of any condemnation proceeding or other proceeding in the nature of eminent domain with respect to the Property or any part thereof, nor, to the best of Landlord’s knowledge no such proceedings are threatened.

(vii)     All public utilities are installed and operating and are adequate to service the Premises and to permit full compliance with all requirements of law and usage of the Premises for the Use. All public utilities servicing the Premises are separately metered for the Premises and are not shared by any other building or premises.

(viii)    The Premises, and all Building systems, including, without limitation, electrical, heating, ventilating, heating and air conditioning, plumbing, security, fire suppression and other mechanical systems, are in good working order, condition and repair; the roof and roof membrane are in good and watertight condition.

Exhibit “E”

Monthly Payments

Period	Rent	CAM Charges $6 P/S/F P/Y Adjusted Yearly	Electricity Charges $2.25 P/S/F P/Y Adjusted Yearly	Monthly Payment
Base Term
1/1/08-3/31/08	$0 P/M	$1,043.50 P/M	$391.31 P/M	$1,434.81
4/1/08-12/31/10	$3,217.46 P/M	$1,043.50 P/M	$391.31 P/M	$4,652.27
1st Renewal
1/1/11-12/31/15	$3,507.90 P/M	$1,043.50 P/M	$391.31 P/M	$4,942.71
2nd Renewal
1/1/16-12/31/20	$4,034.87 P/M	$1,043.50 P/M	$391.31 P/M	$5,469.68

EX-10

CHANGE OF CONTROL, NON-COMPETE AND

NON-DISCLOSURE AGREEMENT

THIS CHANGE OF CONTROL, NON-COMPETE AND NON-DISCLOSURE AGREEMENT (the “Agreement”) is made as of this 7^th day of June, 2007, by and between FIRST NATIONAL BANK OF CHESTER COUNTY, a wholly-owned subsidiary of First Chester County Corporation and a national banking association with its principal offices located at 9 North High Street, West Chester, Pennsylvania (hereinafter individually referred to as the “Bank”) and Sheri L. Ashman of 575 E. Church St., Orwigsburg, PA 17961 (hereinafter referred to as “Executive”).

BACKGROUND

WHEREAS, the Bank desires to ensure the continued employment of Executive with the Bank by providing certain benefits to Executive in connection with a Change of Control (as defined below) and the salary and incentive compensation increase effective on the date of this agreement;

WHEREAS, Executive is desirous of securing such benefits on the terms and conditions set forth herein; and

WHEREAS, in consideration of the receipt of such benefits, Executive is willing to be bound by certain non-compete and non-disclosure obligations as set forth herein;

NOW, THEREFORE, in consideration of the premises and mutual covenants and agreements hereinafter set forth, the parties, intending to be legally bound hereby agree as follows:

1) TERM OF AGREEMENT.

This Agreement is effective as of the latest to occur of the following dates: (a) the date this Agreement is executed and delivered by both Executive and the Bank, (b) the date on which Executive’s employment as Officer commences, or (c) the date set forth above. This Agreement will continue in effect as long as Executive is actively employed by the Bank, unless Executive and the Bank agree in writing to termination of this Agreement.

2) TERMINATION COMPENSATION.

If Executive’s employment with the Bank is terminated without “Cause” (as defined in Section 6) at any time within two years following a “Change of Control” (as defined in Section 4), Executive will receive the “Termination Benefits” (as defined in Section 3). Executive will also receive the Termination Benefits if Executive terminates his or her employment for “Good Reason” (as defined in Section 5) at any time within two years following a Change of Control.

864231.1 3/6/08

Executive is not entitled to receive the Termination Benefits if Executive’s employment is terminated by Executive or the Bank for any or no reason before a Change of Control occurs or more than two years after a Change of Control has occurred.

In order to receive the Termination Benefits, Executive must execute any release of claims that Executive may have pursuant to this Agreement (but not any other claims) that may be requested by the Bank.

The Termination Benefits will be paid to Executive under the terms and conditions hereof, without regard to whether Executive looks for or obtains alternative employment following Executive’s termination of employment with the Bank.

3) TERMINATION BENEFITS DEFINED.

For purposes of this Agreement, the term “Termination Benefits” will mean and include the following:

a) For a period of one year from Executive’s termination (the “Benefit Period”), payment of Executive’s base salary on the same basis that Executive was paid immediately prior to Executive’s termination; Payment of any bonus Executive would otherwise be eligible to receive for the year in which Executive’s termination occurs and for that portion of the following year which is included in the Benefit Period, such bonus to be calculated and paid as provided below; and              

b) Continuation during the Benefit Period of all fringe benefits that Executive was receiving immediately prior to Executive’s termination, including, without limitation, life, disability, accident and group health insurance benefits coverage for Executive and Executive’s immediate family (“Fringe Benefits”), such Fringe Benefits to be provided on substantially the same terms and conditions as they were provided immediately prior to Executive’s termination.

c) The bonus component of Executive’s Termination Benefits will equal the sum of (i) the bonus to which Executive would have been entitled for the year during which Executive’s termination occurs (calculated after annualizing the Bank’s consolidated financial results through the date of termination if such bonus is based upon a percentage of profits) (the “Annual Amount”), and (ii) an amount equal to the product of (x) the Annual Amount times (y) a fraction the numerator of which is the number of days in the year following termination which is included in the Benefit Period and the denominator of which is 365 (the “Prorated Amount”). Both the Annual Amount and the Prorated Amount will be paid to Executive not later than March 31st of the year following Executive’s termination.

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Notwithstanding the foregoing, if Executive terminates his or her employment for Good Reason, Executive’s Termination Benefits will be based upon the greater of (i) Executive’s salary, bonus and benefits immediately prior to Executive’s termination or (ii) Executive’s salary, bonus and benefits immediately prior to the Change of Control which gives rise to Executive’s right to receive Termination Benefits under this Agreement.

The Bank does not intend to provide duplicative Fringe Benefits. Consequently, Fringe Benefits otherwise receivable pursuant to this Section will be reduced or eliminated if and to the extent that Executive receives comparable Fringe Benefits from any other source (for example, another employer); provided, however, that Executive will have no obligation to seek, solicit or accept employment from another employer in order to receive such benefits.

4) CHANGE OF CONTROL DEFINED.

For purposes of this Agreement, a “Change of Control” will be deemed to have occurred upon the earliest to occur of the following events:

a) the date the shareholders of the Bank (or the Board of Directors, if shareholder action is not required) approve a plan or other arrangement pursuant to which the Bank will be dissolved or liquidated;

b) the date the shareholders of the Bank (or the Board of Directors, if shareholder action is not required) approve a definitive agreement to sell or otherwise dispose of all or substantially all of the assets of the Bank;

c) the date the shareholders of the Bank (or the Board of Directors, if shareholder action is not required) and the shareholders of the other constituent corporation (or its board of directors if shareholder action is not required) have approved a definitive agreement to merge or consolidate the Bank with or into such other corporation, other than, in either case, a merger or consolidation of the Bank in which holders of shares of the common stock of the Bank (the “Common Stock”) immediately prior to the merger or consolidation will hold at least a majority of the ownership of common stock of the surviving corporation (and, if one class of common stock is not the only class of voting securities entitled to vote on the election of directors of the surviving corporation, a majority of the voting power of the surviving corporation’s voting securities) immediately after the merger or consolidation, which common stock (and, if applicable, voting securities) is to be held in the same proportion as such holders’ ownership of Common Stock immediately before the merger or consolidation;

d) the date any entity, person or group, (within the meaning of Section 13(d)(3) or Section 14(d)(2) of the Securities and Exchange Act of 1934, as amended (the “Exchange Act”)), other than the Bank or any of its subsidiaries or any employee benefit plan (or related trust) sponsored or maintained by the Bank or any of its subsidiaries, shall have become the

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beneficial owner of, or shall have obtained voting control over, more than fifty percent (50%) of the outstanding shares of the Common Stock; or

e) the first day after the date this Plan is adopted when directors are elected so that a majority of the Board of Directors shall have been members of the Board of Directors for less than twenty-four (24) months, unless the nomination for election of each new director who was not a director at the beginning of such twenty-four (24) month period was approved by a vote of at least two-thirds of the directors then still in office who were directors at the beginning of such period.

Notwithstanding any provision herein to the contrary, the filing of a proceeding for the reorganization of the Bank under Chapter 11 of the Federal Bankruptcy Code or any successor or other statute of similar import will not be deemed to be a Change of Control for purpose of this Agreement.

5) GOOD REASON DEFINED.

For purposes of this Agreement, the term “Good Reason” will mean and include the following situations:

a) any material adverse change in Executive’s status, responsibilities or Fringe Benefits;

b) any failure to nominate or elect Executive as Executive Vice President of Marketing;

c) causing or requiring Executive to report to anyone other than the President;

d) assignment to Executive of duties materially inconsistent with Executive’s position as Executive Vice President of Marketing;

e) any reduction of Executive’s annual base salary or annual bonus (or, if applicable, a change in the formula for determining Executive’s annual bonus which would have the effect of reducing by more than 10% Executive’s annual bonus as it would otherwise have been calculated immediately prior to the Change of Control that gives rise to Executive’s right to receive Termination Benefits as provided in this Agreement) or other reduction in compensation or benefits, or

f) requiring Executive to be principally based at any office or location more than 50 miles from the current offices of the Bank in West Chester, Pennsylvania.

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6) CAUSE DEFINED.

For purposes of this Agreement, the term “Cause” will mean and include the following situations:

a) Executive’s conviction by a court of competent jurisdiction of any criminal offense involving dishonesty or breach of trust or any felony or crime involving moral turpitude;

b) Executive’s failure to perform the duties reasonably assigned to Executive by the Board of Directors of the Bank fail without reasonable cause or excuse, which failure or breach continues for more than ten days after written notice thereof is given to Executive.

7) CEILING ON BENEFITS.

Under the “golden parachute” rules in the Internal Revenue Code (the “Code”) Executive will be subject to a 20% excise tax (over and above regular income tax) on any “excess parachute payment” that Executive receives following a Change in Control, and the Bank will not be permitted to deduct any such excess parachute payment. Very generally, compensation paid to Executive that is contingent upon a Change in Control will be considered a “parachute payment” if the present value of such consideration equals or exceeds three times Executive’s average annual compensation from the Bank for the five years prior to the Change in Control. If payments are considered “parachute payments,” then all such payments to Executive in excess of Executive’s base annual compensation will be considered “excess parachute payments” and will be subject to the 20% excise tax imposed under Section 4999 of the Code.

For example, if Executive’s base annual compensation was $100,000, Executive could receive $299,000 following a Change in Control without payment of any excise tax. If Executive received $301,000 in connection with a Change in Control, however, the entire $301,000 would be considered a parachute payment and $201,000 of this amount would be considered an excess parachute payment subject to excise tax.

In order to avoid this excise tax and the related adverse tax consequences for the Bank, by signing this Agreement, Executive agrees that the Termination Benefits payable to Executive under this Agreement will in no event exceed the maximum amount that can be paid to Executive without causing any portion of the amounts paid or payable to Executive by the Bank following a Change in Control, whether under this Agreement or otherwise, to be considered an “excess parachute payment” within the meaning of Section 280G(b) of the Code.

If the Bank believes that these rules will result in a reduction of the payments to which Executive is entitled under this Agreement, it will so notify Executive within 60 days following delivery of the “Notice of Termination” described in Section 8. If Executive wishes to have such determination reviewed, Executive may, within 30 days of the date Executive is notified of a reduction of payments, ask that the Bank retain, at its expense, legal counsel, certified public accountants, and/or a firm of recognized executive compensation consultants (an “Outside Expert”) to provide an opinion concerning whether, and to what extent, Executive’s

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Termination Benefits must be reduced so that no amount payable to Executive by the Bank (whether under this Agreement or otherwise) will be considered an excess parachute payment.

The Outside Expert will be as mutually agreed by Executive and the Bank, provided that if we are not able to reach a mutual agreement, the Bank will select an Outside Expert, Executive will select an Outside Expert, and the two Outside Experts will select a third Outside Expert to provide the opinion required under this Section. The determination of the Outside Expert will be final and binding, subject to any contrary determination made by the Internal Revenue Service.

If the Bank believes that Executive’s Termination Benefits will exceed the limitation contained in this Section, it will nonetheless make payments to Executive, at the times stated above, in the maximum amount that it believes may be paid without exceeding such limitation. The balance, if any, will then be paid after the opinion of the Outside Expert has been received.

If the amount paid to Executive by the Bank following a Change in Control is ultimately determined, pursuant to the opinion of the Outside Expert or by the Internal Revenue Service, to have exceeded the limitation contained in this Section, the excess will be treated as a loan to Executive by the Bank and will be repayable on the 90th day following demand by the Bank, together with interest at the “applicable federal rate” provided in Section 1274(d) of the Code.

In the event that the provisions of Sections 280G and 4999 of the Code are repealed without successor provisions, this Section will be of no further force or effect.

8) TERMINATION NOTICE AND PROCEDURE.

Any termination by the Bank or Executive of Executive’s employment during the two years immediately following a Change of Control will be communicated by written Notice of Termination to Executive if such Notice of Termination is delivered by the Bank and to the Bank if such Notice of Termination is delivered by Executive, all in accordance with the following procedures:

The Notice of Termination will indicate the specific termination provision in this Agreement relied upon, if applicable, and will set forth in reasonable detail the facts and circumstances alleged to provide a basis for such termination.

Any Notice of Termination by the Bank will be in writing signed by the Chairman of the Board of the Bank.

If the Bank furnishes Executive with a Notice of Termination or if Executive furnishes the Bank with a Notice of Termination, and no good faith dispute exists regarding such termination, then the date of Executive’s termination will be the date such Notice of Termination is deemed given pursuant to Section 11 of this Agreement.

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If the Bank in good faith furnishes Executive with a Notice of Termination for Cause and Executive in good faith notifies the Bank that a dispute exists concerning such termination within the 15-day period following Executive’s receipt of such notice, Executive may elect to continue Executive’s employment during such dispute. If it is thereafter determined that (i) Cause did exist, the date of Executive’s termination will be the earlier of (A) the date on which the dispute is finally determined or (B) the date of Executive’s death or permanent disability; or (ii) Cause did not exist, Executive’s employment will continue as if the Bank had not delivered its Notice of Termination and there will be no termination arising out of such notice.

If Executive in good faith furnishes a Notice of Termination for Good Reason and the Bank notifies Executive that a dispute exists concerning the termination within the 15-day period following the Bank’s receipt of such notice, Executive may elect to continue Executive’s employment during such dispute. If it is thereafter determined that (i) Good Reason did exist, Executive’s date of termination will be the earlier of (A) the date on which the dispute is finally determined or (B) the date of Executive’s death or permanent disability; or (ii) Good Reason did not exist, Executive’s employment will continue after such determination as if Executive had not delivered the Notice of Termination asserting Good Reason. If Good Reason is determined to exist, Executive’s salary, bonus and Fringe Benefits prior to such determination will be no less than Executive’s salary, bonus and benefits immediately prior to the Change of Control which gives rise to Executive’s right to receive Termination Benefits as provided in this Agreement.

If Executive does not elect to continue employment pending resolution of a dispute regarding a Notice of Termination, and it is finally determined that the reason for termination set forth in such Notice of Termination did not exist, if such notice was delivered by Executive, Executive will be deemed to have voluntarily terminated Executive’s employment other than for Good Reason and if delivered by the Bank, the Bank will be deemed to have terminated Executive without Cause.

9) DEFERRAL OF PAYMENTS.

To the extent that any payment under this Agreement, when combined with all other payments received during the year that are subject to the limitations on deductibility under Section 162(m) of the Code, exceeds the limitations on deductibility under Section 162(m) of the Code, such payment will, in the discretion of the Bank, be deferred to the next succeeding calendar year. Such deferred amounts will be paid no later than the 60th day after the end of such next succeeding calendar year, provided that such payment, when combined with any other payments subject to the Section 162(m) limitations received during the year, does not exceed the limitations on deductibility under Section 162(m) of the Code.

10) COMPETITION.

During the Term of this Agreement and for a period of one (1) year following termination thereof, for any reason whatsoever, Executive shall not, directly or indirectly be employed by any other bank or similar financial institution doing business in Chester County, Pennsylvania. During the term of this agreement and for a period of one (1) year following termination thereof, for any reason whatsoever, Executive shall not (a) on behalf of a competing

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bank or similar financial institution, solicit, engage in, or accept business or perform any services for any organization or individual that at any time during the one (1) year ending with Executive’s termination was a Bank client, customer or affiliate, or a source of business with which or who Executive dealt or had any contact during the term of Executive’s employment with the Bank; (b) solicit any employee of the Bank for the purpose of inducing such employee to resign from the Bank; nor (c) induce or assist others in engaging in the activities described in the subparagraphs above. Notwithstanding the foregoing if Executive’s employment is terminated due to a Change of Control, the provisions of the prior sentence in this paragraph regarding Executive’s future employment shall be null and void, and Executive shall be entitled to be employed by any bank or financial institution doing business in Chester County, Pennsylvania or in any other location.

11) DISCLOSURE OF CONFIDENTIAL INFORMATION.

During the period during which Executive is employed by the Bank and following the voluntary or involuntary termination of Executive’s employment with the Bank for any reason whatsoever, Executive shall not use for any non-Bank purpose or disclose to any person or entity any confidential information acquired during the course of employment with the Bank. Executive shall not, directly or indirectly, copy, take, or remove from the Bank’s premises, any of the Bank’s books, records, customer lists, or any other documents or materials. The term “confidential information” as used in this Agreement includes, but is not limited to, records, lists, and knowledge of the Bank’s customers, suppliers, methods of operation, processes, trade secrets, methods of determination of prices and rates, financial condition, as the same may exist from time to time.

12) SUCCESSORS.

The Bank will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Bank or any of its subsidiaries to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Bank would be required to perform it if no such succession had taken place. Failure of the Bank to obtain such assumption and agreement prior to the effectiveness of any such succession will be a breach of this Agreement and will entitle Executive to compensation in the same amount and on the same terms to which Executive would be entitled hereunder if Executive terminates his or her employment for Good Reason following a Change of Control, except that for purposes of implementing the foregoing, the date on which any such succession becomes effective will be deemed the date of Executive’s termination. As used in this agreement “the Bank” will mean “the Bank” as hereinbefore defined and any successor to its business and/or assets which assumes and agrees to perform this Agreement by operation of law or otherwise.

13) BINDING AGREEMENT.

This Agreement will inure to the benefit of and be enforceable by Executive and Executive’s personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If Executive should die while any amount would still be payable to Executive hereunder had Executive continued to live, all such amounts, unless

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otherwise provided herein, will be paid in accordance with the terms of this Agreement to Executive’s devisee, legatee or other designee or, if there is no such designee, to Executive’s estate.

14) NOTICES.

For purposes of this Agreement, notices and all other communications provided for in this Agreement will be in writing and will be deemed to have been duly given when personally delivered or mailed by United States certified or registered mail, return receipt requested, postage prepaid, addressed to Executive at the last address Executive has filed in writing with the Bank or, in the case of the Bank, at its main office, attention of the Chairman of the Board of Directors, or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notice of change of address will be effective only upon receipt.

15) MISCELLANEOUS.

No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing and signed by Executive and the Chairman of the Board of the Bank. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party will be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No agreement or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not expressly set forth in this Agreement. The validity, interpretation, construction and performance of this Agreement will be governed by the laws of the State of Pennsylvania without regard to its conflicts of law principles. All references to sections of the Exchange Act or the Code will be deemed also to refer to any successor provisions to such sections. Any payments provided for hereunder will be paid net of any applicable withholding required under federal, state or local law. The obligations of the Bank that arise prior to the expiration of this Agreement will survive the expiration of the term of this Agreement.

16) VALIDITY.

The invalidity or unenforceability of any provision of this Agreement will not affect the validity or enforceability of any other provision of this Agreement, which will remain in full force and effect.

17) COUNTERPARTS.

This Agreement may be executed in several counterparts, each of which will be deemed to be an original but all of which together will constitute one and the same instrument.

18) EXPENSES AND INTEREST.

If a good faith dispute arises with respect to the enforcement of Executive’s rights under this Agreement or if any arbitration or legal proceeding will be brought in good faith to

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enforce or interpret any provision contained herein, or to recover damages for breach hereof, and Executive is the prevailing party, Executive will recover from the Bank any reasonable attorneys’ fees and necessary costs and disbursements incurred as a result of such dispute or legal proceeding, and prejudgment interest on any money judgment obtained by Executive calculated at the rate of interest announced by Chase Manhattan Bank, New York from time to time as its prime rate from the date that payments to Executive should have been made under this Agreement. It is expressly provided that the Bank will in no event recover from Executive any attorneys’ fees, costs, disbursements or interest as a result of any dispute or legal proceeding involving the Bank and Executive.

19) PAYMENT OBLIGATIONS ABSOLUTE.

The Bank’s obligation to pay Executive the Termination Benefits in accordance with the provisions herein will be absolute and unconditional and will not be affected by any circumstances; provided, however, that the Bank may apply amounts payable under this Agreement to any debts owed to the Bank by Executive on the date of Executive’s termination. All amounts payable by the Bank in accordance with this Agreement will be paid without notice or demand. If the Bank has paid Executive more than the amount to which Executive is entitled under this Agreement, the Bank will have the right to recover all or any part of such overpayment from Executive or from whomsoever has received such amount.

20) ENTIRE AGREEMENT.

This Agreement sets forth the entire agreement between Executive and the Bank concerning the subject matter discussed in this Agreement and supersedes all prior agreements, promises, covenants, arrangements, communications, representations, or warranties, whether written or oral, by any officer, employee or representative of the Bank. Any prior agreements or understandings with respect to the subject matter set forth in this Agreement are hereby terminated and canceled.

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first written above.

FIRST NATIONAL BANK OF

CHESTER COUNTY

By:	/s/ Deborah R. Pierce		By:	/s/ Sheri L. Ashman
	Deborah R. Pierce Executive Vice President Human Resources		Sheri L. Ashman                Executive Vice President Marketing
Date:		June 7, 2007	Date:	June 7, 2007

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EX-23

Exhibit 23.

Consent of Independent Registered Public Accounting Firm

We have issued our reports dated March 12, 2008, accompanying the consolidated financial statements and management’s report on internal control over financial reporting included in the Annual Report of First Chester County Corporation and subsidiaries on Form 10K for the year ended December 31, 2007. We hereby consent to the incorporation by reference of said reports in the Registration Statements of First Chester County Corporation on Forms S-8 (File No. 333-09241, effective August 19, 1996, File No. 333-15733, effective November 7, 1996, File No. 333-33411, effective August 12, 1997, File No. 333-69315, effective December 21, 1998, and File No. 333-107763, effective August 8, 2003, File No. 333-128500, effective September 22, 2005) and Forms S-3 (File No. 333-33175, effective August 8, 1997, and File No. 333-107739, effective August 7, 2003).

Grant Thornton LLP

Philadelphia, Pennsylvania

March 12, 2008

EX-31

Exhibit 31.1

CERTIFICATION

I, John A. Featherman, III, Chief Executive Officer of the Corporation, certify that:

1. I have reviewed this annual report on Form 10-K for the period ending December 31, 2007 of First Chester County Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

March 12, 2008

/s/ John A. Featherman, III

John A. Featherman, III

Chief Executive Officer

EX-31

Exhibit 31.2

CERTIFICATION

I, Kevin C. Quinn, President of the Corporation, certify that:

1. I have reviewed this annual report on Form 10-K for the period ending December 31, 2007 of First Chester County Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

March 12, 2008

/s/ Kevin C. Quinn

Kevin C. Quinn

President

EX-31

Exhibit 31.3

CERTIFICATION

I, John Balzarini, Treasurer and Chief Financial Officer of the Corporation, certify that:

1. I have reviewed this annual report on Form 10-K for the period ending December 31, 2007 of First Chester County Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

March 12, 2008

/s/ John Balzarini

John Balzarini

Treasurer and Chief Financial Officer

EX-32

EXHIBIT 32.1

FIRST CHESTER COUNTY CORPORATION

CERTIFICATION PURSUANT TO

18 U.S.C. § 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of First Chester County Corporation (the “Company”) on Form 10-K for the period ending December 31, 2007 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, John A. Featherman, III, Chief Executive Officer and Chairman of the Board of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

Date:      March 12, 2008	/s/John A. Featherman III
	John A. Featherman, III
	Chief Executive Officer and
	Chairman of the Board

EX-32

EXHIBIT 32.2

FIRST CHESTER COUNTY CORPORATION

CERTIFICATION PURSUANT TO

18 U.S.C. § 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of First Chester County Corporation (the “Company”) on Form 10-K for the period ending December 31, 2007 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Kevin C. Quinn, President of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

Date: March 12, 2008	/s/ Kevin C. Quinn
	Kevin C. Quinn
	President

EX-32

EXHIBIT 32.3

FIRST CHESTER COUNTY CORPORATION

CERTIFICATION PURSUANT TO

18 U.S.C. § 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of First Chester County Corporation (the “Company”) on Form 10-K for the period ending December 31, 2007 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, John Balzarini, Treasurer and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

Date:	March 12, 2008	/s/ John Balzarini
		John Balzarini
		Treasurer and Chief Financial Officer
		(Principal Accounting and Financial Officer)