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, 2002, OR
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[ ] 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
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
9 North High Street, West Chester, Pennsylvania 19380
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(Address of principal executive offices)
Registrant's telephone number, including area code (484) 881-4000
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Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on Which Registered
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None None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $1.00 per share
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(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 Act). Yes __ No X
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. (__)
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: $52,340,995.
The number of shares outstanding of Common Stock of the Registrant as of March
1, 2003, was 4,444,432.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Annual Report to Shareholders for the year ended
December 31, 2002, are incorporated by reference into Parts I and II hereof.
Portions of the Registrant's definitive Proxy Statement for its 2002 Annual
Meeting of Shareholders are incorporated by reference into Part III hereof.
FIRST CHESTER COUNTY CORPORATION AND SUBSIDIARIES
TABLE OF CONTENTS
PAGE
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PART I: Item 1 - Business 3
Item 2 - Properties 16
Item 3 - Legal Proceedings 17
Item 4 - Submission of Matters to a Vote of Security Holders 17
PART II: Item 5 - Market for the Corporation's Common Equity and Related
Stockholder Matters 17 - 18
Item 6 - Selected Financial Data 18
Item 7 - Management's Discussion and Analysis of Financial
Condition and Results of Operation 18
Item 7A - Quantitative and Qualitative Disclosures about Market Risk
Item 8 - Financial Statements and Supplementary Data 18
Item 9 - Changes In and Disagreements with Accountants on
Accounting and Financial Disclosure 18
PART III: Item 10 - Directors and Executive Officers of the Corporation 18
Item 11 - Executive Compensation 18
Item 12 - Security Ownership of Certain Beneficial Owners
and Management and Related Stockholder Matters 19
Item 13 - Certain Relationships and Related Transactions 19
Item 14 - Controls and Procedure 19 - 20
PART IV: Item 15 - Exhibits, Financial Statement Schedules and Reports on
Form 8-K 21 - 22
SIGNATURES 23 - 26
CERTIFICATIONS
PART I
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Item 1. Business.
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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 business 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 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 for 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, is a special purpose statutory trust
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 this subsidiary. FNB Properties, LLC
acts as property manager for the properties where the Bank's Lionville and New
Garden branches are located. On August 5, 2000, First Chester County 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 fifteen banking offices located
in Chester and Delaware Counties, Pennsylvania, including its main office. In
addition, the Bank operates 22 limited service ATM facilities. The Bank is a
member of the Federal Reserve System. At December 31, 2002, the Bank had total
assets of approximately $640 million, total loans of approximately $448 million,
total deposits of approximately $559 million and employed 277 persons, of which
231 were full-time and 46 were part-time.
The Bank is a full service commercial bank offering a broad range of retail
banking, commercial banking, internet banking, trust and financial management
services to individuals and businesses. 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 who may typically include a commercial real estate loan, a
business line of credit for working capital needs, a mortgage loan for a
borrower's residence, a consumer loan or a revolving personal credit line.
The Bank's Financial Management Services Department 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, 2002, the Bank's Financial
Management Services Department administered or provided investment management
services to accounts that held assets with an aggregate market value of
approximately $532 million on January 3, 2003; a customer withdrew its funds
from the FMS department totaling $37.0 million. Because of the competitive
pricing on this account it is not expected to materially affect revenue derived
from FMS. For the year ended December 31, 2002, gross income from the Bank's
Financial Management Services Department and related activities amounted to
approximately $3.2 million.
COMPETITION
The Bank's service area consists primarily of greater Chester County, as
well as the western 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 and other non-bank financial
organizations such as mutual fund companies and brokerage companies. 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. There are branches of many commercial
banks, savings banks and credit unions, including the Bank, in the general
market area serviced by the Bank. The largest of these institutions had assets
of over $100 billion and the smallest had assets of less than $79 million. The
Bank had total assets of approximately $640 million as of December 31, 2002.
The Bank competes for deposits with various other commercial banks, savings
banks, Internet banks, credit unions, brokerage firms and stock, bond and money
market funds. The Bank also faces competition from major retail-oriented firms
that offer financial services similar to services traditionally available only
through commercial banks without being subject to the same degree of regulation.
Mortgage banking firms, finance companies, insurance companies and leasing
companies also compete with the Bank for traditional lending services.
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, 2002.
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 in 2002.
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 2003, the Bank,
without affirmative governmental approvals, could declare aggregate dividends of
approximately $15.2 million, plus an amount approximately equal to the net
income, if any, earned by the Bank for the period from January 1, 2003, 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 2002 were
$2.3 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 adjusted 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-adjusted 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 risk-based capital ratio of
at least 6% and a Tier I leverage ratio of at least 5% and not be subject to any
specific capital order or directive. As of December 31, 2002, 2001 and 2000, the
Corporation and the Bank had capital in excess of all regulatory minimums and
the Bank was "well capitalized."
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, 2000, 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 the fourth
quarter 2002 and the first quarter of 2003 are approximately $0.170 and $0.168,
respectively per $100 of BIF assessable deposits. FDIC deposit insurance expense
was $86, $86 and $89 thousand for the year 2002, 2001, and 2000. 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.
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.
ACCOUNTING PRONOUNCEMENTS
Please refer to the Corporation's 2002 annual report pages 43-45.
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 contained in the Corporation's 2002 Annual Report to Shareholders,
incorporated herein by reference.
BANK RESTRUCTURING
During the first half of 2002, the Corporation performed a review of its
lending structure, resulting in the creation of two new divisions, the Personal
Banking Division, which will focus its effort on the branch system, consumer
lending, residential mortgage, credit cards, and small business lending, and the
Business Banking Division which, will focus its attention on commercial
mortgage, commercial lending, leasing, loan administration, and credit
administration. Management believes this will enhance asset quality,
underwriting practices and productivity. The newly formed credit administration
department will assist 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.
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
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(Dollars in thousands) 2002 Compared to 2001 2001 Compared to 2000
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INTEREST INCOME
Federal funds sold $ 431 $ (309) $ 122 $ 396 $ (185) $ 211
Interest bearing deposits in banks (1) 1 - 1 - 1
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Total Interest Income 430 (308) 122 397 (185) 212
Investment securities
Taxable 804 (987) (183) (1,340) (554) (1,894)
Tax-exempt(3) (6) (1) (7) (29) 3 (26)
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Total investment securities 798 (988) (190) (1,369) (551) (1,920)
Loans
Taxable 1,845 (3,474) (1,629) 3,905 (2,886) 1,019
Tax-exempt(3) (24) (50) (74) (296) 25 (271)
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Total loans(4) 1,821 (3,524) (1,703) 3,609 (2,861) 748
------- ------- ------- ------- ------- -------
Total interest income 3,049 (4,820) (1,771) 2,637 (3,597) (960)
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INTEREST EXPENSE
Savings, NOW and money market
deposits 1,268 (3,262) (1,994) 308 (1,759) (1,451)
Certificates of deposits and other time (674) (2,166) (2,840) 415 (86) 329
------- ------- ------- ------- ------- -------
Total interest bearing deposits 594 (5,428) (4,834) 723 (1,845) (1,122)
Securities sold under repurchase
Agreements (70) (3) (73) 14 (55) (41)
Guaranteed preferred
beneficial interest in Corp.'s
subordinated debentures 136 - 136 - - -
Other borrowings (12) (130) (142) 22 (256) (234)
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Total Interest expense 648 (5,561) (4,913) 759 (2,156) (1,397)
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Net Interest income $ 2,401 $ 741 $ 3,142 $ 1,878 $ (1,441) $ 437
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NOTES:
(1) The related average balance sheets can be found on page 29 of the
Corporation's 2002 Annual Report to Shareholders.
(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.
FIRST CHESTER COUNTY CORPORATION
LOAN PORTFOLIO BY TYPE AT DECEMBER
(Dollars in thousands) 2002 2001 2000 1999 1998
-------------- -------------- --------------- --------------- --------------
Amount % Amount % Amount % Amount % Amount %
------ - ------ - ------ - ------ - ------ -
Commercial loans $122,005 27% $118,420 26% $105,125 26% $ 95,820 27% $ 85,110 27%
Real estate - construction 47,601 11% 40,065 9% 30,134 7% 15,266 4% 13,439 4%
Real estate - other 175,846 39% 199,398 45% 181,129 45% 152,174 43% 133,191 42%
Consumer loans (1) 62,646 14% 48,323 11% 54,692 13% 55,520 16% 62,481 19%
Lease financing receivables 39,584 9% 41,904 9% 35,809 9% 35,558 10% 26,174 8%
-------- -------- -------- -------- --------
Total gross loans $447,682 100% $448,110 100% $406,889 100% $354,338 100% $320,395 100%
Allowance for possible loan
losses(2) $(6,230) $(6,344) $(6,609) $(6,261) $(5,877)
------- ------- ------- ------- -------
Total net loans (3) $441,452 $441,766 $400,280 $348,077 $314,518
======== ======== ======== ======== ========
NOTES:
(1) Consumer loans include open-end home equity lines of credit and credit card
receivables. (As of February 21, 2003, credit card portfolio was sold).
(2) See pages 32-36 of the Corporation's 2002 Annual Report to Shareholders for
additional information.
(3) At December 31, 2002 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.
FIRST CHESTER COUNTY CORPORATION AND SUBSIDIARIES
MATURITIES AND RATE SENSITIVITY OF LOANS DUE TO CHANGES IN
INTEREST RATES AT DECEMBER 31, 2002 (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 $ 71,182 $ 42,010 $ 8,813 $122,005
Real Estate - construction 47,601 -- -- 47,601
------- ------- ------- -------
Total $118,783 $ 42,010 $ 8,813 $169,606
======= ======= ======= =======
Loans maturing after 1 year with:
Fixed interest rates $ 42,010 $ 8,813
Variable interest rates -- --
------- -------
Total $ 42,010 $ 8,813
======= =======
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".
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.
FIRST CHESTER COUNTY CORPORATION AND SUBSIDIARIES
INVESTMENT SECURITIES YIELD BY MATURITY AT DECEMBER 31, 2002
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) -- -- 16 -- 16
State and municipal (2) -- -- 15 -- 15
Corporate securities -- -- -- -- --
Asset-backed (1) -- -- -- -- --
-------- -------- -------- -------- --------
-- -- 31 -- 31
-------- -------- -------- -------- --------
Available-for-Sale
U.S. Treasury 2,001 2,497 -- -- 4,498
U.S. Government agency 1,474 -- 5,626 25,162 32,262
Mortgage-backed securities (1) 1,827 989 1,213 60,924 64,953
State and municipal (2) 155 524 1,500 -- 2,179
Corporate securities -- 7,040 7,489 -- 14,529
Asset-backed (1) -- -- -- 2,661 2,661
Mutual Funds -- -- -- 863 863
Other equity securities (3) -- -- -- 4,311 4,311
-------- -------- -------- -------- --------
5,457 11,050 15,828 93,921 126,256
-------- -------- -------- -------- --------
Total Investment securities $ 5,457 $ 11,050 $ 15,859 $ 93,921 $ 126,287
======== ======== ======== ======== ========
Percent of portfolio 4.32% 8.75% 12.56% 74.37% 100.00%
======== ======== ======== ======= ========
Weighted average yield 5.04% 4.99% 4.97% 4.37% 4.53%
======== ======== ======== ======= ========
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".
FIRST CHESTER COUNTY CORPORATION AND SUBSIDIARIES
INVESTMENT SECURITIES AT DECEMBER 31,
2002 2001 2000
------------------------ -------------------------- ------------------------
(Dollars in thousands) Book Market Book Market Book Market
Value Value Value Value Value Value
----- ----- ----- ----- ----- ------
Held-to-Maturity
U.S. Treasury $ -- $ -- $ -- $ -- $ -- $ --
U.S. Government agency -- -- -- -- -- --
Mortgage-backed securities 16 17 27 29 116 118
State and municipal 15 17 504 518 1,067 1,152
Corporate securities -- -- -- -- -- --
Asset-backed -- -- -- -- -- --
Mutual funds -- -- -- -- -- --
Other equity securities -- -- -- -- -- --
------- ------- ------- ------- ------- -------
$ 31 $ 34 $ 531 $ 547 $ 1,183 $ 1,270
======= ======= ======= ======= ======= =======
Available-for-Sale
U.S. Treasury $ 4,498 $ 4,630 $ 4,010 $ 4,069 $ 3,988 $ 3,987
U.S. Government agency 32,262 32,268 -- -- 1,992 1,971
Mortgage-backed securities 64,953 66,267 63,175 63,331 63,651 63,062
State and municipal 2,179 2,223 1,279 1,315 1,278 1,277
Corporate securities 13,083 13,650 2,966 2,803 9,992 9,555
Corporate CMO's 1,446 1,444 3,652 3,693 4,772 4,738
Asset-backed 2,661 2,699 37 37 2,843 2,827
Mutual Funds 863 815 863 825 1,091 1,034
Other equity securities 4,311 4,348 4,100 4,137 4,556 4,561
------- ------- ------- ------- ------- -------
$126,256 $128,344 $ 80,082 $ 80,210 $ 94,163 $ 93,012
======= ======= ======= ======= ======= =======
MATURITIES OF CERTIFICATES OF DEPOSIT AND OTHER TIME DEPOSITS,
$100,000 OR MORE, AT DECEMBER 31, 2002
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 $ 5,167 $ 3,011 $ 4,700 $ 9,967 $ 22,845
FIRST CHESTER COUNTY CORPORATION AND SUBSIDIARIES
EFFECT OF NONACCRUING LOANS ON INTEREST FOR
YEARS ENDED DECEMBER 31,
(Dollars in thousands) 2002 2001 2000 1999 1998
-------- -------- -------- ------- -------
Interest income which would
have been recorded (1) $ 448 $ 308 $ 76 $ 89 $ 129
Interest income that was
received from customer 234 -- 17 -- 25
----- ----- ----- ----- -----
Total contractual interest
for nonaccruing loans
not collected $ 214 $ 308 $ 59 $ 89 $ 104
===== ===== ===== ===== =====
NOTES:
(1) Generally the Bank places a loan in nonaccrual 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.
Item 2. Properties.
- ------- ----------
The Bank owns eight properties which are not subject to any mortgages, and
the Corporation leases the Westtown-Thornbury, Exton, Frazer, Kendal,
Crosslands, Lima, Granite Farms and Hershey's Mill 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.
Current Date
Banking Acquired
Offices / Use Address or Opened
- ------------- ------------- --------------
Main Office / Branch 9 North High Street December 1863
and Corporate West Chester, Pennsylvania
Headquarters
Walk-In Facility / Branch 17 East Market Street February 1978
West Chester, Pennsylvania
Westtown-Thornbury / Route 202 and Route 926 May 1994
Branch Westtown, 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
Exton / Branch Route 100 and Boot Road August 1995
West Chester, Pennsylvania
Frazer / Branch 309 Lancaster Avenue August 1999
Frazer, Pennsylvania
Former Commonwealth High & Market Streets July 1995
Building / Swope Building West Chester, 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
New Garden / Branch 741 West Cypress Street August 2001
Kennett Square, Pennsylvania
Hershey's Mill / Branch 1371 Boot RoadDecember 2001
West Chester, Pennsylvania
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.
PART II
-------
Item 5. Market for the Corporation's Common Equity and Related Stockholder
- ------ -----------------------------------------------------------------------
Matters.
-------
The Corporation's Common Stock is publicly traded over the counter under
the symbol "FCEC". Trading is sporadic. Information regarding high and low bid
quotations is incorporated herein by reference from the Corporation's 2002
Annual Report to Shareholders, attached as an exhibit hereto. As of March 1,
2002, there were approximately 983 shareholders of record of the Corporation's
Common Stock. The closing stock price as of March 1, 2003 is $16.80.
The Corporation declared cash dividends per share on its Common
Stock during each quarter of the fiscal years ended December 31, 2002 and 2001,
as set forth in the following table:
Dividends
Amount Per Share
2002 2001
--------- ---------
First Quarter ........................ $ 0.130 $ 0.130
Second Quarter ....................... 0.130 0.130
Third Quarter ........................ 0.130 0.130
Fourth Quarter ....................... 0.135 0.130
--------- ---------
Total .............................. $ 0.525 $ 0.520
========= =========
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.
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.
Equity Compensation Plan Information Form
Number of securities Weighted-average Number of
to be issued upon exercise price securities
exercise of of outstanding remaining
outstanding options, options, available for
warrants and rights* warrants and future
rights* issuance under
equity
compensation
plans*
Equity compensation plans approved by security holders 712,918 $15.18 4,348
Equity compensation plans not approved by security holders -- -- --
Total 712,918 $15.18 4,348
* 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.
Item 6. Selected Financial Data.
- ------ -----------------------
Selected financial data concerning the Corporation and the Bank is
incorporated herein by reference from the Corporation's 2002 Annual Report to
Shareholders, attached as an exhibit 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 from the Corporation's 2002
Annual Report to Shareholders, attached as an exhibit hereto.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
- ------- ----------------------------------------------------------
Quantitative and Qualitative Disclosures about Market Risk are incorporated
herein by reference from the Corporation's 2002 Annual Report to Shareholders,
attached as an exhibit 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 from the Corporation's 2002 Annual Report to Shareholders, attached as
an exhibit hereto.
Item 9. Changes in and Disagreements with Accountants on Accounting and
- ------ -----------------------------------------------------------------------
Financial Disclosure.
--------------------
None.
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 dated February 14, 2003, for its 2003
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 dated February 14, 2003, for its 2003
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 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 dated
February 14, 2003, for its 2003 Annual Meeting of Shareholders.
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 dated February 14, 2003, for its 2003
Annual Meeting of Shareholders.
Item 14. Controls and Procedures
- ------- -----------------------
Appearing immediately following the "Signatures" section of this Annual
Report there are four certifications, one by each of our Chief Executive
Officer, Chief Operating Officer, EVP, Financial Support Services (our principal
accounting and financial officer), and our Controller (the "Section 302
Certifications"). This Item 14 contains information concerning the evaluation of
internal controls that are referred to in the Section 302 Certifications. This
information should be read in conjunction with the Section 302 Certifications
for a more complete understanding of the topics presented.
The Securities and Exchange Commission (the "SEC") requires that within 90
days prior to the filing of this Annual Report on Form 10-K, our CEO and our
EVP, Financial Support Services, 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
Company'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 EVP, Financial Support Services, as
appropriate to allow timely decisions regarding required disclosure.
The SEC also requires that the CEO and EVP, Financial Support Services,
certify certain matters regarding the company's "internal controls." "Internal
controls" mean our procedures which are designed with the objective of providing
reasonable assurance that (1) our transactions are properly authorized; (2) our
assets are safeguarded against unauthorized or improper use; and (3) our
transactions are properly recorded and reported, all to permit the preparation
of our financial statements in conformity with generally accepted accounting
principles. The Corporation evaluates its internal controls annually as banking
regulations dictate.
Among the matters our CEO, COO, EVP, Financial Support Services, and
Controller certify in the Section 302 Certifications are whether all
"significant deficiencies" or "material weaknesses" in the Company's internal
controls have been disclosed to the Corporation's auditors and the audit
committee of the Corporation's Board of Directors. In the professional auditing
literature, "significant deficiencies" are referred to as "reportable
conditions"; these are control issues that could have a significant adverse
effect on the ability to record, process, summarize and report financial data in
the financial statements. A "material weakness" is defined in the auditing
literature as a particularly serious reportable condition where the internal
control does not reduce to a relatively low level the risk that misstatements
caused by error or fraud may occur in amounts that would be material in relation
to the financial statements and not be detected within a timely period by
employees in the normal course of performing their assigned functions.
The Corporation's management, including the CEO, COO, EVP, Financial
Support Services, and Controller, does not expect that our disclosure controls
and procedures or our internal controls will prevent all error and all fraud. A
control system, no matter how well conceived and operated, can provide only
reasonable, not absolute, assurance that the objectives of the control system
are met. Further, the design of a control system must reflect the fact that
there are resource constraints, and the benefits of controls must be considered
relative to their costs. Because of the inherent limitations in all control
systems, no evaluation of controls can provide absolute assurance that all
control issues and instances of fraud, if any, within the Corporation have been
detected. These inherent limitations include the realities that judgments in
decision-making can be faulty, and that breakdowns can occur because of simple
error or mistake. Additionally, controls can be circumvented by the individual
acts of some persons, by collusion of two or more people, or by management
override of the control. The design of any system of controls also is based in
part upon certain assumptions about the likelihood of future events, and there
can be no assurance that any design will succeed in achieving its stated goals
under all potential future conditions; over time, control may become inadequate
because of changes in conditions, or the degree of compliance with the policies
or procedures may deteriorate. Because of the inherent limitations in a
cost-effective control system, misstatements due to error or fraud may occur and
not be detected.
Based upon their evaluation of the disclosure controls and procedures, our
CEO, COO, EVP, Financial Support Services, and Controller have concluded that,
subject to the limitations noted above, 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, COO, EVP, Financial Support Services, and
Controller, on a timely basis.
There were no significant changes to our internal controls or in other
factors that could significantly affect our internal controls, subsequent to the
date of our last evaluation of our internal controls, including any corrective
actions with regard to significant deficiencies and material weaknesses.
PART IV
-------
Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
- ------- ----------------------------------------------------------------
(a.) 1. Index to Consolidated Financial Statements
Page of Annual
Report to Shareholders
----------------------
Consolidated Balance Sheets Page 39
at December 31, 2002 and
2001
Consolidated Statements of Page 40
Income for the years ended
December 31, 2002, 2001
and 2000
Consolidated Statement of Changes Page 41
in Stockholders' Equity for the years
Ended December 31, 2002, 2001 and 2000
Consolidated Statements of Page 42
Cash Flows for the years ended
December 31, 2002, 2001 and 2000
Notes to Consolidated Pages 43 to 64
Financial Statements
Report of Independent Certified Public Accountants Page 65
The Consolidated Financial Statements listed in the above index, together
with the report thereon of Grant Thornton LLP dated January 24, 2003, which are
included in the Corporation's Annual Report to Shareholders for the year ended
December 31, 2002, are hereby incorporated herein by reference.
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):
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 Annual
Report on Form 10-K for the year ended December 31, 1999 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
Charles E. Swope dated January 1, 1998, filed as Exhibit 10 (a) to the
Corporation's Annual Report on Form 10-K for the year ended December 31, 1997 is
incorporated by reference.
(b) 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 8, 1997 (File no. 333-33175) is incorporated herein by
reference.
(c) 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 (File no. 333-33411) is incorporated herein by reference.
(d) 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 number 95084672.
(e) Copy of the Corporation's and the Bank's Directors Deferred
Compensation Plan, effective December 30, 1995, is incorporated herein by
reference to Exhibit 10(h) to the Corporation's Annual Report on Form 10-K for
the year ended December 31, 1995, SEC File number 96539681.
(f) Copy of the Corporation's Amended and Restated 1995 Stock Option Plan,
filed as an appendix to the Corporation's Proxy statement for the 2002 Annual
Meeting of Shareholders as filed with the SEC via EDGAR is incorporated herein
by reference.
(g) Copy of Employment Agreement between the Bank and James Duncan Smith
(EVP), 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. Kevin C. Quinn, EVP, and Peter J. D'Angelo, EVP, are also parties to
employment agreements with the Bank which are substantially identical to Mr.
Smith's.
* 13. Annual Report to Security Holders, Form 10-Q or Quarterly Report to
Security Holders. The Corporation's Annual Report to Shareholders for the year
ended December 31, 2002. With the exception of pages 17-61 and the items
referred to in Items 1, 5, 6, 7, 7A, 8 and 16 hereof, the Corporation's 2002
Annual Report to Shareholders is not deemed to be filed as part of this report.
* 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. 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, which was formed on
July 11,2002.
* 23. Consents. Consent of Grant Thornton LLP, dated March 31, 2002.
--------
* 99.1 Certifications of President and Chief Executive Officer
* 99.2 Certifications of Chief Operating Officer
* 99.3 Certification of EVP, Financial Support Services
(our principal accounting and financial officer)
* 99.4 Certification of Vice President/Controller
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
/s/ Charles E. Swope
By:
--------------------------------
Charles E. Swope,
President and Chief Executive Officer
Date: March 31, 2003
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 31, 2003.
Signature Title
--------- -------
/s/ Charles E. Swope President, Chief Executive
Officer and Chairman of the
- ------------------------------ Board of Directors
Charles E. Swope
/s/ J. Duncan Smith EVP, Financial Support Services
(Principal Accounting and Financial
- ------------------------------ Officer)
J. Duncan Smith
(Signatures continued on following page)
(Signatures continued from previous page)
Signature Title
--------- -----
/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 A. Featherman, III Director
- ---------------------------------
John A. Featherman, III
/s/ John S. Halsted Director
- ---------------------------------
John S. Halsted
/s/ J. Carol Hanson Director
- ---------------------------------
J. Carol Hanson
/s/ David L. Peirce Director
- ---------------------------------
David L. Peirce
/s/ John B. Waldron Director
- ---------------------------------
John B. Waldron
I, Charles E. Swope, President and Chief Executive Officer of the Company,
---------------- certify that:
1. I have reviewed this annual report on Form 10-K of December 31, 2002;
2. Based on my knowledge, this annual 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 annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in the 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 annual 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-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures 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 annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this annual
report (the Evaluation Date); and
c) presented in this annual report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to date of their evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
DATE: March 31, 2003
/s/Charles E. Swope
- --------------------------
Charles E. Swope
President and Chief Executive Officer
I, Kevin Quinn, Chief Operating Officer of the Company, certify that:
-----------
1. I have reviewed this annual report on Form 10-K of December 31, 2002;
2. Based on my knowledge, this annual 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 annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in the 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 annual 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-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures 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 annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this annual
report (the Evaluation Date); and
c) presented in this annual report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to date of their evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
DATE: March 31, 2003
/s/Kevin Quinn
- ------------------------
Kevin Quinn
Chief Operating Officer
I, J. Duncan Smith, EVP, Financial Support Services(Principal Accounting and
--------------- Financial Officer) of the Company, certify that:
1. I have reviewed this annual report on Form 10-K of December 31, 2002;
2. Based on my knowledge, this annual 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 annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in the 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 annual 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-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures 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 annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this annual
report (the Evaluation Date); and
c) presented in this annual report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to date of their evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
DATE: March 31, 2003
/s/J. Duncan Smith
- -------------------------------------
J. Duncan Smith
EVP, Financial Support Services
(Principal Accounting and Financial Officer)
I, T. Benjamin Marsho, Vice President/Controller, certify that:
------------------
1. I have reviewed this annual report on Form 10-K of December 31, 2002;
2. Based on my knowledge, this annual 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 annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in the 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 annual 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-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures 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 annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this annual
report (the Evaluation Date); and
c) presented in this annual report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to date of their evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
DATE: March 31, 2003
/s/T. Benjamin Marsho
- ---------------------
T. Benjamin Marsho
Vice President/Controller
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):
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 Annual
Report on Form 10-K for the year ended December 31, 1999 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
Charles E. Swope dated January 1, 1998, filed as Exhibit 10 (a) to the
Corporation's Annual Report on Form 10-K for the year ended December 31, 1997 is
incorporated by reference.
(b) 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 8, 1997 (File no. 333-33175) is incorporated herein by
reference.
(c) 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 (File no. 333-33411) is incorporated herein by reference.
(d) 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 number 95084672.
(e) Copy of the Corporation's and the Bank's Directors Deferred
Compensation Plan, effective December 30, 1995, is incorporated herein by
reference to Exhibit 10(h) to the Corporation's Annual Report on Form 10-K for
the year ended December 31, 1995, SEC File number 96539681.
(f) Copy of the Corporation's Amended and Restated 1995 Stock Option Plan,
filed as an appendix to the Corporation's Proxy statement for the 2002 Annual
Meeting of Shareholders as filed with the SEC via EDGAR is incorporated herein
by reference.
(g) Copy of Employment Agreement between the Bank and James Duncan Smith
(EVP), 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. Kevin C. Quinn, EVP, and Peter J. D'Angelo, EVP, are also parties to
employment agreements with the Bank which are substantially identical to Mr.
Smith's.
* 13. Annual Report to Security Holders, Form 10-Q or Quarterly Report to
Security Holders. The Corporation's Annual Report to Shareholders for the year
ended December 31, 2002. With the exception of pages 17-61 and the items
referred to in Items 1, 5, 6, 7, 7A, 8 and 16 hereof, the Corporation's 2002
Annual Report to Shareholders is not deemed to be filed as part of this report.
* 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. 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, which was formed on July
11,2002.
* 23. Consents. Consent of Grant Thornton LLP, dated March 31, 2002.
--------
* 99.1 Certifications of President and Chief Executive Officer
* 99.2 Certifications of Chief Operating Officer
* 99.3 Certification of EVP, Financial Support Services
(our principal accounting and financial officer)
* 99.4 Certification of Vice President/Controller