SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                    FORM 10-K

   [X]    Annual Report Pursuant to Section 13 or 15(d) of the Securities
          Exchange Act of 1934

                     For Fiscal Period Ended: June 30, 2000

                                       Or

   [_]    Transition Report Pursuant to Section 13 or 15(d) of the Securities
          Exchange Act of 1934
              For the transition period from ________ to _________

                           Commission File No: 0-18833

                           Chester Valley Bancorp Inc.
              ----------------------------------------------------
             (Exact name of registrant as specified in its charter)

              Pennsylvania                                    23-2598554
              ------------                                    ----------
     (State or other jurisdiction of                       (I.R.S. Employer
     incorporation or organization)                       Identification No.)


  100 E. Lancaster Ave., Downingtown PA                          19335
  -------------------------------------                        ----------
(Address of principal executive offices)                       (Zip Code)


       Registrant's telephone number, including area code: (610) 269-9700

           Securities registered pursuant to Section 12(b) of the Act:
                                 Not Applicable

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

                     Common Stock, $1.00 Par Value Per Share
                     ---------------------------------------
                                (Title of Class)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports)  and  (2)  has  been  subject  to such  filing
requirements for the past 90 days. YES [X]   NO [_]

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation  S-K is not contained  herein,  and will not be contained,  to the
best of registrant's  knowledge,  in definitive proxy or information  statements
incorporated  by  reference in Part III of this Form 10-K or any  amendments  to
this Form 10-K. [X]

As of September 1, 2000, the aggregate  value of the 3,202,820  shares of Common
Stock  of the  registrant  which  were  issued  and  outstanding  on such  date,
excluding 711,233 shares held by all directors and officers of the registrant as
a group, was approximately $ 54.85 million.  This figure is based on the closing
sales price of $17.125 per share of the  registrant's  Common Stock on September
1, 2000.

Number of shares of Common Stock outstanding as of September 1, 2000:  3,914,053


                       DOCUMENTS INCORPORATED BY REFERENCE

The following documents are incorporated by reference:

(1)   Portions of the Annual Report to Shareholders  for the year ended June 30,
      2000, are incorporated into Part II, Items 5 - 8 of this Form 10-K.

(2)   Portions of the Definitive  Proxy Statement for the 2000 annual meeting of
      shareholders  are  incorporated  into Part III,  Items  10-13 of this Form
      10-K.

<PAGE>


                                      INDEX
                                                                            Page
                                                                            ----

                                     PART I
Item 1.   Business........................................................... 1
Item 2.   Properties.........................................................45
Item 3.   Legal Proceedings..................................................46
Item 4.   Submission of Matters to a Vote of Security Holders................46


                                   PART II
Item 5.   Market for Registrant's Common Equity and Related Stockholder
          Matters............................................................47
Item 6.   Selected Financial Data............................................47
Item 7.   Management's Discussion and Analysis of Financial Condition and
          Results of Operations..............................................47
Item 7A.  Quantitative and Qualitative Disclosures About Market Risk.........47
Item 8.   Financial Statements and Supplementary Data........................47
Item 9.   Changes in and Disagreements with Accountants on Accounting
          and Financial Disclosure...........................................47


                                  PART III
Item 10.  Directors and Executive Officers of the Registrant.................47
Item 11.  Executive Compensation.............................................48
Item 12.  Security Ownership of Certain Beneficial Owners and Management.....48
Item 13.  Certain Relationships and Related Transactions.....................48


                                   PART IV
Item 14.  Exhibits, Financial Statement Schedules, and Reports on Form 8-K...49


SIGNATURES ..................................................................50


<PAGE>

PART I.

ITEM 1.  BUSINESS

Forward Looking Statements

               In this Form 10-K, the Company has included certain "forward
looking statements" concerning 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 Form 10-K or
incorporated. The Company has used "forward looking statements" to describe
certain of its future plans and strategies including management's expectations
of the Company's 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, and other uncertainties described in the Company's filings with the
Securities and Exchange Commission, including its Form 10-K for the year ended
June 30, 2000. These factors should be considered in evaluating the "forward
looking statements", and undue reliance should not be placed on such statements.

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 the Holding Company 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 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. PCIS is a registered broker/dealer in all 50 states and
the District of Columbia and it is also registered as an investment advisor with
the Securities and 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' offices are located in Wayne and Philadelphia, Pennsylvania.

               References to the Company include its wholly owned subsidiaries,
the Bank and PCIS, unless the context of the reference indicates otherwise.

                                       1

<PAGE>


Market Area

               The  Bank's  primary  market  area  includes  Chester  County and
sections of the four  contiguous  counties  (Delaware,  Montgomery,  Berks,  and
Lancaster) in Pennsylvania.  Chester County,  in which all of the Bank's offices
are located,  continues to grow in terms of economic  development and population
growth.

               Customer deposits with First Financial are insured to the maximum
extent provided by law by the Federal Deposit Insurance Corporation ("FDIC")
through the Savings Associations Insurance Fund ("SAIF"). The Bank is subject to
examination and comprehensive regulation by the FDIC, the Office of Thrift
Supervision ("OTS"), and the Pennsylvania Department of Banking ("Department").
It is a member of the Federal Home Loan Bank ("FHLB") of Pittsburgh ("FHLBP"),
which is one of the 12 regional banks comprising the FHLB System. The Bank is
further subject to regulations of the Board of Governors of the Federal Reserve
System ("Federal Reserve Board") governing reserves required to be maintained
against deposits and certain other matters.


Lending Activities

               Loan Portfolio Composition. The Company's net loan portfolio (net
of undisbursed  proceeds,  deferred fees and allowance for loan losses)  totaled
$331.31  million  at June  30,  2000,  representing  approximately  65.3% of the
Company's total assets of $507.15 million at that date.


                                       2
<PAGE>


The following table presents information  regarding the Company's loan portfolio
by type of loan indicated.

<TABLE>
<CAPTION>


                                           ---------------------------------------------------------------------------------
                                                          2000                                      1999
                                           -----------------------------------         -------------------------------
                                                                         % of                                    % of
                                                                        Total                                   Total
                                                     Amount             Loans                  Amount           Loans
                                                     ------             -----                  ------           -----
<S>                                               <C>                   <C>                  <C>                <C>
Real estate loans:
   Residential:
        Single-family                             $ 167,451             46.8%                $156,514           50.8%
        Multi-family                                     --              0.0%                     828             .3%
   Commercial                                        66,221             18.5%                  55,197           17.9%
   Construction and land acquisition(1)              42,372             11.8%                  29,339            9.5%

                                           -----------------  ----------------        ----------------  --------------
           Total real estate loans                  276,044             77.1%                 241,878           78.5%
Commercial business loans(2)                         19,358              5.4%                  14,708            4.8%
Consumer loans(3)                                    62,433             17.5%                  51,416           16.7%
                                           -----------------  ----------------        ----------------  --------------
            Total loans receivable                  357,835            100.0%                 308,002          100.0%
                                                              ================                          ==============

Less:
  Loans in process                                 (20,908)                                  (11,393)
 Allowance for loan losses                          (3,908)                                   (3,651)
 Deferred loan fees                                 (1,713)                                   (1,570)
                                           -----------------                          ----------------
              Net loans receivable                  331,306                                   291,388

Loans held for sale, single-family
   residential mortgages                                 --                                        --

                                           -----------------                          ----------------

    Net  loans receivable and loans held
       for sale                                    $331,306                                  $291,388
                                           =================                          ================

</TABLE>


<TABLE>
<CAPTION>

                                               At June 30,
                                         -----------------------------------------------------------------------------------------
                                                  1998                            1997                              1996
                                         -------------------------   ----------------------------    -----------------------------
                                                             % of                           % of                             % of
                                                            Total                          Total                            Total
                                               Amount       Loans               Amount     Loans                Amount      Loans
                                               ------       -----               ------     -----                ------      -----
                                                                            (Dollars in Thousands)

<S>                                         <C>             <C>               <C>          <C>                <C>           <C>
Real estate loans:
   Residential:
        Single-family                       $154,755        53.3%             $158,537     58.4%              $147,274      62.6%
        Multi-family                             873         0.3%                  893      0.3%                 1,256       0.5%
   Commercial                                 41,002        14.1%               33,981     12.5%                22,552       9.6%
   Construction and land acquisition(1)       30,646        10.5%               22,907      8.5%                17,028       7.2%

                                         ------------  -----------   --------------------------      ------------------  ---------
           Total real estate loans           227,276        78.2%              216,318     79.7%               188,110       79.9%
Commercial business loans(2)                  11,437         3.9%                7,863      2.9%                 5,701        2.4%
Consumer loans(3)                             51,829        17.9%               47,343     17.4%                41,486       17.7%
                                         ------------  -----------   --------------------------      ------------------  ---------
            Total loans receivable           290,542       100.0%              271,524    100.0%               235,297      100.0%
                                                       ===========                      =========                        =========

Less:
  Loans in process                          (12,380)                          (10,092)                         (7,134)
 Allowance for loan losses                   (3,414)                           (2,855)                         (2,667)
 Deferred loan fees                          (1,620)                           (1,537)                         (1,533)
                                         ------------                ------------------              ------------------
              Net loans receivable           273,128                           257,040                         223,963

Loans held for sale, single-family
   residential mortgages                       1,101                               106                              --
                                         -------------
                                                                     ------------------              ------------------

    Net  loans receivable and loans held
       for sale                             $274,229                          $257,146                       $ 223,963
                                         =============               ==================              ==================

</TABLE>
-----------------

(1)   Includes  construction  loans for both  residential  and  commercial  real
      estate properties.
(2)   Consists primarily of secured equipment loans.
(3)   Consists  primarily  of home  equity  loans  and  lines  of  credit,  home
      improvement, automobile and other personal loans.

                                       3

<PAGE>


         Contractual Maturities.  The following table sets forth the contractual
principal repayments of the total loan portfolio, including loans in process, of
the Company as of June 30, 2000, by categories of loans.  All loans are included
in the period in which they mature. Loans held for sale are not included.

<TABLE>
<CAPTION>

                                                                      Principal Repayments
                                                           Contractually Due in Year(s) Ended June 30,
                                          -------------------------------------------------------------------------
                                                                          (In Thousands)
                                             Total
                                          Outstanding
                                               at                                                       2006
                                            June 30,                                                  2002-and
                                              2000                2001              2005             Thereafter
                                          --------------      ----------          ---------       -----------------
<S>                                       <C>                 <C>                 <C>                 <C>
Real estate loans:
  Residential                             $167,451            $ 25,057            $ 32,459            $109,935
  Commercial                                66,221               2,486              53,909               9,826
  Construction and land acquisition         42,372              16,249              12,911              13,212
Commercial business loans                   19,358              12,154               5,538               1,666
Consumer loans                              62,433               6,680              17,391              38,362
                                          -------------------------------------------------------------------------
        Total loans                       $357,835            $ 62,626            $122,208            $173,001
                                          =========================================================================
</TABLE>



The following  table sets forth,  as of June 30, 2000,  the dollar amount of all
loans contractually due after June 30, 2001, which have fixed interest rates and
floating or adjustable rates.

<TABLE>
<CAPTION>

                                                             Contractual Obligations
                                                             Due After June 30, 2001
                                                       --------------------------------
                                                                          Floating/
                                                          Fixed           Adjustable
                                                          Rates             Rates
                                                      -------------    ----------------
                                                                (In Thousands)
<S>                                                    <C>                   <C>
        Real estate loans:
                Residential                            $    95,456           $  46,938
                Commercial                                   9,922              53,813
                Construction and land acquisition            3,023              23,100
        Commercial business loans                            6,960                 244
        Consumer loans                                      55,634                 119
                                                      -------------    ----------------
               Total loans                             $   170,995          $  124,214
                                                      =============    ================
</TABLE>


                                       4

<PAGE>

               Contractual  principal  repayments  of loans  do not  necessarily
reflect the actual term of the  Company's  loan  portfolio.  The average life of
mortgage loans is  substantially  less than their  contractual  terms because of
loan prepayments and because of enforcement of due-on-sale  clauses,  which give
the  Company  the right to  declare a loan  immediately  due and  payable in the
event, among other things,  that the borrower sells the real property subject to
the  mortgage  and the loan is not repaid.  The average  life of mortgage  loans
tends to increase,  however,  when  current  mortgage  loan rates  substantially
exceed rates on existing mortgage loans and, conversely,  decrease when rates on
existing  mortgage loans  substantially  exceed current mortgage loan rates.

               Origination,    Purchase    and    Sale    of    Loans.    As   a
Pennsylvania-chartered   savings   institution,   First  Financial  has  general
authority  pursuant to the Savings  Association Code of 1967, as amended ("State
Code"),  to  originate  and  purchase  loans  secured  by  real  estate  located
throughout the United States. Due to the Company's strong community orientation,
substantially  all of the Company's  total mortgage loan portfolio is secured by
real estate located in its primary market area.

               Residential  and  commercial  real  estate  loans are  originated
directly by the Bank through salaried loan officers.  In addition,  from time to
time  the  Bank  utilizes  third-party  originators  who  use  the  same  credit
guidelines and standards as the Bank to originate residential loans. Residential
and  commercial  real estate loan  originations  are  normally  attributable  to
referrals   from  real  estate   brokers  and  builders   and  other   financial
institutions,  mortgage brokers, depositors and walk-in customers. Consumer loan
originations are primarily attributable to existing customers and referrals,  as
well as third party automobile loans originated through dealers.

               The Bank 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).
The majority of conforming loans sold to date have consisted of sales to Freddie
Mac ("FHLMC") of fixed-rate  mortgage loans in furtherance of the Company's goal
of better  matching the maturities and  interest-rate  sensitivity of its assets
and  liabilities.  In  selling  conforming  loans,  the  Bank has  retained  the
servicing  thereon in order to increase  its  non-interest  income.  At June 30,
2000, the Bank serviced  $23.67  million of mortgage loans for others.  Sales of
loans produce future servicing  income and provide funds for additional  lending
and other  purposes.  The Bank is a  qualified  servicer  for FHLMC,  Fannie Mae
("FNMA"), and Ginnie Mae ("GNMA").


                                       5

<PAGE>


               The  following  table  shows  total loans and loans held for sale
originated, purchased, sold and repaid during the periods indicated.

<TABLE>

                                                                                 Year Ended June 30,
                                                             -------------------------------------------------------------
                                                                  2000                   1999                   1998
                                                             ----------------       ----------------      ----------------
                                                                                    (In Thousands)
<S>                                                                <C>                   <C>                  <C>
Total loans receivable and loans held for sale at
 beginning of period                                               $ 308,002             $291,643             $271,630
         Real estate loan originations:
               Residential (1)
               Commercial                                             26,926               31,705               39,329
               Construction and land acquisition (2)                  10,002               18,914                9,398
                                                                      24,374               21,852               21,057
                                                             ----------------       --------------        -------------
                   Total real estate
                        loan originations                             61,302               72,471               69,784
         Consumer loans (3)                                           33,748               24,540               24,771
         Commercial business loans                                    22,551               17,312               11,896
                                                             ----------------       --------------        -------------
                   Total loan
                         originations                                117,601              114,323              106,451
                                                             ----------------       --------------        -------------

         Principal loan repayments                                    67,594               96,487               77,481
         Sales of loans                                                  174                1,477                8,957
                                                             ----------------       --------------        -------------
                      Total principal
                          repayments
                          and sales                                   67,768               97,964               86,438
                                                             ----------------       --------------        -------------
                       Net increase in
                          loans and loans
                          held for sale                               49,833               16,359               20,013
                                                             ----------------       --------------
                                                                                                          -------------
Total loans receivable and loans
    held for sale at end of period                                 $ 357,835             $308,002             $291,643
                                                             ================       ==============        =============
</TABLE>
---------------

(1)   Includes both single-family and multi-family residential loans.
(2)   Includes  construction  loans for both  residential  and  commercial  real
      estate properties.
(3)   Includes home equity loans and lines of credit,  home equity  improvement,
      automobile and other personal loans.


         Loans on Existing Single-Family Residential Properties. The Bank
currently offers adjustable-rate mortgages ("ARMs") which have up to 30-year
terms and interest rates which adjust either annually or every three years, or
which are fixed initially for the first three years, five years, seven years, or
ten years, and adjust annually thereafter, based upon changes in an index based
on the weekly average yield on United States Treasury securities adjusted to a
constant maturity of one year or three years, respectively, as made available by
the Federal Reserve Board plus a margin. The amount of any increase or decrease
in the interest rate for ARMs is limited to 1% or 2% per year and 6% over the
life of the loan. Substantially all of the ARMs originated by the Bank cannot be
converted to fixed-rate loans. The interest rates of ARMs may not adjust

                                       6

<PAGE>

as rapidly as changes in the Company's cost of funds. In order to minimize risk,
ARM borrowers are qualified at the rate which would be in effect after the first
interest rate adjustment, if that rate is higher than the initial rate. The
Bank's ARMs require that any payment adjustment resulting from a change in the
interest rate of the ARM be sufficient to result in full amortization of the
loan by the end of the loan term and, thus, do not permit any of the increased
payment to be added to the principal amount of the loan, or so-called negative
amortization. Due to the declining interest rate environment and leveling of the
yield curve, the Bank experienced significant refinancings of its ARM portfolio
into its fixed rate mortgage products in 1999 and to a lesser degree in 2000.

         Fixed-rate residential mortgage loans currently originated generally
have 30-year terms, although some have 15-year terms with commensurately lower
interest rates. The Bank also offers a bi-weekly mortgage which is a fixed-rate
loan with bi-weekly payments. Based on current interest rates, it is repaid in
approximately 22 years. Substantially all of the Bank's long-term, fixed-rate
residential mortgage loans and ARMs include "due on sale" clauses which the loan
balance becomes due upon the sale of the property.

         The Bank also makes second  mortgage  loans and home equity loans.  See
"Lending Activities - Consumer Loans."

         Loans on Existing  Commercial and Multi-Family  Properties.  During the
past  several  years,  the  Bank  has  originated  permanent  loans  secured  by
multi-family and  income-producing  properties such as  condominiums,  apartment
buildings,  office buildings and, to a lesser extent,  hotels and small shopping
centers.  The Bank  intends to  increase  its  emphasis  on the  origination  of
commercial  real  estate  loans  and,  accordingly,   intends  to  increase  its
commercial  lending  staff.  The Bank's  Commercial  Loan  Department  currently
consists of seven loan  officers,  all but one of whom  joined the Bank's  staff
with  substantial  prior  commercial  lending  experience.  The  origination  of
multi-family  residential  and commercial  real estate loans has resulted in the
shortening  of the  average  maturity  and an  increase  in  the  interest  rate
sensitivity  of the Bank's loan  portfolio as well as to generate  increased fee
income.  All of the Bank's  multi-family  residential and commercial real estate
loan portfolio is secured by properties  located in the Company's primary market
area.  As of June 30,  2000,  commercial  and  multi-family  real estate  loans,
excluding construction loans for such properties, amounted to $66.22 million, or
18.5% of the total loan portfolio.

         A substantial  majority of  commercial  real estate loans have interest
rates which  adjust  annually  after an initial  three- or  five-year  term by a
margin over the  corresponding  United States Treasury yield for securities with
the same term.  These  loans  typically  have  amortization  periods of up to 20
years, but  occasionally  provide that the loans can be called by the Bank prior
to the end of the amortization  period,  generally at three,  five, seven or ten
years after origination.

                                       7
<PAGE>


         Commercial and  multi-family  residential  real estate lending  entails
significant additional risks as compared with single-family residential property
lending.  Commercial and  multi-family  residential  real estate loans typically
involve large loan balances to single borrowers or groups of related  borrowers.
The payment  experience on such loans is typically  dependent on the  successful
operation of the business or real estate  project.  The success of such projects
is  sensitive  to  changes in supply  and  demand  conditions  in the market for
commercial  and  multi-family  residential  real  estate  as  well  as  economic
conditions generally.

         The Bank seeks to ensure that the  property  securing  these loans will
generate  sufficient cash flow to adequately  cover operating  expenses and debt
service payments. To this end, permanent commercial and multi-family residential
real estate loans generally are made with a loan-to-value  ratio of 75% or less.
In  underwriting  commercial  and  multi-family  residential  real estate loans,
consideration  is given to the property's  operating  history,  future operating
projections, current and projected occupancy, position in the local and regional
market, location and physical condition. The underwriting analysis also includes
credit checks and a review of the financial condition of the borrower.  The Bank
usually obtains full or partial loan guarantees from the principal(s) involved.

         Construction   Loans.   The  Bank  also  offers  both   fixed-rate  and
adjustable-rate  residential  and  commercial  construction  loans.  Residential
construction  loans  are  offered  to  individuals  building  their  primary  or
secondary  residence as well as to selected local  developers to construct up to
four-family  dwellings.  Advances are made on a percentage of completion  basis,
usually  consisting  of six draws.  Residential  construction  loans  convert to
permanent  loans at the end of 12 months  or upon  completion  of  construction,
whichever  occurs  first.  At  June  30,  2000,  $31.41  million  or 8.8% of the
Company's total loan portfolio  consisted of construction  loans including loans
in process.  Loans in process  related to such loans totaled  $16.86  million at
June 30, 2000.

         The Bank has been  active in  construction  lending  for many years and
intends to continue its involvement in such lending in the future.  Construction
lending is generally  considered to involve a higher degree of risk of loss than
long-term  financing  on  improved,  occupied  real  estate.  Risk  of  loss  on
construction  loans is  dependent  largely  upon  the  accuracy  of the  initial
appraisal of the property's  projected  value at completion of  construction  as
well as the estimated cost,  including  interest,  of  construction.  During the
construction  phase,  a number  of  factors  could  result  in  delays  and cost
overruns.  If either estimate proves to be inaccurate and the borrower is unable
to provide  additional funds, the lender may be required to advance funds beyond
the amount  originally  committed to permit  completion of the project and/or be
confronted at the maturity of the  construction  loan with a project whose value
is insufficient to assure full repayment.


                                       8

<PAGE>


         Land  Acquisition  and  Development  Loans.  The Bank also  offers land
acquisition and development  loans.  These types of loans are generally provided
only to local developers with strong financial  positions and with whom the Bank
is familiar.  These loans typically have terms of one to three years and carry a
floating  interest rate normally  indexed to the Wall Street Journal Prime.  The
Bank  will lend up to 75% of the  appraised  value of the  project.  At June 30,
2000, $10.96 million, or 3.1% of the Company's total loan portfolio consisted of
land  acquisition and development  loans,  including loans in process.  Loans in
process on such loans totaled $4.05 million at June 30, 2000. Like  construction
lending, these loans generally are considered to involve a higher degree of risk
of loss than long-term  financing on approved occupied real estate.  The Bank is
actively  pursuing  developers who can both demonstrate the ability to meet cash
flow  projections  in order to  repay  loans  through  a very  strong  financial
position and have a reputation  for  successfully  completing  such  projects in
similar situations with the Bank.

         Consumer  Loans.  The Bank  offers a wide  variety of  consumer  loans,
including home equity loans,  home  improvement  loans,  equity lines of credit,
secured  and  unsecured  personal  loans  and  automobile  loans.  The  Bank has
aggressively  marketed  consumer  loans  in order to  provide  a wider  range of
financial  services  to its  customers  and  because  of the  shorter  terms and
normally  higher  interest  rates on such loans.  As of June 30, 2000,  consumer
loans amounted to $62.43 million or 17.5% of the total loan portfolio.

         The Bank's home equity lines of credit currently provide for terms of
up to 10 years. The interest rate on the "Prime Line" adjusts monthly to the
Wall Street Journal Prime Rate. The regular equity line of credit adjusts
monthly at 1.50% above the Wall Street Journal Prime Rate. The limit of such
loan is the borrower's equity in his residence, subject to certain income
qualifications. The Bank also makes fixed-rate, fixed-term home equity loans on
which it takes a first- or second-mortgage lien on the borrower's property.
These loans have terms of up to 15 years. The balance of the fixed-rate
mortgages on the properties cannot exceed in the aggregate 80% of the appraised
value of the properties. Home equity lines of credit and fixed-rate home equity
loans amounted to $5.50 million and $48.88 million, respectively, as of June 30,
2000. The Bank also originates fixed-rate bridge loans with loan-to-value ratios
of no greater than 80% of the value of the secured real estate and at a maximum
term of twelve months. At June 30, 2000, there was no balance for these loans.

         At June 30, 2000, the balance was $494,000 for fixed-rate loans secured
by certificates of deposit or marketable securities. Unsecured personal loans
amounted to $465,000 at June 30, 2000 and consisted of fixed-rate loans with
maximum loan balances of $5,000 and terms no greater than 48 months. The Bank
also originates fixed-rate loans on new and used automobiles. The terms of such
loans do not exceed 60 months on new cars and 48 months on used cars. Automobile
loans amounted to $6.24 million at June 30, 2000. The Bank's current line of
credit provides for unsecured loans of up to $1,000 for terms of up to 36 months
with an interest rate set at 6.0% over the Wall Street Journal Prime Rate
adjusted monthly. Such loans have a floor of 10.0% and a ceiling of 18.0% and
totaled $264,000 at June 30, 2000. In addition, the Bank originates Visa and
MasterCard credit card loans with up to $5,000 lines of credit and at an
interest rate set at 6.0% over the Prime Rate. At June 30, 2000, the Company had
$408,000 in credit card loans outstanding.


                                       9
<PAGE>


         Consumer loans  generally have shorter terms and higher  interest rates
than mortgage  loans but generally  involve more credit risk than mortgage loans
because of the type and nature of the  collateral  and,  in certain  cases,  the
absence of collateral.  In addition,  consumer lending collections are dependent
on the borrower's continuing financial stability, and thus are more likely to be
adversely effected by job loss,  divorce,  illness and personal  bankruptcy.  In
most cases,  any repossessed  collateral for a defaulted  consumer loan will not
provide an adequate source of repayment of the outstanding  loan balance because
of improper repair and maintenance of the underlying security. The Bank believes
that the generally  higher yields earned on consumer  loans  compensate  for the
increased  credit risk  associated  with such loans and that consumer  loans are
important to its efforts to increase the interest rate  sensitivity  and shorten
the average maturity of its loan portfolio.

         Commercial Business Loans. The Bank makes commercial business loans
directly to businesses located in its market area. The Bank targets small and
medium sized businesses with the majority of the loans being originated in
amounts of less than $750,000. Applications for commercial business loans are
obtained primarily from existing customers, branch referrals and direct inquiry.
As of June 30, 2000, commercial business loans totaled $19.36 million or 5.4% of
the total loan portfolio.

         Commercial  business loans  originated by the Bank generally have terms
of five years or less and fixed interest rates or adjustable interest rates tied
to the Wall Street Journal Prime plus a margin. Such loans are generally secured
by real estate, receivables, equipment, or inventory and are generally backed by
the personal  guarantees of the principals of the borrower.  Commercial business
loans  generally  have shorter terms to maturity and provide  higher yields than
residential  mortgage loans.  Although  commercial  business loans generally are
considered  to involve  greater  credit risk than certain  other types of loans,
management  intends to continue to offer commercial  business loans to small and
medium  sized  businesses  in an effort to better serve our  community's  needs,
obtain core non-interest  bearing deposits,  and increase the Company's interest
rate spread.

         Regulatory Requirements and Underwriting Policies.  Under the Financial
Institutions  Reform,  Recovery,  and  Enforcement  Act of 1989  ("FIRREA")  and
pursuant to the parity  provisions of the State Code,  the aggregate  loans that
the Company may make to any  borrower  and its  affiliates  is limited to 15% of
unimpaired  capital for unsecured  loans and 25% of capital for loans secured by
readily marketable  collateral.  At June 30, 2000,  pursuant to such provisions,
the Bank was  permitted  to extend  credit to any one  borrower  totaling  $5.41
million.  Special rules applicable to savings associations' provide authority to
develop  domestic  residential  housing  units  up to the  lesser  of 30% of the
savings  association's  unimpaired  capital  and  unimpaired  surplus  or  $30.0
million,  if: (a) the  purchase  price of a  single-family  unit does not exceed
$500,000;  (b) the savings association is in compliance with the fully phased-in
capital standards;  (c) the OTS director, by order, authorizes the higher limit;
(d) the loans made to all  borrowers in the  aggregate do not exceed 150% of the
savings  association's  unimpaired capital and unimpaired  surplus;  and (e) all
loans comply with applicable loan-to-value  requirements.  At June 30, 2000, the
Bank's  largest  loan or  group  of loans  to one  borrower,  including  related
entities,  aggregated $5.26 million, and is in conformity with the current loans
to one borrower regulations described above.


                                       10
<PAGE>

         The Bank is  currently  permitted  to lend up to 100% of the  appraised
value  of the  real  property  securing  a loan;  however,  if the  amount  of a
residential  loan originated or refinanced  exceeds 90% of the appraised  value,
the Bank is  required  by federal  regulations,  the State  Code and  Department
regulations to obtain private mortgage insurance on the portion of the principal
amount of the loan  that  exceeds  80% of the  appraised  value of the  security
property. Pursuant to underwriting guidelines adopted by the Board of Directors,
private  mortgage  insurance  must be  obtained on all  residential  loans whose
loan-to-value  ratios exceed 80%. The Bank will  generally lend up to 97% of the
appraised value of one-to four-family  owner-occupied residential dwellings when
the  required  private  mortgage  insurance  is  obtained.  The  Bank  generally
originates loans of up to 75% of the appraised value of the properties  securing
its  commercial  real  estate  and  commercial  business  loans  and  75% of the
appraised  value  upon  completion  or  sale  price,  whichever  is  lower,  for
construction  loans.  With  respect  to  construction  loans for  owner-occupied
properties made in connection with the providing of the permanent financing, the
Bank  will  lend up to 90% of the  appraised  value  when the  required  private
mortgage insurance is obtained.

         In the loan approval process, the Bank assesses both the borrower's
ability to repay the loan and the adequacy of the proposed security. In
connection therewith, the Bank obtains an appraisal of the security property and
information concerning the income, financial condition, employment and credit
history of the applicant. Loans must be approved at various management levels,
including the Board of Directors, depending on the amount of the loan.
Residential mortgage loans, commercial business and commercial real estate
loans, and any other loans in excess of $1.00 million require approval by the
Board of Directors. In addition, any loan in excess of $500,000 which exhibits
certain characteristics concerning the borrower or the project requires approval
by the Board of Directors.

         For  mortgage  loans the Bank  requires  title  insurance  insuring the
priority of its lien, as well as fire and extended coverage casualty  insurance,
in order to protect the  properties  securing its real estate  loans.  Borrowers
must also obtain flood insurance policies where the property is in a flood plain
as  designated  by the Federal  Emergency  Management  Agency.  Borrowers may be
required  to advance  funds on a monthly  basis  together  with each  payment of
principal  and interest to a mortgage  loan account from which the Company makes
disbursements for items such as real estate taxes, hazard insurance premiums and
private mortgage insurance premiums as they fall due.

         Loan Fee and Servicing Income. In addition to interest earned on loans,
the Bank receives income through  servicing of loans and fees in connection with
loan originations, loan modifications,  late payments,  prepayments,  repayments
and changes of property ownership and for miscellaneous  services related to its
loans. Income from these activities varies from period to period with the volume
and type of loans made.

         Loan origination fees and certain related direct loan origination costs
are offset and the resulting net amount is deferred and amortized  over the life
of the  related  loans as an  adjustment  to the  yield of such  related  loans.
However,  in the event the related loan is sold, any deferred loan fees or costs
remaining with respect to such loan should be taken into income.

                                       11
<PAGE>

               The Bank  currently  charges  loan  origination  fees  which  are
calculated  as a  percentage  of the amount of the loan.  The fees  received  in
connection  with the  origination of commercial real estate loans have generally
amounted to two points (one point being equivalent to 1% of the principal amount
of the loan).  In addition,  the Bank typically  receives fees from two to three
points  in  connection  with  the  origination  of  new,  conventional,   one-to
four-family  mortgages  and 3.5 points in  connection  with the  origination  of
construction loans.

               At June 30, 2000, the Bank was servicing  $23.67 million of loans
for others,  substantially all of which were whole loans sold by the Bank to the
FHLMC.  The Bank receives a servicing fee of  approximately  1/4 or 3/8 of 1% on
such loans.

               Non-Performing  Loans  and  Real  Estate  Owned  ("REO").  When a
borrower  fails to make a required loan payment,  the Bank attempts to cause the
default to be cured by contacting  the borrower.  In general,  contacts are made
after a payment is more than 15 days past due,  at which  time a late  charge is
assessed.  Defaults are cured  promptly in most cases.  If the  delinquency on a
mortgage  loan  exceeds  90 days and is not  cured  through  the  Bank's  normal
collection  procedures,  or an acceptable arrangement is not worked out with the
borrower,  the Company will institute measures to remedy the default,  including
commencing a foreclosure action or, in special circumstances, accepting from the
mortgagor a voluntary deed of the secured  property in lieu of foreclosure.  The
remedies  available  to the Bank in the event of a default or  delinquency  with
respect to certain residential  mortgage loans, and the procedures by which such
remedies may be  exercised,  are subject to  Pennsylvania  law and  regulations.
Under Pennsylvania law, a lender is prohibited from accelerating the maturity of
a residential mortgage loan, commencing any legal action (including  foreclosure
proceedings)  to  collect  on  such  loan,  or  taking  possession  of any  loan
collateral  until the lender has first provided the delinquent  borrower with at
least 30 days prior written notice  specifying the nature of the delinquency and
the  borrower's  right to correct such  delinquency.  In addition,  the lender's
ability to exercise  any  remedies it may have with respect to loans for one- or
two-family  principal  residences  located in Pennsylvania is further restricted
(including the lender's  right to foreclose on such  property)  until the lender
has  provided  the  delinquent   borrower  with  written  notice  detailing  the
borrower's  rights  to seek  consumer  credit  counseling  and  state  financial
assistance and until the borrower has exhausted or failed to pursue such rights.
These  provisions of  Pennsylvania  law may delay for several  months the Bank's
ability to foreclose  upon  residential  loans secured by real estate located in
the Commonwealth of Pennsylvania.  In addition,  the uniform  FNMA/FHLMC lending
documents  used  by the  Bank,  as well as most  other  residential  lenders  in
Pennsylvania, requires notice and a right to cure similar to that provided under
Pennsylvania law.


                                       12
<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. When a
loan is placed on non-accrual status,  previously accrued but unpaid interest is
deducted from interest income. Non-real estate consumer loans more than 120 days
delinquent   are  required  to  be  written  off  in  accordance   with  federal
regulations.

         If foreclosure is effected, the property is sold at a public auction in
which the Company may participate as a bidder. If the Company is the successful
bidder, the acquired real estate property is then included in the Company's
"real estate owned" account until it is sold. When property is acquired, it is
recorded at the lower of carrying value or fair value less disposal cost at the
date of acquisition and any write-down resulting therefrom is charged to the
allowance for loan losses. Interest accrual ceases on the date of acquisition
and all costs incurred in maintaining the property from that date forward are
expensed. Costs incurred for the improvement or development of such property are
capitalized to the extent they do not exceed the property's fair value. No loss
reserves are maintained on REO and future write-downs for cost beyond the fair
value are expensed. The Company is permitted under Department and OTS
regulations to finance sales of REO by "loans to facilitate," which may involve
more favorable interest rates and terms than generally would be granted under
the Bank's underwriting guidelines. However, at June 30, 2000, the Company did
not have any loans to facilitate.

         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 June 30, 2000, the Company did not have any impaired  loans.  The
Company's policy for the recognition of interest income on impaired loans is the
same as for non-accrual  loans discussed  above.  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.


                                       13
<PAGE>


         The following table sets forth information  regarding non-accrual loans
and REO held by the Company at the dates indicated. The Company did not have any
(i) loans which are 90 days or more  delinquent  but on which  interest is being
accrued or (ii) loans which were classified as restructured troubled debt at any
of the dates presented.

<TABLE>
<CAPTION>

                                                                 Year Ended June 30,
                                 ----------------------------------------------------------------------------------------
                                      2000                1999                1998               1997             1996
                                 --------------       -------------       -------------       ----------       ----------
                                                                      (Dollars In Thousands)
<S>                                    <C>                 <C>                 <C>              <C>              <C>
Non-accrual  loans:
Residential real estate loans          $   735             $   568             $  771           $  417           $ 1,166
Commercial real estate loans                --                  --                 --               --                --

Construction and land loans                 --                  --                 55               --               737

Commercial business loans                   --                 258                 --               --                18

Consumer loans                             207                 107                420              331               297

                                 --------------       -------------       ------------       ----------       -----------
Total non-accrual loans                $   942             $   933            $ 1,246           $  748           $ 2,218
                                 ==============       =============       ============       ==========       ===========

Total non-accrual loans
  to total assets                         .19%                .21%               .33%             .23%              .81%

Total REO                                   --                  --                 --               --              $121

Total non-accrual loans and
  REO to total assets                     .19%                .21%               .33%             .23%              .85%
</TABLE>


         At  June  30,  2000   non-accrual   real  estate  loans  included  nine
residential  mortgage loans aggregating  $735,000,  all secured by single-family
residential properties.

         The total amount of  non-performing  loans was  $942,000,  $933,000 and
$1.25  million  at  June  30,  2000,  1999  and  1998,  respectively.  If  these
non-performing  loans had been current in accordance  with their  original terms
and had been  outstanding  throughout  the period,  the gross amount of interest
income for fiscal 2000,  1999,  and 1998 that would have been recorded for these
loans  was  $82,000,   $75,200,   and   $111,800.   Interest   income  on  these
non-performing  loans  included  in income  for  fiscal  2000,  1999,  and 1998,
amounted to $24,000, $26,100, and $57,560, respectively.

         Allowances for Losses on Loans and Classified Assets. The allowance for
loan losses is maintained at a level that management considers adequate to
provide for 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


                                       14
<PAGE>
the assumptions  used in determining the level of the allowance.  Management may
in the future  further  increase the level of its allowance for loan losses as a
percentage  of total  loans and  non-performing  loans in the event the level of
multi-family  residential and commercial real estate loans (which  generally are
considered  to  have a  greater  risk  of loss  than  single-family  residential
mortgage  loans)  as a  percentage  of its total  loan  portfolio  continues  to
increase. 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 generally added to the allowance.  At June
30, 2000,  the Bank's  allowance  for loan losses was $3.91  million or 1.18% of
total net loans receivable and 414.9% of total  non-performing loans compared to
$3.65 million or 1.24% of net loans and 391.3% of total  non-performing loans at
June 30, 1999.

         The following table summarizes  activity in the Company's allowance for
loan losses during the periods indicated.

<TABLE>
<CAPTION>

                                                                          As of June 30,
                                          -------------------------------------------------------------------------------------
                                             2000               1999              1998              1997              1996
                                         --------------   ---------------   ----------------    --------------   --------------
                                                                       (Dollars in Thousands)
<S>                                          <C>                <C>           <C>                <C>                <C>
Allowance at beginning of period             $ 3,651            $ 3,414       $ 2,855            $ 2,667            $ 2,449
Loans charged off against the allowance:
    Residential real estate                       (8)               (58)          (12)              (117)              (101)
    Construction and land                         --                 --          (177)                --
    Commercial business                         (131)                --            --                 (1)                (2)
    Consumer                                     (32)              (119)          (69)               (82)               (43)
                                             -------            -------       -------            -------            -------
Total charge-offs                               (171)              (177)          (81)              (377)              (146)

Recoveries:
    Residential real estate                       --                 --            21                 37                 --
    Construction and land                         --                 --            --                  4                 16
    Commercial business                            2                 --            --                 --                 --
    Consumer                                       6                 24            13                  1                  8
                                             -------            -------       -------            -------            -------
Total recoveries                                   8                 24            34                 42                 24

Net charge-offs                                 (163)              (153)          (47)              (335)              (122)

Provision for loan losses
  Charged to operating expenses                  420                390           606                523                340
                                             -------            -------       -------            -------            -------

Allowance at year end                        $ 3,908            $ 3,651       $ 3,414            $ 2,855            $ 2,667
                                             =======            =======       =======            =======            =======
Ratio of net charge-offs to
  average loans outstanding                     0.05%              0.05%         0.02%              0.13%              0.05%
                                             =======            =======       =======            =======            =======
Ratio of allowance to period-end
  net loans                                     1.18%              1.24%         1.23%              1.10%              1.18%
                                             =======            =======       =======            =======            =======
</TABLE>


                                       15
<PAGE>
         The following table presents information  regarding the Company's total
allowance  for losses on loans as well as the  allocation of such amounts to the
various categories of the loan portfolio. (Dollars in Thousands)

<TABLE>
<CAPTION>

                                                                             At June 30,
                                    -----------------------------------------------------------------------------------------------
                                             2000                     1999                   1998                    1997
                                    ---------------------      -------------------    --------------------    --------------------
                                                    % of                     % of                    % of                    % of
                                                   Loans                    Loans                   Loans                   Loans
                                                  to Total                 to Total                to Total                to Total
                                     Amount        Loans        Amount      Loans      Amount       Loans      Amount       Loans
                                     ------        -----        ------      -----      ------       -----      ------       -----
<S>                                  <C>           <C>          <C>         <C>        <C>          <C>        <C>          <C>
Residential real estate loans        $  700        46.8%        $  638      51.1%      $  789       53.6%      $  778       58.7%
Commercial real estate loans          1,553        18.5%         1,415      17.9%       1,050       14.1%         871       12.5%
Construction and land loans             241        11.8%           194       9.5%         201       10.5%         139        8.5%
Commercial business loans               632         5.4%           726       4.8%         357        3.9%         278        2.9%
Consumer loans                          782        17.5%           678      16.7%       1,017       17.9%         789       17.4%
                                    -------       -----        -------     -----      -------      -----      -------      -----

   Total allowance for loan losses  $ 3,908       100.0%       $ 3,651     100.0%     $ 3,414      100.0%     $ 2,855      100.0%
                                    =======       =====        =======     =====      =======      =====      =======      =====

Total allowance for loan losses
  to total non-performing loans      414.9%                     391.3%                 274.0%                  381.7%
                                     =====                      =====                  =====                   =====
Total non-performing loans           $  942                     $  933                $ 1,246                  $  748
                                     ======                     ======                =======                  ======
<CAPTION>
                                          At June 30,
                                       -------------------
                                              1996
                                       -------------------
                                                     % of
                                                    Loans
                                                   to Total
                                       Amount       Loans
                                       ------       -----
Residential real estate loans          $  898       63.1%
Commercial real estate loans              585        9.6%
Construction and land loans               280        7.2%
Commercial business loans                 207        2.4%
Consumer loans                            697       17.7%
                                      --------  ----------

   Total allowance for loan losses    $ 2,667      100.0%
                                      ========   =========


Total allowance for loan losses
  to total non-performing loans        120.2%
                                      ========
Total non-performing loans            $ 2,218
                                      ========
</TABLE>
                                       16
<PAGE>
               The  Company  monitors  the  quality  of its  assets on a regular
basis.  Under regulations of the OTS, all of the Company's assets are subject to
being classified under a classification  system that has three  categories:  (i)
substandard,  (ii)  doubtful and (iii) loss.  An asset may fall within more than
one category and a portion of the asset may remain unclassified.  The Company is
required  to review  the  classification  of its assets on a regular  basis.  In
addition, in connection with the examinations of First Financial by the OTS, the
FDIC, and the Department,  the examiners have the authority to identify  problem
assets and, if  appropriate,  classify them and/or  require  adjustments  to the
carrying value of such assets.

               Assets   classified   substandard  are  considered   inadequately
protected by the current net worth and paying  capacity of the obligor or of the
collateral  pledged,  if any.  Assets so  classified  must  have a  well-defined
weakness or weaknesses.  They are characterized by the distinct possibility that
the insured  institution  will  sustain  some loss if the  deficiencies  are not
corrected.

               Assets  classified  doubtful  are  considered  to  have  all  the
weaknesses   inherent   in  those   classified   substandard   with  the   added
characteristic  that the weaknesses  make  collection or liquidation in full, on
the  basis  of  currently  existing  facts,   conditions,   and  values,  highly
questionable and improbable.

               Assets  classified loss are considered  uncollectable and of such
little  value  that  their  continuance  as assets  without  establishment  of a
specific  reserve is not warranted.  This  classification  does not mean that an
asset has  absolutely no recovery or salvage value,  but rather,  that it is not
practical  or desirable to defer  writing off a basically  worthless  asset even
though partial recovery may be affected in the future.

               At June 30, 2000 and 1999, the Company's classified assets, which
consisted of assets classified as substandard or doubtful, totaled $1.59 million
and $1.24  million,  respectively.  The Company did not have any REO at June 30,
2000 and 1999.  Included in the assets  classified  substandard at June 30, 2000
and 1999,  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, and have a well-defined weakness that may
jeopardize  the  liquidation  of the  debt.  The  majority  of loans  which  are
classified but otherwise performing are residential mortgage loans.

               The loans designated as special mention by the Company amounted
to $102,300 and $0 at June 30, 2000 and 1999, respectively. The Company also
includes in the special mention category an investment with a balance of $4.37
million to an extended term healthcare provider which was performing but had
characteristics which warranted management to classify it special mention.
Although special mention assets are not considered or classified as substandard,
doubtful or loss, they do have a potential weakness which may, if not corrected,
result in increased risk of loss at some future date.

                                       17
<PAGE>


Securities Activities

         Historically,  interest and dividends on  securities  have provided the
Company with a significant  source of revenue.  At June 30, 2000,  the Company's
securities portfolio and interest-bearing deposits aggregated $153.29 million or
30.2% of its total assets.  First  Financial's  securities and  interest-bearing
deposits are used to meet certain federal liquidity ratios. The liquidity ratios
are met in part by investing in  securities  that qualify as liquid assets under
OTS  regulations.  (See  "Regulation  -  Regulation  of  the  Bank  -  Liquidity
Requirements").  Such securities include  obligations issued or fully guaranteed
by the United States  Government,  certain federal agency  obligations,  certain
time deposits and negotiable  certificates of deposit issued by commercial banks
and  other  specified   investments,   including   commercial  paper  and  other
securities. Investment decisions are made by members of senior management within
guidelines approved by the Company's Board of Directors.

         The Company divides its securities  portfolio into three segments:  (a)
held to maturity;  (b)  available for sale;  and (c) trading.  Securities in the
held  to  maturity  category  are  accounted  for  at  amortized  cost.  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 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.  At June 30, 2000, the Company had a net unrealized  loss
on securities available for sale, net of taxes, of $3.26 million.

                                       18
<PAGE>




The  following  table  sets  forth  the  Company's   securities   portfolio  and
interest-earning deposits at carrying value at the dates indicated.

<TABLE>
<CAPTION>

                                                                                    At June 30,
                                                     -------------------------------------------------------------------------
                                                             2000                      1999                      1998
                                                     ----------------------      ------------------       --------------------
                                                                                   (In Thousands)
<S>                                                               <C>                     <C>                        <C>
Interest-bearing deposits                                         $  8,164                $ 13,409                   $ 11,861
Trading account securities                                          12,838                   9,221                     20,352
Investment securities held to maturity:
    U.S. Government and agency obligations                          25,110                      --                      4,500
    Municipal notes and bonds (1)                                    8,332                   3,229                      7,394
    Mortgage-backed securities                                         640                     791                      1,123
    Other                                                            5,739                   3,781                      2,583
                                                     ----------------------      ------------------       --------------------
       Total investment securities held to
       maturity                                                     39,821                   7,801                     15,600
                                                     ----------------------      ------------------       --------------------
Investment securities available for sale:
    U.S. Government and agency obligations                          26,639                  47,242                     12,296
    Municipal notes and bonds (1)                                   34,160                  27,378                     15,173
    Mortgage-backed securities                                      13,804                  15,817                      9,431
    Equity securities                                                  858                   1,336                      1,096
    Debt securities                                                 14,798                  15,430                        307
    Other                                                            2,209                   2,397                         --
                                                     ----------------------      ------------------       --------------------
      Total investment securities available for
          sale                                                      92,468                 109,600                     38,303
                                                     ----------------------      ------------------       --------------------
      Total securities and interest-bearing
         deposits                                                $ 153,291               $ 140,031                   $ 86,116
                                                     ======================      ==================       ====================
</TABLE>
     (1) The income from municipal notes and bonds are generally non-taxable for
     federal and state purposes.


         The contractual maturity or repricing  characteristics of the Company's
investment  portfolio is considerably  more interest rate sensitive than that of
its  loan  portfolio.   Consequently,   the  investment   portfolio  provides  a
significant  source of liquidity and protection  against interest rate risk. The
weighted  average  term to maturity or  repricing  of the  Company's  investment
securities held to maturity was 4.8 years at June 30, 2000 and 3.1 years at June
30, 1999.

                                       19
<PAGE>

The amortized cost and estimated fair value of investment securities at June 30,
2000, by contractual maturity, are shown below.

<TABLE>
<CAPTION>
                                                                                       Estimated               Weighted
                                                                   Amortized              Fair                 Average
                                                                      Cost                Value                 Yield
                                                                ----------------      ---------------       ---------------
                                                                                   (Dollars in Thousands)
<S>                                                                     <C>                    <C>                   <C>
                  Held to Maturity
                    Due in one year or less                             $   210                $ 209                 4.97%
                    Due after one year through five years                17,216               17,008                 6.37%
                    Due after five years through ten years                9,130                8,696                 6.96%
                    Due after ten years                                   7,526                7,367                 6.87%
                    No stated maturity                                    5,739                5,740                 0.00%
                                                                ----------------      ---------------       ---------------
                    Total held to maturity                            $  39,821             $ 39,020                 5.65%
                                                                ================      ===============       ===============


                  Available for Sale
                    Due in one year or less                             $    --              $    --                 0.00%
                    Due after one year through five years                23,058               22,567                 6.09%
                    Due after five years through ten years               14,964               14,341                 6.08%
                    Due after ten years                                  58,294               54,703                 6.75%
                    No stated maturity                                    1,453                  857                 0.00%
                                                                ---------------       --------------         --------------
                    Total available for sale                           $ 97,769             $ 92,468                 6.42%
                                                                ================      ===============       ===============
</TABLE>


         The weighted average yield,  based on amortized cost, is presented on a
taxable equivalent basis.

         As of June 30, 2000,  investments in the debt and/or equity  securities
of any one issuer  (excluding  U.S.  Government  and federal  agencies)  did not
exceed 10% of the Company's stockholders' equity.

Sources of Funds

         General.  Deposits  obtained through branch offices have  traditionally
been the  principal  source of the  Company's  funds for use in lending  and for
other  general   business   purposes.   The  Company  also  derives  funds  from
amortization and prepayments of outstanding  loans and sales of loans. From time
to time,  the Company  also may borrow  funds from the FHLBP and other  sources.
Borrowings may be used on a short-term basis to compensate for seasonal or other
reductions in deposits or other inflows at less than projected  levels,  as well
as on a longer term basis to support expanded lending and investment activities.

         Deposits.  The Company  obtains  deposits  primarily  from residents of
Chester County, and to a lesser extent Berks, Delaware, Lancaster and Montgomery
Counties, Pennsylvania. Currently, the principal methods used by First Financial
to attract  deposit  accounts  include the  offering of services  and  accounts,
competitive  interest rates, and convenient  office locations and service hours.
Other than during times of inverse or flat yield curves  the Bank has adopted a
pricing program for its certificate  accounts which provides for higher rates of
interest on its longer term  certificates  in order to encourage  depositors  to


                                       20
<PAGE>

invest in certificates with longer  maturities,  thus reducing the interest rate
sensitivity of the Company's  deposit  portfolio.  First Financial also offers a
tiered money market account that pays higher  interest on higher  balances so as
to  maintain a  relatively  stable core of  deposits  even when its  certificate
accounts mature.

         Market  conditions  have caused First  Financial  to rely  primarily on
short-term  certificate  accounts and other deposit  alternatives  that are more
responsive  to market  interest  rates  than  passbook  accounts  and  regulated
fixed-rate, fixed-term certificates that were historically the Company's primary
sources  of  deposits.   First  Financial's  current  deposit  products  include
non-interest-bearing accounts, passbook/statement savings accounts, NOW checking
accounts,  money market deposit  accounts,  certificates  of deposit  ranging in
terms from 30 days to five years and certificates of deposit in denominations of
$100,000 or more ("jumbo  certificates").  Included among these deposit products
are individual  retirement account  certificates ("IRA  certificates") and Keogh
accounts.

         The following table shows the balances of the Company's  deposits as of
the dates indicated:

<TABLE>
<CAPTION>

                                                                        At June 30,
                                     -----------------------------------------------------------------------------
                                                2000                       1999                       1998
                                     ------------------------    ------------------------   ----------------------
                                                                 (Dollars in Thousands)
                                                       % of                        % of                     % of
                                          Amount     Deposits       Amount       Deposits      Amount     Deposits
                                          ------     --------       ------       --------      ------     --------
<S>                                    <C>             <C>       <C>                <C>     <C>            <C>
Non-interest-bearing accounts          $  38,192       10.1%     $  33,007          9.2%    $  32,361      10.9%
NOW checking accounts                     38,652       10.2%        36,012         10.0%       31,770      10.6%
Savings accounts                          26,636        7.0%        29,033          8.1%       27,164       9.1%
Money market accounts                     41,690       11.0%        47,464         13.2%       35,610      11.9%
Certificates of deposit less than
  $100,000                               126,910       33.6%       137,559         38.2%      133,801      44.9%
Certificates of deposit with
  $100,000 minimum balance               106,398       28.1%        76,439         21.3%       37,485      12.6%
                                     ------------  ----------    ----------  ------------   ----------  ---------

      Total deposits                   $ 378,478      100.0%     $ 359,514        100.0%    $ 298,191     100.0%
                                     ============  ==========    ==========  ============   ==========  =========
</TABLE>

                                       21
<PAGE>



The following  table shows the weighted  average  interest rate of the Company's
deposits by type of account at June 30, 2000:

                                                                     Weighted
                                             Amount                 Avg. Rate
                                         -------------              ----------
                                                    (In Thousands)

Non-interest-bearing accounts            $ 38,192                        --%
NOW checking accounts                      38,652                      1.57%
Savings accounts                           26,636                      1.71%
Money market accounts                      41,690                      4.00%
Certificates of deposit less than
$100,000                                  126,910                      5.60%
Certificates of deposit with
  $100,000 minimum balance                106,398                      5.72%
                                        ---------                    -------


      Total deposits                     $378,478                      4.21%
                                       ==========                    =======


The  following  table sets forth the net  deposit  flows of the  Company for the
periods indicated:


                                                Year Ended June 30,
                                      --------------------------------------
                                         2000           1999         1998
                                      ----------    -----------   ----------
                                                   (In Thousands)
Increase before interest credited       $  5,089       $ 50,465     $ 27,568
Interest credited                         13,875         10,857        9,873
                                      ----------    -----------   ----------

     Net deposit increase               $ 18,964       $ 61,322     $ 37,441
                                      ==========    ===========   ==========


The following  table shows the balances of certificates of deposit with balances
of $100,000 or greater which mature during the periods indicated and the balance
at June 30, 2000.

<TABLE>
<CAPTION>

                                                               Balances at June 30, 2000 Maturing
                                                       =======================================================
                                                                          (In Thousands)
                                             At           Within       Three          Six to          After
                                          June 30,         Three       to Six         Twelve          Twelve
                                           2000           Months       Months         Months          Months
                                         ----------    ------------   --------      ----------       ---------
<S>                                       <C>              <C>          <C>           <C>             <C>
Certificates of deposit with $100,000
      minimum balance                     $ 106,398        $ 19,138     $5,677        $ 19,357        $ 62,226
                                         ==========    ============   ========      ==========       =========
</TABLE>



                                       22
<PAGE>



The  following  table  presents  the average  balance by type of deposit and the
average rate paid by type of deposit for the periods indicated.

<TABLE>
<CAPTION>
                                                                        Year Ended June 30,
                                  ---------------------------------------------------------------------------------------------
                                              2000                            1999                           1998
                                  ---------------------------     --------------------------      -----------------------------
                                                                  (Dollars in Thousands)
                                                  Average                         Average                            Average
                                     Average        Rate           Average          Rate            Average           Rate
                                     Balance        Paid           Balance          Paid            Balance           Paid
                                     -------        ----           -------          ----            -------           ----
<S>                                 <C>             <C>           <C>               <C>            <C>                <C>
NOW checking accounts               $ 37,667        1.57%         $ 33,278          1.48%          $ 29,328           1.81%
Savings accounts                      27,017        1.74%           31,392          1.81%            25,991           2.67%
Money market accounts                 43,178        3.99%           43,147          3.65%            29,847           3.57%
Certificates of deposit
  less than $100,000                 130,335        5.35%          149,713          5.55%           126,286           5.90%
Certificates of deposit with                                                                                          5.17%
  $100,000 minimum balance            75,845        5.23%           52,917                           35,725           4.94%
</TABLE>


         The greater variety of deposit  accounts offered by First Financial has
increased  its  ability  to  retain  deposits  and  has  allowed  it to be  more
competitive  in obtaining  new funds,  although the threat of  disintermediation
(the  flow of funds  away  from  savings  institutions  into  direct  investment
vehicles such as government  and corporate  securities)  still exists.  However,
these  types  of  accounts  have  been  and  continue  to be  more  costly  than
traditional  accounts during periods of high interest rates. In addition,  First
Financial has become much more susceptible to short-term fluctuations in deposit
flows,  as customers  have become more rate  conscious and willing to move funds
into  higher-yielding  accounts.  Thus,  both the ability of First  Financial to
attract and maintain  deposits as well as its cost of funds have been,  and will
continue to be, affected significantly by economic market conditions.

         In an effort to  attract  increasing  amounts  of  non-interest-bearing
deposits,  First Financial offers a basic checking account which features no-fee
checking with a minimum balance of $50.

         First  Financial also offers a business  checking  account which grants
credits  against  service  charges  based on the average  daily  balance.  It is
management's belief that such accounts represent an excellent source of deposits
that are not affected by interest rates.

         First Financial attempts to control the flow of deposits by pricing its
accounts to remain generally  competitive  with other financial  institutions in
its primary  market  area,  but does not  necessarily  seek to match the highest
rates paid by competing institutions.

         First Financial's deposits are obtained primarily from persons who are
residents of Pennsylvania. First Financial does not advertise for deposits
outside of Pennsylvania or accept brokered deposits, and management believes
that at June 30, 2000 an insignificant amount of First Financial's deposits were
held by non-residents of Pennsylvania.


                                       23
<PAGE>


         Borrowings. First Financial may obtain advances from the FHLBP upon the
security of the common stock it owns in that bank and certain of its residential
mortgage loans,  provided certain  standards  related to credit  worthiness have
been met.  See  "Regulation  -  Regulation  of the Bank - Federal Home Loan Bank
System." Such advances are made pursuant to several  different  credit programs,
each of which has its own interest rate and range of maturities.  FHLBP advances
are  generally  available  to meet  seasonal  and other  withdrawals  of deposit
accounts and to expand lending and investment activities,  as well as to aid the
efforts of members to establish  better asset and liability  management  through
the extension of maturities of  liabilities.  At June 30, 2000,  the Company had
$86.78  million in FHLBP  advances  outstanding.  In  addition to its ability to
obtain  advances from the FHLBP under several  different  credit  programs,  the
Company has  established  a line of credit  with the FHLBP,  in an amount not to
exceed 10% of the Company's  maximum  borrowing  capacity,  which credit line is
$15.45 million, and is subject to certain conditions, including the holding of a
predetermined  amount of FHLBP stock as collateral.  At June 30, 2000, there was
no balance outstanding on the line of credit.

         The following table presents certain information regarding short-term
borrowings (borrowings with a maturity of one year or less) for the periods
indicated:

<TABLE>
<CAPTION>

                                                             Year Ended June 30,
                                         -------------------------------------------------------
                                              2000                 1999               1998
                                         ---------------       --------------       ------------
                                                            (Dollars in Thousands)
<S>                                            <C>                   <C>                <C>
Short-term borrowings:
      Balance outstanding at end
               of period                       $ 46,948              $16,731            $17,601
      Weighted average interest rate
               at end of period                    6.61%                5.43%              5.28%
      Average balance outstanding              $ 55,753              $18,596            $16,417
      Maximum amount outstanding
        at any month-end during
               the period                       $79,059              $35,320            $25,323
      Weighted average interest rate
              during the period                    5.96%                5.51%              5.58%
</TABLE>


Yields Earned and Rates Paid

         The largest  components of the Company's total income and total expense
are interest income and interest expense.  As a result,  the Company's  earnings
are dependent  primarily  upon net interest  income,  which is determined by the
Company's  net interest  rate spread (i.e.,  the  difference  between the yields
earned  on  interest-earning  assets  and the  rates  paid  on  interest-bearing
liabilities)   and  the  relative   amounts  of   interest-earning   assets  and
interest-bearing liabilities.


                                       24
<PAGE>


Interest Income and Interest Spread Analysis

               The  following  table  sets  forth,  for the  periods  indicated,
information  regarding  (i) the total  dollar  amount of interest  income of the
Company from interest-earning  assets and the resultant average yields; (ii) the
total dollar amount of interest expense on interest-bearing  liabilities and the
resultant  average cost; (iii) net interest  income;  (iv) interest rate spread;
and (v) net  interest-earning  assets and their net yield.  Average balances are
determined on a monthly basis which is representative of operations.

<TABLE>
<CAPTION>

                                               -----------------------------------------------------------------------------------
                                                                  2000                                       1999
                                               ---------------------------------------     ---------------------------------------
                                                                                                     (Dollars in Thousands)
                                                 Average                        Yield/         Average                     Yield/
                                                Balance(1)     Interest(2)     Rate(2)      Balance(1)     Interest(2)     Rate(2)
                                               -----------     -----------     -------      ----------     -----------     -------
<S>                                              <C>            <C>             <C>          <C>              <C>           <C>
Assets:
    Loans and loans held for sale                $313,378       $24,689         7.88%        $280,544         $22,875       8.15%
    Securities and
      other investments                           145,687        10,298         7.07%         113,110           7,137       6.31%
                                               -----------  ------------                   -----------    ------------
    Total interest-
      earning assets                              459,065        34,987         7.62%         393,654          30,012        7.62%
                                                            ------------                   -----------    ------------
                                                     -
                                               -----------                                 -----------
    Total assets                                $ 482,342                                    $411,746
                                               ===========                                 ===========

Liabilities and Stockholders' Equity:
  Deposits and repurchase agreements             $315,962       $13,700         4.34%        $287,627          12,711        4.42%
  FHLB advances and
     other borrowings                              90,184         5,275         5.85%          53,595           2,971        5.54%
                                               -----------  ------------                   -----------    ------------
  Total interest-
      bearing liabilities                        $406,146       $18,975         4.67%         341,222         $15,682        4.60%
  Non-interest-bearing liabilities                 42,033                                      36,962
  Stockholders' equity                             34,163                                      33,562
                                               -----------                                 -----------
  Total liabilities and stockholders' equity     $482,342                                    $411,746
                                               ===========                                 ===========
Net interest income/interest rate spread                        $16,012         2.95%                         $14,330        3.03%
                                                            ============                                  ============
                                                                           ===========                                   =========

Net interest-earning assets/net yield on
  interest-earning assets                         $52,919                       3.49%         $52,432                        3.64%
                                               ===========                 ===========     ===========                   =========

Ratio of average interest-earning assets to
  interest-bearing liabilities                                                   113%                                         115%
                                                                               =======                                     =======
</TABLE>


<TABLE>
<CAPTION>
                                                                      Year Ended June 30,
                                                ----------------------------------------------------------
                                                                            1998
                                                ----------------------------------------------------------

                                                    Average                                       Yield/
                                                  Balance(1)             Interest(2)              Rate(2)
                                                  ----------             -----------              -------
<S>                                                <C>                      <C>                    <C>
Assets:
    Loans and loans held for sale                  $264,106                 $22,298                8.44%
    Securities and
      other investments                              60,777                   3,906                6.43%
                                                ------------       -----------------
    Total interest-
      earning assets                                324,883                  26,204                8.07%
                                                                                                   -----
    Non-interest earning assets                      15,141

                                                ------------
    Total assets                                   $340,024
                                                ============

Liabilities and Stockholders' Equity:
  Deposits and repurchase agreements               $247,903                 $11,476                4.63%
  FHLB advances and
     other borrowings                                31,813                   1,933                6.08%
                                                ------------       -----------------
  Total interest-
      bearing liabilities                           279,716                 $13,409                4.79%
  Non-interest-bearing liabilities                   30,167
  Stockholders' equity                               30,141
                                                ------------
  Total liabilities and stockholders' equity       $340,024
                                                ============
Net interest income/interest rate spread                                    $12,795                3.28%
                                                                   =================       =============


Net interest-earning assets/net yield on
  interest-earning assets                           $45,167                                        3.94%
                                                ============                                =============

Ratio of average interest-earning assets to
  interest-bearing liabilities                                                                      116%
                                                                                            =============
</TABLE>



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

(2)   The  indicated  interest  and  annual  yield and rate are  presented  on a
      taxable equivalent basis using the Federal marginal income tax rate of 34%
      adjusted for the 20% interest expense disallowance (27.2%) for 2000, 1999,
      and 1998.


                                     25
<PAGE>


Rate/Volume Analysis

               The following table presents certain information regarding
changes in interest income and interest expense of the Company for the periods
indicated. Interest income and the annual rate are calculated on a taxable
equivalent basis using the Federal marginal income tax rate of 34% adjusted for
the 20% interest expense disallowance (27.2%). For each category of
interest-earning assets and interest-bearing liabilities, information is
provided with respect to changes attributable to (1) changes in volume (change
in volume multiplied by old rate), (2) changes in rate (change in rate
multiplied by old volume) and (3) changes in rate/volume (change in rate
multiplied by change in volume). The changes in rate/volume (3) is allocated to
the change in volume variance and the change in the rate variance on a pro rated
basis for fiscal 2000.

<TABLE>
<CAPTION>

                                                  2000 Compared to 1999                         1999 Compared to 1998
                                               Increase (Decrease) Due to                    Increase (Decrease) Due to
                                      -----------------------------------------     ---------------------------------------------
                                       Volume          Rate          Total            Volume            Rate           Total
                                      ------------  -----------  --------------     ------------     ------------    ------------
                                                                           (In Thousands)

<S>                                     <C>            <C>            <C>                 <C>            <C>            <C>
Interest income on interest-
  earning assets:
    Loans and loans
      held for sale                     $2,594         $(780)         $1,814              $1,359         $(782)         $  577
    Securities and
      other investments                  2,230           931           3,161               3,305           (74)          3,231
                                        ------         -----          ------              ------         -----          ------
        Total interest income            4,824           151           4,975               4,664          (856)          3,808
                                        ------         -----          ------              ------         -----          ------

Interest expense on interest-
  bearing liabilities:
     Deposits and repurchase
        agreements                       1,225          (236)            989               1,775          (540)          1,235
     FHLB advances and other
       borrowings                        2,129           175           2,304               1,223          (185)          1,038
                                        ------         -----          ------              ------         -----          ------
         Total interest expense          3,354           (61)          3,293               2,998          (725)          2,273
                                        ------         -----          ------              ------         -----          ------

Net change in net interest
Income                                  $1,470         $ 212          $1,682              $1,666         ($131)         $1,535
                                        ======         =====          ======              ======         =====          ======
</TABLE>

                                       26
<PAGE>


Market Risk

         Market risk is the risk of loss from adverse  changes in market  prices
and rates.  The Company's  market risk arises  primarily  from the interest rate
risk  inherent  in its  lending  and  deposit  taking  activities.  To that end,
management actively monitors and manages its interest rate risk exposure.

         The Company's profitability is affected by fluctuations in interest
rates. A sudden and substantial change in interest rates may adversely impact
the Company's earnings to the extent that the yields on interest-sensitive
assets and interest-sensitive liabilities do not change at the same speed, to
the same extent, or on the same basis. The Company monitors the impact of
changes in interest rates between assets and liabilities as discussed in the
Company's Interest Rate Sensitivity Analysis under the Asset/Liability
Management caption in the Company's Annual Report to Shareholders for Fiscal
2000 (see Exhibit 13 hereto). Although interest rate sensitivity gap analysis is
a useful measurement tool and contributes towards effective asset liability
management, it is difficult to predict the effect of changing interest rates
based solely on that measure. An alternative methodology is to estimate the
impact on net interest income and on net portfolio value of an immediate change
in interest rates in 100 basis point increments. Net portfolio value ("NPV") is
defined as the net present value of assets, liabilities, and off-balance sheet
contracts. The chart below is the estimated effect of immediate changes in
interest rates at the specified levels at June 30, 2000 and 1999, calculated in
compliance with Thrift Bulletin No. 13A:

<TABLE>
<CAPTION>
                                                         Year Ended June 30, 2000
             -------------------------------------------------------------------------------------------------------------------
               Change in Interest                       Estimated Net Market Value
             Rates in Basis Points                         of Portfolio Equity                  NPV as % of PV of Average Assets
             ---------------------                         -------------------                  --------------------------------

                  (Rate Shock)                       Amount        $ Change      % Change              NPV Ratio      Change
                  ------------                       ------        --------      --------              ---------      ------
                                                       (Dollars in Thousands)
<S>                  <C>                            <C>          <C>                <C>                  <C>           <C>
                      300                           $ 11,239     $ (27,997)         -71%                  2.42%        (535)
                      200                             20,147       (19,089)         -49%                  4.22%        (355)
                      100                             30,107        (9,658)         -25%                  6.02%        (175)
                     Static                           39,236             --           --                  7.77%           --
                     (100)                            48,425          9,189          23%                  9.34%          157
                     (200)                            56,015         16,779          43%                 10.55%          278
                     (300)                            69,669         30,433          78%                 12.67%          490

<CAPTION>
                                                         Year Ended June 30, 1999
             -------------------------------------------------------------------------------------------------------------------
               Change in Interest                       Estimated Net Market Value
             Rates in Basis Points                         of Portfolio Equity                  NPV as % of PV of Average Assets
             ---------------------                         -------------------                  --------------------------------

                  (Rate Shock)                       Amount        $ Change      % Change              NPV Ratio      Change
                  ------------                       ------        --------      --------              ---------      ------
                                                       (Dollars in Thousands)
<S>                  <C>                            <C>          <C>                <C>                  <C>           <C>

                      300                           $ 11,975     $ (27,443)         -70%                  2.86%        (580)
                      200                             20,823       (18,595)         -47%                  4.83%        (382)
                      100                             29,578        (9,331)         -24%                  6.80%        (186)
                     Static                           39,418             --           --                  8.66%          --
                     (100)                            48,191          8,773          22%                 10.31%         166
                     (200)                            56,700         17,282          44%                 11.83%         318
                     (300)                            66,518         27,100          69%                 13.51%         485

</TABLE>

                                       27

<PAGE>

         Certain  shortcomings are inherent in the methodology used in the above
interest rate risk  measurements.  Modeling changes in NPV require the making of
certain  assumptions  which may or may not  reflect  the manner in which  actual
yields and costs respond to changes in market  interest  rates.  In this regard,
the NPV table  presented  above  assumes that the  composition  of the Company's
interest sensitive assets and liabilities  existing at the beginning of a period
remains  constant  over  the  period  being  measured  and also  assumes  that a
particular  change in interest  rates is  reflected  uniformly  across the yield
curve regardless of the duration to maturity or repricing of specific assets and
liabilities.  Accordingly,  although the NPV table provides an indication of the
Company's  interest  rate risk  exposure  at a  particular  point in time,  such
measurements  are not  intended to and do not provide a precise  forecast of the
effect of changes in market  interest rates on the Company's net interest income
and will differ from actual results.

         The Company's  primary  objective in managing  interest rate risk is to
minimize the adverse  impact of changes in interest  rates on the  Company's net
interest income and capital,  while  structuring  the Company's  asset/liability
structure to obtain the maximum yield/cost spread on that structure. The Company
relies primarily on its asset/liability structure to control interest rate risk.

         The  Company  continually   evaluates  interest  rate  risk  management
opportunities, including the use of derivative financial instruments. Management
believes that hedging  instruments  currently  available are not  cost-effective
and, therefore,  has focused its efforts on increasing the Company's  yield/cost
spread through wholesale and retail opportunities.


Ratios

         The following table shows certain income and financial condition ratios
for the periods indicated. All averages are based on month-end balances.

                                                   Year Ended June 30,
                                        ----------   ------------  ------------
                                           2000          1999          1998
                                        ----------   ------------  ------------
  Return on average assets
    (income divided by average
    total assets)                            0.94%        1.02%         1.07%
  Return on average equity
   (income divided by average equity)       13.34%       12.55%        12.03%
  Equity-to-assets ratio
    (average equity divided by
     average assets)                         7.08%        8.15%         8.86%
  Dividend pay-out ratio                    30.35%       27.39%        33.90%

                                       28
<PAGE>
Subsidiaries of First Financial

         At June 30, 2000, the Bank was permitted by regulations to invest up to
2% of assets in the  capital  stock of,  and  secured  and  unsecured  loans to,
subsidiary  corporations or service corporations and under certain circumstances
may make  conforming  loans to service  corporations  in greater  amounts.  As a
Pennsylvania-chartered  savings  institution,  the Bank may  diversify  into any
business  activity  approved in advance by the  Department.  In addition,  First
Financial  could  invest up to 30% of its assets in finance  subsidiaries.  Such
subsidiaries must be limited purpose subsidiaries whose sole purpose is to issue
debt or equity  securities  that the parent  association  is authorized to issue
directly and to remit the proceeds of such issuance to the parent association.

         The  Bank  operates  (as  a  wholly  owned  subsidiary)  D & S  Service
Corporation  ("D & S Service"),  which has  participated  in the development for
sale of residential  properties,  in particular condominium conversions and also
the  development  of  commercial  properties in order for the Bank to expand its
facilities  to  accommodate  its growth.  All of such  projects have either been
located in or within close  proximity to the Bank's  primary  market area. D & S
Service  operates  two wholly  owned  subsidiaries:  Wildman  Projects and D & F
Projects, Inc.

         At June 30, 2000, the Bank was authorized to have a maximum  investment
of $10.08 million in its one first-tier wholly-owned  subsidiary, D & S Service.
As of such date, the Bank had invested $1.01 million in this subsidiary.

Acquisition

         On May 29, 1998, the Company acquired PCIS, 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
Holding Company common stock for each share of PCIS stock. Approximately 134,000
shares of Holding Company common stock were issued in the exchange.

Competition

         First Financial encounters strong competition both in the attraction of
deposits  and in the making of real  estate  and other  loans.  Its most  direct
competition  for deposits has  historically  come from commercial  banks,  other
savings  and loan  associations,  savings  banks and  credit  unions  conducting
business in its primary market area. The Bank also  encounters  competition  for
deposits  from money market and other  mutual  funds,  as well as corporate  and
government securities and insurance companies. The principal methods used by the
Bank to attract  deposit  accounts  include  offering a variety of services  and
interest rates and providing  convenient  office  locations and expanded banking
hours. The Bank's  competition for real estate and other loans comes principally
from other savings  institutions,  credit  unions,  commercial  banks,  mortgage
banking companies,  insurance companies,  and other institutional lenders. First
Financial competes for loans through interest rates, loan maturities,  loan fees
and the quality of service extended to borrowers and real estate brokers.

                                       29
<PAGE>
Employees

         The Company had 123 full-time  employees and 29 part-time  employees as
of June 30,  2000.  None of these  employees  are  represented  by a  collective
bargaining agent and the Company believes that it enjoys good relations with its
personnel.

                                   REGULATION

         Set forth below is a brief description of certain laws and regulations
which relate to the regulation of the Company and the Bank in effect as of the
date of this Form 10-K. The description of these laws and regulations, as well
as descriptions of laws and regulations contained elsewhere herein, does not
purport to be complete and is qualified in its entirety by reference to
applicable laws and regulations.

Regulation of the Company

         Federal  Regulation-General.  The Company is a  registered  savings and
loan holding  company  within the meaning of the Home Owners' Loan Act. As such,
the  Company  is  subject  to OTS  regulations,  examinations,  supervision  and
reporting  requirements.  As a subsidiary of a savings and loan holding company,
the Bank is subject to certain restrictions in its dealings with the Company and
affiliates thereof.

         The  Holding  Company  operates as a unitary  savings and loan  holding
company.  Generally,  there are only limited restrictions on the activities of a
unitary  savings  and loan  holding  company  which  applied  to become or was a
unitary savings and loan holding company prior to May 4, 1999 (which the Holding
Company was) and its  non-savings  institution  subsidiaries.  Under the enacted
Gramm-Leach-Bliley Act of 1999 (the "GBLA"),  companies which applied to the OTS
subsequent  to such date to become  unitary  savings and loan holding  companies
will be restricted to engaging in those  activities  traditionally  permitted to
multiple  savings  and  loan  holding  companies.  If the  Director  of the  OTS
determines that there is reasonable  cause to believe that the continuation by a
savings and loan holding  company of an activity  constitutes  a serious risk to
the  financial  safety,   soundness  or  stability  of  its  subsidiary  savings
institution,  the Director may impose such  restrictions as deemed  necessary to
address  such risk,  including  limiting (i) payment of dividends by the savings
institution;   (ii)  transactions   between  the  savings  institution  and  its
affiliates;  and (iii) any  activities  of the  savings  institution  that might
create a serious  risk  that the  liabilities  of the  holding  company  and its
affiliates may be imposed on the savings institution.  Notwithstanding the above
rules as to permissible business activities of grandfathered unitary savings and
loan holding companies under the GBLA, if the savings institution  subsidiary of
such a  holding  company  fails to meet the QTL  test,  as  discussed  under " -
Regulation  of the Bank -  Qualified  Thrift  Lender  Test,"  then such  unitary
holding  company  also  shall  become  subject  to the  activities  restrictions
applicable  to  multiple  savings and loan  holding  companies  and,  unless the
savings  institution  requalifies  as a QTL  within one year  thereafter,  shall
register  as,  and  become  subject to the  restrictions  applicable  to, a bank
holding company. See "- regulation of the Bank - Qualified Thrift Lender Test."


                                       30
<PAGE>

         If the Company were to acquire control of another savings  association,
other than  through  merger or other  business  combination  with the Bank,  the
Company  would  thereupon  become a multiple  savings and loan holding  company.
Except where such acquisition is pursuant to the authority to approve  emergency
thrift  acquisitions and where each subsidiary savings association meets the QTL
test, the activities of the Company and any of its subsidiaries  (other than the
Bank or other subsidiary  savings  associations)  would thereafter be subject to
further  restrictions.  Among other things, no multiple savings and loan holding
company or subsidiary thereof which is not a savings  association shall commence
or continue for a limited period of time after  becoming a multiple  savings and
loan holding  company or subsidiary  thereof any business  activity,  upon prior
notice to, and no objection by the OTS, other than: (i) furnishing or performing
management  services for a subsidiary  savings  association;  (ii) conducting an
insurance  agency or escrow  business;  (iii)  holding,  managing or liquidating
assets owned by or acquired from a subsidiary savings association;  (iv) holding
or managing properties used or occupied by a subsidiary savings association; (v)
acting as trustee  under deeds of trust;  (vi) those  activities  authorized  by
regulation  as of March 5, 1987 to be engaged in by  multiple  savings  and loan
holding  companies;  or  (vii)  unless  the  Director  of the OTS by  regulation
prohibits  or limits such  activities  for savings and loan  holding  companies,
those activities authorized by the Federal Reserve Board as permissible for bank
holding  companies.  Those  activities  described  in (vii)  above  also must be
approved  by the  Director  of the OTS prior to being  engaged  in by a multiple
savings and loan holding company.

         Federal  Limitations  on  Transactions  with  Affiliates.  Transactions
between savings  associations and any affiliate are governed by Sections 23A and
23B of the Federal  Reserve Act. An affiliate  of a savings  association  is any
company or entity which  controls,  is controlled by or is under common  control
with the savings  association.  As a result, the Company and PCIS are affiliates
of the Bank.  Generally,  Sections 23A and 23B (i) limit the extent to which the
savings  association or its  subsidiaries  may engage in "covered  transactions"
with any one affiliate to an amount equal to 10% of such  association's  capital
stock and surplus,  and contain an aggregate limit on all such transactions with
all  affiliates  to an amount equal to 20% of such capital stock and surplus and
(ii) require that all such  transactions be on terms  substantially the same, or
at least as favorable,  to the  association or subsidiary as those provided to a
non-affiliate.  The term  "covered  transaction"  includes  the making of loans,
purchase  of  assets,  issuance  of a  guarantee  and  similar  other  types  of
transactions.  In addition to the restrictions  imposed by Sections 23A and 23B,
no savings  association may (i) loan or otherwise extend credit to an affiliate,
except for any affiliate which engages only in activities  which are permissible
for bank holding  companies,  or (ii)  purchase or invest in any stocks,  bonds,
debentures, notes or similar obligations of any affiliate, except for affiliates
which are subsidiaries of the savings association.


                                       31
<PAGE>


         In addition,  Sections 22(g) and (h) of the Federal  Reserve Act places
restrictions on loans by savings  associations to executive officers,  directors
and principal  stockholders  of the Company and the Bank.  Under Section  22(h),
loans to a director,  an executive officer and to a greater than 10% stockholder
of a savings  association or the company that controls the savings  association,
and certain affiliated  interests of such insiders (i) may not exceed,  together
with all other  outstanding loans to such person and affiliated  interests,  the
association's  loans  to  one  borrower  limit  (generally  equal  to 15% of the
institution's  unimpaired  capital  and  surplus)  (ii)  must be  made on  terms
substantially  the same as offered in comparable  transactions to other persons,
provided the Bank is not prohibited from extending  credit pursuant to a benefit
or  compensation  program  widely  available  to  employees  of the Bank and the
Company and that does not give preference to any officer,  director or principal
stockholder  over  other  employees  thereof,  and (iii) may in  certain  cases,
require prior board approval. In addition, the aggregate amount of extensions of
credit by a savings  association to all insiders cannot exceed the association's
unimpaired  capital and  surplus.  Furthermore,  Section  22(g)  places  certain
additional  restrictions on loans to executive  officers.  At June 30, 2000, the
Bank was in compliance with the above restrictions.

         Restrictions  on  Acquisitions.  Except  under  limited  circumstances,
savings and loan holding companies are prohibited from acquiring,  without prior
approval  of  the  Director  of the  OTS,  (i)  control  of  any  other  savings
association or savings and loan holding company or substantially  all the assets
thereof or (ii) more than 5% of the voting  shares of a savings  association  or
holding  company  thereof  which is not a  subsidiary.  Except  with  the  prior
approval  of the  Director  of the OTS,  no director or officer of a savings and
loan holding  company or person owning or controlling by proxy or otherwise more
than  25%  of  such  company's   stock,  may  acquire  control  of  any  savings
association,  other  than a  subsidiary  savings  association,  or of any  other
savings and loan holding company.

         The Director of the OTS may only approve acquisitions  resulting in the
formation of a multiple  savings and loan holding company which controls savings
associations in more than one state if (i) the multiple savings and loan holding
company involved controls a savings  association which operated a home or branch
office  located in the state of the  association  to be  acquired as of March 5,
1987,  (ii) the  acquiror  is  authorized  to  acquire  control  of the  savings
association  pursuant to the  emergency  acquisition  provisions  of the Federal
Deposit Insurance Act ("FDIA)",  or (iii) the statutes of the state in which the
association to be acquired is located  specifically  permit  institutions  to be
acquired  by the  state-chartered  associations  or  savings  and  loan  holding
companies  located in the state where the  acquiring  entity is located (or by a
holding company that controls such state-chartered savings associations).

Regulation of PCIS

         General.  In the United States, a number of federal regulatory agencies
are  charged  with  safeguarding  the  integrity  of the  securities  and  other
financial markets and with protecting the interest of customers participating in
those markets.  The SEC is the federal agency that is primarily  responsible for
the regulation of broker-dealers  and investment  advisers doing business in the
United States, and the Federal Reserve Board promulgates  regulations applicable
to securities credit  transactions  involving  broker-dealers  and certain other
institutions  in the Unites States.  Much of the  regulation of  broker-dealers,

                                       32
<PAGE>

however,   has  been  delegated  to  self-regulatory   organizations   ("SROs"),
principally the National  Association of Securities Dealers,  Inc. ("NASD") (and
its  subsidiaries  NASD Regulation,  Inc. and the Nasdaq Stock Market),  and the
national securities  exchanges.  These SROs and exchanges adopt rules (which are
subject to approval by the SEC) that govern the industry, monitor daily activity
and conduct periodic examinations of member broker-dealers.  While PCIS is not a
member of the New York Stock  Exchange (the "NYSE"),  PCIS' business is impacted
by the NYSE rules.

         Securities  firms are also subject to  regulation  by state  securities
commissions in the states in which they are required to be  registered.  PCIS is
registered  as a  broker-dealer  with  the SEC and in all 50  states  and in the
District of Columbia, and is a member of, and subject to regulation by, a number
of SROs, including the NASD.

         As a result of federal and state registration and SRO memberships, PCIS
is subject to overlapping  schemes of regulation  which cover all aspects of its
securities   business.   Such  regulations   cover  matters   including  capital
requirements,  uses and  safe-keeping of clients'  funds,  conduct of directors,
officers and employees,  record-keeping and reporting requirements,  supervisory
and organizational procedures intended to assure compliance with securities laws
and  to  prevent   improper   trading   on   material   nonpublic   information,
employee-related  matters,  including qualification and licensing of supervisory
and  sales  personnel,   limitations  on  extensions  of  credit  in  securities
transactions,   clearance  and  settlement  procedures,   requirements  for  the
registration,  underwriting,  sale and distribution of securities,  and rules of
the SROs  designed to promote high  standards of  commercial  honor and just and
equitable principles of trade. A particular focus of the applicable  regulations
concerns the  relationship  between  broker-dealers  and their  customers.  As a
result, the many aspects of the broker-dealer  customer relationship are subject
to regulation including, in some instances,  "suitability"  determinations as to
certain customer transactions, limitations on the amounts that may be charged to
customers,  timing of proprietary  trading in relation to customers'  trades and
disclosures to customers.

         PCIS also is  subject  to "Risk  Assessment  Rules"  imposed by the SEC
which  require,  among other things,  that certain  broker-dealers  maintain and
preserve certain  information,  describe risk management policies and procedures
and report on the financial  condition of certain affiliates whose financial and
securities  activities  are reasonably  likely to have a material  impact on the
financial and operational  condition of the  broker-dealers.  Certain  "Material
Associated   Persons"  (as  defined  in  the  Risk  Assessment   Rules)  of  the
broker-dealers and the activities conducted by such Material Associated Persons
may also be subject to regulation by the SEC.

         PCIS is  registered  as an  investment  adviser  with  the  SEC.  As an
investment adviser registered with the SEC, it is subject to the requirements of
the Investment  Advisers Act of 1940 and the SEC's  regulations  thereunder,  as
well as certain state securities laws and regulations.  Such requirements relate
to, among other things,  limitations on the ability of an investment  adviser to
charge  performance-based or non-refundable fees to clients,  record-keeping and
reporting  requirements,  disclosure  requirements,   limitations  on  principal
transactions  between an adviser or its affiliates and advisory clients, as well
as  general  anti-fraud  prohibitions.  The state  securities  law  requirements

                                       33
<PAGE>

applicable  to  registered   investment  advisers  are  in  certain  cases  more
comprehensive than those imposed under the federal securities laws.

         In  the  event  of  non-compliance   with  an  applicable   regulation,
governmental  regulators and the NASD may institute  administrative  or judicial
proceedings that may result in censure,  fine, civil penalties (including treble
damages  in  the  case  of  insider   trading   violations),   the  issuance  of
cease-and-desist  orders,  the deregistration or suspension of the non-compliant
broker-dealer or investment  adviser,  the suspension or disqualification of the
broker-dealer's  officers  or  employees  or  other  adverse  consequences.  The
imposition of any such penalties or orders on PCIS could have a material adverse
effect  on PCIS'  (and  thus the  Company's)  operating  results  and  financial
condition.

         Additional legislation and regulations, including those relating to the
activities  of  broker-dealers  and  investment   advisers,   changes  in  rules
promulgated  by the SEC or other United States  foreign  governmetal  regulatory
authorities and SROs or changes in the interpretation or enforcement of existing
laws and rules may adversely affect PCIS' manner of operation and profitability.
Its business may be materially affected not only by regulations applicable to it
as  a  financial  market  intermediary,  but  also  by  regulations  of  general
application.  For  example,  the volume of PCIS'  securities  trading  and asset
management  activities  in any year could be affected  by,  among other  things,
existing and proposed tax legislation,  antitrust policy and other  governmental
regulations  and policies  (including  the interest rate policies of the Federal
Reserve Board) and changes in interpretation or enforcement of existing laws and
rules that affect the business and financial communities.

         Net Capital  Requirements.  As a broker-dealer  registered with the SEC
and as a member firm of the NASD, PCIS is subject to the capital requirements of
the SEC and the NASD.  These  capital  requirements  specify  minimum  levels of
capital,  computed in  accordance  with  regulatory  requirements,  that PCIS is
required  to maintain  and also limit the amount of  leverage  that each firm is
able to obtain in its respective business.

         "Net  capital"  is  essentially  defined  as net  worth  (assets  minus
liabilities, as determined under generally accepted accounting principles), plus
qualifying subordinated  borrowings,  less the value of all of a broker-dealer's
assets that are not readily convertible into cash (such as goodwill,  furniture,
prepaid  expenses  and  unsecured  receivable),  and further  reduced by certain
percentages   (commonly   called   "haircuts")   of  the   market   value  of  a
broker-dealer's   positions  in  securities  and  other  financial  instruments.
Compliance with regulatory net capital requirements could limit those operations
that require the  intensive  use of capital,  such as  underwriting  and trading
activities.

         The SEC's capital rules also (i) require that broker-dealers notify it,
in writing, two business days prior to making withdrawals or other distributions
of  equity  capital  or  lending  money  to  certain  related  persons  if those
withdrawals  would  exceed,  in any 30-day  period,  30% of the  broker-dealer's
excess net capital,  and that they provide such notice  within two business days
after any such withdrawal or loan that would exceed,  in any 30-day period,  20%
of the  broker-dealer's  excess net capital,  (ii) prohibit a broker-dealer from
withdrawing  or otherwise  distributing  equity  capital or making related party
loans if after such  distribution or loan, the  broker-dealer has net capital of
less than  $300,000  or if the  aggregate  indebtedness  of the  broker-dealer's
consolidated entities would exceed 1,000% of the broker-dealer's net capital and
in certain  other  circumstances,  and (iii) provide that the SEC may, by order,
prohibit  withdrawals of capital from a  broker-dealer  for a period of up to 20
business days, if the withdrawals would exceed, in any 30-day period, 30% of the
broker-dealer's  excess net capital  and if the SEC  believes  such  withdrawals
would be  detrimental  to the  financial  integrity  of the firm or would unduly
jeopardize  the  broker-dealer's  ability  to pay its  customer  claims or other
liabilities.

                                       34
<PAGE>
         As of June 30, 2000, PCIS was required to maintain minimum net capital,
in accordance with SEC rules, of $250,000 and had total net capital of $954,400,
or  $704,400  in excess of the  minimum  amount  required.  PCIS is  required to
maintain a net capital ratio, in accordance with SEC rules,  not to exceed 15 to
1. At June 30, 2000 PCIS' net capital ratio was .15 to 1.

         A failure of a  broker-dealer  to  maintain  its minimum  required  net
capital  or net  capital  ratio  would  require it to cease  executing  customer
transactions until it came back into compliance,  and could cause it to lose its
NASD  membership,  its  registration  with the SEC or require  its  liquidation.
Further,  the decline in a  broker-dealer's  net capital  below  certain  "early
warning levels," even though above minimum net capital requirements, could cause
material adverse consequences to the broker-dealer.

         PCIS is a member  of the  Securities  Investor  Protection  Corporation
("SIPC") which is a non-profit corporation that was created by the United States
Congress under the Securities Protection Act of 1970. SIPC protects customers of
member  broker-dealers  against  losses caused by the  financial  failure of the
broker-dealer  but not  against a change in the market  value of  securities  in
customers'  accounts at the  broker-dealer.  In the event of the  inability of a
member  broker-dealer to satisfy the claims of its customers in the event of its
failure,  the SIPC's funds are available to satisfy the  remaining  claims up to
maximum of $500,000 per  customer,  including up to $100,000 on claims for cash.
In addition,  PCIS' clearing  broker carries  private  insurance  which provides
similar coverage up to $25 million per customer.

Regulation of the Bank

         General. The OTS has extensive authority over the operations of savings
associations. As part of this authority, savings associations are required to
file periodic reports with the OTS and are subject to periodic examinations by
the OTS and the FDIC. The investment and lending authority of savings
associations are prescribed by federal laws and regulations and they are
prohibited from engaging in any activities not permitted by such laws and
regulations. Those laws and regulations generally are applicable to all
federally chartered savings associations and may also apply to state-chartered
savings associations such as the Bank. Such regulation and supervision is
primarily intended for the protection of depositors.

         The OTS's enforcement authority over all savings associations and their
holding  companies  includes,  among other  things,  the ability to assess civil
money  penalties,  to issue  cease and desist or removal  orders and to initiate
injunctive actions.  In general,  these enforcement actions may be initiated for
violations  of laws and  regulations  and  unsafe or  unsound  practices.  Other
actions or inactions  may provide the basis for  enforcement  action,  including
misleading or untimely reports filed with the OTS.

         Insurance  of  Accounts.  The  deposits  of the Bank are  insured up to
$100,000 per depositor (as defined by law and regulation) by the SAIF,  which is
administered  by the FDIC,  and are  backed by the full  faith and credit of the
United  States  Government.  As  insurer,  the  FDIC is  authorized  to  conduct
examinations of, and to require reporting by, FDIC-insured institutions, such as
the Bank. It also may prohibit any FDIC-insured institution from engaging in any
activity the FDIC  determines by regulation or order to pose a serious threat to
the FDIC. The FDIC also has the authority to initiate  enforcement actions where
the OTS has failed or declined to take such action after  receiving a request to
do so from the FDIC.

         The FDIC may terminate the deposit insurance of any insured  depository
institution,  including  the Bank,  if it  determines  after a hearing  that the

                                       35
<PAGE>

institution has engaged or is engaging in unsafe or unsound practices,  is in an
unsafe  or  unsound  condition  to  continue  operations,  or has  violated  any
applicable law, regulation,  order or any condition imposed by an agreement with
the FDIC. It also may suspend deposit insurance  temporarily  during the hearing
process for the permanent  termination of insurance,  if the  institution has no
tangible  capital.  If insurance of accounts is terminated,  the accounts at the
institution at the time of the termination,  less subsequent withdrawals,  shall
continue to be insured for a period of six months to two years, as determined by
the FDIC. Management is aware of no existing circumstances which could result in
termination of the Bank's deposit insurance.

         In October 1996, the FDIC imposed a one-time special assessment equal
to 65.7 basis points for all SAIF-assessable deposits as of March 31, 1995. The
Bank's one-time special assessment amounted to $832,000 net of related tax
benefits. The payment of the special assessment reduced the Bank's capital by
the amount of the assessment during fiscal 1997.

         Following the imposition of the one-time special assessment, the FDIC
lowered assessment rates for SAIF members to reduce the disparity in the
assessment rates paid by Bank Insurance Fund ("BIF") and SAIF members. Beginning
October 1, 1996, effective SAIF rates range from zero basis points to 27 basis
points which is the same range of premiums as paid by insured institutions
insured by the BIF administered by the FDIC. From 1997 through 1999,
SAIF-insured institutions paid 6.4 basis points of their SAIF-assessable
deposits to fund the Financing Corporation. Beginning January 1, 2000, all
FDIC-insured institutions are assessed at the same rate of 2.1 basis points of
this SAIF and BIF assessable deposits to fund the financing corporations.

         Regulatory  Capital  Requirements - General.  Federally insured savings
associations  are required to maintain  minimum  levels of  regulatory  capital.
These   standards   generally  must  be  no  less  stringent  than  the  capital
requirements  applicable to national banks. The OTS also is authorized to impose
capital requirements in excess of these standards on individual  associations on
a case-by-case basis.

         Federally-insured  savings  associations  are subject to three  capital
requirements:  a  tangible  capital  requirement,  a core  or  leverage  capital
requirement  and a  risk-based  capital  requirement.  All savings  associations
currently are required to maintain tangible capital of at least 1.5% of adjusted
total  assets  (as  defined in the  regulations),  core  capital  equal to 3% of
adjusted total assets and total capital (a combination of core and supplementary
capital) equal to 8% of  risk-weighted  assets.  For purposes of the regulation,
tangible  capital is core capital  less all  intangibles  other than  qualifying
mortgage servicing rights,  and any investment in non-permissible  subsidiaries,
which are  subsidiaries  which are not engaged in permissible  activities.  Core
capital includes common stockholders' equity, non-cumulative perpetual preferred
stock and related  surplus,  minority  interest in the equity  accounts of fully
consolidated  subsidiaries  and certain  non-withdrawable  accounts  and pledged

                                       36
<PAGE>

deposits.  Core  capital  generally  is  reduced  by  the  amount  of a  savings
association's intangible assets other than qualifying mortgage servicing rights.

         A savings  association  is  allowed to include  both core  capital  and
supplementary  capital in the  calculation  of its total capital for purposes of
the risk-based capital  requirements,  provided that the amount of supplementary
capital  included  does not  exceed  the  savings  association's  core  capital.
Supplementary  capital  consists  of  certain  capital  instruments  that do not
qualify as core  capital,  including  subordinated  debt which  meets  specified
requirements  and  general  valuation  loan and lease  loss  allowances  up to a
maximum of 1.25% of risk-weighted  assets. In determining the required amount of
risk-based capital, total assets, including certain off-balance sheet items, are
multiplied  by a  risk-weight  based on the risk inherent in the type of assets.
The  risk  weights  assigned  by the  OTS for  principal  categories  of  assets
currently range from 0% to 100%, depending on the type of asset.

         OTS  policy  imposes a  limitation  on the amount of net  deferred  tax
assets  under SFAS No. 109 that may be  included  in  regulatory  capital.  (Net
deferred  tax assets  represent  deferred  tax assets,  reduced by an  valuation
allowances,  in excess of deferred tax  liabilities.)  Application  of the limit
depends on the possible sources of taxable income available to an institution to
realize  deferred tax assets.  Deferred tax assets that can be realized from the
following  generally are not limited:  taxes paid in prior  carryback  years and
future reversals of existing taxable temporary  differences.  To the extent that
the  realization  of  deferred  tax assets  depends on an  institution's  future
taxable income (exclusive of reversing temporary differences and carryforwards),
or its  tax-planning  strategies,  such  deferred  tax  assets are  limited  for
regulatory  capital  purposes  to the lesser of the amount  that can be realized
within  one year of the  quarter-end  report  date or 10% of core  capital.  The
foregoing considerations did not affect the calculation of the Bank's regulatory
capital at June 30, 2000.

         In  August  1993,  the  OTS  adopted  a  final  rule  incorporating  an
inters-rate  risk component into the risk-based  capital  regulation.  Under the
rule,  an  institution  with greater that  "normal"  interest  rate risk will be
subject to a deduction of its interest  rate risk  component  from total capital
for  purposes  of  calculating  its  risk-based  capital.  As a result,  such an
institution will be required to maintain  additional  capital in order to comply
with the  risk-based  capital  requirement.  An  institution  has  greater  than
"normal"  interest  rate risk if it would suffer a loss of net  portfolio  value
exceeding 2.0% of the estimated market value of its assets in the event of a 200
basis point  increase or decrease in  interest  rates.  The  interest  rate risk

                                       37
<PAGE>

component will be calculated, on a quarterly basis, as one-half of the
difference between an institution's measured interest rate risk and 2.0%
multiplied by the market value of its assets. The rule also authorizes the OTS
to waive or defer an institution's interest rate risk component on a
case-by-case basis. The final rule was originally effective as of January 1,
1994, subject however to a two quarter "lag" time between the reporting date of
the data used to calculate an institution's interest rate risk and the effective
date of each quarter's interest rate risk component. However, in October 1994
the OTS indicated that it would waive the capital deductions for institutions
with greater than "normal" risk until the OTS published an appeals process. On
August 21, 1995, the OTS established (1) an appeals process to handle "requests
for adjustments" to the interest rate risk component and (2) a process by which
"well-capitalized" institutions may obtain authorization to use their own
interest rate risk model to determine their interest rate risk component.
However, due to continuing delays by the OTS, the interest rate risk component
has never been operative.

         The  following  table sets forth a  reconciliation  between  the Bank's
stockholder's  equity  and each of its three  capital  requirements  at June 30,
2000.

<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, 2000:

Total Capital
   (to Risk Weighted Assets)         $38,662            12.80%          $24,104            8.00%            $30,130         10.00%

Tier 1 Capital
   (to Risk Weighted Assets)         $34,894            11.58%          $12,052            4.00%            $18,078          6.00%

Tier 1 Capital
   (to Average Assets)               $34,894             6.88%          $20,276            3.00%            $25,345          5.00%

</TABLE>

         Any savings  association that fails any of the capital  requirements is
subject to possible  enforcement  actions by the OTS or the FDIC.  Such  actions
could  include a  capital  directive,  a cease and  desist  order,  civil  money
penalties,  the establishment of restrictions on an association's operations and
the  appointment  of a  conservator  or receiver.  The OTS'  capital  regulation
provides that such actions, through enforcement proceedings or otherwise,  could
require one or more of a variety of corrective actions. See "- Prompt Corrective
Regulatory Action."

         Liquidity  Requirements.  All  savings  associations  are  required  to
maintain an average daily balance of liquid assets equal to a certain percentage
of the sum of its average daily balance of net withdrawable deposit accounts and
borrowings payable in one year or less. The liquidity  requirement may vary from
time to time (between 4% and 10%) depending upon economic conditions and savings
flows of all savings  associations.  At the present  time,  the required  liquid
asset ratio is 4%. At June 30, 2000, the Bank's liquidity ratio was 15.24%.

         Real Estate Lending Standards.  Effective March 19, 1993, all financial
institutions  were  required to adopt and  maintain  comprehensive  written real

                                       38
<PAGE>

estate  lending  policies  that  are  consistent  with  safe and  sound  banking
practices.  These lending policies must reflect consideration of the Interagency
Guidelines  for Real Estate  Lending  Policies  adopted by the  federal  banking
agencies, including the OTS, in December 1992 ("Guidelines"). The Guidelines set
forth,  pursuant to the mandates of the Federal  Deposit  Insurance  Corporation
Improvement Act ("FDICIA"),  uniform regulations  prescribing standards for real
estate  lending  which is defined  as  extension  of credit  secured by liens on
interests in real estate or made for the purpose of financing  the  construction
of a building or other improvements to real estate, regardless of whether a lien
has been taken on the property.

         The policies must address certain lending  considerations  set forth in
the Guidelines,  including  loan-to-value  ("LTV") limits,  loan  administration
procedures,  underwriting standards,  portfolio  diversification  standards, and
documentation,  approval and reporting requirements. These policies must also be
appropriate  to the size of the  institution  and the  nature  and  scope of its
operations,  and must be reviewed  and  approved by the  institution's  board of
directors at least annually. The Guidelines,  among other things,  establish the
following  supervisory  LTV limits:  raw land  (65%);  land  development  (75%);
construction  (commercial,  multi-family  and  nonresidential)  (80%);  improved
property (85%) and one-to-four  family  residential (owner occupied) (no maximum
ratio,  although  any LTV  ratio in  excess of 90%  should  require  appropriate
insurance or readily marketable collateral).

         Certain  institutions  can make real  estate  loans that do not conform
with the  established  LTV ratio  limits up to 100% of the  institution's  total
capital.   Within  this  aggregate  limit,   total  loans  for  all  commercial,
agricultural,   multi-family  and  other   non-one-to-four   family  residential
properties  should not exceed 30% of total  capital.  An  institution  will come
under increased supervisory scrutiny as the total of such loans approaches these
levels. Certain loans are exempt from the LTV ratios (e.g. those guaranteed by a
government  agency,  loans  to  facilitate  the  sale  of  REO,  loans  renewed,
refinanced or  restructured  by the original  lender(s) to the same  borrower(s)
where there is no advancement of new funds, etc.).

         Accounting  Requirements.   Applicable  OTS  accounting  and  reporting
requirements  incorporates the following standards:  (i) regulatory reports will
incorporate  generally accepted accounting principles ("GAAP") when GAAP is used
by federal banking agencies;  (ii) savings association  transactions,  financial
condition  and  regulatory  capital must be reported and disclosed in accordance
with OTS regulatory reporting requirements that will be at least as stringent as
for national banks;  and (iii) the director of the OTS may prescribe  regulatory
reporting requirements more stringent than GAAP whenever the director determines
that such requirements are necessary to ensure the safe and sound reporting and
operation of savings association.

         Prompt Corrective Regulatory Action. Under Section 38 of the FDIA, as
added by Federal Deposit Insurance Corporation Insurance Act ("FDICIA"), each
appropriate agency and the FDIC is required to take prompt corrective action to
resolve the problems of insured depository institutions that do not meet minimum
capital ratios. Such action must be accomplished at the least possible long-term
cost to the appropriate deposit insurance fund.

                                       39
<PAGE>


         The federal banking agencies,  including the OTS, adopted substantially
similar  regulations  in  order  to  implement  Section  38 of the  FDIA,  which
regulations  became  effective  in  December  1992.  Under the  regulations,  an
institution  shall  be  deemed  to be (i)  "well  capitalized"  if it has  total
risk-based  capital of 10.0% or more,  has a Tier I risk-based  capital ratio of
6.0% or more,  has a Tier I  leverage  capital  ratio of 5.0% or more and is not
subject to any order or final capital  directive to meet and maintain a specific
capital level for any capital measure; (ii) "adequately capitalized" if it has a
total  risk-based  capital  ratio of 8.0% or more, a Tier I  risk-based  capital
ratio of 4.0% or more and a Tier I leverage  capital ratio of 4.0% or more (3.0%
under  certain  circumstances)  and  does  not  meet  the  definition  of  "well
capitalized,"  (iii)  "undercapitalized"  if it has a total  risk-based  capital
ratio that is less than 8.0%,  a Tier I  risk-based  capital  ratio that is less
than 4.0% or a Tier I leverage  capital ratio that is less than 4.0% (3.0% under
certain circumstances),  (iv) "significantly undercapitalized" if it has a total
risk-based  capital  ratio that is less than 6.0%, a Tier I  risk-based  capital
ratio  that is less than 3.0% or a Tier I  leverage  capital  ratio that is less
than 3.0%, and (v) "critically  undercapitalized"  if it has a ratio of tangible
equity to total  assets  that is equal to or less than  2.0%.  Section 38 of the
FDIA and the regulations promulgated thereunder also specify circumstances under
which a federal banking agency may reclassify a well capitalized  institution as
adequately capitalized and may require an adequately capitalized  institution or
an undercapitalized institution to comply with supervisory actions as if it were
in the  next  lower  category  (except  that  the  FDIC  may  not  reclassify  a
significantly undercapitalized institution as critically undercapitalized).

         The  Bank  complies  with the  requirements  to be  classified  as well
capitalized.

         Safety and Soundness.

         The OTS and the other federal bank regulatory agencies have established
guidelines  for safety and  soundness,  addressing  operational  and  managerial
standards,  as well as compensation matters for insured financial  institutions.
Institutions  failing to meet these standards are required to submit  compliance
plans to their appropriate  federal  regulators.  The OTS and the other agencies
have also established  guidelines regarding asset quality and earnings standards
for insured institutions.  The Bank believes that it is in compliance with these
guidelines and standards.



                                       40
<PAGE>
         Qualified  Thrift Lender Test.  In general,  savings  associations  are
required to maintain at least 65% of their portfolio assets in certain qualified
thrift  investments  (which  consist  primarily  of loans and other  investments
related  to  residential  real  estate  and  certain  other  assets).  A savings
association   that  fails  the  qualified  thrift  lender  test  is  subject  to
substantial restrictions on activities and to other significant penalties.

         In 1996, legislation was adopted which permits a savings association to
qualify as a qualified thrift lender not only by maintaining 65% of portfolio
assets in qualified thrift investments (the "QTL test") but also, in the
alternative, by qualifying under the Code as a "domestic building and loan
association." The Bank is a domestic building and loan association as defined in
the Code.

         Subsequent legislation also expanded the QTL test to provide savings
associations with greater authority to lend and diversify their portfolios. In
particular, credit card, small business and educational loans may now be made by
savings associations without regard to any percentage-of-assets limit, and
commercial loans may be made in an amount up to 10 percent of total assets.
Loans for personal, family and household purposes (other than credit card, small
business and education loans) are now included without limit with other assets
that, in the aggregate, may account for up to 20% of total assets. At June 30,
2000, under the expanded QTL test, approximately 73.01% of the Bank's portfolio
assets were qualified thrift investments.

         Restrictions on Capital Distributions. OTS regulations govern capital
distributions by savings institutions, which include cash dividends, stock
repurchases and other transactions charged to the capital account of a savings
institution to make capital distributions. Under new regulations effective April
1, 1999, a savings institution must file an application for OTS approval of the
capital distribution if either (1) the total capital distributions for the
applicable calendar year exceed the sum of the institution's net income for that
year to date plus the institution's retained net income less capital
distribution for the preceding two years, (2) the institution would not be at
least adequately capitalized following the distribution, (3) the distribution
would violate any applicable statute, regulation, agreement or OTS-imposed
condition, or (4) the institution is not eligible for expedited treatment of its
filings. If an application is not required to be filed, savings institutions
which are a subsidiary of a holding company (as well as certain other
institutions) must still file a notice with the OTS at least 30 days before the
board of directors declares a dividend or approves a capital distribution.

         Federal Home Loan Bank System. The Bank is a member of the FHLBP, which
is one of 12 regional FHLBs that  administers the home financing credit function
of savings  associations and commercial  banks.  Each FHLB serves as a source of
liquidity for its members  within its assigned  region.  It is funded  primarily
from  proceeds  derived from the sale of  consolidated  obligations  of the FHLB
System.  It makes loans to members (i.e.,  advances) in accordance with policies
and procedures  established by its Board of Directors.  As of June 30, 2000, the
Bank's advances from the FHLBP amounted to $86.78 million.

                                       41
<PAGE>


         As a member, the Bank is required to purchase and maintain stock in the
FHLBP  in  an  amount  equal  to  the  greater  of 1% of  its  aggregate  unpaid
residential  mortgage loans, home purchase  contracts or similar  obligations at
the beginning of each year or 5% of total  advances.  At June 30, 2000, the Bank
had $5.7 million in FHLB stock, which was in compliance with this requirement.

         As a result of FIRREA,  the FHLBs are required to provide funds for the
resolution  of troubled  savings  associations  and to  contribute to affordable
housing programs through direct loans or interest subsidies on advances targeted
for community  investment and low- and moderate-income  housing projects.  These
contributions have adversely affected the level of FHLB dividends paid and could
continue to do so in the future. These contributions also could have an adverse
effect on the value of FHLB  stock in the  future.  For the year  ended June 30,
2000, dividends paid by the FHLBP to the Bank totaled approximately $337,000.

         Federal  Reserve  System.   The  Federal  Reserve  Board  requires  all
depository  institutions to maintain reserves against their transaction accounts
(primarily NOW and super NOW checking  accounts) and non-personal time deposits.
At June 30, 2000, the Bank was in compliance with such requirements.

         The balances maintained to meet the reserve requirements imposed by the
Federal Reserve Board may be used to satisfy applicable liquidity  requirements.
Because  required  reserves  must be  maintained  in the form of vault cash or a
non-interest  bearing  account  at a Federal  Reserve  Bank,  the effect of this
reserve requirement is to reduce an association's  earning assets. The amount of
funds necessary to satisfy this requirement has not had a material affect on the
Bank's operations.

Interstate Acquisitions

         The  Commonwealth  of Pennsylvania  adopted  legislation on 1986 ("1986
Act")   regarding  the   acquisition  of  financial   institutions   located  in
Pennsylvania by institutions located outside of Pennsylvania.  The 1986 Act: (1)
permits  federal or state savings and loan  associations,  federal savings banks
and bank or savings and loan holding companies (collectively, "Thrift Entities")
that are "located" (as defined below) in a state that offers  reciprocal  rights
to similar Thrift Entities located in  Pennsylvania,  to acquire 5% or more of a
Pennsylvania   Thrift  Entity's  voting  stock,  merge  or  consolidate  with  a
Pennsylvania  Thrift Entity or purchase the assets and assume the liabilities of
the  Pennsylvania  Thrift  Entity and (2) permits a federal or state savings and
loan  association or federal savings bank to establish and maintain  branches in
Pennsylvania,  provided  that the state  where  such  foreign  Thrift  Entity is
located offers reciprocal rights to similar entities located in Pennsylvania and
provided  that each state  where any bank  holding  company or savings  and loan
holding  company owning or controlling 5% or more of the foreign Thrift Entity's
shares is also  located  in a state that  offers  reciprocal  rights.  Under the
Pennsylvania Act, a depository is "located" where its deposits are largest and a
holding  company is  generally  "located"  where the  aggregate  deposits of its
subsidiaries  are largest.  Whether a foreign  state's laws are  "reciprocal" is
determined by the  Pennsylvania  Department,  which may impose  limitations  and
conditions  on the  branching  and  acquisition  activities  of a Thrift  Entity
located in a foreign state in order to make the laws of such state reciprocal to
Pennsylvania law with respect to the type of transaction at issue.

                                       42
<PAGE>

                                    TAXATION

Federal  and State Taxation

         General.  The  Company and the Bank are  subject to the  corporate  tax
provisions of the Internal Revenue Code of 1986 (the "Code"), as well as certain
additional  provisions  of the Code  which  apply to thrift  and other  types of
financial institutions. The following discussion of tax matters is intended only
as a summary and does not purport to be a  comprehensive  description of the tax
rules applicable to the Company and the Bank.

         Bad Debt  Reserves.  Legislation  enacted under the Small  Business Job
Protection  Act of 1996 (the  "Act")  provided  for the Bank to  recapture  into
income, over a six-year period, only the portion of its tax bad debt reserves as
of June 30, 1996,  that exceed its base year  reserves  (i.e.,  tax reserves for
years beginning before 1988).  Under the Act, the amount of the excess base year
reserves  subject to recapture would be suspended for each of two successive tax
years  beginning July 1, 1996, in which the Bank  originates a minimum amount of
certain  residential  loans based upon the average of the  principal  amounts of
such loans the Bank made during its six  preceding  tax years.  The Bank's total
tax bad debt reserves at June 30, 2000,  are  approximately  $2.96  million,  of
which $2.64 million  represents  the base year amount and $321,000 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.  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 to certain  distributions.  Under the provisions of
the Act, the Bank is  considered  a "small  bank"  (i.e.,  a bank that has total
assets  under  $500  million)  and may  claim  its tax bad  debt  for tax  years
beginning  after  December  31,  1995,  using a  six-year  average  of its  loan
charge-offs to total loans.

         Minimum Tax. The Code imposes an  alternative  minimum tax at a rate of
20%  on  a  base  of  regular   taxable  income  plus  certain  tax  preferences
("alternative minimum taxable income" or "AMTI"). The alternative minimum tax is
payable to the extent such AMTI is in excess of an  exemption  amount.  The Code
provides  that an item of tax  preference  is the  excess of bad debt  deduction
allowable  for a taxable  year over the amount  allowable  under the  experience
method.  The other items of tax  preference  that  constitute  AMTI  include (a)
tax-exempt  interest on a newly issued (generally,  issued on or after August 8,
1986)  private  activity  bonds other than certain  qualified  bonds and (b) for
taxable years  beginning  after 1989, 75% of the excess (if any) of (i) adjusted
current  earnings  as defined in the Code,  over (ii) AMTI  (determined  without
regard to this preference and prior to reduction by net operating  losses).  Net
operating  losses  can  offset no more  than 90% of AMTI.  Certain  payments  of
alternative  minimum tax may be used as credits  against regular tax liabilities
in future years. In addition,  for taxable years after 1986 and beginning before
January 1, 1996,  the Company is also subject to an  environmental  tax equal to
0.12% of the excess of AMTI for the taxable year over $2.0 million.

                                       43
<PAGE>


         IRS Examinations. The Company's consolidated federal income tax returns
for taxable  years  through June 30, 1995,  have been closed for the purposes of
examination by the IRS.

         State   Taxation.   The   Company  and  its   non-thrift   Pennsylvania
subsidiaries  are  subject  to the  Pennsylvania  Corporate  Net  Income Tax and
Capital Stock and  Franchise  Tax. The Corporate Net Income Tax rate for 2000 is
9.99%  and  is  imposed  on  the  Company's  and  its  non-thrift  subsidiaries'
unconsolidated taxable income for federal purposes with certain adjustments.  In
general,  the Capital  Stock Tax is a property tax imposed at the rate of 1.275%
of a corporation's capital stock value, which is determined in accordance with a
fixed formula.

         The Bank is taxed under the Pennsylvania Mutual Thrift Institutions Tax
Act (the  "MTIT"),  as amended to include  thrift  institutions  having  capital
stock.  Pursuant to the MTIT, the Company's tax rate is 11.5%.  The MTIT exempts
the Company from all other taxes imposed by the Commonwealth of Pennsylvania for
state  income tax  purposes  and from all local  taxation  imposed by  political
subdivisions, except taxes on real estate and real estate transfers. The MTIT is
a tax upon net  earnings,  determined  in  accordance  with  generally  accepted
accounting principals ("GAAP") with certain adjustments.  The MTIT, in computing
GAAP income,  allows for the deduction of interest  earned on  Pennsylvania  and
federal  obligations,  while  disallowing  a percentage  of a thrift's  interest
expense  deduction in the proportion of interest income on those  obligations to
the overall  interest  income of the  Company.  Net  operating  losses,  if any,
thereafter can be carried forward three years for MTIT purposes.



                                       44
<PAGE>
ITEM 2.  PROPERTIES

Offices and Other Material Properties

         At June 30, 2000, the Bank conducted its business from its main office
in Downingtown which is also a branch office, Pennsylvania and eight
full-service branch offices. PCIS conducts its business from two offices.

         The following table sets forth certain  information with respect to the
offices of the Company as of June 30, 2000:


<TABLE>
<CAPTION>

                                                                                       Net Book Value of
                                                          Lease            ---------------------------------------
                                   Owned or            Expiration          Property and Leasehold Improvements at
                                     Leased               Date                           June 30, 2000                Deposits
                                 --------------    --------------------    ---------------------------------------  -------------
First Financial Bank:                                                                 (In Thousands)
Main Office:
  100 E. Lancaster Avenue
<S>                                 <C>                <C>                       <C>                                 <C>
  Downingtown PA 19335              Own                        --                $       1,347                       $  136,781
Branch Offices:
Exton-Lionville
  601 N. Pottstown Pike
  Exton PA  19341                   Own                        --                          397                           62,594
Frazer-Malvern
  200 W. Lancaster Avenue
  Frazer PA 19355                   Own                        --                        1,264                           40,679
Thorndale
  3909 Lincoln Highway
  Downingtown PA 19335              Lease                 9/30/05                           47                           39,958
Westtown
  1197 Wilmington Pike
  West Chester PA 19382             Lease                11/30/05                          112                           50,966
Airport Village
  102 Airport Road                  Own Bldg.
  Coatesville PA 19320              Lease Land           11/30/04                          304                           18,501
Brandywine Square
  82 Quarry Road
  Downingtown PA 19335              Lease                 8/14/11                           89                           20,493
Devon
  414 Lancaster Avenue
  Devon  PA  19333                  Own                        --                        1,461                            8,506
                                                                                  ------------                     ------------
              Total                                                                     $5,021                         $378,478
                                                                                  ============                     ============
PCIS:
Philadelphia
One Liberty Place, Suite 3050
1650 Market Street,
Philadelphia  PA 19103              Lease                 5/31/04
Wayne
485 Devon Park Dr. Suite 109
Wayne  PA 19087                     Lease                11/30/02

</TABLE>

                                       45
<PAGE>

         In  addition,  the  Company  currently  owns two  developed  properties
adjacent to its main office. These properties are being held for possible use as
future office facilities and expansion of the main office. One of the properties
is currently being leased to other users.  The net book value of each of the two
parcels at June 30, 2000 was approximately $10.416 and $81,610.

         In September 1989, the Bank entered into a 10-year  operating lease for
the Bank's Westtown office. The lease contains two five-year options to renew.

         In October  1990,  the Bank entered into a 10-year  lease  agreement in
connection with the relocation of its existing branch in Thorndale to a new site
in the Thorndale  area. The lease  includes two five-year  options to extend the
lease.

         In May 1994,  the Bank entered into a 10-year lease  agreement for land
in connection with the  construction  of the Airport  Village branch.  The lease
includes three five-year options to extend the lease.

         In April 1995, the Bank entered into a 15-year lease  agreement for the
Bank's Brandywine Square office.

         In December 1997, PCIS entered into a 5-year lease agreement for PCIS's
Wayne office.

         In June 1999,  PCIS entered into a 5-year  lease  agreement  for PCIS's
Philadelphia office.

         First  Financial  operates and  participates in the MAC(R) Money Access
Service shared  Automated  Teller Machine ("ATM")  network system.  In addition,
First Financial operates seven office ATMs under the MAC(R) system.

ITEM 3.  LEGAL PROCEEDINGS

         The Company is not involved in any pending legal proceedings other than
routine,  non-material  legal  proceedings  occurring in the ordinary  course of
business which  management  believes will not have a material  adverse effect on
the financial condition or operations of the Company.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

             Not applicable.


                                       46
<PAGE>

                                     PART II

ITEM 5.  MARKET FOR  REGISTRANT'S COMMON EQUITY AND RELATED
                    STOCKHOLDER MATTERS

         The  information  required  herein is  incorporated  by reference  from
"Market  Information"  on  page  19 of  the  Company's  2000  Annual  Report  to
Stockholders included herein as Exhibit 13 hereto ("Annual Report").

ITEM 6.  SELECTED FINANCIAL DATA

         The information required herein is incorporated by reference from
page 3 of the Annual Report.

ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                   CONDITION AND RESULTS OF OPERATIONS

         The information required herein is incorporated by reference from pages
12 to 19 of the Annual Report.

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
                      RISK

         The information  required herein can be found on pages 27 to 28 of this
Form 10-K.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

         The financial  statements and  supplementary  data required  herein are
incorporated by reference from pages 20 to 36 of the Annual Report.

ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
                    ACCOUNTING  AND FINANCIAL DISCLOSURE

         Not applicable.

                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

         The information required herein is incorporated by reference from pages
3 to 9 of the Company's  Definitive Proxy Statement which will be filed with the
SEC within 120 days of the end of the Company's fiscal year  ("Definitive  Proxy
Statement").



                                       47
<PAGE>
ITEM 11.  EXECUTIVE COMPENSATION

         The  information  required herein is incorporated by reference on pages
10 to 12 of the Company's Definitive Proxy Statement.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
                     MANAGEMENT

         The information required herein is incorporated by reference from pages
3 to 9 of the Company's Definitive Proxy Statement.

ITEM 13.   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         The information required herein is incorporated by reference to page 18
of the Definitive proxy Statement.


ITEM 14.   EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
                      FORM 8-K

(a)      The following documents are filed as part of this report:

         (1)  The following  financial  statements are incorporated by reference
              into  Item 8  hereof  from  pages 20 to 36 of the  Annual  Report,
              Exhibit 13 hereto:

              (a)  Consolidated  Statements  of Financial  Condition at June 30,
                   2000 and 1999.
              (b)  Consolidated  Statements  of  Operations  for the Years Ended
                   June 30, 2000, 1999, and 1998
              (c)  Consolidated   Statements   of   Stockholders'   Equity   and
                   Comprehensive  Income  Statement for the Years Ended June 30,
                   2000, 1999, and 1998
              (d)  Consolidated  Statements  of Cash  Flows for the Years  Ended
                   June 30, 2000, 1999 and 1998.
              (e)  Notes to Consolidated Financial Statements.

         (2)  Financial  statement  schedules for which provision is made in the
              applicable  accounting  regulations of the SEC are omitted because
              of the absence of the conditions  under which they are required or
              because the required  information is set forth in the Consolidated
              Financial Statements or Notes thereto.


(b)      Reports on Form 8-K

         None


                                       48
<PAGE>

(c) The  following  exhibits are filed as a part of this form 10-K and this list
includes the Index to Exhibits.
                                Index to Exhibits

Number                   Description of Documents
--------                 ------------------------

3a            Restated Articles of Incorporation**
3b            Bylaws, as amended
4             Specimen Stock Certificate*
10a           Key Employee Stock Compensation Program, as amended**
10b           Employee Stock Ownership Plan**
10c           Employment  Agreement By and Between the Holding Company, the Bank
              and Ellen Ann Roberts**
10e           Employment  Agreement By and Between the Holding Company, the Bank
              and Colin N. Maropis**
10h           Amendment  No. 1 to the  Employment  Agreement  By and Between the
              Holding Company, the Bank and Ellen Ann Roberts***
10j           Amendment  No. 1 to the  Employment  Agreement  By and Between the
              Holding Company, the Bank and Colin N. Maropis ***
101           1997 Stock Option Plan****
10m           1993 Stock Option Plan as Amended
13            Annual Report to Stockholders
21            Subsidiaries  of the  Registrant - Reference  is made to Item,  1,
              Business - Subsidiaries," for the required information
23            Consent of Independent Auditors
27            Financial  Statement Schedule (*) Incorporated herein by reference
              from the Company's  Registration  Statement on Form S-4 (33-30433)
              dated August 10, 1989
(**)          Incorporated  herein by reference from the Company's Annual Report
              on Form 10-KSB for the year ended June 30, 1990
(***)         Incorporated  herein by reference from the Company's Annual Report
              on Form 10-KSB for the year ended June 30, 1992
(****)        Incorporated  herein by reference from the Company's Annual Report
              on Form 10-KSB for the year ended June 30, 1997


                                       49
<PAGE>


                                   SIGNATURES

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


                                             CHESTER VALLEY BANCORP INC.

Dated:   September 28, 2000                  By: /s/ Ellen Ann Roberts
                                                 ---------------------------
                                                 Ellen Ann Roberts
                                                 Director, Chairman of the Board
                                                 and Chief Executive Officer


         Pursuant to the  requirements  of the  Securities  and  Exchange Act of
1934, this report has been signed by the following persons in the capacities and
on the dates indicated.

<TABLE>
<CAPTION>

Name                                   Title                                   Date
<S>                                 <C>                                 <C>
/s/ Robert J. Bradbury              Director                            September 28, 2000
----------------------------
Robert J. Bradbury

/s/ Edward T. Borer                 Director                            September 28, 2000
----------------------------
Edward T. Borer

/s/ John J. Cunningham, III         Director                            September 28, 2000
----------------------------
John J. Cunningham, III

/s/  Gerard F. Griesser             Director                            September 28, 2000
----------------------------
Gerard F. Griesser

/s/  James E. McErlane              Interim President and Director      September 28, 2000
----------------------------
James E. McErlane                   and Secretary

/s/  Richard L. Radcliff            Director                            September 28, 2000
----------------------------
Richard L. Radcliff

/s/  Emory S. Todd                  Director                            September 28, 2000
----------------------------
Emory S. Todd

/s/  William M. Wright              Director                            September 28, 2000
----------------------------
William M. Wright

/s/  Albert S. Randa                Chief Financial Officer             September 28, 2000
----------------------------
Albert S. Randa

</TABLE>
                                       50