<PAGE>   1



                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON DC  20549

                                  FORM 10-QSB

[ X ]     Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
          Exchange Act of 1934
          FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1997

                                       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.

<TABLE>
   <S>                                           <C>
   COMMON STOCK ($1.00 PAR VALUE)                           2,053,693
   ------------------------------                         ------------
        (Title of Each Class)                     (Number of Shares Outstanding
                                                       as of May 1, 1997)
</TABLE>
<PAGE>   2
                   CHESTER VALLEY BANCORP INC. AND SUBSIDIARY

                                     INDEX

<TABLE>
<CAPTION>
                                                                                           Page
                                                                                           Number
                                                                                           ------
<S>                                                                                        <C>
PART 1.  FINANCIAL INFORMATION
------------------------------

ITEM 1.  FINANCIAL STATEMENTS

         CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
           March 31, 1997 and June 30, 1996 (Unaudited)                                       3

         CONSOLIDATED STATEMENTS OF OPERATIONS
           Three Months Ended March 31, 1997 and 1996 (Unaudited)                             4

         CONSOLIDATED STATEMENTS OF OPERATIONS
           Nine Months Ended March 31, 1997 and 1996 (Unaudited)                              5

         CONSOLIDATED STATEMENTS OF CASH FLOWS
           Nine Months Ended March 31, 1997 and 1996 (Unaudited)                              6

         NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS                                7-13


ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
         CONDITION AND RESULTS OF OPERATIONS                                                14-23


PART 2.  OTHER INFORMATION                                                                   24
--------------------------

ITEM 1.  LEGAL PROCEEDINGS                                                                   24

ITEM 2.  CHANGES IN SECURITIES                                                               24

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES                                                     24

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                 24

ITEM 5.  OTHER INFORMATION                                                                   24

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K                                                    24

SIGNATURES                                                                                   25
----------
</TABLE>
<PAGE>   3


                   CHESTER VALLEY BANCORP INC. AND SUBSIDIARY
                 CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
                             (Dollars in Thousands)

<TABLE>
<CAPTION>
                                                                           MARCH 31,            June 30,
                                                                             1997                 1996
                                                                      ----------------     ------------------
<S>                                                                    <C>                  <C>
ASSETS:
Cash in banks                                                           $       1,740         $        1,528
Interest-bearing deposits                                                       3,956                  8,784
Investment securities available for sale                                       25,150                  6,159
Investment securities (market value - March 31, $20,522; June
  30, $22,491)                                                                 20,736                 24,593
Accrued interest receivable                                                     1,840                  1,616
Loans held for sale                                                               201                   --
Loans receivable, less allowance for possible loan losses of
  $2,710 and $2,667                                                           244,211                223,963
Prepaid and deferred income taxes                                                 905                    720
Real estate owned                                                                 483                    121
Property and equipment                                                          4,407                  4,323
Other assets                                                                    1,558                  1,125
                                                                      ----------------     ------------------
     TOTAL ASSETS                                                       $     305,187         $      272,932
                                                                      ================     ==================




LIABILITIES AND STOCKHOLDERS' EQUITY:
Deposit accounts                                                        $     242,304         $      228,206
Securities sold under agreements to repurchase                                    169                   --
Advance payments by borrowers for taxes and insurance                           2,209                  3,015
Employee Stock Ownership Plan ("ESOP") debt                                       379                    511
Federal Home Loan Bank advances                                                31,412                 13,972
Other borrowings                                                                  250                   --
Accrued interest payable                                                          786                    653
Accrued and deferred income taxes                                                  79                    322
Other liabilities                                                               1,468                    689
                                                                      ----------------     ------------------
     TOTAL LIABILITIES                                                        279,056                247,368
                                                                      ----------------     ------------------

STOCKHOLDERS' EQUITY:
Preferred stock - $1.00 par value; 5,000,000 shares
  authorized; none issued                                                       --                     --
Common stock - $1.00 par value; 15,625,000 shares authorized;
  2,072,083 and 1,990,261 shares issued at March 31 and June 30,
  respectively(1)                                                               2,072                  1,990
Additional paid-in capital(1)                                                  12,720                 11,265
Common stock acquired by ESOP                                                   (379)                  (511)
Retained earnings - partially restricted                                       12,236                 13,110
Net unrealized loss on securities available for sale, net of
  taxes                                                                         (255)                   (97)
                                                                      ----------------     ------------------
  Subtotal                                                                     26,394                 25,757
Treasury stock, at cost (17,773 shares and 14,555 shares at
  March 31 and June 30, respectively)(1)                                        (263)                  (193)
                                                                      ----------------     ------------------
     TOTAL STOCKHOLDERS' EQUITY                                                26,131                 25,564
                                                                      ----------------     ------------------

     TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                         $     305,187         $      272,932
                                                                      ================     ==================
</TABLE>


(1) June 30, 1996, amounts have been restated for the March 1997 five-for-four
    stock split effected in the form of a dividend

See accompanying notes to unaudited consolidated financial statements.





                                       3
<PAGE>   4


                   CHESTER VALLEY BANCORP INC. AND SUBSIDIARY
                     CONSOLIDATED STATEMENTS OF OPERATIONS
              (Dollars in Thousands, Except for Per Share Amounts)
<TABLE>
<CAPTION>
                                                                                         THREE MONTHS ENDED
                                                                                              MARCH 31,
                                                                              ----------------------------------------
                                                                                    1997                    1996
                                                                              ----------------       -----------------
<S>                                                                          <C>                     <C>
INTEREST INCOME:                                                                                     
  Loans                                                                       $     5,029             $       4,536
  Investment securities and interest-bearing deposits                                 541                       652
                                                                              ------------            --------------
     TOTAL INTEREST INCOME                                                          5,570                     5,188
                                                                              ------------            --------------
                                                                                                     
INTEREST EXPENSE:                                                                                    
  Deposits                                                                          2,572                     2,492
  Short-term borrowings                                                                79                        68
  Long-term borrowings                                                                213                       196
                                                                              ------------            --------------
     TOTAL INTEREST EXPENSE                                                         2,864                     2,756
                                                                              ------------            --------------
                                                                                                     
NET INTEREST INCOME                                                                 2,706                     2,432
  Provision for possible loan losses                                                   97                        62
                                                                              ------------            --------------
      NET INTEREST INCOME AFTER PROVISION FOR POSSIBLE LOAN LOSSES                  2,609                     2,370
                                                                              ------------            --------------
                                                                                                     
OTHER INCOME:                                                                                        
  Service charges and fees                                                            228                       219
  Gain (loss) on sale of loans held for sale                                           (2)                       13
  Gain on sale of securities available for sale                                        30                        47
  Other                                                                                40                       (46)
                                                                              ------------            --------------
     TOTAL OTHER INCOME                                                               296                       233
                                                                              ------------            --------------
                                                                                                     
OPERATING EXPENSES:                                                                                  
  Salaries and employee benefits                                                      978                       804
  Occupancy and equipment                                                             379                       328
  Data processing                                                                     142                       136
  Deposit insurance premiums                                                            9                       126
  Other                                                                               393                       329
                                                                              ------------            --------------
     TOTAL OPERATING EXPENSES                                                       1,901                     1,723
                                                                              ------------            --------------
                                                                                                     
  Income before income taxes                                                        1,004                       880
  Income tax expense                                                                  275                       239
                                                                              ------------            --------------
                                                                                                     
NET INCOME                                                                    $       729             $         641
                                                                              ============            ==============
                                                                                                     
EARNINGS PER SHARE (1):                                                                              
  Primary                                                                     $      0.35             $        0.31
                                                                              ============            ==============
  Fully Diluted                                                               $      0.35             $        0.31
                                                                              ============            ==============
                                                                                                     
DIVIDENDS PER SHARE PAID DURING PERIOD (1)                                    $      0.09             $        0.07
                                                                              ============            ==============
                                                                                                     
WEIGHTED AVERAGE SHARES OUTSTANDING (1):                                                             
  Primary                                                                       2,057,718                 2,068,858
                                                                              ============            ==============
  Fully Diluted                                                                 2,061,677                 2,068,858
                                                                              ============            ==============
</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 1996 and the March 1997 five-for-four stock
      split effected in the form of a dividend.

See accompanying notes to unaudited consolidated financial statements.



                                       4
<PAGE>   5

                   CHESTER VALLEY BANCORP INC. AND SUBSIDIARY
                     CONSOLIDATED STATEMENTS OF OPERATIONS
              (Dollars in Thousands, Except for Per Share Amounts)

<TABLE>
<CAPTION>
                                                                               NINE MONTHS ENDED
                                                                                    MARCH 31,
                                                                  -------------------------------------------
                                                                          1997                   1996
                                                                  -------------------     -------------------
<S>                                                               <C>                     <C>
INTEREST INCOME:
  Loans                                                            $         15,022        $         13,857
  Investment securities and interest-bearing deposits                         1,533                   1,529
                                                                  -------------------     -------------------
     TOTAL INTEREST INCOME                                                   16,555                  15,386
                                                                  -------------------     -------------------

INTEREST EXPENSE:
  Deposits                                                                    7,584                   7,465
  Securities sold under agreements to repurchase                                 51                      --
  Short-term borrowings                                                         231                     161
  Long-term borrowings                                                          595                     567
                                                                  -------------------     -------------------
     TOTAL INTEREST EXPENSE                                                   8,461                   8,193
                                                                  -------------------     -------------------

NET INTEREST INCOME                                                           8,094                   7,193
  Provision for possible loan losses                                            357                     247
                                                                  -------------------     -------------------
      NET INTEREST INCOME AFTER PROVISION FOR POSSIBLE
        LOAN LOSSES                                                           7,737                   6,946
                                                                  -------------------     -------------------

OTHER INCOME:
  Service charges and fees                                                      736                     709
  Gain on sale of loans held for sale                                             1                      17
  Gain on sale of securities available for sale                                  98                     134
  Other                                                                         137                      (6)
                                                                  -------------------     -------------------
     TOTAL OTHER INCOME                                                         972                     854
                                                                  -------------------     -------------------

OPERATING EXPENSES:
  Salaries and employee benefits                                              2,780                   2,430
  Occupancy and equipment                                                     1,117                     967
  Data processing                                                               450                     389
  SAIF special assessment                                                     1,387                      --
  Deposit insurance premiums                                                    270                     372
  Other                                                                       1,195                   1,034
                                                                  -------------------     -------------------
     TOTAL OPERATING EXPENSES                                                 7,199                   5,192
                                                                  -------------------     -------------------

  Income before income taxes                                                  1,510                   2,608
  Income tax expense                                                            324                     770
                                                                  -------------------     -------------------


NET INCOME                                                         $          1,186        $          1,838
                                                                  ===================     ===================

EARNINGS PER SHARE (1):
  Primary                                                          $           0.58        $           0.89
                                                                  ===================     ===================
  Fully Diluted                                                    $           0.58        $           0.89
                                                                  ===================     ===================

DIVIDENDS PER SHARE PAID DURING PERIOD (1)                         $           0.26        $           0.21
                                                                  ===================     ===================


WEIGHTED AVERAGE SHARES OUTSTANDING (1):
  Primary                                                                 2,057,881               2,074,795
                                                                  ===================     ===================
  Fully Diluted                                                           2,060,846               2,076,258
                                                                  ===================     ===================
</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 1996 and the March 1997 five-for-four stock
       split effected in the form of a dividend.

See accompanying notes to unaudited consolidated financial statements.





                                       5
<PAGE>   6
                  CHESTER VALLEY BANCORP INC. AND SUBSIDIARY
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                            (Dollars in Thousands)

<TABLE>
<CAPTION>
                                                                     NINE MONTHS ENDED MARCH 31,
                                                           -------------------------------------------------
                                                                1997                            1996
                                                           -------------------------------------------------
<S>                                                        <C>                             <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income                                                  $        1,186                  $        1,838
Add (deduct) items not affecting cash flows
   from operating activities:

   Depreciation                                                        426                             405
   Provision for possible losses on loans                              357                             247
   Gain on sale of loans held for sale                                  (1)                            (17)
   Gain on sale of securities available for sale                       (98)                           (134)

   Loss on sale of real estate owned                                   --                               52
   Amortization of deferred loan fees,
     discounts and premiums                                           (392)                           (407)
   Increase in accrued interest receivable                            (224)                           (171)
   Decrease (increase) in other assets                                (433)                             34
   Increase in prepaid and deferred income taxes                      (185)                           (137)
   Decrease in accrued and deferred income taxes                      (243)                           (147)
   Increase in other liabilities                                       779                              69
   Increase in accrued interest payable                                133                              97
------------------------------------------------------------------------------------------------------------
NET CASH FLOWS FROM OPERATING ACTIVITIES                             1,305                           1,729
------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM (USED IN) INVESTMENT ACTIVITIES:
   Capital expenditures                                               (510)                           (310)
   Net (increase) decrease in loans and loans
     held for sale                                                 (21,672)                          1,548
   Proceeds from sale of loans held for sale                           905                           2,452
   Proceeds from maturities, payments and calls
     of investment securities                                        4,066                           3,971
   Purchase of investment securities                                  (221)                         (7,013)
   Purchase of securities available for sale                       (69,909)                        (81,999)
   Proceeds from sale of securities available
     for sale                                                       50,776                          68,610
   Proceeds from real estate owned                                      86                             312
------------------------------------------------------------------------------------------------------------
NET CASH FLOWS USED IN INVESTMENT ACTIVITIES                       (36,479)                        (12,429)
------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES:
   Net increase in savings deposits before
     interest credited                                               7,716                           5,181
   Interest credited to savings accounts                             6,382                           6,242
   Proceeds under securities sold under
     agreements to repurchase                                          169                             --
   Proceeds from FHLB advances                                      18,914                           2,248
   Repayments of FHLB advances                                      (1,474)                         (1,854)
   Decrease in advance payments by borrowers
     for taxes and insurance                                          (806)                           (822)
   Proceeds from other borrowings                                      250                             --
   Cash dividends on common stock                                     (533)                           (416)
   Repayments of principal on ESOP debt                               (132)                           (138)
   Sale of common stock under the dividend
     reinvestment plan                                                  (9)                            165
   Payment for fractional shares                                       (17)                            (11)
   Stock options exercised                                             290                              95
   Reduction of common stock acquired by ESOP                          132                             138
   Stock repurchased as treasury stock                                (324)                           (242)
------------------------------------------------------------------------------------------------------------
NET CASH FLOWS FROM FINANCING ACTIVITIES                            30,558                          10,586
------------------------------------------------------------------------------------------------------------
Decrease in cash and cash equivalents                               (4,616)                           (114)

CASH AND CASH EQUIVALENTS:
   Beginning of period                                              10,312                           7,444
                                                         ------------------             --------------------
   End of period                                            $        5,696                  $        7,330
                                                         ==================             ====================


SUPPLEMENTAL DISCLOSURES:
   Cash payments during the year for:
      Taxes                                                 $          617                  $          935
      Interest                                              $        8,328                  $        8,098

NON-CASH ITEMS:
   Acquisition of real estate in settlement of
     loans                                                  $          448                  $          207
   Stock dividend issued                                    $        1,516                  $        1,417
   Transfer of investment securities to
     investment securities available for sale               $           --                  $        3,192
   Net unrealized loss on investment securities
     available for sale                                     $          240                  $          338
   Tax effect on unrealized loss on investment
     securities available for sale                          $           82                  $          110
</TABLE>

See accompanying notes to unaudited consolidated financial statements.





                                       6
<PAGE>   7


                          CHESTER VALLEY BANCORP INC.
                                 AND SUBSIDIARY
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


NOTE 1 -         BASIS OF PRESENTATION

                 The accompanying consolidated financial statements have been
                 prepared in accordance with instructions to Form 10-QSB.
                 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 nine-month period ended
                 March 31, 1997, are not necessarily indicative of the results
                 to be expected for the fiscal year ending June 30, 1997.  The
                 consolidated financial statements presented herein should be
                 read in conjunction with the audited consolidated financial
                 statements and the notes thereto included in Chester Valley
                 Bancorp Inc.'s Annual Report to Stockholders for the fiscal
                 year ended June 30, 1996.

NOTE 2 -         SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

                 PRINCIPLES OF CONSOLIDATION

                 The accompanying consolidated financial statements include the
                 accounts of Chester Valley Bancorp Inc. (the "Company" or
                 "Chester Valley"), its wholly-owned subsidiary, First
                 Financial Savings Bank PaSA (the "Bank" or "First Financial"),
                 a Pennsylvania-chartered stock savings association, and the
                 Bank's wholly-owned subsidiary, D & S Service Corp., which
                 owns D & F Projects 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.

                 CASH AND CASH EQUIVALENTS

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


                                       7
<PAGE>   8

                 INVESTMENTS AND MORTGAGE-BACKED SECURITIES

                 The Company divides its securities portfolio into three
                 segments:  (a) held to maturity; (b) available for sale; and
                 (c) trading.  Securities in the held to maturity category are
                 accounted for at amortized cost.  Trading securities, if any,
                 are accounted for at quoted market prices with changes in
                 market values being recorded as gain or loss in the income
                 statement.  All other securities are included in the available
                 for sale category and are accounted for at fair value with
                 unrealized gains or losses, net of taxes, being reflected as
                 adjustments to equity.

                 Investments and mortgage-backed securities held for investment
                 are carried at 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.  At the time of purchase, the
                 Company makes a determination on whether or not it will hold
                 the investments and mortgage-backed securities to maturity,
                 based upon an evaluation of the probability of the occurrence
                 of certain future events.  Investments and mortgage-backed
                 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 classified as
                 available for sale.  If investments and mortgage-backed
                 securities available for sale are sold, any gain or loss is
                 determined by specific identification and reflected in the
                 operating results for the period.

                 ALLOWANCE FOR POSSIBLE LOAN LOSSES

                 The allowance for possible loan losses is maintained at a
                 level that management considers adequate to provide for
                 potential losses based upon an evaluation of known and
                 inherent risks in the loan portfolio.  Management's evaluation
                 is based upon an analysis of the portfolio, past loss
                 experience, current economic conditions and other relevant
                 factors.  While management uses the best information available
                 to make such evaluations, such evaluations are highly
                 subjective, and future adjustments to the allowance may be
                 necessary if conditions differ substantially from the
                 assumptions used in making the evaluations.  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 possible loan losses which is charged to
                 operations.  Loan losses are charged directly against the
                 allowance and recoveries on previously charged-off loans are
                 added to the allowance.





                                       8
<PAGE>   9

                 On July 1, 1995, the Company prospectively implemented
                 Statement of Financial Accounting Standards No. 114 ("SFAS No.
                 114"), "Accounting by Creditors for Impairment of Loans," and
                 SFAS No. 118, "Accounting by Creditors for Impairment of a
                 Loan-Income Recognition and Disclosures," which amends SFAS
                 No. 114 and requires certain related disclosures.  SFAS No.
                 114, as amended, requires certain impaired loans to be
                 measured based on the present value of expected future cash
                 flows discounted at the loan's effective interest rate, the
                 loan's market price or the fair value of the collateral if the
                 loan is collateral dependent.  The implementation of these
                 statements had no material effect on the Company's results of
                 operations, financial condition, or stockholders' equity.

                 For purposes of applying the measurement criteria for impaired
                 loans under SFAS No. 114, as amended, the Company excludes
                 large groups of smaller-balance homogeneous loans, primarily
                 consisting of residential real estate loans and consumer loans
                 as well as commercial loans with balances of less than
                 $100,000.  For applicable loans, the Company evaluates the
                 need for impairment recognition when a loan becomes
                 non-accrual or earlier if, based on management's assessment of
                 the relevant facts and circumstances, it is probable that the
                 Bank will be unable to collect all proceeds due according to
                 the contractual terms of the loan agreement.  At and during
                 the three- and nine-month periods ended March 31, 1997, the
                 recorded investment in impaired loans was not material.  The
                 Company's policy for the recognition of interest income on
                 impaired loans is the same as for non-accrual loans discussed
                 below.  Impaired loans are charged off when the Company
                 determines that foreclosure is probable and the fair value of
                 the collateral is less than the recorded investment of the
                 impaired loan.

                 LOANS, LOAN ORIGINATION FEES AND UNCOLLECTED INTEREST

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

                 Uncollected interest receivable on loans is accrued to income
                 as earned.  Non-accrual loans are loans on which the accrual
                 of interest has ceased because the collection of principal or
                 interest payments is determined to be doubtful by management.
                 It is the policy of the Company to discontinue the accrual of
                 interest when principal or interest payments are delinquent 90
                 days or more (unless the loan principal and interest are
                 determined by management to be fully secured and in the
                 process of collection), or earlier, if the financial condition
                 of the borrower raises


                                       9
<PAGE>   10
                 significant concern with regard to the ability of the borrower
                 to service the debt in accordance with the current loan terms.
                 Interest income on such loans is not accrued until the
                 financial condition and payment record of the borrower once
                 again demonstrate the ability to service the debt.

                 LOANS HELD FOR SALE

                 The Company periodically identifies certain loans as held for
                 sale at the time of origination.  These loans consist
                 primarily of fixed-rate, single-family residential mortgage
                 loans which meet the underwriting characteristics of certain
                 government-sponsored enterprises (conforming loans).  Loans
                 held for sale are carried at the lower of aggregate cost or
                 fair value, with the resulting gain or loss 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.
                 Deferred tax assets and liabilities are measured using enacted
                 tax rates expected to apply to taxable income in the years in
                 which those temporary differences are expected to be recovered
                 or settled.  The effect on deferred tax assets

                                       10
<PAGE>   11
                 and liabilities of a change in tax rates is recognized in
                 income in the period that includes the enactment date.

                 EARNINGS PER COMMON SHARE AND COMMON EQUIVALENT SHARE

                 Earnings per share have been calculated based on the weighted
                 average number of common and common equivalent shares
                 outstanding for the respective periods. Stock options are
                 considered common stock equivalents and are included in the
                 computation of the number of outstanding shares using the
                 treasury stock method. Earnings per share and weighted average
                 shares outstanding have been adjusted to reflect the effects
                 of the 5% stock dividend paid in September 1996 and the March
                 1997 five-for-four stock split effected in the form of a
                 dividend.





                                       11
<PAGE>   12
NOTE 3 -         LOANS RECEIVABLE

                 Loans receivable are summarized as follows:

<TABLE>
<CAPTION>
                                                          AT MARCH 31,                 At June 30,
                                                              1997                         1996
                                                     ---------------------        -----------------------
                                                                (Dollars in Thousands)
         <S>                                                  <C>                             <C>
         First mortgage loans:
            Residential                                       $152,703                        $148,530
            Construction-residential                             9,444                           9,494
            Land acquisition and
               development                                       6,454                           5,121
            Commercial                                          31,576                          22,552
            Construction-commercial                              5,287                           2,413
         Commercial business                                     7,008                           5,701
         Consumer                                               46,265                          41,486
                                                     ---------------------        -----------------------

         TOTAL LOANS                                           258,737                         235,298
                                                     ---------------------        -----------------------

         Less:
            Undisbursed loan proceeds:
               Construction-residential                        (6,867)                         (6,211)
               Construction-commercial                         (3,454)                           (923)
            Deferred loan fees - net                           (1,495)                         (1,533)
            Allowance for loan losses                          (2,710)                         (2,667)
                                                     ---------------------        -----------------------

         NET LOANS                                            $244,211                        $223,963
                                                     =====================        =======================
</TABLE>


NOTE 4 -         COMMITMENTS

                 Commitments to potential mortgagors of the Bank amounted to
                 $7.82 million as of March 31, 1997, of which $4.84 million was
                 for variable-rate loans.  The balance of the commitments
                 represents $2.98 million of fixed-rate loans bearing interest
                 rates of 6.70% to 8.625%.  At March 31, 1997, the Company had
                 $10.32 million of undisbursed construction loan funds as well
                 as $13.99 million of undisbursed remaining credit line
                 balances.  In addition, the Company has issued $71,000 of
                 commercial letters of credit fully secured by deposit accounts
                 or real estate.





                                      12
<PAGE>   13

NOTE 5 -         REGULATORY CAPITAL

                 The Bank is required by regulations of the Office of Thrift
                 Supervision ("OTS") to maintain minimum levels of capital as
                 measured by three ratios.  Savings institutions are currently
                 required to maintain a minimum regulatory tangible capital
                 equal to 1.5% of total assets, minimum core capital of 3% of
                 total assets, and risk-based capital equal to 8% of total
                 risk-weighted assets.  At March 31, 1997, and June 30, 1996,
                 the Bank exceeded all regulatory capital requirements.  The
                 following sets forth the reconciliation of the Bank's
                 compliance with each of the regulatory capital requirements
                 (dollars in thousands):


<TABLE>
<CAPTION>
                                                                       MARCH 31, 1997
                                                 ---------------------------------------------------------
                                                   TANGIBLE                   CORE             RISK-BASED
                                                    CAPITAL                CAPITAL                CAPITAL
                                                 -----------           ------------         --------------
<S>                                              <C>                   <C>                  <C>
Total Regulatory Capital                         $   25,920            $    25,920          $      28,109
Minimum Required Regulatory Capital                   4,582                  9,163                 14,644
                                                 -----------           ------------         --------------
Excess Regulatory Capital                        $   21,338            $    16,757          $      13,465
                                                 ===========           ============         ==============
Regulatory Capital as a
  Percentage of Assets                                8.49%                  8.49%                 15.36%
Minimum Capital Required as a
  Percentage of Assets                                1.50                   3.00                   1.50
                                                 -----------           ------------         --------------
Excess Regulatory Capital as a
  Percentage of Assets                                6.99%                  5.49%                  7.36%
                                                 ===========           ============         ==============
</TABLE>


<TABLE>
<CAPTION>
                                                                       June 30, 1996
                                                 --------------------------------------------------------------
                                                    Tangible                  Core                  Risk-based
                                                     Capital               Capital                     Capital
                                                 ------------           -----------              --------------
<S>                                              <C>                    <C>                      <C>
Total Regulatory Capital                         $    25,301            $   25,301                $     27,348
Minimum Required Regulatory Capital                    4,095                 8,191                      13,243
                                                 ------------           -----------              --------------
Excess Regulatory Capital                        $    21,206            $   17,110                $     14,105
                                                 ============           ===========              ==============
Regulatory Capital as a                          
  Percentage of Assets                                 9.27%                 9.27%                      16.52%
Minimum Capital Required as a                    
  Percentage of Assets                                 8.00                  3.00                        8.00
                                                 ------------           -----------              --------------
Excess Regulatory Capital as a                   
  Percentage of Assets                                 7.77%                 6.27%                       8.52%
                                                 ============           ===========              ==============
</TABLE>


The Bank is not under any agreement with the regulatory authorities, nor is it
aware of any current recommendations by the regulatory authorities which, if
they were to be implemented, would have a material effect on the liquidity,
capital resources or operations of the Company.





                                       13
<PAGE>   14

Item 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
         RESULTS OF OPERATION

                              FINANCIAL CONDITION

The Company's total assets increased to $305.19 million at March 31, 1997, from
$272.93 million at June 30, 1996, largely as the result of the increases in net
loans and securities available for sale to $244.21 million and $25.15 million,
respectively, at March 31, 1997, from $223.96 million and $6.16 million at June
30, 1996, respectively.  The increase in total assets was funded primarily by
increases in deposit accounts to $242.30 million and in Federal Home Loan Bank
advances to $31.41 million at March 31, 1997, from $228.21 million and $13.97
million at June 30, 1996, respectively.

Stockholders' equity increased to $26.13 million at March 31, 1997, from $25.56
million at June 30, 1996, as a result of net income of $1.19 million, the
receipt of $290,000 from the exercise of stock options during the period, and
the reduction in the principal balance of the ESOP debt by $132,000.  The
increase in stockholders' equity was offset, in large part, by the payment of
cash dividends totaling $533,000, the repurchase of $324,000 of common stock,
the recognition of net unrealized losses on securities available for sale, net
of taxes, of $158,000, as well as the payment of $17,000 for fractional shares
in connection with the 5% stock dividend paid during the nine-month period
ended March 31, 1997.

                             RESULTS OF OPERATIONS

Net interest income, on a fully tax equivalent basis, increased 11.7% to $2.78
million for the three-month period ended March 31, 1997, and 12.6% to $8.30
million for the nine-month period ended March 31, 1997, compared to $2.49
million and $7.37 million for the same periods in 1996.  Total interest income,
on a fully tax equivalent basis, increased to $5.64 million and $16.76 million
for the three- and nine-month periods ended March 31, 1997, from $5.25 million
and $15.56 million for the same periods in 1996, primarily as the result of an
increase in the average balance of interest-earning assets.  The average
balance of interest-earning assets increased to $283.16 million and $276.30
million for the three- and nine-month periods ended March 31, 1997, from
$262.03 million and $256.52 million for the same respective periods in 1996.
Loan originations of $61.24 million during the nine months ended March 31,
1997, contributed to the increase in the average balance of interest-earning
assets.  The average yield on interest-earning assets remained the same at
8.09% for the nine months ended March 31, 1997 and 1996.

Total interest expense increased to $2.86 million and $8.46 million from $2.76
million and $8.19 million for the respective three- and nine-month periods in
1997 and 1996, largely as the result of the increase in the average balance of
interest-bearing liabilities to $245.93 million and $238.79 million,
respectively, as compared to $226.87 million and $223.22 million for the same
periods in





                                       14
<PAGE>   15
1996.  Partially offsetting the effect of increases in the average balances of
interest-bearing liabilities were decreases in the average rate paid on such
liabilities to 4.65% and 4.72% for the three- and nine-month periods ended
March 31, 1997, from 4.87% and 4.89% for the same periods in 1996,
respectively.  Such declines were due, in part, to the Bank lowering the rates
paid on its interest-bearing retail checking accounts combined with the Bank's
successful efforts in obtaining low-costing or no-cost deposits in the form of
commercial business accounts.

The tax equivalent interest rate spread increased to 3.37% from 3.20%, and the
average net yield on interest-earning assets increased to 4.01% from 3.83% for
the nine-month periods ended March 31, 1997 and 1996, respectively, due to the
reasons discussed above.

PROVISION FOR POSSIBLE LOAN LOSSES

The Company provided $97,000 and $357,000 during the three- and nine-month
periods ended March 31, 1997, respectively, for possible loan losses as
compared to $62,000 and $247,000 for the same periods in 1996.  These
provisions have been added to the Company's allowance for possible loan losses
due to the current economic conditions and management's assessment of the
inherent risk of loss existing in the loan portfolio.  At March 31, 1997, the
allowance for possible loan losses totaled $2.71 million or 1.10% of net loans,
compared to $2.67 million or 1.18% of net loans and $2.63 million or 1.20% of
net loans at June 30, 1996, and March 31, 1996, respectively. As a percentage
of non-performing loans, the allowance for possible loan losses was 280.8% at
March 31, 1997, compared to 120.3% at June 30, 1996, and further compared to
92.7% at March 31, 1996.

Provisions for possible loan losses which are added to the allowance for
possible loan losses are based upon, among other things, delinquency trends,
the volume of non-performing loans, prior loss experience of the portfolio,
current economic conditions, and other relevant factors.  Although management
believes it has used the best information available to it in making such
determinations and that the present allowance for possible loan losses is
adequate, future adjustments to the allowance may be necessary, and net income
may be adversely affected if circumstances differ substantially from the
assumptions used in determining the level of the allowance.  In addition,
various regulatory agencies, as an integral part of their examination process,
periodically review the Company's allowance for possible 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.

OTHER INCOME

Total other income increased to $296,000 and $972,000 during the three- and
nine-month periods ended March 31, 1997, as compared to $233,000 and $854,000
during the same periods in 1996 due to increases in service charges and fees.
Service charges and fees increased to $736,000 from $709,000 during the
nine-month periods ended March 31, 1997 and 1996, respectively, as the





                                       15
<PAGE>   16
result of an increase in fees charged on safe deposit box rentals, an increase
in the number of safe deposit boxes rented and an increase in commissions
earned on the sale of disability and life insurance to the Bank's loan
customers.  In addition, other income included a gain on the sale of real
estate of $6,700 compared to a loss of $52,000 during the nine months ended
March 31, 1997 and 1996, respectively.

OPERATING EXPENSES

Total operating expenses for the three- and nine-month periods ended March 31,
1997, increased to $1.90 million and $7.20 million, respectively, from $1.72
million and $5.19 million for the same respective periods in 1996.  The
increase for the nine months ended March 31, 1997, was mainly due to the
one-time Savings Institutions Insurance Fund ("SAIF") special assessment of
$1.39 million.  The one-time assessment, which required a payment of 65.7 basis
points on SAIF-insured deposits that were held as of March 31, 1995, was part
of the Economic Growth and Regulatory Paperwork Reduction Act of 1996 ("Deposit
Insurance Legislation") passed by Congress and signed by the President on
September 30, 1996.  The assessment brought the SAIF's reserve ratio to a
comparable level of that of the Bank Insurance Fund portion of the Federal
Deposit Insurance Corporation ("FDIC"), at 1.25 percent  of total insured
deposits.  In addition, the FDIC lowered the SAIF premium charged to certain
well-capitalized institutions from 23 cents per $100 of deposits to 6.44 cents
per $100 of deposits beginning in January 1997, which will result in an annual
estimated pretax savings of approximately $400,000 per year for the Company.
The increase in operating expenses for the three- and nine-month periods ended
March 31, 1997, was also due to (i) normal salary increases combined with
increases in benefits expense, as well as the cost of additional staff for the
Bank's newest branch office, Brandywine Square, which opened during the first
quarter of fiscal 1997, (ii) an increase in office rental expense, furniture,
fixture and equipment expense, and advertising expense in connection with the
opening of the Brandywine Square branch office in the first quarter of fiscal
1997, and (iii) an increase in data processing expenses related to an increased
number of accounts and usage.

INCOME TAX EXPENSE

Income tax expense was $275,000 and $324,000 for the three- and nine-month
periods ended March 31, 1997, compared to  $239,000 and $770,000 for the same
periods in 1996.  The decrease in income tax expense for the nine-month period
ended March 31, 1997, was the result of the $1.39 million one-time SAIF
assessment which significantly reduced the Company's pre-tax income during such
period.

NET INCOME

The Company earned net income of $1.19 million or $.58 per share for the nine
months ended March 31, 1997, after posting the one-time SAIF special
assessment, compared to $1.84 million or





                                       16
<PAGE>   17
$.89 per share for the same period in 1996.  The pre-tax effect of the one-time
special assessment was $1.39 million resulting in an after-tax charge to
earnings of approximately $832,000 or $.42 per share.  Excluding the one-time
SAIF special assessment and adding back the effect of the premium reduction
from 23 cents per $100 of deposits to 6.48 cents, the Company would have earned
net income of $2.06 million or $1.00 per share, for the nine months ended March
31, 1997.


                                 ASSET QUALITY

Non-performing assets are comprised of non-performing loans and REO and totaled
$1.45 million at March 31, 1997.  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 term.  Interest income is not accrued
until the financial condition and payment record of the borrower once again
demonstrate the ability to service the debt.  At March 31, 1997, the Company
did not have any loans greater than 90 days delinquent which were accruing
interest.  Non-performing assets to total assets and non-performing loans to
total assets were .47% and .32%, respectively, at March 31, 1997, compared to
 .86% and .81%, respectively, at June 30, 1996, and 1.03% and 1.03%,
respectively, at March 31, 1996.  Non-performing loans, which  totaled $965,000
at March 31, 1997, consisted of seven residential mortgage loans aggregating
$487,000 and $478,000 in consumer loans.

At March 31, 1997, the Company's classified assets, which consisted of assets
classified as substandard, doubtful, loss, and REO, totaled $1.87 million
compared to $2.97 million at June 30, 1996, and further compared to $3.58
million at March 31, 1996.  Included in the assets classified substandard at
March 31, 1997 and 1996, and June 30, 1996, were all loans 90 days past due and
loans which are less than 90 days delinquent but inadequately protected by the
current paying capacity of the borrower or of the collateral pledged, or which
were subject to a well-defined weakness which may jeopardize the liquidation of
the debt.  The $420,000 of classified assets which were not considered
non-performing at March 31, 1997, were comprised primarily of four loans to one
borrower totaling $297,000, which were classified substandard but were
performing in accordance with the terms and conditions of the loans.


                        LIQUIDITY AND CAPITAL RESOURCES

The Company's primary sources of funds have historically consisted of deposits,
regular principal payments and prepayments of outstanding loans, and borrowings
from the Federal Home Loan





                                       17
<PAGE>   18
Bank of Pittsburgh and other sources.  During the first nine months of fiscal
1997, the Company used its capital resources primarily to meet its ongoing
commitments to fund maturing savings certificates and savings withdrawals, fund
existing and continuing loan commitments, and maintain its liquidity. At March
31, 1997, the total of approved mortgage loan commitments amounted to $7.82
million.  In addition, at such date the Company had $10.32 million of
undisbursed construction loan funds and $13.99 million of undisbursed remaining
credit line balances, as well as $71,000 of commercial letters of credit fully
secured by deposit accounts or real estate.  $42.73 million of certificates of
deposit are scheduled to mature during the remainder of fiscal 1997, the
majority of which the Company believes, on the basis of prior experience, will
be reinvested with the Company.

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 24, 1997, the Board of Directors
declared a five-for-four stock split and a quarterly cash dividend of $.11 per
share, both of which were paid on March 19, 1997, to stockholders of record as
of March 5, 1997.

The Bank, which is the Company's wholly-owned subsidiary, 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 5% of its net withdrawable accounts plus short-term borrowings, of
which short-term liquid assets must amount to not less than 1%.  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,
1997 was 10.66%.


                         ASSET AND LIABILITY MANAGEMENT

The principal objective of the Company's asset and liability management
function is to maximize the Company's net interest margin while maintaining an
appropriate level of risk given the Company's business focus, operating
environment, capital and liquidity requirements and performance objectives.
Through such management, the Company seeks to reduce the vulnerability of its
operations to changes in interest rates and to manage the ratio of interest
rate-sensitive assets to interest rate-sensitive liabilities within specified
maturities or repricing dates.  The Company's actions in this regard are taken
under the guidance of the Asset-Liability Management Committee.

Interest rate risk is derived from timing differences in the repricing of
assets and liabilities, loan prepayments, deposit withdrawals, and differences
in lending and funding rates.  One measure of interest rate risk is the GAP
ratio, which is defined as the difference between the dollar volume of
interest-earning assets and interest-bearing liabilities maturing or repricing
within the same specified period of time as a percentage of total assets.





                                       18
<PAGE>   19

The Company's asset and liability management strategy currently is to emphasize
the origination of adjustable-rate mortgages, short-term consumer and
commercial business loans, and floating-rate construction loans and commercial
real estate loans.  This strategy has greatly reduced the Company's
vulnerability to changes in interest rates.  As of March 31, 1997, $119.19
million, or 40.0% of the Company's interest-sensitive assets were scheduled to
reprice within a one-year period, and the Company's cumulative one-year
interest rate GAP was negative 10.2%.  The table on page 23 summarizes the
appropriate contractual maturities or replacement periods of the Company's
interest-earning assets and interest-bearing liabilities as of March 31, 1997.
Adjustable- and floating-rate assets are included in the period in which
interest rates are next scheduled to adjust, rather than in the period for
which they are contractually due.  Fixed-rate loans are included in the periods
in which they are anticipated to be repaid.  The analysis on page 23 takes into
consideration the timing of the repricing but does not take into consideration
any restrictions on the magnitude of the repricing interest-sensitive assets.

Rates of interest paid on deposits are priced to be sufficiently competitive in
the Company's primary market area to meet its asset and liability management
objectives and requirements.  The Company generally maintains a pricing program
for its certificate accounts which entails paying higher rates of interest on
longer-term certificates to encourage customers to invest in certificates of
deposit for longer maturities.  This strategy has assisted the Company in
controlling its cost of funds and supported its goal of extending the maturity
of its liabilities.

The Company periodically identifies certain loans as held for sale at the time
of origination.  These loans consist primarily of fixed-rate, single-family
residential mortgage loans which meet the underwriting characteristics of
certain government-sponsored enterprises (conforming loans).  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 the Federal Home Loan
Mortgage Corporation ("FHLMC") 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, 1997, the Company serviced $23.55 million of
mortgage loans for others.  Sales of loans produce future servicing income and
provide funds for additional lending and other purposes.


                        RECENT ACCOUNTING PRONOUNCEMENTS

In March 1995 the Financial Accounting Standards Board ("FASB") issued SFAS No.
121, "Accounting for the Impairment of Long-lived Assets and for Long-lived
Assets to be Disposed of."  This Statement requires that long-lived assets and
certain identifiable intangibles to be held and




                                       19
<PAGE>   20
used by the Company be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable, and that any related impairment be based on the fair value of the
asset.  In addition, long-lived assets to be disposed of must be carried at the
lower of cost or fair value, less estimated disposal costs.  This Statement was
adopted as of July 1, 1996, and the impact was not material to the Company's
results of operations, financial condition, or stockholders' equity.

In May 1995 the FASB issued SFAS No. 122, "Accounting for Mortgage Servicing
Rights."  This Statement prospectively requires the Company, which services
mortgage loans for others in return for a servicing fee, to recognize these
servicing assets, regardless of how they were acquired.  Additionally, the
Company  is required to assess the fair value of these assets at each reporting
date to determine impairment. This statement was adopted as of July 1, 1996,
and the impact was not material to the Company's results of operations,
financial condition, or stockholders' equity.

In October 1995 the FASB issued SFAS No. 123, "Accounting for Stock-based
Compensation."  This Statement encourages the adoption of fair value accounting
for stock-based compensation issued to employees.  In the event that fair value
accounting is not adopted, the statement requires pro forma disclosure in the
entity's financial statements of net income and earnings per share as if fair
value accounting had been adopted.  The Company does not anticipate adopting
the fair value accounting provisions of SFAS 123 and will instead provide the
required pro forma disclosures as permitted, starting with the fiscal year
ending June 30, 1997.

In June 1996 the FASB issued SFAS No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities."  This
Statement provides accounting and reporting standards for transfers and
servicing of financial assets and extinguishments of liabilities based on
consistent application of a financial-components approach that focuses on
control.  It distinguishes transfers of financial assets that are sales from
transfers that are secured borrowings.  Under the financial-components
approach, after a transfer of financial assets an entity recognizes all
financial and servicing assets it controls and liabilities it has incurred and
de-recognizes financial assets it no longer controls and liabilities that have
been extinguished.  The approach focuses on the assets and liabilities that
exist after the transfer.  If a transfer does not meet the criteria for a sale,
the transfer is accounted for as a secured borrowing with pledge of collateral.
The Company adopted SFAS 125 prospectively, effective January 1, 1997, the
required date of adoption except for those types of transactions for which the
provisions of SFAS 125 have been delayed by the issuance of SFAS 127, Deferral
of Certain Provisions of SFAS 125.  The adoption of SFAS 125 did not have a
material impact on the operation, financial condition, or shareholders' equity
of the Bank.  The Company has not yet determined the effect that the adoption
of those provisions deferred by SFAS 127 would have on its operation, financial
condition and shareholders' equity, but believes present accounting practices
fairly depict the financial transactions and obligations of the Bank.


                                       20
<PAGE>   21
In February 1997 the FASB issued SFAS No. 128, "Earnings Per Share."  This
Statement establishes standards for computing and presenting earnings per share
(EPS) and applies to entities with publicly held common stock or potential
common stock.  This Statement simplifies the standards for computing earnings
per share previously found in APB Opinion No. 15, Earnings per Share, and makes
them comparable to international EPS standards.  It replaces the presentation
of primary EPS with a presentation of basic EPS.  It also requires dual
presentation of basic and diluted EPS on the face of the income statement for
all entities with complex capital structures and requires a  reconciliation of
the numerator and denominator of the basic EPS computation to the numerator and
denominator of the diluted EPS computation.  This Statement is effective for
financial statements issued for periods ending after December 15, 1997,
including interim periods; earlier application is not permitted.  This
Statement requires restatement of all prior-period EPS data presented.  Had the
Company adopted SFAS No. 128 as of March 31, 1997, the pro forma disclosure of
basic earnings per share would have been $0.36 and $0.31 for the three months
ended March 31, 1997 and 1996, respectively.  Pro forma disclosure of basic
earnings per share would have been $0.58 and $0.89 for the nine months ended
March 31, 1997 and 1996, respectively.  The pro forma disclosure of diluted
earnings per share would have been $0.35 and $0.31 for the three months ended
March 31, 1997 and 1996, respectively.  Pro forma disclosure of diluted
earnings per share would have been $0.58 and $0.89 for the nine months ended
March 31, 1997 and 1996, respectively.

See also Note 2 of the notes to unaudited consolidated financial statements for
additional discussion of certain accounting pronouncements.

DEPOSIT INSURANCE PREMIUM

The deposits of the Bank are insured by the SAIF administered by the FDIC.
Both the SAIF and the BIF, the federal deposit insurance fund that covers
commercial bank deposits, are required by law to attain and thereafter maintain
a reserve ratio of 1.25% of insured deposits.  By 1996 the BIF had achieved a
fully funded status in contrast to the SAIF.  As a consequence, in late 1995
the FDIC approved a final rule regarding deposit insurance premiums which,
effective with the semi-annual premium assessment on January 1, 1996, reduced
deposit insurance premiums for BIF member institutions to zero (subject to an
annual minimum of $2,000) for institutions in the lowest risk category.
Deposit insurance premiums for SAIF members were maintained at their then
existing levels (23 basis points for institutions in the lowest risk category).
Accordingly, until the SAIF attained a reserve ratio of 1.25% of insured
deposits, SAIF members such as the Bank would have been competitively
disadvantaged as compared to commercial banks due to this premium differential.

The Deposit Insurance Legislation passed by the U.S. House of Representatives
and the Senate was signed into law by the President on September 30, 1996, to
recapitalize the SAIF.  As a result of such legislation, the Bank was required
to pay a one-time assessment of 65.7 cents for every $100 of deposits, which
amounted to $1.39 million pre-tax with an $832,000 after-tax effect. The
special


                                       21
<PAGE>   22
assessment was fully anticipated by the Bank because legislation had been close
to enactment on several occasions during 1996 and 1995.

The legislation also mandated that SAIF-insured institutions' (such as the
Bank's) premiums decline from 23 basis points to approximately 6.4 basis points
effective January 1, 1997. In addition, BIF-insured institutions' assessment
rates were established at 1.3 basis points.  The mandated decline in the
premium rate is expected to reduce the Bank's pre-tax annual SAIF premiums by
approximately $400,000 (based on current deposit levels).  The reduced future
annual premiums will more than offset the adverse impact of the one-time
assessment on the Company's earnings.



                                       22
<PAGE>   23
              INTEREST RATE SENSITIVITY ANALYSIS AT MARCH 31, 1997
                             (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>
 INTEREST-EARNING ASSETS:
    Loans (1)
        Adjustable- and floating-rate
          mortgages (2)                                $24,959             $18,954             $32,695           $19,824
        Balloons and fixed-rate mortgages (2)            3,373               2,212               4,253            21,087
        Consumer (2) (3)                                 7,623               1,034               2,133             9,457
        Commercial                                       4,009                 142                 275             1,008
    Securities and interest-bearing deposits (4)         7,010               5,299               5,222            15,174
                                                 ------------------------------------------------------------------------

    TOTAL INTEREST-EARNING ASSETS                      $46,974             $27,641             $44,578           $66,550
                                                 ------------------------------------------------------------------------

 INTEREST-BEARING LIABILITIES:
    Savings accounts (5)                                  $999              $1,003              $1,998              --
    NOW accounts (5)                                       900                 900               1,800              --
    Money market accounts (5)                           22,536                --                  --                --
    Certificate accounts                                43,013              23,266              34,579            30,034
    Securities sold under agreements to
      repurchase                                           169                --                  --                --
    Borrowings                                          15,242               3,546                 442             3,270
                                                 ------------------------------------------------------------------------
    TOTAL INTEREST-BEARING LIABILITIES                 $82,859             $28,715             $38,819           $33,304
                                                 ------------------------------------------------------------------------

 Cumulative excess of interest-earning assets
    to interest-bearing liabilities                   ($35,885)           ($36,959)           ($31,200)           $2,046
                                                     =========           =========           =========            ======
 Cumulative ratio of interest rate-sensitive
    assets to interest rate-sensitive
    liabilities                                             57%                 67%                 79%              101%
                                                            ===                 ===                 ===              ====

 CUMULATIVE DIFFERENCE AS A PERCENTAGE OF
    TOTAL ASSETS                                         (11.8%)             (12.1%)             (10.2%)             0.7%
                                                        =======             =======             =======              ====
</TABLE>



<TABLE>
<CAPTION>
                                                      MORE THAN
                                                    THREE YEARS
                                                        THROUGH         MORE THAN
                                                     FIVE YEARS        FIVE YEARS            TOTAL
                                                ---------------------------------------------------
 <S>                                                   <C>              <C>               <C>
 INTEREST-EARNING ASSETS:
    Loans (1)
        Adjustable- and floating-rate
          mortgages (2)                                $  7,362         $     590         $104,384
        Balloons and fixed-rate mortgages (2)            18,002            41,832           90,759
        Consumer (2) (3)                                  7,760            18,258           46,265
        Commercial                                          855               719            7.008
    Securities and interest-bearing deposits (4)          3,085            14,052           49,842
                                                ---------------------------------------------------

    TOTAL INTEREST-EARNING ASSETS                       $37,064           $75,451         $298,258
                                                ---------------------------------------------------

 INTEREST-BEARING LIABILITIES:
    Savings accounts (5)                                   --             $21,571          $25,571
    NOW accounts (5)                                       --              22,208           25,808
    Money market accounts (5)                              --                --             22,536
    Certificate accounts                                 15,339             4,248          150,479
    Securities sold under agreements to
      repurchase                                           --                --                169
    Borrowings                                            7,492             2,049           32,041
                                                ---------------------------------------------------
    TOTAL INTEREST-BEARING LIABILITIES                  $22,831           $50,076         $256,604
                                                ---------------------------------------------------

 Cumulative excess of interest-earning assets
    to interest-bearing liabilities                     $16,279           $41,654          $41,654
                                                        =======           =======          =======
 Cumulative ratio of interest rate-sensitive
    assets to interest rate-sensitive
    liabilities                                             108%              116%             116%
                                                            ====              ====             ====

 CUMULATIVE DIFFERENCE AS A PERCENTAGE OF
    TOTAL ASSETS                                            5.3%             13.6%            13.6%
                                                            ====             =====            =====
</TABLE>


(1)  Net of undisbursed loan proceeds.
(2)  Assumes market prepayment rates.
(3)  Includes home improvement, home equity, automobile and other consumer
     loans.
(4)  Includes investment securities, mortgage-backed securities and
     interest-bearing deposits.
(5)  Balances distributed among the various repricing time intervals based
     on historical and anticipated repricing patterns.

                                       23

<PAGE>   24
Part II.         Other Information

                 Item 1.          Legal Proceedings

                                  None

                 Item 2.          Changes in Securities

                                  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

                                  None





                                       24
<PAGE>   25
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        5-9-97                           /s/   Ellen Ann Roberts
    -------------------------------          ------------------------------
                                             Ellen Ann Roberts
                                             Chairman and Chief
                                               Executive Officer



Date        5-9-97                           /s/    Christine N. Dullinger
    --------------------------------         ------------------------------
                                             Christine N. Dullinger
                                             Treasurer and Chief
                                               Financial Officer


                                       25