TOWER BANCORP INC - FORM 8-K - EX-99.3 - UNAUDITED CONSOLIDATED BALANCE SHEETS OF FIRST CHESTER COUNTY CORPORATION

Attached files

file	filename
8-K - FORM 8-K - TOWER BANCORP INC	d8k.htm
EX-99.1 - PRESS RELEASE DATED DECEMBER 10, 2010 - TOWER BANCORP INC	dex991.htm
EX-10.2 - SEPERATION BENEFITS AGREEMENT - TOWER BANCORP INC	dex102.htm
EX-23.1 - CONSENT OF GRANT THORNTON LLP. - TOWER BANCORP INC	dex231.htm
EX-10.1 - EMPLOYMENT AGREEMENT - TOWER BANCORP INC	dex101.htm
EX-99.2 - ANNUAL REPORT ON FORM 10-K OF FIRST CHESTER COUNTY CORPORATION - TOWER BANCORP INC	dex992.htm

Table of Contents

Exhibit 99.3

FIRST CHESTER COUNTY CORPORATION AND SUBSIDIARIES

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CONSOLIDATED BALANCE SHEETS


(Dollars in thousands)	September 30, 2010			December 31, 2009
	(unaudited)
ASSETS
Cash and due from banks	$	18,186		$	20,853
Federal funds sold and other overnight investments		2,441			1,721
Interest bearing deposits		38,488			124,107

Total cash and cash equivalents		59,115			146,681

Investment securities available-for-sale, at fair value		58,204			82,698

Loans and leases		835,388			901,889
Less: allowance for loan and lease losses		(22,101	)		(23,217	)

Net loans and leases		813,287			878,672

Premises and equipment, net		18,761			20,513
Deferred tax asset, net		1,182			2,593
Bank owned life insurance		1,526			1,474
Other real estate owned		4,080			3,692
Other assets		18,500			32,560
Discontinued assets (see Note 6):
Mortgage loans and related derivative instruments		158,125			205,150
Other discontinued assets held for sale		3,640			3,203

Total assets	$	1,136,420		$	1,377,236

LIABILITIES
Deposits
Non-interest-bearing	$	149,203		$	155,647
Interest-bearing (including certificates of deposit over $100 thousand of $188,420 and $250,757 at September 30, 2010 and December 31, 2009, respectively)		821,050			954,653

Total deposits		970,253			1,110,300
Federal Home Loan Bank advances and other borrowings		73,239			172,897
Subordinated debentures		20,795			20,795
Other liabilities		11,921			13,097
Discontinued liabilities (see Note 6)		4,690			3,245

Total liabilities	$	1,080,898		$	1,320,334

EQUITY
Common stock, par value $1.00; authorized 25,000,000 shares; outstanding, 6,354,475 at September 30, 2010 and December 31, 2009	$	6,354		$	6,354
Additional paid-in capital		23,801			23,678
Retained earnings		24,227			25,753
Accumulated other comprehensive income (loss)		415			(499	)
Treasury stock, at cost: 34,879 shares and 13,702 shares at September 30, 2010 and December 31, 2009, respectively		(442	)		(209	)

Total First Chester County Corporation stockholders’ equity		54,355			55,077
Non-controlling interests		1,167			1,825

Total equity	$	55,522		$	56,902

Total liabilities and equity	$	1,136,420		$	1,377,236

The accompanying notes are an integral part of these statements.

Table of Contents

FIRST CHESTER COUNTY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)


	Three Months Ended September 30,						Nine Months Ended September 30,
(Dollars in thousands—except per share)	2010			2009			2010			2009
INTEREST INCOME
Loans and leases, including fees	$	11,949		$	13,565		$	36,391		$	40,140
Investment securities		413			764			1,306			2,991
Federal funds sold and deposits in banks		40			5			233			40

Total interest income		12,402			14,334			37,930			43,171

INTEREST EXPENSE
Deposits		2,351			2,881			7,869			9,854
Subordinated debt		286			295			833			721
Federal Home Loan Bank and other borrowings		891			1,388			3,317			4,360

Total interest expense		3,528			4,564			12,019			14,935

Net interest income		8,874			9,770			25,911			28,236
Provision for loan and lease losses		369			11,222			767			17,693

Net interest income after provision for loan and lease losses		8,505			(1,452	)		25,144			10,543

NON-INTEREST INCOME
Wealth management and advisory services		939			965			2,928			2,931
Service charges on deposit accounts		561			669			1,726			1,961
(Loss) gain on sales and calls of investment securities, net		(9	)		1			(9	)		1
Operating lease rental income		222			314			726			999
Net gain (loss) on the sales of fixed assets and other real estate owned		46			162			(29	)		279
Write down of other real estate owned		—			—			(1,333	)		—
Bank owned life insurance		16			13			52			39
Net impairment losses on available for sale securities:
Total impairment loss		—			(1,576	)		—			(1,576	)
Portion of loss in other comprehensive income (before taxes)		—			—			—			—

Net impairment losses recognized in operations		—			(1,576	)		—			(1,576	)
Other		633			523			1,838			1,552

Total non-interest income		2,408			1,071			5,899			6,186

NON-INTEREST EXPENSE
Salaries and employee benefits		3,471			5,367			10,581			15,493
Occupancy, equipment and data processing		1,681			1,811			5,110			5,410
Depreciation expense on operating leases		179			259			585			828
FDIC deposit insurance		598			422			1,938			1,897
Bank shares tax		(173	)		207			305			674
Professional services		2,564			1,100			7,074			2,508
Marketing		153			216			529			836
Other real estate expense		45			1			107			16
Communications expense		176			177			516			628
Other		765			1,022			3,072			2,893

Total non-interest expense		9,459			10,582			29,817			31,183

Income (loss) from continuing operations before income taxes		1,454			(10,963	)		1,226			(14,454	)
INCOME TAXES		582			(3,891	)		582			(4,610	)

NET INCOME (LOSS) FROM CONTINUING OPERATIONS	$	872		$	(7,072	)	$	644		$	(9,844	)
DISCONTINUED OPERATIONS:
Loss (income) from discontinued operations, net of taxes of $0 for the three and nine months ended September 30, 2010 and $617 thousand and $2.5 million for the three and nine months ended September 30, 2009, respectively		(594	)		1,122			(1,145	)		8,021
Less: Net income attributable to non-controlling interests		173			494			1,025			1,363

Net (loss) income attributable to discontinued operations	$	(767	)	$	628		$	(2,170	)	$	6,658
NET INCOME (LOSS) INCOME ATTRIBUTABLE TO FIRST CHESTER COUNTY CORPORATION	$	105		$	(6,444	)	$	(1,526	)	$	(3,186	)

PER SHARE DATA
Net income (loss) per share from continuing operations (Basic)	$	0.14		$	(1.12	)	$	0.11		$	(1.57	)

Net income (loss) per share from continuing operations (Diluted)	$	0.14		$	(1.12	)	$	0.11		$	(1.57	)

Net (loss) income per share from discontinued operations (Basic)	$	(0.12	)	$	0.10		$	(0.35	)	$	1.06

Net (loss) income per share from discontinued operations (Diluted)	$	(0.12	)	$	0.10		$	(0.35	)	$	1.06

Net income (loss) per share attributable to First Chester County Corporation (Basic)	$	0.02		$	(1.02	)	$	(0.24	)	$	(0.51	)

Net income (loss) per share attributable to First Chester County Corporation (Diluted)	$	0.02		$	(1.02	)	$	(0.24	)	$	(0.51	)

Dividends declared	$	—		$	0.14		$	—		$	0.42

Basic weighted average shares outstanding		6,318,986			6,306,889			6,325,258			6,272,682

Diluted weighted average shares outstanding		6,318,986			6,306,889			6,325,258			6,272,682

The accompanying notes are an integral part of these statements.

Table of Contents

FIRST CHESTER COUNTY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)


	Nine Months Ended September 30,
(Dollars in thousands)	2010			2009
OPERATING ACTIVITIES
Net loss attributable to First Chester County Corporation	$	(1,526	)	$	(3,186	)
Net income attributable to non-controlling interests		1,025			1,363

Net loss including non-controlling interests	$	(501	)	$	(1,823	)

Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation		2,200			2,728
Provision for loan and lease losses		767			17,693
Amortization of investment security premiums and accretion of discounts, net		309			300
Amortization of deferred loan fees		(1,129	)		(728	)
Losses (gains) on sales and calls of investment securities available for sale, net		9			(1	)
Net losses (gains) from sales of fixed assets and OREO		29			(279	)
Write down of other real estate owned		1,333			—
Net gain from mortgage banking activities		(33,910	)		(37,172	)
Proceeds from the sale of mortgage loans held for sale		1,430,326			1,897,596
Origination of mortgage loans held for sale		(1,349,440	)		(1,950,649	)
Net cash paid for the settlement of derivative contracts		(1,006	)		(277	)
Stock-based compensation expense		93			147
Other than temporary impairment on investment securities available for sale		—			1,576
Decrease (increase) in deferred tax asset		939			(3,201	)
Decrease (increase) in other assets		9,730			(12,339	)
Increase in other liabilities		1,294			2,369

Net cash provided by (used in) operating activities		61,043			(84,060	)

INVESTING ACTIVITIES
Net decrease (increase) in loans		65,747			(21,108	)
Proceeds from sales of investment securities available-for-sale		245			33,641
Proceeds from maturities, prepayments and calls of investment securities available-for-sale		26,031			10,048
Purchases of investment securities available-for-sale		(713	)		(16,649	)
Proceeds from the sale of OREO		2,064			5,060
Purchase of premises and equipment		(576	)		(3,794	)
Proceeds from the sale of premises and equipment		184			114

Net cash provided by investing activities		92,982			7,312

FINANCING ACTIVITIES
Change in subsidiary’s shares from non-controlling interest		(1,683	)		(1,009	)
Net increase in short term Federal Home Loan Bank and other short term borrowings		—			49,700
Increase in long term Federal Home Loan Bank and other borrowings		—			58,300
Repayment of long term Federal Home Loan Bank and other borrowings		(99,658	)		(77,047	)
Proceeds from issuance of subordinated debentures		—			5,330
Net decrease in deposits		(140,047	)		(29,077	)
Cash dividends paid		—			(1,759	)
Net treasury stock transactions		(203	)		111

Net cash (used in) provided by financing activities		(241,591	)		4,549

NET DECREASE IN CASH AND CASH EQUIVALENTS		(87,566	)		(72,199	)
Cash and cash equivalents at beginning of period		146,681			95,150

Cash and cash equivalents at end of period	$	59,115		$	22,951

Supplementary cash flow information:
Interest paid	$	13,627		$	17,611
Income taxes paid	$	—		$	2,750
Loans transferred to real estate owned	$	3,890		$	2,963

The accompanying notes are an integral part of these statements.

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FIRST CHESTER COUNTY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

(UNAUDITED)


	Common Stock				Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Income (loss)			Treasury Stock			Non- Controlling Interest			Total Equity			Comprehensive Income
(Dollars in thousands)	Shares		Par Value		Additional Paid-in Capital			Retained Earnings						Treasury Stock			Non- Controlling Interest			Total Equity			Comprehensive Income
Balance January 1, 2009		6,331,975	$	6,332	$	24,708		$	57,899		$	(3,292	)	$	(1,815	)	$	1,485		$	85,317

Cumulative effect adjustment under ASC 860-50		—		—		—			240			—			—			—			240

Balance January 1, 2009, as adjusted		6,331,975		6,332		24,708			58,139			(3,292	)		(1,815	)		1,485			85,557

Change in subsidiary shares from non-controlling interest		—		—		—			—			—			—			(1,009	)		(1,009	)
Net income		—		—		—			(3,186	)		—			—			1,363			(1,823	)	$	(1,823	)
Cash dividends declared		—		—		—			(2,632	)		—			—			—			(2,632	)
Other comprehensive income		—		—		—			—			—			—			—			—
Net unrealized gains on investment securities available-for-sale		—		—		—			—			2,769			—			—			2,769			2,769
Treasury stock transactions		—		—		(1,330	)		—			—			1,441			—			111
Stock based compensation		—		—		147			—			—			—			—			147
Stock based compensation tax benefit		—		—		(10	)		—			—			—			—			(10	)

Total comprehensive income																							$	946

Balance September 30, 2009		6,331,975	$	6,332	$	23,515		$	52,321		$	(523	)	$	(374	)	$	1,839		$	83,110

Balance January 1, 2010		6,354,475	$	6,354	$	23,678		$	25,753		$	(499	)	$	(209	)	$	1,825		$	56,902

Change in subsidiary shares from non-controlling interest		—		—		—			—			—			—			(1,683	)		(1,683	)
Net (loss) income		—		—		—			(1,526	)		—			—			1,025			(501	)	$	(501	)
Other comprehensive income		—		—		—			—			—			—			—			—
Net unrealized gains on investment securities Available-for-sale		—		—		—			—			914			—			—			914			914
Treasury stock transactions		—		—		30			—			—			(233	)		—			(203	)
Share based compensation		—		—		93			—			—			—			—			93

Total comprehensive loss																							$	413

Balance September 30, 2010		6,354,475	$	6,354	$	23,801		$	24,227		$	415		$	(442	)	$	1,167		$	55,522

The accompanying notes are an integral part of these statements.

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FIRST CHESTER COUNTY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

1. Summary of Significant Accounting Policies

Basis of presentation

The foregoing unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information. The preparation of the financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and the accompanying notes. Certain prior period amounts have been reclassified to conform to current year presentation, which includes reclassifications for discontinued operations (see Note 6 for discontinued operations disclosure and Note 13 for earnings (loss) per share). Actual results could differ from those estimates.

In the opinion of management, all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of the financial position and the results of operations for the interim periods presented have been included. The results of operations for the three and nine month periods ended September 30, 2010 are not necessarily indicative of the results to be expected for the full year. These interim financial statements should be read in conjunction with the consolidated financial statements and footnotes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2009 (our “2009 Annual Report”).

Prior to January 1, 2010, our business was conducted through two primary segments, community banking and mortgage banking. During the first quarter 2010, we announced the potential sale of our American Home Bank (“AHB”) mortgage banking segment. Accordingly, the mortgage banking operations related to this segment have been reclassified, and are now presented as discontinued operations in the consolidated statements of operations. Certain assets and liabilities of this former segment are presented as discontinued assets and liabilities held for sale. The statements of cash flows are presented on a consolidated basis, including both continuing and discontinued operations. The notes to the consolidated financial statements have been adjusted to exclude discontinued operations unless otherwise noted. Footnote segment disclosures are not provided. Refer to Note 6 of the accompanying consolidated financial statements for information related to discontinued operations.

The consolidated financial statements include the accounts of First Chester County Corporation (“First Chester” or the “Corporation”) and First National Bank of Chester County (the “Bank”). All material intercompany balances and transactions have been eliminated in consolidation.

2. Going Concern

The Corporation’s financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the discharge of liabilities in the normal course of business for the foreseeable future. However, due to the Corporation’s financial results, the substantial uncertainty throughout the U.S. banking industry and other matters discussed in this report, a substantial doubt exists regarding our ability to continue as a going concern. Our financial statements do not include any adjustments that might be necessary if we are unable to continue as a going concern.

As further described in Note 5, on October 16, 2009, the Bank entered into a Memorandum of Understanding (“MOU”) with the Office of the Comptroller of the Currency (“OCC”). On August 27, 2010, the Bank entered into a formal written agreement with the OCC, which supersedes and replaces

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FIRST CHESTER COUNTY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(UNAUDITED)

2. Going Concern (Continued)

the MOU. The OCC also mandated higher individual minimum capital ratios (“IMCRs”), which the Bank was required to achieve by December 31, 2009. Continued operations may depend on the Corporation’s ability to comply with the terms of the formal agreement, the IMCRs and the closing of the pending merger with Tower Bancorp, Inc. (“Tower”). For the year ended December 31, 2009, the Corporation incurred a net loss from operations, primarily from the higher provisions for loan losses due to increased levels of non-performing assets, the write-off of goodwill and the establishment of a valuation allowance on the deferred tax assets. Our efforts to raise capital to comply with the IMCRs prior to the deadline ultimately resulted in the planned merger with Tower, as described in Note 3 below, which was announced on December 28, 2009. In addition, in efforts to conserve capital, we elected to reduce and subsequently suspend our cash dividends on our common stock beginning with the third quarter of 2009. However, despite the above efforts, as of March 31, 2010 and December 31, 2009, the Bank was below certain IMCR thresholds. The Corporation has been compliance with the IMCRs since the quarter ended June 30, 2010, as further discussed in Note 5.

Management and the board of directors are committed to the planned merger with Tower. However, if the announced merger were not to occur, then Management would seek to recapitalize the Bank by finding another merger partner or by raising additional capital in the public or private markets. The Corporation is completing a regular planning cycle for 2011, which includes, among other things, updating the Corporation’s strategic business plan and creating detailed operating and marketing plans for the Bank as an independent company.

3. Pending Merger

On December 27, 2009, the Corporation entered into a definitive merger agreement, as amended (the “Merger Agreement”), with Tower, the holding company for Graystone Tower Bank (“Graystone”), pursuant to which First Chester will merge with and into Tower (the “Merger”), with Tower being the surviving corporation. The Merger Agreement also provides that upon consummation of the merger, the Bank will merge with and into Graystone, with Graystone as the surviving institution (the “Bank Merger”). The Merger Agreement additionally provides for the potential sale of the AHB segment at or prior to the consummation of the Merger. At the effective time of the Merger, the board of directors of Tower will be increased by three (3) directors and three (3) of the current directors of First Chester selected by the board of directors of First Chester, with the approval of Tower’s board of directors, will be added to the board of directors of Tower, to serve as such for no less than three years.

Under the terms of the Merger Agreement, shareholders of First Chester will receive 0.453 shares of Tower common stock for each share of First Chester common stock they own. The Merger Agreement establishes loan delinquency thresholds and provides for an increase or reduction in the consideration paid by Tower to First Chester shareholders in the event of specified increases or decreases in First Chester’s loan delinquencies prior to closing. If the merger had closed in October 2010, the exchange ratio would have been 0.291 based on First Chester Delinquent Loans of $76.2 million calculated as of September 30, 2010.

Directors and executive officers of First Chester have entered into Voting Agreements with Tower, pursuant to which they have agreed, among other things, to vote all shares of common stock of First Chester owned by them in favor of the approval of the Merger at the special shareholder’s meeting to vote upon the Merger.

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FIRST CHESTER COUNTY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(UNAUDITED)

3. Pending Merger (Continued)

Consummation of the Merger is subject to certain terms and conditions, including, but not limited to, receipt of various regulatory approvals and approval by both Tower’s and First Chester’s shareholders and First Chester’s loan delinquencies not exceeding $90 million in the aggregate. As of September 30, 2010, all regulatory approvals have been received from the bank regulators. However, certain of these approvals contain expiration dates such that extensions may need to be obtained if the merger is not closed prior to the end of 2010.

On November 1, 2010, First Chester and Tower jointly announced that the companies will each hold a special meeting of its respective shareholders on December 8, 2010 for purposes of considering and approving the Merger. The Merger is currently anticipated to close in mid-December 2010. The transaction remains subject to approval by the shareholders of Tower and First Chester, as well as the satisfaction of other closing conditions. First Chester and Tower mailed the joint proxy statement/prospectus related to the special meetings to their respective shareholders on or about November 5, 2010.

4. Recent Accounting Pronouncements

In July 2010, the FASB issued Accounting Standards Update (“ASU”) 2010-20, Receivables (Topic 310): Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses. The update requires companies to provide more information in their disclosures about the credit quality of their financing receivables and the credit reserves held against them. The amendments that require disclosures as of the end of a reporting period are effective for the periods ending on or after December 15, 2010. ASU No. 2010-20 will enhance the disclosure requirements for financing receivables and credit losses, but will not impact the Corporation’s financial position, results of operations or cash flows.

In February 2010, the FASB issued ASU 2010-09, Subsequent Events (Topic 855): Amendments to Certain Recognition and Disclosure Requirements. This guidance removes the requirement for a SEC filer to disclose a date through which subsequent events have been evaluated in both issued and revised financial statements. Revised financial statements include financial statements revised as a result of either correction of an error or retrospective application of GAAP. ASU 2010-09 is intended to remove potential conflicts with the SEC’s literature and all of the amendments are effective upon issuance, except for the use of the issued date for conduit debt obligors. The Corporation adopted the guidance for the interim period ending June 30, 2010 with no impact on the Corporation’s financial condition or results of operations.

In January 2010, the FASB issued ASU 2010-06, Fair Value Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements. This guidance requires: (1) disclosure of the significant amount transferred in and out of Level 1 and Level 2 fair value measurements and the reasons for the transfers; and (2) separate presentation of purchases, sales, issuances and settlements in the reconciliation for fair value measurements using significant unobservable inputs (Level 3). In addition, ASU 2010-06 clarifies the requirements of the following existing disclosures set forth in FASB Accounting Standards Codifications (ASC) 820, “Fair Value

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FIRST CHESTER COUNTY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(UNAUDITED)

4. Recent Accounting Pronouncements (Continued)

Measurements and Disclosures”: (1) For purposes of reporting fair value measurement for each class of assets and liabilities, a reporting entity needs to use judgment in determining the appropriate classes of assets and liabilities; and (2) a reporting entity should provide disclosures about the valuation techniques and inputs used to measure fair value for both recurring and nonrecurring fair value measurements. This guidance is effective for interim and annual reporting periods beginning January 1, 2010, except for the disclosures about purchases, sales, issuances, and settlements in the roll forward of activity in Level 3 fair value measurements, which are effective for fiscal years beginning January 1, 2011, and for interim periods within those fiscal years. The Corporation adopted the guidance on January 1, 2010, and the guidance did not have an impact on the Corporation’s financial condition or results of operations.

In June 2009, the FASB updated ASC 860, “Transfers and Servicing,” to eliminate the concept of a qualifying special-purpose entity (“QSPE”), modify the criteria for applying sale accounting to transfers of financial assets or portions of financial assets, differentiate between the initial measurement of an interest held in connection with the transfer of an entire financial asset recognized as a sale and participating interests recognized as a sale and remove the provision allowing classification of interests received in a guaranteed mortgage securitization transaction that does not qualify as a sale as available-for-sale or trading securities. The updates to ASC 860 clarify (i) that an entity must consider all arrangements or agreements made contemporaneously or in contemplation of a transfer, (ii) the isolation analysis related to the transferor and its consolidated subsidiaries and (iii) the principle of effective control over the transferred financial asset. The updates to ASC 860 also enhance financial statement disclosures. The updates to ASC 860 are effective for fiscal years beginning after November 15, 2009 with earlier application prohibited. Revised recognition and measurement provisions are to be applied to transfers occurring on or after the effective date and the disclosure provisions are to be applied to transfers that occurred both before and after the effective date. The guidance was effective for January 1, 2010 and did not have an impact on the Corporation’s financial condition or results of operations.

In June 2009, the FASB updated ASC 810, “Consolidation,” to modify certain characteristics that identify a variable interest entity (“VIE”), revise the criteria for determining the primary beneficiary of a VIE, add an additional reconsideration event to determining whether an entity is a VIE, eliminating troubled debt restructurings as an excluded reconsideration event and enhance disclosures regarding involvement with a VIE. Additionally, with the elimination of the concept of QSPEs in the updates to ASC 860, entities previously considered QSPEs are now within the scope of ASC 810. Entities required to consolidate or deconsolidate a VIE will recognize a cumulative effect in retained earnings for any difference in the carrying amount of the interest recognized. The updates to ASC 810 are effective for fiscal years beginning after November 15, 2009 with earlier application prohibited. The guidance was effective for January 1, 2010 and did not have an impact on the Corporation’s financial condition or results of operations.

5. Regulatory Matters

Supervisory Actions

The Bank is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can prompt certain mandatory, and possibly

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FIRST CHESTER COUNTY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(UNAUDITED)

5. Regulatory Matters (Continued)

additional discretionary, actions by regulators that, if undertaken, could have a direct material effect on the Corporation’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank’s assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators involving factors such as the risk weights assigned to assets and what items may be counted as capital. Regulators also have broad discretion to require any institution to maintain higher capital levels than otherwise required by statute or regulation, even institutions that are considered “well-capitalized” under applicable regulations.

On October 16, 2009, the Board of Directors of the Bank entered into an MOU with the OCC. An MOU with regulatory authorities is an informal action that is not published or publicly available and that is used when circumstances warrant a milder form of action than a formal supervisory action, such as a formal written agreement or order. Under the MOU, the Bank has agreed to address, among other things, the following matters:

•

develop a comprehensive three-year capital plan;

•

take action to protect criticized assets and adopt and implement a program to eliminate the basis of criticism of such assets;

•

establish an effective program that provides for early problem loan identification and a formal plan to proactively manage those assets;

•

review the adequacy of the Bank’s information technology activities and Bank Secrecy Act compliance and approve written programs of policies and procedures to provide for compliance; and

•

establish a Compliance Committee of the Board to monitor and coordinate the Bank’s adherence to the provisions of the MOU.

On August 27, 2010, the Board of Directors of the Bank entered into a formal written agreement with the OCC, which supersedes and replaces the MOU. The formal agreement requires that the Board of Directors of the Bank ensure that the Bank takes those actions identified in the MOU (described above), and, in some cases, augments those requirements, such as by establishing a written program regarding criticized assets of $750,000 or above, rather than the $1,000,000 threshold referenced in the MOU. In addition, the formal agreement adds a number of new requirements, requiring the Bank to: (i) ensure the Bank has adequate and competent senior management; (ii) develop and implement a written profit plan to improve and sustain the earnings of the Bank; (iii) develop and implement a written program to improve loan portfolio management; (iv) review the methodology for the Bank’s allowance for loan and lease losses and establish a program providing for the maintaining of an adequate allowance; and (v) adopt and implement a written interest rate risk policy. Unlike the MOU, the formal agreement is a form of formal enforcement action enforceable by the OCC through several means, including injunctions and the assessment of civil money penalties against the Bank, its Board of Directors and/or its management.

The Board of Directors and Management have initiated corrective actions to comply with the provisions of the formal agreement.

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5. Regulatory Matters (Continued)

Additionally, in November 2009, the Bank was advised that the OCC established IMCRs for the Bank higher than the capital ratios generally applicable to banks under current regulations. In the case of the Bank, the OCC established IMCRs requiring a Tier 1 leverage ratio of at least eight percent (8%), a Tier 1 risk-based capital ratio of at least ten percent (10%) and a total risk-based capital ratio of at least twelve percent (12%) which the Bank was required to achieve by December 31, 2009. The Corporation’s efforts to raise capital prior to the deadline ultimately resulted in the planned merger with Tower Bancorp, which was announced on December 28, 2009. During the fourth quarter of 2009, the Corporation also received notice from the Federal Reserve, its primary regulator, that the Federal Reserve must approve any dividends to be paid in advance of the declaration or payment of the dividend.

For the purpose of satisfying the IMCRs, during December 2009, the Corporation entered into an amendment to our existing loan agreement with Graystone to recapitalize the Bank. As of December 31, 2009, the Corporation borrowed the full $26.0 million available under the credit facility which was contributed to the Bank as Tier 1 capital. Additionally, Graystone purchased $52.5 million in first lien residential real estate and commercial loan participations at a 1.5% discount.

As set forth in the tables below, as of September 30, 2010, the Bank met the IMCR thresholds for all capital ratios, but as of December 31, 2009, the Bank was below the IMCR thresholds for Tier 1 leverage and total risk-based capital.


	Actual					For Capital Adequacy Purposes					To Be Well Capitalized Under Individual Minimum Capital Ratios
(Dollars in thousands)	Amount		Ratio			Amount		Ratio			Amount		Ratio
As of September 30, 2010:
Leverage Ratio
Corporation		73,418		6.35	%		46,245		³4.00	%		N/A		N/A
Bank		102,509		8.88	%		46,163		³4.00	%		92,326		³8.00	%

Tier I Capital Ratio
Corporation		73,418		8.38	%		35,060		³4.00	%		N/A		N/A
Bank		102,509		11.72	%		34,996		³4.00	%		87,490		³10.00	%

Total Risk Based Capital Ratio
Corporation		86,971		9.92	%		70,121		³8.00	%		N/A		N/A
Bank		113,616		12.99	%		69,992		³8.00	%		104,988		³12.00	%

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(UNAUDITED)

5. Regulatory Matters (Continued)


	Actual					For Capital Adequacy Purposes					To Be Well Capitalized Under Individual Minimum Capital Ratios
(Dollars in thousands)	Amount		Ratio			Amount		Ratio			Amount		Ratio
As of December 31, 2009:
Leverage Ratio
Corporation		76,459		5.71	%		53,522	³	4.00	%		N/A		N/A
Bank		102,617		7.68	%		53,472	³	4.00	%		106,943		³8.00	%

Tier I Capital Ratio
Corporation		76,459		7.79	%		39,262	³	4.00	%		N/A		N/A
Bank		102,617		10.47	%		39,203	³	4.00	%		98,008		³10.00	%

Total Risk Based Capital Ratio
Corporation		89,936		9.16	%		78,525	³	8.00	%		N/A		N/A
Bank		115,035		11.74	%		78,407	³	8.00	%		117,610		³12.00	%

Dividend Restrictions

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, subject to the further limitations that a national bank can pay dividends only to the extent that the payment of such dividends would not cause the Bank to become “undercapitalized” (as defined under federal law). There were no dividends declared or payable by the Bank as of September 30, 2010.

During the fourth quarter of 2009, the Corporation received notice from the Federal Reserve Board that the Federal Reserve must approve any dividends to be paid by the Corporation in advance of the declaration or payment of the dividend. The Corporation announced during the first quarter 2010 that it will not be paying any dividends prior to the completion of the proposed merger. There were no dividends declared or payable by the Corporation as of September 30, 2010.

6. Discontinued Assets Held for Sale and Discontinued Operations

On March 4, 2010, the Corporation and Tower entered into an amendment to the Merger Agreement, which provides for the merger of the Bank with and into Graystone, with Graystone as the surviving institution. Graystone and the Bank entered into a Bank Plan of Merger on March 4, 2010. The amendment additionally provides for the potential sale of the AHB division at or prior to the consummation of the Merger. The Corporation has engaged a financial advisor to assist in the sale of the AHB division.

The results of operations of a component of an entity that has either been disposed of, or is classified as held for sale, shall be reported in discontinued operations if both the operations and cash flows of the component have been, or will be, eliminated from ongoing operations of the entity as a

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6. Discontinued Assets Held for Sale and Discontinued Operations (Continued)

result of the disposal transaction and the entity will not have any significant continuing involvement in the operations of the component after the disposal transaction.

In determining whether the Corporation met the conditions for a qualified plan of sale, management considered the relevant accounting guidance and concluded that the “held for sale” conditions were met during the first quarter 2010. Management determined that the Corporation will exit significant mortgage banking activities after the sale of AHB and, as such, certain assets and liabilities of the Corporation’s mortgage banking operations will be presented as discontinued assets held for sale and the results of operations directly related to mortgage banking activity will be presented as discontinued operations for the quarter ended March 31, 2010, and for all future periods.

Loans held for sale and related derivative instruments are shown as a separate disposal group separate from other AHB assets. Based on discussions with interested third parties to date, management anticipates that these assets, although discontinued from the Corporation’s future business model most likely will not be sold in the transaction as described above. These assets although directly related to the mortgage banking segment’s operations are to be sold by the Corporation in the normal course of business shortly after the close of a potential sale transaction. The Corporation does not expect to originate significant loans held for sale after the completion of the sale of its mortgage banking operations.

The remaining assets, disposal group 2, will likely be sold as indicated in the amended Merger Agreement noted above. The carrying value of these assets are required to be at the lower of their carrying value or fair market value less costs to sell, and depreciation and amortization expense associated with assets held-for-sale ceases.


	September 30, 2010		December 31, 2009
Disposal Group 1
Loans held for sale, at fair value	$	155,264	$	202,757
Derivative instruments, at fair value		2,861		2,393

Total assets	$	158,125	$	205,150

Fair value of derivative instruments	$	384	$	—

Total liabilities	$	384	$	—

Disposal Group 2
Premises and equipment	$	2,044	$	1,956
Other miscellaneous assets		1,596		1,247

Total assets	$	3,640	$	3,203

Accounts payable and accrued liabilities	$	4,306	$	3,245

Total liabilities	$	4,306	$	3,245

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(UNAUDITED)

6. Discontinued Assets Held for Sale and Discontinued Operations (Continued)

Results of operations for discontinued operations for the three and nine months ended September 30, 2010 and 2009 are presented below.


	Three Months Ended September 30,
	2010			2009
Interest income(1)	$	1,480		$	2,867
Interest expense(2)		392			803

Net interest income		1,088			2,064
Non-interest income		10,557			12,472
Non-interest expense		12,239			12,797

(Loss) income before income taxes		(594	)		1,739
Income taxes		—			617

Net (loss) income prior to non-controlling interest	$	(594	)	$	1,122

Less: Net income attributable to non-controlling interest	$	173		$	494

(Loss) income from discontinued operations, net of taxes	$	(767	)	$	628


	Nine Months Ended September 30,
	2010			2009
Interest income(1)	$	4,166		$	7,810
Interest expense(2)		1,120			2,364

Net interest income		3,046			5,446
Non-interest income		34,029			40,714
Non-interest expense		38,220			35,601

(Loss) income before income taxes		(1,145	)		10,559
Income taxes		—			2,538

Net (loss) income prior to non-controlling interest	$	(1,145	)	$	8,021

Less: Net income attributable to non-controlling interest	$	1,025		$	1,363

(Loss) income from discontinued operations, net of taxes	$	(2,170	)	$	6,658

(1)

Interest income excludes interest income earned on the Corporation’s residential and construction loans held for investment that was previously disclosed as part of the results of operations of the mortgage banking segment. Management anticipates that these held for investment portfolios will remain as part of the Corporation’s continuing community banking operations after the sale of the mortgage banking business.

(2)	Interest expense of the mortgage banking segment is based on management’s internal methodology of allocating consolidated interest expense of the Corporation’s existing funding sources to the mortgage banking segment’s assets directly related to discontinued

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6. Discontinued Assets Held for Sale and Discontinued Operations (Continued)

loans held for sale and certain discontinued non-interest earning assets held for sale. This allocation methodology is consistent with management’s previous segment reporting policies, however, it excludes any funding costs attributable to the Corporation’s residential and construction loans held for investment that were previously disclosed as part of the results of operations of the mortgage banking segment. Imputed interest expense of the mortgage banking segment is shown as part of the consolidated statement of operations as deposit and Federal Home Loan Bank (“FHLB”) advances and other borrowings interest expense. To properly report the net loss (income) from discontinued operations, interest expense from deposits of $356 thousand and $1.0 million and interest expense from FHLB advances and other borrowings of $36 thousand and $99 thousand for the three and nine month periods ending September 30, 2010, respectively, was reclassified from the Corporation’s continuing operations on the consolidated statements of operations to interest expense from discontinued operations. Interest expense from deposits of $631 thousand and $2.0 million and interest expense from FHLB advances and other borrowings of $172 thousand and $352 thousand for the three and nine month periods ending September 30, 2009, respectively, was reclassified from the Corporation’s continuing operations on the consolidated statements of operations to interest expense from discontinued operations.

7. Investment Securities

The Corporation’s investment portfolio consists of the following categories of securities:

•

US Treasury—Consists of debt securities issued by the US Government.

•

US Government Agency Notes—Consists of debt instruments issued by US Government agencies such as the Federal Home Loan Bank and Freddie Mac.

•

US Government Agency Mortgage Backed Securities—Consists of residential mortgage pass-through securities and collateralized mortgage obligations “CMOs” issued by US government agencies such as GNMA, FNMA and Freddie Mac. The GNMA pass-through securities or the underlying GNMA securities backing the CMOs are guaranteed by the US Government, while the FNMA and Freddie Mac pass-through securities or the underlying FNMA and Freddie Mac securities backing the CMOs are guaranteed by the respective US Government agency.

•

Collateralized Mortgage Obligations—Residential—Consists of private label CMOs backed by non-government agency residential mortgage pools.

•

Collateralized Mortgage Obligations—Commercial—Consists of private label CMOs backed by non-government agency commercial mortgage pools.

•

State and Municipal—Consists of securities issued by state, city or local governments.

•

Corporate Debt Securities—Consists of corporate debt securities.

•

Bank equity securities—Consists of equity securities of banks, bank holding companies or bank trust preferred securities.

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7. Investment Securities (Continued)

•

Other Equity Securities—Consists primarily of equity securities of the Federal Reserve and the Federal Home Loan Bank.

The amortized cost, gross unrealized gains and losses, and fair market value of the Corporation’s available-for-sale securities at September 30, 2010 and December 31, 2009 are summarized as follows:

September 30, 2010


(Dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
US Treasury	$	5,001	$	11	$	—		$	5,012
US Government agency mortgage-backed securities		29,408		1,166		—			30,574
Collateralized mortgage obligations—Residential		1,042		8		(84	)		966
Collateralized mortgage obligations—Commercial		1,003		—		(47	)		956
State and municipal		2,346		41		—			2,387
Corporate debt securities		7,044		—		(525	)		6,519
Bank equity securities		270		60		—			330
Other equity securities		11,460		—		—			11,460

Totals	$	57,574	$	1,286	$	(656	)	$	58,204

December 31, 2009


(Dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
US Treasury	$	20,003	$	13	$	—		$	20,016
US Government agency notes		2,040		7		—			2,047
US Government agency mortgage-backed securities		36,193		902		(100	)		36,995
Collateralized mortgage obligations—Residential		1,249		—		(251	)		998
Collateralized mortgage obligations—Commercial		1,004		—		(196	)		808
State and municipal		4,542		52		—			4,594
Corporate debt securities		7,056		—		(1,191	)		5,865
Bank equity securities		525		50		(42	)		533
Other equity securities		10,842		—		—			10,842

	$	83,454	$	1,024	$	(1,780	)	$	82,698

The amortized cost and estimated fair value of debt securities classified as available-for-sale at September 30, 2010, by contractual maturity, are shown in the following table. Expected maturities will

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7. Investment Securities (Continued)

differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.


(Dollars in thousands)	Amortized Cost		Fair Value
Due in one year or less	$	5,840	$	5,864
Due after one year through five years		7,560		7,353
Due after five years through ten years		—		—
Due after ten years		991		701

		14,391		13,918
Mortgage-backed securities and CMOs		31,453		32,496
Bank equity and other equity securities		11,730		11,790

	$	57,574	$	58,204

Proceeds from the sale of investment securities available for sale for the three and nine months ended September 30, 2010 was $245 thousand. Gross losses from the sale of investment securities for the three and nine months ended September 30, 2009 was $9 thousand. Proceeds from the sale of investment securities available for sale for the three and nine months ended September 30, 2009 was $3.3 million and $33.6 million respectively. Gross gains from the sale of investment securities for the three and nine months ended September 30, 2009 was $1 thousand. The principal amount of investment securities pledged to secure public deposits and for other purposes required or permitted by law were $46.4 million at September 30, 2010 and $71.4 million at December 31, 2009. Other than US government agency mortgage back securities and Federal Home Loan Bank stock, there were no securities held from a single issuer that represented more than 10% of stockholders’ equity.

The table below indicates the length of time individual securities have been in a continuous unrealized loss position at September 30, 2010.


	Less than 12 months							12 months or longer					Total
(Dollars in thousands) Description of Securities	Number of Securities		Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
Collateralized mortgage obligations—Residential		1		—		—			568		(84	)		568		(84	)
Collateralized mortgage obligations—Commercial		1		—		—			957		(47	)		957		(47	)
Corporate debt securities		6		995		(5	)		5,524		(520	)		6,519		(525	)

Total temporarily impaired investment securities		8	$	995	$	(5	)	$	7,049	$	(651	)	$	8,044	$	(656	)

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7. Investment Securities (Continued)

The table below indicates the length of time individual securities have been in a continuous unrealized loss position at December 31, 2009.


	Less than 12 months							12 months or longer					Total
(Dollars in thousands) Description of Securities	Number of Securities		Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
US Government agency mortgage-backed securities		5	$	9,386	$	(100	)	$	—	$	—		$	9,386	$	(100	)
Collateralized mortgage obligations—Residential		3		292		—			700		(251	)		992		(251	)
Collateralized mortgage obligations—Commercial		1		—		—			808		(196	)		808		(196	)
Corporate debt securities		6		—		—			5,865		(1,191	)		5,865		(1,191	)
Bank equity securities		2		—		—			213		(42	)		213		(42	)

Total temporarily impaired investment securities		17	$	9,678	$	(100	)	$	7,586	$	(1,680	)	$	17,264	$	(1,780	)

Other than Temporary Impairment

In accordance with ASC 320-10, “Investments—Debt and Equity Securities,” the Corporation evaluates its securities portfolio for other-than-temporary impairment (“OTTI”) throughout the year. Each investment that has a fair value less than the book value is reviewed on a quarterly basis by management. Management considers at a minimum the following factors that, both individually or in combination, could indicate that the decline is other-than-temporary: (a) the Corporation has the intent to sell the security; (b) it is more likely than not that it will be required to sell the security before recovery; and (c) the Corporation does not expect to recover the entire amortized cost basis of the security. Among the factors that are considered in determining intent is a review of capital adequacy, interest rate risk profile and liquidity at the Corporation. An impairment charge is recorded against individual securities if the review described above concludes that the decline in value is other-than-temporary. There were no impairments recorded during the nine months ended September 30, 2010 on available for sale securities.

Specific conclusions for each category of securities with an unrealized loss position and where management believed an other than temporary impairment analysis was warranted are summarized below:

CMO—Residential and Commercial

There are a total of two private label CMO securities that had unrealized loss positions at September 30, 2010. One of the securities had a AA- rating from S&P, and the other had a B- rating from S&P. All contractual cash flows have been received on these securities. Each of these issuances has subordinated tranches supporting principal. In addition, we conducted due diligence of

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7. Investment Securities (Continued)

publicly available information regarding these securities and no material information came to our attention that would indicate an inability to recover our basis in these securities. We reviewed and considered information about the underlying collateral as well as information provided by our professional investment advisors. This information indicated likelihood that subordinate tranches of the CMO provide sufficient protection to the Bank’s senior tranches such that management can conclude that the probability of suffering a principal loss is unlikely. Because the Corporation does not intend to sell these securities and it is more likely than not that the Corporation will not be required to sell the securities before recovery of its amortized cost basis, which may be maturity, it does not consider these investments to be other-than-temporarily impaired at September 30, 2010.

Corporate Debt Securities

There are a total of six securities in this category that had unrealized loss positions at September 30, 2010. All of these securities are obligations of well-known, established companies or subsidiaries thereof. All contractual cash flows have been received on these securities. Depreciation on three of the securities accounted for 93% of the total depreciation in this category. For these three securities management reviewed rating agency information and noted that all three securities had below investment grade ratings. Current news and filings, the length and duration of the depreciation, and a review of the analysis performed by our third party investment advisor indicated that there was no information that would indicate a going concern or other issue that would impair our ability to recover our cost basis. As the Corporation does not intend to sell these securities and it is not more likely than not that the Corporation will be required to sell the securities before recovery of its amortized cost basis, it does not consider these investments to be other-than-temporarily impaired at September 30, 2010.

8. Loans and Leases

The following charts present information about major loan classifications as well as impaired loans and lease balances as of September 30, 2010 and December 31, 2009:

September 30, 2010


(Dollars in thousands)	Loan Balance		Impaired Loan Balance		Number of Impaired Loans		Specific Allowance on Impaired Loans
Commercial loans	$	305,143	$	21,248		62	$	3,252
Real estate—commercial		246,172		16,871		16		2,728
Real estate—commercial construction		52,512		9,065		7		—
Real estate—residential		92,980		3,047		11		816
Real estate—residential construction		27,433		1,065		3		406
Consumer loans		110,327		1,380		34		252
Lease financing receivables		821		83		3		83

Totals	$	835,388	$	52,759		136	$	7,537

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8. Loans and Leases (Continued)

Unearned income included in the carrying amount of the loan balances above was $1.0 million at September 30, 2010. The amount of deposit account overdrafts classified as loans above totaled $252 thousand at September 30, 2010.

The non-accrual loan and lease balance was $35.8 million at September 30, 2010. The approximate gross interest income that would have been recorded for the three and nine months ending September 30, 2010 if the $35.8 million in non-accrual loans had been current in accordance with their original terms was $553 thousand and $1.3 million, respectively. The actual amount of interest income included in net income as of the three and nine months ended September 30, 2010 on these loans was $28 and $183 thousand, respectively resulting from interest earned prior to the loans being placed on non-accrual status.

We identify a loan as impaired when it is probable that interest and/or principal will not be collected according to the contractual terms of the loan agreement. ASC 310-10-35, “Receivables,” requires us to individually examine loans where it is probable that we will be unable to collect all contractual interest and principal payments according to the contractual terms of the loan agreement and assess for impairment. The average recorded investment in the September 30, 2010 and December 31, 2009 impaired loans was $54.3 million and $25.2 million, respectively. For the three and nine months ending September 30, 2010, interest income recognized during the time within the period that the loans were impaired was $178 thousand and $401 thousand, respectively.

December 31, 2009


(Dollars in thousands)	Loan Balance		Impaired Loan Balance		Number of Impaired Loans		Specific Allowance on Impaired Loans
Commercial loans	$	334,286	$	13,269		35	$	1,029
Real estate—commercial		261,643		12,071		11		3,637
Real estate—commercial construction		66,204		8,786		8		135
Real estate—residential		88,024		2,601		7		644
Real estate—residential construction		29,387		2,137		7		874
Consumer loans		120,767		2,596		42		1,148
Lease financing receivables		1,578		167		8		55

Totals	$	901,889	$	41,627		118	$	7,522

Unearned income included in the carrying amount of the loan balances above was $746 thousand at December 31, 2009. The amount of deposit account overdrafts classified as loans above totaled $220 thousand at December 31, 2009.

The non-accrual loan and lease balance was $27.6 million at December 31, 2009. The approximate gross interest income that would have been recorded for the twelve months ending December 31, 2009 if the $27.6 million in non-accrual loans had been current in accordance with their original terms was $1.8 million. The actual amount of interest income included in net income as of December 31, 2009 on these loans was $960 thousand resulting from interest earned prior to the loans being placed on non-accrual status.

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8. Loans and Leases (Continued)

The following chart presents changes in the allowance for loan and lease losses for the three and nine months ended September 30, 2010 and 2009:


	Three Months Ended September 30,
(Dollars in thousands)	2010			2009
Balance at beginning of period	$	21,534			15,528
Provision charged to operating expenses		369			11,222
Recoveries		781			90
Loans charged-off		(628	)		(3,183	)
Allowance adjustment—Other		45			(167	)

Balance at end of Period	$	22,101		$	23,490


	Nine Months Ended September 30,
(Dollars in thousands)	2010			2009
Balance at beginning of period	$	23,217		$	10,335
Provision charged to operating expenses		767			17,693
Recoveries		1,059			339
Loans charged-off		(3,157	)		(4,549	)
Allowance adjustment—Other		215			(328	)

Balance at end of Period	$	22,101		$	23,490

9. Income Taxes

At September 30, 2010 and December 31, 2009 the valuation allowance against the Corporation’s deferred tax was $7.7 million and $7.5 million, respectively. The valuation allowance is recorded against a portion of the Corporation’s deferred tax assets after concluding that it was more likely than not that a portion of the deferred tax asset would not be realized. In evaluating the ability to recover our deferred tax assets, Management considers all available positive and negative evidence regarding the ultimate realizability of our deferred tax assets including past operating results and our forecast of future taxable income. In addition, general uncertainty surrounding the future economic and business conditions have increased the likelihood of volatility in our future earnings. The Corporation has concluded and recorded a valuation allowance against its deferred tax asset, except for amounts available for carry back claims.

10. Other Real Estate Owned

Other real estate owned (“OREO”) represents property owned by the Bank following default by the borrowers. OREO property acquired through foreclosure is initially transferred at fair value based on an appraised value less estimated cost to dispose. Adjustments are subsequently made to mark the property below this amount if circumstances warrant. Losses arising from foreclosure transactions are charged against the allowance for loan losses. Costs to maintain real estate owned and any subsequent

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(UNAUDITED)

gains or losses are included in the Corporation’s results of operations. The following table summarizes properties held as OREO as of September 30, 2010 and December 31, 2009:


(Dollars in thousands)	September 30, 2010		Number of properties		December 31, 2009		Number of properties
Land	$	3,453		7	$	49		1
Residential 1 - 4 family		627		5		3,643		15

Total	$	4,080		12	$	3,692		16

11. Other Assets

During the first quarter of 2010, the Corporation received cash proceeds in full payment of an $8.7 million receivable recorded in other assets during the year ended December 31, 2009, which related to a former BOLI policy which the Bank had surrendered in 2008. The Corporation also received an income tax refund of $3.1 million during the second quarter of 2010 which was recorded as a receivable in other assets at December 31, 2009.

12. Borrowings

At September 30, 2010, the Bank had borrowings totaling $73.2 million compared to $172.9 million at December 31, 2009. During 2010, borrowings from the FHLB decreased $100.1 million to $44.4 million as compared to December 31, 2009. Scheduled maturities of $52.5 million and prepayments of $56.7 million net of advances of $10.0 million during the nine months ended September 30, 2010 totaled $99.2 million. The remaining decrease was due to amortization.

The Corporation deferred its regularly scheduled interest payments on its outstanding junior subordinated notes relating to its $20.8 million of trust preferred securities beginning with the regularly scheduled quarterly interest payments that would otherwise have been made in September 2010. The terms of the junior subordinated notes and the related trust indentures allow the Corporation to defer such payments of interest for up to 20 consecutive quarterly periods without default. During the deferral period, the respective trusts will suspend the declaration and payment of dividends on the trust preferred securities. During the deferral period, the Corporation may not, among other things and with limited exceptions, pay cash dividends on or repurchase its common stock nor make any payment on outstanding debt obligations that rank equally with or junior to the junior subordinated notes.

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(UNAUDITED)

13. Earnings (Loss) per Share

Three Months ended September 30, 2010


	Income (thousands) (numerator)			Shares(1) (denominator)		Per Share Amount
Basic income from continuing operations per share
Net income from continuing operations	$	872			6,318,986	$	0.14
Effect of dilutive securities
Options to purchase common stock		—			—		—

Diluted net income from continuing operations available to common stockholders	$	872			6,318,986	$	0.14

Basic loss from discontinued operations per share
Net loss from discontinued operations	$	(767	)		6,318,986	$	(0.12	)
Effect of dilutive securities
Options to purchase common stock		—			—		—

Diluted net loss from discontinued operations available to common stockholders	$	(767	)		6,318,986	$	(0.12	)

Basic income available to common stockholders per share
Net income available to common stockholders	$	105			6,318,986	$	0.02
Effect of dilutive securities
Options to purchase common stock		—			—		—

Diluted net income available to common stockholders	$	105			6,318,986	$	0.02

(1)	204,737 anti-dilutive weighted average shares have been excluded from this computation because the option exercise price was greater than the average market price of the common shares.

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13. Earnings (Loss) per Share (Continued)

Three Months ended September 30, 2009


	Income (thousands) (numerator)			Shares(1) (denominator)		Per Share Amount
Basic loss from continuing operations per share
Net loss from continuing operations	$	(7,072	)		6,306,889	$	(1.12	)
Effect of dilutive securities
Options to purchase common stock		—			—		—

Diluted net loss from continuing operations available to common stockholders	$	(7,072	)		6,306,889	$	(1.12	)

Basic income from discontinued operations per share
Net income from discontinued operations	$	628			6,306,889	$	0.10
Effect of dilutive securities
Options to purchase common stock		—			—		—

Diluted net income from discontinued operations available to common stockholders	$	628			6,306,889	$	0.10

Basic loss available to common stockholders per share
Net loss available to common stockholders	$	(6,444	)		6,306,889	$	(1.02	)
Effect of dilutive securities
Options to purchase common stock		—			—		—

Diluted net loss available to common stockholders	$	(6,444	)		6,306,889	$	(1.02	)

(1)	234,109 anti-dilutive weighted average shares have been excluded from this computation because the option exercise price was greater than the average market price of the common shares.

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13. Earnings (Loss) per Share (Continued)

Nine Months ended September 30, 2010


	Income (thousands) (numerator)			Shares(1) (denominator)		Per Share Amount
Basic income from continuing operations per share
Net income from continuing operations	$	644			6,325,258	$	0.11
Effect of dilutive securities
Options to purchase common stock		—			—		—

Diluted net income from continuing operations available to common stockholders	$	644			6,325,258	$	0.11

Basic loss from discontinued operations per share
Net loss from discontinued operations	$	(2,170	)		6,325,258	$	(0.35	)
Effect of dilutive securities
Options to purchase common stock		—			—		—

Diluted net loss from discontinued operations available to common stockholders	$	(2,170	)		6,325,258	$	(0.35	)

Basic loss available to common stockholders per share
Diluted net loss available to common stockholders	$	(1,526	)		6,325,258	$	(0.24	)
Effect of dilutive securities
Options to purchase common stock		—			—		—

Diluted net loss available to common stockholders	$	(1,526	)		6,325,258	$	(0.24	)

(1)	204,737 anti-dilutive weighted average shares have been excluded from this computation because the option exercise price was greater than the average market price of the common shares.

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13. Earnings (Loss) per Share (Continued)

Nine Months ended September 30, 2009


	Income (thousands) (numerator)			Shares(1) (denominator)		Per Share Amount
Basic loss from continuing operations per share
Net loss from continuing operations	$	(9,844	)		6,272,682	$	(1.57	)
Effect of dilutive securities
Options to purchase common stock		—			—		—

Diluted net loss from continuing operations available to common stockholders	$	(9,844	)		6,272,682	$	(1.57	)

Basic income from discontinued operations per share
Net income from discontinued operations	$	6,658			6,272,682	$	1.06
Effect of dilutive securities
Options to purchase common stock		—			—		—

Diluted net income from discontinued operations available to common stockholders	$	6,658			6,272,682	$	1.06

Basic loss available to common stockholders per share
Net income available to common stockholders	$	(3,186	)		6,272,682	$	(0.51	)
Effect of dilutive securities
Options to purchase common stock		—			—		—

Diluted net loss available to common stockholders	$	(3,186	)		6,272,682	$	(0.51	)

(1)	234,109 anti-dilutive weighted average shares have been excluded from this computation because the option exercise price was greater than the average market price of the common shares.

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(UNAUDITED)

14. Comprehensive Income

Components of comprehensive income are presented in the following charts:


	Three Months Ended September 30,
Dollars in thousands	2010			2009
Unrealized gains on securities:
Unrealized gains arising in period	$	370		$	4,425
Reclassification adjustment		(9	)		(1,575	)

Net unrealized gains		361			2,850

Other comprehensive income before taxes		361			2,850
Income tax expense		(123	)		(969	)

Other comprehensive income		238			1,881

Net income (loss) including non-controlling interests		278			(5,950	)
Comprehensive income (loss)		516			(4,069	)
Less comprehensive income attributable to non-controlling interests		(173	)		(494	)

Comprehensive income (loss) for First Chester County Corporation	$	343		$	(4,563	)


	Nine Months Ended September 30,
Dollars in thousands	2010			2009
Unrealized gains on securities:
Unrealized gains arising in period	$	1,395		$	5,771
Reclassification adjustment		(9	)		(1,575	)

Net unrealized gains		1,386			4,196

Other comprehensive income before taxes		1,386			4,916
Income tax expense		(472	)		(1,427	)

Other comprehensive income		914			2,769

Net (loss) including non-controlling interests		(501	)		(1,823	)
Comprehensive income		413			946
Less comprehensive income attributable to non-controlling interests		(1,025	)		(1,363	)

Comprehensive (loss) for First Chester County Corporation	$	(612	)	$	(417	)

15. Fair Value Measurement and Fair Value of Financial Instruments

ASC 820-10 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants on the measurement date. ASC 820-10 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820-10 clarifies proper fair value determination in a market that is not active and

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15. Fair Value Measurement and Fair Value of Financial Instruments (Continued)

provides an example to illustrate key considerations in determining the fair value of a financial asset when the market for that financial asset is not active. The Corporation considered the requirements of ASC 820-10 when estimating fair value.

ASC 825-10—Financial Instruments permits entities to choose to measure many financial instruments and certain other items at fair value at specified election dates. The Corporation elected to account for loans held for sale under this election option.

ASC 820-10 describes three levels of inputs that may be used to measure fair value:

•

Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.

•

Level 2: Significant other observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, and other inputs that are observable or can be corroborated by observable market data.

•

Level 3: Significant unobservable inputs that reflect a company’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

A description of the valuation methodologies used for financial instruments measured at fair value on a recurring basis, as well as the classification of the instruments pursuant to the valuation hierarchy, are as follows:

Securities: Investment securities available-for-sale are recorded at fair value on a recurring basis. Fair value measurement is based upon quoted prices, if available. If quoted prices are not available, fair values are measured using matrix pricing, which is a mathematical technique used widely in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities.

Level 1 Valuation Techniques and Inputs for Investment Securities

The Corporation reports U.S. Treasury and certain Bank equity securities at fair value utilizing Level 1 inputs. These securities are priced using observable quotations for the indicated security.

Level 2 Valuation Techniques and Inputs for Investment Securities

The majority of the Corporation’s investment securities are reported at fair value utilizing Level 2 inputs. The valuations for U.S. Government agency securities, U.S. Government agency mortgage backed securities, residential and commercial CMO’s, and corporate debt securities are obtained through independent, third-party pricing services. Prices obtained through these sources include market derived quotations and matrix pricing and may include both observable and unobservable inputs. Fair market values take into consideration data such as dealer quotes, new issue pricing, trade prices for similar issues, prepayment estimates, cash flows, market credit spreads and other factors.

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15. Fair Value Measurement and Fair Value of Financial Instruments (Continued)

The valuations for state and municipal obligations are obtained through independent, third-party pricing services as well. Valuations for these securities are performed using information on identical or similar securities provided by market makers, broker/dealers and buy-side firms, new issue sales and bid-wanted lists. The individual securities are then priced based on mapping the characteristics of the security such as obligation type (General Obligation, Revenue, etc.), maturity, state discount and premiums, call features, taxability and other considerations.

Level 3 Valuation Techniques and Inputs for Investment Securities

Other equity securities are primarily comprised of Federal Home Loan Corporation (“FHLB”) and Federal Reserve Board (“FRB”) stock. The Corporation is required to purchase and hold stock in the FHLB and FRB to satisfy membership and borrowing requirements. This stock is restricted in that it can only be sold to the FHLB, FRB or to another member institution, and all sales must be at par. As a result of these restrictions, these equity securities are unlike other investment securities insofar as there is no trading market and the transfer price is determined by membership rules and not by market participants. Accordingly, the Corporation’s valuation for these securities is estimated at its par value.

Mortgage Servicing Rights (“MSRs”): To determine the fair value of MSRs, the Bank uses an independent third party to estimate the present value of estimated future net servicing income. This valuation method incorporates an assumption that market participants would use in estimating future net servicing income, which include estimates of the cost to service, the discount rate, custodial earnings rate, an inflation rate, ancillary income, prepayment speeds, and default rates and losses. The fair value of servicing rights was determined using discount rates ranging from 8.0% to 12.5%, prepayment speeds ranging from 10.5% to 50.7% depending on the stratification of the specific right, and a weighted average default rate of 1.02%. The Corporation records the MSR as a recurring Level 3.

The Corporation had no transfers in or out of Level 1 and Level 2 during the nine month period ended September 30, 2010.

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15. Fair Value Measurement and Fair Value of Financial Instruments (Continued)

The table below presents the balance of assets and liabilities from continuing operations at September 30, 2010 and December 31, 2009, measured at fair value on a recurring basis:


(Dollars in thousands) September 30, 2010	Level 1		Level 2		Level 3		Total
Assets
Investment securities available for sale:
U.S. Treasury	$	5,012	$	—	$	—	$	5,012
U.S. Government agency mortgage-backed securities		—		30,574		—		30,574
CMO—Residential		—		966		—		966
CMO—Commercial		—		956		—		956
State and municipal		—		2,387		—		2,387
Corporate debt securities		—		6,519		—		6,519
Bank equity securities		—		330		—		330
Other equity securities		—		—		11,460		11,460
Mortgage servicing rights		—		—		449		449


December 31, 2009	Level 1		Level 2		Level 3		Total
Assets
Investment securities available for sale:
U.S. Treasury	$	20,016	$	—	$	—	$	20,016
U.S. Government agency		—		2,047		—		2,047
U.S. Government agency mortgage-backed securities		—		36,995		—		36,995
CMO—Residential		—		998		—		998
CMO—Commercial		—		808		—		808
State and municipal		—		4,594		—		4,594
Corporate debt securities		—		5,865		—		5,865
Bank equity securities		3		530		—		533
Other equity securities		—		—		10,842		10,842
Mortgage servicing rights		—		—		575		575

Assets Measured at Fair Value on a Nonrecurring Basis

A description of the valuation methodologies and classification levels used for financial instruments measured at fair value on a nonrecurring basis are listed as follows. These listed instruments are subject to fair value adjustments (impairment) as they are valued at the lower of cost or market.

Loans and leases: The Corporation does not record loans at fair value on a recurring basis. However, from time to time, a loan is considered impaired and an allowance for loan losses is established. Loans for which it is probable that payment of interest and principal will not be made in accordance with the contractual terms of the loan agreement are considered impaired. Once a loan is identified as individually impaired, Management measures impairment in accordance with ASC 310. The fair value of impaired loans is estimated using one of several methods, including collateral value, market value of similar debt, enterprise value, liquidation value and discounted cash flows. Those impaired loans not requiring an allowance represent loans for which the fair value of the expected

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15. Fair Value Measurement and Fair Value of Financial Instruments (Continued)

repayments or collateral exceed the recorded investments in such loans. At September 30, 2010 substantially all of the impaired loans were evaluated based on the fair value of the collateral less costs to sell. In accordance with ASC 820-10 impaired loans where an allowance is established based on the fair value of collateral require classification in the fair value hierarchy. When the fair value of the collateral is based on an observable market price or a current appraised value, the Corporation records the impaired loan as nonrecurring Level 3. The Bank’s policies require loan officers to regularly review accounts. Consistent with OCC guidance appraisals are updated as warranted based on specific facts and circumstances. Appraisals are also updated whenever a loan becomes criticized or classified.

OREO: OREO is adjusted to fair value upon transfer of the loans to foreclosed assets. Subsequently, OREO is carried at the lower of carrying value or fair value. Fair value is based upon independent market prices, appraised values of the collateral or Management’s estimation of the value of the collateral. The Corporation records the foreclosed asset as nonrecurring Level 3.

The table below presents the balance of assets and liabilities from continuing operations at September 30, 2010 and December 31, 2009, measured at fair value on a nonrecurring basis:


(Dollars in thousands) September 30, 2010	Level 1		Level 2		Level 3		Total
Impaired loans & leases	$	—	$	—	$	45,222	$	45,222
OREO		—		—		4,080		4,080


(Dollars in thousands) December 31, 2009	Level 1		Level 2		Level 3		Total
Impaired loans & leases	$	—	$	—	$	34,105	$	34,105
OREO		—		—		3,692		3,692

Disclosures about financial instruments

The table below presents the rollforward of assets from continuing operations that are valued using significant unobservable inputs (Level 3) for the nine months ended September 30, 2010:


(Dollars in thousands)	Mortgage Servicing Rights			Investments
Beginning balance	$	575		$	10,842
Total gains realized/unrealized:
Included in earnings		(126	)		—
Included in other comprehensive loss		—			—
Purchases		—			713
Maturities/amortizations		—			(95	)
Prepayments		—			—
Calls		—			—
Transfers into Level 3		—			—

Ending Balance	$	449		$	11,460

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(UNAUDITED)

15. Fair Value Measurement and Fair Value of Financial Instruments (Continued)

The estimated fair values and carrying amounts of the assets and liabilities from continuing operations are summarized as follows:


	September 30, 2010				December 31, 2009
(Dollars in thousands)	Estimated Fair Value		Carrying Amount		Estimated Fair Value		Carrying Amount
Financial Assets
Cash and cash equivalents	$	59,115	$	59,115	$	146,681	$	146,681
Investment securities available-for-sale		58,204		58,204		82,698		82,698
Gross loans and leases		801,262		835,388		866,754		901,889
Mortgage servicing rights		449		449		575		575

Financial Liabilities
Deposits with no stated maturities		538,121		538,121		594,278		594,278
Deposits with stated maturities		436,513		432,132		518,642		516,022
FHLB and other borrowings		75,258		73,239		175,904		172,897
Subordinated debentures		14,620		20,795		12,410		20,795

Off-Balance-Sheet
Commitments to extend credit and outstanding letters of credit		119,956		119,956		205,468		205,468

16. Accounting for Stock-Based Compensation Plans

At September 30, 2010, the Corporation had one stock based compensation plan, pursuant to which, shares of the Corporation’s common stock could be issued, subject to certain restrictions. The plan, adopted in 2005, allows the Corporation to grant up to 150,000 shares of restricted stock to employees. During the nine months ended September 30, 2010 the Corporation granted no shares of restricted stock under this plan. These restricted stock grants are subject to accelerated vesting of all or a portion of the shares upon the occurrence of certain events. A summary of the Corporation’s unvested restricted shares is as follows:


(Dollars in thousands, except shares, and per share data)	Shares			Grant Date Fair Value		Aggregate Intrinsic Value of Unvested Shares
Unvested at January 1, 2010		54,474		$	10.57	$	503
Granted		—		$
Vested		(2,199	)	$	21.05
Forfeited		(1,400	)	$	11.35

Unvested at September 30, 2010		50,875		$	10.09	$	253

The Corporation recorded approximately $29 thousand and $93 thousand and $47 thousand and $147 thousand of restricted stock expense for the three and nine months ended September 30, 2010 and 2009, respectively.

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(UNAUDITED)

16. Accounting for Stock-Based Compensation Plans (Continued)

The Corporation’s ability to issue stock options under the Corporation’s 1995 Stock Option Plan has expired. However, outstanding stock options remain in effect according to their terms. Aggregated information regarding the Corporation’s 1995 Stock Option Plan and the options assumed in the AHB acquisition as of September 30, 2010 is presented below.


(Dollars in thousands, except shares, per share and years data) Options	Shares			Weighted- Average Exercise Price		Weighted-Average Remaining Contractual Term (years)		Aggregate Intrinsic Value
Outstanding at January 1, 2010		230,900		$	15.79		3.32	$	—
Granted		—
Exercised		—
Forfeited		(26,163	)	$	13.08
Expired		—
Outstanding at September 30, 2010		204,737		$	16.09		2.68	$	—

Exercisable at September 30, 2010		204,737		$	16.09		2.68	$	—

There were no options granted during the nine months ended September 30, 2010. There was no intrinsic value (market value on date of exercise less grant price) of options at September 30, 2010 as all options had an exercise price that was higher than the September 30, 2010 market price.

17. Commitment and Contingencies

Reserve for Unfunded Commitments

The Corporation maintains a reserve for unfunded loan commitments and letters of credit which is reported in other liabilities in the Unaudited Consolidated Statements of Financial Condition consistent with ASC 825-10. As of the balance sheet date, the Corporation records estimated losses inherent with unfunded loan commitments in accordance with ASC 450-20, and estimated future obligations under letters of credit in accordance with ASC 460-10. The methodology used to determine the adequacy of this reserve is integrated in the Corporation’s process for establishing the allowance for loan losses and considers the probability of future losses and obligations that may be incurred under these off-balance sheet agreements. The reserve for unfunded loan commitments and letters of credit as of September 30, 2010 and December 31, 2009 was approximately $454 thousand and $669 thousand, respectively. Management believes this reserve level is sufficient to absorb estimated probable losses related to these commitments.

Loan Recourse

The Corporation sells its residential mortgage loans on a non-recourse basis. The Corporation also provides representations and warranties to purchasers and insurers of the loans sold. In the event of a breach of these representations and warranties, the Corporation may be required to repurchase a mortgage loan or indemnify the purchaser, and any subsequent loss on the mortgage loan may be borne by the Corporation. If there is no breach of a representation and warranty provision, the Corporation has no obligation to repurchase the loan or indemnify the investor against loss. The unpaid principal balance of the loans sold by the Corporation represents the maximum potential

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17. Commitment and Contingencies (Continued)

exposure related to representations and warranty provisions; however, the Corporation cannot estimate its maximum exposure because it does not service all of the loans for which it has provided a representation or warranty. As of September 30, 2010 and December 31, 2009, the Corporation had a liability of $443 thousand and $688 thousand, respectively, included in Liabilities related to assets held for sale on the Consolidated Balance Sheet, for probable losses related to the Corporation’s recourse exposure. This liability is part of our discontinued mortgage banking operations, however it is anticipated that the Corporation will retain this liability after the anticipated sale of the mortgage banking division.

Asserted and Unasserted Claims

Certain conditions may exist as of the date the financial statements are issued, which may result in a loss to the Corporation but which will only be resolved when one or more future events occur or fail to occur. The Corporation’s management and legal counsel assess such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Corporation or unasserted claims that may result in such proceedings, the Corporation’s legal counsel evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought.

If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Corporation’s financial statements. The Corporation will disclose asserted claims when it is at least reasonably possible that an asset has been impaired or a liability has been incurred as of the date of the financial statements and unasserted claims when it is considered probable that a claim will be asserted and there is a reasonable possibility that the outcome will be unfavorable. The Corporation will not accrue a liability or disclose unasserted claims which management believes are only reasonably possible of assertion.

Loss contingencies considered to be remote by management are generally not disclosed unless they involve guarantees, in which case the guarantee would be disclosed.

As of September 30, 2010, the Corporation has been made aware of a potential claim that management believes is probable to be asserted by the beneficiaries of the American Home Bank Management Incentive Plan (the “AHB MIP”) who may seek to set aside the Agreement to Finalize the AHB MIP dated May 4, 2009. The beneficiaries assert that the amounts received under the AHB MIP should be increased. Management has accrued a liability in the Corporation’s financial statements in the amount of $300 thousand based on its evaluation of the circumstances related to this matter. Although the Corporation believes that its liability with respect to the claim will not exceed such amount, these matters are inherently unpredictable and there can be no assurance that relevant facts and circumstances will not change, necessitating future changes to the estimated liability.

TOWER BANCORP INC - FORM 8-K - EX-99.3 - UNAUDITED CONSOLIDATED BALANCE SHEETS OF FIRST CHESTER COUNTY CORPORATION - December 13, 2010

Attached files

TOWER BANCORP INC Reports