10-K 1 k102004.txt FORM 10-K YEARE END DECEMBER 31, 2004 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, 2004, OR ----------------- [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _____________ to _____________ Commission File No. 0-12870 FIRST CHESTER COUNTY CORPORATION (Exact name of Registrant as specified in its charter) Pennsylvania 23-2288763 ------------------------------ ------------------ (State or other jurisdiction of (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: Name of Each Exchange Title of Each Class 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 whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No __ Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). 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. ( 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: $100,117,292 The number of shares outstanding of Common Stock of the Registrant as of March 3, 2005, was 4,578,268. FIRST CHESTER COUNTY CORPORATION AND SUBSIDIARIES DOCUMENTS INCORPORATED BY REFERENCE Portions of the Registrant's definitive Proxy Statement for its 2005 Annual Meeting of Shareholders, which definitive Proxy Statement will be filed with the Securities and Exchange Commission not later than 120 days after the Registrants year end at December 31, 2004, are incorporated by reference into Part III. FIRST CHESTER COUNTY CORPORATION AND SUBSIDIARIES TABLE OF CONTENTS
PAGE PART I: Item 1 - Business 1 Item 2 - Properties 12-13 Item 3 - Legal Proceedings 13 Item 4 - Submission of Matters to a Vote of Security Holders 13 PART II: Item 5 - Market for the Corporation's Common Equity, Related Stockholder Matters and Issuer Repurchases of Equity Securities 13 - 14 Item 6 - Selected Financial Data 15 Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operation 15 Item 7A - Quantitative and Qualitative Disclosures about Market Risk 15 Item 8 - Financial Statements and Supplementary Data 15 Item 9 - Changes In and Disagreements with Accountants on Accounting and Financial Disclosure 15 Item 9A - Controls and Procedures 15 Item 9B - Other Information 16 PART III: Item 10 - Directors and Executive Officers of the Corporation 16 Item 11 - Executive Compensation 16 Item 12 - Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 16 Item 13 - Certain Relationships and Related Transactions 16 Item 14 - Principal Accountant Fees and Services 16 PART IV: Item 15 - Exhibits and Financial Statement Schedules 17 - 18 SIGNATURES 19 - 20
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 our historic results. The risks and uncertainties noted below, among others, could cause the Corporation's actual future results to differ materially from those described in forward-looking statements made in this report, or presented elsewhere by Management from time to time, or from our historic results. These risks and uncertainties include, but are not limited to, the following: (a) loan growth and/or loan margins may be less than expected due to competitive pressures in the banking industry and/or changes in the interest rate environment; (b) general economic conditions in the Corporation's market area may be less favorable than expected resulting in, among other things, a deterioration in credit quality causing increased loan losses; (c) costs of the Corporation's planned training initiatives, product development, branch expansion, new technology and operating systems may exceed expectations; (d) competition among financial and non-financial institutions in the Corporation's market area that may result in customer turnover and lower interest rate margins; (e) changes in the regulatory environment, securities markets, general business conditions and inflation may adversely affect loan demand, credit quality, consumer spending and saving habits, and interest rate margins; (f) impact of changes in interest rates on customer behavior; (g) the impact of changes in demographics on branch locations; (h) technological changes; (i) changes in the value of securities and investments managed for others may affect the growth level of the Corporation's non-interest income; (j) changes in the credit of our borrowers, the collateral securing assets or other aspects of credit quality; and (k) our ability to manage the risks involved in the foregoing. These risks and uncertainties are all difficult to predict and most are beyond the control of the Corporation's Management. The Corporation undertakes no obligation to publicly release any revisions to the forward-looking statements to reflect events or circumstances after the date of this report. 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 11, 2002, and First Chester County Capital Trust II, which was formed on November 13, 2003, are special purpose statutory trusts created expressly for the issuance of preferred capital securities and investing proceeds in junior subordinated debentures of the Corporation. The Bank has two wholly-owned subsidiaries, FNB Insurance Services, LLC, trading as 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. Through May 2004, FNB Properties, LLC acted as property manager for the properties where the Bank's 1 FIRST CHESTER COUNTY CORPORATION AND SUBSIDIARIES Lionville and New Garden branches are located. On August 5, 2001, the Corporation became a financial holding company pursuant to the Grahm-Leach-Bliley Act of 1999. 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 seventeen banking offices located in Chester and Delaware Counties, Pennsylvania, including its main office. In addition, the Bank operates 24 ATM facilities. The Bank is a member of the Federal Reserve System. At December 31, 2004, the Bank had total assets of approximately $805.5 million, total loans of approximately $610.7 million, total deposits of approximately $663.0 million and employed 270 persons, of which 243 were full-time and 27 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 Trust and Investment Services Division (formerly known as the Financial Management Services 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, 2004, the Bank's Trust and Investment Services Division administered or provided investment management services to accounts that held assets with an aggregate market value of approximately $555.6 million. For the year ended December 31, 2004, gross income from the Bank's Trust and Investment Services Department and related activities amounted to approximately $3.5 million. In addition to retail and commercial banking and trust services, the Bank offers an array of investment opportunities to including mutual funds, annuities, retirement planning, education planning and insurance through the Wealth Advisory Services Division. 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 our market, which are substantially larger and have greater financial resources than the Bank. As of June 30, 2004, the Bank held an 7.91% market share of Chester County's $7.4 billion in deposits. The $7.4 billion is held by 185 branches of 32 banks, thrifts, and Savings and Loans. The Bank's Trust and Investment Services 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. 2 FIRST CHESTER COUNTY CORPORATION AND SUBSIDIARIES 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. SUPERVISION AND REGULATION General The Corporation is a bank 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"). 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, and approval of the OCC is required before establishing new branches and for bank mergers if the continuing bank would be a national bank. 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 our business. Bank Holding Company Act The Corporation is required to file with the Federal Reserve Board an annual report and such additional information as the Federal Reserve Board may require pursuant to the BHC Act. Annual and other periodic reports also are required to be filed with the Federal Reserve Board. 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 I -- 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, 2004. 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 our last regulatory exam. 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. 3 FIRST CHESTER COUNTY CORPORATION AND SUBSIDIARIES 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 2004, the Bank, without affirmative governmental approvals, could declare aggregate dividends of approximately $8.4 million, plus an amount approximately equal to the net income, if any, earned by the Bank for the period from January 1, 2004, 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 provided that the Bank would not become "undercapitalized" (as these terms are defined under federal law). Dividends declared in 2004 were $2.5 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"). 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, 2004, 2003 and 2002, the Corporation and the Bank had capital in excess of all regulatory minimums and the Bank was "well capitalized." 4 FIRST CHESTER COUNTY CORPORATION AND SUBSIDIARIES Deposit Insurance Assessments The Bank is subject to deposit insurance assessments by the FDIC's Bank Insurance Fund ("BIF"). The FDIC has developed a 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 BIF member institution is assigned an annual FDIC assessment rate per $100 of insured deposits varying between 0.00% per annum (for well capitalized Subgroup A institutions) and 0.27% per annum (for undercapitalized Subgroup C institutions). As of January 1, 2001, well capitalized Subgroup A institutions paid 0.00%. 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 both the fourth quarter 2004 and the first quarter of 2005 were $0 per $100 of BIF assessable deposits. FDIC deposit insurance expense was $86, $88 and $86 thousand for the year 2004, 2003, and 2002. Currently, there is proposed legislation that if passed could increase the Corporation's FDIC deposit insurance expense in future time periods. 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 on March 11, 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: o Lending, investing or safeguarding money or securities; o Underwriting insurance or annuities, or acting as an insurance or annuity principal, agent or broker; o Providing financial or investment advice; o Underwriting, dealing in or making markets in securities; and o Insurance company portfolio investments. The Corporation meets the qualifications set forth under the Act to elect to become a financial holding company, and 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. On August 5, 2001, the Bank became a financial holding company pursuant to the Act. During 2000, First National Wealth 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 Wealth Advisory Services has elected to become a financial subsidiary under the Act. 5 FIRST CHESTER COUNTY CORPORATION AND SUBSIDIARIES 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. In addition, as described above, under the Bank Holding Company Act, the Federal Reserve Board must give its prior approval of any transaction pursuant to which any person or persons may acquire 25 percent (five 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". 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. STATISTICAL DISCLOSURES The following tables set forth certain statistical disclosures concerning the Corporation and the Bank. These tables should be read in conjunction with Management's Discussion and Analysis of Financial Condition and Results of Operations set forth below in Item 7 of this Report. 6 FIRST CHESTER COUNTY CORPORATION AND SUBSIDIARIES
RATE VOLUME ANALYSIS (1) Increase (decrease) in net interest income due to: ---------------------------------------------------------------------------------------- Volume (2) Rate (2) Total Volume (2) Rate (2) Total ------ ---- ----- ------ ---- ----- (Dollars in thousands) 2004 Compared to 2003 2003 Compared to 2002 ------------------------------------ ----------------------------- INTEREST INCOME Federal funds sold $ (18) $ 50 $ 32 $ (63) $ (104) $ (167) Interest bearing deposits in banks 1 2 3 8 (10) (2) ------ -------- ------- ------ ------ ------- Total Interest Income (17) 52 35 (55) (114) (169) Investment securities Taxable (202) 548 346 861 (1,504) (639) Tax-exempt(3) 458 (32) 426 927 (394) 533) ------ ------- ------ ------ ------ ------ Total investment securities 256 516 772 1,788 (1,898) (106) Loans Taxable 5,833 (2,591) 3,242 1,638 (4,906) (3,288) Tax-exempt(3) 144 (22) 122 402 (137) 264) ------ ------- ------ ------ ------ ------ Total loans(4) 5,977 (2,613) 3,364 2,040 (5,043) (3,024) ------ ------- ------ ------ ------ ------ Total interest income 6,216 (2,045) 4,171 3,773 (7,055) (3,299) ------ ------- ------ ------ ------ ------ INTEREST EXPENSE Savings, NOW and money market deposits 390 (287) 103 610 (1,996) (1,374) Certificates of deposits and other time (208) (478) (686) (642) (1,442) (2,087) ------ ------- ------ ------ ------ ------ Total interest bearing deposits 181 (765) (584) (32) (3,438) (3,461) Securities sold under repurchase Agreements (3) - (3) (19) (1) (20) Guaranteed preferred beneficial interest in Corp.'s subordinated debentures 449 (32) 416 233 (53) 176 Other borrowings 819 62 881 444 (657) (214) ------ ------- ------ ------ ------ ------ Total Interest expense 1,446 (735) 711 626 (4,149) (3,579) ------ ------ ------ ------ ------ ------ Net Interest income $ 4,771 $(1,310) $ 3,461 $ 3,147 $(2,907) $ 220 ====== ====== ====== ====== ====== ====== NOTES: (1) The related average balance sheets can be found on page 30 of the Corporation's Annual Report to Shareholders, attached as part of Exhibit 13, incorporated herein by reference. (2) The changes in interest due to both rate and volume has been allocated to volume and rate changes in proportion to the relationship of the absolute dollar amounts of the change in each. (3) The indicated changes are presented on a tax equivalent basis. (4) 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.
7 FIRST CHESTER COUNTY CORPORATION AND SUBSIDIARIES LOAN PORTFOLIO BY TYPE AT DECEMBER
(Dollars in thousands) 2004 2003 2002 2001 2000 --------------- ---------------- --------------- --------------- -------------- Amount % Amount % Amount % Amount % Amount % ------ - ------ - ------ - ------ - ------ - Commercial loans $187,903 30% $142,144 28% $122,005 27% $118,420 26% $105,125 26% Real estate - construction 59,093 10% 56,340 11% 47,601 11% 40,065 9% 30,134 7% Real estate - other 243,490 40% 202,898 40% 175,846 39% 199,398 45% 181,129 45% Consumer loans 101,157 16% 77,113 15% 62,646 14% 48,323 11% 54,692 13% Lease financing receivables 26,362 4% 32,754 6% 39,584 9% 41,904 9% 35,809 9% ------- ------- ------- ------- ------- Total gross loans and lease $618,005 100% $511,249 100% $447,682 100% $448,110 100% $406,889 100% Allowance for possible loan and lease losses (1) $ (7,213) $ (5,864) $ (6,230) $ (6,344) $ (6,609) ------- ------- ------- ------- ------ Total net loans (2) $610,792 $505,385 $441,452 $441,766 $400,280 ======= ======= ======= ======= ======= NOTES: (1) 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. (2) At December 31, 2004 there were no concentrations of loans exceeding 10% of total loans which is not otherwise disclosed as a category of loans in the above table.
8 FIRST CHESTER COUNTY CORPORATION AND SUBSIDIARIES MATURITIES AND RATE SENSITIVITY OF LOANS DUE TO CHANGES IN INTEREST RATES AT DECEMBER 31, 2004 (1) (2)
Maturing Maturing After 1 Year Maturing Within And Within After (Dollars in thousands) 1 Year(3) 5 Years 5 Years Total ---------- ------------ --------- --------- Commercial loans $ 20,364 $ 56,827 $110,712 $187,903 Real Estate - construction 45,620 12,704 769 59,093 --------- ------- ------- ------- Total $ 65,984 $ 69,531 $111,481 $246,996 ========= ======= ======= ======= Loans maturing after 1 year with: --------------------------------- Fixed interest rates Commercial Loans $ 39,746 $ 33,667 Commercial real estate - construction 6,660 769 Variable interest rates Commercial Loans 17,081 77,045 Commercial Real Estate - construction 6,044 -- ------- ------- Total $ 69,531 $111,481 ======= ======= NOTES: (1) Determination of maturities included in the loan maturity table are based upon contract terms. In situations where a "rollover" is appropriate, the Corporation's policy in this regard is to evaluate the credit for collectability consistent with the normal loan evaluation process. 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) This data excludes real estate-other loans, consumer loans and lease financing receivables. (3) 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 index to the Bank's prime rate. An immaterial amount of loans has no stated schedule of repayments.
9 FIRST CHESTER COUNTY CORPORATION AND SUBSIDIARIES INVESTMENT SECURITIES YIELD BY MATURITY AT DECEMBER 31, 2004
Due over Due over Due 1 year 5 years Due Within Through Through Over (Dollars in thousands) 1 year 5 years 10 years 10 years Total ------ ------- -------- -------- ----- Held-to-Maturity U.S. Treasury -- -- -- -- -- U.S. Government agency -- -- -- -- -- Mortgage-backed securities (1) -- -- -- -- -- State and municipal (2) -- 10 -- -- 10 Corporate securities -- -- -- -- -- Asset-backed (1) -- -- -- -- -- ------- --------- -------- -------- ------- -- 10 -- -- 10 ------- --------- -------- -------- ------- Available-for-Sale U.S. Treasury 24,997 2,517 -- -- 27,514 U.S. Government agency -- -- -- 1,049 1,049 Mortgage-backed securities (1) -- -- 2,788 62,897 65,685 State and municipal (2) 565 9,878 14,270 -- 24,713 Corporate securities -- 3,153 8,000 2,710 13,863 Asset-backed (1) -- -- 235 141 376 Mutual Funds -- -- -- 797 797 Other equity securities (3) -- -- -- 6,022 6,022 -------- --------- -------- -------- ------- 25,562 15,548 25,293 73,616 140,019 ------- --------- -------- -------- ------- Total Investment securities $ 25,562 $ 15,548 $ 25,293 $ 73,616 $140,029 ======= ========= ======== ======== ======= Percent of portfolio 18.25% 11.11% 18.06% 52.58% 100.00% ======= ========= ======== ======= ======= Weighted average yield 1.79% 3.17% 3.92% 4.29% 3.63% ======= ========= ======== ======= ========= NOTES: (1) Mortgage-backed and Asset-backed securities are included in the above table based on their contractual maturity. (2) The yield on tax-exempt obligations has been computed on a tax equivalent basis using the Federal marginal rate of 34% adjusted for the 20% interest expense disallowance. (3) Other equity securities having no stated maturity have been included in "Due over 10 years".
10 FIRST CHESTER COUNTY CORPORATION AND SUBSIDIARIES INVESTMENT SECURITIES AT DECEMBER 31,
2004 2003 --------------------- -------------------- (Dollars in thousands) Book Market Book Market Value Value Value Value Held-to-Maturity U.S. Treasury $ -- $ -- $ -- $ -- U.S. Government agency -- -- -- -- Mortgage-backed securities -- -- 4 4 State and municipal 10 11 15 16 Corporate securities -- -- -- -- Asset-backed -- -- -- -- Mutual funds -- -- -- -- Other equity securities -- -- -- -- ------- ------- ------- ------- $ 10 $ 11 $ 19 $ 20 ======= ======= ======= ======= Available-for-Sale U.S. Treasury $ 27,503 $ 27,514 $ 2,498 $ 2,561 U.S. Government agency 1,058 1,049 10,821 10,715 Mortgage-backed securities 65,830 65,685 69,821 70,035 State and municipal 24,797 24,713 25,815 25,840 Corporate securities 12,069 12,176 12,893 13,181 Corporate CMO's 1,687 1,687 119 118 Asset-backed 377 376 2,692 2,666 Mutual Funds 863 797 863 801 Other equity securities 5,951 6,022 4,724 4,793 ------- ------- ------- ------- $140,135 $140,019 $130,246 $130,710 ======= ======= ======= =======
11 FIRST CHESTER COUNTY CORPORATION AND SUBSIDIARIES Item 2. Properties. ------- ---------- The Bank owns eleven properties which are not subject to any mortgages, and the Corporation leases the Westtown-Thornbury, Exton, Frazer, Kendal, Crosslands, Lima, Granite Farms, Hershey's Mill, Coatesville, Giunta's and Freedom Village offices. 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 is currently evaluating all of its properties for future use.
Current Date Banking Acquired Offices / Use Address or Opened ------------- ------- --------- Main Office / Branch 9 North High Street December 1863 and Corporate West Chester, Pennsylvania Headquarters Goshen / Branch 311 North Five Points Road September 1956 West Goshen, Pennsylvania Walk-In Facility / Branch 17 East Market Street February 1978 West Chester, 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 Swope Building (formerly High & Market Streets July 1995 known as the Commonwealth Building) West Chester, 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 114 & Sheree Boulevard December 2000 Uwchlan Township, Pennsylvania 12 FIRST CHESTER COUNTY CORPORATION AND SUBSIDIARIES 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 258A East Lincoln Highway June 2003 Coatesville, PA 19320 Giunta's Branch 700 Downingtown Pike September 2003 West Chester, PA 19380 Freedom Village 15 Freedom Boulevard July 2004 West Brandywine, PA 19320 Oxford 275 Limestone Road December 2004 Oxford, PA 19363 Other Date Acquired Properties / Use Address or Opened Operations 202 Carter Drive July 1988 Center / Operations West Chester, Pennsylvania Matlack Street / 887 South Matlack Street September 1999 Operations West Chester, Pennsylvania Paoli Pike / Parking 1104 Paoli Pike July 1963 West Chester, Pennsylvania
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. Item 4. Submission of Matters to a Vote of Security Holders. None. Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Repurchases of Equity Securities The information called for in Item 201 (a), (b) and (c) of Regulation S-K is incorporated herein by reference to the information set forth on page 36 and the back cover of the Corporation's Annual Report to Shareholders, which material is filed herewith as part of Exhibit 13. 13 FIRST CHESTER COUNTY CORPORATION AND SUBSIDIARIES The information called for in Item 201 (d) of Regulation S-K is set forth in the following table: Equity Compensation Plan Information Form
Number of securities remaining Number of securities Weighted-average available for to be issued upon exercise price future exercise of of outstanding issuance under outstanding options, options, equity warrants and warrants compensation rights* and rights* plans* -------------------- ---------------- -------------- Equity compensation plans approved by security holders 442,445** $15.35 17,294 Equity compensation plans not approved by security holders -- -- -- Total 442,445** $15.35 17,294 * The securities referred to in this table are shares of the Corporation's common stock issuable upon exercise of options issued pursuant to the 1995 Stock Option Plan. ** Number of options issued and outstanding that were exercisable as December 31, 2004.
The information required by Item 703 is set forth in the following table: Issuer Purchases of Equity Securities
(a) (b) (c) (d) Total Number Average Total Number of Shares Maximum Number (or Approximate Period of Shares (or Price Paid (or Units) Purchased as Dollar Value) of Shares (or Units) per Share Part of Publicly Announced Units) that May Yet Be Purchased Purchased (or Unit) Plans or Programs Under the Plans or Programs October 1 to October 31, 2004 -- -- -- $6,980,678 November 1 to November 30, 2004 10,000 $26.51 10,000 $6,715,573 December 1 to December 31, 2004 -- -- -- $6,715,573 Total 10,000 $26.51 10,000 $6,715,573 Note: All of the foregoing shares were purchased pursuant to theCorporation's program to repurchase up to $10.0 million of the Corporation's common stock that was publicly announced on October 16, 2003.
14 FIRST CHESTER COUNTY CORPORATION AND SUBSIDIARIES Item 6. Selected Financial Data. Selected financial data concerning the Corporation and the Bank is incorporated herein by reference to page 22 of the Corporation's 2004 Annual Report to Shareholders, filed as part of of Exhibit 13 hereto. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. Management's Discussion and Analysis of Financial Condition and Results of Operations is incorporated herein by reference to pages 23 to 37 of the Corporation's 2004 Annual Report to Shareholders filed as part of Exhibit 13 hereto. Item 7A. Quantitative and Qualitative Disclosures About Market Risk Quantitative and Qualitative Disclosures about Market Risk are incorporated herein by reference to pages 38 to 40 of the Corporation's 2004 Annual Report to Shareholders filed as part of Exhibit 13 hereto. Item 8. Financial Statements and Supplementary Data. Consolidated financial statements of the Corporation and the Report of Independent Certified Public Accountants thereon are incorporated herein by reference to pages 41 to 72 of the Corporation's 2004 Annual Report to Shareholders filed as part of Exhibit 13 hereto. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. None. Item 9A. Controls and Procedures. Disclosure controls and procedures. Appearing as Exhibits 31.1, 31.2, 31.3 and 31.4 (the "302 Certifications") to this Annual Report are four certifications, one by each of our Chief Executive Officer (CEO), President, Chief Financial Officer (CFO) / Treasurer (our principal accounting and financial officer), and our Assistant Treasurer (the "Principal Officers"). This Item 9A contains information concerning the evaluation of the Corporation's disclosure controls and procedures 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. The Securities and Exchange Commission (the "SEC") requires that as of the end of the period covered by this Annual Report on Form 10-K, our CEO and our 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 our 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 Securities and Exchange Commission (the "SEC"). Our disclosure controls and procedures are also designed with the objective of ensuring that such information is accumulated and communicated to our management, including the CEO and CFO / Treasurer, as appropriate to allow timely decisions regarding required disclosure. Based upon their evaluation of the disclosure controls and procedures, the Principal Officers have concluded that our disclosure controls and procedures are effective to provide reasonable assurance that material information relating to the Corporation and its consolidated subsidiaries is made known to Management, including the CEO and CFO / Treasurer, on a timely basis. Internal Control Over Financial Reporting. The information set forth on pages 71 and 72 of our Annual Report to Shareholders, which is filed as part of herein as Exhibit 13, is incorporated by reference. 15 FIRST CHESTER COUNTY CORPORATION AND SUBSIDIARIES Item 9B. Other Items. On November 24, 2004, the Bank entered into separation agreements with Messrs. D'Angelo and Glarner in connection with their termination as executive officers of the Bank. Under the terms of these agreements, Messrs. D'Angelo and Glarner are entitled to receive severance payments on the Bank's regular payroll cycle based upon their annualized salaries ($139,256 and $134,559, respectively) and benefits ($25,185 and $30,149, respectively) at the time of separation, for a period of one year. In addition, under the separation agreements each of Messrs. D'Angelo and Glarner will continue to receive a monthly car allowance of $700 per month, and Mr. Glarner will receive reimbursement of payments made for COBRA benefits, in each case for one year. In addition, on November 26 and November 24, 2004, respectively, the Bank entered into agreements with Messrs. D'Angelo and Glarner (collectively, the "2004 Agreements") pursuant to which each of them are employed as officers of the Bank. Each of the 2004 Agreements will continue in force until either the officer or the Bank gives notice of termination, which notice shall be at least 14 days prior to the effective date of termination. As compensation under the 2004 Agreements, the officers receive salary, benefits and car allowance, and may be eligible to receive incentive compensation, as determined from time to time. Amounts paid to, and benefits received by, Messrs. D'Angelo and Glarner during the first twelve months following the commencement of the 2004 Agreements shall offset amounts due to each such officer pursuant to their respective separation agreements. PART III Item 10. Directors and Executive Officers of the Corporation. The information called for by this Item is incorporated herein by reference to the Corporation's Proxy Statement for its 2004 Annual Meeting of Shareholders that will be filed not later than March 30, 2005. Item 11. Executive Compensation. The information called for by this Item is incorporated herein by reference to the Corporation's Proxy Statement for its 2005 Annual Meeting of Shareholders that will be filed not later than March 30, 2005. Item 12. Security Ownership of Certain Beneficial Owners and Management. The information called for in Item 201(d) of Regulation S-K is included in Item 5 of this Report. The other information called for by this Item is incorporated herein by reference to the Corporation's Proxy Statement for its 2005 Annual Meeting of Shareholders that will be filed not later than March 30, 2005. Item 13. Certain Relationships and Related Transactions. The information called for by this Item is incorporated herein by reference to the Corporation's Proxy Statement for its 2005 Annual Meeting of Shareholders that will be filed not later than March 30, 2005. 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 2005 Annual Meeting of Shareholders that will be filed not later than March 30, 2005. 16 FIRST CHESTER COUNTY CORPORATION AND SUBSIDIARIES PART IV Item 15. Exhibits and Financial Statement Schedules. 1. Financial Statements The Consolidated Financial Statements, for the years ending December 31, 2004 and 2003, together with the report thereon of Grant Thornton LLP dated March 15, 2005, 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). Articles of Incorporation. Copy of the Articles of Incorporation of the Corporation, as amended, filed as Exhibit 3(i) to the Corporation's Quarterly Report on Form 10-Q for the quarter ended March 31, 2004 is incorporated by reference. 3(ii). By-Laws of the Corporation. By-Laws of the Corporation, filed as Exhibit 3(ii) to the Corporation's Annual Report on Form 10-K for the year ended December 31, 1997 is incorporated by reference. 10. Material contracts. * (a) Copy of Employment Agreement among the Corporation, the Bank and John A. Featherman, III, dated as of November 13, 2003 (CP) * (b) Copy of Employment Agreement among the Corporation, the Bank and Kevin C. Quinn, dated as of November 13, 2003. (CP) * (c) Compensatory Arrangements of Executive Officers and Directors for 2005. (CP) (d) Copy of 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) Copy of 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) Copy of the Bank's Amended and Restated Supplemental Benefit Retirement Plan, effective date January 1, 1995, is incorporated herein by reference to Exhibit 10(g) to the Corporation's Annual Report on Form 10-K for the year ended December 31, 1994 (SEC File No. 00012870. (CP) * (g) Summary of changes to the Amended and Restated Supplemental Benefit Retirement Plan approved through December 31, 2004. (CP) * (h) Copy of the Corporation's and the Bank's Directors' Deferred Compensation Plan. 17 FIRST CHESTER COUNTY CORPORATION AND SUBSIDIARIES (i) Copy of 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) * (j) Copy of form of Stock Option Agreement (Directors). (CP) * (k) Copy of form of Stock Option Agreement (Executive Officers). (CP) (l) Copy of Employment Agreement between the Bank and J. Duncan Smith (CFO), dated December 1, 1999 is incorporated by reference to Exhibit 10 (g) to the Corporation's Annual Report on Form 10-K for the year ended December 31, 1999. (CP) * (m) Copy of Employment Agreement between the Bank and Peter D'Angelo. (CP) * (n) Copy of Separation Agreement between the Bank and Peter D'Angelo. (CP) * (o) Copy of Employment Agreement between the Bank and David Glarner. (CP) * (p) Copy of Separation Agreement between the Bank and David Glarner. (CP) * 13. Annual Report to Shareholders. Portions of our Annual Report to Shareholders that are incorporated by reference in this report on Form 10-K. 14. Code of Conduct (Ethics). Copy of Code of Conduct (Ethics) filed as Exhibit 14 to the Corporation's Annual Report on Form 10-K for the year ended December 31, 2003 is incorporated herein by reference. * 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, t/a 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 I was formed on July 11, 2002. First Chester County Capital Trust II was formed on November 13, 2003. * 23. Consent of Grant Thornton LLP, dated March 15, 2005. * 31.1 Certification of Chief Executive Officer. * 31.2 Certifications of President. * 31.3 Certification of Treasurer. * 31.4 Certification of Assistant Treasurer. * 32.1 Certification of Chief Executive Officer. * 32.2 Certification of President. * 32.3 Certification of Treasurer. * 32.4 Certification of Assistant Treasurer. 18 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 15, 2005 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 15, 2005. Signature Title --------- ----- /s/ John A. Featherman, III Chief Executive Officer and _____________________________ Chairman of the Board John A. Featherman, III (Principal Executive Officer) /s/ J. Duncan Smith Treasurer _____________________________ (Principal Accounting and Financial Officer) J. Duncan Smith (Signatures continued on following page) 19 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/ 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 20 FIRST CHESTER COUNTY CORPORATION AND SUBSIDIARIES INDEX TO EXHIBITS The following is a list of the exhibits filed with, or incorporated by reference into, this Report (those exhibits marked with an asterisk are filed herewith and those exhibits marked "(CP)" are management contracts or compensatory plans, contracts or arrangements in which a director or executive officer participates): 3(i). Articles of Incorporation. Copy of the Articles of Incorporation of the Corporation, as amended, filed as Exhibit 3(i) to the Corporation's Quarterly Report on Form 10-Q for the quarter ended March 31, 2004 is incorporated by reference. 3(ii). By-Laws of the Corporation. By-Laws of the Corporation, filed as Exhibit 3(ii) to the Corporation's Annual Report on Form 10-K for the year ended December 31, 1997 is incorporated by reference. 10. Material contracts. * (a) Copy of Employment Agreement among the Corporation, the Bank and John A. Featherman, III, dated as of November 13, 2003 (CP) * (b) Copy of Employment Agreement among the Corporation, the Bank and Kevin C. Quinn, dated as of November 13, 2003. (CP) * (c) Compensatory Arrangements of Executive Officers and Directors for 2005. (CP) (d) Copy of 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) Copy of 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) Copy of the Bank's Amended and Restated Supplemental Benefit Retirement Plan, effective date January 1, 1995, is incorporated herein by reference to Exhibit 10(g) to the Corporation's Annual Report on Form 10-K for the year ended December 31, 1994 (SEC File No. 00012870. (CP) * (g) Summary of changes to the Amended and Restated Supplemental Benefit Retirement Plan approved through December 31, 2004. (CP) * (h) Copy of the Corporation's and the Bank's Directors' Deferred Compensation Plan. (i) Copy of 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) * (j) Copy of form of Stock Option Agreement (Directors). (CP) * (k) Copy of form of Stock Option Agreement (Executive Officers). (CP) (l) Copy of Employment Agreement between the Bank and J. Duncan Smith (CFO), dated December 1, 1999 is incorporated by reference to Exhibit 10 (g) to the Corporation's Annual Report on Form 10-K for the year ended December 31, 1999. (CP) * (m) Copy of Employment Agreement between the Bank and Peter D'Angelo. (CP) 21 FIRST CHESTER COUNTY CORPORATION AND SUBSIDIARIES * (n) Copy of Separation Agreement between the Bank and Peter D'Angelo. (CP) * (o) Copy of Employment Agreement between the Bank and David Glarner. (CP) * (p) Copy of Separation Agreement between the Bank and David Glarner. (CP) * 13. Annual Report to Shareholders. Portions of our Annual Report to Shareholders that are incorporated by reference in this annual report on Form 10-K. 14. Code of Conduct (Ethics). Copy of Code of Conduct (Ethics) filed as Exhibit 14 to the Corporation's Annual Report on Form 10-K for the year ended December 31, 2003 is incorporated herein by reference. * 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, t/a 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 I was formed on July 11, 2002. First Chester County Capital Trust II was formed on November 13, 2003. * 23. Consent of Grant Thornton LLP, dated March 15, 2005. * 31.1 Certification of Chief Executive Officer. * 31.2 Certifications of President. * 31.3 Certification of Treasurer. * 31.4 Certification of Assistant Treasurer. * 32.1 Certification of Chief Executive Officer. * 32.2 Certification of President. * 32.3 Certification of Treasurer. * 32.4 Certification of Assistant Treasurer. 22