SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-KSB

[X]  Annual Report  Pursuant to Section 13 or 15(d) of the  Securities  Exchange
     Act of 1934
     For the fiscal year ended December 31, 2002
                               -----------------
                                     - OR -

| |  Transition  Report  Pursuant  to  Section  13 or  15(d)  of the  Securities
     Exchange Act of 1934

     For the transition period from                   to
                                    -----------------    -----------------
Commission file number:   0-26499
                          -------

                             Steelton Bancorp, Inc.
                 ----------------------------------------------
                 (Name of Small Business Issuer in Its Charter)

                Pennsylvania                                  25-1830745
    ---------------------------------------------             ----------
      (State or Other Jurisdiction of                       (I.R.S. Employer
      Incorporation or Organization)                      Identification No.)

    51 South Front Street, Steelton, Pennsylvania               17113
    ---------------------------------------------               -----
   (Address of Principal Executive Offices)                   (Zip Code)

Registrant's telephone number, including area code:           (717) 939-1966
                                                              --------------
Securities registered pursuant to Section 12(b) of the Act:        None
                                                                   ----
Securities registered pursuant to Section 12(g) of the Act:

                     Common Stock, par value $0.10 per share
                     ---------------------------------------
                                (Title of Class)

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

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

         Registrant's  revenues  for the  year  ended  December  31,  2002  were
$3,881,000.

         The aggregate  market value of the voting stock held by  non-affiliates
of the registrant,  based upon the last reported sales price of such stock as of
February 24, 2003, was approximately $4.5 million.

         As of February 24, 2003,  the  registrant  had 299,887 shares of Common
Stock outstanding.

<PAGE>

                                     PART I

Forward-Looking Statements

         Steelton  Bancorp,  Inc. (the  "Corporation" or "Registrant")  may from
time to  time  make  written  or oral  "forward-looking  statements,"  including
statements  contained  in the  Corporation's  filings  with the  Securities  and
Exchange  Commission  (including  this  Annual  Report  on Form  10-KSB  and the
exhibits thereto), in its reports to stockholders and in other communications by
the Corporation, which are made in good faith by the Corporation pursuant to the
"safe harbor"  provisions  of the Private  Securities  Litigation  Reform Act of
1995.

         These forward-looking statements involve risks and uncertainties,  such
as statements of the Corporation's plans,  objectives,  expectations,  estimates
and intentions,  that are subject to change based on various  important  factors
(some of which are beyond the  Corporation's  control).  The following  factors,
among others,  could cause the  Corporation's  financial  performance  to differ
materially from the plans,  objectives,  expectations,  estimates and intentions
expressed in such forward-looking  statements: the strength of the United States
economy  in  general  and  the  strength  of the  local  economy  in  which  the
Corporation  conducts  operations;  the effects of, and changes in, monetary and
fiscal  policies  and laws,  including  interest  rate  policies of the Board of
Governors of the Federal Reserve system,  inflation,  interest rate,  market and
monetary  fluctuations;  the impact of changes in financial  services'  laws and
regulations   (including  laws  concerning   taxes,   banking,   securities  and
insurance);  technological  changes;  changes in  consumer  spending  and saving
habits; and the success of the Corporation at managing the risks involved in the
foregoing.

         The Corporation  cautions that the foregoing list of important  factors
is  not   exclusive.   The   Corporation   does  not  undertake  to  update  any
forward-looking  statement,  whether written or oral, that may be made from time
to time by or on behalf of the Corporation.

Item 1. Description of Business
-------------------------------

General

         The Corporation is a Pennsylvania company organized in February 1999 at
the direction of Mechanics  Savings and Loan, FSA (the "Bank") to acquire all of
the  capital  stock that the Bank  issued in its  conversion  from the mutual to
stock form of ownership (the "Conversion").  On July 8, 1999, the Bank completed
the  Conversion  and became a wholly owned  subsidiary of the  Corporation.  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. 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.

         On  December  20,  2002,  the  Corporation  entered  into a  definitive
agreement  to merge into Sun Bancorp,  Inc. of  Selinsgrove,  Pennsylvania.  The
transaction has been approved by the boards of both companies. It is expected to
close in the second quarter of 2003, pending regulatory approval and approval of
the Corporation's  shareholders.  Under the terms of the agreement, Sun Bancorp,
Inc. will acquire the  Corporation  and merge the Bank into Sun Bancorp,  Inc.'s
subsidiary bank,  SunBank, in an all cash transaction valued at $22.04 per share
or approximately $7.2 million in the aggregate.

                                        1

<PAGE>

         The Bank is a federally  chartered stock savings bank  headquartered in
Steelton,  Pennsylvania,  originally chartered in 1900 as Mechanics Building and
Loan   Association  of  Steelton.   The  Bank  is  subject  to  examination  and
comprehensive  regulation  by the Office of Thrift  Supervision  ("OTS") and its
deposits are federally insured by the Savings Association  Insurance Fund of the
Federal Deposit Insurance Corporation ("SAIF"). The Bank is a member of and owns
capital stock in the Federal Home Loan Bank ("FHLB") of Pittsburgh, which is one
of the 12 regional banks in the FHLB System.

         The Bank  operates a  traditional  savings  bank  business,  attracting
deposit 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.

         References to the Corporation or the Bank, include the Corporation, the
Bank and any subsidiaries on a consolidated  basis,  unless the context requires
otherwise.

Competition

         The competition for deposit products comes from other insured financial
institutions such as commercial banks, thrift  institutions,  credit unions, and
multi-state  regional banks in the Bank's market area. Deposit  competition also
includes a number of  insurance  products  sold by local  agents and  investment
products  such as mutual funds and other  securities  sold by local and regional
brokers. Loan competition varies depending upon market conditions and comes from
other  insured  financial   institutions   such  as  commercial  banks,   thrift
institutions, credit unions, multi-state regional banks, and mortgage bankers.

Lending Activities

         The following table sets forth  information  concerning the composition
of the Bank's loan portfolio by loan category at the dates indicated.


                                                       At December 31,
                                            -----------------------------------
                                                   2002               2001
                                            -----------------   ---------------
                                               $         %         $        %
                                            ------     -----    ------    -----
                                                    (Dollars in thousands)
Type of Loans:
--------------
Real estate:
  1-4 family.............................  $28,225      95.0%  $35,827     96.3%
  Non-residential........................      555       1.9       381      1.0
Consumer loans...........................      847       2.8       935      2.5
Commercial (business) loans..............       77       0.3        69      0.2
                                            ------     -----    ------    -----
Total loans..............................   29,704     100.0%   37,212    100.0%
                                            ------     =====    ------    =====
Less:
  Loans in process.......................      235                 205
  Deferred loan origination fees, net....      190                 243
  Allowance for loan losses..............      256                 148
                                           -------             -------
Total loans, net.........................  $29,023             $36,616
                                           =======             =======

                                        2

<PAGE>

         Residential  Lending.  The Bank's primary lending activity  consists of
the  origination  of one- to four-family  residential  mortgage loans secured by
property  located in the  Bank's  market  area.  The Bank  generally  originates
single-family  residential  mortgage loans in amounts up to 80% of the lesser of
the appraised value or selling price of the mortgaged property without requiring
private mortgage insurance. The Bank will originate a mortgage loan in an amount
up to 97% of the lesser of the  appraised  value or selling price of a mortgaged
property,  however,  private mortgage  insurance for the borrower is required on
the amount financed in excess of 80%.

         The Bank originates both fixed rate and adjustable rate mortgage loans.
The majority of the mortgage  loans are fixed rate loans with terms of 30 years,
however the Bank also originates a significant  amount of loans with terms of 15
years.  Adjustable  rate  mortgage  loans are tied to the 1-year  U.S.  Treasury
Security Index or the 3-year Treasury Security Index.

         The Bank  generally  underwrites  its fixed rate mortgage loans to meet
the secondary  market  standards of the Federal Home Loan  Mortgage  Corporation
("FHLMC") but also makes  limited non-  conforming  loans.  While the Bank is an
approved FHLMC seller/servicer, it generally does not sell its mortgage loans in
the secondary market.  The Bank may in the future sell fixed rate mortgage loans
in the secondary market, as markets and the Bank's own portfolio needs dictate.

         Property  appraisals on real estate  securing the Bank's  single-family
residential  loans  are  made  by  state  certified  and  licensed   independent
appraisers  approved by the Board of  Directors.  Appraisals  are  performed  in
accordance  with  applicable  regulations  and policies.  The Bank obtains title
insurance  policies on all first  mortgage  real estate  loans  originated.  All
property  secured  loans  require  fire and  casualty  insurance.  Loans made on
property  located in  designated  flood zones require  minimum  flood  insurance
coverage based on the amount of the loan.

         Construction  Lending. The Bank engages in limited lending to qualified
borrowers for construction of single-family residential properties in the Bank's
market area.  Construction loans are made to builders on a speculative basis and
to   owners   for    construction    of   their    primary    residence   on   a
construction/permanent basis.

         Construction lending is generally considered to involve a higher degree
of credit risk than long term  financing of residential  properties.  The Bank's
risk of loss on a  construction  loan is dependent  largely upon the accuracy of
the initial  estimate of the property's  value at completion of construction and
the estimated cost of construction.

         Non-residential and Multi-Family Real Estate Loans. The Bank originates
a limited number of multi-family and non-residential real estate mortgage loans,
including  loans on  multi-family  dwellings,  retail/service  space,  and space
occupied by local fraternal, church or service organizations.  The Bank requires
no less than 25%  downpayment  or equity for  commercial  real  estate  mortgage
loans.  Essentially  all originated  commercial real estate loans are within the
Bank's  market  area  and  all  are  within  Pennsylvania.  The  Bank's  largest
commercial  real estate loan had a balance of $412,000 on December  31, 2002 and
was secured by an apartment building located in the Bank's market area.

         Commercial real estate loans,  including  multi-family loans, generally
are considered to entail significantly  greater risk than that which is involved
with single family real estate  lending.  The repayment of these loans typically
is dependent on the  successful  operations  and income stream of the commercial
real  estate and the  borrower.  These  risks can be  significantly  affected by
economic conditions. In addition,

                                        3

<PAGE>

commercial  real  estate  lending  generally  requires   substantially   greater
oversight efforts compared to residential real estate lending.

         Consumer  Loans.  As of December 31, 2002,  consumer  loans amounted to
2.8% of the Bank's  total loan  portfolio  and  consisted  primarily of personal
loans (secured and unsecured),  savings secured loans (share loans), auto loans,
and credit card loans.  Consumer  loans are originated in the Bank's market area
and have maturities of up to 15 years. On share loans,  the Bank will lend up to
90% of the account balance.

         Consumer loans  generally have shorter terms and higher  interest rates
than residential loans. The consumer loan market can be helpful in improving the
spread between average loan yield and cost of funds and at the same time improve
the matching of the rate sensitive assets and liabilities.

         Consumer   loans  entail   greater  risks  than  one-  to   four-family
residential  mortgage  loans,  particularly  consumer  loans  secured by rapidly
depreciable assets such as automobiles or loans that are unsecured.

         Loans to One Borrower.  Under federal law, savings  institutions  have,
subject to certain exemptions, lending limits to one borrower in an amount equal
to the greater of $500,000 or 15% of the  institution's  unimpaired  capital and
surplus. As of December 31, 2002, the Bank's largest aggregation of loans to one
borrower was $412,000  consisting of an apartment  building in the Bank's market
area,  which was within the Bank's legal  lending  limit to one borrower at that
date. At December 31, 2002, this loan was current.

         Non-performing  and  Problem  Assets.   Non-performing  assets  include
nonaccrual loans,  loans greater than 90 days past due,  foreclosed real estate,
and troubled  debt  restructurings.  As of the end of the last two fiscal years,
the Bank's  nonperforming assets were limited to nonaccrual loans and foreclosed
real estate as presented in the following table.



                                                             At December 31,
                                                             ---------------
                                                            2002         2001
                                                            ----         ----
                                                          (Dollars in thousands)
Loans accounted for on a non-accrual basis:
Mortgage loans:
  1-4 family residential real estate................        $ 86         $108
  Non-residential...................................          70           58
Non-mortgage loans:
  Home equity.......................................         380          427
  Other consumer....................................          38           42
                                                            ----         ----
     Total non-accruing loans.......................         574          635
                                                            ----         ----
 Foreclosed real estate.............................          29           31
                                                            ----         ----
Total non-performing assets.........................        $603         $666
                                                            ====         ====
Total non-performing loans to net loans.............        1.97%        1.72%
                                                            ====         ====
Total non-performing assets to total assets.........        1.04%        1.17%
                                                            ====         ====

                                        4

<PAGE>

         Loans are reviewed on a regular  basis and are placed on a  non-accrual
status  when  they are more  than 90 days  delinquent.  Loans may be placed on a
non-accrual status at any time if, in the opinion of management,  the collection
of additional  interest is doubtful.  Interest  accrued and unpaid at the time a
loan is placed  on  non-accrual  status  is  charged  against  interest  income.
Subsequent  payments are either applied to the outstanding  principal balance or
recorded  as  interest  income,  depending  on the  assessment  of the  ultimate
collectibility of the loan.

         During the year  ended  December  31,  2002,  approximately  $29,786 of
interest would have been recorded on loans accounted for on a non-accrual  basis
if those loans had been current  according to the original loan  agreements  for
the entire  period.  The amount of interest  income on loans  accounted for on a
non-accrual basis that was included in income during 2002 was insignificant.

         Classified Assets.  Management, in compliance with OTS guidelines,  has
instituted an internal  loan review  program,  whereby  loans are  classified as
special  mention,  substandard,  doubtful or loss.  When a loan is classified as
substandard or doubtful, management is required to establish a valuation reserve
for loan losses in an amount considered  prudent by management.  When management
classifies a loan as a loss asset,  a reserve  equal to 100% of the loan balance
is required to be  established or the loan is to be charged- off. This allowance
for loan losses is composed of an allowance for both  inherent  risk  associated
with lending activities and particular problem assets.

         An asset is considered "substandard" if it is inadequately protected by
the paying capacity and net worth of the obligor or the collateral  pledged,  if
any.  Substandard assets include those characterized by the distinct possibility
that the insured  institution will sustain some loss if the deficiencies are not
corrected.  Assets classified as doubtful have all of the weaknesses inherent in
those classified substandard,  with the added characteristic that the weaknesses
present  make  collection  or  liquidation  in  full,  highly  questionable  and
improbable,  on the basis of currently existing facts,  conditions,  and values.
Assets  classified as loss are those considered  uncollectible  and of so little
value that their  continuance  as assets  without  the  establishment  of a loss
reserve is not  warranted.  Assets  which do not  currently  expose the  insured
institution to a sufficient  degree of risk to warrant  classification in one of
the  aforementioned  categories  but possess  credit  deficiencies  or potential
weaknesses are required to be designated special mention by management.

         Management's  evaluation  of  the  classification  of  assets  and  the
adequacy of the  allowance for loan losses is reviewed by the Board on a regular
basis and by the regulatory  agencies as part of their examination  process.  At
December 31, 2002,  internally  classified  assets were  $562,794,  all rated as
substandard.

         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.

                                        5

<PAGE>

         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  and  construction
loans by either the present  value of expected  future cash flows  discounted at
the loan's effective  interest rate or the loan's obtainable market price or the
fair value of the collateral if the loan is collateral dependent.

         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.

         The following table sets forth  information  with respect to the Bank's
allowance  for loan losses at the dates  indicated.  The allowance was increased
significantly  in  2002,  specifically  in the  portion  allocated  to  one-  to
four-family  residential mortgages to address deterioration which became evident
during  the  year in a group of  loans  related  to one  borrower  that  totaled
$333,000 at December 31, 2002 and were on non-accrual status at that date.

                                                     At or for the year ended
                                                     ------------------------
                                                           December 31,
                                                     ------------------------
                                                        2002          2001
                                                     ---------       --------
                                                      (Dollars in thousands)

Total loans outstanding (net)....................      $29,023       $36,616
                                                       =======       =======
Average loans outstanding........................      $30,516       $37,056
                                                       =======       =======
Allowance balance (at beginning of period).......      $   148       $   150
Provision for loan losses........................          142            24
Charge-offs (consumer), net......................          (34)          (26)
                                                       -------       -------
Allowance balance (at end of period).............      $   256       $   148
                                                       =======       =======
Allowance for loan losses as a percent
  of total loans outstanding.....................        0.87%         0.40%
Loans charged off as a percent
  of average loans outstanding...................        0.11%         0.07%


                                        6

<PAGE>

         Allocation of Allowance for Loan Losses. The following table sets forth
the allocation of the Bank's  allowance for loan losses by loan category and the
percent  of loans in each  category  to total  loans  receivable,  at the  dates
indicated.  The  portion  of the loan  loss  allowance  allocated  to each  loan
category  does not  represent  the total  available  for losses  which may occur
within the loan  category  since the total loan loss  allowance  is a  valuation
reserve applicable to the entire loan portfolio.

<TABLE>
<CAPTION>
                                                         At December 31,
                                  -------------------------------------------------------------
                                                2002                                    2001
                                  ------------------------------  -----------------------------
                                                     Percent of                     Percent of
                                  Allowance   % of    Loans to    Allowance   % of   Loans to
                                    Amount   Total   Total Loans   Amount    Total  Total Loans
                                    ------   -----   -----------   ------    ------------------
                                                    (Dollars in thousands)
<S>                                <C>       <C>      <C>        <C>        <C>      <C>
At end of period allocated to:
1-4 family.......................     $199      78%      95.0%      $ 99       67%      96.3%
Non-residential real estate......        1       -        1.9          1        1        1.0
Consumer.........................       48      19        2.8         40       27        2.5
Commercial (business)............        8       3        0.3          8        5        0.2
                                      ----     ---      -----       ----      ---      -----
Total allowance..................     $256     100%     100.0%      $148      100%     100.0%
                                      ====     ===      =====       ====      ===      =====
</TABLE>


Investment Activities

         Investment  Policy.  The  investment  policy  of  the  Bank,  which  is
established  by the Board of  Directors,  is  designed  to foster  earnings  and
liquidity within prudent interest rate risk guidelines,  while complementing the
Bank's lending  activities.  The policy provides for available for sale, held to
maturity and trading classifications. However, the Bank does not currently use a
trading  classification  and does not  anticipate  doing so in the  future.  The
policy permits  investments in high credit quality  instruments with diversified
cash  flows  while  permitting  the Bank to  maximize  total  return  within the
guidelines set forth in the Bank's  interest rate risk and liquidity  management
policy.  Permitted  investments  under the policy and in accordance with federal
regulations  include  but  are not  limited  to U.  S.  government  obligations,
government agency or government-sponsored agency obligations,  state, county and
municipal  obligations,  mortgage backed securities and collateralized  mortgage
obligations   guaranteed  by  government   or   government-sponsored   agencies,
investment grade corporate debt securities,  and commercial paper. The Bank also
invests in FHLB overnight  deposits and federal funds, but these instruments are
not considered part of the investment portfolio.

         The policy also includes several  specific  guidelines and restrictions
to insure  adherence  with  safe and  sound  activities.  The  policy  prohibits
investments  in high risk mortgage  derivative  products,  as defined within its
policy,  without prior  approval from the Board of Directors.  In addition,  the
policy  limits the maximum  amount of the  investment  in a specific  investment
category.  The Bank does not  participate  in hedging  programs,  interest  rate
swaps,  or  other   activities   involving  the  use  of  derivative   financial
instruments. Further, the Bank does not invest in securities which are not rated
investment grade.

         All transactions are reported to the Board of Directors  monthly,  with
the entire portfolio reported quarterly,  including market values and unrealized
gains (losses).

                                        7

<PAGE>

         Composition of Investment Portfolio. The following table sets forth the
carrying value of the Bank's investment portfolio at the dates indicated.


                                                               At December 31,
                                                               ---------------
                                                               2002       2001
                                                               ----       ----
                                                               (In thousands)
Securities Held to Maturity (at amortized cost):
 Certificates of Deposit..............................      $   100    $   100
 Mortgage-backed Securities...........................          516        965
 Obligations of State and Local Governments...........          963      1,297
                                                            -------    -------
   Total Securities Held to Maturity..................        1,579      2,362
                                                            -------    -------

Securities Available for Sale (at fair value):
 U.S. Government and Federal Agencies.................            -        414
 Mortgage-backed Securities...........................       16,823      9,168
 Corporate obligations................................          371        350
 Obligations of State and Local Governments...........          697        427
                                                            -------    -------
   Total Securities Available for Sale................       17,891     10,359
                                                            -------    -------

 Total Investment Securities..........................      $19,470    $12,721
                                                            =======    =======

         Mortgage-backed   Securities.   These   securities  are   participation
certificates  that are secured by interests in pools of  mortgages.  At December
31, 2002, the Bank held  mortgage-backed  securities totaling $17.3 million that
were issued and guaranteed by federal agencies. All of the Bank's investments in
mortgage-backed securities are secured by single-family mortgages.


                                        8

<PAGE>

         The  following  table  sets forth  certain  information  regarding  the
carrying values, weighted average yields and maturities of the Bank's investment
portfolio at December 31, 2002.

<TABLE>
<CAPTION>
                                                                                                 More than     Total Investment
                                   Less than One Year  One to Five Years   Five to Ten Years     Ten Years       Securities
                                   ------------------  -----------------   ----------------- ----------------  ----------------
                                   Carrying  Average   Carrying Average    Carrying Average  Carrying Average  Carrying Average
                                     Value    Yield     Value    Yield       Value   Yield    Value   Yield     Value   Yield
                                     -----    -----     -----    -----       -----   -----    -----   -----     -----   -----
                                                                         (Dollars in thousands)
<S>                                <C>        <C>      <C>         <C>    <C>        <C>   <C>        <C>   <C>         <C>
Certificates of Deposit........      $   -        -%     $ 100       5.2%   $    -       -%  $     -      -%  $   100     5.2%
Mortgage-backed
  securities...................          -        -        269       4.0       297     4.2    16,773    4.2    17,339     4.2
Corporate obligations..........          -        -          -         -         -       -       371    8.7       371     8.7
Obligations of State and
  local governments............        150      4.1          -         -     1,112     4.9       398    4.8     1,660     4.8
                                     -----      ---      -----       ---    ------     ---   -------    ---   -------     ---
  Total........................      $ 150      4.1%     $ 369       4.3%   $1,409     4.7%  $17,542    4.3%  $19,470     4.3%
                                     =====      ===      =====       ===    ======     ===   =======    ===   =======     ===

</TABLE>


                                                         9

<PAGE>

Source of Funds

         Deposits.  The Bank's current deposit products include  certificates of
deposit  accounts  ranging  in  terms  from  90  days  to ten  years  as well as
individual  retirement accounts,  checking,  savings, NOW, money market and club
accounts.

         Interest rates on deposits are set weekly by senior  management,  based
upon a number of factors, including: (1) the Bank's need for funds based on loan
demand,  current maturities of deposits and other cash flow needs; (2) a current
survey of a selected group of competitors'  rates for similar products;  (3) the
Bank's current cost of funds and its yield on assets; and (4) the alternate cost
of funds on a wholesale  basis, in particular the cost of advances from the FHLB
of Pittsburgh.  Information regarding the average amount of and the average rate
paid on various  types of deposits for the two years ended  December 31, 2002 is
set  forth  under  "Item 6.  Management's  Discussion  and  Analysis  or Plan of
Operation."

         Because  of the large  percentage  of  certificates  of  deposit in the
deposit  portfolio  (62% at December 31, 2002),  the Bank's  liquidity  could be
reduced if a significant  amount of certificates  of deposit,  maturing within a
short  period  of  time,  were  not  renewed.  A  significant   portion  of  the
certificates  of deposit  remain  with the Bank  after they  mature and the Bank
believes  that this  will  continue.  However,  the need to  retain  these  time
deposits could result in an increase in the Bank's cost of funds.

                  The   following   table   shows  the   amount  of  the  Bank's
certificates  of deposit of $100,000 or more by time remaining until maturity as
of December 31, 2002.


                                                    Certificates
Maturity Period                                     of Deposits
---------------                                     -----------
                                                   (In thousands)
Three months or less........................          $   370
Over three through six months...............              542
Over six through twelve months..............              383
Over twelve months..........................            2,005
                                                      -------
                                                      $ 3,300
                                                      =======

         Borrowings.  The Bank, as the need arises or in order to take advantage
of funding opportunities, borrows funds in the form of advances from the FHLB to
supplement  its  supply  of  lendable  funds  and  to  meet  deposit  withdrawal
requirements.  Advances from the FHLB are typically  secured by the Bank's stock
in the FHLB and a portion of the Bank's  residential  mortgage  loans and may be
secured  by  other  assets,  mainly  securities  which  are  obligations  of  or
guaranteed by the U.S. Government. Advances maturing within one year at December
31, 2002  totaled  approximately  $5.0  million.  See Note 7 of the Notes to the
Consolidated Financial Statements.

                                       10

<PAGE>

Personnel

         As  of  December  31,  2002,  the  Bank  had  15  full-time  equivalent
employees.

Regulation

         Set forth below is a brief  description of certain laws which relate to
the regulation of the Corporation and the Bank. The description does not purport
to be complete and is qualified in its entirety by reference to applicable  laws
and regulations.

         Federal law was amended by the Gramm Leach Bliley Act,  which went into
effect in 2000, to effectively  prohibit the Corporation from affiliating in any
way with a  non-financial  company  and to permit it to become  affiliated  with
securities  firms and insurance  companies.  These changes to federal law do not
impact the current business of the Corporation.  Unlike savings and loan holding
companies that may be created in the future,  the  Corporation  generally is not
restricted  in the type of business in which it may  engage,  provided  that the
Bank maintains a specified amount of its assets in housing related investments.

         On July 30, 2002, President Bush signed into law the Sarbanes-Oxley Act
of 2002 (the "Act").  The  Securities  and Exchange  Commission  (the "SEC") has
promulgated certain regulations pursuant to the Act and will continue to propose
additional implementing or clarifying regulations as necessary in furtherance of
the Act.  The  passage  of the Act and the  regulations  implemented  by the SEC
subject  publicly-traded  companies to additional and more cumbersome  reporting
regulations   and  disclosure.   Compliance  with  the  Act  and   corresponding
regulations may increase the Corporation's expenses.

Corporation Regulation

         General.  The Corporation is a unitary savings and loan holding company
subject to regulatory oversight by the OTS. As such, the Corporation is required
to  register  and file  reports  with the OTS and is subject to  regulation  and
examination by the OTS. In addition,  the OTS has enforcement authority over the
Corporation  and  its   non-savings   association   subsidiaries,   should  such
subsidiaries  be formed,  which also  permits  the OTS to  restrict  or prohibit
activities  that are determined to be a serious risk to the  subsidiary  savings
association.  This  regulation  and  oversight  is  intended  primarily  for the
protection of the depositors of the Bank and not for the benefit of stockholders
of the Corporation.

         Qualified  Thrift  Lender Test.  As a unitary  savings and loan holding
company,  the  Corporation  generally  is not subject to activity  restrictions,
provided the Bank  satisfies  the Qualified  Thrift Lender  ("QTL") test. If the
Corporation  acquires  control  of  another  savings  association  as a separate
subsidiary, it would become a multiple savings and loan holding company, and the
activities of the Corporation and any of its  subsidiaries  (other than the Bank
or  any  other  SAIF-insured   savings  association)  would  become  subject  to
restrictions applicable to bank holding companies unless such other associations
each also qualify as a QTL and were acquired in a supervisory  acquisition.  See
"Regulation of the Bank - Qualified Thrift Lender Test."

Regulation of the Bank

         General.  Set forth below is a brief  description  of certain laws that
relate to the  regulation of the Bank.  The  description  does not purport to be
complete and is qualified  in its entirety by reference to  applicable  laws and
regulations.  As a federally chartered,  SAIF-insured  savings association,  the
Bank is  subject  to  extensive  regulation  by the OTS  and the  FDIC.  Lending
activities and other investments must

                                       11

<PAGE>

comply with various federal statutory and regulatory  requirements.  The Bank is
also subject to certain reserve requirements  promulgated by the Federal Reserve
Board.

         The OTS, in conjunction with the FDIC,  regularly examines the Bank and
prepares  reports for the  consideration of the Bank's Board of Directors on any
deficiencies that are found in the Bank's  operations.  The Bank's  relationship
with its depositors and borrowers is also regulated to a great extent by federal
and state law,  especially in such matters as the ownership of savings  accounts
and the form and content of the Bank's mortgage documents.

         The Bank must file  reports  with the OTS and the FDIC  concerning  its
activities  and  financial  condition,   in  addition  to  obtaining  regulatory
approvals  prior to entering into certain  transactions  such as mergers with or
acquisitions  of other savings  institutions.  This  regulation and  supervision
establishes a comprehensive  framework of activities in which an institution can
engage and is intended  primarily for the protection of the SAIF and depositors.
The  regulatory  structure  also  gives  the  regulatory  authorities  extensive
discretion in connection with their  supervisory and enforcement  activities and
examination  policies,  including policies with respect to the classification of
assets and the  establishment  of adequate  loan loss  reserves  for  regulatory
purposes.

         Insurance of Deposit  Accounts.  The deposit  accounts held by the Bank
are insured by the SAIF to a maximum of  $100,000  for each  insured  member (as
defined by law and  regulation).  Insurance of deposits may be terminated by the
FDIC  upon a finding  that the  institution  has  engaged  in unsafe or  unsound
practices,  is in an unsafe or unsound  condition to continue  operations or has
violated any applicable law, regulation, rule, order or condition imposed by the
FDIC or the institution's  primary regulator.  As a member of the SAIF, the Bank
pays an annual insurance premium to the FDIC based on its total deposits.

         Regulatory  Capital  Requirements.   OTS  capital  regulations  require
savings institutions to meet three capital standards: (1) tangible capital equal
to 1.5% of total adjusted  assets,  (2) a leverage ratio (core capital) equal to
at least 4% of total adjusted assets, and (3) a risk-based  capital  requirement
equal to 8.0% of total risk-weighted assets.

         The following table presents the Bank's  compliance with its regulatory
capital requirements:


                                                    At December 31, 2002
                                                 -------------------------
                                                                Percentage
                                                                   of
                                                                Applicable
                                                  Amount          Assets
                                                  ------        ----------
                                                  (Dollars in Thousands)
Tangible capital........................          $5,088          8.88%
Tangible capital requirement............             859          1.50%
                                                  ------         -----
Excess..................................          $4,229          7.38%
                                                  ======          ====

Core capital............................          $5,088          8.88
Core capital requirements...............           2,292          4.00%
                                                  ------         -----
Excess..................................          $2,796          4.88%
                                                  ======          ====

Total risk-based capital ...............          $5,344         21.20%
Total risk-based capital requirement ...           2,017          8.00%
                                                  ------         -----
Excess..................................          $3,327         13.20%
                                                  ======         =====


                                       12

<PAGE>

         Management  believes  that  under  current  regulations,  the Bank will
continue to meet its minimum capital  requirements  in the  foreseeable  future.
Events  beyond the control of the Bank,  such as increased  interest  rates or a
downturn  in the  economy in areas in which the Bank  operates  could  adversely
affect  future  earnings  and, as a result,  the ability of the Bank to meet its
future minimum capital requirements.

         Dividend and Other Capital  Distribution  Limitations.  The OTS imposes
various  restrictions or requirements on the ability of savings  institutions to
make capital distributions, including cash dividends. A savings association that
is a  subsidiary  of a savings and loan holding  company,  such as the Bank must
file an  application  or a notice with the OTS at least 30 days before  making a
capital  distribution.   Savings  associations  are  not  required  to  file  an
application for permission to make a capital  distribution  and need only file a
notice if the following  conditions are met: (1) they are eligible for expedited
treatment under OTS regulations,  (2) they would remain  adequately  capitalized
after the distribution,  (3) the annual amount of capital  distribution does not
exceed net income for that year to date added to retained net income for the two
preceding  years,  and  (4) the  capital  distribution  would  not  violate  any
agreements  between the OTS and the savings  association or any OTS regulations.
Any other situation would require an application to the OTS.

         The OTS may disapprove an application or notice if the proposed capital
distribution   would:  (i)  make  the  savings   association   undercapitalized,
significantly  undercapitalized,  or  critically  undercapitalized;  (ii)  raise
safety or  soundness  concerns;  or (iii)  violate  a  statute,  regulation,  or
agreement  with  the OTS (or  with  the  FDIC),  or a  condition  imposed  in an
OTS-approved application or notice. Further, a federal savings association, like
the  Bank,  cannot  distribute   regulatory  capital  that  is  needed  for  its
liquidation account.

         Qualified  Thrift  Lender Test.  Savings  institutions  must meet a QTL
test. If the Bank maintains an appropriate level of Qualified Thrift Investments
(primarily  residential  mortgages and related  investments,  including  certain
mortgage-related  securities) ("QTIs") and otherwise qualifies as a QTL, it will
continue to enjoy full borrowing  privileges  from the FHLB of  Pittsburgh.  The
required  percentage of QTIs is 65% of portfolio  assets  (defined as all assets
minus  intangible  assets,  property used by the  institution  in conducting its
business and liquid  assets equal to 10% of total  assets).  Certain  assets are
subject to a  percentage  limitation  of 20% of portfolio  assets.  In addition,
savings associations may include shares of stock of the FHLBs, FNMA and FHLMC as
qualifying  QTIs. An  association  must be in compliance  with the QTL test on a
monthly basis in nine out of every 12 months.  As of December 31, 2002, the Bank
was in compliance  with its QTL  requirement  with 82% of its assets invested in
QTIs.

         Federal  Home  Loan  Bank  System.  The Bank is a member of the FHLB of
Pittsburgh,  which  is  one of 12  regional  FHLBs  that  administers  the  home
financing credit function of savings associations. Each FHLB serves as a reserve
or  central  bank for its  members  within  its  assigned  region.  It is funded
primarily from proceeds derived from the sale of consolidated obligations of the
FHLB  System.  It makes loans to members  (i.e.,  advances) in  accordance  with
policies and procedures established by the Board of Directors of the FHLB.

         As a member, the Bank is required to purchase and maintain stock in the
FHLB of  Pittsburgh  in an amount equal to at least 1% of its  aggregate  unpaid
residential  mortgage loans, home purchase  contracts or similar  obligations at
the beginning of each year.

         Federal  Reserve  System.   The  Federal  Reserve  Board  requires  all
depository  institutions to maintain  non-interest bearing reserves at specified
levels against their transaction  accounts (primarily  checking,  NOW, and Super
NOW checking accounts) and non-personal time deposits. The balances

                                       13

<PAGE>

maintained to meet the reserve requirements imposed by the Federal Reserve Board
may be used to satisfy the liquidity  requirements  that are imposed by the OTS.
At December 31, 2002,  the Bank was in  compliance  with these  Federal  Reserve
Board requirements.

Item 2. Description of Property
-------------------------------

(a) The  Corporation  owns its main office and branch office  located in Dauphin
County, Pennsylvania.  The main office is located in Steelton,  Pennsylvania and
the branch office is located in Lower Swatara Township.  The Corporation's total
investment  in office  property and  equipment  was $2.1 million with a net book
value of $1.6 million at December 31, 2002.

(b)      Investment Policies.

         See  "Item  1.  Business"  above  for  a  general  description  of  the
Corporation's  investment  policies and any  regulatory  or Board of  Directors'
percentage   of  assets   limitations   regarding   certain   investments.   The
Corporation's  investments are primarily  acquired to produce  income,  and to a
lesser extent, possible capital gain.

         (1)  Investments in Real Estate or Interests in Real Estate.  See "Item
1. Business - Lending Activities,"" and "Item 2. Description of Property."

         (2)  Investments  in Real  Estate  Mortgages.  See "Item 1.  Business -
Lending Activities."

         (3)  Investments  in  Securities  of or Interests in Persons  Primarily
Engaged in Real Estate Activities. See "Item 1. Business - Lending Activities."

(c)      Description of Real Estate and Operating Data.

         Not Applicable.

Item 3. Legal Proceedings
-------------------------

         There are  various  claims  and  lawsuits  in which the  Registrant  is
periodically involved, such as claims to enforce liens, condemnation proceedings
on properties in which Registrant holds security interests, claims involving the
making and  servicing  of real  property  loans,  and other  issues  incident to
Registrant's  business.  In the  opinion  of  management,  no  material  loss is
expected from any of such pending claims or lawsuits.

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

         No matter was submitted to a vote of security holders during the fourth
quarter of the fiscal year.

                                     PART II

Item  5.  Market for Common Equity and Related Stockholder Matters
------------------------------------------------------------------

         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-

                                       14
<PAGE>

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 where warranted.
------------------------------------------------------------------

2002                                High       Low    Cash Dividends per share
First Quarter..........      ..   $18.83    $16.84                --
Second Quarter.................   $19.82    $17.09             $0.09
Third Quarter .................   $19.67    $18.17                --
Fourth Quarter.................   $21.41    $19.17             $0.09
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
                       ......
         The number of stockholders of record of common stock as of February 24,
2003,  was  approximately  163.  This does not  reflect the number of persons or
entities who held stock in nominee or "street"  name through  various  brokerage
firms.  At  February  24,  2003,  there were  299,887  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.

Item 6. Management's Discussion and Analysis or Plan of Operation
-----------------------------------------------------------------

          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.

Critical Accounting Policies
----------------------------

         Disclosure  of the  Corporation's  significant  accounting  policies is
included in Note 2 to the consolidated  financial  statements.  Certain of these
policies are particularly sensitive requiring significant  judgments,  estimates
and  assumptions to be made by management.  Senior  management has discussed the
development of such estimates,  and related Management's Discussion and Analysis
disclosure,  with the audit  committee of the board of directors.  The following
accounting  policies are the ones identified by management to be critical to the
results of operations:

         Allowance  for Loan  Losses - The  allowance  for  loan  losses  is the
estimated  amount  considered  adequate to cover credit  losses  inherent in the
outstanding  loan  portfolio  at  the  balance  sheet  date.  The  allowance  is
established  through the provision for loan losses,  charged against income.  In
determining  the  allowance  for  loan  losses,   management  makes  significant
estimates  and,  accordingly,  has  identified  this policy as probably the most
critical for the Corporation.

         Management   performs  regular  evaluations  of  the  adequacy  of  the
allowance  for loan  losses.  Consideration  is given to a variety of factors in
establishing  this  estimate  including,  but not limited to,  current  economic
conditions,  diversification  of the  loan  portfolio,  delinquency  statistics,
results of internal loan reviews,  borrowers' actual or perceived  financial and
managerial strengths, the adequacy of the

                                       15

<PAGE>

underlying  collateral  (if collateral  dependent),  the present value of future
cash flows 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.

         The analysis  has two  components,  specific  and general  allocations.
Collateral values discounted for market conditions and selling costs are used to
establish  specific  allocations.  The Bank's  historical loan loss  experience,
delinquency rates and general economic  conditions are used to establish general
allocations for the remainder of the portfolio.

         During  2002,  management  significantly  revised  its  estimate of the
specific  allocation  related to a group of loans to one  borrower  that totaled
$333,000 at December 31, 2002. The change in estimate was precipitated by recent
appraisals  that  reflected  substantial  declines  in value  of the  collateral
supporting  the  loans.  As a result of the  change  in  estimate,  $100,000  of
additional  provision  expense was recognized to increase the allowance for loan
losses.

         Management monitors the adequacy of the allowance for loan losses on an
ongoing basis and reports its adequacy  assessment to the Board of Directors and
the Audit Committee.

         Stock-based  Compensation  - The  Corporation  follows  the  disclosure
requirements of Statement of Financial Accounting Standards No. 123, "Accounting
for  Stock-Based  Compensation"  for its  stock  option  plan.  Accordingly,  no
compensation  expense has been  recognized  in the  financial  statements of the
Corporation.  If compensation  cost of the plan had been recognized,  net income
for 2002 would have been reduced by $23,000.

         The  Corporation  calculates  the  compensation  cost of the options by
using  the  Black-Scholes  method to  determine  the fair  value of the  options
granted.  In calculating the fair value of the options,  the  Corporation  makes
assumptions  regarding the risk-free rate of return, the expected  volatility of
the Corporation's  common stock and the expected life of the option.  Management
has no current plans to begin recognizing expense associated with such plans.

Financial Condition
-------------------

         Assets  increased  $863,000 or 1.5% to $57.9  million at  December  31,
2002,  compared with $57.0 million at the end of 2001.  The modest balance sheet
growth was primarily  attributable to a net increase in the investment portfolio
of $6.7 million or 53% to $19.5  million at December 31, 2002  compared to $12.7
million  at the end of 2001.  Also,  cash and cash  equivalents  increased  $1.4
million or 45.5% to $4.7  million  at  December  31,  2002,  compared  with $3.2
million at December 31, 2001 due to loan  principal  repayments  and the sale of
fixed rate investment securities. Offsetting this increase was a $7.6 million or
20.7% decrease in loan balances from $36.6 million to $29.0 million for 2001 and
2002,  respectively.  The decline in loans was due to loan  payoffs not replaced
with new loan  growth.  The Bank is not  emphasizing  loan growth due to pricing
competition.  The increase in securities is due to  investments in GNMA and FNMA
mortgage-backed  securities  funded by cash received from loan payments and FHLB
borrowings. FHLB borrowings increased $732,000 or 4.2% to $17.9 million compared
to $17.2 million at the end of 2001.

                                       16

<PAGE>

Discussion of 2002 Performance
------------------------------

Summary

         Net income  decreased to $1,277 in 2002 from $192,000 in 2001 primarily
as a result of higher loan loss  provision,  data processing  system  conversion
costs of $96,000 and a 57.6% increase in professional  fees. Net interest income
declined 6% due  primarily to loan runoff.  Noninterest  income was benefited by
securities  gains of  $177,000  in 2002  compared  with  $12,000  in  2001.  The
combination of these factors resulted in the significant decline in net income.

Net Interest Income

         The most  significant  source of revenue  for the Bank 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 Bank's  interest-earning assets
and interest-bearing liabilities.

         Interest  income  decreased  $656,000 or 16.1% primarily as a result of
the lower  interest  rate  environment,  loan  payoffs  and the  absence of loan
growth. Although there was growth in the investment portfolio, the overall lower
interest  rate  environment  resulted  in a decrease of $190,000 or 21.9% in the
interest income on securities. Dividends received on FHLB stock declined in 2002
as a result of a much lower dividend rate.

         Interest  expense  on  deposits  decreased  $422,000  or  28.8% to $1.5
million at December 31, 2002  compared to $1.5 million at the end of 2001.  This
reduction is primarily due to the lowering of interest rates offered on deposits
in  2001  to  better  match  the  overall  rate  environment.  Interest  expense
associated  with FHLB  borrowings  decreased  $145,000 or 12.6% to $1.0  million
compared to $1.1  million for the end of 2002 and 2001,  respectively.  Although
the balances of FHLB  borrowings  increased in 2002, the Bank is benefiting from
the current lower costing  interest rates.  The overall effect was a decrease to
4.29% from 4.89% in the Bank's cost of funds.

         The net result of the  factors  mentioned  above was a decrease  in the
Bank's net  interest  income of $89,000 or 6% despite  the net  interest  margin
improving from 2.47% in 2001 to 2.57% in 2002.

Asset Quality and the Provision for Loan Losses

         Total problem loans decreased 9.6% from December 31, 2001, however, the
percentage of problem loans to total loans increased from 1.72% in 2001 to 1.97%
for 2002.  Approximately  58% of total problem loans are related to loans to one
borrower.  An increase of $118,000 in the  provision for loan losses is a result
of these problem loans. Recent appraisals reflected  substantial declines in the
collateral values of these related loans.  Management  believes that at December
31, 2002, there are adequate reserves for its problem loans.

Non-interest Income and Non-interest Expense

         Non-interest  income  increased  $159,000  or  51.1%  in total in 2002,
compared  with  2001,  due to an  increase  in  gains  on  sales  of  investment
securities from $12,000 in 2001 to $176,000 for 2002. Service

                                       17

<PAGE>

fees showed a modest  increase of $8,000 or 4.5%,  while  earnings on Bank-owned
life insurance for 2002 remained consistent with 2001 results.  Other sources of
income  declined by $12,000 or 16.6%,  primarily  as a result of reduced  rental
income.

         Non-interest  expenses  increased  $242,000  or 15.9% in total in 2002.
Costs of  $96,000  associated  with the  conversion  of data  processors  and an
increase of $82,000 or 57.6% in  professional  fees related to legal matters and
research  associated  with the planned merger of the  Corporation  with SunBank.
Personnel  costs  increased  by  $37,000  or 4.7%  due to  merit  increases  and
additional  costs  associated  with the Employee  Stock  Ownership  Plan and the
Restricted Stock Plan. In addition,  equipment costs increased  $21,000 or 24.4%
during the year primarily due to increased  depreciation  expense related to the
drive-through and ATM facilities at the main office.

Income Tax Expense

         For the year 2002 a tax  benefit of  $68,000  was  recorded  due to the
pre-tax loss incurred in 2002 and the impact of tax-exempt income from municipal
investments  and bank-owned  life  insurance.  Income tax expense of $30,625 for
2001 resulted in an effective tax rate of 13.7%.

Liquidity and Capital Resources

         The Bank'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 Bank 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, 2002,  the Bank could borrow an  additional  $16.5 million from the
FHLB based on qualifying collateral.

         Approximately  $10.4  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.

         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.

Off-Balance Sheet Arrangements

         At  December   31,  2002,   the  Bank  had  minimal  loan   commitments
outstanding.  Refer  to Note 14 of the  consolidated  financial  statements  for
additional information.

                                       18

<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,
                                         -------------------------------------------------------------------------------
                                                             2002                                      2001
                                         ----------------------------------------  ------------- -----------------------
(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)                          $33,669      $2,627          7.80%        $37,056      $3,063       8.27%
  Investment securities:
    Taxable                                     13,626         582          4.27%         13,819         779       5.64%
    Non-taxable                                  2,076          94          4.53%          1,725          86       4.99%
  Other interest-earning assets                  3,452         107          3.10%          6,098         138       2.26%
                                         ------------- --------------------------  ------------- -----------------------
  Total interest-earning assets                $52,823      $3,410          6.46%        $58,698      $4,066       6.93%
                                                       --------------------------                -----------------------
Noninterest-earning assets                       4,451                                     2,871
                                         -------------                             -------------
     Total assets                              $57,274                                   $61,569
                                         =============                             =============

Interest-bearing liabilities:
  NOW/Money market                              $3,129         $30          0.96%       $  3,461         $46       1.33%
  Savings                                        6,331          95          1.50%          5,776         131       2.27%
  Certificates of deposit                       20,852         918          4.40%         21,889       1,288       5.88%
  FHLB advances                                 17,505       1,008          5.76%         22,447       1,153       5.14%
                                         ------------- --------------------------  ------------- -----------------------
     Total interest-bearing liabilities        $47,817      $2,051          4.29%        $53,573      $2,618       4.89%
                                                       --------------------------                -----------------------
Noninterest-bearing liabilities                  3,695                                     2,937
Stockholders' Equity                             5,762                                     5,059
                                         -------------                             -------------
     Total Liabilities and
          Stockholders' Equity                 $57,274                                   $61,569
                                         =============                             =============

Net interest income/spread(2)                               $1,359          2.17%                     $1,448       2.04%
                                                       ===========---------------                ===========------------
Net yield on interest-earning
   assets(3)                                                                2.57%                                  2.47%
                                                                  ---------------                           ------------
Ratio of average interest-earning
   assets to average interest-
   bearing liabilities                                                    110.47%                                109.57%
                                                                  ---------------                           ------------
</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.

                                       19

<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).


                                                     2002 Compared to 2001
                                                   Increase(Decrease) Due To:

                                                                          Rate/
(in thousands)                                 Volume    Rate    Volume   Total
                                             -----------------------------------

Interest income:
  Loans receivable                             $(280)   $(172)   $  16    $(436)
  Investment Securities:
    Taxable                                      (11)    (189)       3     (197)
    Non-Taxable                                   17       (7)      (2)       8
  Other interest-earning assets                  (60)      51      (22)     (31)
                                               --------------------------------
    Total interest-earning assets              $(334)   $(317)   $  (5)   $(656)

Interest expense:
  NOW/Money market                             $  (4)   $ (13)   $   1    $ (16)
  Savings                                         13      (44)      (4)     (35)
  Certificates of deposit                        (61)    (324)      15     (370)
  FHLB advances                                 (255)     139      (30)    (146)
                                               --------------------------------
     Total interest-bearing liabilities        $(307)   $(242)   $ (18)   $(567)
                                               --------------------------------

Net change in interest income                  $ (27)   $ (75)   $  13    $ (89)
                                               ================================


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  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.

                                       20

<PAGE>

         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, 2002, as calculated by
the OTS, based on quarterly information voluntarily provided to the OTS.


                                Net Portfolio Value
        Changes      ---------------------------------------
       In Market
    Interest Rates   $ Amount      $ Change     % Change         NPV Ratio(1)
------------------------------------------------------------------------------
  (basis points)      (Dollars in Thousands)
        +300            3,603       $(1,322)      (27)%            6.41%
        +200            4,395          (530)      (11)             7.64
        +100            4,929             3         -              8.40
           0            4,925             -         -              8.29
        -100            4,493          (432)       (9)             7.52

----------------
(1)  Calculated as the estimated NPV divided by present value of total assets.

         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.

Item 7. Financial Statements
----------------------------

         The  Registrant's   financial  statements  listed  under  Item  13  are
incorporated herein by reference.

Item 8.  Changes  in  and  Disagreements  with  Accountants  On  Accounting  and
--------------------------------------------------------------------------------
         Financial Disclosure.
         ---------------------

         None.


                                       21

<PAGE>

                                    PART III

Item 9. Directors, Executive Officers, Promoters and Control Persons: Compliance
--------------------------------------------------------------------------------
        with Section 16(a) of the Exchange Act.
        ---------------------------------------

         The  following  table  sets  forth  information  with  respect  to  the
Corporation's directors and executive officers.

<TABLE>
<CAPTION>
                         Age at                                                Year First   Current
                      December 31,                                              Elected or  Term to
Name                      2002                         Position               Appointed(1)   Expire
----                      ----                         --------               ------------   ------
<S>                     <C>        <C>                                         <C>         <C>
Harold E. Stremmel         68         President, Chief Executive Officer          1991        2006
                                      and Director
James S. Nelson            54         Executive Vice President and Director       1994        2003
Richard E. Farina          70         Director                                    1966        2005
Victor J. Segina           75         Director                                    1980        2004
James F. Stone             74         Director                                    1970        2004
Joseph A. Wiedeman         63         Director                                    1979        2006
Shannon Aylesworth         32         Chief Financial Officer                     1999        N/A
</TABLE>

----------------
(1)  Refers to the year the individual first became a director or officer of the
     Bank. All directors of the Bank became  directors of the  Corporation  upon
     its formation in 1999.

     Biographical  Information.  Set forth below is the business  experience for
the past five  years of each of the  directors  and  executive  officers  of the
Corporation.

         Harold E. Stremmel serves as the President and Chief Executive  Officer
and has been a member of the Board of  Directors  since 1991.  Mr.  Stremmel has
been Chief  Executive  Officer of the Bank since 1987. He is the past  president
and treasurer of the  Harrisburg  East Shore Kiwanis Club and was previously the
treasurer of the New Steelton Association.

         Joseph A.  Wiedeman  serves as  Treasurer  and has been a member of the
Board of  Directors  since 1979.  Since 1974,  Mr.  Wiedeman has been a majority
stockholder  of  Wiedeman  &  Douty,  P.C.,  Certified  Public  Accountants,  an
accounting firm located in Steelton, Pennsylvania.

         James  S.  Nelson  serves  as  the  Executive  Vice  President  of  the
Corporation  and has been a member of the Board of  Directors  since  1994.  Mr.
Nelson is also Executive  Vice  President and Chief Lending  Officer of the Bank
and has been employed by the Bank since 1987.

         Richard  E.  Farina has been a member of the Board of  Directors  since
1966.  Since 1994,  Mr.  Farina has been  retired.  He was  previously  a branch
manager for the Pennsylvania Insurance Company in Harrisburg, Pennsylvania.

         Victor J. Segina has been a member of the Board of Directors since 1980
and also serves as Secretary.  Mr. Segina retired in 1998. He was previously the
owner of an architectural firm located in Harrisburg,  Pennsylvania.  Mr. Segina
serves on the Building Commission of the Harrisburg Catholic Diocese.

                                       22

<PAGE>

     James F. Stone has been a member of the Board of Directors  since 1970.  He
has been retired since 1992. Mr. Stone was previously the owner of Stone Funeral
Home in Steelton, Pennsylvania.

     Shannon  Aylesworth  serves as Chief Financial  Officer of the Corporation.
She has been Chief Financial Officer of the Bank since 1996 and a Vice President
of the Bank since January,  1999.  Ms.  Aylesworth has been employed by the Bank
since 1990.

Section 16(a) Beneficial Ownership Reporting Compliance

         Section 16(a) of the  Securities  and Exchange Act of 1934, as amended,
requires the Corporation's officers and directors, and persons who own more than
ten percent of the Common  Stock,  to file reports of  ownership  and changes in
ownership of the Common Stock with the Securities and Exchange Commission and to
provide copies of those reports to the Corporation. The Corporation is not aware
of any  beneficial  owner,  as defined  under  Section  16(a),  of more than ten
percent of its Common Stock.  To the best of the  Corporation's  knowledge,  all
section 16(a) filing requirements  applicable to its officers and directors were
complied with during the 2002 fiscal year.

Item 10. Executive Compensation
-------------------------------

Compensation of Directors

         Board Fees. The Corporation does not presently compensate its directors
for  membership on the Board of Directors.  Each director of the  Corporation is
also a  director  of the Bank.  During  2002,  each  director  was paid a fee of
$6,900.  The chairman of the board, the secretary,  and the treasurer receive an
additional yearly fee of $2,925, $2,925, and $2,085, respectively.  Directors do
not receive  compensation for attending committee meetings.  The total fees paid
to the  directors  for the year  ended  December  31,  2002  were  approximately
$51,335.

         Stock Awards.  In 2000,  each  non-employee  director was awarded 2,122
options to purchase  shares of Common  Stock at an  exercise  price of $8.33 per
share under the  Steelton  Bancorp,  Inc.  2000 Stock  Option Plan (the  "Option
Plan")  and 841  shares  of  Common  Stock  under  the  Mechanics  Savings  Bank
Restricted  Stock  Plan  (the  "RSP"),  as  adjusted  for  the  stock  dividends
distributed by the Corporation.  Stockholders of the Corporation  approved these
awards at a special meeting of stockholders  held February 3, 2000. These awards
vest at the rate of 20% on the one year  anniversary  of the date of stockholder
approval, and 20% annually thereafter.

Executive Compensation

         General.  The  Corporation has no full time employees and relies on the
employees of the Bank for the limited services required by the Corporation.  All
compensation paid to officers of the Corporation is paid by the Bank.

         Summary Compensation Table. The following table sets forth the cash and
non-cash  compensation  awarded to or earned by the Corporation's  President and
Chief Executive Officer. No executive officer received a total annual salary and
bonus in excess of $100,000 for 2002.

                                       23

<PAGE>

<TABLE>
<CAPTION>
                                                                               Long Term              All Other
                                          Annual Compensation                Compensation            Compensation
                                 ----------------------------------  ----------------------------    ------------
                                                                       Restricted      Securities
Name and               Fiscal                         Other Annual       Stock         Underlying
Principal Position      Year      Salary    Bonus   Compensation(1)     Award           Options
------------------      ----      ------    -----   ---------------     -----           -------
<S>                   <C>      <C>       <C>          <C>          <C>             <C>              <C>
Harold E. Stremmel,     2002     $67,462   $   -        $6,900       $     -               -          $12,047(4)
President and CEO       2001      66,773       -         6,263             -               -           10,304
                        2000      62,702       -         6,215        35,382(2)       10,611(3)         8,236
</TABLE>

-----------------
(1)  Includes directors fees.
(2)  Represents  the award of 4,244  shares of Common  Stock  under the RSP,  as
     adjusted for the stock dividends distributed by the Corporation, based upon
     the last  reported  sales price for the Common Stock as reported on the OTC
     Electronic  Bulletin Board on February 3, 2000, the date of the award. This
     award vests at the rate of 20% per year, beginning on the first anniversary
     of the date of the grant.  Dividend  rights  associated with the restricted
     stock are  accrued  and held in  arrears  to be paid at the time the shares
     vest.
(3)  Mr.  Stremmel  was  awarded  10,611  options,  as  adjusted  for the  stock
     dividends  distributed by the Corporation,  at the exercise price of $8.33,
     equal to the last reported  sales price for the Common Stock on February 3,
     2000, the date of the award, as adjusted for the 5% stock dividends.
(4)  Represents the award of 560 shares under the ESOP as of June 30, 2002 based
     upon the last  reported  sales price of the Common Stock on the date of the
     award.  Also includes the Bank's  contribution  to Mr.  Stremmel's  account
     under a 401(k) Plan of $2,030 during 2002.

         Stock Awards.  The  following  table set forth  information  concerning
options granted to Mr. Stremmel.

<TABLE>
<CAPTION>
                            Aggregated Option Exercises in Last Fiscal Year and FY-End Option Values
                            ------------------------------------------------------------------------

                                                                                                           Value of
                                Shares                                Number of Options              In-the-Money Options
                               Acquired             Value           at Fiscal Year-End (#)          at Fiscal Year-End ($)
Name                        on Exercise(#)       Realized($)      Exercisable/Unexercisable    Exercisable/Unexercisable(1)
----                        --------------       -----------      -------------------------    ----------------------------
<S>                        <C>                    <C>                  <C>                            <C>
Harold E. Stremmel                --                $ --                 4,245/6,367                    $55,907/$83,853
</TABLE>

-------------
(1)  Based upon the  difference  between the option  exercise price of $8.33 and
     the last reported sales price of the Common Stock of $21.50 per share as of
     December 31, 2002, as reported on the OTC Bulletin Board.


         Employment  Agreements.   The  Bank  has  entered  into  an  employment
agreement with its President and Chief  Executive  Officer,  Harold E. Stremmel.
Mr.  Stremmel's  current base salary under the employment  agreement is $67,462.
The employment  agreement has a term of three years. The agreement is terminable
by the Bank for "just  cause" as defined in the  agreement.  If Mr.  Stremmel is
terminated  without  just cause,  he will be entitled to a  continuation  of his
salary from the date of termination through the remaining term of the agreement,
but in no event  for a period  of less  than 1 year.  The  employment  agreement
contains a provision  stating that in the event of the termination of employment
in  connection  with any change in control of the Bank or the  Corporation,  Mr.
Stremmel  will be paid a lump sum  amount  equal  to 2.99  times  his  five-year
average annual taxable cash  compensation.  If a payment had been made under the
agreement as of December 31, 2002, the payment would have equaled  approximately
$206,213.  The aggregate payment that would have been made to Mr. Stremmel would
be an expense to the Bank and would have  resulted in  reductions  to the Bank's
net income and  capital.  The  agreement  may be renewed  annually by the Bank's
Board of Directors upon a determination of satisfactory  performance  within the
board's sole  discretion.  If Mr. Stremmel shall become disabled during the term
of the  agreement,  he shall  continue  to  receive  payment of 100% of his base
salary for a period of 12 months and

                                       24

<PAGE>

65% of his base salary for the  remaining  term of the  agreement.  The payments
shall be reduced by any other  benefit  payments  made  under  other  disability
programs in effect for the Bank's employees.

Item 11. Security Ownership of Certain Beneficial Owners and Management
-----------------------------------------------------------------------

         (a)  Security Ownership of Certain Beneficial Owners.

         The following  table sets forth  information,  as of February 24, 2003,
regarding  share  ownership  of  persons  or groups  who own more than 5% of the
outstanding  shares  of the  Common  Stock.  Other  than  as  noted  below,  the
Corporation  knows  of no  person  or  group  that  owns  more  than  5% of  the
outstanding shares of the Common Stock as of February 24, 2003.

<TABLE>
<CAPTION>
                                                                           Percent of Shares of
                                                    Amount and Nature of        Common Stock
Name and Address of Beneficial Owner                Beneficial Ownership        Outstanding
------------------------------------                --------------------        -----------
<S>                                                   <C>                   <C>
Mechanics Savings Bank Employee Stock Ownership
Plan ("ESOP")                                            33,957(1)             11.3%
51 South Front Street
Steelton, Pennsylvania

James S. Nelson
51 South Front Street                                    25,614(2)              8.5%
Steelton, Pennsylvania 17113

Harold E. Stremmel
51 South Front Street                                    21,757(3)              7.3%
Steelton, Pennsylvania 17113
</TABLE>

-------------
(1)  These  shares  are  held in a  suspense  account  and are  allocated  among
     participants  annually  on the  basis of  compensation  as the ESOP debt is
     repaid.  As of February 24, 2003, 11,521 shares have been allocated to ESOP
     participants.
(2)  Includes 5,094 shares that may be acquired pursuant to exercisable options.
(3)  Includes 6,368 shares that may be acquired pursuant to exercisable options.

         (b)  Security Ownership of Management.

         The  following  table set forth  information,  as of February 24, 2003,
regarding  share  ownership  of all  directors  and  executive  officers  of the
Corporation.

<TABLE>
<CAPTION>
                                                                       Percent of Shares of
                                                Amount and Nature of       Common Stock
Name                                            Beneficial Ownership        Outstanding
----                                            --------------------        -----------
<S>                                              <C>                        <C>
Harold E. Stremmel                                   21,597(1)                  7.1%
James S. Nelson                                      25,758(2)                  8.4
Richard E. Farina                                     2,334(3)                   -
Victor J. Segina                                     12,808(3)                  4.3
James F. Stone                                       12,808(3)                  4.3
Joseph A. Wiedeman                                   12,808(3)                  4.3
Shannon Aylesworth                                    5,398(4)                  1.8
All directors and executive officers of the
  Corporation as a group (7 persons)                 93,511(5)                 29.3%
</TABLE>


                                       25

<PAGE>

-------------------
(1)  Includes 6,368 shares that may be acquired pursuant to exercisable options.
(2)  Includes 5,094 shares that may be acquired pursuant to exercisable options.
(3)  Includes 1,274 shares that may be acquired pursuant to exercisable options.
     Excludes 22,436 unallocated shares of Common Stock held under the ESOP over
     which such individual,  an ESOP Trustee,  exercises sole voting power. Also
     excludes  13,588 shares of Common Stock held by the Mechanics  Savings Bank
     Restricted  Stock Plan (the  "RSP") over which such  individual,  as an RSP
     trustee, exercises sole voting power.
(4)  Includes 3,056 shares that may be acquired pursuant to exercisable options.
(5)  Includes  19,613  shares  that  may be  acquired  pursuant  to  exercisable
     options. Excludes 22,436 unallocated shares held by the ESOP over which the
     non-employee  directors  exercise sole voting power. The Board of Directors
     appointed a committee  consisting of Directors  Farina,  Segina,  Stone and
     Wiedeman to serve as the ESOP Plan  Committee (the "ESOP  Committee").  The
     ESOP Committee directs the vote of unallocated  shares and shares for which
     timely voting directions are not received. Also excludes 13,588 shares held
     by the RSP over which certain  directors,  as RSP  trustees,  exercise sole
     voting power.

         (c)  Changes  in  Control.  Management  of the  Registrant  knows of no
arrangements,   including  any  pledge  by  any  person  of  securities  of  the
Registrant,  the operation of which may at a subsequent  date result in a change
in control of the Registrant.

         (d) Securities Authorized for Issuance Under Equity Compensation Plans.

         Set forth below is  information as of December 31, 2002 with respect to
compensation   plans  under  which  equity  securities  of  the  Registrant  are
authorized for issuance.

<TABLE>
<CAPTION>

                                          EQUITY COMPENSATION PLAN INFORMATION
                                                    (a)                       (b)                        (c)
                                                                                                 Number of securities
                                                                                                 remaining available
                                            Number of securities       Weighted-average           for future issuance
                                             to be issued upon         exercise price of             under equity
                                                exercise of               outstanding             compensation plans
                                            outstanding options,       options, warrants        (excluding securities
                                            warrants and rights           and rights          reflected in column (a))
                                            -------------------           ----------          ------------------------
<S>                                             <C>                      <C>                            <C>
Equity compensation plans
  approved by shareholders
Steelton Bancorp, Inc.
    2000 Stock Option Plan..............            42,446                   $8.33                          0
Mechanics Savings Bank
    Restricted Stock Plan...............               N/A                     N/A                        N/A
Equity compensation plans
  not approved by shareholders                         N/A                     N/A                        N/A
                                                    ------                   -----                        ---
     TOTAL.............................             42,446                   $8.33                          0
                                                    ======                   =====                        ===
</TABLE>

Item 12. Certain Relationships and Related Transactions
-------------------------------------------------------

Certain Relationships and Related Transactions

         The Bank,  like many financial  institutions,  has followed a policy of
offering  residential  mortgage loans for the financing of personal  residences,
share loans, and consumer loans to its officers,  directors and employees. Share
loans and consumer  loans are made in the  ordinary  course of business and also
made on substantially the same terms and conditions, including interest rate and
collateral,  as those of  comparable  transactions  prevailing  at the time with
other persons, and do not include more than the normal risk of

                                       26

<PAGE>

collectibility or present other unfavorable  features.  The Bank offers mortgage
loans to  full-time  employees  for the  purchase  or  refinance  of a permanent
residence on special  terms and  conditions  including  waiver of appraisal  and
credit report fees and a one percent  reduction in service  charges and interest
rate.   If  the  employee  is   terminated,   or  the  residence  is  no  longer
owner-occupied, the one percent reduction is eliminated.

Item 13. Exhibits and Reports on Form 8-K
-----------------------------------------

(a)  Listed below are all  financial  statements  and exhibits  filed as part of
     this report.
<TABLE>
<CAPTION>
<S>    <C>
     1.  The following financial statements and the independent  auditor's report are included in Exhibit 13.

         Independent Auditor's Report

         Consolidated Balance Sheets as of December 31, 2002 and 2001

         Consolidated Statements of Income for the Years Ended December 31, 2002 and 2001

         Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 2002 and 2001

         Consolidated Statements of Cash Flows for the Years Ended December 31, 2002 and 2001

         Notes to Consolidated Financial Statements

     2. The  following  exhibits  are  included in this  Report or  incorporated herein by reference:

              2.1     Agreement and Plan of Reorganization, dated as of December 20, 2002*
              3(i)    Articles of Incorporation of Steelton Bancorp, Inc.**
              3(ii)   Bylaws of Steelton Bancorp, Inc.***
              4       Specimen Stock Certificate**
             10.1     Employment Agreement with Harold E. Stremmel**
             10.2     Steelton Bancorp, Inc. 2000 Stock Option Plan****
             10.3     Mechanics Savings Bank Restricted Stock Plan****
             13       Consolidated Financial Statements of Steelton Bancorp, Inc.
             21       Subsidiaries of Registrant (see "Item 1 - Business")
             23       Consent of Beard Miller Company LLP
             99       Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
                      906 of the Sarbanes-Oxley Act of 2002
</TABLE>

-------------
*    Incorporated  by  reference  to an  identically  numbered  exhibit  to  the
     Registrant's  Form 8-K (File No. 000-26499) filed with the SEC on  December
     23, 2002.
**   Incorporated  by  reference  to an  identically  numbered  exhibit  to  the
     Registrant's registration statement on Form SB-2 (File No. 333-74279) filed
     with the SEC on March 11, 1999.
***  Incorporated  by  reference  to an  identically  numbered  exhibit  to  the
     Registrant's Quarterly Report on Form 10-QSB for the quarter ended June 30,
     2001 (File No. 000-26499) filed with the SEC on May 15, 2001.
**** Incorporated by reference to the Proxy Statement for the Special Meeting on
     February 3, 2000 filed with SEC on January 3, 2000.


                                       27

<PAGE>

(b)  Current Reports on Form 8-K.

         During the last  quarter  of the year  ended  December  31,  2002,  the
Registrant filed a Report on Form 8-K dated December 20, 2002, Items 5 and 7, to
report the execution of a definitive  merger  agreement with Sun Bancorp,  Inc.,
Selinsgrove,   Pennsylvania,   whereby  Sun  Bancorp,   Inc.  will  acquire  the
Registrant.

Item 14. Controls and Procedures
--------------------------------

         (a) Evaluation of disclosure  controls and  procedures.  Based on their
             --------------------------------------------------
evaluation  as of a date within 90 days of the filing date of this Annual Report
on Form 10-KSB,  the  Registrant's  principal  executive  officer and  principal
financial officer have concluded that the Registrant's  disclosure  controls and
procedures  (as defined in Rules  13a-14(c) and 15d-14(c)  under the  Securities
Exchange  Act of 1934  (the  "Exchange  Act"))  are  effective  to  ensure  that
information required to be disclosed by the Corporation in reports that it files
or  submits  under the  Exchange  Act is  recorded,  processed,  summarized  and
reported within the time periods specified in Securities and Exchange Commission
rules and forms.

         (b) Changes in internal controls.  There were no significant changes in
             ----------------------------
the Registrant's  internal controls or in other factors that could significantly
affect these controls subsequent to the date of their evaluation,  including any
corrective  actions  with  regard  to  significant   deficiencies  and  material
weaknesses.

                                       28

<PAGE>

                                   SIGNATURES

         In  accordance  with  Section  13 or 15(d)  of the  Exchange  Act,  the
registrant  caused  this  report to be signed on its behalf by the  undersigned,
thereunto duly authorized as of March 28, 2003.

                            STEELTON BANCORP, INC.



                            By:  /s/Harold E. Stremmel
                                 -----------------------------------------------
                                 Harold E. Stremmel
                                 President, Chief Executive Officer and Director
                                 (Duly Authorized Representative)

         Pursuant to the requirement of the Securities  Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf of
the registrant and in the capacities indicated as of March 28, 2003.


<TABLE>
<CAPTION>
<S>                                            <C>


/s/Harold E. Stremmel                             /s/James E. Nelson
------------------------------------------        -------------------------------------
Harold E. Stremmel                                James E. Nelson
President, Chief Executive Officer                Executive Vice President and Director
and Director (Principal Executive Officer)


/s/Richard E. Farina                              /s/Victor J. Segina
------------------------------------------        -------------------------------------
Richard E. Farina                                 Victor J. Segina
Director                                          Director


/s/James F. Stone                                 /s/Joseph A. Wiedeman
------------------------------------------        -------------------------------------
James F. Stone                                    Joseph A. Wiedeman
Director                                          Director


/s/Shannon Aylesworth
------------------------------------------
Shannon Aylesworth
Chief Financial Officer
(Principal Financial and Accounting Officer)

</TABLE>


<PAGE>

                      Certification Pursuant to Section 302
                        of the Sarbanes-Oxley Act of 2002

         I,  Harold E.  Stremmel,  President  and  Chief  Executive  Officer  of
Steelton Bancorp, Inc. (the "Corporation"), hereby certify that:

1.   I have  reviewed  the  Annual  Report  on Form  10-KSB  for the year  ended
     December 31, 2002, of the Corporation;

2.   Based on my knowledge,  the report does not contain any untrue statement of
     a material  fact or omit to state a  material  fact  necessary  to make the
     statements made, in light of the circumstances  under which such statements
     were made, not misleading with respect to the period covered by the report;

3.   Based on my  knowledge,  the  financial  statements,  and  other  financial
     information included in the report, fairly present in all material respects
     the  financial  condition,  results  of  operations  and cash  flows of the
     Corporation as of, and for, the periods presented in the report;

4.   The  Corporation's  other  certifying  officers and I are  responsible  for
     establishing and maintaining disclosure controls and procedures (as defined
     in Exchange Act Rule 13a-14(c)) for the Corporation and have:

     (a)  designed  such  disclosure  controls  and  procedures  to ensure  that
          material  information  relating  to  the  Corporation,  including  its
          consolidated  subsidiaries,  is made known to me by others  within the
          Corporation,  particularly  during  the  period in which the report is
          being prepared;

     (b)  evaluated the effectiveness of the Corporation's  disclosure  controls
          and procedures as of a date within 90 days prior to the filing date of
          the report (the "Evaluation Date"); and

     (c)  presented in the report my conclusions  about the effectiveness of the
          disclosure  controls and  procedures  based on my evaluation as of the
          Evaluation Date;

5.   The Corporation's  other certifying officer and I have disclosed,  based on
     our most recent  evaluation,  to the  Corporation's  auditors and the audit
     committee of Corporation's board of directors:

     (a)  all  significant  deficiencies  in the design or operation of internal
          controls which could  adversely  affect the  Corporation's  ability to
          record,  process,   summarize  and  report  financial  data  and  have
          identified for the Corporation's  auditors any material  weaknesses in
          internal controls; and

     (b)  any fraud, whether or not material,  that involves management or other
          employees who have a significant  role in the  Corporation's  internal
          controls; and

6.   The  Corporation's  other  certifying  officer and I have  indicated in the
     report whether there were  significant  changes in internal  controls or in
     other factors that could significantly  affect internal controls subsequent
     to the date of our most recent evaluation, including any corrective actions
     with regard to significant deficiencies and material weaknesses.


Date:  March 28, 2003                      /s/ Harold E. Stremmel
                                           -------------------------------------
                                           Harold E. Stremmel
                                           President and Chief Executive Officer


<PAGE>

                      Certification Pursuant to Section 302
                        of the Sarbanes-Oxley Act of 2002

         I, Shannon  Aylesworth,  Chief Financial Officer,  of Steelton Bancorp,
Inc. (the "Corporation"), hereby certify that:

1.   I have  reviewed  the  Annual  Report  on Form  10-KSB  for the year  ended
     December 31, 2002, of the Corporation;

2.   Based on my knowledge,  the report does not contain any untrue statement of
     a material  fact or omit to state a  material  fact  necessary  to make the
     statements made, in light of the circumstances  under which such statements
     were made, not misleading with respect to the period covered by the report;

3.   Based on my  knowledge,  the  financial  statements,  and  other  financial
     information included in the report, fairly present in all material respects
     the  financial  condition,  results  of  operations  and cash  flows of the
     Corporation as of, and for, the periods presented in the report;

4.   The  Corporation's  other  certifying  officers and I are  responsible  for
     establishing and maintaining disclosure controls and procedures (as defined
     in Exchange Act Rule 13a-14(c)) for the Corporation and have:

     (a)  designed  such  disclosure  controls  and  procedures  to ensure  that
          material  information  relating  to  the  Corporation,  including  its
          consolidated  subsidiaries,  is made known to me by others  within the
          Corporation,  particularly  during  the  period in which the report is
          being prepared;

     (b)  evaluated the effectiveness of the Corporation's  disclosure  controls
          and procedures as of a date within 90 days prior to the filing date of
          the report (the "Evaluation Date"); and

     (c)  presented in the report my conclusions  about the effectiveness of the
          disclosure  controls and  procedures  based on my evaluation as of the
          Evaluation Date;

5.   The Corporation's  other certifying officer and I have disclosed,  based on
     our most recent  evaluation,  to the  Corporation's  auditors and the audit
     committee of Corporation's board of directors:

     (a)  all  significant  deficiencies  in the design or operation of internal
          controls which could  adversely  affect the  Corporation's  ability to
          record,  process,   summarize  and  report  financial  data  and  have
          identified for the Corporation's  auditors any material  weaknesses in
          internal controls; and

     (b)  any fraud, whether or not material,  that involves management or other
          employees who have a significant  role in the  Corporation's  internal
          controls; and

6.   The  Corporation's  other  certifying  officer and I have  indicated in the
     report whether there were  significant  changes in internal  controls or in
     other factors that could significantly  affect internal controls subsequent
     to the date of our most recent evaluation, including any corrective actions
     with regard to significant deficiencies and material weaknesses.


Date:  March 28, 2003                         /s/ Shannon Aylesworth
                                              ----------------------------------
                                              Shannon Aylesworth
                                              Chief Financial Officer