SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

                                    FORM 10-Q

[X]  Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
     Exchange Act of 1934 
     For the quarterly period ended March 31, 1999

                                       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

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

Transitional Small Business Disclosure Format. YES       NO   X

Indicate the number of shares  outstanding  of each of the  issuer's  classes of
common stock, as of the latest practicable date.

     Common Stock ($1.00 par value)                     3,699,087
     ------------------------------                     ---------
        (Title of Each Class)                 (Number of Shares Outstanding
                                                   as of May 1, 1999)
<PAGE>
                  CHESTER VALLEY BANCORP INC. AND SUBSIDIARIES

                                      INDEX
                                                                        Page
                                                                       Number
PART 1.  FINANCIAL INFORMATION

Item 1.  FINANCIAL STATEMENTS

         CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
           March 31, 1999 and June 30, 1998 (Unaudited)                   3

         CONSOLIDATED STATEMENTS OF OPERATIONS
           Three Months Ended March 31, 1999 and 1998 (Unaudited)         4

         CONSOLIDATED STATEMENTS OF OPERATIONS
           Nine Months Ended March 31, 1999 and 1998 (Unaudited)          5

         CONSOLIDATED STATEMENTS OF CASH FLOWS
           Nine Months Ended March 31, 1999 and 1998 (Unaudited)          6

         NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS          7-14


Item 2 .MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
         CONDITION AND RESULTS OF OPERATIONS                          15-25


Item 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
           RISK                                                       26-28

PART 2.  OTHER INFORMATION

Item 1.  LEGAL PROCEEDINGS                                               29

Item 2.  CHANGES IN SECURITIES AND USE OF PROCEEDS                       29

Item 3.  DEFAULTS UPON SENIOR SECURITIES                                 29

Item 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS             29

Item 5.  OTHER INFORMATION                                               29

Item 6.  EXHIBITS AND REPORTS ON FORM 8-K                                29

SIGNATURES                                                               30
<PAGE>
                  CHESTER VALLEY BANCORP INC. AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
                             (Dollars in Thousands)
<TABLE>
<CAPTION>
                                                                                    March 31,             June 30,
                                                                                      1999                  1998
                                                                                ------------------     ---------------
<S>                                                                               <C>                     <C>        
ASSETS:
Cash in banks                                                                     $         6,646         $     4,044
Interest-bearing deposits                                                                   7,993              11,861
Trading account securities                                                                 16,316              20,352
Securities available for sale                                                              88,082              38,303
Securities held to maturity (market value - March 31,
      $8,652; June 30, $15,672)                                                             8,641              15,600
Loans receivable, less allowance for
      loan losses of $3,403 and $3,414                                                    284,709             273,128
Loans held for sale                                                                            --               1,101
Accrued interest receivable                                                                 2,706               2,486
Property and equipment - net                                                                8,271               7,094
Other assets                                                                                4,702               3,043
                                                                                ------------------     ---------------
     Total Assets                                                                   $     428,066          $  377,012
                                                                                ==================     ===============

LIABILITIES AND STOCKHOLDERS' EQUITY:
Deposits                                                                           $      333,727          $  298,191
Securities sold under agreements to repurchase                                                 40                 144
Advance payments by borrowers for taxes and insurance                                       2,248               2,963
Employee Stock Ownership Plan ("ESOP") debt                                                    --                 147
Federal Home Loan Bank advances                                                            51,610              40,936
Other borrowings                                                                              525                 708
Accrued interest payable                                                                    1,144                 969
Other liabilities                                                                           4,086               1,105
                                                                                ------------------     ---------------
     Total Liabilities                                                                    393,380             345,163
                                                                                ------------------     ---------------

Stockholders' Equity:
Preferred stock - $1.00 par value;
     5,000,000 shares authorized; none issued                                                  --                  --
Common stock - $1.00 par value; 10,000,000 shares authorized;
     3,697,245  and 3,664,914 shares issued at March 31
     and June 30, respectively                                                              3,697               3,665
Additional paid-in capital                                                                 17,736              17,288
Common stock acquired by ESOP                                                                  --               (147)
Retained earnings - partially restricted                                                   13,200              10,751
Accumulated other comprehensive income                                                         53                 292
                                                                                ------------------     ---------------
     Total Stockholders' Equity                                                            34,686              31,849
                                                                                ------------------     ---------------

     Total Liabilities and Stockholders' Equity                                      $    428,066          $  377,012
                                                                                ==================     ===============
</TABLE>
See accompanying notes to unaudited consolidated financial statements.


                                                         3
<PAGE>
                  CHESTER VALLEY BANCORP INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
              (Dollars in Thousands, Except for Per Share Amounts)
<TABLE>
<CAPTION>
                                                                                         Three Months Ended
                                                                                              March 31,
                                                                                --------------------------------------
                                                                                      1999                 1998
                                                                                -----------------     ----------------
<S>                                                                               <C>                  <C>           
INTEREST INCOME:
  Loans                                                                           $        5,656       $        5,557
  Investment securities and interest-bearing deposits                                      1,698                  847
                                                                                -----------------    -----------------
     Total interest income                                                                 7,354                6,404
                                                                                -----------------     ----------------
INTEREST EXPENSE:
  Deposits                                                                                 3,140                2,794
  Securities sold under agreements to repurchase                                               2                    3
  Short-term borrowings                                                                      263                  192
  Long-term borrowings                                                                       504                  289
                                                                                -----------------     ----------------
     Total interest expense                                                                3,909                3,278
                                                                                -----------------     ----------------
NET INTEREST INCOME                                                                        3,445                3,126
  Provision for loan losses                                                                   45                  201
                                                                                -----------------     ----------------
      Net interest income after provision for loan losses                                  3,400                2,925
                                                                                -----------------     ----------------
OTHER INCOME:
  Investment services income, net                                                            871                  782
  Service charges and fees                                                                   370                  266
  Gain (loss) on trading account securities                                                (133)                    1
  Gain on sale of assets available for sale                                                   20                  240
  Other                                                                                       42                   51
                                                                                -----------------     ----------------
     Total other income                                                                    1,170                1,340
(continued)                                                                     -----------------     ----------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                                                                                         Three Months Ended
                                                                                              March 31,
                                                                                --------------------------------------
                                                                                      1999                 1998
                                                                                -----------------     ----------------
<S>                                                                               <C>                  <C>           
OPERATING EXPENSES:
  Salaries and employee benefits                                                           1,790                1,536
  Occupancy and equipment                                                                    541                  472
  Data processing                                                                            195                  195
  Deposit insurance premiums                                                                  44                   41
  Other                                                                                      693                  617
                                                                                -----------------     ----------------
     Total operating expenses                                                              3,263                2,861
                                                                                -----------------     ----------------
  Income before income taxes                                                               1,307                1,404
  Income tax expense                                                                         288                  346
                                                                                -----------------     ----------------
NET INCOME                                                                        $        1,019       $        1,058
                                                                                =================     ================
EARNINGS PER SHARE (1):
  Basic                                                                          $          0.28      $          0.29
                                                                                =================     ================
  Diluted                                                                        $          0.27      $          0.29
                                                                                =================     ================
DIVIDENDS PER SHARE PAID DURING PERIOD (1)                                       $          0.08      $          0.07
                                                                                =================     ================
WEIGHTED AVERAGE SHARES OUTSTANDING (1):
  Basic                                                                                3,687,572            3,641,248
                                                                                =================     ================
  Diluted                                                                              3,725,221            3,695,369
                                                                                =================     ================
OTHER COMPREHENSIVE INCOME, NET OF TAX:
   Net income                                                                     $        1,019        $       1,058
   Net unrealized holding gains  (losses) on securities
      available for sale during the period                                                 (245)                  161
   Less reclassification adjustment
      for gains included in net income                                                        12                  142
                                                                                =================     ================
COMPREHENSIVE INCOME                                                              $          762        $       1,077
                                                                                =================     ================
</TABLE>
(1)   Earnings  per  share,  dividends  per share and  weighted  average  shares
      outstanding  have been  restated  to reflect  the  effects of the 5% stock
      dividend   paid  in  September  1998  and the  three-for-two  stock  split
      effected in the form of dividend in December 1998.

     See accompanying notes to unaudited consolidated financial statements.

                                        4
<PAGE>
                  CHESTER VALLEY BANCORP INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
              (Dollars in Thousands, Except for Per Share Amounts)
<TABLE>
<CAPTION>

                                                                       Nine Months Ended
                                                                            March 31,
                                                                 ------------------------------
                                                                    1999                1998
                                                                 -----------         ----------
<S>                                                              <C>                 <C>       
INTEREST INCOME:
  Loans                                                          $    17,083         $   16,628
  Investment securities and interest-bearing deposits                  4,433              2,463
                                                                 -----------         ----------
     Total interest income                                            21,516             19,091
                                                                 -----------         ----------
INTEREST EXPENSE:
  Deposits                                                             9,281              8,518
  Securities sold under agreements to repurchase                           9                  6
  Short-term borrowings                                                  721                740
  Long-term borrowings                                                 1,452                636
                                                                 -----------         ----------
     Total interest expense                                           11,463              9,900
                                                                 -----------         ----------
NET INTEREST INCOME                                                   10,053              9,191
  Provision for loan losses                                              135                441
                                                                 -----------         ----------
      Net interest income after provision for loan losses              9,918              8,750
                                                                 -----------         ----------
OTHER INCOME:
  Investment services income, net                                      2,359              2,061
  Service charges and fees                                             1,099                849
  Gain on trading account securities                                     247                  6
  Gain on sale of assets available for sale                               98                406
  Other                                                                  140                136
                                                                 -----------         ----------
     Total other income                                                3,943              3,458
                                                                 -----------         ----------
OPERATING EXPENSES:
  Salaries and employee benefits                                       5,082              4,358
  Occupancy and equipment                                              1,540              1,378
  Data processing                                                        580                538
  Deposit insurance premiums                                             129                120
  Other                                                                1,949              1,800
                                                                 -----------         ----------
     Total operating expenses                                          9,280              8,194
                                                                 -----------         ----------
  Income before income taxes                                           4,581              4,014
  Income tax expense                                                   1,295              1,043
                                                                 -----------         ----------
NET INCOME                                                       $     3,286         $    2,971
                                                                 ===========         ==========
(continued)
</TABLE>

<PAGE>

<TABLE>
<CAPTION>

                                                                       Nine Months Ended
                                                                            March 31,
                                                                 ------------------------------
                                                                    1999                1998
                                                                 -----------         ----------
<S>                                                              <C>                 <C>       
EARNINGS PER SHARE (1):
  Basic                                                          $      0.89         $     0.82
                                                                 ===========         ==========
  Diluted                                                        $      0.88         $     0.81
                                                                 ===========         ==========
DIVIDENDS PER SHARE PAID DURING PERIOD (1)                       $      0.22         $     0.21
                                                                 ===========         ==========
WEIGHTED AVERAGE SHARES OUTSTANDING (1):
  Basic                                                            3,676,548          3,624,404
                                                                 ===========         ==========
  Diluted                                                          3,717,015          3,674,870
                                                                 ===========         ==========
OTHER COMPREHENSIVE INCOME, NET OF TAX:
   Net income                                                    $     3,286         $    2,971
   Net unrealized holding gains (losses) on securities
      available for sale during the period                              (191)               558
   Less reclassification adjustment
      for gains included in net income                                    48                243
                                                                 -----------         ----------
COMPREHENSIVE INCOME                                             $     3,047         $    3,286
                                                                 ===========         ==========
</TABLE>
(1)  Earnings  per  share,  dividends  per share  and  weighted  average  shares
     outstanding  have been  restated  to  reflect  the  effects of the 5% stock
     dividend paid in September 1998 and the three-for-two  stock split effected
     in the form of dividend in December 1998.

     See accompanying notes to unaudited consolidated financial statements.

                                        5


<PAGE>
                  CHESTER VALLEY BANCORP INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (Dollars in Thousands)

<TABLE>
<CAPTION>
                                                                                    Nine Months Ended March 31,
                                                                                    --------------------------
                                                                                      1999             1998
                                                                                    --------         ---------
<S>                                                                                   <C>              <C>      
Cash flows from operating activities:
Net income
Add (deduct) items not affecting cash flows from operating activities:                $  3,286         $   2,971
   Depreciation
   Provision for loan losses                                                               638               516
   Gain on trading account securities                                                      135               441
   Gain on sale of loans  held for sale                                                   (247)               (6)
   Gain on sale of securities available for sale                                           (20)               (9)
   Amortization of deferred loan fees, discounts and premiums                              (78)             (397)
   Decrease (increase) in trading account securities                                      (657)             (422)
   Decrease (increase) in accrued interest receivable                                    4,283               (42)
   Increase in other assets                                                               (220)               48
   Increase (decrease) in other liabilities                                             (1,659)             (275)
   Increase in accrued interest payable                                                  2,981               (91)
                                                                                           175               144
------------------------------------------------------------------------------------------------------------------------------------
Net cash flows from operating activities                                                 8,617             2,878
------------------------------------------------------------------------------------------------------------------------------------
Cash flows from (used in) investment activities:
   Capital expenditures                                                                 (1,815)           (2,043)
   Net increase in loans and loans held for sale                                       (11,317)          (11,585)
   Proceeds from sale of loans held for sale                                             1,457             4,099
   Purchase of securities held to maturity                                              (1,198)             (533)
   Proceeds from maturities, payments and calls of securities held to maturity           8,154             4,431
   Purchase of securities available for sale                                           (75,596)         (243,340)
   Proceeds from sales and calls of securities available for sale                       25,581           230,263
------------------------------------------------------------------------------------------------------------------------------------
Net cash flows used in investment activities                                           (54,734)          (18,708)
------------------------------------------------------------------------------------------------------------------------------------
Cash flows from (used in) financing activities:
   Net  increase in deposits before interest credited                                   27,293            10,335
   Interest credited to deposits                                                         8,243             7,285
   Increase (decrease) in securities sold under agreements to repurchase                  (104)              185
   Proceeds from FHLB advances                                                          13,599            21,275
   Repayments of FHLB advances                                                          (2,925)          (20,806)
   Decrease in advance payments by borrowers for taxes and insurance                      (715)             (732)
   Net increase (decrease) in other borrowings                                            (183)              101
   Cash dividends on common stock                                                         (822)             (893)
   Repayments of principal on ESOP debt                                                   (147)             (138)
   Common stock issued                                                                     392               436
   Payment for fractional shares                                                           (15)               (7)
   Stock options exercised                                                                  88               268
   Reduction of common stock acquired by ESOP                                              147               138
   Common stock repurchased                                                               --                (275)
------------------------------------------------------------------------------------------------------------------------------------
Net cash flows from financing activities                                                44,851            17,172
------------------------------------------------------------------------------------------------------------------------------------
(continued)
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
                                                                                    Nine Months Ended March 31,
                                                                                    --------------------------
                                                                                      1999             1998
                                                                                    --------         ---------
<S>                                                                                   <C>              <C>      

Net increase (decrease) in cash and cash equivalents                                    (1,266)            1,342
Cash and cash equivalents:
   Beginning of period                                                                  15,905            10,550
                                                                                      --------         ---------
    End of period                                                                     $ 14,639         $  11,892
                                                                                      ========         =========
Supplemental disclosures:
   Cash payments during the year for:
      Taxes                                                                           $  1,347         $   1,081  
      Interest                                                                        $ 11,288         $   9,756  
Non-cash items:                                                                       
   Net unrealized gain (loss) on securities available for sale                        $   (389)        $     513   
   Tax effect of unrealized gain (loss)  on securities available for sale             $   (150)        $     199    
</TABLE> 
See accompanying notes to unaudited consolidated financial statements. 

                                        6

<PAGE>
                           CHESTER VALLEY BANCORP INC.
                                AND SUBSIDIARIES
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Business

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

Principles of Consolidation and Presentation

The accompanying  consolidated  financial statements include the accounts of the
Company and its  wholly-owned  subsidiaries,  the Bank and PCIS. The accounts of
the Bank include its wholly-owned  subsidiary, D & S Service Corp., which owns D
&  FProjects  and  Wildman  Projects,  Inc.,  both  of  which  are  wholly-owned
subsidiaries thereof. All material  inter-company balances and transactions have
been eliminated in  consolidation.  Prior period amounts are  reclassified  when
necessary to conform with the current period's presentation.

                                        7
<PAGE>
The  accompanying  consolidated  financial  statements  have  been  prepared  in
accordance with instructions to Form 10-Q. Accordingly,  they do not include all
of the  information  and  footnotes  required by generally  accepted  accounting
principles ("GAAP") for complete financial statements. However, such information
reflects all adjustments which are, in the opinion of management,  necessary for
a fair presentation of results for the unaudited interim periods.

The results of operations for the three- and nine-month  periods ended March 31,
1999,  are not  necessarily  indicative  of the results to be  expected  for the
fiscal  year  ending  June  30,  1999.  The  consolidated  financial  statements
presented  herein should be read in  conjunction  with the audited  consolidated
financial  statements  and the notes thereto  included in the  Company's  Annual
Report to Stockholders for the fiscal year ended June 30, 1998.

Cash and Cash Equivalents

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

Securities

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

                                        8
<PAGE>
Allowance for Loan Losses

The allowance for loan losses is maintained at a level that management considers
adequate to provide for  estimated  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 allowance for loan
losses at March 31, 1999 is adequate, future adjustments to the allowance may be
necessary,  and net income may be  adversely  affected if  circumstances  differ
substantially  from  the  assumptions  used  in  determining  the  level  of the
allowance.  In addition,  various  regulatory  agencies,  as an integral part of
their  examination  process,  periodically  review the  Company's  allowance for
losses on loans. Such agencies may require the Company to recognize additions to
the allowance based on their judgments  about  information  available to them at
the time of their  examination.  The allowance is increased by the provision for
loan  losses  which is  charged to  operations.  Loan  losses,  other than those
incurred on loans held for sale, are charged  directly against the allowance and
recoveries on previously charged-off loans are generally added to the allowance.

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  business  loans with principal  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  under  the  contractual  terms  of the  loan
agreement. At and during the three- and nine-month periods ended March 31, 1999,
the recorded investment in impaired loans was not material. The Company's policy
for the  recognition  of interest  income on  impaired  loans is the same as for
non-accrual  loans  discussed  below.  Impaired  loans are  charged off when the
Company  determines  that  foreclosure  is  probable  and the fair  value of the
collateral is less than the recorded investment of the impaired loan.

Loans, Loan Origination Fees and Uncollected Interest

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

                                       9
<PAGE>
Uncollected  interest  receivable  on loans is  accrued  to  income  as  earned.
Non-accrual  loans are loans on which the accrual of interest has ceased because
the collection of principal or interest payments is determined to be doubtful by
management.  It is the  policy of the  Company  to  discontinue  the  accrual of
interest  when  principal or interest  payments are  delinquent  90 days or more
(unless the loan principal and interest are determined by management to be fully
secured  and in  the  process  of  collection),  or  earlier,  if the  financial
condition of the borrower raises significant  concern with regard to the ability
of the borrower to service the debt in  accordance  with the current loan terms.
Interest  income on such loans is not accrued until the financial  condition and
payment record of the borrower once again demonstrate the borrower's  ability to
service the debt.

Loans Held for Sale

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

Real Estate Owned ("REO")

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

Property and Equipment

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

Deferred Income Taxes

The Company  accounts  for income  taxes under the asset and  liability  method.
Deferred  tax  assets  and   liabilities  are  recognized  for  the  future  tax
consequences   attributable  to  differences  between  the  financial  statement
carrying  amounts of existing assets and  liabilities  and their  respective tax
bases and operating loss and tax credit carryforwards.

                                       10
<PAGE>
Deferred tax assets and  liabilities  are  measured  using the enacted tax rates
expected  to apply to  taxable  income  in the  years in which  those  temporary
differences are expected to be recovered or settled.  The effect on deferred tax
assets and  liabilities  of a change in tax rates is recognized in income in the
period that includes the enactment date.

Earnings Per Share

In February  1997, the Financial  Accounting  Standards  Board  ("FASB")  issued
Statement of Financial  Accounting  Standards  ("SFAS") No. 128.  "Earnings  per
Share,"  which was required to be adopted in both  interim and annual  financial
statements for periods ending after December 15, 1997. Accordingly,  the Company
has changed its  methodology  for computing  earnings per share and restated all
prior period amounts.  SFAS 128 replaced  "primary" and "fully" diluted earnings
per share with "basic" and "diluted"  earnings per share. The dilutive effect of
stock  options is excluded  from basic  earnings  per share but  included in the
computation  of diluted  earnings  per share.  Earnings  per share and  weighted
average shares  outstanding for the periods  presented herein have been adjusted
to reflect the effects of the 5% stock  dividend paid in September  1998 and the
three-for-two stock split effected in the form of a dividend in December 1998.


                                       11
<PAGE>
The following table sets forth the computation of basic and diluted earnings per
share:

<TABLE>
<CAPTION>
                                             Three Months Ended                   Nine Months Ended
                                                  March 31,                            March 31,
                                         ----------------------------        ----------------------------
                                                              (Dollars in Thousands)
<S>                                      <C>               <C>               <C>               <C>       
                                            1999              1998              1999              1998
                                         ----------        ----------        ----------        ----------
Numerator:
   Net income                            $    1,019        $    1,058        $    3,286        $    2,971
                                         ==========        ==========        ==========        ==========

Denominator:
   Denominator for basic earnings
   per share-weighted average
   shares                                 3,687,572         3,641,248         3,676,548         3,624,404

Effect of dilutive securities:
   Stock options                             37,649            54,121            40,467            50,466
                                         ----------        ----------        ----------        ----------

Denominator for diluted earnings
   per share-adjusted weighted
   average shares and assumed
   exercise                               3,725,221         3,695,369         3,717,015         3,674,870
                                         ==========        ==========        ==========        ==========

Basic earnings per share                 $      .28        $      .29        $      .89        $      .82
                                         ==========        ==========        ==========        ==========
 
Diluted earnings per share               $      .27        $      .29        $      .88        $      .81
                                         ==========        ==========        ==========        ==========
</TABLE>
                                       12
<PAGE>
NOTE 2 - LOANS RECEIVABLE

Loans  receivable  are  summarized  as  follows  (loans  held  for  sale are not
included):
<TABLE>
<CAPTION>
                                                               At March 31,                      At June 30,
                                                                   1999                             1998
                                                        ---------------------------     ------------------------------
                                                                           (Dollars in Thousands)
<S>                                                                       <C>                                <C>     
             First mortgage loans:
                Residential                                               $157,953                           $155,628
                Construction-residential                                    12,893                             13,502
                Land acquisition and
                   development                                               5,346                              6,529
                Commercial                                                  49,827                             41,002
                Construction-commercial                                      8,134                             10,614
             Commercial business                                            15,718                             11,437
             Consumer                                                       50,563                             51,829
                                                        ---------------------------     ------------------------------

             Total loans                                                   300,434                            290,541
                                                        ---------------------------     ------------------------------

             Less:
                Undisbursed loan proceeds:
                   Construction-residential                                (7,533)                            (7,915)
                   Construction-commercial                                 (3,202)                            (4,464)
                Deferred loan fees - net                                   (1,587)                            (1,620)
                Allowance for loan losses                                  (3,403)                            (3,414)
                                                        ---------------------------     ------------------------------

             Net loans                                                    $284,709                           $273,128
                                                        ===========================     ==============================
</TABLE>

NOTE 3 - COMMITMENTS

Commitments to potential  mortgagors of the Bank amounted to $3.54 million as of
March 31, 1999, of which $945,000 was for  variable-rate  loans.  The balance of
the  commitments   represents  $2.60  million  of  fixed-rate  loans  (primarily
consisting of  single-family  residential  mortgages)  bearing interest rates of
between 5.75% and 9.00%.  At March 31, 1999,  the Company had $10.74  million of
undisbursed  construction  loan funds as well as $16.49  million of  undisbursed
remaining consumer and commercial line balances.

                                       13
<PAGE>
NOTE 4 - REGULATORY CAPITAL

The Bank is subject to various regulatory capital  requirements  administered by
the federal banking agencies.  Failure to meet minimum capital  requirements can
initiate  certain  mandatory and possibly  additional  discretionary  actions by
regulators  that,  if  undertaken,  could have a direct  material  effect on the
Company's and the Bank's financial statements. Under capital adequacy guidelines
and the  regulatory  framework for prompt  corrective  action the Bank must meet
specific  capital  guidelines that involve  quantitative  measures of the Bank's
assets,  liabilities,  and certain off balance sheet items as  calculated  under
regulatory accounting  practices.  The Bank's capital amounts and classification
are also subject to qualitative  judgments by the regulators  about  components,
risk weightings, and other factors.

Quantitative  measures  established  by  regulation to ensure  capital  adequacy
require the Bank to maintain  minimum amounts and ratios (set forth in the table
below)  of  total  and  Tier  1  capital  (as  defined  in the  regulations)  to
risk-weighted assets (as defined), and of Tier 1 capital (as defined) to average
assets  (as  defined).  At March  31,  1999  and  June 30,  1998 the Bank was in
compliance  with  all  such  requirements  and is  deemed  a  "well-capitalized"
institution  for  regulatory  purposes.  There are no conditions or events since
March 31, 1999 that management believes have changed the institution's category.

The Bank's  regulatory  capital amounts and ratios are presented in the table as
follows (dollars in thousands):
<TABLE> 
<CAPTION>                                                                                            
                                                                                                     To Be Well       
                                                                                                    Capitalized         
                                                                         Required                   Under Prompt      
                                                                        For Capital                  Corrective         
                                               Actual                 Adequacy Porposes           Action Provisions   
                                      -------------------------    ------------------------     ---------------------
                                        Amount         Ratio         Amount        Ratio        Amount       Ratio
                                        ------         -----         ------        -----        ------       -----
<S>                                      <C>            <C>           <C>            <C>        <C>           <C>   
As of March 31,  1999:

   Total Capital
     (to Risk Weighted Assets)           $33,100        13.04%        $20,302        8.00%      $25,378       10.00%

   Tier 1 Capital
     (to Risk Weighted Assets)           $29,925        11.79%        $10,151        4.00%      $15,227        6.00%

   Tier 1 Capital
     (to Average Assets)                 $29,925         7.06%        $16,952        4.00%      $21,190        5.00%

As  of June 30, 1998:

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

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

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

                                                        14
<PAGE>
Item 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                  CONDITION AND RESULTS OF OPERATION

In this Report,  the Company has included certain  "forward looking  statements"
concerning the future  operations of the Company.  It is management's  desire to
take  advantage  of the  "safe  harbor"  provisions  of the  Private  Securities
Litigation  Reform Act of 1995.  This  statement  is for the express  purpose of
availing the Company of the  protections of such safe harbor with respect to all
"forward  looking  statements"  contained in this  Report.  The Company has used
"forward  looking  statements"  to  describe  the  future  plans and  strategies
including  management's  expectations  of the Company's  Year 2000 readiness and
future  financial  results.  Management's  ability to predict the 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 United States as a
whole, loan delinquency  rates,  changes in federal and state  regulation,  Year
2000  uncertainties and other  uncertainties  described in the Company's filings
with the Securities and Exchange Commission.  These factors should be considered
in evaluating the "forward looking  statements" and undue reliance should not be
placed on such statements.

                               FINANCIAL CONDITION

The Company's total assets  increased to $428.07 million at March 31, 1999, from
$377.01 million at June 30, 1998,  principally due to a $38.79 million aggregate
increase in trading account securities, investment securities available for sale
and  investment  securities to $113.04  million from $74.25  million at June 30,
1998.  Such  increases  were funded in large part by  increases  in deposits and
Federal Home Loan Bank ("FHLB") advances from $298.19 million and $40.94 million
at June 30,  1998,  to $333.73  million  and $51.61  million at March 31,  1999,
respectively.

Stockholders'  equity  increased to $34.69 million at March 31, 1999 from $31.85
million at June 30, 1998, as a result of net income of $3.29  million,  the sale
of  $392,200  of  Common  stock  in  connection  with  the  Company's   dividend
reinvestment  plan,  $87,700  received  as a  result  of the  exercise  of stock
options,  and  the  reduction  in the  principal  balance  of the  ESOP  debt by
$146,600.  The  increase in  stockholders'  equity was  partially  offset by the
payment  during  the  period  of  cash  dividends   totaling  $836,300  and  the
recognition  of a decrease in net unrealized  gains on securities  available for
sale, net of taxes, of $239,800.
                                       15
<PAGE>
                              RESULTS OF OPERATIONS

Net interest income, on a fully tax equivalent  basis,  increased 12.4% to $3.64
million for the  three-month  period ended March 31,  1999,  and 10.3% to $10.50
million  for the  nine-month  period  ended  March 31,  1999,  compared to $3.24
million and $9.52  million,  respectively,  for the same periods in 1998.  Total
interest income, on a fully tax equivalent basis, increased to $7.55 million and
$21.96 million for the three- and nine-month  periods ended March 31, 1999, from
$6.52  million and $19.42  million for the same periods in 1998,  primarily as a
result of the effect of an increase in the average  balance of  interest-earning
assets.

The average balance of interest-earning  assets increased to $398.35 million and
$381.59  million for the three- and  nine-month  periods  ended March 31,  1999,
respectively,  from $319.99 million and $316.53 million,  respectively,  for the
same  periods  in  1998.   Part  of  the  growth  in  the  average   balance  of
interest-earning  assets is the result of the  Company's  business  strategy  to
expand its commercial  lending.  The  origination of commercial  real estate and
commercial business 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.  Partially  offsetting  the effect on
interest income of the increases in the average  balances was the 57 basis-point
and 51 basis-point decreases in the yield to 7.58% and 7.67% on interest-earning
assets for the three- and nine-month periods ended March 31, 1999, respectively,
as the  result  of  declining  general  market  rates  of  interest.  Due to the
declining  interest rate  environment and leveling of the yield curve,  the Bank
has  experienced  significant  refinancing of its adjustable rate portfolio into
its fixed rate product at lower interest rates.

Total interest expense  increased to $3.91 million and $11.46 million from $3.28
million and $9.90 million for the respective  three- and  nine-month  periods in
fiscal  1999 and  fiscal  1998,  largely as the  result of the  increase  in the
average balance of  interest-bearing  liabilities to $348.49 million and $329.56
million  for  the  three-  and   nine-month   periods   ended  March  31,  1999,
respectively,  as compared to $276.19  million and $272.69  million for the same
periods in 1998.  Partially  offsetting  the increase in interest  expense was a
decrease in the average rate paid on such liabilities to 4.49% and 4.64% for the
three- and nine-month periods ended March 31, 1999, respectively, from 4.75% and
4.84% for the same periods in 1998,  primarily as a result of declining  general
market rates of interest  during the fiscal 1999 periods as well as management's
continued  efforts to focus its  liability  growth in the areas of  low-cost  or
no-cost deposits.

The tax equivalent  interest rate spread  decreased to 3.03% from 3.34%, and the
average tax equivalent net yield on  interest-earning  assets decreased to 3.67%
from  4.01%  for  the  nine-month   periods  ended  March  31,  1999  and  1998,
respectively, due to the reasons discussed above.

                                       16
<PAGE>
Provision for Loan Losses

The Company  provided $45,000 and $135,000 for loan losses during the three- and
nine-month periods ended March 31, 1999,  respectively,  as compared to $201,000
and $441,000,  respectively, for the same periods in 1998. These provisions have
been added to the Company's  allowance  for loan losses due to current  economic
conditions and management's  assessment of the inherent risk of loss existing in
the loan  portfolio.  At March 31, 1999,  the allowance for loan losses  totaled
$3.40  million  or 1.18% of net  loans  (before  allowance),  compared  to $3.41
million  or 1.23% of net loans and $3.25  million  or 1.22% of net loans at June
30, 1998, and March 31, 1998,  respectively.  As a percentage of  non-performing
assets,  the allowance  for loan losses was 446% at March 31, 1999,  compared to
274% at June 30, 1998, and further compared to 390% at March 31, 1998.

Other Income

Total other income  decreased to $1.17  million  during the  three-month  period
ended March 31, 1999 and increased to $3.94 during the  nine-month  period ended
March 31, 1999, as compared to $1.34  million and $3.46 million  during the same
respective periods in 1998. Investment services income increased 11.4% and 14.5%
during the three- and  nine-month  periods  ended March 31, 1999,  respectively,
compared to the same periods

in 1998 as the result of PCIS' increased  commission income reflecting increased
activity  and  increased  money  market fund fees due to  increases  in customer
account  balances.  In  addition,  PCIS'  advisory fee income  increased  due to
implementation  of its  strategic  plan to focus on  advisory  services  as such
services  provide a more stable revenue tream for PCIS and  stabilizes  expenses
for the customer. Investment services income also increased as the result of the
opening  of the  Bank's  Investment  Services  and Trust  Division  (the  "Trust
Division") in the second quarter of fiscal 1998. The Trust Division  offers both
individual  and  corporate  clients  an  array of money  management,  trust  and
investment  services  including  portfolio  management,  estate  and  retirement
planning,  and self  directed  individual  retirement  accounts.  An increase in
checking account fees, as the result of an increased number of accounts,  and an
increase in the fees  earned on the Bank's  debit  card,  due to both  increased
usage and an increased  number of  cardholders,  contributed  to the increase of
$104,000  and  $250,000  in  service  charges  and fees  during  the  three- and
nine-month periods ended March 31, 1999, respectively.  The Company recognized a
loss on trading  account  securities  and sales of assets  available for sale of
$113,000  during  the  three-month  period  ended  March 31,  1999 and a gain of
$345,000 during the nine-month period ended March 31, 1999, compared to gains of
$241,000  and  $412,000  during the same  periods  in 1998.  The  $113,000  loss
incurred during the  three-month  period ended March 31, 1999 was comprised of a
$20,000  gain on the sale of assets  available  for sale,  a $50,000 gain on the
sale of trading account securities,  and a $183,000 market value loss adjustment
on the trading account securities portfolio.

                                       17
<PAGE>
Operating Expenses

Total operating  expenses increased $402,000 or 14.1% and $1.09 million or 13.3%
to $3.26 million and $9.28 million,  respectively, for the three- and nine-month
periods  ended  March 31,  1999 as  compared  to the same  periods in 1998.  The
increase in operating  expenses for the three- and nine-month  periods in fiscal
1999 was due to (i) normal salary increases combined with benefits expense; (ii)
the increased  number of staff  associated with the addition of the Bank's Trust
Division  combined with the expansion of the Bank's  Commercial Loan Department;
(iii) an increase in occupancy and  equipment  expenses  related to  renovations
required to provide  accommodations  for the Bank's Trust Division;  and (iv) an
increase in occupancy and equipment expenses related to the Company's conversion
of its data service  processing  system and its  computer  hardware and software
upgrades as the result of the Company's  technology  strategic plan and the Year
2000 issues (see " Year 2000 Issues" herein).

Income Tax Expense

Income tax expense was $288,000 and $1.30 million for the three- and  nine-month
periods  ended March 31, 1999,  respectively,  as compared to $346,000 and $1.04
million for the same periods in 1998.  The  reduction in the  effective tax rate
for the  three-month  period ended March 31, 1999 as compared to the same period
in 1998 is the result of tax exempt income  representing a higher  percentage of
income  before taxes  during the  three-month  period ended March 31, 1999.  For
periods  ending  prior to May 29, 1998,  no  provision  has been made for income
taxes for PCIS since PCIS (prior to its  acquisition by the Comapny) had elected
to be taxed under the  provisions of  Subchapter S of the Internal  Revenue Code
and similar state  provisions  which treat S Corporations in a manner similar to
partnerships.  Under  these  provisions,  PCIS did not pay  income  taxes on its
taxable  income.  Instead  the  former  stockholders  of PCIS  were  liable  for
individual  income  taxes  based on their  respective  shares of PCIS's  taxable
income. As a result of all of PCIS's stock being purchased by the Company on May
29,  1998,  PCIS is no  longer  eligible  to be taxed  under the  provisions  of
Subchapter S of the Internal Revenue Code.

                                  ASSET QUALITY

Non-performing  assets are  comprised of  non-accrual  loans and REO and totaled
$764,000,  $1.25 million and $833,000 at March 31, 1999, June 30, 1998 and March
31,  1998,  respectively.  Non-accrual  loans are loans on which the  accrual of
interest has ceased because the collection of principal or interest  payments is
determined  to be  doubtful  by  management.  It is the policy of the Company to
discontinue  the accrual of interest  when  principal  or interest  payments are
delinquent  90 days  or  more  (unless  the  loan  principal  and  interest  are
determined by management to be fully secured and in the

                                       18
<PAGE>
process of collection),  or earlier,  if the financial condition of the borrower
raises significant concern with regard to the ability of the borrower to service
the debt in  accordance  with the  current  loan terms.  Interest  income is not
accrued  until the financial  condition and payment  record of the borrower once
again demonstrate the borrower's ability to service the debt. At March 31, 1999,
the  Company  had loans  amounting  to $2,000  that  were  greater  than 90 days
delinquent  and  accruing  interest.  Non-performing  assets to total assets and
non-performing  loans to total assets were .18% at March 31,  1999,  compared to
 .33% at June 30, 1998, and .24% at March 31, 1998.  Non-performing  loans, which
totaled  $764,000 at March 31, 1999  consisted  of 6  single-family  residential
mortgage loans aggregating $640,000 and consumer loans totaling $124,000.

At March 31, 1999, the Company's  classified  assets,  which consisted of assets
classified  as  substandard,  doubtful or loss,  as well as REO,  totaled  $1.30
million  compared to $1.47  million at June 30,  1998,  and further  compared to
$1.24 million at March 31, 1998.  Included in assets  classified  substandard at
March 31, 1999 and 1998,  and at June 30, 1998,  were all loans 90 days past due
and loans which were less than 90 days delinquent but inadequately  protected by
the current  paying  capacity of the borrower or of the collateral  pledged,  or
which were subject to one or more  well-defined  weaknesses which may jeopardize
the satisfaction of the debt.

                         LIQUIDITY AND CAPITAL RESOURCES

Management  monitors  liquidity  daily and  maintains  funding  sources  to meet
unforseen changes in cash  requirements.  The Company's primary sources of funds
are deposits, borrowings,  repayments, prepayments and maturities of outstanding
loans  and  mortgage-backed  securities,  sales of  assets  available  for sale,
maturities of investment securities and other short-term investments,  and funds
provided from operations.  While scheduled loan and  mortgage-backed  securities
repayments and maturing  investment  securities and short-term  investments  are
relatively  predictable sources of funds, deposit flows and loan prepayments are
greatly  influenced  by the  movement  of interest  rates in  general,  economic
conditions and  competition.  The Company manages the pricing of its deposits to
maintain a deposit  balance  deemed  appropriate  and  desirable.  Although  the
Company's deposits represent the majority of its total liabilities,  the Company
has also utilized other borrowing sources, primarily FHLB advances.

Liquidity management is both a daily and long-term function. Excess liquidity is
generally invested in short-term investments such as FHLB overnight deposits. On
a longer term basis,  the Company  maintains a strategy of  investing in various
lending and  investment  securities  products.  The Company  uses its sources of
funds to primarily fund loan commitments and maintain a substantial portfolio of
investment  securities,  and to meet its  ongoing  commitments  to pay  maturing
savings certificates and savings withdrawals. At

                                       19
<PAGE>
March 31,  1999,  the  Company  had $3.54  million in  commitments  to fund loan
originations.  In  addition,  at such date the  Company  had  $10.74  million of
undisbursed  construction  loan funds as well as $16.49  million in  undisbursed
lines of  credit.  Management  of the  Company  believes  that the  Company  has
adequate resources,  including principal prepayments and repayments of loans and
investment securities and borrowing capacity, to fund all of its commitments.

The Company's current dividend policy is to declare a regular quarterly dividend
with the intent  that the level of the  dividend  per share be  reviewed  by the
Board of Directors on a quarterly  basis.  Dividends will be in the form of cash
and/or  stock  after  giving  consideration  to all  aspects  of  the  Company's
performance  for the  quarter.  On February  17,  1999,  the Board of  Directors
declared a quarterly  cash  dividend of $.11 per share,  which was paid on March
19, 1999, to stockholders of record as of March 5, 1999.

The Bank is required under applicable federal regulations, to maintain specified
levels of liquid  investments  and qualifying  types of United States  Treasury,
federal agency and other  investments  having  maturities of five years or less.
Regulations  currently  in effect  require the Bank to  maintain a liquid  asset
ratio of not  less  than 4% of its net  withdrawable  accounts  plus  short-term
borrowings.  These  levels are  changed  from time to time by the OTS to reflect
economic  conditions.  First Financial's average regulatory  liquidity ratio for
the month ended March 31, 1999 was 22.16%.
<PAGE>
                                YEAR 2000 ISSUES

In order to be ready for the year 2000 (the "Year 2000 Issue"),  the Company has
developed a Year 2000 Action Plan (the "Action  Plan") which was  presented  and
approved by the Company's  Board of Directors in December  1998. The Action Plan
was  developed  using both the  guidelines  outlined  in the  Federal  Financial
Institutions  Examination  Council's  ("FFIEC")  "The Effect of 2000 on Computer
Systems" as well as guidance provided by the Securities and Exchange  Commission
(the "SEC").  The Company's Board of Directors  assigned  responsibility for the
Action Plan to the Year 2000 Project Team chaired by the Company's President and
Chief  Operating  Officer who reports to the Board of Directors  with respect to
the status of the  implementation  of the Action  Plan on a monthly  basis.  The
Action Plan recognizes that the Company's  operating,  processing and accounting
operations are computer reliant and could be significantly  affected by the Year
2000 Issue.  The  Company is  primarily  reliant on third party  vendors for its
computer  output and  processing,  as well as other  significant  functions  and
services ( i.e., securities  transactional and safekeeping services,  securities
pricing information, etc.). The Year 2000 Project Team is currently working with
these third party vendors to assess their Year 2000 readiness and are performing
Year 2000  testing  as  required.  Based on an  ongoing  assessment,  management
presently believes
                                       20
<PAGE>
that with  planned  modifications  to existing  software and hardware and recent
conversions to new software and hardware,  including a conversion by the Bank to
a new core data  processing  system in October 1998,  the Company's  third party
vendors  are  taking  the  appropriate  steps to ensure  critical  systems  will
function properly.

The Bank has identified five mission  critical  systems  (without which the Bank
cannot  operate)  and  critical  applications  (necessary  applications  but the
Company can  function for a moderate  amount of time  without such  applications
being Year 2000 compliant)  operated or supported by third party vendors.  These
five mission  critical  systems  include:  1) the core data  service  processing
system  for  deposit,  loan  and  general  ledger  account  processing;  2)  the
Electronic  Network which controls the Bank's ATMs and telephone  voice response
units,  as well as processes its ATM cards and debit cards; 3) the equipment and
software that processes the Bank's item processing and check inclearing;  4) the
Wide Area Network ("WAN") which facilitates  electronic  communications  between
the Bank's branches and its core  processor;  and 5) the software that processes
the  backroom  statement  operations  for the Bank's Trust  Department.  Of such
mission  critical  systems  and  critical  applications,  the  Company  has been
informed by a substantial majority of its vendors that they are either Year 2000
compliant or that they will be compliant  and are in the process of revising and
testing their systems for Year 2000 compliance. The most critical system for the
Bank is its core data  processing  service  which is  provided  by a third party
vendor ("DPS Provider").  The DPS Provider services over 1,000 banks nationally.
In May 1998,  the Bank entered into an agreement  with the DPS Provider  whereby
the DPS Provider  warranted certain  conditions  regarding Year 2000 compliance.
The DPS Provider has informed the Bank that it has completed the majority of its
testing of its systems.  The Bank has received and will  continue to receive and
review carefully the results of the DPS Provider  testing.  Phase I and Phase II
of testing of the DPS  Provider  system was  completed in July 1998 and December
1998,  respectively,  with  substantially all such systems  evidencing Year 2000
compliance.
<PAGE>
Substantially  all of the Company's  vendors of its mission critical systems and
critical  applications have provided written  assurances that their products and
services  will be Year  2000  compliant.  As of  April  17,  1999,  the  Company
successfully  completed the majority of its mission critical  modifications  and
conversions and related  testing of such systems with the remaining  non-mission
critical systems expected to be completed by June 30, 1999.

The Year 2000 issues also affect certain of the Bank's  customers,  particularly
in the  areas  of  access  to  funds  and  additional  expenditures  to  achieve
compliance.  As  of  September  30,  1998,  Bank  personnel  had  contacted  all
commercial credit customers regarding the customers'  awareness of the Year 2000
Issue.  At that time the Bank  adopted  the  FFIEC  Millennium  Risk  Evaluation
Package  ("FFIEC  Package")  as the  standard  for  evaluating  the Bank risk in
relation to Year 2000 issues. From the customer responses, the Bank

                                       21
<PAGE>
identified 42 potential risk customers  whose  operations  were considered to be
heavy users of computer  based  systems or considered a risk either by virtue of
their business complexity or the complexity of their borrowings.  The officer of
record  was given the  responsibility  of  determining  the risk level that each
client posed using the FFIEC Package. The risk level was considered to be low on
all but three of these  clients and these three were  considered  to have medium
risk. Those  identified to be anything but low risk will be monitored  quarterly
by the officer of record.  While no  assurance  can be given that its  customers
will be Year 2000 compliant,  management  believes,  based on representations of
such  customers and reviews of their  operations  (including  assessments of the
borrowers' level of  sophistication  and data and record keeping  requirements),
that the  customers  are  either  addressing  the  appropriate  issues to insure
compliance  or that they are not faced  with  material  Year  2000  issues.  The
respondents stated that they were, at the very least,  sufficiently compliant to
avoid disruption of the cash flow stream necessary to service debt. In addition,
in   substantially   all  cases  the  credit   extended  to  such  borrowers  is
collateralized by real estate or business assets which inherently  minimizes the
Bank's  exposure  in the event that such  borrowers  do  experience  problems or
delays becoming Year 2000 compliant.

PCIS, pursuant to Section 240.17a-5(e)(5)(iii) of the Securities Exchange Act of
1934,  filed  Part I and Part II of Form  BD-Y2K  with the SEC which  applies to
brokers with minimum net capital of $100,000 or more. Part I and Part II of Form
BD-Y2K was filed in August  1998 and  included  PCIS's  Year 2000  Action  Plan,
including  contingency planning and timeline.  Part I and Part II of Form BD-Y2K
were also  required to be filed with the SEC by April 30,  1999 and  included an
update for PCIS's Year 2000 planning as of March 15, 1999.  PCIS has  identified
three  mission  critical  systems  within its  operations.  These three  mission
critical  systems  include:  1)  clearing  brokerage  service,   client  account
statement  production  and client  account  maintenance;  2)  investment  market
services  including  stock  and  bond  quote  information  as well  as  newswire
informational  service; and 3) the internal personal computer Local Area Network
("LAN") system.  The two vendors which provide the clearing  brokerage  services
and the investment market services have upgraded to Year 2000 certified software
which PCIS  installed  during the first quarter of calendar  1999. The contracts
signed with both  vendors  include  Year 2000  compliance  assurances.  Industry
related  testing has begun,  and PCIS  testing will begin once  installation  is
completed.  The LAN  networks  are also being  replaced  with  software  that is
assured to be Year 2000 compliant. Virtually all the personal computer equipment
was replaced as a result of the new specification  requirements  dictated by the
clearing  brokerage and  investment  market  service  vendors,  and is Year 2000
compliant certified.  PCIS is a member of the National Association of Securities
Dealers,  Inc.  (the  "NASD") and as such is required to report to the NASD on a
regular basis.  This reporting process is done  electronically  through software
that the NASD provides.  PCIS has been informed by the NASD that the software is
Year 2000 compliant.
                                       22
<PAGE>
While the Company has received  assurances  from such vendors as to  compliance,
such  assurances are not guarantees  and may not be  enforceable.  The Company's
existing   older   contracts   with  such  vendors  do  not  include  Year  2000
certifications  or warranties.  Thus, in the event such vendors' products and/or
services are not Year 2000  compliant,  the  Company's  recourse in the event of
such failure may be limited.  If the required  modifications and conversions are
not made, or are not completed on a timely basis, the Year 2000 Issue could have
a material  impact on the  operations of the Company.  There can be no assurance
that  potential  systems  interruptions  or  unanticipated   additional  expense
incurred to obtain Year 2000 compliance would not have a material adverse effect
on the  Company's  business,  financial  condition,  results of  operations  and
business prospects.  Nevertheless, the Company does not believe that the cost of
addressing  the Year 2000 issues will be a material  event or  uncertainty  that
would cause reported financial  information not to be necessarily  indicative of
future operating results or financial  conditions,  nor does it believe that the
costs or the consequences of incomplete or untimely  resolution of its Year 2000
issues represent a known material event or uncertainty that is reasonably likely
to  affect  its  future  financial  results,  or cause  its  reported  financial
information  not to be  necessarily  indicative of future  operating  results or
future financial condition.
<PAGE>
The  Company's  Year 2000 Action Plan  included its own  company-wide  Year 2000
contingency plan. Individual  contingency plans concerning specific software and
hardware issues and operational  plans for continuing  operations were completed
for a  substantial  majority  of its  mission  critical  hardware  and  software
applications as of December 31, 1998, with the remainder  completed by March 31,
1999. The Year 2000 Project Team is reviewing substantially all mission critical
test plans and contingency plans to ensure the  reasonableness of the plans. The
Company's  contingency  plans  also  include  plans  which  address  operational
policies and procedures in the event of data  processing,  electric power supply
and/or  telephone   service  failures   associated  with  the  Year  2000.  Such
contingency  plans  provide,  to the best of the Company's  ability,  documented
actions to allow the Company to maintain and/or resume normal  operations in the
event of the failure of mission critical and critical  applications.  Such plans
identify participants,  processes and equipment that will be necessary to permit
the Company to continue  operations on a limited  basis.  Such plans may include
providing off-line system  processing,  back-up electrical and telephone systems
and other methods to ensure the Company's ability to continue to operate.

The costs of modifications to the existing software is being primarily  absorbed
by the third party vendors. However, the Company recognizes that the need exists
to purchase new hardware and software. Based upon current estimates, the Company
has  identified  approximately  $649,000  in total  costs,  including  hardware,
software,  and other  items,  expected  to be or  already  incurred  in order to
complete the Year 2000 project. The
                                       23
<PAGE>
Company anticipates spending  substantially all of this amount during the fiscal
year ended June 30, 1999.  Expenditures  for software are typically  depreciated
over three years while expenditures for hardware are typically  depreciated over
five years. Of the estimated $649,000 in total Year 2000 expenditures,  $585,000
is associated with the replacement of systems that were not Year 2000 compliant,
but would  have been  replaced  anyway as a result of the  Company's  aggressive
Strategic Technology Plan which is designed to maintain  competitiveness  within
the industry and to increase the  efficiency  of the Company's  operations.  The
remaining  $64,000 will be expensed as incurred for matters  directly related to
the Year 2000 issue,  including  promotional  material for consumer and employee
awareness and replacement of non-compliant Year 2000 software and hardware.
<PAGE>
                           RECENT ACCOUNTING ANNOUNCEMENTS

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

In June 1997, the FASB adopted SFAS No. 131,  "Disclosures  About Segments of an
Enterprise and Related Information".  This statement,  which supersedes SFAS No.
14, requires public  companies to report  financial and descriptive  information
about their reportable  operating  segments on both an annual and interim basis.
SFAS No. 131 mandates  disclosure of a measure of segment  profit/loss,  certain
revenue and  expense  items and  segment  assets.  In  addition,  the  statement
requires reporting information on the entity's products and services,  countries
in which the entity earns revenues and holds assets,  and major customers.  This
statement  requires  changes  in  disclosures  only and  would  not  affect  the
financial condition,  equity or operating results of the Company. This statement
is effective for fiscal years beginning after December 15, 1997. The disclosures
are not required  for interim  financial  statements  in the initial year of its
application.
                                       24
<PAGE>
In February 1998, the FASB issued SFAS No. 132,  "Employer's  Disclosures  About
Pensions and Other  Postretirement  Benefits." This statement revises employers'
disclosures  about pension and other  postretirement  benefit plans. It does not
change the  measurement  or  recognition  of those plans.  It  standardizes  the
disclosure  requirements for pensions and other  postretirement  benefits to the
extent practicable,  requires  additional  information on changes in the benefit
obligations  and fair  values  of plan  assets  that will  facilitate  financial
analysis,  and eliminates  certain  disclosures  that are no longer as useful as
they were when FASB Statements No. 87, "Employers' Accounting for Pensions", No.
88,  "Employers'  Accounting for Settlements and Curtailments of Defined Benefit
Pension Plans and for Termination Benefits", and No. 106, "Employers' Accounting
for Postretirement  Benefits Other Than Pensions",  were issued.  This statement
simply  requires  changes  in  disclosures  and does not  affect  the  financial
condition,  equity or operating  results of the  Corporation.  This statement is
effective  for fiscal years  beginning  after  December 15, 1997.  No additional
disclosures were required by the Company.

In  June  1998  the  FASB  issued  SFAS  No.  133,  "Accounting  for  Derivative
Instruments and Hedging Activities." This statement  establishes  accounting and
reporting  standards for derivative  instruments,  including certain  derivative
instruments   embedded  in  other  contracts,   (collectively   referred  to  as
derivatives)  and for hedging  activities.  It requires that an entity recognize
all  derivatives  as either assets or  liabilities in the statement of financial
position and measure those instruments at fair value. The accounting for changes
in the fair value of a derivative  depends on the intended use of the derivative
and the resulting  designation.  If certain conditions are met, a derivative may
be specifically designated as (a) a hedge of the exposure to changes in the fair
value of a recognized asset or liability or an unrecognized firm commitment, (b)
a hedge of the exposure to variable cash flows of a forecasted  transaction,  or
(c) a hedge of certain foreign currency  exposures.  This statement is effective
for all fiscal  quarters of fiscal  years  beginning  after June 15,  1999.  The
Company has not yet determined the impact, if any, of this statement,  including
its provisions for the potential reclassifications of investments securities, on
the Company's operations, financial condition or equity.
<PAGE>
In October 1998, the FASB issued SFAS No. 134,  "Accounting for  Mortgage-backed
Securities  Retained after the Securitization of Mortgage Loans Held for Sale by
a  Mortgage  Banking  Enterprise".   This  statement  requires  that  after  the
securitization  of a mortgage loan held for sale, an entity  engaged in mortgage
banking activities classify any retained mortgage-backed securities based on the
ability  and intent to sell or hold those  investments,  except  that a mortgage
banking  enterprise  must  classify  as  trading  any  retained  mortgage-backed
securities that it commits to sell before or during the securitization  process.
This statement is effective for the first fiscal quarter beginning after January
30, 1999 with earlier  adoption  permitted.  This statement  provides a one-time
opportunity for an enterprise to reclassify,  based on the ability and intent on
the date
                                       25
<PAGE>
of adoption of this statement,  mortgage-backed  securities and other beneficial
interests retained after securitization of mortgage loans held for sale from the
trading  category,  except for those with  commitments in place. The Company has
not yet  determined  the  impact,  if  any,  of this  statement,  including,  if
applicable,  its  provisions  for the  potential  reclassifications  of  certain
investment securities, on operations, financial condition or equity.


Item 3.           QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT 
                  MARKET RISK

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

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

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

To provide a more accurate one-year gap position of the Company, certain deposit
classifications are based on the interest-rate  sensitive  attributes and not on
the  contractual  repricing   characteristics  of  these  deposits.   Management
estimates,  based on historical trends of the Bank's deposit accounts,  that 52%
of its money market and NOW accounts are  sensitive to interest rate changes and
that  7% of its  savings  deposits  are  sensitive  to  interest  rate  changes.
Accordingly,   these  interest   sensitive  portions  of  such  liabilities  are
classified in the less than one year categories with the remainder placed in the
over five years  category.  Deposit  products  with  interest  rates  based on a
particular
                                       26
<PAGE>
index are classified  according to the specific repricing  characteristic of the
index. Deposit rates other than time deposit rates are variable,  and changes in
deposit rates are typically  subject to local market conditions and management's
discretion and are not indexed to any particular rate.

Generally, during a period of rising interest rates, a positive gap would result
in an increase  in net  interest  income  while a negative  gap would  adversely
affect net interest income.  However,  the interest  sensitivity  table does not
provide a comprehensive representation of the impact of interest rate changes on
net interest income. Each category of assets or liabilities will not be affected
equally or  simultaneously  by changes in the general  level of interest  rates.
Even assets and liabilities which  contractually  reprice within the same period
may not,  in fact,  reprice  at the same price or the same time or with the same
frequency. It is also important to consider that the table represents a specific
point  in time.  Variations  can  occur  as the  Company  adjusts  its  interest
sensitivity  position  throughout  the year.  For a discussion  of the potential
impact of interest rate changes upon the market value of the Company's portfolio
equity,  see "Market Risk" in the  Company's  Annual Report on Form 10-K for the
year ended June 30,  1998.  There has been no material  change in the  Company's
market value of portfolio equity since June 30, 1998.

The Company  periodically  identifies certain loans as held for sale at the time
of origination,  primarily consisting of fixed-rate,  single-family  residential
mortgage  loans  which  meet  the   underwriting   characteristics   of  certain
government-sponsored  enterprises  (conforming  loans).  The  Company  regularly
re-evaluates  its policy and  revises it as deemed  necessary.  The  majority of
loans sold to date have consisted of sales to Freddie Mac of whole loans and 95%
participation  interests in  long-term,  fixed-rate,  single-family  residential
mortgage  loans in  furtherance  of the  Company's  goal of better  matching the
maturities and  interest-rate  sensitivity of its assets and  liabilities.  When
selling loans, the Company has generally retained servicing in order to increase
its non-interest  income. At March 31, 1999, the Company serviced $19.76 million
of mortgage loans for others.  Loan sales produce future  servicing income (when
servicing  is  retained)  and  provide  funds for  additional  lending and other
purposes.
                                       27
<PAGE>
              Interest Rate Sensitivity Analysis at March 31, 1999
                             (Dollars in thousands)
<TABLE>
<CAPTION>
                                                                                                               
                                                                       More Than        More Than          More Than    
                                                                    Three Months       Six Months           One Year    
                                                     Three Months        Through          Through            Through    
                                                          or Less     Six Months         One Year        Three Years    
                                                  ---------------- ---------------  -----------------  ---------------  
<S>                 <C>                                   <C>             <C>                <C>              <C>       

INTEREST-EARNING ASSETS:
   Loans (1)
        Real estate (2)                                   $24,466         $17,526            $35,322          $70,459   
        Commercial business                                 8,921             998              2,435            2,726   
        Consumer                                            7,824           2,028              3,621           12,818   
   Securities and interest-bearing deposits                49,884           5,928              9,110            7,238   
                                                  ---------------- ---------------  -----------------  ---------------  

   Total interest-earning assets                          $91,095         $26,480            $50,488          $93,241   
                                                  ---------------- ---------------  -----------------  ---------------  

INTEREST-BEARING LIABILITIES:
   Savings accounts                                          $501            $501               $998               --   
   NOW accounts                                               450             450                900               --   
   Money market accounts                                   35,599              --                 --               --   
   Certificate accounts                                    64,517          22,184             42,301           63,678   
   Securities sold under agreements to
      repurchase                                               40              --                 --               --   
   Borrowings                                               4,516             616                 35           12,432   
                                                  ---------------- ---------------  -----------------  ---------------  
   Total interest-bearing liabilities                    $105,623         $23,751            $44,234          $76,110   
                                                  ---------------- ---------------  -----------------  ---------------  

Cumulative excess of interest-earning assets
   to interest-bearing liabilities                      ($14,528)       ($11,799)           ($5,545)          $11,586   
                                                        =========       =========           ========          =======   
Cumulative ratio of interest rate-sensitive
   assets to interest rate-sensitive liabilities            86.2%           90.9%              96.8%           104.6%   
                                                            =====           =====              =====           ======   
Cumulative difference as a percentage of
   total assets                                            (3.4%)          (2.8%)             (1.3%)             2.7%   
                                                           ======          ======             ======             ====   
</TABLE>
(continued)
<PAGE>
<TABLE>
<CAPTION>
                                                    More Than
                                                  Three Years
                                                      Through      More Than               
                                                   Five Years      Five Years        Total   
                                                 -------------  ---------------  -------------
<S>                 <C>                               <C>              <C>           <C>     
INTEREST-EARNING ASSETS:
   Loans (1)
        Real estate (2)                               $39,666          $35,979       $223,418
        Commercial business                               598               40         15,718
        Consumer                                        8,410           15,862         50,563
   Securities and interest-bearing deposits            16,544           32,328        121,032
                                                 -------------  ---------------  -------------

   Total interest-earning assets                      $65,218          $84,209       $410,731
                                                 -------------  ---------------  -------------

INTEREST-BEARING LIABILITIES:
   Savings accounts                                        --          $26,935        $28,935
   NOW accounts                                            --           33,927         35,727
   Money market accounts                                   --               --         35,599
   Certificate accounts                                10,247            2,311        205,238
   Securities sold under agreements to
      repurchase                                           --               --             40
   Borrowings                                          13,301           21,235         52,135
                                                 -------------  ---------------  -------------
   Total interest-bearing liabilities                 $23,548          $84,408       $357,674
                                                 -------------  ---------------  -------------

Cumulative excess of interest-earning assets
   to interest-bearing liabilities                    $53,256          $53,057        $53,057
                                                      =======          =======        =======
Cumulative ratio of interest rate-sensitive
   assets to interest rate-sensitive liabilities       119.5%           114.8%         114.8%
                                                       ======           ======         ======
Cumulative difference as a percentage of
   total assets                                         12.4%            12.4%          12.4%
                                                        =====            =====          =====
</TABLE>
(1)  Net of undisbursed loan proceeds.
(2)  Includes commercial mortgage loans.
<PAGE>
Part II.          Other Information

                  Item 1.  Legal Proceedings

                           None

                  Item 2.  Changes in Securities and Use of Proceeds

                           None

                  Item 3.  Defaults Upon Senior Securities

                           Not Applicable.

                  Item 4.  Submission of Matters to a Vote of Security Holders

                           None

                  Item 5.  Other Information

                           None

                  Item 6.  Exhibits and Reports on Form 8-K

                           No  Current  Reports  on Form 8-K were filed
                           during the  three-  months  ended  March 31,
                           1999

                           Exhibit 27 Financial Data Schedule

                                       29
<PAGE>
                                   SIGNATURES

Pursuant  to the  requirements  of the  Securities  Exchange  Act of  1934,  the
registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned thereunto duly authorized.


                                         Chester Valley Bancorp Inc.
                                       
                                       
Date          5-14-99                    /s/ Ellen Ann Roberts
                                         ---------------------
                                         Ellen Ann Roberts
                                         Chairman and Chief Executive Officer
                                       
                                       
Date         5-14-99                     /s/ Christine N. Dullinger
                                         --------------------------
                                         Christine N. Dullinger
                                         Treasurer and Chief Financial Officer

                                       30