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 September 30, 1998

                                       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)                     2,449,188
         ------------------------------                     ---------
             (Title of Each Class)                (Number of Shares Outstanding
                                                    as of November 1, 1998)

<PAGE>

                  CHESTER VALLEY BANCORP INC. AND SUBSIDIARIES

                                                                          

                                                               
                                                             
PART 1.  FINANCIAL INFORMATION

Item 1.  FINANCIAL STATEMENTS

         CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
           September 30, 1998 and June 30, 1998 (Unaudited)   

         CONSOLIDATED STATEMENTS OF OPERATIONS
           Three Months Ended September 30, 1998 and 1997 (Unaudited) 

         CONSOLIDATED STATEMENTS OF CASH FLOWS
           Three Months Ended September 30, 1998 and 1997 (Unaudited)   

         NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS    


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


Item 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
           RISK

PART 2.  OTHER INFORMATION

Item 1.  LEGAL PROCEEDINGS                              

Item 2.  CHANGES IN SECURITIES                            

Item 3.  DEFAULTS UPON SENIOR SECURITIES                

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

Item 5.  OTHER INFORMATION                     

Item 6.  EXHIBITS AND REPORTS ON FORM 8-K      

SIGNATURES                         
<PAGE>
<TABLE>
<CAPTION>
                          CHESTER VALLEY BANCORP INC. AND SUBSIDIARIES
                         CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
                                     (Dollars in Thousands)

                                                                  September 30,        June 30,
                                                                      1998              1998
                                                                  -----------      -----------
<S>                                                               <C>              <C>  
ASSETS:
Cash in banks ...............................................     $     5,308      $     4,044
Interest-bearing deposits ...................................           9,570           11,861
Trading account securities ..................................          23,205           20,352
Investment securities available for sale ....................          46,308           38,303
Investment securities (market value - September 30,
      $11,658; June 30, $15,672) ............................          11,557           15,600
Loans receivable, less allowance for
      loan losses of $3,383 and $3,414 ......................         273,553          273,128
Loans held for sale .........................................            --              1,101
Accrued interest receivable .................................           2,652            2,486
Property and equipment - net ................................           7,314            7,094
Other assets ................................................           1,661            3,043
                                                                  -----------      -----------
     Total Assets ...........................................     $   381,128      $   377,012
                                                                  ===========      ===========

LIABILITIES AND STOCKHOLDERS' EQUITY:
Deposits ....................................................     $   293,349      $   298,191
Securities sold under agreements to repurchase ..............             435              144
Advance payments by borrowers for taxes and insurance .......             962            2,963
Employee Stock Ownership Plan ("ESOP") debt .................              97              147
Federal Home Loan Bank advances .............................          48,319           40,936
Other borrowings ............................................             822              708
Accrued interest payable ....................................           1,240              969
Other liabilities ...........................................           2,919            1,105
                                                                  -----------      -----------
     Total Liabilities ......................................         348,143          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;
     2,449,188  and 2,327,478 shares issued at September 30,
     and June 30, respectively ..............................           2,449            2,327
Additional paid-in capital ..................................          18,640           15,609
Common stock acquired by ESOP ...............................             (97)            (147)
Retained earnings - partially restricted ....................          11,583           13,768
Accumulated other comprehensive income ......................             410              292
                                                                  -----------      -----------
     Total Stockholders' Equity .............................          32,985           31,849
                                                                  -----------      -----------

     Total Liabilities and Stockholders' Equity .............     $   381,128      $   377,012
                                                                  ===========      ===========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
                          CHESTER VALLEY BANCORP INC. AND SUBSIDIARIES
                             CONSOLIDATED STATEMENTS OF OPERATIONS
                      (Dollars in Thousands, Except for Per Share Amounts)


                                                                       Three Months Ended
                                                                          September 30,
                                                                  ---------------------------- 
                                                                      1998             1997
                                                                  -----------      -----------  
<S>                                                               <C>              <C>        
INTEREST INCOME:
  Loans .....................................................     $     5,650      $     5,502
  Securities and interest-bearing deposits ..................           1,340              808
                                                                  -----------      -----------
     Total interest income ..................................           6,990            6,310
                                                                  -----------      -----------
INTEREST EXPENSE:
  Deposits ..................................................           3,112            2,841
  Securities sold under agreements to repurchase ............               3                1
  Short-term borrowings .....................................             237              243
  Long-term borrowings ......................................             419              182
                                                                  -----------      -----------
     Total interest expense .................................           3,771            3,267
                                                                  -----------      -----------
NET INTEREST INCOME .........................................           3,219            3,043
  Provision for loan losses .................................              45              120
                                                                  -----------      -----------
      Net interest income after provision for loan losses ...           3,174            2,923
                                                                  -----------      -----------
OTHER INCOME:
  Investment services income, net ...........................             746              680
  Service charges and fees ..................................             360              302
  Gain  on trading account securities .......................             153             --
  Gain on sale of  assets available for sale ................              80               88
  Other .....................................................              47               45
                                                                  -----------      -----------
     Total other income .....................................           1,386            1,115
                                                                  -----------      -----------
OPERATING EXPENSES:
  Salaries and employee benefits ............................           1,668            1,439
  Occupancy and equipment ...................................             508              441
  Data processing ...........................................             190              166
  Deposit insurance premiums ................................              42               38
  Other .....................................................             581              590
                                                                  -----------      -----------
     Total operating expenses ...............................           2,989            2,674
                                                                  -----------      -----------
  Income before income taxes ................................           1,571            1,364
  Income tax expense ........................................             472              360
                                                                  -----------      -----------
NET INCOME ..................................................     $     1,099      $     1,004
                                                                  ===========      ===========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                          CHESTER VALLEY BANCORP INC. AND SUBSIDIARIES
                             CONSOLIDATED STATEMENTS OF OPERATIONS
                      (Dollars in Thousands, Except for Per Share Amounts)
                                          (continued)


                                                                       Three Months Ended
                                                                          September 30,
                                                                  ---------------------------- 
                                                                      1998             1997
                                                                  -----------      -----------  
<S>                                                               <C>              <C>        
EARNINGS PER SHARE (1):
  Basic .....................................................     $      0.45      $      0.42
                                                                  ===========      ===========

  Diluted ...................................................     $      0.44      $      0.41
                                                                  ===========      ===========

DIVIDENDS PER SHARE PAID DURING PERIOD (1) ..................     $      0.11      $      0.10
                                                                  ===========      ===========
WEIGHTED AVERAGE SHARES OUTSTANDING (1):
  Basic .....................................................       2,444,843        2,411,887
                                                                  ===========      ===========
  Diluted ...................................................       2,484,957        2,440,405
                                                                  ===========      ===========
OTHER COMPREHENSIVE INCOME, NET OF TAX:
   Net Income ...............................................     $     1,099      $     1,004

   Net unrealized holding gains on securities
      available for sale during the period ..................             106               77
   Less reclassification adjustment
      for gains (losses)  included in net income ............             (12)             (25)
                                                                  -----------      -----------
COMPREHENSIVE INCOME ........................................     $     1,217      $     1,106
                                                                  ===========      ===========

</TABLE>
(1)  Earnings  per  share,  dividends  per share  and  weighted  average  shares
outstanding  have been  restated to reflect the effect of the 5% stock  dividend
paid in September 1998

     See accompanying notes to unaudited consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
                               CHESTER VALLEY BANCORP INC. AND SUBSIDIARIES
                                  CONSOLIDATED STATEMENTS OF CASH FLOWS
                                          (Dollars in Thousands)

                                                                                    Three Months Ended 
                                                                                       September 30,
                                                                                  ----------------------  
                                                                                    1998          1997
                                                                                  --------      -------- 
<S>                                                                               <C>           <C>     
Cash flows from operating activities:
Net income ..................................................................     $  1,099      $  1,004
Add (deduct) items not affecting cash flows from operating activities:
   Depreciation
   Provision for loan losses ................................................          202           161
   Gain on trading account securities .......................................           45           120
   Gain on sale of loans  held for sale .....................................         (153)         --
   Gain on sale of securities available for sale ............................          (22)           (1)
   Amortization of deferred loan fees, discounts and premiums ...............          (58)          (87)
   Increase in trading account securities ...................................         (171)         (145)
   Decrease (increase) in accrued interest receivable .......................       (2,700)          (19)
   Decrease (increase) in other assets ......................................         (166)          222
   Increase (decrease) in other liabilities .................................        1,382          (273)
   Increase in accrued interest payable .....................................        1,814           (53)
                                                                                       271            83
                                                                                  --------      --------
Net cash flows from operating activities ....................................        1,543         1,012
                                                                                  --------      --------
Cash flows from (used in) investment activities:
   Capital expenditures .....................................................         (422)         (341)
   Net increase in loans and loans held for sale ............................         (721)       (6,251)
   Proceeds from sale of loans held for sale ................................        1,457           486
   Proceeds from maturities, payments and calls of investment securities ....        4,040           565
   Purchase of securities available for sale ................................      (15,035)      (51,634)
   Proceeds from sales and calls of securities available for sale ...........        7,297        56,914
                                                                                  --------      --------
Net cash flows used in investment activities ................................       (3,384)         (261)
                                                                                  --------      --------
Cash flows from (used in) financing activities:
   Net  decrease in deposits before interest credited .......................       (7,369)       (1,090)
   Interest credited to deposits ............................................        2,527         2,389
   Increase in securities sold under agreements to repurchase ...............          291           155
   Proceeds from FHLB advances ..............................................        8,599        10,400
   Repayments of FHLB advances ..............................................       (1,216)      (12,018)
   Decrease in advance payments by borrowers for taxes and insurance ........       (2,001)       (2,015)
   Net increase in other borrowings .........................................          114            80
   Cash dividends on common stock ...........................................         (256)         (226)
   Repayments of principal on ESOP debt .....................................          (50)          (46)
   Common stock issued ......................................................          121           135
   Payment for fractional shares ............................................          (11)           (8)
   Stock options exercised ..................................................           15             7
   Reduction of common stock acquired by ESOP ...............................           50            46
   Common stock repurchased .................................................         --             (35)
                                                                                  --------      --------
Net cash flows from  (used in) financing activities .........................          814        (2,226)
                                                                                  --------      --------
Net decrease in cash and cash equivalents ...................................       (1,027)       (1,475)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                               CHESTER VALLEY BANCORP INC. AND SUBSIDIARIES
                                  CONSOLIDATED STATEMENTS OF CASH FLOWS
                                          (Dollars in Thousands)

                                                                                    Three Months Ended 
                                                                                       September 30,
                                                                                  ----------------------  
                                                                                    1998          1997
                                                                                  --------      -------- 
<S>                                                                               <C>           <C>     
Cash and cash equivalents:
   Beginning of period ......................................................       15,905        10,550
                                                                                  ========      ========
   End of period ............................................................     $ 14,878      $  9,075
                                                                                  ========      ========

Supplemental disclosures:
   Cash payments during the year for:
      Taxes .................................................................     $    315      $    250
      Interest ..............................................................     $  3,500      $  3,185



Non-cash items:
   Stock dividend issued ....................................................     $  3,017      $  2,155
   Net unrealized gain on investment securities available for sale ..........     $    193      $    165
   Tax effect on unrealized gain  on investment securities available for sale     $     75      $     64


</TABLE>
     See accompanying notes to unaudited consolidated financial statements.

 
<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  "Holding  Company") is a
                  unitary   thrift   holding   company,   incorporated   in  the
                  Commonwealth  of Pennsylvania in 1989. The business of Chester
                  Valley  Bancorp  Inc.  and its  subsidiaries  (the  "Company")
                  consists of the  operations  of First  Financial  Bank ("First
                  Financial"  or the  "Bank"),  a  Pennsylvania-chartered  stock
                  savings and loan association founded in 1922, and Philadelphia
                  Corporation for Investment  Services ("PCIS"),  a full service
                  investment  advisory and securities  brokerage  firm. The Bank
                  provides a wide range of banking  services to  individual  and
                  corporate  customers  through  its  branch  banks  in  Chester
                  County, Pennsylvania. All of the branches are full service and
                  offer  commercial and retail 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
                  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 smaller
                  corporate accounts.  The Company is subject to the regulations
                  of certain  federal and state agencies and undergoes  periodic
                  examinations by those regulatory authorities.

                  Principles of Consolidation and Presentation

                  The accompanying consolidated financial statements include the
                  accounts of Chester Valley  Bancorp Inc. and its  wholly-owned
                  subsidiaries,  the Bank and  PCIS.  The  accounts  of the Bank
                  include  its  wholly-owned  subsidiary,  D & S Service  Corp.,
                  which owns D & F Projects and Wildman Projects,  Inc., both of
                  which are  wholly-owned  subsidiaries  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.
<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-month  period ended
                  September  30, 1998,  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 of generally  three months
                  or less.

                  Securities

                  The  Company  divides  its  securities  portfolio  into  three
                  segments:  (a) held to maturity;  (b) available for sale;  and
                  (c)  trading.  At the time of  purchase,  the Company  makes a
                  determination  on whether or not it will hold the  investments
                  to maturity,  based upon an evaluation of the  probability  of
                  the  occurrence  of future  events.  Securities in the held to
                  maturity category are accounted for at amortized cost adjusted
                  for  amortization of premiums and accretion of discounts using
                  a  method  which  approximates  a level  yield,  based  on the
                  Company's  intent  and  ability to hold the  securities  until
                  maturity.  Trading  securities  are  accounted  for at  quoted
                  market prices with changes in market values being  recorded as
                  gain or loss in the income  statement.  All other  securities,
                  including investment securities which the Company believes may
                  be  involved  in  interest  rate  risk,  liquidity,  or  other
                  asset-liability  management  decisions which might  reasonably
                  result in such securities not being held until  maturity,  are
                  included in the  available for sale category and are accounted
                  for at fair value  with  unrealized  gains or  losses,  net of
                  taxes, being reflected as adjustments to equity. If investment
                  securities  are  sold,  any  gain  or loss  is  determined  by
                  specific identification and reflected in the operating results
                  for the period.
<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  September  30, 1998 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  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-month  period ended
                  September 30, 1998, 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.
<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 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.
<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.  Under  the new
                  requirements for calculating  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 effect of the 5% stock  dividend  paid
                  in September 1998.

                  The following  table sets forth the  computation  of basic and
                  diluted earnings per share:

<TABLE>
<CAPTION>
                                                         Three Months Ended
                                                            September 30,
                                                    ---------------------------- 
                                                        (Dollars in Thousands)
                                                      1998               1997
                                                    ---------         ----------
<S>                                                 <C>               <C>   
Numerator:
   Net income .............................         $   1,099         $    1,004
                                                    =========         ==========
Denominator:
   Denominator for basic earnings per
   share-weighted average
   shares .................................         2,444,843          2,411,887

Effect of dilutive securities:
   Employee stock options .................            40,114             28,518
                                                    ---------         ----------
Denominator for diluted earnings
   per share-adjusted weighted
   average shares and assumed
   exercise ...............................         2,484,957          2,440,405
                                                    =========         ==========

Basic earnings per share ..................         $    0.45         $     0.42
                                                    =========         ==========

Diluted earnings per share ................         $    0.44         $     0.41
                                                    =========         ==========
</TABLE>
<PAGE>
NOTE 2 - LOANS RECEIVABLE

                  Loans receivable are summarized as follows:
<TABLE>
<CAPTION>
                                               At September 30,      At June 30,
                                                      1998               1998
                                                   ---------          ---------
                                                      (Dollars in Thousands)
<S>                                                <C>                <C>      
First mortgage loans:
   Residential ...........................         $ 155,915          $ 155,628
   Construction-residential ..............            15,190             13,502
   Land acquisition and
      development ........................             6,731              6,529
   Commercial ............................            42,357             41,002
   Construction-commercial ...............            11,032             10,614
Commercial business ......................            12,037             11,437
Consumer .................................            51,494             51,829
                                                   ---------          ---------

Total loans ..............................           294,756            290,541
                                                   ---------          ---------

Less:
   Undisbursed loan proceeds:
      Construction-residential ...........           (11,540)            (7,915)
      Construction-commercial ............            (4,673)            (4,464)
   Deferred loan fees - net ..............            (1,607)            (1,620)
   Allowance for loan losses .............            (3,383)            (3,414)
                                                   ---------          ---------

Net loans ................................         $ 273,553          $ 273,128
                                                   =========          =========

</TABLE>

NOTE 3 - COMMITMENTS

                  Commitments  to potential  mortgagors  of the Bank amounted to
                  $5.75 million as of September 30, 1998, of which  $685,400 was
                  for  variable-rate  loans.  The  balance  of  the  commitments
                  represents   $5.06  million  of  fixed-rate  loans  (primarily
                  consisting of  single-family  residential  mortgages)  bearing
                  interest  rates of between  5.75% and 7.25%.  At September 30,
                  1998, the Company had $16.21 million undisbursed  construction
                  loan funds as well as $16.21 million of undisbursed  remaining
                  consumer and commercial line balances.

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
<PAGE>
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  September  30, 1998 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
September  30, 1998 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 September 30,  1998:
   Total Capital
     (to Risk Weighted Assets)           $31,350        14.26%        $17,592        8.00%      $21,990       10.00%

   Tier 1 Capital
     (to Risk Weighted Assets)           $28,593        13.00%        $ 8,796        4.00%      $13,194        6.00%

   Tier 1 Capital
     (to Average Assets)                 $28,593         7.59%        $15,063        4.00%      $18,829        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>
<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 $381.13 million at September 30, 1998,
from  $377.01  million  at June 30,  1998,  principally  due to a $6.82  million
aggregate  increase  in  trading  account  securities,   investment   securities
available  for sale and  investment  securities  to $81.07  million  from $74.25
million  at June 30,  1998.  Such  increases  were  funded  in large  part by an
increase in Federal Home Loan Bank ("FHLB") advances from $40.94 million at June
30, 1998, to $48.32 million at September 30, 1998.

Stockholders'  equity  increased to $32.99  million at  September  30, 1998 from
$31.85 million at June 30, 1998, as a result of net income of $1.10 million, the
recognition of an increase in net unrealized  gains on securities  available for
sale,  net of taxes,  of  $118,000,  the sale of  $121,000  of  common  stock in
connection with the Company's dividend  reinvestment plan, $15,000 received as a
result of the exercise of stock  options,  and the  reduction  in the  principal
balance of the ESOP debt by $50,000.  The increase in  stockholders'  equity was
partially  offset by the payment  during the period of cash  dividends  totaling
$256,000.

                              RESULTS OF OPERATIONS

Net interest income,  on a fully tax equivalent  basis,  increased 6.7% to $3.35
million for the  three-month  period ended  September 30, 1998 compared to $3.14
million  for the same  period in 1997.  Total  interest  income,  on a fully tax
equivalent basis, increased to $7.12 million during the three-month period ended
September  30,  1998, a $710,000 or 11.1%  increase  over the  comparable  prior
period,  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 $367.13 million for
the three month period ended  September 30, 1998,  from $312.75  million for the
same period in 1997.  Partially  offsetting  the effect of the  increase for the
<PAGE>
three-month  period ended  September 30, 1998 in the average balance on interest
income  was  the  44  basis-point  decrease  in  the  yield,  to  7.76%  on  the
interest-earning  assets as the  result of  declining  general  market  rates of
interest during fiscal 1998 which resulted in customers  refinancing their loans
to lower interest rates.

Total  interest  expense  increased to $3.77  million from $3.27 million for the
respective  three-month  periods  in 1998 and 1997,  largely  as a result of the
increase  in the  average  balance of  interest-bearing  liabilities  to $314.68
million for the three months ended  September  30, 1998,  as compared to $270.10
million  for the same  period in 1997.  Partially  offsetting  the  increase  in
interest  expense was a decrease in the average rate paid on such liabilities to
4.79% for the  three-month  period ended  September 30, 1998, from 4.84% for the
same  period in 1997,  respectively,  as the  result of  management's  continued
efforts to focus its growth in the areas of low-costing or no-cost deposits.

The tax equivalent  interest rate spread  decreased to 2.97% from 3.36%, and the
average net yield on  interest-earning  assets decreased to 3.65% from 4.02% for
the three-month periods ended September, 1998 and 1997, respectively, due to the
reasons discussed above.

Provision for Loan Losses

The Company  provided  $45,000 and  $120,000  for loan losses  during the three-
month periods ended September 30, 1998 and 1997, respectively.  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 September 30, 1998,  the allowance for loan
losses totaled $3.38 million or 1.22% of net loans (before allowance),  compared
to $3.41  million or 1.23% of net loans and $2.98  million or 1.13% of net loans
at June 30, 1998,  and  September  30, 1997,  respectively.  As a percentage  of
non-performing  assets,  the allowance for loan losses was 284% at September 30,
1998,  compared  to 274% at June  30,  1998,  and  further  compared  to 173% at
September 30, 1997.

Other Income

Total  other  income  increased  $270,000  or  24.1% to  $1.39  million  for the
three-month  period ended  September 30, 1998, as compared to the same period in
1997.  Investment  services income increased  $66,000 or 9.7% to $746,000 as the
result of PCIS'  increased  commission  income  due to an  increase  in  trading
activity  and an  increase  in money  market  fund  fees due to an  increase  in
customer balances.  In addition,  PCIS' advisory fee income increased due to the
strategic  plan of PCIS to focus on  advisory  services  as it  provides  a more
stable  revenue  stream  for  PCIS and  stabilizes  expenses  for the  customer.
Investment  services  income also  increased as the result of the opening of the
Bank's  Investment  Services and 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 IRA's. An increase
in checking account fees, as the result of an increased number of accounts,  and
an increase in the fees earned on the Bank's debit card, due to increased  usage
and also an  increased  number of  cardholders,  contributed  to the increase of
$58,000  in  service  charges  and fees  during  the  three-month  period  ended
September 30, 1998. The Company  recognized gains on trading account  securities
and sales of asset available for sale of $233,000 during the three-month  period
ended September 30, 1998 compared to $88,000 during the same period in 1997.
<PAGE>
Operating Expenses

Total operating  expenses  increased  $320,000 or 12.0% to $2.99 million for the
three-month  period ended September 30, 1998 as compared to the same time period
in 1997.  The increase in operating  expenses was primarily due to a $229,000 or
15.9%  increase in salaries  and  employee  benefits  related to general  salary
increases  and  increased  number of staff  associated  with the addition of the
Bank's  Investment  Services and Trust Division  established in the Fall of 1997
combined  with the  expansion  of the  Bank's  Commercial  Loan  Department.  In
addition,  occupancy  and  equipment  expenses  increased  $67,000  or  15.2% to
$508,000 for the three-month period ended September 30, 1998 from the comparable
prior  period  in  large  part  due  to  the  renovations  required  to  provide
accommodations  for the Bank's new Trust Division and to the installation of the
Bank's Wide Area Computer Network.

Income Tax Expense

Income tax expense was $472,000 and $360,000 for the  three-month  periods ended
September   30,  1998  and  1997,   respectively,   reflecting   the   increased
profitability  of the  Company in the 1998  period.  The  increase in income tax
expense for the three-month  period ended September 30, 1998 was also due to the
fact that for periods  ending prior to May 29, 1998,  no provision has been made
for  income  taxes  for PCIS  since  PCIS had  elected  to be  taxed  under  the
provisions  of  Subchapter  S of the  Internal  Revenue  Code and similar  state
provisions.  Under  these  provisions,  PCIS  does not pay  income  taxes on its
taxable  income.  Instead  the  former  stockholders  of  PCIS  are  liable  for
individual  income  taxes  based on their  respective  shares of PCIS's  taxable
income.  As a result of all of PCIS's stock being  purchased  by Chester  Valley
Bancorp Inc. on May 29, 1998,  PCIS is no longer  eligible to be taxed under the
provisions of Subchapter S of the Internal Revenue Code.

                                  ASSET QUALITY

Non-performing  assets are  comprised of  non-accrual  loans and REO and totaled
$1.19  million  and  $1.25  million  at  September  30,  1998 and June 30,  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 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 ability to service  the debt.  At
September  30,  1998,  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 .31% at  September  30,  1998,
compared  to  .33%  at  June  30,  1998,   and  .53%  at  September   30,  1997.
Non-performing  loans,  which  totaled  $1.19  million at  September  30,  1998.
consisted of ten single-family  residential mortgage loans aggregating $790,000,
one  construction   loan  totaling  $55,000,   two  commercial   mortgage  loans
aggregating $136,000 and $211,000 in consumer loans.
<PAGE>
At September  30, 1998,  the Company's  classified  assets,  which  consisted of
assets  classified as  substandard,  doubtful or loss,  as well as REO,  totaled
$1.48 million  compared to $1.47 million at June 30, 1998, and further  compared
to $1.56  million at  September  30,  1997.  Included  in the assets  classified
substandard at September 30, 1998 and 1997, 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, namely 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 September 30, 1998, the Company
had $5.75 million in commitments to fund loan originations. In addition, at such
date, the Company had  undisbursed  loans in process for  construction  loans of
$16.21 million and $16.21 million in undisbursed lines of credit. The management
of the  Company  believes  that the Company has  adequate  resources,  including
principal  prepayments  and  repayments of loans and  investment  securities and
borrowing capacity, to fund all of its commitments to the extent required.

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 August 19, 1998, the Board of Directors declared
a 5% stock  dividend and a quarterly  cash  dividend of $.11 per share,  both of
which were paid on September 18, 1998, to stockholders of record as of September
4, 1998.

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 September 30, 1998 was 17.78%.
<PAGE>
                                YEAR 2000 ISSUES

Year  2000  issues  result  from the  inability  of many  computer  programs  or
computerized  equipment  to  accurately  calculate,  store  or use a date  after
December  31,  1999.  The  erroneous  date can be  interpreted  in a  number  of
different  ways,  the most common being Year 2000  represented as the year 1900.
Correctly  identifying  and  processing  Year 2000 as a leap year may also be an
issue. These  misinterpretations  of various dates in the Year 2000 could result
in a system failure or  miscalculations  causing  disruptions of normal business
operations  including,  among other  things,  a temporary  inability  to process
transactions,   track  important  customer  account   information,   or  provide
convenient access to this information.

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

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

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

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

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


                           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 available-for-sale securities, changes in
the market  value of a futures  contract  that  qualifies as a hedge of an asset
reported  at  fair  value,  and  minimum  pension  liability  adjustments.  This
statement  is  effective  for fiscal years  beginning  after  December 15, 1997.
Accordingly all  disclosures  within this report are in compliance 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. Accordingly all
disclosures within this report are in compliance with SFAS No. 131.

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
<PAGE>
Pension Plans and for Termination Benefits", and No. 106, "Employers' Accounting
for Postretirement  Benefits Other Than Pensions",  were issued.  This statement
requires  changes in disclosures  and would not affect the financial  condition,
equity or operating results of the Corporation.  This statement is effective for
fiscal years beginning after December 15, 1997.

In  June  1998  the  FASB  issued  SFAS  No.  133,  "Accounting  for  Derivative
Instruments and Hedging Activities." This statement  establishes  accounting and
reporting  standards for derivative  instruments,  including certain  derivative
instruments   embedded  in  other  contracts,   (collectively   referred  to  as
derivatives)  and for hedging  activities.  It requires that an entity recognize
all  derivatives  as either assets or  liabilities in the statement of financial
position and measure those instruments at fair value. The accounting for changes
in the fair value of a derivative  depends on the intended use of the derivative
and the resulting  designation.  If certain conditions are met, a derivative may
be specifically designated as (a) a hedge of the exposure to changes in the fair
value of a recognized asset or liability or an unrecognized firm commitment, (b)
a hedge of the exposure to variable cash flows of a forecasted  transaction,  or
(c) a hedge of certain foreign currency  exposures.  This statement is effective
for all fiscal quarters of fiscal years  beginning after June 15, 1999.  Earlier
adoption is  permitted.  The  Company  has not yet decided  whether to adopt the
statement early or determined the impact,  if any, of this statement,  including
its provisions for the potential reclassifications of investments 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
<PAGE>
estimates,  based on historical trends of the Bank's deposit accounts,  that 53%
of money market and NOW accounts are sensitive to interest rate changes and that
8% of savings  deposits are  sensitive to interest  rate  changes.  Accordingly,
these  interest-sensitive  portions  are  classified  in the less  than one year
categories with the remainder in the over five years category.  Deposit products
with interest rates based on a particular index are classified  according to the
specific  repricing  characteristic of the index.  Deposit rates other than time
deposit rates are variable,  and changes in deposit rates are typically  subject
to local market  conditions and  management's  discretion and are not indexed to
any particular rate.

Generally, during a period of rising interest rates, a positive gap would result
in an increase  in net  interest  income  while a negative  gap would  adversely
affect net interest income.  However,  the  interest-sensitivity  table does not
provide a comprehensive representation of the impact of interest rate changes on
net interest income. Each category of assets or liabilities will not be affected
equally or  simultaneously  by changes in the general  level of interest  rates.
Even assets and liabilities which  contractually  reprice within the same period
may not,  in fact,  reprice  at the same price or the same time or with the same
frequency. It is also important to consider that the table represents a specific
point   in   time.   Variations   can   occur  as  the   Company   adjusts   its
interest-sensitivity  position  throughout  the year.  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 September 30, 1998, the Company  serviced  $29.98
million of mortgage loans for others.  Sales of loans produce  future  servicing
income and provide funds for additional lending and other purposes.
<PAGE>
<TABLE>
<CAPTION>
                                  Interest Rate Sensitivity Analysis at September 30, 1998
                                                   (Dollars in thousands)

                                                                            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)
        Real Estate (2) ........................        $  30,848          $  19,048          $  32,361          $  57,118
        Commercial .............................            6,855                252                499              1,946
        Consumer ...............................            7,598              1,246              2,569             11,369
   Securities and interest-bearing deposits ....           50,436              3,922              9,121              3,388
                                                        ---------          ---------          ---------          ---------

   Total interest-earning assets ...............        $  95,737          $  24,468          $  44,550          $  73,821
                                                        ---------          ---------          ---------          ---------

INTEREST-BEARING LIABILITIES:
   Savings accounts ............................        $     501          $     501          $     998               --   
   NOW accounts ................................              450                450                900               --   
   Money market accounts .......................           31,318               --                 --                 --   
   Certificate accounts ........................           63,762             25,940             34,765             40,269
   Securities sold under agreements to
      repurchase ...............................              435               --                 --                 --   
   Borrowings ..................................            6,895                 71              1,849              9,019
                                                        ---------          ---------          ---------          ---------
   Total interest-bearing liabilities ..........        $ 103,361          $  26,962          $  38,512          $  49,288
                                                        ---------          ---------          ---------          ---------

Cumulative excess of interest-earning assets
   to interest-bearing liabilities .............        ($  7,624)         ($ 10,118)         ($  4,080)         $  20,453
                                                        =========          =========          =========          =========
Cumulative ratio of interest rate-sensitive
   assets to interest rate-sensitive liabilities             92.6%              92.2%              97.6%             109.4%
                                                        =========          =========          =========          =========
Cumulative difference as a percentage of
   total assets ................................             (2.0%)             (2.7%)             (1.1%)              5.4%
                                                        =========          =========          =========          =========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                   Interest Rate Sensitivity Analysis at September 30, 1998
                                    (Dollars in thousands)
                                         (continued)

                                                      More Than                                        
                                                     Three Years                                        
                                                      Through       More Than                      
                                                     Five Years     Five Years       Total  
                                                     ---------      ---------      ---------
<S>                                                  <C>            <C>            <C>      
INTEREST-EARNING ASSETS:
   Loans(1)
        Real Estate (2) ........................     $  32,337      $  43,300      $ 215,012
        Commercial .............................         1,867            618         12,037
        Consumer ...............................         9,501         19,211         51,494
   Securities and interest-bearing deposits ....         9,262         14,511         90,640
                                                     ---------      ---------      ---------

   Total interest-earning assets ...............     $  52,967      $  77,640      $ 369,183
                                                     ---------      ---------      ---------

INTEREST-BEARING LIABILITIES:
   Savings accounts ............................          --        $  24,519      $  26,519
   NOW accounts ................................          --           29,315         31,115
   Money market accounts .......................          --             --           31,318
   Certificate accounts ........................        11,002          2,895        178,633
   Securities sold under agreements to
      repurchase ...............................          --             --              435
   Borrowings ..................................         9,921         21,483         49,238
                                                     ---------      ---------      ---------
   Total interest-bearing liabilities ..........     $  20,923      $  78,212      $ 317,258
                                                     ---------      ---------      ---------

Cumulative excess of interest-earning assets
   to interest-bearing liabilities .............     $  52,497      $  51,925      $  51,925
                                                     =========      =========      =========
Cumulative ratio of interest rate-sensitive
   assets to interest rate-sensitive liabilities         122.0%         116.4%         116.4%
                                                     =========      =========      =========
Cumulative difference as a percentage of
   total assets ................................          13.8%          13.6%          13.6%
                                                     =========      =========      =========

</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

                                    None

                  Item 3.  Defaults Upon Senior Securities

                                    Not Applicable.

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

                                    The Company's annual meeting of shareholders
                                    was held on October 22, 1998.  The following
                                    matters  were   presented  for   shareholder
                                    action at such meeting:

                                    (1) To elect  four  directors  for a term of
                                    three years or until their  successors  have
                                    been elected and qualified:


              Name                       Votes For         Votes Withheld
              ----                       ---------         --------------
              Anthony J. Biondi          2,038,012             2,431
              John J. Cunningham, III    2,038,012             2,431
              Ellen Ann Roberts          2,037,947             2,497
              William M. Wright          2,038,129             2,315

                                    (2) To ratify the  appointment  of KPMG Peat
                                    Marwick  LLP  as the  Company's  independent
                                    auditors for the fiscal year ending June 30,
                                    1999:

                 Votes For              Votes Against            Votes Abstained
                 ---------              -------------            ---------------
                  2,034,186               3,478                      2,777

                  Item 5.  Other Information

                           None

                  Item 6.  Exhibits and Reports on Form 8-K

                           Exhibit 27 Financial Data Schedule
<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         11-12-98                   /s/Ellen Ann Roberts
                                        --------------------
                                        Ellen Ann Roberts
                                        Chairman and Chief Executive Officer



Date          11-12-98                  /s/Christine N. Dullinger
                                        -------------------------
                                        Christine N. Dullinger
                                        Treasurer and Chief Financial Officer