CHESTER VALLEY BANCORP INC.


                         50 Years of Dynamic Leadership









                      [GRAPHIC-PHOTO OF ELLEN ANN ROBERTS]














                               Annual Report 1998
<PAGE>


          INDEX

Ellen Ann Roberts Tribute     1-2

Five-Year Financial
Highlights                      3

Letter to Stockholders        4-7

Investment Services
   and Trust Division         8-9

Technology                  10-11

Business Banking
   Services                 12-13

Community Banking           14-15

Philadelphia Corporation
   for Investment Services     16

Financial Index                17

Financials                  18-42

Independent Auditors'
   Report                      43

Board of Directors
   New Officers                44

Directors and Officers         45

Corporate Information          46
<PAGE>
50 Years of Dynamic Leadership

      Ellen Ann  Roberts  has  served 50 years as an  integral  part of  Chester
Valley Bancorp's success,  and it is only natural to dedicate this year's Annual
Report as a tribute to her many contributions not only to this organization, but
also to the Chester County  community.  She joined the staff of the  Downingtown
Building and Loan as a teller in 1948.  Learning  the business  from her father,
one of the original  founders of the  institution,  Ellen Ann was elected  Chief
Executive  Officer in 1958 and became  Executive Vice President in 1973. In 1987
she was elected  President  and Chief  Executive  Officer  and, in 1996,  became
Chairman of the Board and CEO.











           [GRAPHIC-SHOWING GROUPS OF PEOPLE AND YEARS 1948 AND 1998]












      During her successful  career and as a lifelong  resident of  Downingtown,
Ellen Ann has  become  well-known  throughout  Chester  County  not only for her
outstanding capabilities as a business leader, but also for her tireless efforts
on behalf of our  community.  She  pioneered the way to becoming the first woman
member, then director and chairperson of the Chester County Planning Commission;
she is the past vice chairman of the Republican  Party of Chester  County;  past
president of the Business & Professional  Women of Chester County and has served
as a board member of SEPTA.


1
<PAGE>
      Being at the helm of a  multi-million  dollar  bank for so many  years has
necessitated a very visible presence in numerous financial organizations on both
a state and  national  level.  Ellen Ann  continues  to be a member of America's
Community Bankers,  the Financial Managers Society,  and the Independent Bankers
Association of America. She has been a Director of the Pennsylvania  Association
of Community Bankers, the Pennsylvania Chamber of Business and Industry, and the
Financial Institutions Retirement Fund.

[GRAPHIC-ELLEN ANN ROBERTS BEST WOMEN IN BUSINESS AWARD]


      Because  of  her  dedication  to  the  community,   finding  the  time  to
participate  in  community-related  organizations  has always  been Ellen  Ann's
priority - she will make time for what she believes to be the best  interests of
her friends and neighbors. Today she is a Director of the Chester County Chamber
of  Business  and  Industry,  the Housing  Partnership  of Chester  County,  the
Brandywine  Hospital  Foundation,  the Downingtown Water Authority,  the Chester
County Historical  Society,  and  Handi-Crafters.  She is also a Director of the
Chester County Development  Council and is very proud of the fact that from 1987
to 1989, she was the first woman Chairman of this countywide organization.

      Ellen Ann has  received  numerous  accolades  for her service to these and
other organizations.  In 1992 she was chosen by the March of Dimes as an honoree
for its Salute to Chester  County  Women of  Achievement;  in 1993 she was named
Outstanding  Citizen of the Year by the Greater Downingtown Chamber of Commerce;
in 1994 Ellen Ann was chosen Woman of the Year by the Real Estate Advisory Board
of  Immaculata  College;  in  1997  she  had  the  distinction  of  being  among
Pennsylvania's Best 50 Women in Business, at which time she received recognition
from Governor Tom Ridge. Ellen Ann has also received  recognition by the Chester
County  Chamber  as Small  Business  Leader  of the  Year and by the  Brandywine
Hospital and Trauma Center for  Outstanding  Voluntary  Service.  In April 1998,
Ellen Ann was awarded  "The  Chairman's  Award" by the Federal Home Loan Bank of
Pittsburgh for her continuing  efforts to support  affordable housing in Chester
County.

                                                                       [GRAPHIC]


      Under Ellen Ann's  guidance,  Chester  Valley's assets today have grown to
over  $377  million  -  from  Downingtown  Building  and  Loan's  $500,000.  Her
achievements  have come  through  hard work,  dedication,  and a love of helping
people.

[GRAPHIC-PHOTO  OF  ELLEN  ANN  WITH  A  PORTRAIT  OF  JOSEPH  R.  DOWNING,  HER
GREAT-GREAT-GRANDFATHER IN THE BACKGROUND]


                                                                               2
<PAGE>
                 [GRAPHIC-GRAPH DEPICTING NET OPERATING INCOME]
                     [GRAPHIC-GRAPH DEPICTING TOTAL ASSETS]
              [GRAPHIC-GRAPH DEPICTING COMMERCIAL LOAN PORTFOLIO]
<TABLE>
<CAPTION>
                                         FINANCIAL HIGHLIGHTS
                             (Dollars in thousands except per share data)

Selected Financial Condition Data
                                            1998          1997        1996         1995        1994
                                          ---------     --------    --------     --------    --------
<S>                                       <C>           <C>         <C>          <C>         <C>     
Total assets                              $ 377,012     $325,201    $274,548     $263,862    $245,471
Net loans receivable                        273,128      257,040     223,963      220,816     194,293
Deposits                                    298,191      260,750     228,206      217,981     204,802
Borrowings                                   41,791       31,032      14,827       16,031      13,526
Stockholders' equity                         31,849       28,279      26,766       24,967      22,927
Book value per common share(1)                13.68        12.32       11.67        10.89       10.06
<CAPTION>
Selected Operations Data
                                            1998          1997        1996         1995        1994
                                          ---------     --------    --------     --------    --------
<S>                                       <C>           <C>         <C>          <C>         <C>     
Interest income                             $25,753      $22,621     $20,637      $18,948     $16,557
Interest expense                             13,409       11,506      10,887        9,838       8,284
Net interest income                          12,344       11,115       9,750        9,110       8,273
Income before cumulative effect of a
  change in accounting for income taxes(1)    3,626        2,237       2,732        2,326       2,144
Cumulative effect of a change in
  accounting for income taxes                     -            -           -            -         540
Net income(1)                                 3,626        2,237       2,732        2,326       2,684
Basic earnings per share
  before cumulative effect of a change in
  accounting for income taxes (2)              1.57          .98        1.19         1.02         .96
Dividend per share (2)                          .48          .35         .27          .22         .20

</TABLE>
(1)  Fiscal 1997 includes the one-time FDIC insurance assessment of $832,000 net
     of taxes.

(2)  Adjusted to reflect 5% stock dividends paid in September 1997,  1996, 1995,
     and 1994,  and the  five-for-four  stock  split  effected  in the form of a
     dividend in March 1997.


Other Selected Data
(based on monthly balances)
<TABLE>
<CAPTION>
<S>                                                <C>          <C>        <C>          <C>         <C>     
Average interest rate spread                       3.28%        3.37%      3.20%        3.17%       3.27%
Net yield on average interest-earning assets       3.94%        4.03%      3.87%        3.72%       3.75%
Ratio of non-performing loans and real estate
  owned to total assets at end of period            .33%         .23%       .85%        1.16%       1.43%
Number of full-service
  offices at end of period                             7           7          6            6           5
</TABLE>

                                                                               3
<PAGE>
To Our Shareholders

      Once again,  we are proud to report that Fiscal 1998 brought  another year
of record  earnings  for Chester  Valley  Bancorp  Inc. We achieved  significant
accomplishments  that will  positively  impact the future of the company and its
subsidiaries.  As expected,  this past year proved to be a very competitive year
for  banking,  and we are  carving our niche in  continuing  to strive to be the
"Premier"  community  bank  serving  Chester  County.  We  attribute  our strong
performance  and  growth  to the  loyalty  of both  our Bank  customers  and our
employees who work tirelessly as a team, not just meeting  customer  needs,  but
exceeding them. Without their extraordinary  efforts, our exceptional growth and
accomplishments could not have been made.


[GRAPHIC-PHOTO]

      The end of our fiscal year, June 30, 1998, saw assets at $377.01  million,
up 15.9% from  $325.20  million as of June 30,  1997;  deposits  grew to $298.19
million,  a 14.4%  increase from $260.75  million at the same date in 1997.  Net
loans grew to $273.13 million. Our dedicated commercial loan staff has increased
our  commercial  portfolio  to $58.59  million from 1997's  $44.62  million - an
increase of 31.3%.  Best of all, net  operating  income rose to $3.63 million --
18.2%  over  last  year's  $3.07  million   (excluding   the  one-time   Savings
Institutions Insurance Fund {"SAIF"} special assessment).

      We are  also  pleased  with  certain  initiatives  we have put in place to
assist us in our goal to be the  premier  bank in Chester  County and  adjoining
counties as well.  Some of the  highlights  of Fiscal 1998 include  changing our
name to First  Financial  Bank,  expanding our commercial  lending unit,  adding
efficiencies  to  our  technology  including  electronic  banking  products  and
acquiring  Philadelphia  Corporation for Investment Services. We also opened our
Investment  Services and Trust  Division,  established a location for our eighth
branch,  and have  continued our tireless  support and dedication to Downingtown
and its revitalization. As dynamic Chester County continues to flourish, we have
also grown and  expanded  our product  lines and  services  to further  meet the
changing needs of our customers.


4
<PAGE>
      Changing our name to First  Financial  Bank has  reflected our pursuit and
expansion of the types of financial services we offer to our customers, which in
turn, has made us even more  profitable.  In October 1997, we officially  opened
our Investment Services and Trust Division.  As the first thrift in the state to
be approved for trust powers by the  Pennsylvania  Department of Banking,  First
Financial can now offer both  individual and corporate  customers a full line of
personal money  management and  investment  services.  Vice President and Senior
Trust  Officer  David L.  Summers and his staff are readily  available to assist
with investment or portfolio  management  including 401K,  estate and retirement
planning and all trust issues.  We are very excited about our new Trust Division
and with our constant  emphasis on being a true community bank and being able to
meet our customers'  every  financial  need,  this is a perfect  addition to our
Bank.  Customers  can take  advantage  of the Bank's  services at any one of our
seven branch locations.

      Chester  Valley  Bancorp  Inc.  is now the  parent  company  of both First
Financial Bank and our recently acquired Philadelphia Corporation for Investment
Services  ("PCIS").  On May 29,1998,  this acquisition was finalized.  PCIS is a
securities  broker/dealer  and  investment  advisor  with  offices  in Wayne and
Philadelphia,  Pennsylvania. We are extremely pleased and excited about this new
partnership  and believe this  combination  will greatly  enhance our ability to
better  service our  customers  with the  expertise  of their staff of financial
planners,  chartered financial analysts, and other highly experienced securities
and financial  professionals.  First Financial Bank and Philadelphia Corporation
have many of the same  professional  values and culture which emphasize that the
customer's  interests  come first.  We will be even more able to meet and exceed
customer's financial services needs and expectations while continuing to provide
the  personal   service  and  trust  which  are  so  important  in  professional
relationships.

      Over the past year, we have also expanded our  Commercial  Lending Unit by
adding three new Lending Officers who were brought in to supplement the talented
commercial team already working on this effort.  Commercial lending has remained
a very  important and profitable  focus for us. Since 1991,  when we established
our commercial  lending group, our commercial  lenders had a vision and continue
to share  with us the desire to build upon the  strengths  of a local  community
bank. Along with the incredible growth of this area -- 50% growth in Fiscal 1997
and 31% growth in Fiscal 1998, we have added various  products to our commercial
product line including corporate sweep and cash management services. We continue
to focus our  marketing  efforts on small and mid-size  companies who seem to be
getting lost in the chaos of recent bank  mergers.  Our advantage is that 


                                                                               5
<PAGE>
we can provide big bank  technology  along with the community bank  friendliness
and  personalized  service these local  business  owners  deserve.  Relationship
banking is and continues to be the key to our success.




                                   [GRAPHIC]










      Another  major  focus  that has  allowed  our  growth  and  success is our
continued  efforts to  improve  and  enhance  our  technology.  In order to stay
competitive  within our market,  we must be able to adapt and rapidly change the
way we process  transactions.  Productivity  enhancements which drive down costs
are a definite  opportunity  within our  industry,  and even more  exciting  are
retail and  commercial  product  and service  introductions  enabled by this new
technology.  In Fiscal 1998 we selected our new data processor and during Fiscal
1999,  we will  significantly  enhance the way in which we provide  products and
services to our customers and prospects  including adding numerous  efficiencies
to our current processes. As a result of our new data processor, we will be able
to offer many new  electronic  banking  products and  services to our  customers
including PC Banking for Small Business customers and Internet Banking,  just to
name  a  few.  It is  important  for us to  realize  that  in  order  to  remain
competitive, we must adapt to the changing needs of our customers and be able to
offer them  alternatives  to the way they  currently do their banking -- we will
continue  to  deliver  products  through  our  branches,  but will also focus on
offering  those  products and services  electronically  for those who wish to do
their banking from their home or office site.



6
<PAGE>
      As we continue to look at  opportunities  to  introduce  new  products and
services,  we also  continue  to look at new branch  locations  to  provide  our
financial services to the local community.  Construction has begun on our newest
branch,  located in Devon,  Pennsylvania,  which is planned to be opened in late
fall of 1998. This location,  which will be our eighth full-service branch, will
serve the  communities on the Main Line. The facility will house a full array of
financial experts  including branch personnel and a Commercial  Lending Officer.
The branch will be located at 414  Lancaster  Avenue in Devon,  PA and will also
have three drive-up windows  including a drive-up ATM. We are looking forward to
again expanding further within the local community and remain focused on being a
community bank serving Chester County and adjoining counties as well.

      Our commitment to being  headquartered  in Downingtown,  PA has remained a
very strong focus of ours.  Employees  within our organization are active within
the Downingtown Main Street Organization,  whose entire purpose is to revitalize
the Borough of  Downingtown  by restoring  store fronts and office  buildings to
have  a   "village"   look   while  also   adding   parks,   trees,   and  other
community-focused facades.

      As you can see,  Fiscal 1998 was a very busy and exciting  year for us. We
are looking  forward to expanding  our product line even further by offering new
financial  products  and  services  in the  near  future.  As we  bring  another
successful  fiscal year to a close,  we are very excited about our future.  What
Chester  Valley  was  founded  on  will  never  change.  We  will  continue  our
involvement  in the growth of our community  and continue to think  globally and
act locally.  We remain  committed to those we serve,  and most of all, you, our
shareholders.  We look forward  with great  anticipation  to another  successful
year.

Sincerely,


/s/Ellen Ann Roberts
--------------------
Ellen Ann Roberts
Chairman and Chief Executive Officer


/s/Anthony J. Biondi
--------------------
Anthony J. Biondi
President and Chief Operating Officer

                                                                               7
<PAGE>
Investment Services and Trust Division
--------------------------------------





[GRAPHIC-PHOTO OF DAVID L. SUMMERS, VICE PRESIDENT AND SENIOR TRUST OFFICER 
AND CYNTHIA L. CUNNINGHAM, TRUST OPERATIONS ADMINISTRATOR

      In November 1997,  First Financial Bank  officially  opened its Investment
Services and Trust Division. As the first thrift in the state to be approved for
Trust powers by the  Pennsylvania  Department  of Banking,  First  Financial now
offers both individual and corporate clients an array of money management, trust
and investment  services including portfolio  management,  estate and retirement
planning,  and self  directed  IRA's.  In March 1998,  an  expanded  Downingtown
facility opened its doors with new office space to house this Division. David L.
Summers,  a Vice President and Senior Trust Officer with over twenty-three years
of  banking   experience  and  specialized   training  in  Trusts  and  Estates,
Investments,  and Investment  Planning,  offers our clients counseling and sound
advice  on  almost  any  investment  decision.  Dave and his  staff are our most
important  resource;  they are  trained  professionals  in many  areas  and have
advanced training in the Investment,  Trust and Estate areas. As with all of our
banking  service  departments,  this new Division prides itself on building long
term relationships with Investment Services and Trust clients.




8
<PAGE>
      In addition to financial service and guidance, the Investment Services and
Trust Division offers corporate trust services.  The Division provides corporate
trust  clients with the  technical  expertise of a large  financial  institution
while  preserving  the personal  service of community  banking.  Throughout  the
1997-98 fiscal year, the Division has provided  fiduciary,  trustee,  agency and
registrar  services to municipalities and school districts across the state. Our
corporate  trust  business  continues  to develop and we  anticipate  growth and
expansion of this service in the years ahead.






[GRAPHIC-PHOTO  OF LAUREN C. DAMIANO,  ESQ.,  CORPORATE TRUST  ADMINISTRATOR AND
KEVIN HOLLERAN, ESQ., AN ADVISOR TO OUR INVESTMENT SERVICES AND TRUST DIVISION]




      Overall,  First  Financial is pleased with the progress of its  Investment
Services and Trust Division. The Division has nearly doubled its projected asset
base for  Fiscal  1998,  and has  exceeded  all  other  expectations  since  its
inception  eight months ago.  Traditionally,  First Financial Bank had relied on
interest income as its main source of revenue-with  the Investment  Services and
Trust Division we have expanded our resources to include a  fee-oriented  income
structure  which  permits  more  versatility.  We look forward to the many other
benefits which the addition of this Division will undoubtedly provide.



                                                                               9
<PAGE>
Technology

      Another major focus that has allowed us great growth and success this past
fiscal  year  is our  continued  effort  to  enhance  our  technology.  We  have
recognized the need to reengineer for today and tomorrow, and even more exciting
are the  consumer  and  business  product  introductions  enabled  by  this  new
technology,






[GRAPHIC-PHOTO OF KELLY L. LAURENTO, AVP PRODUCT SUPPORT, KAREN D. BROWN, DEMAND
DEPOSIT MANAGER AND KAY B. FALKOW, VICE PRESIDENT OF OPERATIONS]




which we plan to bring to our  customers  during the next fiscal  year.  Because
consumers are looking for more flexible banking  options,  our focus is to bring
the bank to the  customer.  We will  soon be able to offer  many new  electronic
banking products and services including PC Banking for Retail and Small Business
customers,  Internet Banking,  Cash Management and Sweep services for Businesses
via their PC,  among many  others.  We will  continue  to deliver  products  and
services  through  our  branches,  but will also  focus on  offering  those same
products  electronically for those who wish to do their banking from their home,
office, or wherever they choose.



10
<PAGE>
      The First Call Center,  which opened in August 1997,  is another venue for
convenience  banking.  Customers,  along  with  anyone  who wishes to open a new
account or loan with us, are able to call us Monday  through  Friday,  8 am to 8
pm, and we will be there to assist them in any way we can. This offers  one-stop
financial  services  shopping  over the phone in minutes  without ever having to
leave the comfort of your home.








[GRAPHIC-PHOTO  OF KAREN C. DIVINCENZO,  FIRST CALL CENTER MANAGER AND PAMELA M.
COLLIS, ELECTRONIC BANKING MANAGER]










      With our  technological  enhancements over the last fiscal year, the speed
at which we provide service to our customers has been greatly increased. Imaging
documents  has allowed  immediate  turnaround  for customers who wish to receive
copies of checks or other similar  research.  Over the next year, the Bank plans
to image more  documents,  such as loan documents and signature  cards, to allow
even quicker turnaround right at the branch's customer service  representative's
desk. Our recent computer  enhancements  have enabled us to improve our internal
communications as well thereby increasing our efficiencies without adding to our
overall costs.


                                                                              11
<PAGE>
[GRAPHIC-PHOTO  OF EDWARD S.  LAWRENCE,  SENIOR  VICE  PRESIDENT  OF  COMMERCIAL
LENDING STEPHEN E. MILLER, LENDING OFFICER]











Business Banking Services


      During the last fiscal year, we have expanded our Commercial  Lending Unit
by adding three new Lending Officers who were brought in to enhance the talented
commercial  team already  working on this effort.  They came to First  Financial
Bank  because they want to build valued  customer  relationships  and are strong
believers in our personalized high-quality service approach to banking. We pride
ourselves  on the fact that our lenders get to know their  customers  very well,
helping  to guide  them with  their  plans  for the  future.  There is  constant
interaction  between branch  employees and our  commercial  lending unit to take
advantage of the  opportunities  brought  about by the many recent bank mergers.
Corporate Sweep, Cash Management services,  commercial deposit services, as well
as alternative  investment  products  through our Investment  Services and Trust
Division and  Philadelphia  Corporation  are also available for First  Financial
commercial  customers.  We  again  achieved  phenomenal  growth  - 31% - in  our
commercial  loans during  Fiscal 1998. We are proud to have achieved this growth
while retaining asset and credit quality and personalized service.

      What is even  more  important  to us is how our  presence  and  commercial
banking efforts have had a positive impact on our community. We financed the 2nd
Avenue project in Coatesville, PA which turned a vacant


12
<PAGE>
[GRAPHIC-PHOTO OF MICHAEL T. STEINBERGER, VICE PRESIDENT
AND FRANK J. BALDASSARRE, VICE PRESIDENT]


historic building into beautiful housing for 64 senior citizens.  Best of
all, this project is complete and the building is 100% occupied. We also helped
finance the  construction  of Ludwig's  Corner,  a 14 unit shopping  center with
retail shops.  As we grow, we have opened doors to businesses  and projects that
we could not before serve.  Our lenders are very involved in programs  sponsored
by the Small Business  Association,  which allow  businesses to start new plants
and receive  working  capital  lines of credit.  Other  programs of which we are
proud to be a part of include offering  business owners  pre-approved  equipment
lines for their business,  and our "Scattered  Sites" initiative which turned 15
unoccupied  houses that  required  major  renovations  into  viable  housing for
low-income  families   throughout  Chester  County.   Again,  as  you  can  see,
relationship banking is and will continue to be the key to our success.

      Other recent accomplishments include our residential construction and land
acquisition lending efforts,  with an increase in balances of 21%. We also offer
48-hour mortgage  approval and 24-hour consumer loan approval.  Best of all, our
total  overall  loan  delinquency  is at .74% of assets.  We pride  ourselves on
building lasting  relationships  and serving the local community as we strive to
be the premier bank of Chester County.


                                                                              13
<PAGE>
Community Banking

      As a strong  local bank,  First  Financial  remains  focused on  providing
community bank  friendliness  and  personalized  service.  According to the most
recent data published by Sheshunoff  Information Systems, Inc. in Austin, Texas,
our market share of deposits  continues to grow within  Chester  County,  with a
14.22%  increase from June 1996 to June 1997.  With the 2nd largest market share
of any  bank  headquartered  in  Chester  County,  we  continue  to  search  for
opportunities  to introduce  new products and services and to look at new branch
locations  to  provide  our  services  to the local  community.  While some bank
branches  are  packing and  leaving  local  communities,  we are  expanding  our
presence within Chester County.  Our eighth branch,  to be located in Devon, PA,
will have a full staff of branch personnel,  three drive-up windows, including a
drive-up ATM and extended branch hours. This location will serve the communities
on the Main Line and will house a new Commercial  Lending Officer.  The affluent
demographics   of  this  new  location  are  ideal  for  the  expansion  of  our
personalized  banking  services,  encompassing  not only  trust  and  investment
services,  but also commercial and 







[GRAPHIC-PHOTO OF PAULA D. STEVENS,  ASSISTANT VICE PRESIDENT AND BRANCH MANAGER
OF OUR NEW DEVON OFFICE AND ROMAINE R. DUNLAP, ASSISTANT VICE PRESIDENT/BUSINESS
DEVELOPMENT OFFICER]



14
<PAGE>
small business loans and deposit products. As one of the leading community banks
in  Chester  County  for over 75  years,  we pride  ourselves  on our  community
involvement  and support.  We are very anxious to meet our new  neighbors in the
Devon and Berwyn areas.  The branch's  opening is  anticipated  for late fall of
1998.

      The focus of our Community  Banking Division is to expand our market while
offering the most  competitive  financial  products in the area. Our debit card,
the First Choice Check Card,  was  introduced in 1996, and has become one of our
most popular and profitable  products.  We hold the most in deposit market share
of any bank in the Exton,  Thorndale and Frazer markets while  remaining  within
the top three in all  other  markets  served.  Our Bank  Intelligence  Committee
constantly  monitors our  competitor's  products to assure that we are providing
the highest quality banking services.  As a community bank, our "people" are our
advantage.   We  remain  dedicated  to  excellent   customer  service  including
friendliness and  convenience.  With extended hours in most locations along with
superior personal and business banking services,  First Financial takes pride in
continually striving to be the premier bank of Chester County.



[GRAPHIC-OUR  COMMUNITY BANKING DIVISION,  HEADED BY STEVEN C. CUNNINGHAM,  VICE
PRESIDENT]

[GRAPHIC-OUR NEW DEVON BRANCH WILL BE OPEN IN LATE 1998]


                                                                              15
<PAGE>
Philadelphia Corporation for
Investment Services



      In May 1998,  Chester  Valley  Bancorp Inc.  finalized the  acquisition of
Philadelphia  Corporation  for  Investment  Services  ("PCIS"),  which  provides
investment advisor and


[GRAPHIC-PHILADELPHIA   CORPORATION  IS  REPRESENTED  BY  (STANDING)  PHILIP  J.
BALDASSARI,  SENIOR VICE PRESIDENT;  VERNON C. WALKER, SENIOR VICE PRESIDENT; R.
WAYNE  RAFFETY,  SENIOR VICE  PRESIDENT;  (SEATED) A. LOUIS  DENTON,  PRESIDENT;
EDWARD T. BORER, CHAIRMAN.]




securities  brokerage  services to individuals and smaller  corporate  accounts.
PCIS  is a  registered  broker/dealer  in 50  states  and  Washington,  DC,  and
registered as an Investment  Advisor with the  Securities  Exchange  Commission.
PCIS provides many  additional  services,  including  self-directed  and managed
retirement accounts,  safekeeping, daily sweep money market funds, portfolio and
estate valuations,  life insurance,  annuities, and margin accounts. Fiscal 1998
was PCIS's most successful year.

      PCIS  representatives  average over 25 years of experience in professional
money  management  services;  many hold  advanced  securities  licenses and have
designations such as attorney,  MBA, Chartered  Financial Analyst,  or Certified
Financial Planner. Several PCIS employees serve as industry arbitrators.  Six of
the  firm's  senior  employees  have  served  on  the  National  Association  of
Securities Dealer's District Business Conduct Committee;  one became Chairman of
the NASD.

      PCIS is now able to provide more  comprehensive  financial services to its
clients and those of First  Financial  Bank.  The  combination of their services
with the Bank's trust division will provide  "one-stop  financial  shopping" for
Bank  customers  whose  non-cash  financial  assets  are  now  held  or  managed
elsewhere.

                                       16
<PAGE>
Financial Information






Management's Discussion and Analysis of
Financial Condition and Results of Operations                    18

Consolidated Statements of Financial Condition                   26

Consolidated Statements of Operations                            27

Consolidated Statements of Changes in
Stockholders' Equity                                             28

Consolidated Statements of Cash Flows                            29

Notes to Consolidated Financial Statements                       30

Independent Auditors' Report                                     43




                                       17
<PAGE>
Management's Discussion
and Analysis of Financial Condition
and Results of Operations

GENERAL

      Chester  Valley  Bancorp Inc. (the "Holding  Company") is a unitary thrift
holding  company,  incorporated  in the  Commonwealth  of Pennsylvania in August
1989.  The business of Chester  Valley  Bancorp Inc. and its  subsidiaries  (the
"Company") consists of the operations of First Financial Bank ("First Financial"
or the "Bank"),  a  Pennsylvania-chartered  stock  savings and loan  association
founded in 1922 and Philadelphia Corporation for Investment Services ("PCIS"), a
full  service  investment  advisory  and  securities  brokerage  firm.  The Bank
provides a wide range of banking services to individual and corporate  customers
through  its  seven,  soon  to  be  eight,   branch  banks  in  Chester  County,
Pennsylvania. The Bank provides residential real estate, commercial real estate,
commercial and consumer lending  services and funds these  activities  primarily
with retail  deposits and  borrowings.  Philadelphia  Corporation for Investment
Services is registered as a broker/dealer  in all 50 states and  Washington,  DC
and it is also registered as an Investment Advisor with the Securities  Exchange
Commission. PCIS provides many additional services,  including self-directed and
managed  retirement  accounts,  safekeeping,  daily  sweep money  market  funds,
portfolio  and estate  valuations,  life  insurance  and  annuities,  and margin
accounts,  to individuals  and smaller  corporate  accounts.  PCIS's offices are
located in Wayne and Philadelphia, Pennsylvania.

     The Company posted record operating earnings of $3.63 million, or $1.57 per
share,  for the fiscal year ended June 30,  1998,  compared to $3.07  million or
$1.34 per share for the same  period in 1997,  excluding  the  one-time  Savings
Institutions  Insurance Fund ("SAIF")  special  assessment.  This  represents an
18.2%  increase in  earnings.  In fiscal  1997,  the pre-tax  effect of the SAIF
assessment  was $1.39  million  resulting  in an after tax charge to earnings of
approximately  $832,000, or $.36 per share. After recognition of this assessment
the  Company  earned net  income of $2.24  million,  or $.98 per share,  for the
fiscal year ended June 30, 1997.

ASSET/LIABILITY MANAGEMENT

     The primary asset/liability management goal of the Company is to manage and
control its interest rate risk, thereby reducing its exposure to fluctuations in
interest rates, and achieving sustainable growth in net interest income over the
long term. Other objectives of asset/liability  management include: (1) ensuring
adequate  liquidity and funding,  (2)  maintaining a strong capital base and (3)
maximizing net interest income opportunities.

     In  general,  interest  rate risk is  mitigated  by  closely  matching  the
maturities or repricing periods of interest-sensitive  assets and liabilities to
ensure a  favorable  interest  rate  spread.  Management  regularly  reviews the
Company's interest-rate sensitivity,  and uses a variety of strategies as needed
to adjust that sensitivity  within  acceptable  tolerance ranges  established by
management.  Changing the relative proportions of fixed-rate and adjustable-rate
assets and liabilities is one of the primary strategies  utilized by the Company
to accomplish this objective.

     The matching of assets and  liabilities  may be analyzed by  examining  the
extent to which such assets and liabilities are "interest-rate sensitive" and by
monitoring an institution's  interest-sensitivity  gap. An  interest-sensitivity
<PAGE>
gap is considered  positive when the amount of  interest-rate  sensitive  assets
exceeds the amount of  interest-rate  sensitive  liabilities  repricing within a
defined  period and is  considered  negative  when the  amount of  interest-rate
sensitive  liabilities  exceeds  the amount of  interest-rate  sensitive  assets
repricing within a defined period.

     To provide a more  accurate  one-year gap position of the Company,  certain
deposit  classifications are based on the interest-rate sensitive attributes and
not on the contractual repricing  characteristics of these deposits.  Management
estimates,  based on historical trends of the Bank's deposit accounts,  that 56%
of money market and NOW accounts are sensitive to interest rate changes and that
7% of savings  deposits are  sensitive to interest  rate  changes.  Accordingly,
these  interest-sensitive  portions  are  classified  in the less  than one year
categories with the remainder in the over five years category.  Deposit products
with interest rates based on a particular index are classified  according to the
specific  repricing  characteristic of the index.  Deposit rates other than time
deposit rates are variable,  and changes in deposit rates are typically  subject
to local market  conditions and  management's  discretion and are not indexed to
any particular rate.

     Generally,  during a period of rising  interest rates, a positive gap would
result  in an  increase  in net  interest  income  while a  negative  gap  would
adversely affect net interest income.  However, the  interest-sensitivity  table
does not provide a comprehensive  representation  of the impact of interest rate
changes on net interest income.  Each category of assets or liabilities will not
be  affected  equally  or  simultaneously  by changes  in the  general  level of
interest rates. Even assets and liabilities which  contractually  reprice within
the same period may not, in fact,  reprice at the same price or the same time or
with the  same  frequency.  It is also  important  to  consider  that the  table
represents a specific point in time. Variations can occur as the Company adjusts
its interest-sensitivity position throughout the year.

                                       18
<PAGE>
OPERATING RESULTS

Interest Income (Taxable-Equivalent Basis)

     Interest income is analyzed on a tax-equivalent  basis, i.e., an adjustment
is made for analysis purposes only, to increase interest income by the amount of
savings of Federal  income  taxes,  which the Company  realizes by  investing in
certain tax-free municipal  securities and by making loans to certain tax-exempt
organizations.  In this way,  the  ultimate  economic  impact of  earnings  from
various assets can be more readily compared.

     Total  interest  income  increased to $26.20  million during fiscal 1998, a
$3.28 million or 14.3%  increase over the comparable  prior year.  This increase
was due to a $41.46 million increase in the average balance of  interest-earning
assets.  Partially  offsetting the effect of the increase in the average balance
on interest income was the 5 basis-point decrease in the yield, to 8.44%, on the
loan  portfolio as the result of the  flattening  yield curve during fiscal 1998
which resulted in customers refinancing their loans to lower interest rates.

     Total  interest  income  increased to $22.92  million during fiscal 1997, a
$1.99 million or 9.5% increase over the comparable  prior period.  This increase
was primarily due to a $22.16 million  increase in the average  balance of loans
coupled  with a 9  basis-point  increase in the yield  earned on the loans.  The
increase in the yield is the result of the Company's  continual  effort to focus
its originations on higher-yielding loan products.  The increase in yield on the
loans was offset in part by a 53  basis-point  decrease to 5.79% in the yield on
investment securities and other investments during fiscal 1997.

Interest Expense

     Total  interest  expense  increased to $13.41 million during fiscal 1998, a
$1.90 million or 16.5% increase over the comparable  prior year. The increase in
interest  expense  was  primarily  due to a $24.86  million  and $10.87  million
increase in the average  balances of deposits and borrowings,  respectively,  at
June  30,  1998,   which  funded  the  increase  in  the  average   balances  of
interest-earning assets discussed previously.  The average rate paid on deposits
remained  at 4.63%  for  fiscal  1998 as the  result of  
<PAGE>
<TABLE>
<CAPTION>
                                        Interest Rate Sensitivity Analysis at June 30, 1998
                                                       (Dollars in thousands)


                                                         More Than     More Than  More Than     More Than
                                                       Three Months   Six Months   One Year   Three Years
                                          Three Months   Through       Through     Through      Through      More Than
                                            or Less     Six Months    One Year   Three Years   Five Years    Five Years     Total
------------------------------------------------------------------------------------------------------------------------------------
<S>                                       <C>          <C>           <C>          <C>          <C>          <C>          <C>      
Interest-Earning Assets
  Loans  (1)
    Real estate (2)                       $   29,070   $   20,833    $  33,893    $  50,886    $  28,440    $   51,773   $ 214,895
    Commercial                                 5,858          288          571        2,071        2,236           413      11,437
    Consumer                                   7,810        1,230        2,535       11,224        9,181        19,849      51,829
  Securities and interest-bearing
    deposits                                  33,576        8,342       10,383        6,234       11,163        16,418      86,116

------------------------------------------------------------------------------------------------------------------------------------
  Total interest-earning assets           $   76,314   $   30,693    $  47,382    $  70,415    $  51,020    $   88,453   $ 364,277
------------------------------------------------------------------------------------------------------------------------------------

Interest-Bearing Liabilities
  Savings accounts                        $      498   $      501    $   1,001    $       -    $       -    $   25,164   $  27,164
  NOW accounts                                   450          450          900            -            -        29,970      31,770
  Money market accounts                       35,609            -            -            -            -             -      35,609
  Certificate accounts                        53,125       29,604       36,820       36,550       12,260         2,928     171,287
  Securities sold under agreements
    to repurchase                                144            -            -            -            -             -         144
  Borrowings                                   7,179        1,746       12,301        8,150        9,222         3,193      41,791

------------------------------------------------------------------------------------------------------------------------------------
  Total interest-bearing liabilities      $   97,005   $   32,301    $  51,022    $  44,700    $  21,482    $   61,255   $ 307,765
------------------------------------------------------------------------------------------------------------------------------------

Cumulative excess of interest-
  earning assets to
  interest-bearing liabilities            $  (20,691)  $  (22,299)   $ (25,939)   $    (224)   $  29,314    $   56,512   $  56,512
====================================================================================================================================
Cumulative ratio of interest
  rate-sensitive assets to
  interest rate-sensitive liabilities          78.7%        82.8%        85.6%        99.9%       111.9%        118.4%      118.4%
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
Cumulative difference as a
  percentage of total assets                  (5.5%)       (5.9%)        (6.9%)       (0.1%)        7.8%         15.0%       15.0%
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1)  Net of undisbursed loan proceeds.
(2)  Includes commercial mortgage loans. 

                                       19
<PAGE>
management's  continued  efforts to focus its growth in the areas of low-costing
or no-cost  deposits.  The average  rate paid on  borrowings  increased 50 basis
points to 6.08% as the Bank  extended  the average  maturity of its Federal Home
Loan Bank advance  portfolio in an effort to lock in favorable rates longer term
given the flatness of the yield curve during  fiscal 1998 in addition to funding
larger commercial loan  originations with matched  maturities and locking in the
interest rate spread.

     Total  interest  expense  increased to $11.51 million during fiscal 1997, a
$620,000 or 5.7% increase  over the  comparable  prior  period.  The increase in
interest  expense is  principally  attributable  to a $15.07  million  and $5.33
million  increase in the average  balances of deposits and borrowings to $223.05
million and $20.94 million, respectively, at June 30, 1997. Partially offsetting
the effect of increases in the average balances of interest-bearing  liabilities
were decreases in the average rate paid on such  liabilities to 4.72% from 4.87%
for the fiscal  year 1997 and 1996,  respectively.  Such  declines  were due, in
part,  to the  Bank  lowering  the  rates  paid on its  interest-bearing  retail
checking  accounts  combined  with the Bank's  successful  efforts in  obtaining
low-costing or no-cost deposits in the form of commercial business accounts.  In
addition, during fiscal 1997 the Bank shortened the average maturity of its FHLB
advance portfolio which consequently reduced the average rate paid.

Net Interest Income

     Net  interest  income  is  the  difference   between   interest  income  on
interest-earning  assets and interest expense on  interest-bearing  liabilities.
Net interest income, on a fully tax equivalent basis,  increased 12.1%, or $1.39
million to $12.80  million in 1998 from  $11.41  million in 1997,  compared to a
13.7%  increase of $1.37 million from 1996 to 1997.  Net interest  margin,  on a
fully tax equivalent basis, was 3.94% for the year ended 1998, compared to 4.03%
in 1997 and 3.87% in 1996.

Provision for Loan Losses

     The  Company's  provision  for loan  losses  was  $605,672,  $523,413,  and
$339,800,  during the respective  periods of 1998 through 1996. These provisions
have been  added to the  Company's  allowance  for loan  losses  due to  general
economic  conditions,  loan growth, and management's  assessment of the inherent
risk of loss existing in the loan portfolio. At June 30, 1998, the allowance for
loan losses was $3.41 million or 1.23% of net loans compared to $2.86 million or
1.10% of net loans at June 30, 1997.

     The Company  establishes  provisions for loan losses,  which are charged to
operations,  in order to maintain the allowance for loan losses at a level which
is deemed to be appropriate based upon, among other things,  delinquency trends,
the volume of  non-performing  loans,  prior loss  experience of the  portfolio,
current economic  conditions,  and other relevant factors.  Although  management
believes  it has  used the  best  information  available  to it in  making  such
determinations,  and that the present  allowance  for loan  losses is  adequate,
future  adjustments  to the allowance  may be  necessary,  and net income may be
adversely   affected  if  the  circumstances   differ   substantially  from  the
assumptions  used in determining the level of the allowance for loan losses.  In
addition,  various regulatory agencies, as an integral part of their examination
process,  periodically  review the Company's allowance for losses on loans. Such
agencies may require the Company to recognize  additions to the allowance  based
on their  judgments  about  information  available  to them at the time of their
examination.
<PAGE>
Other Operating Income

     Total other  income  increased  $968,800 or 26.6% to $4.62  million for the
year ended June 30, 1998, from the comparable prior period.  Investment services
income  increased  $488,400  or 21.2% to $2.80  million  as the result of PCIS's
increased commission income due to the increase in the stock market activity, an
increase in advisory  fee income due to the  strategic  plan of PCIS to focus on
advisory  services  as it  provides a more  stable  revenue  stream for PCIS and
stabilizes expenses for the customer,  and an increase in money market fund fees
due to an increase in customer  balances.  The opening of the Bank's  Investment
Services and Trust Division in the fall of 1997 also contributed to the increase
in investment  services income for fiscal 1998. An increase in checking  account
fees, as the result of an increased  number of accounts,  and an increase in the
fees  earned  on the  Bank's  debit  card,  due to  increased  usage and also an
increased  number of  cardholders,  contributed  to the  increase of $139,700 in
service charges and fees in fiscal 1998. The Company recognized gains on trading
account  securities of $337,500  during  fiscal 1998 compared to $15,700  during
fiscal 1997.

     Total other income increased $293,700 or 8.8% to $3.65 million for the year
ended June 30, 1997,  from the  comparable  prior  period.  Investment  services
income  increased  $87,300  during  fiscal  1997  mainly due to an  increase  in
advisory fee income  earned by PCIS.  An increase of $44,200 in service  charges
and fees in fiscal 1997 as the result of an increase  in  commissions  earned on
the sale of  disability  and life  insurance  to the Bank's loan  customers,  an
increase  in the number of safe  deposit  boxes  rented,  and fees earned on the
Bank's  debit  card  contributed  to the  increase  in  other  income.  The Bank
recognized a gain of $2,400 on the sale of real estate owned during  fiscal 1997
compared to a loss of $51,600 during the prior fiscal year. In addition,  during
fiscal 1997 the Bank purchased  properties  surrounding its main office in order
to expand its facilities to accommodate its growth. The rental income from these
properties has contributed to the increase in other income during fiscal 1997.


                                       20
<PAGE>
Other Operating Expenses

     Total operating expenses increased $1.78 million or 18.1% to $11.64 million
for the year ended June 30, 1998,  from the comparable  prior period,  excluding
the $1.39  million  one-time  SAIF  assessment  in fiscal 1997.  The increase in
operating expenses over the prior fiscal year was primarily due to a $632,500 or
12.0%  increase in salaries  and  employee  benefits  related to general  salary
increases  and  increased  number of staff  associated  with the addition of the
Bank's  new Call  Center  and its new  Investment  Services  and Trust  Division
established  during  the  summer and fall of 1997,  respectively.  In  addition,
occupancy and equipment  expenses  increased  $246,900 or 15.1% to $1.89 million
for the year ended June 30, 1998,  from the  comparable  prior period related to
the refurbishment of the Bank's Operation Center and the renovations required to
provide accommodations for the Bank's new Call Center and Trust Department. Also
contributing  to the increase in  operating  expenses  during  fiscal 1998 was a
$291,400 donation in relation to a project to provide low income housing for the
elderly.  As an offset to the donation,  the Bank received a state tax credit in
the  amount  of  $145,700  through  the  Neighborhood  Assistance  Act which was
recorded as a reduction to income tax expense in fiscal 1998.

     Excluding the $1.39 million  one-time SAIF assessment,  operating  expenses
totaled  $9.86 million for the fiscal year 1997, an increase of $857,200 or 9.5%
over  the  prior  comparable  period.  The  one-time   assessment  was  part  of
legislation adopted to recapitalize the Savings  Association  Insurance Fund and
required the Bank to pay 65.7 cents for every $100 of  deposits.  As a result of
the special  assessment,  the Bank's federal insurance  premiums  decreased from
$0.23 per $100 of deposits  to $0.06 per $100 of  deposits  in the third  fiscal
quarter of 1997.  The increase in operating  expenses over the prior fiscal year
was  primarily  due to a $548,600 or 11.6%  increase in  salaries  and  employee
benefits  related to general salary  increases,  additional staff for the Bank's
newest branch office,  Brandywine  Square,  and additional  staff for the Bank's
commercial loan department. Also contributing to the increase in other operating
expenses  was a $185,200  or 12.7%  increase  in  occupancy  and  furniture  and
equipment costs  associated with the opening of the Brandywine  Square branch in
the first quarter of fiscal 1997.

Income Taxes

     The Company  incurred  income tax expense of $1.09 million  during the year
ended June 30, 1998, compared to $757,400 during fiscal 1997. The primary reason
for the increase in income tax expense was due to the increase in income  before
taxes in fiscal  1998.  Income tax expense  for fiscal 1998  includes a $145,700
state tax credit through the Neighborhood  Assistance Act relating to a donation
the Bank made to provide low income housing for the elderly.  For periods ending
prior to May 29,  1998,  no  provision  has been made for income  taxes for PCIS
since PCIS had elected to be taxed under the  provisions  of Subchapter S of the
Internal Revenue Code and similar state provisions. Under these provisions, PCIS
does  not  pay  income  taxes  on  its  taxable  income.   Instead,  the  former
stockholders  of PCIS are  liable for  individual  income  taxes  based on their
respective  shares of PCIS's taxable income.  As a result of all of PCIS's stock
being  purchased by Chester  Valley  Bancorp  Inc. on May 29,  1998,  PCIS is no
longer eligible to be taxed under the provisions of Subchapter S of the Internal
Revenue Code.

     The Company  incurred  income tax expense of $757,400 during the year ended
June 30, 1997,  compared to $1.03 million during fiscal 1996. The primary reason
for the $274,700 decrease was due to reduced pre-tax earnings for fiscal 1997 as
the result of the one-time SAIF special assessment.
<PAGE>
Capital Resources

     The Company's  assets totaled $377.01 million at June 30, 1998, as compared
with  $325.20  million as of June 30,  1997.  This 15.9%  increase in assets was
primarily  funded by an increase  in  deposits  of $37.44  million or 14.4% from
$260.75  million at June 30, 1997, to $298.19  million at June 30, 1998,  and an
increase  in Federal  Home Loan Bank  advances  of $10.74  million  from  $30.20
million to $40.94 million at June 30, 1997 and 1998, respectively.  The increase
in deposits and advances was used in part to fund loan  originations  during the
period,  which  contributed to an increase in net loans  receivable from $257.04
million at June 30, 1997, to $273.13 million at June 30, 1998. In addition,  the
Company's  securities  portfolios  along  with  its  interest-bearing   deposits
increased  from  $55.19  million to $86.12  million  at June 30,  1997 and 1998,
respectively.

     Stockholders'  equity  increased to $31.85  million at June 30, 1998,  from
$28.28  million  at June 30,  1997,  as a result of net  income  earned of $3.63
million  during  fiscal  1998,  the  reduction in the  principal  balance of the
Employee  Stock  Ownership  Plan  ("ESOP")  debt by $186,870 (See Note 13 of the
Notes to the  Consolidated  Financial  Statements),  proceeds from stock options
exercised during the 1998 period of $440,100,  proceeds  totaling  $539,900 from
the  issuance of common  stock,  and an increase in the net  unrealized  gain on
securities  available  for sale,  net of taxes,  of  $289,200.  The  increase in
stockholders'  equity was offset in part by the  payment  of cash  dividends  of
$1.23 million and the  repurchase  of $274,900 of common  stock,  as well as the
payment of $7,600 in lieu of fractional  shares in connection  with the 5% stock
dividend paid during fiscal 1998.

Asset Quality

     Non-performing  assets are  comprised of  non-performing  loans and REO and
totaled $1.25 million at June 30, 1998, compared to $748,000 at June 30, 1997.

                                       21
<PAGE>
     Non-accrual  loans are loans on which the accrual of  interest  ceases when
the collection of principal or interest payments is determined to be doubtful by
management.  It is the  policy of the  Company  to  discontinue  the  accrual of
interest  when  principal or interest  payments are  delinquent  90 days or more
(unless the loan principal and interest are determined by management to be fully
secured  and in  the  process  of  collection),  or  earlier,  if the  financial
condition of the borrower raises significant  concern with regard to the ability
of the  borrower to service the debt in  accordance  with the current loan term.
Interest income is not accrued until the financial  condition and payment record
of the  borrower  once  again  demonstrate  the  ability  to  service  the debt.
Non-performing  assets to total  assets was .33% at June 30,  1998,  compared to
 .23% at June 30, 1997.  Non-performing  loans of $1.25 million at June 30, 1998,
consisted  of ten  residential  mortgage  loans in the amount of  $771,000,  one
construction loan for $55,000, and $420,000 in consumer loans.

     At June 30, 1998 and 1997, the Company's classified assets, which consisted
of assets  classified as  substandard,  doubtful,  loss, and REO,  totaled $1.47
million  and $1.40  million,  respectively.  Included  in the assets  classified
substandard  at June 30,  1998,  were all loans 90 days past due and loans which
are less than 90 days  delinquent  but  inadequately  protected  by the  current
paying  capacity of the  borrower  or of the  collateral  pledged,  as well as a
well-defined weakness that may jeopardize the liquidation of the debt.

Liquidity and Committed Resources

     Management  monitors  liquidity daily and maintains funding sources to meet
unforseen changes in cash  requirements.  The Company's primary sources of funds
are deposits, borrowings,  repayments, prepayments and maturities of outstanding
loans  and  mortgage-backed  securities,  sales of  assets  available  for sale,
maturities of investment securities and other short-term investments,  and funds
provided from operations.  While scheduled loan and  mortgage-backed  securities
repayments and maturing  investment  securities and short-term  investments  are
relatively  predictable sources of funds, deposit flows and loan prepayments are
greatly  influenced  by the  movement  of interest  rates in  general,  economic
conditions and  competition.  The Company manages the pricing of its deposits to
maintain a deposit  balance  deemed  appropriate  and  desirable.  Although  the
Company's deposits represent the majority of its total liabilities,  the Company
has also utilized other borrowing sources,  namely FHLB advances. In addition to
its ability to obtain  advances  from the FHLB under  several  different  credit
programs,  the Company  has  established  a line of credit with the FHLB,  in an
amount not to exceed 10% of the Company's maximum borrowing capacity,  which was
$11.67 million at the time the  commitment was executed,  and subject to certain
conditions,  including the holding of a  pre-determined  amount of FHLB stock as
collateral.  This  line of  credit  is used  from  time  to time  for  liquidity
purposes.  At June 30,  1998  there was no  balance  outstanding  on the line of
credit.

     Liquidity  management  is  both a  daily  and  long-term  function.  Excess
liquidity is generally invested in short-term investments such as FHLB overnight
deposits.  On a longer-term basis, the Company maintains a strategy of investing
in various  lending and investment  securities  products.  During the year ended
<PAGE>
June 30,  1998,  the Company  used its sources of funds to  primarily  fund loan
commitments and maintain a substantial portfolio of investment  securities,  and
to meet its ongoing commitments to pay maturing savings certificates and savings
withdrawals.  As of June 30, 1998,  the Company had $8.29 million in commitments
to fund loan originations.  The majority of these commitments are anticipated to
be funded by December 31, 1998.  In addition,  as of June 30, 1998,  the Company
had undisbursed  loans in process for  construction  loans of $12.38 million and
$15.45  million in  undisbursed  lines of credit.  In addition,  the Company has
issued $51,000 in commercial letters of credit fully secured by deposit accounts
or real estate.  The  management  of the Company  believes  that the Company has
adequate resources,  including principal prepayments and repayments of loans and
investment  securities and borrowing capacity, to fund all of its commitments to
the extent required.

     For  regulatory  purposes,  liquidity  is  defined  as a ratio  of cash and
certain  marketable  securities that can be readily converted into cash to total
deposits and short-term borrowings.  At June 30, 1998, liquidity for the Bank as
defined under these guidelines was 19.71%, which exceeded the regulatory minimum
requirement of 4.0%.

Impact of Inflation and Changing Prices

     The Consolidated Financial Statements and Related Notes presented elsewhere
herein have been  prepared in  accordance  with  generally  accepted  accounting
principles  ("GAAP")  which  generally  require  the  measurement  of  financial
position  and  operating   results  in  terms  of  historical   dollars  without
considering  changes in the relative  purchasing power of money over time due to
inflation. Unlike many industrial companies, substantially all of the assets and
liabilities of the Company on a consolidated  basis are monetary in nature. As a
result,  interest  rates  have  a  more  significant  impact  on  the  Company's
performance  than the general level of  inflation.  Over a short period of time,
interest rates may not  necessarily  move in the same direction or with the same
magnitude of inflation.

Year 2000 Issues

     Year 2000 issues  result from the  inability of many  computer  programs or
computerized  equipment  to  accurately  calculate,  store  or use a date  after
December  31,  1999.  The  erroneous  date 


                                       22
<PAGE>
can be  interpreted  in a number of different  ways,  the most common being Year
2000  represented as the year 1900.  Correctly  identifying  and processing Year
2000 as a leap year may also be an issue.  These  misinterpretations  of various
dates in the Year 2000  could  result  in a system  failure  or  miscalculations
causing disruptions of normal business operations including, among other things,
a temporary inability to process transactions,  track important customer account
information, or provide convenient access to this information.

     The Company has completed an  assessment  of its financial and  operational
software  systems in  accordance  with the various  regulatory  agency  guidance
documents.  The Company is  maintaining  an  inventory  of hardware and software
systems,  which  ranges from  mission  critical  software  systems and  personal
computers to security and video equipment, backup generators, and general office
equipment.  The Company has  prioritized  its hardware  and software  systems to
focus on the most  critical  systems  first.  In  connection  with the Company's
assessment,  a number of the less  significant  third party vendors  advised the
Company that their software is Year 2000  compliant,  and the Company intends to
fully test that software by June 30, 1999.

     For most of its mission critical software systems,  the Company relies on a
major data  processing  provider in the banking  industry.  First  Financial has
received  representations  and warranties  from its vendor for mission  critical
software  systems that the system will be  compliant  by December 31, 1998.  The
vendor is  contractually  obligated to correct any Year 2000 problems or replace
the system at no cost to the Bank; however, the vendor's liability for losses is
limited.  First  Financial  has  started the  process of  replacing  its mission
critical  software systems and expects to have done so by October 26, 1998, with
testing to be completed  by December  31,  1998.  If testing were to present any
system  problems,  the vendor  will work to correct  the problem and the Company
will test again  until  resolved.  At the same time,  the  Company is  upgrading
personal computers to meet both system and Year 2000  requirements.  The Company
is in the  process of  evaluating  the needs and  potential  technology  issues,
including Year 2000 issues,  involving  Philadelphia  Corporation for Investment
Services.

     Over the past several years,  the Company's  Technology Plan has called for
an aggressive  schedule for  installing  new systems or upgrading old systems in
order to build a technology infrastructure which will allow the Company to offer
competitive  products  while  providing for internal  efficiencies  and customer
service improvement. The Technology Plan has resulted in positioning the Company
to continue its technology  improvements while avoiding costly Year 2000 issues.
The Company estimates First Financial's capitalized expenditures associated with
Year 2000 at  $300,000  during  the  fiscal  year  ending  June 30,  1999,  with
approximately  $55,000  expensed  in that  same  fiscal  year and the  remainder
recognized in subsequent  fiscal years.  The Company is not yet in a position to
predict Year 2000 driven  capitalized  expenditures  for First Financial for the
next fiscal year or for Philadelphia Corporation for Investment Services for the
current or next fiscal year. With  assistance from its third party vendors,  the
Company is  utilizing  internal  staff to  perform  Year 2000  compliance  work,
including internal Information Systems staff.

     The Year 2000 issue presents  potential risks of uncertain  magnitude.  The
risks arise both with regard to systems  purchased by the Company  through third
party vendors as well as those outside the control of the Company,  such as with
ATM networks or credit card  processors.  These failures may cause delays in the
ability of customers to access their funds through  automated  teller  machines,
<PAGE>
point of sale terminals at retail locations,  or other shared networks. The Year
2000  issue also  poses the  potential  risk for  business  disruption  due to a
mission  critical  software  system  failure,  which could result in  inaccurate
interest payment  calculations,  credit  transactions,  or  record-keeping.  The
Company and the Office of Thrift Supervision are closely monitoring the progress
of First  Financial's  major third party  vendors  and, to date,  the Company is
satisfied  with their  progress.  However,  if the Company,  its  customers,  or
vendors  are unable to resolve  Year 2000  issues in a timely  manner,  it could
result in a  material  financial  risk.  The  Company  has not yet  finalized  a
contingency plan; however, it intends to develop a detailed plan by December 31,
1998.

     Successful  and  timely  completion  of the Year 2000  project  is based on
management's best estimates  derived from various  assumptions of future events,
which are  inherently  uncertain,  including  the  progress and results of third
party modification and testing plans and other factors.


FORWARD LOOKING STATEMENTS

     In  this  Report,   the  Company  has  included  certain  "forward  looking
statements"  concerning the future operations of the Company. It is management's
desire  to  take  advantage  of the  "safe  harbor"  provisions  of the  Private
Securities  Litigation  Reform Act of 1995.  This  statement  is for the express
purpose of  availing  the  Company of the  protections  of such safe harbor with
respect to all  "forward  looking  statements"  contained  in this  Report.  The
Company has used "forward  looking  statements" to describe the future plans and
strategies  including  management's  expectations  of the  Company's  Year  2000
readiness and future financial results.  Management's ability to predict results
or the effect of future plans and strategy is inherently uncertain. Factors that
could affect  results  include  interest rate trends,  competition,  the general
economic climate in Chester County, the mid-Atlantic region and the country as a
whole, loan delinquency  rates,  changes in federal and state  regulation,  Year
2000 uncertainties discussed previously and 

                                       23
<PAGE>
other  uncertainties  described in the Company's filings with the Securities and
Exchange  Commission,  including  its Form 10K for the year ended June 30, 1998.
These  factors  should  be  considered  in  evaluating   the  "forward   looking
statements", and undue reliance should not be placed on such statements.

OTHER INFORMATION

Description of Stock

     The holders of the Common Stock of the Holding  Company  possess  exclusive
voting  rights in the  corporation.  Each  holder  of shares of Common  Stock is
entitled to one vote for each share  held,  in  accordance  with the charter and
bylaws,  including  voting on the election of  directors.  Of the 10.00  million
shares of Common Stock  authorized by the Holding  Company,  7.67 million shares
remain unissued. In addition, none of the 5.00 million shares of Preferred Stock
authorized has been issued.

Dividend Policy

     The Board of Directors of Chester Valley  Bancorp Inc.  intends to continue
the policy of paying  dividends when the directors deem it prudent to do so. The
Board of Directors  will  consider  payment of  dividends on a quarterly  basis,
after giving  consideration to the level of the profit for the prior quarter and
other  relevant  aspects.  On August 19,  1998,  the Board of  Directors  of the
Holding Company declared an $.11 per share cash dividend and a 5% stock dividend
based on the  financial  results of the quarter  ended June 30,  1998.  The cash
dividend  will be  calculated  on shares held  before the  issuance of the stock
dividend.  During fiscal 1998 and 1997 the Holding Company paid a total of $1.23
million  and  $1.06  million,  respectively,  in cash  dividends  and a 5% stock
dividend in each year,  along with a  five-for-four  stock split effected in the
form of a dividend in fiscal 1997.  Cash dividends from the Holding  Company are
primarily  dependent  upon dividends paid to it by First  Financial,  which,  in
turn, are subject to certain restrictions  established by federal regulators and
Pennsylvania law. (See Note 10 to Notes to Consolidated Financial Statements.)

Market Information

     As of  August 1,  1998,  the  Holding  Company's  Common  Stock was held by
approximately  2,000  shareholders,  including  shares held in nominee name. Any
broker or any NASDAQ  member can be contacted  for the latest  quotations of the
Holding Company's Common Stock. Upon the  reorganization  into a holding company
structure  in May 1990,  the  stock of the  Holding  Company  was  approved  for
inclusion in NASDAQ's  National  Market  System.  The Holding  Company's  NASDAQ
symbol is "CVAL".  The transfer  agent for the stock is American  Stock Transfer
and Trust Company,  New York, New York.  During fiscal 1998 and 1997 the Holding
Company paid  dividends of $.48 and $.35 per share,  respectively,  adjusted for
stock dividends and stock splits during those periods.
<PAGE>
     The  following  table  sets forth the high and low  closing  prices for the
periods described.  For comparability  purposes,  the closing prices shown below
have been  adjusted  to reflect the 5% stock  dividends  paid in fiscal 1998 and
1997 and the five-for-four stock split paid in fiscal 1997.

 

Fiscal 1998                    Low                    High
-------------------------------------------------------------
     First Quarter          $     19.29           $     23.00
     Second Quarter               21.25                 29.25
     Third Quarter                29.00                 37.00
     Fourth Quarter               31.64                 35.00



Fiscal 1997                    Low                    High
------------------------------------------------------------- 

     First Quarter          $     13.24           $     15.24
     Second Quarter               13.91                 15.24
     Third Quarter                14.10                 16.67
     Fourth Quarter               15.71                 20.71


              [GRAPHIC-GRAPH DEPICTING CVAL 5 YEAR PRICE HISTORY]



Recent Accounting Pronouncements

     In February 1997 the Financial  Accounting  Standards Board ("FASB") issued
Statement of Financial  Accounting  Standard  ("SFAS")  No. 128,  "Earnings  Per
Share" (EPS).  This statement,  which supersedes APB Opinion No. 15,  simplifies
the  standards for  computing  EPS and makes them  comparable  to  international
standards.  SFAS No. 128 replaces the "primary" and "fully diluted" earnings per
share with "basic" and  "diluted"  earnings per share.  Basic EPS is computed by
dividing income available to common stockholders by the weighted-average  number
of common shares outstanding for the period.  Diluted EPS reflects the 



                                       24
<PAGE>
potential  dilution that could occur if  securities or other  contracts to issue
common stock were exercised or converted  into common stock,  or resulted in the
issuance  of common  stock  that then  shared in the  earnings  of the  company.
Diluted EPS is computed  similarly to fully  diluted EPS pursuant to APB Opinion
No. 15.  SFAS No.  128 is  effective  for  financial  statements  issued for the
periods ending  December 31, 1997, and  retroactive  restatement of prior period
results is required.  Accordingly,  all EPS information contained in this Annual
Report has been restated to comply with this new standard.

     In June  1997,  the FASB  issued  SFAS No.  130,  "Reporting  Comprehensive
Income".  According to the statement, all items of "comprehensive income" are to
be reported in a "financial statement that is displayed with the same prominence
as other financial statements". Comprehensive income is defined as the change in
equity of a business  enterprise  during a period  from  transactions  and other
events and circumstances from nonowner sources. Along with net income,  examples
of  comprehensive  income  include  foreign  currency  translation  adjustments,
unrealized holding gains and losses on available-for-sale securities, changes in
the market  value of a futures  contract  that  qualifies as a hedge of an asset
reported at fair value, and minimum pension  liability  adjustments.  Currently,
the  comprehensive  income of the Company would consist  primarily of net income
and unrealized holding gains and losses on available-for-sale  securities.  This
statement becomes effective for fiscal years beginning after December 15, 1997.

     In June 1997, the FASB adopted SFAS No. 131, "Disclosures About Segments of
an Enterprise and Related  Information".  This statement,  which supersedes SFAS
No.  14,  requires  public   companies  to  report   financial  and  descriptive
information  about  their  reportable  operating  segments on both an annual and
interim  basis.  SFAS No.  131  mandates  disclosure  of a  measure  of  segment
profit/loss,  certain revenue and expense items and segment assets. In addition,
the  statement  requires  reporting  information  on the  entity's  products and
services,  countries in which the entity earns  revenues and holds  assets,  and
major customers.  This statement  requires changes in disclosures only and would
not affect the financial condition,  equity or operating results of the Company.
This statement  becomes  effective for fiscal years beginning after December 15,
1997.

     In February  1998,  the FASB issued SFAS No. 132,  "Employer's  Disclosures
About  Pensions  and Other  Postretirement  Benefits."  This  statement  revises
employers'  disclosures about pension and other postretirement benefit plans. It
does not change the  measurement or recognition of those plans.  It standardizes
the disclosure  requirements for pensions and other  postretirement  benefits to
the  extent  practicable,  requires  additional  information  on  changes in the
benefit  obligations  and  fair  values  of plan  assets  that  will  facilitate
financial  analysis,  and eliminates  certain  disclosures that are no longer as
useful as they were when "FASB  Statements  No. 87,  Employers'  Accounting  for
Pensions,  No. 88,  Employers'  Accounting for Settlements  and  Curtailments of
Defined  Benefit  Pension  Plans  and for  Termination  Benefits,  and No.  106,
Employers'  Accounting for  Postretirement  Benefits Other Than  Pensions," were
issued.  This statement requires changes in disclosures and would not affect the
financial  condition,  equity or  operating  results  of the  Corporation.  This
statement is effective for fiscal years beginning after December 15, 1997.
<PAGE>
     In June 1998 the FASB  issued  SFAS No.  133,  "Accounting  for  Derivative
Instruments and Hedging Activities." This statement  establishes  accounting and
reporting  standards for derivative  instruments,  including certain  derivative
instruments   embedded  in  other  contracts,   (collectively   referred  to  as
derivatives)  and for hedging  activities.  It requires that an entity recognize
all  derivatives  as either assets or  liabilities in the statement of financial
position and measure those instruments at fair value. The accounting for changes
in the fair value of a derivative  depends on the intended use of the derivative
and the resulting  designation.  If certain conditions are met, a derivative may
be specifically designated as (a) a hedge of the exposure to changes in the fair
value of a recognized asset or liability or an unrecognized firm commitment, (b)
a hedge of the exposure to variable cash flows of a forecasted  transaction,  or
(c) a hedge of certain foreign currency  exposures.  This statement is effective
for all fiscal quarters of fiscal years  beginning after June 15, 1999.  Earlier
adoption is permitted. The Company has not yet determined the impact, if any, of
this statement,  including its provisions for the potential reclassifications of
investments securities, on operations, financial condition or equity.


                                       25
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statements Of Financial Condition
                                                                                        At June 30,
-------------------------------------------------------------------------------------------------------------
                                                                                  1998               1997
-------------------------------------------------------------------------------------------------------------
<S>                                                                         <C>                <C>           
Assets
     Cash in banks ....................................................     $   4,043,627      $   2,649,183
     Interest-bearing deposits ........................................        11,861,301          7,901,411
     Trading account securities .......................................        20,351,747            251,577
     Investment securities available for sale .........................        38,302,791         27,566,134
     Investment securities (market value -
         June 30, 1998, $15,672,486
         June 30, 1997, $19,392,778) ..................................        15,600,347         19,468,945
     Loans receivable, less allowance for loan
         losses of $3,413,830 and $2,855,003 at
         June 30, 1998 and 1997, respectively .........................       273,127,856        257,040,006
     Loans held for sale ..............................................         1,101,071            105,888
     Accrued interest receivable ......................................         2,486,224          2,110,586
     Property and equipment - net .....................................         7,093,850          5,471,010
     Other assets .....................................................         3,043,102          2,636,115
                                                                            -------------      -------------
         Total Assets .................................................     $ 377,011,916      $ 325,200,855
                                                                            =============      ============= 
Liabilities and Stockholders' Equity
     Liabilities:
     Deposits .........................................................     $ 298,191,412      $ 260,750,311
     Securities sold under agreements to repurchase ...................           144,417             12,086
     Advance payments by borrowers for taxes and insurance ............         2,962,637          2,998,681
     Employee Stock Ownership Plan ("ESOP") debt ......................           146,618            333,490
     Federal Home Loan Bank advances ..................................        40,935,822         30,198,247
     Other borrowings .................................................           708,409            500,754
     Accrued interest payable .........................................           968,544            788,259
     Other liabilities ................................................         1,105,214          1,340,446
                                                                            -------------      -------------
         Total Liabilities ............................................       345,163,073        296,922,274

     Commitments and contingencies (Note 8)

     Stockholders' Equity: ............................................              --                 --
     Preferred stock - $1.00 par value; 5,000,000 shares
         authorized; none issued
     Common stock - $1.00 par value; 10,000,000 shares
         authorized; 2,327,478 and 2,206,173 shares issued at
         June 30, 1998 and June 30, 1997, respectively ................         2,327,478          2,214,840
     Additional paid-in capital .......................................        15,608,501         13,060,046
     Common stock acquired by ESOP ....................................          (146,618)          (333,490)
     Retained earnings - partially restricted .........................        13,767,573         13,533,158
     Net unrealized gain on securities available for sale, net of taxes           291,909              2,714
                                                                            -------------      -------------
                                                                               31,848,843         28,477,268
     Treasury stock, at cost (13,213 shares at June 30, 1997) .........              --             (198,687)
                                                                            -------------      -------------
         Total Stockholders' Equity ...................................        31,848,843         28,278,581
                                                                            -------------      -------------
         Total Liabilities and Stockholders' Equity ...................     $ 377,011,916      $ 325,200,855
                                                                            =============      =============
</TABLE>
                                       26
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statements Of Operations

                                                                    Year Ended June 30,
--------------------------------------------------------------------------------------------------- 
                                                            1998            1997            1996
--------------------------------------------------------------------------------------------------- 
<S>                                                     <C>             <C>             <C>        
Interest Income:
     Loans ........................................     $22,190,864     $20,388,526     $18,317,741
     Mortgage-backed securities ...................         530,425         227,293         142,163
     Interest-bearing deposits ....................         253,558         280,490         384,353
     Investment securities:
         Taxable ..................................       1,857,376       1,104,410       1,154,605
         Non-taxable ..............................         920,792         620,703         637,961
                                                        -----------     -----------     -----------

         Total interest income ....................      25,753,015      22,621,422      20,636,823
                                                        -----------     -----------     -----------
Interest Expense:
     Deposits .....................................      11,467,998      10,285,725       9,918,713
     Securities sold under agreements to repurchase           7,636          51,801            --
     Short-term borrowings ........................         971,431         386,958         210,332
     Long-term borrowings .........................         961,952         782,218         757,481
                                                        -----------     -----------     -----------

         Total interest expense ...................      13,409,017      11,506,702      10,886,526
                                                        -----------     -----------     -----------

Net interest income ...............................      12,343,998      11,114,720       9,750,297
Provision for loan losses .........................         605,672         523,413         339,800
                                                        -----------     -----------     -----------

Net interest income after provision for loan losses      11,738,326      10,591,307       9,410,497
                                                        -----------     -----------     -----------

Other Income:
     Investment services income, net ..............       2,797,436       2,309,032       2,221,726
     Service charges and fees .....................       1,116,876         977,145         932,986
     Gain on trading account securities ...........         337,509          15,682          10,212
     Gain on sale of assets available for sale ....         166,240         161,303         117,965
     Other ........................................         199,508         185,621          72,234
                                                        -----------     -----------     -----------

         Total other income .......................       4,617,569       3,648,783       3,355,123
                                                        -----------     -----------     -----------
Operating Expenses:
     Salaries and employee benefits ...............       5,914,592       5,282,068       4,733,420
     Occupancy ....................................       1,060,628         993,530         858,556
     Furniture and equipment ......................         825,228         645,403         595,214
     Data processing ..............................         722,479         605,149         532,136
     SAIF special assessment ......................            --         1,386,516            --
     Deposit insurance premiums ...................         160,994         309,689         501,231
     Other ........................................       2,959,189       2,023,193       1,781,317
                                                        -----------     -----------     -----------

         Total operating expenses .................      11,643,110      11,245,548       9,001,874
                                                        -----------     -----------     -----------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S>                                                     <C>             <C>             <C>        
Income before income taxes ........................       4,712,785       2,994,542       3,763,746
Income tax expense ................................       1,086,755         757,434       1,032,104
                                                        -----------     -----------     -----------
         Net income ...............................     $ 3,626,030     $ 2,237,108     $ 2,731,642
                                                        -----------     -----------     -----------
Earnings per common share(*):
     Basic ........................................     $      1.57     $      0.98     $      1.19
     Diluted ......................................     $      1.55     $      0.97     $      1.18

Weighted average number of shares outstanding(*):
     Basic ........................................       2,306,976       2,286,703       2,294,355
     Diluted ......................................       2,338,563       2,298,756       2,309,994
</TABLE>

(*)  Earnings  per share  and  weighted  average  shares  outstanding  have been
     restated to reflect the effects of the 5% stock dividends paid in September
     1997 and 1996 and the  five-for-four  stock split effected in the form of a
     dividend in March 1997.


                                       27
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statements of Changes in Stockholders' Equity

                                                              Common                   Net Unrealized
                                             Additional        Stock                     Gain (Loss)                       Total
                                 Common        Paid-in       Acquired      Retained    on Securities       Treasury    Stockholders'
                                  Stock        Capital        by ESOP      Earnings   Available for Sale    Stock          Equity
-----------------------------------------------------------------------------------------------------------------------------------
<S>                           <C>           <C>           <C>            <C>           <C>               <C>            <C>        
Balance at
     June 30, 1995            $ 2,055,617   $ 10,281,392  $   (691,911)  $13,428,771   $         --      $  (107,237)   $24,966,632
Net income                                                                 2,731,642                                      2,731,642
Cash dividends paid                                                         (848,734)                                      (848,734)
Principal payments
     on ESOP debt                                              181,171                                                      181,171
Issuance of stock
     dividend                      74,110      1,343,244                  (1,417,354)                                         --
Cash payment for
     fractional shares                                                       (11,105)                                       (11,105)
Stock options exercised             4,342       (110,681)                                                    201,675         95,336
Common stock issued                 2,805         33,885                                                     213,115        249,805
Common stock repurchased                                                                                    (501,026)      (501,026)
Change in unrealized gain
     (loss) on securities
     available for sale                                                                     (97,222)                        (97,222)
                              -----------   ------------  ------------   -----------     ----------      -----------    -----------
Balance at
     June 30, 1996              2,136,874     11,547,840      (510,740)   13,883,220        (97,222)        (193,473)    26,766,499
Net income                                                                 2,237,108                                      2,237,108
Cash dividends paid                                                       (1,061,628)                                    (1,061,628)
Principal payments
     on ESOP debt                                              177,250                                                      177,250
Issuance of stock
     dividend                      77,731      1,438,024                  (1,515,755)                                         --
Cash payment for
     fractional shares                            (6,140)                     (9,787)                                       (15,927)
Stock options exercised                           78,958                                                     258,083        337,041
Common stock issued                   586          4,213                                                      85,382         90,181
Common stock repurchased             (351)        (2,849)                                                   (348,679)      (351,879)
Change in unrealized gain
     (loss) on securities
     available for sale                                                                      99,936                          99,936
                              -----------   ------------  ------------   -----------     ----------      -----------    -----------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S>                           <C>           <C>           <C>            <C>           <C>               <C>            <C>        
Balance at
     June 30, 1997              2,214,840     13,060,046      (333,490)   13,533,158          2,714         (198,687)    28,278,581
Net income                                                                 3,626,030                                      3,626,030
Cash dividends paid                                                       (1,229,256)                                    (1,229,256)
Principal payments
     on ESOP debt                                              186,872                                                      186,872
Issuance of stock
     dividend                     102,606      2,052,120                  (2,154,726)                                         --
Cash payment for
     fractional shares                                                        (7,633)                                        (7,633)
Stock options exercised            15,167        268,232                                                     156,703        440,102
Common stock issued                 6,811        325,769                                                     207,283        539,863
Common stock repurchased          (11,946)       (97,666)                                                   (165,299)      (274,911)
Change in unrealized gain
     (loss) on securities
     available for sale                                                                     289,195                         289,195
                              -----------   ------------  ------------   -----------     ----------      -----------    -----------
Balance at
     June 30, 1998            $ 2,327,478   $ 15,608,501  $   (146,618)  $13,767,573   $    291,909     $        --     $31,848,843
                              ===========   ============  ============   ===========   ============     ============    ===========
 </TABLE>
                                       28
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statements Of Cash Flows

                                                                                              Year Ended June 30,
------------------------------------------------------------------------------------------------------------------------------------
                                                                                1998                1997                 1996
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                     <C>                  <C>                 <C>            
Cash flows from operating activities:
Net income                                                              $     3,626,030      $    2,237,108      $     2,731,642
Add (deduct) items not affecting cash flows from operating activities:
  Depreciation                                                                  725,434             584,337              571,599
  Provision for loan losses                                                     605,672             523,413              339,800
  Gain on trading account securities                                           (337,509)            (15,682)             (10,212)
  Gain on sale of securities available for sale                                (167,989)           (156,451)            (147,978)
  Loss (gain) on sale of loans held for sale                                      1,749              (2,445)             (21,541)
  Loss (gain) on sale of real estate owned                                           --              (2,407)              51,554
  Amortization of deferred loan fees, discounts and premiums                   (586,088)           (530,806)            (527,096)
  Decrease (increase) in trading account securities                         (19,762,661)            106,902              (92,101)
  Increase in accrued interest receivable                                      (375,638)           (489,124)            (147,442)
  Increase in other assets                                                     (406,987)           (661,282)            (232,829)
  Increase (decrease) in other liabilities                                     (235,232)            259,335               60,621
  Increase (decrease) in accrued interest payable                               180,285             134,901              (38,852)
                                                                        ---------------      --------------      ---------------
Net cash flows from (used in) operating activities                          (16,732,934)          1,987,799            2,537,165
                                                                        ---------------      --------------      ---------------

Cash flows from investment activities:
  Capital expenditures                                                       (2,348,274)         (1,691,371)            (427,051)
  Net increase in loans and loans held for sale                             (23,344,652)        (34,923,474)          (5,935,151)
  Proceeds from sale of loans held for sale                                   6,023,850           1,257,348            2,866,072
  Proceeds from real estate owned                                                    --             571,834              312,121
  Purchase of investment securities                                          (1,073,100)           (115,645)          (7,013,176)
  Proceeds from maturities, payments and calls of investment securities       4,929,360           5,237,914            5,506,761
  Purchase of securities available for sale                                 (51,554,985)       (124,134,642)         (84,940,233)
  Proceeds from sales and calls of securities available for sale             41,504,286         103,031,326           81,976,223
                                                                        ---------------      --------------      ---------------
Net cash flows used in investment activities                                (25,863,515)        (50,766,710)          (7,654,434)
                                                                        ---------------      --------------      ---------------

Cash flows from financing activities:
  Net increase in deposits before interest credited                          27,568,357          23,847,975            1,753,642
  Interest credited to deposits                                               9,872,744           8,696,779            8,471,186
  Increase in securities sold under agreements to repurchase                    132,331              12,086                   --
  Proceeds from FHLB advances                                                32,024,225          29,914,500            2,247,800
  Repayments of FHLB advances                                               (21,286,650)        (13,688,530)          (3,372,897)
  Increase in other borrowings                                                  207,655             157,268              102,180
  Net decrease in advance payments by borrowers for taxes and insurance         (36,044)            (16,413)            (159,026)
  Cash dividends on common stock                                             (1,229,256)         (1,061,628)            (848,734)
  Repayments of principal on ESOP debt                                         (186,872)           (177,250)            (181,171)
  Common stock repurchased                                                     (274,911)           (351,879)            (501,026)
  Payment for fractional shares                                                  (7,633)            (15,927)             (11,105)
  Stock options exercised                                                       440,102             337,041               95,336
  Reduction of common stock acquired by ESOP                                    186,872             177,250              181,171
  Common stock issued                                                           539,863              90,181              249,805
                                                                        ---------------      --------------      ---------------
Net cash flows from financing activities                                     47,950,783          47,921,453            8,027,161
                                                                        ---------------      --------------      ---------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S>                                                                     <C>                  <C>                 <C>            
  Net increase (decrease) in cash                                             5,354,334            (857,458)           2,909,892
  Cash and cash equivalents:
   Beginning of period                                                       10,550,594          11,408,052            8,498,160
                                                                        ---------------      --------------      ---------------
   End of period                                                        $    15,904,928      $   10,550,594      $    11,408,052
                                                                        ===============      ==============      ===============
Supplemental disclosures:
  Cash payments during the year for:
   Taxes                                                                $     1,379,000      $      757,000      $     1,196,000
                                                                        ===============      ==============      ===============
   Interest                                                             $    13,228,732      $   11,371,801      $    10,930,851
                                                                        ===============      ==============      ===============
Non-cash items:
  Acquisition of real estate in settlement of loans                     $            --      $      448,427      $       328,000
                                                                        ===============      ==============      ===============
  Stock dividend issued                                                 $     2,154,726      $    1,515,755      $     1,417,354
                                                                        ===============      ==============      ===============
  Transfer of investment securities to investment securities 
     available for sale                                                 $     --             $     --            $     3,191,864
                                                                        ===============      ==============      ===============
  Net unrealized gain (loss) on investment securities 
     available for sale                                                 $       471,001      $      151,727      $      (147,307)
                                                                        ===============      ==============      ===============
  Tax effect on unrealized gain (loss) on investment 
     securities available for sale                                      $      181,806       $      51,791       $      (50,085)
                                                                        ===============      ==============      ===============
</TABLE>

                                       29
<PAGE>
Notes To Consolidated Financial Statements

1 - Summary of Significant Accounting Policies

Business

      Chester  Valley  Bancorp Inc. (the "Holding  Company") is a unitary thrift
holding  company,  incorporated  in the  Commonwealth  of Pennsylvania in August
1989.  The business of Chester  Valley  Bancorp Inc. and its  subsidiaries  (the
"Company") consists of the operations of First Financial Bank ("First Financial"
or the "Bank"),  a  Pennsylvania-chartered  stock  savings and loan  association
founded in 1922 and Philadelphia Corporation for Investment Services ("PCIS"), a
full  service  investment  advisory  and  securities  brokerage  firm.  The Bank
provides a wide range of banking services to individual and corporate  customers
through its branch banks in Chester  County,  Pennsylvania.  All of the branches
are full  service  and offer  commercial  and retail  products.  These  products
include checking accounts (non-interest and interest-bearing), savings accounts,
certificates  of  deposit,   commercial  and  installment   loans,  real  estate
mortgages,  and home equity loans. The Bank also offers ancillary  services that
complement  these  products.  The Bank is  subject  to  competition  from  other
financial  institutions  and other  companies that provide  financial  services.
Philadelphia   Corporation   for   Investment   Services  is   registered  as  a
broker/dealer  in all 50 states and Washington,  DC and it is also registered as
an Investment  Advisor with the Securities  Exchange  Commission.  PCIS provides
many  additional  services,   including  self-directed  and  managed  retirement
accounts,  safekeeping,  daily sweep money market  funds,  portfolio  and estate
valuations,  life insurance and annuities,  and margin accounts,  to individuals
and smaller  corporate  accounts.  The Company is subject to the  regulations of
certain federal and state agencies and undergoes periodic  examinations by those
regulatory authorities.

Principles of Consolidation and Presentation

      The accompanying consolidated financial statements include the accounts of
Chester Valley Bancorp Inc. and its wholly-owned  subsidiaries,  First Financial
Bank and Philadelphia  Corporation for Investment Services.  The accounts of the
Bank include its wholly-owned  subsidiary, D & S Service Corp., which owns D & F
Projects  and  Wildman   Projects,   Inc.,   both  of  which  are   wholly-owned
subsidiaries.  All material  inter-company  balances and transactions  have been
eliminated  in  consolidation.   Prior  period  amounts  are  reclassified  when
necessary to conform with the current year's presentation.

      The Company follows  accounting  principles and reporting  practices which
are in accordance with generally accepted  accounting  principles.  In preparing
the consolidated financial statements,  management is required to make estimates
and assumptions that affect the reported amounts of assets and liabilities as of
the date of the  statement of financial  condition and revenues and expenses for
the period.  Actual  results could differ  significantly  from those  estimates.
Material  estimates that are particularly  susceptible to significant  change in
the near-term  relate to the  determination of the allowance for loan losses and
the valuation of real estate owned.  Management  believes that the allowance for
loan  losses  and the  valuation  of real  estate  owned are  adequate.  Various
regulatory  agencies,   as  an  integral  part  of  their  examination  process,
periodically  review the Company's  allowance for loan losses and  valuations of
real estate owned. Such agencies may require the Bank to recognize  additions to
the allowance or adjustments to the valuations  based on their  judgments  about
information available to them at the time of their examination.
<PAGE>
Cash and Cash Equivalents

      For the purpose of the  consolidated  statements  of cash flows,  cash and
cash  equivalents  include cash and  interest-bearing  deposits with an original
maturity of generally three months or less.

Securities

      The Company divides its securities portfolio into three segments: (a) held
to maturity;  (b) available for sale; and (c) trading.  At the time of purchase,
the Company makes a determination on whether or not it will hold the investments
to maturity,  based upon an evaluation of the  probability  of the occurrence of
future events.  Securities in the held to maturity category are accounted for at
amortized cost adjusted for  amortization of premiums and accretion of discounts
using a method which  approximates a level yield,  based on the Company's intent
and  ability to hold the  securities  until  maturity.  Trading  securities  are
accounted  for at quoted  market  prices  with  changes in market  values  being
recorded  as gain  or  loss  in the  income  statement.  All  other  securities,
including  investment  securities  which the Company believes may be involved in
interest rate risk,  liquidity,  or other  asset/liability  management decisions
which might reasonably  result in such securities not being held until maturity,
are included in the  available  for sale  category and are accounted for at fair
value  with  unrealized  gains or  losses,  net of  taxes,  being  reflected  as
adjustments  to equity.  If investment  securities are sold, any gain or loss is
determined by specific identification and reflected in the operating results for
the period.

Allowance for Loan Losses

      The allowance  for loan losses is  maintained  at a level that  management
considers  adequate to provide for potential  losses based upon an evaluation of
known and inherent risks in the loan portfolio. Management's evaluation is based
upon,  among other  things,  delinquency  trends,  the volume of  non-performing
loans, prior loss experience of the portfolio,  current economic  conditions and
other  relevant  factors.  Although  management  believes  it has  used the best
information available to it in making such determinations,  and that the present
allowance for loan losses is adequate,  future  adjustments to the allowance may
be necessary,  and net income may be adversely affected if circumstances  differ
substantially  from  the  assumptions  used  in  determining  the  level  of the
allowance.  In addition,  various  regulatory  agencies,  as an integral part of
their  examination  process,  periodically  review the  Company's  allowance for
losses on loans. Such agencies may require the Company to recognize additions to
the allowance based on their judgments  about  information  available to them at
the time of their  examination.  The allowance is increased by the provision for
loan  losses  which is  charged to  operations.  Loan  losses,  other than those
incurred on loans held for sale, are charged  directly against the allowance and
recoveries on previously charged-off loans are added to the allowance.


                                       30
<PAGE>
1 - Summary of Significant Accounting Policies (continued)

      For purposes of applying the measurement  criteria for impaired loans, the
Company excludes large groups of smaller-balance  homogeneous  loans,  primarily
consisting  of  residential  real  estate  loans and  consumer  loans as well as
commercial loans with balances of less than $100,000.  For applicable loans, the
Company  evaluates  the  need for  impairment  recognition  when a loan  becomes
non-accrual  or earlier if,  based on  management's  assessment  of the relevant
facts and  circumstances,  it is  probable  that the  Company  will be unable to
collect  all  proceeds  due  according  to the  contractual  terms  of the  loan
agreement. At and during the twelve-month periods ended June 30, 1998, 1997, and
1996, the recorded investment in impaired loans was not material.  The Company's
policy for the  recognition of interest  income on impaired loans is the same as
for non-accrual  loans discussed below.  Impaired loans are charged off when the
Company  determines  that  foreclosure  is  probable  and the fair  value of the
collateral is less than the recorded investment of the impaired loan.

Loans, Loan Origination Fees and Uncollected Interest

      Loans  (other  than  loans  held for  sale)  are  recorded  at cost net of
unearned  discounts,  deferred  fees and  allowances.  Discounts and premiums on
purchased  loans are  amortized  using the  interest  method over the  remaining
contractual  life  of the  portfolio,  adjusted  for  actual  prepayments.  Loan
origination fees and certain direct origination costs are deferred and amortized
over the life of the related loans as an adjustment of the yield on the loans.

      Uncollected  interest  receivable on loans is accrued to income as earned.
Non-accrual  loans are loans on which the accrual of interest has ceased because
the collection of principal or interest payments is determined to be doubtful by
management.  It is the  policy of the  Company  to  discontinue  the  accrual of
interest  when  principal or interest  payments are  delinquent  90 days or more
(unless the loan principal and interest are determined by management to be fully
secured and in the process of collection), or earlier if the financial condition
of the  borrower  raises  significant  concern with regard to the ability of the
borrower to service the debt in accordance with the current loan terms. Interest
income on such loans is not accrued  until the  financial  condition and payment
record of the borrower once again demonstrate the ability to service the debt.

Loans Held for Sale

      The Company periodically identifies certain loans as held for sale at the
time of origination. These loans consist primarily of fixed-rate,  single-family
residential  mortgage  loans  which  meet the  underwriting  characteristics  of
certain government-sponsored enterprises (conforming loans). Loans held for sale
are carried at the lower of  aggregate  cost or fair value,  with any  resulting
gain or loss included in other income for the period.  Realized  gains or losses
are included in other income for the period.

Real Estate Owned ("REO")

      Real estate acquired through foreclosure or by deed in lieu of foreclosure
is  classified  as REO.  REO is carried at the lower of cost (lesser of carrying
value of the loan or fair value of the property at date of  acquisition) or fair
value less selling expenses. Costs relating to the development or improvement of
the property are capitalized; holding costs are charged to expense.
 
Property and Equipment

      Property and equipment are stated at cost, less accumulated  depreciation.
Depreciation  is computed  using the  straight-line  method  over the  estimated
<PAGE>
useful lives of the assets.  When assets are retired or  otherwise  disposed of,
the cost and related accumulated depreciation are removed from the accounts. The
cost of  maintenance  and repairs is charged to expense as incurred and renewals
and betterments are capitalized.

Deferred Income Taxes

      The  Company  accounts  for  income  taxes  under the asset and  liability
method.  Deferred tax assets and  liabilities  are recognized for the future tax
consequences   attributable  to  differences  between  the  financial  statement
carrying  amounts of existing assets and  liabilities  and their  respective tax
bases and operating loss and tax credit  carryforwards.  Deferred tax assets and
liabilities  are measured  using enacted tax rates  expected to apply to taxable
income in the years in which  those  temporary  differences  are  expected to be
recovered  or settled.  The effect on deferred tax assets and  liabilities  of a
change in tax rates is  recognized  in income in the period  that  includes  the
enactment date.

Earnings Per Share

      In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial  Accounting  Standards  ("SFAS") No. 128,  "Earnings  per
Share,"  which is  required to be adopted in both  interim and annual  financial
statements for periods ending after December 15, 1997. Accordingly,  the Company
has changed its  methodology  for computing  earnings per share and restated all
prior period amounts.  SFAS 128 replaced  "primary" and "fully" diluted earnings
per  share  with  "basic"  and  "diluted"  earnings  per  share.  Under  the new
requirements  for calculating  earnings per share,  the dilutive effect of stock
options  will be  excluded  from basic  earnings  per share but  included in the
computation  of diluted  earnings  per share.  Earnings  per share and  weighted
average shares  outstanding  have been adjusted to reflect the effects of the 5%
stock  dividends  paid in September  1997 and 1996 and the  five-for-four  stock
split effected in the form of a dividend in March 1997.

      The  following  table  sets  forth the  computation  of basic and  diluted
earnings per share (in thousands, except per share data):
<TABLE>
<CAPTION>
                                          Year Ended June 30,
                                    -----------------------------
                                     1998       1997        1996
                                   ------      ------      ------
<S>                                 <C>        <C>         <C>   
Numerator:
  Net income                        $3,626     $2,237      $2,732
                                    ======     ======      ======
Denominator:
  Denominator for basic
  earnings per share-weighted
  average shares                    2,307       2,287       2,294

Effect of dilutive securities:
  Employee stock options               32          12          16
                                   ------      ------      ------
Denominator for diluted earnings
  per share-adjusted weighted
  average shares and
  assumed exercise                  2,339       2,299       2,310
                                    ======     ======      ======

Basic earnings per share           $ 1.57      $ 0.98      $ 1.19
                                    ======     ======      ======
Diluted earnings per share         $ 1.55      $ 0.97      $ 1.18
                                    ======     ======      ======
</TABLE>
                                       31
<PAGE>
2 - Investment Securities

Investment securities are summarized as follows:
<TABLE>
<CAPTION>
                                                                          At June 30,
------------------------------------------------------------------------------------------------------------------------------------
                                                     1998                                                1997
------------------------------------------------------------------------------------------------------------------------------------
                                            Gross        Gross      Estimated                     Gross        Gross      Estimated
                             Amortized   Unrealized   Unrealized      Fair        Amortized   Unrealized    Unrealized      Fair
                               Cost         Gains       Losses        Value          Cost        Gains         Losses       Value
                            -----------   ---------   ----------   -----------    -----------  ----------   ----------   -----------
<S>                         <C>           <C>         <C>          <C>            <C>          <C>          <C>          <C>        
Held to Maturity:
   U.S. Government
   agency notes
   and bonds                $ 4,500,000   $   8,630   $   (4,737)  $ 4,503,893    $ 5,500,000  $    9,426   $ (148,931)  $ 5,360,495
   Federal Home
   Loan Bank of
   Pittsburgh stock           2,583,100          --           --     2,583,100      1,510,000          --           --     1,510,000
   Municipal notes
   and bonds                  7,394,443      47,512      (12,021)    7,429,934     10,986,072      66,856      (44,250)   11,008,678
   Mortgage-Backed
   securities                 1,122,772      32,052           --     1,154,824      1,472,841      40,240           --     1,513,081
   Other                             32         703           --           735             32         492           --           524
                            -----------   ---------   ----------   -----------    -----------  ----------   ----------   -----------
Total held to maturity      $15,600,347   $  88,897   $  (16,758)  $15,672,486    $19,468,945  $  117,014   $ (193,181)  $19,392,778
                            ===========   =========   ==========   ===========    ===========  ==========   ==========   ===========
 
Available for sale:
   U.S. Government
   agency notes
   and bonds                $12,298,216   $  7,334    $   (9,959)  $12,295,591    $18,286,172  $   17,839   $  (87,210)  $18,216,801
   Municipal notes
   and bonds                 15,072,678    136,492       (36,458)   15,172,712      4,119,956      19,995      (11,988)    4,127,963
   Mortgage-Backed
   securities                 9,228,956    202,553            --     9,431,509      5,019,306      34,925           --     5,054,231
   Equity securities            886,230    222,522       (12,419)    1,096,333        136,280      30,859           --       167,139
   Debt securities              313,223         --        (6,577)      306,646             --          --           --           --
                            -----------   ---------   ----------   -----------    -----------  ----------   ----------   -----------
Total available for sale    $37,799,303   $568,901    $  (65,413)  $38,302,791    $27,561,714  $  103,618   $  (99,198)  $27,566,134
                            ===========   ========    ==========   ===========    ===========  ==========   ==========   ===========
</TABLE>
<PAGE>
The amortized cost and estimated fair value of investment securities at June 30,
1998, by contractual maturity, are shown below.
<TABLE>
<CAPTION>
                                                              Estimated     Weighted
                                              Amortized          Fair        Average
                                                Cost             Value        Yield
                                             -----------     -----------        ---- 
<S>                                          <C>             <C>                <C>  
Held to Maturity:
  Due in one year or less ..............     $ 3,186,120     $ 3,191,735        6.11%
  Due after one year through five years        3,797,748       3,826,169        6.69%
  Due after five years through ten years       2,000,000       2,008,630        6.60%
  Due after ten years ..................       4,033,347       4,062,117        7.11%
  No stated maturity ...................       2,583,132       2,583,835        6.50%
                                             -----------     -----------        ---- 

  Total held to maturity ...............     $15,600,347     $15,672,486        6.64%
                                             ===========     ===========        ==== 
Available for Sale:
  Due in one year or less ..............     $ 1,201,173     $ 1,206,246        6.74%
  Due after one year through five years        2,900,495       2,901,696        6.35%
  Due after five years through ten years       5,832,678       5,830,517        6.67%
  Due after ten years ..................      26,978,727      27,267,999        7.68%
  No stated maturity ...................         886,230       1,096,333        1.55%
                                             -----------     -----------        ---- 

  Total available for sale .............     $37,799,303     $38,302,791        7.25%
                                             ===========     ===========        ==== 
</TABLE>

      Expected  maturities  may  differ  from  contractual   maturities  because
borrowers  generally  have  the  right  to call or  prepay  obligations  without
prepayment  penalties.  The weighted average yield,  based on amortized cost, is
presented on a taxable  equivalent  basis using the Federal marginal rate of 34%
adjusted for the 20% interest expense disallowance (27.2%).  Proceeds from sales
and calls of investment  securities available for sale during fiscal 1998, 1997,
and 1996 were $41.50 million, $103.03 million, and $81.98 million, respectively.
Gross gains of $171,135,  $162,284, and $148,437 in fiscal 1998, 1997, and 1996,
respectively, and gross losses of $3,146, $5,833, and $459 in fiscal 1998, 1997,
and  1996,  respectively,   were  realized  on  those  sales.  Accrued  interest
receivable on investments amounted to $703,800 and $697,500 at June 30, 1998 and
1997,  respectively.  At June 30, 1998, $22.09 million of investment  securities
were pledged as collateral  for Municipal  savings  deposits with the Bank,  for
securities sold under agreements to repurchase, and for the Bank's treasury, tax
and loan account with the Federal Reserve.


                                       32
<PAGE>
3 - Loans Receivable

Loans receivable are summarized as follows:
<TABLE>
<CAPTION>
                                                         At June 30,
                                             ----------------------------------
                                                   1998                 1997
                                             -------------        -------------
<S>                                          <C>                  <C>          
First mortgage loans:
   Residential .......................       $ 155,627,889        $ 159,430,494
   Construction-residential ..........          13,501,993            9,872,749
   Land acquisition and
      development ....................           6,529,495            6,763,084
   Commercial ........................          41,001,909           33,981,099
   Construction-commercial ...........          10,614,137            6,271,147
Commercial business ..................          11,437,190            7,863,000
Consumer .............................          51,828,965           47,343,185
                                             -------------        -------------

Total loans ..........................         290,541,578          271,524,758

Less:
   Undisbursed loan proceeds:
      Construction-residential .......          (7,915,210)          (6,598,504)
      Construction-commercial ........          (4,464,863)          (3,493,774)
   Deferred loan fees ................          (1,619,819)          (1,537,471)
   Allowance for loan losses .........          (3,413,830)          (2,855,003)
                                             -------------        -------------
Net loans ............................       $ 273,127,856        $ 257,040,006
                                             =============        =============
</TABLE>

Accrued  interest  receivable on loans  amounted to $1,387,721 and $1,387,821 at
June 30, 1998 and 1997,  respectively.  At June 30, 1998,  1997,  and 1996,  the
Company serviced loans for others of $28.87 million,  $24.89 million, and $22.21
million, respectively.

      The  aggregate  amount  of  loans  by the  Company  to its  directors  and
executive  officers  was  $1,018,300  and  $438,300  at June 30,  1998 and 1997,
respectively.  These  loans  were made in the  ordinary  course of  business  at
substantially the same terms and conditions as those with other borrowers.

      The total amount of non-performing  loans was $1.25 million,  $748,000 and
$2.22  million  at  June  30,  1998,  1997  and  1996,  respectively.  If  these
non-performing  loans had been current in accordance  with their  original terms
and had been  outstanding  throughout the period,  the gross interest income for
fiscal 1998,  1997,  and 1996 that would have been  recorded for these loans was
$111,800,  $71,400 and $210,400.  Interest income on these  non-performing loans
included in income for fiscal 1998, 1997, and 1996 amounted to $57,560,  $35,200
and $91,900,  respectively.  At June 30, 1998, and throughout fiscal 1998, there
were no loans for which impairment was required to be recognized.
<PAGE>
The activity in the allowance for loan losses was as follows:
<TABLE>
<CAPTION>

                                               Year Ended June 30,
                                  ---------------------------------------------
                                     1998             1997             1996
                                  -----------      -----------      -----------

 <S>                               <C>              <C>              <C>        
Balance, beginning of period      $ 2,855,003      $ 2,667,104      $ 2,448,510
Provision for loan losses ...         605,672          523,413          339,800
Loans charged off ...........         (81,411)        (377,923)        (146,097)
Recoveries ..................          34,566           42,409           24,891
                                  -----------      -----------      -----------
Balance, end of period ......     $ 3,413,830      $ 2,855,003      $ 2,667,104
                                  ===========      ===========      ===========
</TABLE>


                                       33
<PAGE>
4 - Property and Equipment

Property and equipment by major classification are summarized as follows:
<TABLE>
<CAPTION>
                                                           At June 30,
                                               --------------------------------
                                                    1998                1997
                                               ------------        ------------
<S>                                            <C>                 <C>         
Land ...................................       $  1,096,715        $    844,026
Buildings and Improvements .............          5,878,644           4,698,324
Furniture, Fixtures and Equipment ......          3,980,286           3,065,060
                                               ------------        ------------
Total ..................................         10,955,645           8,607,410
Less Accumulated Depreciation ..........         (3,861,795)         (3,136,400)
                                               ------------        ------------
Net ....................................       $  7,093,850        $  5,471,010
                                               ============        ============
</TABLE>

5 - Deposits

Deposits consist of the following major classifications:
<TABLE>
<CAPTION>
                                                                         At June 30,
                                      ----------------------------------------------------------------------------------  
                                                       1998                                         1997
                                      ---------------------------------------     --------------------------------------  
                                       Weighted                       Percent     Weighted                       Percent
                                       Average                          of        Average                          of
                                         Rate         Amount           Total        Rate          Amount          Total
                                         ----      ------------        -----         ----      ------------       -----  
 <S>                                      <C>       <C>                 <C>           <C>       <C>                <C>   
Non-interest bearing                       --%     $ 32,361,445         10.9%          --%     $ 21,493,230        8.2%
                                         ----      ------------        -----         ----      ------------       -----  
Interest-bearing:
     NOW checking accounts               1.55        31,769,680         10.6         1.98        27,624,884        10.6
     Money market deposit accounts       3.77        35,609,735         11.9         3.78        29,886,639        11.5
     Savings accounts                    2.39        27,163,761          9.1         2.90        26,473,939        10.2
     Certificates less than $100,000     5.64       133,801,531         44.9         5.58       124,636,389        47.8
     Certificates $100,000 and greater   5.73        37,485,260         12.6         5.73        30,635,230        11.7
                                         ----      ------------        -----         ----      ------------       ----- 
 
     Total interest-bearing              4.58       265,829,967         89.1         4.66       239,257,081        91.8
                                         ----      ------------        -----         ----      ------------       ----- 
 
Total deposits                           4.08%     $298,191,412        100.0%        4.28%     $260,750,311       100.0%
                                         ====      ============        =====         ====      ============       ===== 
</TABLE>
<PAGE>
While the certificates  frequently are renewed at maturity rather than paid out,
a  summary  of  certificates  by  contractual  maturity  at June 30,  1998 is as
follows:

                Years Ending June 30,                       Amount
                ---------------------                       ------

                        1999                            $119,515,640
                        2000                              25,245,746
                        2001                              11,603,015
                        2002                               7,513,477
                        2003                               4,400,943
                 2004 and thereafter                       3,007,970
                                                        ------------
                                                        $171,286,791
                                                        ============

Interest expense on deposits is comprised of the following:
<TABLE>
<CAPTION>


                                                   Year Ended June 30,
                                     -------------------------------------------
                                         1998            1997            1996
                                     -----------     -----------     -----------

<S>                                  <C>             <C>             <C>        
NOW Checking Accounts ..........     $   530,069     $   461,510     $   449,329
Money Market Deposit Accounts ..       1,048,056         875,546         814,901
Savings Accounts ...............         694,306         719,751         724,771
Certificates Less than $100,000        7,079,114       6,639,858       6,307,763
Certificates $100,000 & Greater        2,116,453       1,589,060       1,621,949
                                     -----------     -----------     -----------
Total ..........................     $11,467,998     $10,285,725     $ 9,918,713
                                     ===========     ===========     ===========

</TABLE>
                                       34

<PAGE>
6 - Advances From Federal Home Loan Bank of Pittsburgh ("FHLBP")

      Under  terms of its  collateral  agreement  with the  FHLBP,  the  Company
maintains  otherwise  unencumbered  qualifying  assets  (principally  1-4-family
residential  mortgage loans and U.S. Government & Agency notes and bonds) in the
amount of at least as much as its advances from the FHLBP.  The Company's  FHLBP
stock is also pledged to secure these advances.  At June 30, 1998 and 1997, such
advances mature as follows:
<TABLE>
<CAPTION>

                            Weighted                                                        Weighted
                             Average              June 30,                                   Average           June 30,
Due by June 30,                 Rate                1998       Due by June 30,                Rate               1997
----------------------------------------------------------     --------------------------------------------------------- 
<S>                           <C>           <C>                <C>                            <C>          <C>          
1999                          5.63%         $    3,284,594     1998                           5.92%        $  18,386,650

2000                          6.33               3,517,372     1999                           5.63             2,646,595

2001                          5.76               5,526,281     2000                           7.28             1,531,147

2002                          5.75               4,316,268     2001                           5.80             4,026,281

2003                          5.86               7,351,822     2002                           6.09             1,816,269

Thereafter                    5.36              16,939,485     Thereafter                     6.23             1,791,305
----------------------------------------------------------     --------------------------------------------------------- 
 
Total FHLBP advances          5.65%         $   40,935,822     Total FHLBP advances           5.97%        $  30,198,247
----------------------------------------------------------     --------------------------------------------------------- 
</TABLE>

      Included  in the table  above at June 30,  1998 are  convertible  advances
whereby  the FHLBP has the option at a  predetermined  time to convert the fixed
interest rate to an adjustable rate tied to LIBOR.  The Bank then has the option
to prepay these advances if the FHLBP converts the interest rate. These advances
are included in the year in which they mature.

      The Company has  available  an  annually  renewable  line of credit not to
exceed 10% of the Company's maximum borrowing  capacity which was $11.67 million
at the time the  commitment  was executed.  The Company,  from time to time, has
used the line of  credit to meet  liquidity  needs.  At June 30,  1998 and 1997,
there were no balances outstanding on the line of credit.
<PAGE>
7 - Income Taxes

The provision (and benefit) for income taxes is summarized as follows:
<TABLE>
<CAPTION>
                                             Year Ended June 30,
                                -----------------------------------------------
                                    1998              1997              1996
                                -----------       -----------       -----------
<S>                             <C>               <C>               <C>        
Current:
   Federal ...............      $ 1,177,200       $   753,774       $   918,389
   State .................           75,547           144,145           198,100
Deferred - Federal .......         (165,992)         (140,485)          (84,385)
                                -----------       -----------       -----------
Total ....................      $ 1,086,755       $   757,434       $ 1,032,104
                                ===========       ===========       ===========
</TABLE>
The  provision  for income  taxes  differs  from the  statutory  rate due to the
following:
<TABLE>
<CAPTION>
                                                           Year Ended June 30,
                                           --------------------------------------------- 
                                               1998             1997             1996
                                           -----------      -----------      -----------
<S>                                        <C>              <C>              <C>        
Federal income taxes at statutory rate     $ 1,602,347      $ 1,018,144      $ 1,279,674
Tax exempt interest, net .............        (367,469)        (222,162)        (211,440)
State taxes net of Federal benefit ...          50,454           95,136          130,746
Non-taxable S Corp income ............        (212,735)        (105,892)         (99,551)
Non-deductible merger expenses .......          71,484             --               --
Other, net ...........................         (57,326)         (27,792)         (67,325)
                                           -----------      -----------      -----------
Total ................................     $ 1,086,755      $   757,434      $ 1,032,104
                                           ===========      ===========      ===========
</TABLE>

                                       35
<PAGE>
7 - Income Taxes (Continued)

The deferred tax assets and liabilities at June 30, 1998 and 1997,  consisted of
the following:
<TABLE>
<CAPTION>
                                                                   At June 30,
                                                            -------------------------
                                                               1998           1997
                                                            ----------     ----------
<S>                                                         <C>            <C>       
Deferred tax assets:
   Allowance for loan losses ..........................     $1,135,202     $  970,701
   Deferred loan fees .................................         75,841        102,487
   Uncollected interest ...............................         35,172         69,275
   Other ..............................................         40,393         13,245
                                                            ----------     ----------

Gross deferred tax assets .............................      1,286,608      1,155,708

Deferred tax liabilities:
   Tax bad debt reserves ..............................        165,957        171,302
   Loan discount ......................................        129,586        143,441
   Depreciation .......................................         14,998         30,890
   Net unrealized gain on securities available for sale        183,512          1,706
                                                            ----------     ----------
Gross deferred tax liabilities ........................        494,053        347,339
                                                            ----------     ----------
Net deferred tax assets ...............................     $  792,555     $  808,369
                                                            ==========     ==========
</TABLE>

      The  realizability  of deferred tax assets is dependent  upon a variety of
factors,  including the  generation of future taxable  income,  the existence of
taxes paid and  recoverable,  the reversal of deferred tax  liabilities  and tax
planning strategies.  Based upon these and other factors, management believes it
is more  likely  than not that the Company  will  realize the  benefits of these
deferred tax assets.

      For periods  ending prior to May 29, 1998,  no provision has been made for
income taxes for PCIS since PCIS had elected to be taxed under the provisions of
Subchapter S of the Internal  Revenue Code and similar state  provisions.  Under
these provisions, PCIS does not pay income taxes on its taxable income. Instead,
the former  stockholders of PCIS are liable for individual income taxes based on
their respective  shares of PCIS's taxable income.  As a result of all of PCIS's
stock being purchased by Chester Valley Bancorp Inc. on May 29, 1998, PCIS is no
longer eligible to be taxed under the provisions of Subchapter S of the Internal
Revenue Code.

      The Small Business Job  Protection Act of 1996 ("Act"),  enacted on August
20, 1996,  provides for the repeal of the tax bad debt deduction  computed under
the percentage of taxable income method. The repeal of the use of this method is
effective for tax years beginning  after December 31, 1995.  Prior to the change
in law, the Bank had qualified under the provisions of the Internal Revenue Code
which  permitted  it to deduct from taxable  income an  allowance  for bad debts
based on 8% of taxable income.
<PAGE>
      Upon  repeal,  the Bank is  required  to  recapture  into  income,  over a
six-year  period,  the portion of its tax bad debt reserves that exceed its base
year reserves (i.e., tax reserves for tax years beginning before 1988). The base
year tax  reserves,  which may be subject  to  recapture  if the Bank  ceases to
qualify as a bank for federal income tax purposes,  are restricted  with respect
to certain  distributions.  The Bank's  total tax bad debt  reserves at June 30,
1998, are  approximately  $3.13 million,  of which $2.64 million  represents the
base year  amount  and  $488,000  is  subject  to  recapture.  The  Company  has
previously  recorded a deferred tax  liability for the excess base year reserves
to be  recaptured;  therefore,  this  recapture will not impact the statement of
operations.

8 - Commitments And Contingencies

Financial instruments with off-balance-sheet risk:

      The Company is a party to  financial  instruments  with  off-balance-sheet
risk in the  normal  course  of  business  to meet  the  financing  needs of its
customers  and to reduce its own  exposure to  fluctuations  in interest  rates.
Commitments to originate loans amounted to $8.29 million as of June 30, 1998, of
which $4.00 million was for variable-rate  loans. The balance of the commitments
represent  fixed-rate  loans with interest rates ranging from 5.75% to 7.25%. At
June 30, 1998,  the Company had  undisbursed  loans in process for  construction
loans of $12.38 million and $15.45 million in  undisbursed  lines of credit.  In
addition,  the Company has issued $51,000 in commercial  letters of credit fully
secured by deposit accounts or real estate.

Concentration of credit risk:

      The Company is  principally a local lender and therefore has a significant
concentration  of  residential  and  commercial  real  estate  loans  as well as
consumer and  commercial  business loans to borrowers who reside in and/or which
are   collateralized  by  real  estate  located  primarily  in  Chester  County,
Pennsylvania.  The  ability of such  customers  to honor  these  obligations  is
dependent,  to varying  degrees,  on the overall  economic  performance  of this
diversified region.

Other commitments:

      The Bank and PCIS have entered into operating  leases for several of their
branch and office  facilities.  The minimum  annual rental  payments under these
leases at June 30, 1998, are as follows:

            Year                          Minimum Lease Payments
            ----                          ----------------------

            1999                               $449,030
            2000                                282,478
            2001                                215,204
            2002                                205,662
            2003                                177,140
            2004 and after                    1,077,291

      Rent expense under these leases for each of the years ended June 30, 1998,
1997, and 1996, was $521,175, $499,213, and $406,145, respectively.


                                       36
<PAGE>
9 - Affiliated Transactions

      During  fiscal 1998,  1997 and 1996 the Company  entered into an agreement
with one of the  directors of the Company to perform  reviews of  appraisals  in
connection  with the origination of residential  mortgage  loans.  During fiscal
1997 and 1996 the Company entered into an agreement with another director of the
Company for the improvement and renovation of certain of the Bank's offices, for
the performance of routine  maintenance and repair at all of the Bank's offices,
and for the inspection services performed in connection with loans. The Board of
Directors approved the agreements with both directors,  one a general contractor
and the other an architect.  The total paid was $5,060 in 1998, $26,638 in 1997,
and $78,695 in 1996.

      Two  directors  of the Company are a principal  and a partner in law firms
which the Company  retained during fiscal years 1998,  1997, and 1996, and which
the Company  intends to retain  during  fiscal year 1999.  During the year ended
December 31, 1997, the amount of legal fees paid to the law firms did not exceed
5% of those firms' gross revenues for such fiscal year.

      A director of the Company is an executive officer,  director and principal
of an  investment  banking  firm  from  which  the  Company  purchased  and sold
investment  securities  during fiscal years 1998,  1997,  and 1996.  The Company
intends to continue the business  relationship during fiscal 1999. The purchases
of investment  securities  from the investment  banking firm amounted to $321.78
million,  $119.11  million and $83.19  million and the sales amounted to $272.34
million,  $103.03  million and $81.98 million during fiscal years 1998, 1997 and
1996, respectively. These securities were purchased and sold at market rates and
on terms no more favorable to the investment  banking firm than those obtainable
on an arm's-length  basis. The investment  banking firm receives income on these
transactions as a result of a spread differential (on a net yield basis). During
the year ended  December 31, 1997, the amount of income earned by the investment
banking firm related to the investment  activity with the Company did not exceed
5% of that firm's gross revenues for such fiscal year.

      A  director  of the  Company  is a director  and  president  of a mortgage
banking firm from which the Company purchased single-family residential mortgage
loans  during  fiscal years 1998,  1997,  and 1996,  and the Company  intends to
continue the business  relationship during fiscal year 1999. During fiscal 1998,
1997 and 1996, the purchases of loans from the mortgage banking firm amounted to
$7.28  million,  $16.32 million and $3.61  million,  respectively,  with fees of
$93,314, $135,061, and $49,543,  respectively,  paid to the firm. The loans were
purchased  at market rates and terms no more  favorable to the mortgage  banking
firm than those obtainable on an arm's-length basis.

10 - Stockholders' Equity

      At the time of its conversion from a state-chartered mutual association to
a state-chartered capital stock association,  the Bank established a liquidation
account in an amount equal to $4,845,000 at September 30, 1986. The  liquidation
account is maintained for the benefit of eligible  savings  account  holders who
have  maintained  their  savings  account in the Bank after  conversion.  In the
unlikely event of a complete  liquidation,  each eligible savings account holder
will be  entitled to receive a  liquidation  distribution  from the  liquidation
account,  in the amount of the then  current  adjusted  sub-account  balance for
savings  accounts held,  before any  liquidation  distribution  may be made with
respect to capital stock.
<PAGE>
      Except for the  repurchase  of stock and payment of dividends by the Bank,
the  existence  of  the  liquidation  account  does  not  restrict  the  use  or
application  of such  net  worth.  The  Company  may not  declare  or pay a cash
dividend on, or repurchase,  any of its common stock if the effect thereof would
cause the net worth of the Bank to be reduced  below either the amount  required
for the liquidation account or the net worth requirements  imposed by the Office
of Thrift Supervision.

      In September  1997 and 1996 the Company paid 5% common stock  dividends in
the amounts of 102,606 and 77,731  shares,  respectively,  from  authorized  but
unissued common stock with fractional  shares paid in the form of cash. In March
1997 the Company  paid a  five-for-four  stock  split  effected in the form of a
dividend in the amount of 414,188  shares,  with  fractional  shares paid in the
form of cash.

                                       37
<PAGE>
11 - Regulatory Capital

      The  Bank  is   subject  to  various   regulatory   capital   requirements
administered  by the federal banking  agencies.  Failure to meet minimum capital
requirements   can  initiate   certain   mandatory   and   possibly   additional
discretionary  actions by regulators  that, if  undertaken,  could have a direct
material  effect on the Company's  and the Bank'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
about components, risk weightings, and other factors.

      Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain  minimum amounts and ratios (set forth in the table
below)  of  total  and  Tier  1  capital  (as  defined  in the  regulations)  to
risk-weighted assets (as defined), and of Tier 1 capital (as defined) to average
assets (as defined).  At June 30, 1998 and 1997 the Bank was in compliance  with
all  such  requirements  and is  deemed  a  "well-capitalized"  institution  for
regulatory purposes.  There are no conditions or events since June 30, 1998 that
management believes have changed the institution's category.

      The Bank's actual capital amounts and ratios are presented in the table as
follows (dollars in thousands):
<TABLE>
<CAPTION>
                                                                                                           To Be Well Capitalized
                                                                                    For Capital            Under Prompt Corrective
                                                         Actual                  Adequacy Purposes            Action Provisions
                                               ------------------------      -----------------------      -------------------------
                                                Amount           Ratio       Amount           Ratio       Amount           Ratio
                                               ---------         -----       --------          ----       ---------        ----- 
<S>                                            <C>               <C>         <C>               <C>        <C>              <C>   
As of June 30, 1998:

   Total Capital (to Risk Weighted Assets)     $  31,328         14.18%      $ 17,678          8.00%      $  22,098        10.00%

   Tier 1 Capital (to Risk Weighted Assets)    $  28,560         12.92%      $  8,839          4.00%      $  13,259         6.00%

   Tier 1 Capital (to Average Assets)          $  28,560          7.64%      $ 14,945          4.00%      $  18,682         5.00%

As of June 30, 1997:

   Total Capital (to Risk Weighted Assets)     $  29,057         14.82%      $ 15,689          8.00%      $  19,611        10.00%

   Tier 1 Capital (to Risk Weighted Assets)    $  26,750         13.64%      $  7,844          4.00%      $  11,766         6.00%

   Tier 1 Capital (to Average Assets)          $  26,750          8.26%      $ 12,947          4.00%      $  16,183         5.00%

</TABLE>
12 - Fair Value Of Financial Instruments

      The  Company  is  required  to  disclose  estimated  fair  values  for its
financial instruments.
<PAGE>
Limitations

      Estimates of fair value are made at a specific point in time,  based upon,
where  available,  relevant  market prices and  information  about the financial
instrument.  Such  estimates  do not include any premium or discount  that could
result from  offering for sale at one time the  Company's  entire  holdings of a
particular  financial  instrument.  For a  substantial  portion of the Company's
financial  instruments,  no quoted market exists.  Therefore,  estimates of fair
value are  necessarily  based on a number of  significant  assumptions  (many of
which  involve  events  outside the  control of  management).  Such  assumptions
include assessments of current economic  conditions,  perceived risks associated
with these financial  instruments and their  counterparts,  future expected loss
experience  and  other  factors.  Given  the  uncertainties   surrounding  these
assumptions,  the reported fair values  represent  estimates only, and therefore
cannot  be  compared  to the  historical  accounting  model.  Use  of  different
assumptions or  methodologies  are likely to result in  significantly  different
fair value estimates.

      The estimated fair values presented neither include nor give effect to the
values  associated with the Company's  banking,  or other  businesses,  existing
customer relationships,  extensive branch banking network, property,  equipment,
goodwill or certain tax  implications  related to the  realization of unrealized
gains or losses.  Also, the fair value of non-interest  bearing demand deposits,
savings  and NOW  accounts  and money  market  deposit  accounts is equal to the
carrying amount because these deposits have no stated maturity.  Obviously, this
approach to estimating fair value excludes the significant  benefit that results
from the low-cost funding provided by such deposit  liabilities,  as compared to
alternative sources of funding.  As a consequence,  the fair value of individual
assets  and  liabilities  may not be  reflective  of the fair value of a banking
organization that is a going concern.

      The following methods and assumptions were used to estimate the fair value
of each major classification of financial instruments at June 30, 1998 and 1997:

Cash and cash equivalents:

      Current carrying amounts approximate estimated fair value.


                                       38
<PAGE>
12 - Fair Value Of Financial Instruments (Continued)

Trading account securities,  investment  securities and securities available for
sale:

      Current quoted market prices were used to determine fair value.

Loans:

      Fair values were estimated for portfolios of loans with similar  financial
characteristics.  Loans were  segregated  by type,  and each loan  category  was
further  segmented by fixed- and  adjustable-rate  interest terms. The estimated
fair value of the segregated portfolios was calculated by discounting cash flows
through the  estimated  maturity and  prepayment  speeds  while using  estimated
market  discount rates that  reflected  credit and interest risk inherent in the
loans.  The estimate of the maturities  and  prepayment  speeds was based on the
Company's historical  experience.  Cash flows were discounted using market rates
adjusted for portfolio differences.

Deposits:

      The fair value of deposits with no stated  maturity,  such as non-interest
bearing deposits,  savings, NOW and money market accounts, as well as repurchase
agreements,  is equal to the  amount  payable  on  demand.  The fair  values  of
certificates of deposit was estimated by discounting the contractual  cash flows
using current  market rates  offered in the  Company's  market area for deposits
with comparable terms and maturities.

Borrowed Funds:

      The fair value of borrowings was estimated using rates currently available
to the Company for debt with similar terms and remaining maturities.

Commitments to extend credit:

      The majority of the Company's  commitments  to extend credit carry current
market  interest  rates if converted  to loans.  Because  commitments  to extend
credit are generally  unassignable  by either the Company or the borrower,  they
only have  value to the  Company  and the  borrower.  The  estimated  fair value
approximates the recorded deferred fee amounts.
<PAGE>
The  carrying  amounts  and  estimated  fair values of the  Company's  financial
instruments were as follows (in thousands):
<TABLE>
<CAPTION>
                                                                                At June 30,
                                                ----------------------------------------------------------------------- 
                                                              1998                                  1997
                                                --------------------------------       --------------------------------
                                                Carrying               Estimated        Carrying              Estimated
                                                 Amount               Fair Value         Amount              Fair Value
                                               ---------               ---------       ---------              ---------
<S>                                            <C>                     <C>             <C>                    <C>      
Financial Assets:
Cash and cash equivalents                      $  15,905               $  15,905       $  10,551              $  10,551
Trading account securities                        20,352                  20,352             252                    252
Investment securities available for sale          38,303                  38,303          27,566                 27,566
Investment securities                             15,600                  15,672          19,469                 19,393
Loans receivable, net                            274,229                 275,243         257,146                257,708
                                               ---------               ---------       ---------              ---------
   Total financial assets                      $ 364,389               $  365,475      $ 314,984              $ 315,470
                                               =========               ==========      =========              =========

Financial Liabilities:
Deposits and repos                             $ 298,336               $ 299,120       $ 260,762              $ 261,706
Borrowed funds                                    41,791                  41,893          31,032                 30,932
                                               ---------               ---------       ---------              ---------

   Total financial liabilities                 $ 340,127               $ 341,013       $ 291,794              $ 292,638
                                               =========               =========       =========              =========
</TABLE>
13 - Employee Benefits

Stock Compensation Program

      The Company has two stock option plans (collectively,  the "Plans") -- the
1993 Plan and the 1997 Plan. An aggregate of 113,954 and 150,000  authorized but
unissued  shares  of  common  stock of the  Company,  adjusted  for the 5% stock
dividends in September  1997,  1996 and 1995,  and the March 1997  five-for-four
stock split,  were reserved for issuance  under the 1993 Plan and the 1997 Plan,
respectively.  As of June 30, 1998 there have been no options  granted under the
1997 Plan.  Under the Plans,  the option price per share for  incentive  options
granted  may not be less than the fair market  value of the common  stock on the
date of  grant.  Options  may be  granted  under the 1993 Plan and the 1997 Plan
during the  ten-year  periods  ending 2003 and 2007,  respectively,  and options
granted under the Plans are  exercisable up to ten years from the date of grant.
Rights to  exercise  options  under the Plans may be  limited by  imposition  of
vesting schedules at the time the options are granted.


                                       39
<PAGE>
13 - Employee Benefits (Continued)

      The  following  table is a summary of option  transactions  since June 30,
1995.  These options and option prices for the years 1996,  1997,  and 1998 have
been adjusted to reflect the stock dividends in fiscal 1996,  1997, and 1998 and
the stock split in fiscal 1997:
<TABLE>
<CAPTION>
                                                                                Year Ended June 30,
                                      ---------------------------------------------------------------------------------------------
                                              1998                               1997                               1996
                                      ----------------------              ---------------------             -----------------------
                                                    Weighted                           Weighted                            Weighted
                                                     Average                            Average                             Average
                                                    Exercise                           Exercise                            Exercise
                                      Shares          Price               Shares        Price                Shares         Price
                                      ------          -----               ------        -----                ------         ----- 
<S>                                   <C>          <C>                    <C>          <C>                  <C>          <C>     
Outstanding at beginning of year      74,405       $  13.52               88,048       $ 11.81              100,687      $  10.13
Granted                                6,563          22.86               13,164         13.40               11,287         14.00
Exercised                            (20,130)         13.55              (18,594)         5.35              (20,799)         4.58
 Forfeited                            (7,389)         16.11               (8,213)        13.60               (3,127)        13.70
                                    --------                            --------                           --------
Outstanding at end of year            53,449          14.30               74,405         13.52               88,048         11.81
Exercisable at end of year            28,995                              33,644                             29,335
Weighted-average fair value
     of options granted             $   7.71                            $   4.55
</TABLE>

      At June 30, 1998, the range of exercise prices was $13.24 - $22.86 and the
weighted-average  remaining  contracted life of the outstanding  options was 6.7
years.  The  Black-Scholes  option-pricing  model  was  used  to  determine  the
grant-date  fair value of  options.  Significant  assumptions  used in the model
included a weighted  average risk free rate of return of 6.39% in 1998 and 6.49%
in 1997;  expected  option  life of 6 years for both the 1998 and 1997  options;
expected  stock  price  volatility  of 27.64%  for 1998 and  28.04% for 1997 and
expected dividends of 1.51% and 1.82% for 1998 and 1997, respectively.

      In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-based
Compensation".  This statement encourages, but does not require, the adoption of
fair-value accounting for stock-based compensation to employees. The Company, as
permitted, has elected not to adopt the fair value accounting provisions of SFAS
123,   and  has  instead   continued   to  apply  APB  Opinion  25  and  related
Interpretations  in  accounting  for plans and  provide  the  required  proforma
disclosures  of SFAS 123. Had the grant-date  fair-value  provisions of SFAS 123
been adopted,  the Company would have recognized  $26,500 in 1998 and $18,400 in
1997 in compensation expense related to its Option Plans. As a result,  proforma
net income of the Company would have been  $3,599,500 in 1998 and  $2,218,700 in
1997 and proforma  diluted  earnings per share would have been $1.54 in 1998 and
$.97 in 1997.

      The  effects of  proforma  net income and  diluted  earnings  per share of
applying  the  disclosure  requirements  of SFAS  123 in past  years  may not be
representative  of the future proforma  effects on net income and EPS due to the
vesting  provisions  of the options and future  awards that are  available to be
granted.
<PAGE>
Employee Stock Ownership Plan

      The Bank  established  an ESOP for all employees of the Bank with at least
one year of credited  service.  Benefits  become 20% vested after three years of
service, increasing to 100% after seven years. Forfeitures are reallocated among
remaining  participating  employees.  Vested benefits are generally payable upon
retirement, disability or separation from service.

      The ESOP is subject to the requirements of the Employee  Retirement Income
Security Act of 1974, as amended,  and the  regulations of the Internal  Revenue
Service and the Department of Labor.

      The ESOP is funded by the Bank's  contributions,  and all contributions to
date have been used to pay principal,  interest and other fees  associated  with
the ESOP's loan referred to below. Benefits to participants are normally paid in
whole shares of common stock.

      The ESOP  borrowed  funds to acquire the initial  78,125  shares of common
stock at $5.76 per share,  adjusted for the subsequent  stock splits effected in
the form of dividends.  The ESOP  purchased an additional  101,544 shares of the
common stock at a weighted  average price of $8.69 per share,  also adjusted for
the subsequent  stock splits effected in the form of dividends.  Funds necessary
to purchase such shares were borrowed from an  independent  third-party  lender.
The Company has not guaranteed the debt but anticipates  contributing sufficient
funds  to the ESOP to  enable  it to meet its  debt  service  requirements.  The
outstanding  loan balance has been  reflected as a liability  and a reduction of
stockholders'  equity in the  consolidated  statements  of financial  condition.
Shares  purchased  with such loan  proceeds  are held in a suspense  account for
allocation  among members as the loan is repaid.  Contributions  to the ESOP and
shares  released from the suspense  account are  allocated  among members on the
basis of  compensation  and years of  service.  A total of 54,028,  17,732,  and
19,974 shares were allocated in fiscal 1998, 1997, and 1996, respectively.

      Contributions  by the  Bank to the  ESOP in  fiscal  1998,  1997  and 1996
amounted to $173,957, $181,240, and $194,039,  respectively, and are included in
the accompanying  consolidated statements of operations in salaries and employee
benefits.  Interest expense paid during 1998, 1997, and 1996 by the ESOP for the
loan amounted to $19,839, $34,298, and $46,693, respectively.

      The interest  rate on the ESOP loan is fixed at 7.50% until  maturity with
interest  expense being computed on the unpaid principal  balance.  As principal
payments  are made by the ESOP,  the  corresponding  liability  is  reduced  and
stockholders' equity is increased. Principal payments and cash dividends paid on
the common stock held by the ESOP in fiscal 1998 amounted to $186,872,  with the
loan maturing April 1, 1999.

      At June 30,  1998,  the ESOP had  pledged  51,722  shares  of  unallocated
Company stock held by it as collateral for the debt.

                                       40
<PAGE>
13 - Employee Benefits (Continued)

Pension Plan

      The Bank has a noncontributory defined benefit pension plan which is fully
funded through a  multi-employer  investment trust covering  qualified  salaried
employees.  Costs  recognized for the years ended June 30, 1998,  1997 and 1996,
totaled $3,884, $4,953, and $34,124,  respectively.  Information relative to the
financial status of the Bank's portion of the Plan is not currently available.


14 - Recent Acquisition

      On May  29,  1998,  the  Company  acquired  Philadelphia  Corporation  for
Investment Services, a full service investment advisory and securities brokerage
firm.  The  transaction  was  accounted  for as a pooling of  interests  and the
shareholders  of PCIS received  23.4239  shares of Chester  Valley  Bancorp Inc.
stock for each share of PCIS stock.  Approximately  134,000 shares of CVAL stock
were  issued  in the  exchange.  As of June 30,  1998  PCIS had  assets of $1.86
million, revenues of $3.17 million and net income of $430,500.

      The results of operations  previously  reported by the separate  companies
and the combined amounts  presented in the accompanying  consolidated  financial
statements are summarized to the right.
<TABLE>
<CAPTION>
                                                           Year Ended June 30,
                                                       -------------------------
                                                        1998               1997
                                                       -------           -------
<S>                                                    <C>               <C>    
 Net interest income:
  Chester Valley Bancorp ...................           $12,291           $11,066
  PCIS .....................................                53                49
                                                       -------           -------
    Combined ...............................           $12,344           $11,115
                                                       =======           =======
Other income:
  Chester Valley Bancorp ...................           $ 1,851           $ 1,324
  PCIS .....................................             2,767             2,325
                                                       -------           -------
    Combined ...............................           $ 4,618           $ 3,649
                                                       =======           =======
Net income:
  Chester Valley Bancorp ...................           $ 3,196           $ 1,926
  PCIS .....................................               430               311
                                                       -------           -------
    Combined ...............................           $ 3,626           $ 2,237
                                                       =======           =======
</TABLE>
<PAGE>
15 - Summarized Quarterly Financial Data For Fiscal 1998 and 1997 (Unaudited)

(Dollars in thousands except per share data)
<TABLE>
<CAPTION>
                                                      1998                                                 1997
                                 ----------------------------------------------       ---------------------------------------------
                                   First       Second       Third       Fourth          First      Second        Third      Fourth
                                  Quarter      Quarter     Quarter      Quarter        Quarter     Quarter      Quarter     Quarter
                                 --------     --------    --------     --------       --------    --------     --------    --------
<S>                              <C>          <C>         <C>          <C>            <C>         <C>          <C>         <C>     
Interest income                  $  6,310     $  6,377    $  6,404     $  6,662       $  5,393    $  5,622     $  5,580    $  6,027
Interest expense                    3,267        3,355       3,278        3,509          2,744       2,855        2,867       3,041
                                 --------     --------    --------     --------       --------    --------     --------    --------
Net interest income                 3,043        3,022       3,126        3,153          2,649       2,767        2,713       2,986

Provision for loan losses             120          120         201          165             96         164           97         166
                                 --------     --------    --------     --------       --------    --------     --------    --------

Net interest income after
     provision for loan losses      2,923        2,902       2,925        2,988          2,553       2,603        2,616       2,820
Other income                        1,115        1,004       1,349        1,150            929         874          967         878
Operating expenses(1) (2)           2,674        2,659       2,870        3,440          3,827       2,477        2,473       2,469
                                 --------     --------    --------     --------       --------    --------     --------    --------
Income (loss) before income taxes   1,364        1,247       1,404          698           (345)      1,000        1,110       1,229
Income tax expense (benefit)(2)       360          338         346           43           (227)        276          275         433
                                 --------     --------    --------     --------       --------    --------     --------    --------

Net Income (Loss)                $  1,004     $    909    $  1,058     $    655       $   (118)   $    724     $    835    $    796
                                 ========     ========    ========     ========       ========    ========     ========    ========

Earnings per common share(3)
     Basic                       $   0.44     $   0.39    $   0.46     $   0.28       $  (0.05)   $   0.32     $   0.36    $   0.35
                                 ========     ========    ========     ========       ========    ========     ========    ========
     Diluted                     $   0.43     $   0.39    $   0.45     $   0.28       $  (0.05)   $   0.32     $   0.36    $   0.34
                                 ========     ========    ========     ========       ========    ========     ========    ========
</TABLE>

(1)  The first  quarter of fiscal 1997  includes  the  one-time  FDIC  insurance
     assessment of $1.39 million.
(2)  The fourth quarter of fiscal 1998 includes PCIS  acquisition  costs of $.21
     million in addition to a charitable donation of $.29 million which resulted
     in a $.15 million state tax credit.
(3)  Earnings  per share have been  restated  to reflect  the  effects of the 5%
     stock  dividend paid in September  1997 and the  five-for-four  stock split
     effected in the form of a dividend in March 1997.


                                       41
<PAGE>
16 - Parent Company Financial Information

Financial  information  of Chester  Valley  Bancorp Inc.  (parent  company only)
follows:

Statements of Financial Condition
<TABLE>
<CAPTION>
                                                              At June 30,
                                                    ---------------------------
                                                        1998            1997
                                                    -----------     -----------
<S>                                                  <C>             <C>        
Assets
     On deposit with subsidiaries ..............     $   375,801     $   309,154
     Securities available for sale .............       1,402,979            --
     Investment in subsidiaries ................      30,274,690      28,299,563
     Other assets ..............................          25,523           3,354
                                                    -----------     -----------
         Total Assets ..........................     $32,078,993     $28,612,071
 
Liabilities
     ESOP debt .................................     $   146,618     $   333,490
     Other liabilities .........................          83,532            --
                                                    -----------     -----------
         Total Liabilities .....................         230,150         333,490

Stockholders' Equity ...........................      31,848,843      28,278,581
                                                    -----------     -----------
     Total Liabilities and Stockholders' Equity      $32,078,993     $28,612,071
                                                     ===========     ===========

<CAPTION>

Statements of Operations
                                                                           Year Ended June 30,
                                                                 1998            1997             1996
                                                             -----------      -----------      -----------
<S>                                                          <C>              <C>              <C>    
Income
     Distributed income from subsidiaries ..............     $ 2,188,259      $ 1,049,582      $ 1,172,912
     Interest income ...................................          28,490           16,598           10,500
     Equity in undistributed income of subsidiaries ....       1,587,662        1,188,273        1,553,984
                                                             -----------      -----------      -----------
Expense
     Other expense .....................................         178,381           17,345            5,754
                                                             -----------      -----------      -----------
         Net Income ....................................     $ 3,626,030      $ 2,237,108      $ 2,731,642
                                                             ===========      ===========      ===========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Statements of Cash Flows
<S>                                                          <C>              <C>              <C>    
Operating activities:
     Net income ........................................     $ 3,626,030      $ 2,237,108      $ 2,731,642
     Add (deduct) items not affecting cash flows
     from operating activities:
         Equity in undistributed income of subsidiaries       (1,587,662)      (1,188,273)      (1,553,984)
         Increase in other assets ......................         (22,169)            --               --
         Increase (decrease) in other liabilities ......          83,532             --                (10)
         Reduction of common stock acquired by ESOP ....         186,872          177,250          181,171
                                                             -----------      -----------      -----------
     Net cash flows from operating activities ..........       2,286,603        1,226,085        1,358,819
                                                             -----------      -----------      -----------
Investment activities:
     Purchase of securities available for sale .........      (1,402,979)            --               --
                                                             -----------      -----------      -----------
     Net cash flows used in investment activities ......      (1,402,979)            --               --
                                                             -----------      -----------      -----------
Financing activities:
     Income tax benefit on exercise of stock options ...         (98,270)         (92,246)            --
     Cash dividends ....................................      (1,229,256)      (1,061,628)        (848,734)
     Payment for fractional shares .....................          (7,633)         (15,927)         (11,105)
     Common stock repurchased ..........................        (274,911)        (351,879)        (501,026)
     Repayments of principal on ESOP debt ..............        (186,872)        (177,250)        (181,171)
     Proceeds from exercise of stock options ...........         440,102          337,041           95,336
     Proceeds from issuance of common stock ............         539,863           90,181          249,805
                                                             -----------      -----------      -----------
     Net cash flows used in financing activities .......        (816,977)      (1,271,708)      (1,196,895)
                                                             -----------      -----------      -----------
Net increase (decrease) in cash ........................          66,647          (45,623)         161,924
Cash and cash equivalents:
     Beginning of period ...............................         309,154          354,777          192,853
                                                             -----------      -----------      -----------
     End of period .....................................     $   375,801      $   309,154      $   354,777
                                                             ===========      ===========      ===========

Non-cash items:
     Net unrealized gain (loss) on investment securities
         available for sale, net of taxes ..............     $   289,195      $    99,936      $   (97,222)
                                                             ===========      ===========      =========== 
     Stock dividend issued .............................     $ 2,154,726      $ 1,515,755      $ 1,417,354
                                                             ===========      ===========      ===========
</TABLE>
                                       42

<PAGE>
Independent Auditors' Report

[KPMG Peat Marwick LLP letterhead]

      To the Board of Directors and Stockholders of
      Chester Valley Bancorp Inc:


      We have  audited the  accompanying  consolidated  statements  of financial
condition of Chester  Valley Bancorp Inc. and  subsidiaries  as of June 30, 1998
and 1997,  and the related  consolidated  statements of  operations,  changes in
stockholders'  equity,  and cash  flows for each of the years in the  three-year
period ended June 30, 1998.  These  consolidated  financial  statements  are the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.

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

      In our opinion,  the consolidated  financial  statements referred to above
present  fairly,  in all material  respects,  the financial  position of Chester
Valley  Bancorp  Inc.  and  subsidiaries  as of June 30, 1998 and 1997,  and the
results  of their  operations  and their cash flows for each of the years in the
three-year  period ended June 30, 1998, in conformity  with  generally  accepted
accounting principles.




/s/KPMG Peat Marwick LLP
------------------------
KPMG Peat Marwick LLP

      Philadelphia, Pennsylvania
      July 24, 1998

                                       43
<PAGE>
                               BOARD OF DIRECTORS


[GRAPHIC-PHOTO OF STANDING L TO R: JAMES E. MCERLANE,  ESQ.,  WILLIAM M. WRIGHT,
EMORY S. TODD,  ANTHONY J. BIONDI,  GERARD F.  GRIESSER,  SEATED L TO R: JOHN J.
CUNNINGHAM,  ESQ., EDWARD T. BORER, ELLEN ANN ROBERTS,  RICHARD L. RADCLIFF. NOT
PICTURED: ROBERT J. BRADBURY.

           KAY B. FALKOW, FIRST FINANCIAL BANK'S NEWEST SENIOR OFFICER


[GRAPHIC- PHOTO OF KAY B. FALKOW]

Kay is the  newest  member  of our  Senior  Management  Team and has  played  an
integral part of our success as a valued member of our staff since she joined us
in 1993. She was hired as Manager of Data Processing and named to Assistant Vice
President  in 1993.  In November  1997,  Kay was elected  Vice  President as the
Bank's Senior  Operations  Officer  making her  responsible  for the  Electronic
Banking,  Product  Support and  Development,  Item  Processing  and  Information
Systems  Departments.  She is also the Chairperson for the Company's  Technology
Steering  Committee charged with the  responsibility for designing the Company's
Technology  Business Plan.  Kay is a graduate of Radford  University in Virginia
with a B. S. in Accounting and a minor in Computer  Science.  With over 18 years
of Banking and Technical experience,  Kay has been instrumental in upgrading the
Company's  entire  core  data  processing  and  network  computer  systems.   As
supervisor of the Bank's operations departments, she has recommended changes and
enhancements   which  have   resulted  in  increased   efficiency,   more  rapid
communication, and a sharp decrease in paperwork.


                                       44
<PAGE>
Directors Serving in the Same Capacity for
Chester Valley Bancorp Inc. and First
Financial Bank:

Anthony J. Biondi
Director, President, and
Chief Operating Officer
of the Company and the Bank

Robert J. Bradbury
Co-chairman
Dolphin & Bradbury Incorporated

John J. Cunningham, III, Esquire
Partner
Schnader Harrison Segal & Lewis LLP

Gerard F. Griesser
President
Trident Financial Group

James E. McErlane, Esquire
Partner
Lamb, Windle & McErlane, PC

Richard L. Radcliff
President and Co-owner (Retired)
Radcliff & Sipe Architectural Firm

Ellen Ann Roberts
Director, Chairman, and Chief Executive Officer
of the Company and the Bank

Emory S. Todd
Certified Public Accountant

William M. Wright
General Manager
Malcolm Wright Buick Olds, Inc.

The following Director serves on the Board 
of Chester Valley Bancorp Inc. only:

Edward T. Borer
Chairman and Chief Financial Officer
Philadelphia Corporation for Investment Services

Directors on the Board of Philadelphia
Corporation for Investment Services:

Philip J. Baldassari
Senior Vice President

Anthony J. Biondi
Director, President, and
Chief Operating Officer
of the Company and the Bank

Frederick A. Bluefeld
Vice President
<PAGE>
Edward T. Borer
Chairman and Chief Financial Officer

Robert J. Bradbury
Co-chairman
Dolphin & Bradbury Incorporated

A. Louis Denton
President and Chief Executive Officer

James E. McErlane, Esquire
Partner
Lamb, Windle & McErlane, PC

R. Wayne Raffety
Senior Vice President

Ellen Ann Roberts
Director, Chairman, and Chief Executive Officer
of the Company and the Bank

Vernon C. Walker
Senior Vice President

Spencer D. Wright, III
Chairman Emeritus

Executive Officers of Chester Valley
Bancorp Inc:

Ellen Ann Roberts
Chairman and Chief Executive Officer

Anthony J. Biondi
President and Chief Operating Officer

Christine N. Dullinger
Chief Financial Officer and Treasurer

James E. McErlane, Esquire
Secretary

Colin N. Maropis
Executive Vice President

Executive Officers of First Financial Bank:

Ellen Ann Roberts
Chairman and Chief Executive Officer

Anthony J. Biondi
President and Chief Operating Officer

Steven C. Cunningham
Vice President

Christine N. Dullinger
Chief Financial Officer and Treasurer
<PAGE>
Kay B. Falkow
Vice President

Edward S. Lawrence
Senior Vice President

Colin N. Maropis
Executive Vice President

Other Officers of First Financial Bank:

Frank J. Baldassarre
Vice President

Victoria C. Banghart
Assistant Vice President

C. Ward Braceland
Vice President

Karen D. Brown
Assistant Treasurer

Pamela M. Collins
Secretary

Arlene S. Cunningham
Assistant Vice President
Assistant Secretary

Linda B. Draper
Assistant Vice President

Romaine R. Dunlap
Assistant Vice President

William G. Eads, Jr.
Vice President

Veronica Gilken
Assistant Vice President

Michelle L. Guerrero
Assistant Vice President

Anne S. Johnson
Assistant Vice President

Kelly L. Laurento
Assistant Vice President

Carol F. Reichard
Assistant Vice President

Michael T. Steinberger
Vice President

Paula D. Stevens
Assistant Vice President
<PAGE>
David L. Summers
Vice President

Joseph M. Swarr
Assistant Vice President

Phillis D. Weidenhammer
Vice President

Jo Ann Willenbrock
Assistant Vice President

Paige M. Willover
Assistant Vice President

Executive and Administrative Officers
of Philadelphia Corporation for
Investment Services:

Edward T. Borer
Chairman and Chief Financial Officer

A. Louis Denton
President and Chief Executive Officer

Mary Kay Greenwood
Assistant Vice President and Secretary

Kathleen D. Hartung
Treasurer


                                       45
<PAGE>
First Financial Bank
Community Board Members:

Coatesville Community Board:
Milton Allen
Albert W. Eastburn
Nicholas J. Fantanarosa, Jr.
Dr. Louis M. Laurento
Aleda P. Loughman
John H. Newton, Jr.

Exton Community Board:
William E. Augustine
Raymond H. Carr
Carl K. Croft, CPA
Kevin Holleran, Esquire
Rudolph H. Jacobson
James Knipe, Sr.

Frazer Community Board:
Matthew J. DiDomenico, Sr.
Timothy O. Fanning
Florence D. Hunt
Albert P. Massey, Jr.
R. Wayne Raffety
A. Joseph Rubino

Westtown Community Board:
Wayne W. Grafton
Charles A. Hackett, CPA
Marita M. Hutchinson, Esquire
Conrad E. Muhly, III
Earl Stoltzfus
John R. Williams
George C. Zumbano, Esquire


CORPORATE INFORMATION:

Annual Meeting
The Annual Meeting of Stockholders will
be held at 10 AM on Thursday, October 22, 1998, at:
Chester Valley Golf and Country Club
430 Swedesford Road
Malvern, Pennsylvania 19355

Stock Listing
Chester Valley Bancorp Inc. Stock is traded on 
the NASDAQ National Market System under 
the symbol "CVAL".

Market Makers:
Herzog Heine & Geduld, Inc.
Philadelphia, Pennsylvania
(800) 462-0443

Janney Montgomery Scott
Philadelphia Pennsylvania
(215) 563-8671
<PAGE>
F. J. Morrissey & Co., Inc.
Philadelphia, Pennsylvania
(215) 563-8500

Hopper Soliday & Company
Lancaster, Pennsylvania
(800) 456-9234

Sandler & O'Neill
New York, New York
(212) 466-7740

Investor Information:
Patrica A. Ferretti
Shareholder Relations Administrator
Chester Valley Bancorp Inc.
100 E. Lancaster Avenue
Downingtown, Pennsylvania 19335
(610) 269-9700

Transfer Agent, Registrar and Dividend 
Disbursing Agent:
American Stock Transfer and Trust Co.
40 Wall Street, 46th Floor
New York, New York 10005
(212) 936-5100

Form 10-K
Subsequent to the required  filing with the
Securities and Exchange Commission under 
the  Securities  Exchange  Act of 1934,  the 
Company  will  furnish to any shareholder,  with-
out charge, a copy of the Company's Annual
Report on Form 10-K for the year ended June 
30, 1998 and the exhibits thereto,  upon 
written request to Patrica A. Ferretti, 
Shareholder Relations Administrator.

Auditors:
KPMG Peat Marwick LLP
1600 Market Street
Philadelphia, Pennsylvania 19103

Counsel:
Lamb, Windle & McErlane, PC
24 E. Market Street
West Chester, Pennsylvania 19381

Schnader Harrison Segal & Lewis LLP
1600 Market Street
Suite 3600
Philadelphia, Pennsylvania  19103

Elias, Matz, Tiernan & Herrick
The Walker Building, 12th Floor
734 15th Street, NW
Washington DC  20005
<PAGE>
Executive Office:
Chester Valley Bancorp Inc.
100 E. Lancaster Avenue
Downingtown, Pennsylvania 19335
(610) 269-9700


                                       46
<PAGE>
[GRAPHIC-LOGO OF FIRST FINANCIAL BANK]
A CHESTER VALLEY BANCORP BANK


OFFICES

DOWNINGTOWN

EXTON

FRAZER

THORNDALE

WESTTOWN

AIRPORT VILLAGE

BRANDYWINE SQUARE

DEVON



[GRAPHIC-LOGO PHILADELPHIA CORPORATION]

OFFICES

PHILADELPHIA

WAYNE