[PLACE STEELTON LOGO HERE]



                       2001 ANNUAL REPORT TO STOCKHOLDERS





<PAGE>


                             STEELTON BANCORP, INC.
                                  ANNUAL REPORT







TABLE OF CONTENTS

                                                                         Page
                                                                         ----

Letter to Stockholders......................................................1

Corporate Profile and Stock Price Information...............................2

Selected Financial Ratios and Other Data....................................3

Management's Discussion and Analysis........................................4

Independent Auditor's Report..............................................F-1

Consolidated Financial Statements.........................................F-2

Notes to Consolidated Financial Statements................................F-6

Corporate Information..............................................Back Cover

                                        i

<PAGE>




To Our Stockholders:


On behalf of our Board of Directors and employees, we are pleased to present the
2001  Annual   Report  to   Stockholders   of  Steelton   Bancorp,   Inc.   (the
"Corporation").  The  Corporation  is the parent  holding  company of  Mechanics
Savings Bank (the "Bank").

We thank you for your loyal support and we invite you to avail yourselves of the
many services of the Bank. The goal of your Board of Directors and management is
to continuously strive to enhance your investment in the Corporation.

Sincerely,



/s/Harold E. Stremmel
---------------------
Harold E. Stremmel
President and Chief Executive Officer


                                        1

<PAGE>

CORPORATE PROFILE

         Steelton  Bancorp,  Inc. (the  "Corporation") is the parent company for
Mechanics   Savings  Bank  (the  "Bank").   The  Corporation  was  formed  as  a
Pennsylvania  corporation  in  February  1999 at the  direction  of the  Bank in
connection  with the Bank's  conversion from a mutual to stock form of ownership
(the "Conversion").  The Corporation acquired all of the capital stock issued by
the Bank in the  Conversion.  On July 8, 1999, the Bank completed the Conversion
in connection with a $3.85 million initial public offering of the  Corporation's
common stock.  The  Corporation  is a unitary  savings and loan holding  company
which, under existing laws, generally is not restricted in the types of business
activities  in which it may engage  provided  that the Bank  retains a specified
amount of its assets in  housing-related  investments.  At the present time, the
Corporation conducts no significant business or operations of its own other than
holding all of the outstanding stock of the Bank and investing the Corporation's
portion of the net proceeds obtained in the Conversion.

         The Bank,  founded in 1900 under the name "Mechanics  Building and Loan
Association   of  Steelton,"  is  a   federally-chartered   stock  savings  bank
headquartered in Steelton,  Pennsylvania. The Bank is subject to examination and
comprehensive regulation by the Office of Thrift Supervision (the "OTS") and its
deposits are federally  insured by the Savings  Association  Insurance Fund (the
"SAIF"),  as  administered  by the Federal Deposit  Insurance  Corporation  (the
"FDIC") . The Bank is a member of, and owns  capital  stock in, the Federal Home
Loan Bank (the "FHLB") of  Pittsburgh,  one of the twelve  regional banks in the
FHLB system.

         The Bank  operates a  traditional  savings  bank  business,  attracting
deposits  accounts from the general  public and using those  deposits,  together
with other funds,  primarily to originate and invest in loans secured by one- to
four-family residential real estate.

STOCK PRICE INFORMATION

         The  Corporation's  common  stock has been  traded on the  OTC-Bulletin
Board under the trading  symbol of "SELO" since it commenced  trading on July 9,
1999. The following  table reflects the high and low bids for the  Corporation's
common stock during the quarters indicated.  The quotations reflect inter-dealer
prices,  without retail  mark-up,  mark-down or commission and may not represent
actual  transactions.  The following  quotations  and cash  dividends  have been
adjusted to take into  account  stock  dividends  declared in November  2000 and
October 2001, respectively.


2000                        High        Low       Cash Dividends per share
----                        ----        ---       ------------------------
First Quarter......       $10.26      $ 8.28             --
Second Quarter.....       $10.43      $ 8.84           $0.08
Third Quarter .....       $12.02      $10.21             --
Fourth Quarter.....       $12.88      $10.89           $0.08

2001
----
First Quarter......       $16.40      $12.42             --
Second Quarter.....       $16.14      $12.92           $0.09
Third Quarter......       $19.50      $15.15             --
Fourth Quarter.....       $19.00      $11.43           $0.09


                                        2

<PAGE>

         The number of stockholders of record of common stock as of February 28,
2002,  was  approximately  169.  This does not  reflect the number of persons or
entities who held stock in nominee or "street"  name through  various  brokerage
firms.  At  February  28,  2002,  there were  301,190  shares  outstanding.  The
Corporation's ability to pay dividends to stockholders is largely dependent upon
the dividends it receives from the Bank.  The Bank may not declare or pay a cash
dividend  on any of its stock if the  effect  thereof  would  cause  the  Bank's
regulatory  capital  to be  reduced  below  (1)  the  amount  required  for  the
liquidation  account  established in connection with the Conversion,  or (2) the
regulatory requirements imposed by the OTS.

SELECTED FINANCIAL RATIOS AND OTHER DATA


                                                       At or For the Years Ended
                                                            December 31,
                                                       -------------------------
                                                         2001     2000     1999
                                                         ----     ----     ----


Return on assets ..................................      0.31%    0.50%    0.38%

Return on equity ..................................      3.80     4.28     3.84

Average equity to average assets ..................      8.21    11.58    10.00

Equity to assets at period end ....................      9.94    10.94    12.57

Dividend payout ratio .............................     28.63    18.72    16.93

Average interest-earning assets to average
     interest-bearing liabilities .................    109.57   112.67   107.42

Net interest rate spread (1) ......................      2.04     2.15     2.57

Net interest margin (2) ...........................      2.47     2.76     2.89

Non-performing loans to total loans ...............      1.72     0.59     1.65

Allowance for loan losses to total loans ..........      0.40     0.38     0.53

Allowance for loan losses to non-performing loans..     23.22    63.56    31.92

-------------------
(1)  Represents  the  difference  between the average yield on  interest-earning
     assets and the average cost of interest-bearing liabilities.
(2)  Net interest income as a percentage of average interest-earning assets.

                                        3

<PAGE>

                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                       CONDITION AND RESULTS OF OPERATIONS

              The  following  is a discussion  of the  financial  condition  and
results of operations  of the  Corporation  and the Bank,  and should be read in
conjunction with the accompanying Consolidated Financial Statements.

Forward - Looking Statements

              This  document   contains   statements  that  project  the  future
operations  of the  Corporation  which  involve  risks  and  uncertainties.  The
Corporation's actual results may differ significantly from the results discussed
in these forward-looking  statements.  Statements concerning future performance,
developments,  events,  expectations  for growth and market  forecasts,  and any
other guidance on future periods,  constitute  forward-looking  statements which
are  subject to a number of risks and  uncertainties,  including  interest  rate
fluctuations  and  government  and  regulatory  actions which might cause actual
results to differ materially from stated expectations or estimates.

Financial Condition

              Assets decreased $3.7 million or 6.1% to $57.0 million at December
31, 2001,  compared  with $60.7  million at the end of 2000.  The balance  sheet
decline was primarily attributable to the decline in loans,  specifically within
the mortgage loan portfolio. Total loans decreased $2.9 million or 7.3% to $36.9
million at December 31, 2001 compared to $39.8 million at the end of 2000.  FHLB
borrowings decreased $2.2 million, or 11.4% to $17.2 million compared with $19.4
million  at the end of 2000.  These  trends  are  consistent  with  Management's
intention to limit net loan growth and use  available  funds to pay-down  higher
cost borrowings.  Cash and cash equivalents  increased $1.8 million or 125.4% to
$3.2 million at December 31, 2001 compared with $1.4 million at the end of 2000.
This increase was, in part, a result of a net decrease in the Bank's  investment
portfolio  of $2.7  million,  or 17.3% to $12.7  million at  December  31,  2001
compared to $15.4 million at the end of the prior year. This decrease  primarily
resulted from approximately $2.9 million in called securities.

              During 2001  Management  instituted  a plan to  repurchase  common
shares outstanding. The repurchase, for the most part, was facilitated through a
Modified  Dutch Auction  Tender Offer.  In addition to the Modified Dutch Tender
Offer, common stock was repurchased from time to time on the open market. During
2001,  the  Bank  repurchased  a total  of  75,898  common  shares  at a cost of
approximately   $1.3  million.   The  goal  of  this  endeavor  was  to  improve
stockholder's equity per share and return on equity.

Summary of 2001 Performance

              Net income  decreased  33.1% to $192,000 in 2001 from  $288,000 in
2000, primarily as a result of the overall lower interest rate environment. As a
result,  net  interest  income  decreased  $72,000 or 4.7%.  Interest  income on
taxable securities decreased $145,000,  principally as a result of a lower yield
on the portfolio. However, as the mortgage loan portfolio decreased as the year

                                        4

<PAGE>

progressed, higher yielding consumer loans increased approximately 65% resulting
in a marginal increase in interest income on loans of approximately 2.9%.

         Interest expense on deposits  decreased  $79,000 or 5.1% but was offset
by a proportionate  increase of interest  expense on FHLB advances of $72,000 or
6.7%. This increase in FHLB interest  expense was primarily the result of higher
priced advances held at the beginning of the year, and  subsequently  liquidated
later in the year as funds  became  available.  The net  effect  was a  marginal
decrease of .3% for the Bank's cost of funds.

              The overall  effect of the 2001  interest-rate  environment  was a
decrease in the Bank's net interest margin of approximately 4.7%.

              Total problem loans  increased  significantly  during the year and
accounted  for 1.72% of total  loans at December  31,  2001  compared to .59% in
2000. This  significant  increase is primarily  related to loans to one borrower
that account for approximately 82.5% of the increase.  The significant  increase
in the provision for loan losses of 242.9% is a direct result of the increase in
problem  loans.  The Bank has  performed  a  collateral  analysis  to assess its
exposure.  At December  31, 2001,  Management  believes  that it has  adequately
reserved for its problem loans.

              Noninterest  sources of revenue  continued  to show growth  during
2001, primarily due to the investment in Bank-owned life insurance.  Noninterest
expense  increased 39.9% as a result of higher  personnel costs  associated with
merit  increases,  and increased  occupancy  and equipment  costs related to the
recently completed bank-drive through and ATM.

              As in the prior  year,  the Bank's  capital  measures  continue to
remain  strong  and are well in  excess  of the  threshold  required  for  "Well
Capitalized" designation.  All per share amounts were restated to reflect the 5%
stock dividend declared in October of 2001 and distributed in December of 2001.

Net Interest Income

              The most  significant  source of revenue (82%) for the Corporation
is net interest income, which is determined by: (i) the difference between rates
of interest  the Bank earns on its  interest-  earning  assets and the rates the
Bank pays on interest-bearing  liabilities (interest rate spread); and, (ii) the
relative amounts of interest-earning  assets and  interest-bearing  liabilities.
Net  interest  income is heavily  impacted by  competition,  the  interest  rate
environment and the level and composition of the Corporation's  interest-earning
assets and interest-bearing liabilities.

                                        5

<PAGE>

Average Balance Sheet

              The  following  table sets forth a summary of average  balances of
assets and  liabilities as well as average yield and cost  information.  Average
balances are based upon month-end  balances,  however,  the Corporation does not
believe the use of  month-end  balances  differs  significantly  from an average
based upon daily balances. There have been no tax equivalent adjustments made to
yields.

<TABLE>
<CAPTION>
                                                            Year Ended December 31,
                                              -----------------------------------------------------
                                                        2001                       2000
                                              --------------------------  -------------------------
(dollars in thousands)                        Average            Average  Average           Average
                                              Balance Interest  Yld/Cost  Balance Interest Yld/Cost
                                              --------------------------  -------------------------
<S>                                         <C>      <C>        <C>     <C>      <C>        <C>
Interest-earning assets:
  Loans receivable(1)                         $37,056  $3,063      8.27%  $37,034  $2,978     8.04%
  Investment securities:
    Taxable                                    13,819     779      5.64%   14,048     924     6.58%
    Non-taxable                                 1,725      86      4.99%    1,925      91     4.73%
  Other interest-earning assets                 6,098     138      2.26%    2,156     152     7.05%
                                              --------------------------  -------  ----------------
  Total interest-earning assets               $58,698  $4,066      6.93%  $55,163  $4,145     7.51%
                                                     -------------------           ----------------
Noninterest-earning assets                      2,871                       2,945
                                              -------                     -------
     Total assets                             $61,569                     $58,108
                                              =======                     =======

Interest-bearing liabilities:
  NOW/Money market                            $ 3,461     $46      1.33%   $2,998  $   54     1.80%
  Savings                                       5,776     131      2.27%    5,194     139     2.68%
  Certificates of deposit                      21,889   1,288      5.88%   23,355   1,352     5.79%
  FHLB advances                                22,447   1,153      5.14%   17,412   1,080     6.20%
                                              --------------------------  -------  ----------------
     Total interest-bearing liabilities       $53,573  $2,618      4.89%  $48,959  $2,625     5.36%
                                                       -----------------           ----------------
Noninterest-bearing liabilities                 2,937                       2,420
Stockholders' Equity                            5,059                       6,729
                                              -------                     -------
     Total Liabilities and
          Stockholders' Equity                $61,569                     $58,108
                                              =======                     =======

Net interest income/spread(2)                          $1,448      2.04%           $1,520     2.15%
                                                       ======-----------           ======----------
Net yield on interest-earning
   assets(3)                                                       2.47%                      2.76%
                                                             -----------                 ----------
Ratio of average interest-earning
   assets to average interest-
   bearing liabilities                                           109.57%                    112.67%
                                                             -----------                 ----------
</TABLE>

--------------------
(1)  Average balances include non-accrual loans.
(2)  Interest rate spread represents the difference between the average yield on
     interest-earning   assets  and  the   average   cost  of   interest-bearing
     liabilities.
(3)  Net yield on  interest-earning  assets  represents net interest income as a
     percentage of average interest- earning assets.

                                        6

<PAGE>

Rate/Volume Analysis

              The table below sets forth certain  information  regarding changes
in the  Corporation's  interest  income and  interest  expense  for the  periods
indicated.  For each category of  interest-earning  assets and  interest-bearing
liabilities,  information is provided on changes  attributable to (i) changes in
volume (changes in average volume  multiplied by last year's rate); (ii) changes
in rates  (changes in rate  multiplied  by last year's  average  volume);  (iii)
changes in  rate-volume  (changes  in rate  multiplied  by the change in average
volume).


                                               2001 Compared to 2000

                                             Increase(Decrease) Due To:

                                                                     Rate/
(in thousands)                            Volume    Rate    Volume   Total
                                          ---------------------------------
Interest income:
  Loans receivable ....................   $   2    $  83    ($  0)   $  85
  Investment Securities:
    Taxable ...........................     (15)    (132)       2     (145)
    Non-Taxable .......................      (9)       5       (1)      (5)
  Other interest-earning assets .......     278     (103)    (189)     (14)
                                          ---------------------------------
    Total interest-earning assets .....   $ 255    ($147)   ($187)   ($ 79)

Interest expense:
  NOW/Money market ....................   $   8    ($ 14)   ($  2)   ($  8)
  Savings .............................      16      (21)      (2)      (8)
  Certificates of deposit .............     (85)      22       (1)     (64)
  FHLB advances .......................     312     (186)     (54)      73
                                          ---------------------------------
     Total interest-bearing liabilities   $ 251    ($199)   ($ 60)   ($  7)
                                          ---------------------------------

Net change in interest income .........   $   4    $  52    ($127)   ($ 72)
                                          =====    =====    =====    =====


Market Risk Analysis

              Qualitative  Analysis.  Because the majority of the Bank's  assets
and  liabilities  are  sensitive to changes in interest  rates,  the Bank's most
significant form of market risk is interest rate risk.

              An asset or liability is interest rate sensitive within a specific
time period if it will mature or reprice within that time period.  If the Bank's
assets  mature  or  reprice  more  quickly  or  to a  greater  extent  than  its
liabilities, the Bank's net portfolio value ("NPV")and net interest income would
tend to increase  during periods of rising  interest  rates but decrease  during
periods of falling  interest rates.  Conversely,  if the Bank's assets mature or
reprice more slowly or to a lesser extent than its  liabilities,  the Bank's NPV
and net interest income would tend to decrease during periods of rising interest
rates but increase during periods of falling  interest rates.  The Bank's policy
has been to address the interest  rate risk inherent in the  historical  savings
institution business of originating long-term loans

                                        7

<PAGE>

funded by  short-term  deposits  by  maintaining  sufficient  liquid  assets for
material and prolonged  changes in interest rates and by originating  loans with
shorter terms to maturity such as  construction,  commercial and consumer loans.
In  addition,  the  Bank  has  invested  in  adjustable-rate   mortgage-  backed
securities as an interest risk management strategy.

              Quantitative  Analysis. In order to encourage savings associations
to reduce their  interest  rate risk,  the OTS adopted a rule  incorporating  an
interest rate risk ("IRR") component into the risk- based capital rules. The IRR
component is a dollar  amount that will be deducted  from total  capital for the
purpose of calculating an institution's  risk-based  capital  requirement and is
measured in terms of the  sensitivity  of its NPV to changes in interest  rates.
NPV is the difference  between incoming and outgoing  discounted cash flows from
assets,  liabilities,  and off-balance sheet contracts.  An institution's IRR is
measured as the change to its NPV as a result of a hypothetical  200 basis point
("bp") change in market interest  rates. A resulting  change in NPV of more than
2% of the  estimated  present  value of total  assets  ("PV")  will  require the
institution  to deduct from its capital  50% of that  excess  change.  The rules
provide  that  the OTS  will  calculate  the IRR  component  quarterly  for each
institution. Based on the Bank's asset size and risk-based capital, the Bank has
been  informed  by the OTS that it is exempt from this rule.  Nevertheless,  the
following  table  presents the Bank's NPV at December 31, 2001, as calculated by
the OTS, based on quarterly information voluntarily provided to the OTS.


        Changes               Net Portfolio Value
                     ----------------------------------------
       In Market
    Interest Rates   $ Amount    $ Change     % Change           NPV Ratio(1)
-------------------  ----------  --------- ------------------ ------------------
(basis points)      (Dollars in Thousands)
                                 ---------
+300                  $ 2,790    $ -3,256        -54%               5.17%
+200                    3,893      -2,153         -36               7.00
+100                    5,020      -1,026         -17               8.77
0                       6,046           -           -              10.27
-100                    6,270         224          +4              10.48
-200(2)                     -           -           -                  -
-300(2)                     -           -           -                  -

--------------------
(1)  Calculated as the estimated NPV divided by present value of total assets.
(2)  For the current  reporting  cycle, the OTS has suppressed all model outputs
     associated  with the -300 and -200 bps scenario  because of the  abnormally
     low prevailing interest rate environment.

              Computations of prospective effects of hypothetical  interest rate
changes are based on numerous  assumptions,  including relative levels of market
interest rates,  prepayments and deposit  run-offs and should not be relied upon
as indicative of actual results.

              The  Bank's  Board of  Directors  reviews  the  Bank's  asset  and
liability policies on an annual basis. The Board of Directors meets quarterly to
review  interest rate risk and trends,  as well as liquidity and capital  ratios
and requirements.  Management administers the policies and determinations of the
Board of  Directors  with respect to the Bank's  asset and  liability  goals and
strategies.

                                        8

<PAGE>

Provision for Loan Losses

              The  provision  for loan losses was  increased to $ 24,000 in 2001
compared with $7,000 in 2000.  The  additional  provision was in response to the
increase in problem loans,  specifically to one customer as previously indicated
above.  While  charge-off  levels  increased  in 2001,  they  remained  at a low
percentage of average loans (0.07%).

Noninterest Income and Noninterest Expense

              Noninterest  income increased 20.3% in total in 2001 compared with
2000,  due to a full year of income earned on Bank-owned  life  insurance and to
rental income  associated  with leasing of unused  portions of the Lower Swatara
Township Branch. Service fee categories remained stable with 2000 results.

              Noninterest  expenses  increased  $112,212 or 8.0% in total,  with
most of this increase occurring in salaries and benefits and equipment. Salaries
increased  $29,597 or 3.4% due to merit  increases and expenses  associated with
the Employee Stock  Ownership  Plan and the Restricted  Stock Plan. In addition,
equipment costs increased  $52,894 or 27.9% over the same period in the previous
year primarily due to additional  depreciation  expense related to the new drive
through and ATM facilities opened at the main office.

Income Tax Expense

              Income tax expense for 2001  resulted in an effective  tax rate of
13.7%  compared  with 22.5% in 2000.  The reduction in the effective tax rate is
attributable to the whole year impact of investment in Bank-owned life insurance
and the greater ratio of tax exempt income to pretax income than in 2000.

Liquidity and Capital Resources

              The Corporation's primary sources of funds are deposits, repayment
of loans and mortgage-backed  securities,  maturities of investment  securities,
advances  from the  Federal  Home Loan Bank  ("FHLB")  and funds  provided  from
operations.  While scheduled repayments of loans and mortgage-backed  securities
and  maturities  of  investment  securities  are  predictable  sources of funds,
deposit flows, and loan prepayments are greatly  influenced by the general level
of interest rates, economic conditions and competition. The Corporation uses its
liquidity  resources  principally to fund existing and future loan  commitments,
maturing  certificates of deposit and demand deposit  withdrawals,  to invest in
other  interest-earning  assets,  to  maintain  liquidity,  and  meet  operating
expenses.  At December  31,  2001,  the Bank could  borrow an  additional $ 20.2
million from the FHLB based on qualifying collateral.

              Approximately  $ 15.4  million of the  Bank's  time  deposits  are
scheduled to mature within the next 12 months. It has been the Bank's experience
that a substantial  portion of such maturing  deposits  remain with the Bank. At
December 31, 2001, the Bank had minimal loan commitments outstanding.

                                        9

<PAGE>


                          INDEPENDENT AUDITOR'S REPORT




To the Board of Directors
Steelton Bancorp, Inc.
Steelton, Pennsylvania


              We have audited the  accompanying  consolidated  balance sheets of
Steelton Bancorp, Inc. and its wholly-owned subsidiary (the "Corporation") as of
December 31, 2001 and 2000, and the related  consolidated  statements of income,
stockholders'  equity and cash flows for the years then ended.  These  financial
statements  are  the  responsibility  of  the  Corporation's   management.   Our
responsibility  is to express an opinion on these financial  statements based on
our audits.


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


              In our opinion, the consolidated  financial statements referred to
above  present  fairly,  in all material  respects,  the  financial  position of
Steelton Bancorp,  Inc. and its wholly-owned  subsidiary as of December 31, 2001
and 2000, and the results of their operations and their cash flows for the years
then ended in conformity with accounting  principles  generally  accepted in the
United States of America.





/s/Beard Miller Company LLP
---------------------------



Harrisburg, Pennsylvania
January 18, 2002


                                      F-1
<PAGE>

STEELTON BANCORP, INC.
CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------
December 31,                                                                            2001                  2000
----------------------------------------------------------------------------------------------------------------------------

              ASSETS

<S>                                                                            <C>                  <C>
Cash and due from banks                                                          $           580,181  $            278,524
Interest bearing deposits in other banks                                                   2,617,767             1,140,038
                                                                                --------------------------------------------
              Cash and cash equivalents                                                    3,197,948             1,418,562
Investment securities available for sale                                                  10,359,100            10,007,980
Investment securities held to maturity (fair value 2001 $2,387,828;
     2000 $5,341,664)                                                                      2,362,443             5,380,735
Loans receivable, net of allowance for loan losses 2001 $147,697;
     2000 $149,603                                                                        36,865,998            39,769,076
Federal Home Loan Bank stock, at cost                                                        989,200             1,030,700
Bank premises and equipment, net                                                           1,539,967             1,449,585
Accrued interest receivable and other assets                                               1,709,938             1,688,395
                                                                                --------------------------------------------
              Total assets                                                       $        57,024,594  $         60,745,033
                                                                                ============================================

     LIABILITIES AND STOCKHOLDERS' EQUITY

LIABILITIES
     Deposits                                                                    $        33,555,174  $         34,133,250
     Advances from Federal Home Loan Bank                                                 17,185,303            19,398,854
     Advances from borrowers for insurance and taxes                                         277,084               305,662
     Accrued interest payable and other liabilities                                          335,871               262,479
                                                                                --------------------------------------------
              Total liabilities                                                           51,353,432            54,100,245
                                                                                --------------------------------------------
STOCKHOLDERS' EQUITY
     Preferred stock, no par value; 2,000,000 shares authorized;
         none issued and outstanding                                                               -                     -
     Common stock, $.10 par value; 8,000,000 shares authorized;
         issued 2001 416,515 shares; 2000 402,244 shares                                      41,652                40,224
     Surplus                                                                               3,942,710             3,665,748
     Retained earnings                                                                     3,759,801             3,889,722
     Unearned compensation                                                                  (362,015)             (422,598)
     Treasury stock, at cost, 2001 115,325 shares; 2000 39,427 shares                     (1,777,154)             (478,826)
     Accumulated other comprehensive income (loss)                                            66,168               (49,482)
                                                                                --------------------------------------------
              Total stockholders' equity                                                   5,671,162             6,644,788
                                                                                --------------------------------------------
              Total liabilities and stockholders' equity                         $        57,024,594  $         60,745,033
                                                                                ============================================
</TABLE>

See Notes to Consolidated Financial Statements.

                                      F-2
<PAGE>

STEELTON BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------
Years Ended December 31,                                                                  2001                 2000
----------------------------------------------------------------------------------------------------------------------------
<S>                                                                             <C>                  <C>
Interest and dividend income:
     Loans                                                                         $        3,062,947   $        2,977,575
     Securities:
         Taxable                                                                              778,853              923,647
         Tax exempt                                                                            86,598               90,674
     Dividends on FHLB stock                                                                   65,434               95,071
     Other                                                                                     72,643               58,018
                                                                                  ------------------------------------------
              Total interest and dividend income                                            4,066,475            4,144,985
                                                                                  ------------------------------------------
Interest expense:
     Deposits                                                                               1,464,985            1,544,340
     Advances from Federal Home Loan Bank                                                   1,152,545            1,080,298
                                                                                  ------------------------------------------
              Total interest expense                                                        2,617,530            2,624,638
                                                                                  ------------------------------------------
              Net interest income                                                           1,448,945            1,520,347

Provision for loan losses                                                                      24,000                7,000
                                                                                  ------------------------------------------
              Net interest income after provision for loan losses                           1,424,945            1,513,347
                                                                                  ------------------------------------------
Noninterest income:
     Fees and service charges                                                                 168,585              163,724
     Gain (loss) on sales of securities available for sale                                     11,725               (1,221)
     Earnings on bank owned life insurance                                                     56,709               32,824
     Other                                                                                     74,228               63,349
                                                                                  ------------------------------------------
              Total noninterest income                                                        311,247              258,676
                                                                                  ------------------------------------------
Noninterest expense:
     Salaries and employee benefits                                                           775,668              746,071
     Occupancy                                                                                116,082              101,644
     Equipment                                                                                242,433              189,539
     Professional fees                                                                        142,050              138,134
     Advertising                                                                               35,221               51,879
     Other                                                                                    201,827              173,802
                                                                                  ------------------------------------------
              Total noninterest expense                                                     1,513,281            1,401,069
                                                                                  ------------------------------------------
              Income before income taxes                                                      222,911              370,954

Income taxes                                                                                   30,625               83,316
                                                                                  ------------------------------------------
              Net income                                                           $          192,286   $          287,638
                                                                                  ==========================================

Per share data:
     Net income, basic                                                             $             0.63   $             0.80
                                                                                  ==========================================
     Net income, diluted                                                           $             0.58   $             0.78
                                                                                  ==========================================
</TABLE>

See Notes to Consolidated Financial Statements.

                                      F-3
<PAGE>

STEELTON BANCORP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
Years Ended December 31, 2001 and 2000
------------------------------------------------------------------------------------------------------------------------------------
                                                                                                         Accumulated
                                                                                                            Other         Total
                                      Common                    Retained      Unearned      Treasury    Comprehensive Stockholders'
                                      Stock       Surplus       Earnings    Compensation     Stock      Income (Loss)     Equity
                                   -------------------------------------------------------------------------------------------------
<S>                              <C>         <C>           <C>           <C>            <C>          <C>            <C>
Balance, December 31, 1999         $   38,500  $  3,457,015  $  3,863,701  $   (308,000)  $         -   $  (279,138)  $  6,772,078
                                                                                                                      --------------
    Comprehensive income:
      Net income                            -             -       287,638             -             -             -        287,638
      Net change in unrealized
        gains (losses) on available
        for sale securities                 -             -             -             -             -       229,656        229,656
                                                                                                                      --------------

        Total comprehensive income                                                                                         517,294
                                                                                                                      --------------

    Stock purchased for treasury            -             -             -      (171,345)     (478,826)            -       (650,171)
    Earned compensation                     -         2,695             -        56,747             -             -         59,442
    Cash dividends declared
      ($.16 per share)                      -             -       (53,855)            -             -             -        (53,855)
    Stock dividend declared             1,724       206,038      (207,762)            -             -             -              -
                                   -------------------------------------------------------------------------------------------------

Balance, December 31, 2000             40,224     3,665,748     3,889,722      (422,598)     (478,826)      (49,482)     6,644,788
                                                                                                                      --------------
    Comprehensive income:
      Net income                            -             -       192,286             -             -             -        192,286
      Net change in unrealized
        gains (losses) on
        available for sale
        securities                          -             -             -             -             -       115,650        115,650
                                                                                                                      --------------

        Total comprehensive income                                                                                         307,936
                                                                                                                      --------------

    Stock purchased for treasury            -             -             -             -     (1,298,328)           -     (1,298,328)
    Earned compensation                     -        12,996             -        60,583             -             -         73,579
    Cash dividends declared
      ($.18 per share)                      -             -       (55,046)            -             -             -        (55,046)
    Stock dividend declared             1,428       263,966      (267,161)            -             -             -         (1,767)
                                   -------------------------------------------------------------------------------------------------
Balance, December 31, 2001         $   41,652  $  3,942,710  $  3,759,801  $   (362,015)  $ (1,777,154) $    66,168   $  5,671,162
                                   =================================================================================================
</TABLE>
See Notes to Consolidated Financial Statements.

                                      F-4
<PAGE>

STEELTON BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------
Years Ended December 31,                                                                      2001               2000
----------------------------------------------------------------------------------------------------------------------------
<S>                                                                                <C>                 <C>
CASH FLOWS FROM OPERATING ACTIVITIES
     Net income                                                                      $         192,286   $         287,638
     Adjustments to reconcile net income to net cash
         provided by operating activities:
         Provision for loan losses                                                              24,000               7,000
         Depreciation                                                                           76,720              66,237
         Amortization (accretion) of securities, net                                            64,995              (8,672)
         ESOP and restricted stock plan expense                                                 73,579              59,442
         (Gain) loss on sales of securities                                                    (11,725)              1,221
         Earnings on bank-owned life insurance                                                 (56,709)            (32,824)
         Deferred income taxes (benefit)                                                         7,144              (8,185)
         (Increase) decrease in accrued interest receivable                                    114,002             (78,770)
         Increase (decrease) in accrued interest payable                                       (22,174)              2,073
         Other, net                                                                             50,013              (8,051)
                                                                                    -----------------------------------------
              Net cash provided by operating activities                                        512,131             287,109
                                                                                    -----------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
     Available for sale securities:
         Maturities and paydowns                                                             5,661,693           1,379,430
         Purchases                                                                          (8,536,413)           (780,624)
         Sales                                                                               5,551,057                   -
     Held to maturity securities:
         Maturities and paydowns                                                               521,236             365,324
         Purchases                                                                            (508,750)                  -
     Net (increase) decrease in loans                                                        2,879,078          (7,776,278)
     Purchase of bank-owned life insurance                                                           -          (1,000,000)
     Purchase of bank premises and equipment                                                  (167,102)           (302,895)
     (Purchase) sale of Federal Home Loan Bank stock                                            41,500            (338,900)
                                                                                    -----------------------------------------
              Net cash provided by (used in) investing activities                            5,442,299          (8,453,943)
                                                                                    -----------------------------------------

CASH FLOWS FROM FINANCING ACTIVITIES
     Net increase (decrease) in deposits                                                      (578,076)            867,123
     Net increase (decrease) in advances from borrowers for insurance and taxes                (28,578)             73,154
     Advances from Federal Home Loan Bank                                                   10,181,200          21,000,000
     Repayment of Federal Home Loan Bank advances                                          (12,394,751)        (14,935,891)
     Stock purchased for treasury and benefit plans                                         (1,298,328)           (650,171)
     Payment of dividends and cash in lieu of fractional shares                                (56,511)            (56,610)
                                                                                    -----------------------------------------
              Net cash provided by (used in) financing activities                           (4,175,044)          6,297,605
                                                                                    -----------------------------------------
              Increase (decrease) in cash and cash equivalents                               1,779,386          (1,869,229)

Cash and cash equivalents:
     Beginning                                                                               1,418,562           3,287,791
                                                                                    -----------------------------------------
     Ending                                                                          $       3,197,948   $       1,418,562
                                                                                    =========================================

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
     Cash payments for:
         Interest                                                                    $       2,639,704   $       2,622,565
                                                                                    =========================================
         Income taxes                                                                $          53,750   $         167,207
                                                                                    =========================================
</TABLE>

See Notes to Consolidated Financial Statements.

                                      F-5
<PAGE>

STEELTON BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1
--------------------------------------------------------------------------------
SIGNIFICANT ACCOUNTING POLICIES

Nature of operations:
     The   Corporation's   business  is   conducted   principally   through  its
     wholly-owned  subsidiary,  Mechanics  Savings Bank (the  "Bank").  The Bank
     provides a variety of retail banking services to customers  through its two
     offices located in Dauphin County, Pennsylvania. The Bank's primary deposit
     products are non-interest and interest-bearing  checking accounts,  savings
     accounts and  certificates  of deposit.  Its primary  lending  products are
     single-family residential loans.

Basis of consolidation:
     The  consolidated  financial  statements  include the  accounts of Steelton
     Bancorp,   Inc.  (the  "Corporation")  and  its  wholly-owned   subsidiary,
     Mechanics  Savings  Bank and the Bank's  wholly-owned  subsidiary,  Baldwin
     Investment Corporation. All material intercompany balances and transactions
     have been eliminated in consolidation.

Use of estimates:
     The  preparation of  consolidated  financial  statements in conformity with
     accounting  principles  generally  accepted in the United States of America
     requires  management  to make  estimates  and  assumptions  that affect the
     reported  amounts of assets and  liabilities  and  disclosure of contingent
     assets and  liabilities  at the date of the  financial  statements  and the
     reported  amounts of revenues and  expenses  during the  reporting  period.
     Actual results could differ from those estimates.

Investment securities:
     Management determines the approximate  classification of debt securities at
     the time of purchase and  reevaluates  such  designation as of each balance
     sheet date.  The  Corporation's  investment  securities  are  classified as
     available for sale and held to maturity and are accounted for as follows:

     o    Securities  held to maturity - Debt securities that management has the
          positive  intent and ability to hold to maturity are reported at cost,
          adjusted for  amortization of premiums and accretion of discounts that
          are  recognized  in interest  income using methods  approximating  the
          interest   method  over  the  period  to   maturity.   Mortgage-backed
          securities  represent  participating  interests  in pools of long-term
          first  mortgage  loans  originated  and  serviced  by  issuers  of the
          securities. Mortgage-backed securities are carried at unpaid principal
          balances,  adjusted for unamortized  premiums and unearned  discounts.
          Premiums and discounts are  amortized  using the interest  method over
          the terms of the securities.

     o    Securities  available for sale - Available for sale securities consist
          of  investment   securities   not   classified  as  held  to  maturity
          securities.  Unrealized  holding  gains  and  losses,  net of tax,  on
          available  for sale  securities  are  included in other  comprehensive
          income. Realized gains and losses on available for sale securities are
          included   in  income   and  are   determined   using   the   specific
          identification  method. The amortization of premiums and the accretion
          of  discounts  are  recognized  in interest  income using the interest
          method over the terms of the securities.

     o    Federal  Home  Loan  Bank  Stock  -  Federal  law  requires  a  member
          institution  of the Federal Home Loan Bank System to hold stock of its
          district Federal Home Loan Bank according to a pre-determined formula.
          The stock is carried at cost.

                                      F-6
<PAGE>

STEELTON BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



1
--------------------------------------------------------------------------------
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Loans receivable:
     Loans receivable that management has the intent and ability to hold for the
     foreseeable  future  or  until  maturity  or  payoff  are  stated  at their
     outstanding unpaid principal balances,  net of an allowance for loan losses
     and any deferred fees.  Interest income is accrued on the unpaid  principal
     balance. Loan origination fees are deferred and recognized as an adjustment
     of the yield (interest  income) of the related loans. The Bank is generally
     amortizing these amounts over the contractual life of the loan.

     The accrual of  interest is  generally  discontinued  when the  contractual
     payment of principal or interest has become 90 days past due or  management
     has serious doubts about further  collectibility  of principal or interest,
     even though the loan is currently performing.  A loan may remain on accrual
     status if it is in the process of  collection  and is either  guaranteed or
     well secured.  When a loan is placed on nonaccrual status,  unpaid interest
     credited to income in the  current  year is  reversed  and unpaid  interest
     accrued in prior years is charged  against the  allowance  for loan losses.
     Interest  received on nonaccrual  loans generally is either applied against
     principal  or  reported  as  interest  income,  according  to  management's
     judgment  as to the  collectibility  of  principal.  Generally,  loans  are
     restored to accrual  status when the  obligation  is brought  current,  has
     performed in accordance with the contractual  terms for a reasonable period
     of time and the ultimate  collectibility of the total contractual principal
     and interest is no longer in doubt.

Allowance for loan losses:
     The allowance for loan losses is  established  through  provisions for loan
     losses charged against income. Loans deemed to be uncollectible are charged
     against the allowance for loan losses, and subsequent  recoveries,  if any,
     are credited to the allowance.

     The allowance for loan losses is maintained at a level considered  adequate
     to provide  for losses  that can be  reasonably  anticipated.  Management's
     periodic evaluation of the adequacy of the allowance is based on the Bank's
     past  loan loss  experience,  known and  inherent  risks in the  portfolio,
     adverse  situations  that may affect the borrower's  ability to repay,  the
     estimated  value  of any  underlying  collateral,  composition  of the loan
     portfolio,  current economic  conditions and other relevant  factors.  This
     evaluation is inherently  subjective as it requires material estimates that
     may be susceptible to significant change,  including the amounts and timing
     of future cash flows expected to be received on impaired loans.

     A loan is  considered  impaired  when,  based on  current  information  and
     events,  it is  probable  that the  Bank  will be  unable  to  collect  the
     scheduled  payments of  principal  or interest  when due  according  to the
     contractual terms of the loan agreement.  Factors  considered by management
     in determining impairment include payment status,  collateral value and the
     probability of collecting  scheduled  principal and interest  payments when
     due.  Loans  that  experience  insignificant  payment  delays  and  payment
     shortfalls generally are not classified as impaired.  Management determines
     the significance of payment delays and payment shortfalls on a case-by-case
     basis,  taking into consideration all of the circumstances  surrounding the
     loan and the borrower,  including the length of the delay,  the reasons for
     the  delay,  the  borrower's  prior  payment  record  and the amount of the
     shortfall in relation to the  principal  and interest  owed.  Impairment is
     measured on a loan by loan basis for commercial loans by either the present
     value of expected  future  cash flows  discounted  at the loan's  effective
     interest rate, the loan's  obtainable market price or the fair value of the
     collateral if the loan is collateral dependent.

                                      F-7
<PAGE>

STEELTON BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



1
--------------------------------------------------------------------------------
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Allowance for loan losses (continued):
     Large  groups  of  smaller  balance   homogeneous  loans  are  collectively
     evaluated  for  impairment.  Accordingly,  the  Bank  does  not  separately
     identify   individual   consumer  and  residential   loans  for  impairment
     disclosures.

Bank premises and equipment:
     Bank premises and equipment are comprised of land, at cost,  and buildings,
     building  improvements,  furnishings and equipment at cost less accumulated
     depreciation.  Depreciation  charges are computed on the  straight-line and
     declining  balance  methods over the estimated  useful lives of the related
     assets.

Stock based compensation:
     Stock options are accounted for under  Accounting  Principles Board Opinion
     (APB) No. 25.  Stock  options are granted at exercise  prices not less than
     the fair value of the common stock on the date of grant.  Under APB No. 25,
     no compensation expense is recognized related to these plans. The pro forma
     impact  to  net  income  and   earnings  per  share  that  would  occur  if
     compensation  expense was  recognized  based on the estimated fair value of
     the  options  on the date of the  grant is  disclosed  in the  notes to the
     consolidated financial statements.

Income taxes:
     Deferred taxes are provided on the liability  method  whereby  deferred tax
     assets are recognized for deductible temporary differences and deferred tax
     liabilities  are recognized for taxable  temporary  differences.  Temporary
     differences are the differences  between the reported amounts of assets and
     liabilities in the financial  statements and their tax basis.  Deferred tax
     assets  are  reduced  by a  valuation  allowance  when,  in the  opinion of
     management,  it is more  likely  than not that some  portion  or all of the
     deferred  tax  assets  will  not  be  realized.  Deferred  tax  assets  and
     liabilities  are adjusted  through the  provision  for income taxes for the
     effects of changes in tax laws and rates on the date of enactment.

     The Corporation  and its subsidiary file a consolidated  federal income tax
     return.

Advertising:
     Advertising costs are expensed as incurred.

Off-balance sheet financial instruments:
     In the ordinary course of business,  the Bank has entered into  off-balance
     sheet  financial  instruments  consisting of  commitments to extend credit.
     Such financial  instruments are recorded in the balance sheet when they are
     funded.

                                      F-8

<PAGE>

STEELTON BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



1
--------------------------------------------------------------------------------
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Comprehensive income:
     Comprehensive  income  for  the  Corporation  consists  of net  income  and
     unrealized  gains  or  losses  on  available  for  sale  securities  and is
     presented in the consolidated statement of stockholders' equity. Unrealized
     securities  gains  or  losses  and  the  related  tax  impact  included  in
     comprehensive income are as follows:

<TABLE>
<CAPTION>
                                                                                             Year Ended December 31,
                                                                                              2001              2000
                                                                                       --------------------------------------
<S>                                                                                   <C>               <C>
                 Unrealized holding gains on available for sale securities              $       217,556   $        377,376
                 Unrealized holding losses on securities transferred from
                      held to maturity                                                          (30,603)                 -
                 Reclassification adjustment for (gains) losses realized in income              (11,725)             1,221
                                                                                       -------------------------------------
                               Net unrealized gains                                             175,228            378,597

                 Tax effect                                                                      59,578            148,941
                                                                                       -------------------------------------
                               Net of tax amount                                        $       115,650   $        229,656
                                                                                       =====================================
</TABLE>

Earnings per share:
     Basic  earnings  per share is  calculated  by  dividing  net  income by the
     weighted average number of shares of common stock  outstanding  during each
     period.  Unallocated  shares associated with the Corporation's ESOP are not
     considered  outstanding shares. Diluted earnings per share is calculated by
     increasing the  denominator  for the assumed  conversion of all potentially
     dilutive securities.  The Corporation's  dilutive securities are limited to
     stock options and restricted stock awards.

     Historical  shares  outstanding and per share data have been adjusted for a
     5% stock dividend distributed in December 2001.

Treasury stock:
     The  acquisition of treasury  stock is recorded under the cost method.  The
     subsequent  disposition or sale of the treasury stock is recorded using the
     average cost method.

Statements of cash flows:
     The Corporation  considers all cash and due from banks and interest-bearing
     deposits  in  other  banks  to be  cash  equivalents  for  purposes  of the
     statements of cash flows.

Reclassifications:
     Certain  amounts in the 2000  consolidated  financial  statements have been
     reclassified to conform with the 2001 presentation.  Such reclassifications
     had no impact on reported net income.

Segment reporting:
     The  Corporation  operates  in a  single  business  segment  consisting  of
traditional savings bank activities.

                                      F-9
<PAGE>

STEELTON BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



1
--------------------------------------------------------------------------------
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

New accounting standards:

     In July of 2001, the Financial  Accounting Standards Board issued Statement
     No. 141,  "Business  Combinations,"  and Statement  No. 142,  "Goodwill and
     Other Intangible Assets."

     Statement  No. 141 requires all business  combinations  to be accounted for
     using the purchase method of accounting as use of the  pooling-of-interests
     method is prohibited.  In addition,  this Statement  requires that negative
     goodwill that exists after the basis of certain  acquired assets is reduced
     to zero should be recognized as an  extraordinary  gain.  The provisions of
     this Statement apply to all business combinations  initiated after June 30,
     2001.

     Statement  No. 142  prescribes  that  goodwill  associated  with a business
     combination and intangible assets with an indefinite useful life should not
     be amortized  but should be tested for  impairment at least  annually.  The
     Statement  requires  intangibles  that are separable from goodwill and that
     have a  determinable  useful  life to be  amortized  over the  determinable
     useful life.  The  provisions of this  Statement  became  effective for the
     Corporation in January 2002 and require that goodwill and other  intangible
     assets arising from acquisitions completed before July 1, 2001 be accounted
     for in accordance  with the provisions of this  Statement.  At December 31,
     2001, the Corporation had no goodwill or other intangible assets.

     In June of 2001, the Financial  Accounting Standards Board issued Statement
     143,  "Accounting for Asset  Retirement  Obligations,"  which addresses the
     financial  accounting  and reporting for  obligations  associated  with the
     retirement  of  tangible   long-lived   assets  and  the  associated  asset
     retirement  costs.  This  Statement  requires  that  the  fair  value  of a
     liability for an asset retirement obligation be recognized in the period in
     which it is  incurred if a  reasonable  estimate of fair value can be made.
     The  associated  asset  retirement  costs  are  capitalized  as part of the
     carrying  amount  of the  long-lived  asset.  This  Statement  will  become
     effective for the Corporation on January 1, 2003.

     In  August  of  2001,  the  Financial  Accounting  Standards  Board  issued
     Statement 144,  "Accounting for the Impairment of or Disposal of Long-Lived
     Assets." This Statement  supersedes FASB Statement No. 121, "Accounting for
     the  Impairment  of  Long-Lived  Assets  and for  Long-Lived  Assets  to Be
     Disposed Of," and the  accounting  and reporting  provisions of APB Opinion
     No. 30,  "Reporting  the Results of  Operations - Reporting  the Effects of
     Disposal  of a  Segment  of a  Business,  and  Extraordinary,  Unusual  and
     Infrequently  Occurring  Events  and  Transactions  for the  Disposal  of a
     Segment  of  a  Business."   This   Statement   also  amends  ARB  No.  51,
     "Consolidated  Financial  Statements."  The  provisions  of this  Statement
     became effective for the Bank on January 1, 2002.

     Adoption  of these  Statements  did not have or is not  expected  to have a
     material  impact on the  Corporation's  financial  condition  or results of
     operations.


                                      F-10
<PAGE>

STEELTON BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



2
--------------------------------------------------------------------------------
INVESTMENT SECURITIES

The amortized  cost and estimated  fair values of the  Corporation's  investment
securities at December 31, 2001 and 2000 are summarized as follows:

<TABLE>
<CAPTION>
                                                                              Gross          Gross
                                                            Amortized       Unrealized     Unrealized           Fair
                                                              Cost            Gains          Losses             Value
                                                       ---------------------------------------------------------------------
<S>                                                   <C>                <C>            <C>             <C>
              Securities available for sale:
                   December 31, 2001:
                       U.S. Government and
                            federal agencies            $         400,000  $     14,026   $           -   $        414,026
                       Mortgage-backed securities:
                            Government agency                   9,082,222        95,194          (9,510)         9,167,906
                       Corporate obligations                      350,000             -               -            350,000
                       State and local governments                426,623         1,869          (1,324)           427,168
                                                       ---------------------------------------------------------------------

                                                        $      10,258,845  $    111,089   $     (10,834)  $     10,359,100
                                                       =====================================================================

                   December 31, 2000:
                       U.S. Government and
                            federal agencies            $       4,844,270  $     17,092   $     (19,131)  $      4,842,231
                       Mortgage-backed securities:
                            Government agency                   3,440,170        13,568         (21,389)         3,432,349
                            Corporate                             985,636             -         (56,026)           929,610
                       State and local governments                812,877         1,288         (10,375)           803,790
                                                       ---------------------------------------------------------------------

                                                        $      10,082,953  $     31,948   $    (106,921)  $     10,007,980
                                                       =====================================================================

              Securities held to maturity:
                   December 31, 2001:
                       Certificate of deposit           $         100,000  $          -   $           -   $        100,000
                       Mortgage-backed securities,
                            government agency                     964,968        20,463          (3,134)           982,297
                       State and local governments              1,297,475         9,559          (1,503)         1,305,531
                                                       ---------------------------------------------------------------------

                                                        $       2,362,443  $     30,022   $      (4,637)  $      2,387,828
                                                       =====================================================================

                   December 31, 2000:
                       Certificate of deposit           $         100,000  $          -   $           -   $        100,000
                       U.S. Government and
                            federal agencies                      620,000             -         (25,805)           594,195
                       Mortgage-backed securities:
                            Government agency                   3,053,162        22,110         (27,272)         3,048,000
                            Corporate                             311,031            48          (9,189)           301,890
                       State and local governments              1,296,542         2,545          (1,508)         1,297,579
                                                       ---------------------------------------------------------------------

                                                        $       5,380,735  $     24,703   $     (63,774)  $      5,341,664
                                                       =====================================================================
</TABLE>

                                      F-11
<PAGE>

STEELTON BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



2
--------------------------------------------------------------------------------
INVESTMENT SECURITIES (CONTINUED)

The  following  is a summary  of the  maturities  of  investment  securities  at
December 31, 2001:

<TABLE>
<CAPTION>
                                                              Available For Sale                  Held To Maturity
                                                     ------------------------------------------------------------------------
                                                         Amortized            Fair           Amortized           Fair
                                                            Cost             Value              Cost             Value
                                                     ------------------------------------------------------------------------
<S>                                                <C>                <C>               <C>               <C>
              Amounts maturing:
                    Due in one year or less          $              -   $              -  $        234,935  $       237,323
                    After one but within five years            99,902            101,770           149,803          153,015
                    After five but within ten years           326,721            325,397           414,750          415,353
                    After ten years                         9,832,222          9,931,933         1,562,955        1,582,137
                                                     ------------------------------------------------------------------------

                                                     $     10,258,845   $     10,359,100  $      2,362,443  $     2,387,828
                                                     ========================================================================
</TABLE>

The  amortized  cost and fair value of securities  are presented by  contractual
maturity  in  the  preceding  table.   Expected   maturities  will  differ  from
contractual  maturities  because  borrowers may have the right to call or prepay
obligations without call or prepayment penalties.

During 2001, the Bank transferred securities with a carrying value of $2,880,467
and fair value of $2,849,864  from held to maturity to available  for sale.  The
difference  of $20,198,  net of taxes of $10,405 was  reflected  in  accumulated
other  comprehensive  income.  This  transfer  was an allowable  transaction  as
permitted by the  adoption of  Statement  No. 133,  "Accounting  for  Derivative
Instruments and Hedging Activities."

Gross realized gains and gross realized losses on sales of securities  available
for sale were $ 42,836 and $31,111,  respectively,  in 2001 and $286 and $1,507,
respectively, in 2000.

                                      F-12

<PAGE>

STEELTON BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



3
--------------------------------------------------------------------------------
LOANS RECEIVABLE

Loans receivable at December 31, 2001 and 2000 consist of the following:

<TABLE>
<CAPTION>
                                                                                        2001                  2000
                                                                                --------------------------------------------
<S>                                                                            <C>                  <C>
              Loans secured by real estate:
                   Residential                                                   $        35,826,590  $         38,597,448
                   Commercial                                                                631,137             1,023,815
              Consumer                                                                       935,268               565,909
              Commercial                                                                      68,634                72,818
                                                                                --------------------------------------------
                                                                                          37,461,629            40,259,990
              Loans in process                                                              (205,081)              (50,155)
              Net deferred loan origination fees                                            (242,853)             (291,156)
              Allowance for loan losses                                                     (147,697)             (149,603)
                                                                                --------------------------------------------

                                                                                 $        36,865,998  $         39,769,076
                                                                                ============================================
</TABLE>

The majority of the Bank's loan portfolio consists of single-family  residential
loans in the area of Dauphin County,  Pennsylvania.  The ultimate collectibility
of a substantial  portion of the Corporation's  loan portfolio is susceptible to
changes in local market conditions.

An analysis of the allowance for loan losses at December 31, 2001 and 2000 is as
follows:

<TABLE>
<CAPTION>
                                                                                          2001                 2000
                                                                                  ------------------------------------------
<S>                                                                              <C>                  <C>
              Balance, beginning of year                                           $          149,603   $          168,200
                   Provision for loan losses                                                   24,000                7,000
                   Charge-offs                                                                (27,106)             (25,597)
                   Recoveries                                                                   1,200                    -
                                                                                  ------------------------------------------
              Balance, end of year                                                 $          147,697   $          149,603
                                                                                  ==========================================
</TABLE>

Nonaccrual  loans  totaled  $635,000 and $212,000 at December 31, 2001 and 2000,
respectively.  Nonaccrual  loans are  those on which  income  under the  accrual
method has been  discontinued  with  subsequent  interest  payments  credited to
interest income when received or, if the ultimate collectibility of principal is
in doubt, applied as principal reductions. The impact of nonaccrual loans was to
reduce  interest  income by $28,956 and $11,498 for the years ended December 31,
2001 and 2000, respectively.

There were no impaired loans as of December 31, 2001 and 2000.

                                      F-13
<PAGE>

STEELTON BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



4
--------------------------------------------------------------------------------
BANK PREMISES AND EQUIPMENT

A summary of bank premises and equipment at December 31, 2001 and 2000 follows:


<TABLE>
<CAPTION>
                                                                                           2001               2000
                                                                                    ----------------------------------------

<S>                                                                                <C>                 <C>
              Land                                                                   $         444,079   $         373,178
              Buildings and improvements                                                     1,141,016             879,598
              Furnishings and equipment                                                        735,500             622,911
              Construction in progress                                                               -             277,806
                                                                                    ----------------------------------------
                                                                                             2,320,595           2,153,493
              Less accumulated depreciation                                                    780,628             703,908
                                                                                    ----------------------------------------

                                                                                     $       1,539,967   $       1,449,585
                                                                                    ========================================
</TABLE>


5
--------------------------------------------------------------------------------
DEPOSITS

Deposits at December 31, 2001 and 2000 consist of the following:

<TABLE>
<CAPTION>
                                                                                          2001                 2000
                                                                                  ------------------------------------------
<S>                                                                              <C>                  <C>
              Noninterest-bearing deposits                                         $        2,594,738   $        2,306,774
              Interest-bearing deposits:
                   NOW                                                                      1,936,649            1,654,653
                   Savings                                                                  5,868,413            5,134,016
                   Money market                                                             1,013,331            1,038,614
                   Certificates of deposit                                                 22,142,043           23,999,193
                                                                                  ------------------------------------------

                            Total deposits                                         $       33,555,174   $       34,133,250
                                                                                  ==========================================
</TABLE>

The aggregate amount of certificates of deposit, including individual retirement
accounts,  with a minimum denomination of $100,000 was $3,575,604 and $4,021,925
at December 31, 2001 and 2000, respectively.

Maturities of certificates of deposit at December 31, 2001 are as follows:

<TABLE>
<CAPTION>

<S>         <C>                                                                                   <C>
              2002                                                                                    $         13,355,988
              2003                                                                                               4,683,505
              2004                                                                                               2,874,660
              2005                                                                                                 141,423
              2006                                                                                                 496,161
              Thereafter                                                                                           590,306
                                                                                                     -----------------------
                                                                                                      $         22,142,043
                                                                                                     =======================
</TABLE>

                                      F-14
<PAGE>

STEELTON BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



6
--------------------------------------------------------------------------------
ADVANCES FROM FEDERAL HOME LOAN BANK

The Bank is a member of the Federal Home Loan Bank (FHLB) of Pittsburgh  and, as
such,  can take advantage of the FHLB program for overnight and term advances at
published  daily  rates.  Under  the terms of a  blanket  collateral  agreement,
advances from the FHLB are collateralized by first mortgage loans and securities
which totaled  $44,763,000 at December 31, 2001.  Advances  available under this
agreement are limited by available and  qualifying  collateral and the amount of
FHLB stock held by the borrower.  At December 31, 2001, the Bank could borrow an
additional  $20,252,000 based on qualifying  collateral.  Outstanding borrowings
from the Federal Home Loan Bank are  summarized  as follows at December 31, 2001
and 2000:

<TABLE>
<CAPTION>
                                                                      2001                              2000
                                                       ---------------------------------------------------------------------
                                                                             Weighted                          Weighted
                                                                              Average                           Average
                                                                             Interest                          Interest
                                                             Amount            Rate            Amount            Rate
                                                       ---------------------------------------------------------------------
<S>                                                   <C>                     <C>       <C>                     <C>
              Maturity:
                   Within one year                      $       2,000,000       3.12  %   $       5,500,000       6.34  %
                   Within two years                             3,500,000       6.42              1,000,000       6.63
                   Within three years                                   -          -              3,500,000       6.42
                   Within four years                            2,935,303       7.39                      -         -
                   Within five years                                    -          -                      -         -
                   Thereafter                                   8,750,000       5.46              9,398,854       6.28
                                                       --------------------              --------------------
                                                        $      17,185,303                 $      19,398,854
                                                       ====================              ====================
</TABLE>


7
--------------------------------------------------------------------------------
INCOME TAXES

The  consolidated  provision  for income taxes for the years ended  December 31,
2001 and 2000 are as follows:

<TABLE>
<CAPTION>
                                                                                          2001                2000
                                                                                   -----------------------------------------
<S>                                                                               <C>                  <C>
              Tax currently payable:
                   Federal                                                          $           22,066   $          72,533
                   State                                                                         1,415              18,968
              Deferred taxes (benefit)                                                           7,144              (8,185)
                                                                                   -----------------------------------------

                            Total income tax expense                                $           30,625   $          83,316
                                                                                   =========================================
</TABLE>

                                      F-15
<PAGE>

STEELTON BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS




7
--------------------------------------------------------------------------------
INCOME TAXES (CONTINUED)

The difference  between the statutory federal income tax rate and the income tax
expense included in the consolidated statements of income is as follows:

<TABLE>
<CAPTION>
                                                                                               2001             2000
                                                                                        ------------------------------------

<S>                                                                                    <C>               <C>
              Expected tax provision at 34% rate                                         $         75,789  $       126,124
              Tax-exempt interest income                                                          (27,262)         (35,319)
              Earnings on bank-owned life insurance                                               (19,281)         (11,160)
              State tax effect                                                                        934           12,519
              Other                                                                                   445           (8,848)
                                                                                        ------------------------------------
                                                                                         $         30,625  $        83,316
                                                                                        ====================================
</TABLE>

Income taxes (benefit) of $3,987 and ($415) were recorded  related to securities
gains (losses) in the years ended December 31, 2001 and 2000, respectively.

Temporary  differences between the amounts reported in the financial  statements
and the tax bases of assets and liabilities  result in deferred taxes.  Deferred
tax assets and  liabilities  for the years ended  December 31, 2001 and 2000 are
summarized as follows:

<TABLE>
<CAPTION>
                                                                                            2001               2000
                                                                                     --------------------------------------
<S>                                                                                <C>                <C>
              Deferred tax assets:
                   Deferred loan fees                                                 $         82,570   $         99,333
                   Unrealized securities losses                                                      -             25,491
                   Allowance for loan losses                                                    44,945             36,418
                   Other                                                                        19,972             12,731
                                                                                     --------------------------------------

                            Total deferred tax assets                                          147,487            173,973
                                                                                     --------------------------------------
              Deferred tax liabilities:
                   Bank premises and equipment                                                 (18,077)           (11,928)
                   Unrealized securities gains                                                 (34,087)                 -
                                                                                     --------------------------------------

                            Total deferred tax liabilities                                     (52,164)           (11,928)
                                                                                     --------------------------------------

                            Net deferred tax asset                                    $         95,323   $        162,045
                                                                                     ======================================
</TABLE>

                                      F-16
<PAGE>


STEELTON BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS




7
--------------------------------------------------------------------------------
INCOME TAXES (CONTINUED)

The Corporation is permitted a special bad debt deduction for federal income tax
purposes which is limited generally to an amount calculated under the experience
method as defined in the Internal  Revenue Code (Code).  With the passage of the
Small Business Jobs  Protection Act of 1996 (Act),  thrift  institutions  are no
longer  permitted to use the  percentage  of taxable  income method of computing
additions to their bad debt  reserves as provided for in the Code.  In addition,
the excess of the thrift's bad debt  reserves over those  permitted,  as defined
under the  provisions of the Act, are required to be recaptured  into income for
federal income tax purposes over a six-year  period.  Excess  reserves are those
reserves in excess of the base year reserves generally defined as the balance of
reserves as of December 31, 1987. In accordance  with SFAS 109,  "Accounting for
Income  Taxes," a deferred  liability has not been  established  for the tax bad
debt base year  reserve of the  Corporation.  Therefore,  retained  earnings  at
December 31, 2001 and 2000 includes approximately $703,000 representing such bad
debt deductions for which no deferred taxes have been provided.

Management  has  determined  that it is not  required  to  establish a valuation
reserve for the  deferred  tax assets  since it is more likely than not that the
deferred  tax assets will be realized  through  carryback,  future  reversals of
existing taxable temporary  differences,  future taxable income and tax planning
strategies.


8
--------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY

On  July 8,  1999,  the  Bank  completed  a  mutual  to  stock  conversion  (the
"Conversion").  In connection with the Conversion,  the Corporation sold 424,463
shares  (adjusted  for stock  dividends)  of its common stock in a  subscription
offering at $9.07 per share (adjusted for stock  dividends).  Upon completion of
these  transactions,   the  Bank  became  the  wholly-owned  subsidiary  of  the
Corporation  and  changed  its name from  Mechanics  Savings  and  Loan,  FSA to
Mechanics Savings Bank.

At the  time  of its  mutual  to  stock  Conversion,  the  Bank  segregated  and
restricted  approximately  $3.7  million of retained  earnings in a  liquidation
account  for the benefit of eligible  account  holders who  continue to maintain
their deposit accounts in the Bank after conversion.  In the event of a complete
liquidation  of the Bank,  and only in such an event,  eligible  depositors  who
continue to maintain  accounts shall be entitled to receive a distribution  from
the  liquidation  account in an amount  proportionate  to the  current  adjusted
balances of all qualifying  deposits then held. The liquidation  account will be
reduced  annually to the extent that eligible account holders have reduced their
qualifying deposits.

                                      F-17
<PAGE>

STEELTON BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



8
--------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY (CONTINUED)

Subsequent to the Conversion, the Corporation or the Bank may not declare or pay
a cash  dividend on any of its shares of common stock if the effect would reduce
stockholders'  equity  below  either the  amount  required  for the  liquidation
account discussed above or the applicable regulatory capital requirements, or if
such declaration and payment would otherwise violate regulatory requirements.


9
--------------------------------------------------------------------------------
STOCK-BASED COMPENSATION

The Corporation has an Employee Stock Ownership Plan (the "ESOP") which provides
for annual  contributions  at the discretion of the  Corporation.  Employees are
eligible  to  participate  after one year of service  and are vested  after five
years of service.  In 1999, the ESOP purchased 33,957 shares (adjusted for stock
dividends) of the Corporation's common stock at a total cost of $308,000 through
a loan financed by the  Corporation.  Dividends are paid on allocated shares and
credited to participants'  accounts.  Compensation  expense  associated with the
ESOP totaled $45,276 for 2001 and $33,496 for 2000. The fair value of the 27,165
unearned ESOP shares  (adjusted for stock  dividends)  approximated  $502,000 at
December 31, 2001.

In 2000, the  Corporation  established  the  Restricted  Stock Plan (the "Plan")
under which shares were awarded to directors  and certain  employees.  Under the
terms of the plan, each non-employee director was awarded 841 shares for a total
of 4,205 shares and certain  employees  were awarded a total of 12,611 shares as
determined by a Board appointed  committee.  (The number of shares were adjusted
for stock dividends.)  Granted shares are earned and non-forfeitable at the rate
of 20% on the one-year anniversary of the date of the grant and 20% annually for
the next four years if service continues.  Unearned  compensation,  representing
the fair market  value of the shares at the  issuance  date,  will be charged to
expense over the vesting period.  The Corporation  recognized expense of $28,303
and $25,946 for the portion of shares vesting in 2001 and 2000, respectively.

In 2000,  the  Corporation  established  the 2000 Stock Option Plan (the "Option
Plan"),  which  provides for the  granting of options to  Directors  and certain
employees.  Under  the  terms  of the  Option  Plan in 2000,  each  non-employee
director  was awarded  2,122  options for a total of 10,610  options and certain
employees  were  awarded  a total of 31,836  options  as  determined  by a Board
appointed  committee.  The  exercise  price  of  the  options  is  $8.33,  which
represents the fair market value of the related  shares on the grant date.  (The
number of options and exercise  price were  adjusted for stock  dividends.)  The
options are  exercisable  at the rate of 20% on the one-year  anniversary of the
date of the grant and 20% annually for the next four years if service continues.
The options expire after a ten-year period.  No options were granted in 2001. At
December 31, 2001, 42,446 options were outstanding,  of which 8,486 options were
exercisable. The remaining contractual life of these options was approximately 8
years.

                                      F-18
<PAGE>

STEELTON BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



9
--------------------------------------------------------------------------------
STOCK-BASED COMPENSATION (CONTINUED)

The pro forma impact as though  compensation  expense associated with the Option
Plan had been determined under the recognition  provisions of FASB Statement No.
123, is as follows for 2001 and 2000:

<TABLE>
<CAPTION>
                                                                2001                                   2000
                                               -----------------------------------------------------------------------------
                                                     Reported           Pro Forma           Reported          Pro Forma
                                               -----------------------------------------------------------------------------
<S>                                           <C>                 <C>                <C>                <C>
             Net income                         $  192,286          $         172,346  $         287,638  $         270,847
                                               =============================================================================

             Basic earnings per share           $     0.63          $            0.56  $            0.80  $            0.76
                                               =============================================================================

             Diluted earnings per share         $     0.58          $            0.52  $            0.78  $            0.74
                                               =============================================================================
</TABLE>

The pro forma impact is based on a grant date fair value of $2.38  (adjusted for
stock  dividends)  per option  computed  using the  Black-Scholes  model and the
following  assumptions:  dividend  yield of 1.72%,  expected  volatility of 15%,
interest rate of 6.63% and an expected life of 7 years.


10
--------------------------------------------------------------------------------
EARNINGS PER SHARE

The following is a  reconciliation  of the  numerators and  denominators  of the
basic and diluted earnings per share computations:

<TABLE>
<CAPTION>
                                                                                              2001             2000
                                                                                       ------------------------------------
<S>                                                                                   <C>               <C>
              Numerator, net income                                                     $       192,286   $       287,638
                                                                                       ====================================
              Denominators:
                   Average basic shares outstanding                                             306,032           358,484
                   Average dilutive option effect                                                19,795             6,297
                   Average restricted stock effect                                                4,004             2,951
                                                                                       ------------------------------------
                            Average dilutive shares outstanding                                 329,831           367,732
                                                                                       ====================================
              Earnings per share:
                   Basic                                                                $          0.63   $          0.80
                                                                                       ====================================
                   Diluted                                                              $          0.58   $          0.78
                                                                                       ====================================
</TABLE>

                                      F-19
<PAGE>

STEELTON BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



11
--------------------------------------------------------------------------------
REGULATORY MATTERS

The Bank is subject to various regulatory capital  requirements  administered by
its primary federal regulator,  the Office of Thrift Supervision (OTS).  Failure
to meet  the  minimum  regulatory  capital  requirements  can  initiate  certain
mandatory, and possible additional discretionary, actions by regulators that, if
undertaken,  could  have a direct  material  effect on the  Corporation  and the
consolidated  financial  statements.   Under  the  regulatory  capital  adequacy
guidelines and the regulatory  framework for prompt corrective  action, the Bank
must meet specific capital guidelines involving quantitative measures of 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   judgements  by  the  regulators   about   components,
risk-weightings and other factors.

Quantitative  measures  established  by  regulation to ensure  capital  adequacy
require the Corporation to maintain  minimum amounts of ratios of Total and Tier
1 capital (as defined in the regulations) to risk-weighted  assets (as defined),
and Tier 1 capital to assets (as defined).

The  following  table  provides a comparison  of the Bank's  risk-based  capital
position to regulatory capital requirements:

<TABLE>
<CAPTION>
                                                                                                          To Be Well
                                                              Actual              For Capital         Capitalized Under
                                                                                    Adequacy          Prompt Corrective
                                                                                    Purposes          Action Provisions
                                                      ----------------------------------------------------------------------
                                                         Amount      Ratio      Amount     Ratio      Amount      Ratio
                                                      ----------------------------------------------------------------------
                                                                             (Dollars In Thousands)
<S>                                                  <C>          <C>       <C>          <C>       <C>        <C>
         December 31, 2001:
              Total capital (to risk-weighted assets)  $    5,140   18.98 %   $    2,166    8.00 %  $    2,708    10.00 %
              Tier 1 capital (to risk-weighted assets)      4,993   18.44            N/A    N/A          1,624     6.00
              Core (Tier 1) capital (to adjusted
                  total assets)                             4,993    8.84          2,260    4.00         2,825     5.00
              Tangible equity (to adjusted total
                  assets)                                   4,993    8.84            847    1.50           N/A      N/A
         December 31, 2000:
              Total capital (to risk-weighted assets)  $    5,688   19.03 %   $    2,391    8.00 %  $    2,989    10.00 %
              Tier 1 capital (to risk-weighted assets)      5,540   18.54            N/A    N/A          1,793     6.00
              Core (Tier 1) capital (to adjusted
                  total assets)                             5,540    9.27          2,391    4.00         2,988     5.00
              Tangible equity (to adjusted total
                  assets)                                   5,540    9.27            897    1.50           N/A      N/A
</TABLE>

As of December 31, 2001, the Bank was categorized as well capitalized  under the
regulatory  framework  for prompt  corrective  action  based on the most  recent
examination  by the OTS.  There are no  conditions or events which have occurred
since  notification  that  management  believes  have changed the  institution's
category.

                                      F-20
<PAGE>

STEELTON BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



12
--------------------------------------------------------------------------------
PENSION AND RETIREMENT SAVINGS PLANS

The Corporation had a qualified, noncontributory,  fully insured defined benefit
pension plan which  covered  substantially  all  employees.  The  benefits  were
primarily  based on years of service and  earnings.  The plan was fully  insured
through a contract with a life  insurance  company and, as such, the benefits of
the plan were covered by the insurance contract. As a result,  disclosure of the
accumulated  benefit  obligations,  plan  assets  and the  components  of annual
pension expense required by Statement of Financial  Accounting Standards No. 87,
"Employers' Accounting for Pensions," was not applicable. Pension expense of the
Corporation, net of experienced-rated dividends, for the year ended December 31,
2000 was $51,204.

In  2001,  the  Bank  switched  its  defined   benefit  plan  to  the  Financial
Institutions  Retirement Fund (the "Fund"),  administered by the Pentegra Group.
The  Fund is a  multiple  employer  plan  whereas  the  plan is a  single  trust
commingled plan for investment purposes.  Plan funding is determined based on an
individual  employer's  benefit structure,  demographics,  salary experience and
other  pooled  actuarial  experience.  Benefits  are  based  on 1.5% of the high
five-year average salary for each year of benefit service, up to a maximum of 25
years, with two-year to six-year step vesting.

The Fund is a  pension  plan that  meets the  criteria  of a  multiple  employer
pension plan as defined by FASB  Statement No. 87,  "Employers'  Accounting  for
Pensions." FASB Statement No. 87 indicates that an employer  participating  in a
multiple  employer  plan  must  recognize  as  net  pension  cost  the  required
contribution for the period and shall recognize as a liability any contributions
due and unpaid. As indicated by the actuarial valuation prepared by the Pentegra
Group, the plan was fully funded at the end of the plan year and no contribution
was required.  Accordingly,  disclosure of the accumulated benefit  obligations,
plan  assets and the  components  of annual  pension  expense  required  by FASB
Statement No. 87 is not applicable.

The  Corporation  is also a participant  in the Financial  Institution's  Thrift
Plan. The plan covers  substantially all employees and is in participation  with
other  institutions.  The Plan is a qualified  401(k) salary deduction plan that
permits  participants  to  contribute  up to 15% of their  salary  to the  plan.
Additionally,  the Corporation  provides matching  contributions up to 6% of the
participants'  salaries.  For the years ended  December  31, 2001 and 2000,  the
Corporation's contributions totaled $21,167 and $19,642, respectively.

The Bank has entered into the Director  Supplemental  Retirement  Plan - Defined
Contribution.  This plan is designed to provide an annual retirement benefit, to
be paid to each director upon retirement from the Board, and a death benefit, to
be paid  to the  director's  beneficiary  upon  his or her  death.  To fund  the
benefits  under  this  plan,  the  Bank is the  owner  and  beneficiary  of life
insurance  policies  on  the  directors.  The  aggregate  cash  surrender  value
associated with all policies was $ 1,090,000 and $1,033,000 at December 31, 2001
and 2000, respectively.  The amount charged to expense associated with this plan
was  $13,985  and  $23,981  for the  years  ended  December  31,  2001 and 2000,
respectively.

                                      F-21
<PAGE>

STEELTON BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



13
--------------------------------------------------------------------------------
FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK

The Corporation is a party to financial instruments with  off-balance-sheet risk
in the normal course of business to meet the financial  needs of its  customers.
These  financial  instruments  consist of commitments  to extend  credit.  These
instruments  involve,  to varying degrees,  elements of credit risk in excess of
the amount  recognized in the statement of financial  position.  The contract or
notional  amounts of those  instruments  reflect the extent of  involvement  the
Corporation has in particular classes of financial instruments.

The Corporation's exposure to credit loss in the event of non-performance by the
other party to the  financial  instrument  for  commitments  to extend credit is
represented  by the  contractual  notional  amount  of  those  instruments.  The
Corporation  uses the same credit policies in making  commitments as it does for
on-balance-sheet instruments.

Commitments  to extend  credit are  agreements  to lend to a customer as long as
there is no violation of any condition established in the contract.  Commitments
generally  have  fixed  expiration  dates  or  other  termination  clauses.  The
Corporation evaluates each customer's credit-worthiness on a case-by-case basis.
The  amount  of  collateral  obtained  upon  extension  of  credit  is  based on
management's credit evaluation of the counter party.

The Corporation has outstanding  loan  commitments that are not reflected in the
accompanying consolidated financial statements at December 31 as follows:

                                                    2001              2000
                                              ----------------------------------

              Unfunded loan commitments       $       264,000   $       477,000
              Unfunded lines of credit                308,000           344,000
                                              ----------------------------------

                                              $       572,000   $       821,000
                                              ==================================


14
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FAIR VALUES OF FINANCIAL INSTRUMENTS

Statement of Financial  Accounting  Standards No. 107,  "Disclosures  About Fair
Value of Financial  Instruments,"  requires disclosure of fair value information
about financial instruments,  whether or not recognized in the balance sheet. In
cases where quoted  market  prices are not  available,  fair values are based on
estimates using present value or other valuation  techniques.  Those  techniques
are significantly  affected by the assumptions used, including the discount rate
and  estimates  of future cash flows.  In that  regard,  the derived  fair value
estimates cannot be  substantiated by comparison to independent  markets and, in
many cases,  could not be realized in immediate  settlement of the  instruments.
Statement No. 107 excludes certain  financial  instruments and all non-financial
instruments from its disclosure  requirements.  Accordingly,  the aggregate fair
value  amounts   presented  do  not  represent  the  underlying   value  of  the
Corporation.





<PAGE>



STEELTON BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS




14
--------------------------------------------------------------------------------
FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED)

The following methods and assumptions were used by the Corporation in estimating
its fair value disclosures for financial instruments:

     Cash and cash equivalents:
         The carrying  amounts  reported in the balance sheets for cash and cash
         equivalents approximate their fair value.

     Investment securities (including mortgage-backed securities):
         Fair  values  for  investment  securities  are based on  quoted  market
         prices,  where  available.  If quoted market prices are not  available,
         fair  values  are  based  on  quoted   market   prices  of   comparable
         instruments.

     Loans:
         For  variable-rate  loans that reprice  frequently  and which entail no
         significant  changes in credit risk,  fair values are based on carrying
         values.  The fair values of other loans are estimated using  discounted
         cash flow analysis, based on interest rates currently being offered for
         loans with similar terms to borrowers of similar credit quality.

     Federal Home Loan Bank stock:
         No ready market  exists for this stock that is held by the  Corporation
         as required by law. However,  redemption of this stock has historically
         been at par value.  Accordingly,  the carrying amount is deemed to be a
         reasonable estimate of fair value.

     Accrued interest receivable:
         The carrying amount of accrued interest approximates its fair value.

     Deposits:
         Fair values for demand  deposits,  savings  accounts and certain  money
         market  deposits  are, by  definition,  equal to the amount  payable on
         demand at the  reporting  date (i.e.,  their  carrying  amounts).  Fair
         values of  fixed-rate  certificates  of deposit are  estimated  using a
         discounted cash flow  calculation that applies interest rates currently
         being  offered on  certificates  to a schedule of  aggregated  expected
         monthly maturity of deposits.

     Advances from Federal Home Loan Bank:
         The  carrying  amounts of advances  from the Federal Home Loan Bank are
         estimated using discounted cash flow analysis,  based on interest rates
         currently being offered for loans with similar terms.

     Accrued interest payable:
         The carrying amount of accrued interest approximates its fair value.

     Unfunded lending commitments:
         Fair  values  for  unfunded  lending  commitments  are  based  on  fees
         currently charged to enter into similar agreements, taking into account
         the remaining  terms of the agreements and the  counterparties'  credit
         standings.

                                      F-23
<PAGE>

STEELTON BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



14
--------------------------------------------------------------------------------
FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED)

The carrying  amounts and estimated fair values of the  Corporation's  financial
instruments at December 31, 2001 and 2000 are as follows:

<TABLE>
<CAPTION>
                                                                 2001                                2000
                                                  --------------------------------------------------------------------------
                                                       Carrying            Fair             Carrying            Fair
                                                        Amount             Value             Amount             Value
                                                  --------------------------------------------------------------------------
<S>                                              <C>               <C>               <C>                <C>
              Financial assets:
                   Cash and due from banks         $        580,181  $        580,181  $         278,524  $        278,524
                   Interest bearing deposits              2,617,767         2,617,767          1,140,038         1,140,038
                   Investments:
                       Available for sale                10,359,100        10,359,100         10,007,980        10,007,980
                       Held to maturity                   2,362,443         2,387,828          5,380,735         5,341,664
                   Loans receivable, net                 36,865,998        37,744,836         39,769,076        39,084,421
                   Federal Home Loan Bank
                       stock                                989,200           989,200          1,030,700         1,030,700
                   Accrued interest receivable              286,987           286,987            400,989           400,989

              Financial liabilities:
                   Deposits                              33,555,174        34,098,822         34,133,250        34,593,348
                   Advances from Federal
                       Home Loan Bank                    17,185,303        18,883,453         19,398,854        19,358,251
                   Accrued interest payable                 120,372           120,372            142,546           142,546

              Off balance sheet financial
                   instruments, unfunded
                   lending commitments                            -                 -                  -                 -

</TABLE>

                                      F-24
<PAGE>
<TABLE>
<CAPTION>
<S>                    <C>

CORPORATE INFORMATION

                              STEELTON BANCORP, INC.
                               51 South Front Street
                           Steelton, Pennsylvania 17113
                                  (717) 939-1966

                              MECHANICS SAVINGS BANK


               Main Office                             Middletown Office
          51 South Front Street                    1100 Spring Garden Drive
      Steelton, Pennsylvania, 17113             Middletown, Pennsylvania, 17057


                               BOARD OF DIRECTORS

                                 Marino Falcone
                             Chairman of the Board
                    Retired - Steelton Coal and Oil Company

Harold E. Stremmel                                          Richard E. Farina
President and Chief Executive Officer            Retired - Pennsylvania Insurance Company

                     James F. Stone                         Joseph A. Wiedeman
              Retired - Stone Funeral Home             CPA - Wiedeman & Douty, P.C.

                    James S. Nelson                          Victor J. Segina
                Executive Vice President                   Retired - Architect

                               EXECUTIVE OFFICERS

                               Harold E. Stremmel
                      President and Chief Executive Officer

Victor J Segina, Secretary                               Joseph A. Wiedeman, Treasurer

James S. Nelson, Executive Vice President         Shannon Aylesworth, Chief Financial Officer


Local Counsel                                         Independent Auditor
Skarlatos and Zonarich                                Beard Miller Company LLP
204 State Street                                      320 East Market Street
Harrisburg, Pennsylvania 17101                        Harrisburg, Pennsylvania 17108

Special Counsel                                       Transfer Agent and Registrar
Malizia Spidi & Fisch, PC                             Illinois Stock Transfer Company
1100 New York Avenue, N.W.                            209 West Jackson Blvd., Suite 903
Suite 340 West                                        Chicago, Illinois 60607
Washington, D.C. 20005

</TABLE>

              The Corporation's Annual Report on Form 10-KSB for the fiscal year
ended December 31 , 2001 is available without charge upon written request. For a
copy of the Form 10-KSB,  please  write or call Mr.  James S. Nelson,  Executive
Vice President at the Corporation's  Office.  The Annual Meeting of Stockholders
will be held on April 17, 2002 at 10:00 a.m. at Mechanics Savings Bank, 51 South
Front Street, Steelton, Pennsylvania 17113.