SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549


                                   FORM 10-KSB
(Mark One)
[X]      Annual  Report  Pursuant  to  Section  13 or  15(d)  of the  Securities
         Exchange Act of 1934

         For the fiscal year ended December 31, 1999
                                   -----------------

                                     - OR -

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

         For the transition period from             to
                                        ----------    ---------

Commission file 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
 of 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,  1999  were
$181,000.

         The aggregate  market value of the voting stock held by  non-affiliates
of the  registrant,  based upon the average of the bid and asked  prices of such
stock as of March 23, 2000, was approximately $3.0 million.

         As of March 23, 2000, the registrant had 377,000 shares of Common Stock
outstanding.

                       DOCUMENTS INCORPORATED BY REFERENCE

1.   Portions  of the Annual  Report to  Stockholders  for the Fiscal Year ended
     December 31, 1999. (Part II)
2.   Portions of the Proxy Statement for the Annual Meeting of Stockholders  for
     the Fiscal Year ended December 31, 1999. (Part III)

<PAGE>



                                     PART I

Forward-Looking Statements

         Steelton Bancorp, Inc. (the "Company" or "Registrant") may from time to
time make written or oral  "forward-looking  statements",  including  statements
contained in the Company'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 Company,  which are
made in good faith by the Company  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 Company's plans,  objectives,  expectations,  estimates and
intentions,  that are subject to change based on various important factors (some
of which are beyond the Company's control). The following factors, among others,
could cause the Company'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  economies  in  which  the  Company  conducts
operations;  the effects of, and changes in, trade, 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 timely  development  of and  acceptance  of new  products and
services of the Company and the perceived  overall  value of these  products and
services by users,  including  the  features,  pricing  and quality  compared to
competitors'  products and  services;  the  willingness  of users to  substitute
competitors' products and services for the Company's products and services;  the
success of the  Company in  gaining  regulatory  approval  of its  products  and
services,  when required;  the impact of changes in financial services' laws and
regulations   (including  laws  concerning   taxes,   banking,   securities  and
insurance);  technological changes,  acquisitions;  changes in consumer spending
and saving habits; and the success of the Company at managing the risks involved
in the foregoing.

         The Company  cautions that the foregoing  list of important  factors is
not  exclusive.  The Company 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 Company.

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

General

         The Company is a Pennsylvania corporation 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 Company.  The Company
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

                                       1
<PAGE>

Company  conducts no  significant  business or  operations of its own other than
holding all of the  outstanding  stock of the Bank and  investing  the Company's
portion of the net proceeds obtained in the Conversion.

         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 Company or the Bank,  include the Company,  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.

                                       2
<PAGE>
<TABLE>
<CAPTION>

                                                                       At December 31,
                                                     -------------------------------------------------
                                                              1999                       1998
                                                     ---------------------   -------------------------
                                                         $           %            $              %
                                                     ---------    --------   ---------        --------
                                                                   (Dollars in thousands)
<S>                                                <C>            <C>         <C>             <C>
Type of Loans:
-------------
Real estate:
  1-4 family.................................        $28,470        85.21%     $23,537          83.52%
  Non-residential............................            830         2.48          764           2.72
Consumer loans:
  Home equity and second mortgage loans......          3,408        10.20        3,234          11.47
  Share loans................................            226         0.68          277           0.98
  Other(1)...................................            403         1.21          289           1.03
Commercial (business) loans..................             76         0.22           79           0.28
                                                      ------       ------       ------         ------
Total loans..................................         33,413       100.00%      28,181         100.00%
                                                      ------       ======       ------         ======
Less:
  Loans in process(2)........................            946                        51
  Deferred loan origination fees and costs...            272                       180
  Allowance for loan losses..................            168                       166
                                                      ------                    ------
Total loans, net.............................        $32,027                   $27,784
                                                      ======                    ======
</TABLE>

--------------------
(1)  Consists of personal secured, auto secured, credit card loans, and premiums
     on loans purchased.
(2)  Relates to construction loans.

         Loan Maturity Schedule.  The following table sets forth the maturity or
repricing of Bank's loan  portfolio at December 31, 1999.  Demand  loans,  loans
having no stated maturity and overdrafts are shown as due in one year or less.
<TABLE>
<CAPTION>


                                                        Home
                        1-4 Family        Non        Equity and
                        Real Estate   Residential      Second        Share       Other    Commercial
                        Mortgage(1)   Real Estate    Mortgages       Loans     Consumer    Business      Total
                        -----------   -----------    ---------       -----     --------     --------     -----
                                                       (In thousands)
<S>                        <C>             <C>         <C>          <C>       <C>         <C>        <C>
Non-performing............   $   380          $ 61        $   71     $  --      $ 15         $ --      $   527

Amounts Due:
Within 1 Year.............       315           178           432        91        20           --        1,036
Within 1 to 5 Years.......       161            --           451       135       286           76        1,109
After 5 Years.............    27,614           591         2,454         -        82           --       30,741
                              ------           ---         -----       ---       ---           --       ------
Total amount due..........    28,470           830         3,408       226       403           76       33,413
                              ------           ---         -----       ---       ---           --       ------
Less:
Allowance for loan loss...        95            --            48        --        17            8          168
Loans in process..........       946            --            --        --        --           --          946
Deferred loan fees........       272            --            --        --        --           --          272
                              ------           ---         -----       ---       ---           --       ------
Loans receivable, net.....   $27,157          $830        $3,360      $226      $386          $68      $32,027
                              ======           ===         =====       ===       ===           ==       ======
</TABLE>
-----------------------
(1)      Includes construction loans.

                                       3
<PAGE>



         The following table sets forth the dollar amount of all loans due after
December  31,  2000,  which have  pre-determined  interest  rates and which have
floating or adjustable interest rates.
                                                  Floating or
                               Fixed Rates     Adjustable Rates     Total
                               -----------     ----------------     -----
                                                (In thousands)

One-to-four family...........     $22,382           $5,393         $27,775
Non-residential real estate..         291              300             591
Home Equity and Second.......
  Mortgages..................       2,905               --           2,905
Share loans..................         135               --             135
Other consumer...............         368               --             368
Commercial (Business)........          76               --              76
                                   ------            -----          ------
  Total......................     $26,157           $5,693         $31,850
                                   ======            =====          ======

         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%.  For   multi-family  and  commercial
properties,  the Bank will  originate a mortgage  loan in an amount up to 75% of
the lesser of the appraised value or selling price.

         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 has originated
adjustable rate mortgage loans since 1988.

         The Bank  generally  makes its fixed  rate  mortgage  loans to meet the
secondary   mortgage  market   standards  of  the  Federal  Home  Loan  Mortgage
Corporation  ("FHLMC") but also makes non-conforming loans. While the Bank is an
approved  FHLMC  seller/servicer,  it has not  sold  any  mortgage  loans in the
secondary mortgage market for the three-year period ended December 31, 1998. 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.

         Substantially all of the Bank's  residential  mortgages include "due on
sale" clauses,  which are provisions giving the Bank the right to declare a loan
immediately  payable if the borrower sells or otherwise transfers an interest in
the property to a third party.

                                       4
<PAGE>

         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 lending  including loans 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.  The Bank is a limited  lender to local  builders
engaged in the construction of single-family  homes. The Bank limits residential
construction loans to not more than two units per builder and has never had more
than seven construction loans outstanding at any one time. At December 31, 1999,
the Bank had one construction loan outstanding to a builder.

         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. If the estimate of construction cost and the
marketability  of the  property  upon  completion  of the  project  prove  to be
inaccurate,  the Bank may be compelled to advance  additional  funds to complete
the construction.  Furthermore,  if the final value of the completed property is
less  than  the  estimated  amount,  the  value  of the  property  might  not be
sufficient to assure the repayment of the loan.

         Consumer  Loans.  As of December 31, 1999,  consumer  loans amounted to
$4.0 million or 12.6% of the Bank's total loan portfolio and consisted primarily
of home equity loans and FHA Title I home improvement loans. To a lesser extent,
the Bank  originates  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  costs 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.  In these
cases,  any  repossessed  collateral  for a  defaulted  loan may not  provide an
adequate source of repayment of the outstanding  loan balance,  since there is a
greater likelihood of damage, loss or depreciation of the underlying collateral.
Further,  consumer loan  collections are dependent on the borrower's  continuing
financial  stability  and are more likely to be adversely  affected by job loss,
divorce, illness or personal bankruptcy. Even for consumer loans secured by real
estate the risk to the Bank is greater than that  inherent in the single  family
loan  portfolio

                                       5
<PAGE>

in that the security for consumer  loans is generally  not the first lien on the
property and ultimate  collection of amounts due may be dependent on whether any
value remains after collection by a holder with a higher priority than the Bank.
Finally,  the application of various federal laws,  including  federal and state
bankruptcy and  insolvency  laws, may limit the amount which can be recovered on
consumer loans in the event of a default.

         The  underwriting  standards  employed by the Bank for  consumer  loans
include a determination  of the applicant's  credit history and an assessment of
the  applicant's  ability  to meet  existing  obligations  and  payments  on the
proposed loan. The stability of the applicant's monthly income may be determined
by   verification  of  gross  monthly  income  from  primary   employment,   and
additionally  from any  verifiable  secondary  income.  Creditworthiness  of the
applicant is of primary  consideration;  however,  the underwriting process also
includes a comparison of the value of the collateral in relation to the proposed
loan amount.

         Commercial  Real Estate and Other Loans.  The Bank originates a limited
number of commercial 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.  The average  loan size is
approximately $150,000.  Typically these loans are made with adjustable rates of
interest with terms of up to 20 years.  Essentially  all  originated  commercial
real  estate  loans are  within the  Bank's  market  area and all are within the
Commonwealth of Pennsylvania. The Bank's largest commercial real estate loan had
a balance of  $177,000 on  December  31, 1999 and was secured by a  multi-family
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,  commercial  real estate  lending  generally
requires  substantially  greater  oversight efforts compared to residential real
estate lending.

         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, 1999, the Bank's largest aggregation of loans to one
borrower was $338,000  consisting of one  single-family  residential home, which
was within the Bank's  legal  lending  limit to one borrower of $810,000 at that
date. At December 31, 1999, the loan was current.

         Loan  Solicitation  and  Processing.  The Bank's  customary  sources of
mortgage loan  applications  include repeat customers,  walk-ins,  and referrals
from home builders and real estate brokers.

         Upon receipt of any loan  application  from a prospective  borrower,  a
credit  report and  verifications  are ordered to confirm  specific  information
relating to the loan  applicant's  employment,  income and credit  standing.  An
appraisal of the real estate  intended to secure the

                                       6
<PAGE>

proposed loan is undertaken by an independent fee appraiser.  In connection with
the loan approval  process,  the  Executive  Committee of the Board of Directors
analyzes  the loan  applications  and the  property  involved  and  approves all
mortgage  loans in amounts above  $30,000.  The Executive  Vice  President,  Mr.
Harold E. Stremmel,  and the Senior Vice  President,  Mr. James S. Nelson,  have
authority  to jointly  approve  mortgage  loans in amounts  up to  $30,000.  The
Executive  Committee  ratifies most loans below $30,000 approved by Mr. Stremmel
and Mr. Nelson. Individually,  Messrs. Stremmel and Nelson have the authority to
approve  consumer  loans in  amounts  up to  $15,000.  The  Executive  Committee
approves  consumer  loans in amount above  $30,000.  The full Board of Directors
ratifies all loans.

         Loan applicants are promptly  notified of the decision of the Bank by a
letter  setting forth the terms and  conditions  of the  decision.  If approved,
these terms and conditions include the amount of the loan,  interest rate basis,
amortization  term,  a brief  description  of real estate to be mortgaged to the
Bank,  tax escrow and the notice of  requirement  of  insurance  coverage  to be
maintained to protect the Bank's interest.

         Loan  Commitments.  The Bank gives written  commitments  to prospective
borrowers on all approved real estate loans. Generally,  the commitment requires
acceptance  within 30 days of the date of the issuance.  The total amount of the
Bank's commitments to extend credit as of December 31, 1999, was $1,817,000.

         Loan  Origination  and Other Fees.  In  addition to interest  earned on
loans, the Bank receives loan origination and commitment fees for originating or
purchasing  certain  loans.  The Bank generally  receives  between two and three
points on mortgage loans originated.

         The Bank also  receives  other fees and  charges  relating  to existing
loans,  which include late  charges,  and fees  collected in  connection  with a
change in borrower or other loan modifications.  These fees and charges have not
constituted a material source of income.

Non-performing Loans and Problem Assets

         Non-Performing   Assets.  The  following  table  provides   information
regarding the Bank's  non-performing loans and other non-performing assets as of
the  end of  each of the  last  three  fiscal  years.  As of  each of the  dates
indicated,  the Bank did not have any troubled  debt  restructurings  within the
meaning of Statement of Financial Accounting Standards No. 114.

                                       7
<PAGE>
<TABLE>
<CAPTION>

                                                                 At December 31,
                                                           ------------------------------
                                                             1999        1998      1997
                                                             ----        ----      ----
                                                             (Dollars in thousands)
<S>                                                         <C>       <C>        <C>
Loans accounted for on a non-accrual basis:
Mortgage loans:
  1-4 family residential real estate .................       $ 380    $      223    $236
  Non-residential ....................................          61            55     292
Non-mortgage loans:
  Home equity and second mortgages ...................          71            44       7
  Share loans ........................................          --            --      --
  Other consumer .....................................          15            --       8
  Commercial (business) ..............................          --            --      --
                                                             -----    ----------    ----
Total ................................................       $ 527    $      322    $543
                                                             =====    ==========    ====
Accruing loans which are contractually past
 due 90 days or more:
Mortgage loans:
  1-4 family residential real estate .................       $  --    $       --    $ 42
  Non-residential ....................................          --            --      --
Non-mortgage loans:
  Home equity and second mortgages ...................          --            --      --
  Share loans ........................................          --            --      --
  Other consumer .....................................          --            --       6
                                                             -----    ----------    ----
Total ................................................       $  --    $       --    $ 48
                                                             =====    ==========    ====
Total non-accrual and accrual loans ..................       $ 527    $      322    $591
                                                             =====    ==========    ====
Real estate owned ....................................       $  --    $       --    $ --
                                                             =====    ==========    ====
Other non-performing assets ..........................       $  --    $       --    $ --
                                                             =====    ==========    ====
Total non-performing assets ..........................       $ 527    $      322    $591
                                                             =====    ==========    ====
Total non-accrual and accrual loans to net loans .....        1.65%         1.16%   1.84%
                                                             =====    ==========    ====
Total non-accrual and accrual loans to total assets...        0.98%         0.78%   1.59%
                                                             =====    ==========    ====
Total non-performing assets to total assets ..........        0.98%         0.78%   1.59%
                                                             =====    ==========    ====
</TABLE>

         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. At December 31, 1999, the Bank had $527,000 of loans
that were held on a non-accrual basis.

         During the year  ended  December  31,  1999,  approximately  $27,000 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. These amounts were not included in the Bank's interest income
for the respective periods. The amount of interest income on loans accounted for
on a  non-accrual  basis that was included in income during the same periods was
insignificant during December 31, 1999.

         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.

                                       8

<PAGE>

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,
                                   1999
                              ---------------
                              (In thousands)

Special mention                    $ --
Substandard                         404
Doubtful                             --
Loss                                 --
                                    ---
  Total                            $404
                                    ===

         Allowance for Loan Losses.  The Bank  segregates the loan portfolio for
loan  losses into the  following  broad  categories:  residential  real  estate,
commercial  real estate,  and consumer  loans.  The Bank  provides for a general
allowance for losses  inherent in the portfolio by the above  categories,  which
consists of two components.  General loss  percentages are calculated based upon
historical  analyses and other factors. A supplemental  portion of the allowance
is calculated for inherent losses which probably exist as of the evaluation date
even though they might not have been identified by the more objective  processes
used.  This is due to the  risk of  error  and/or  inherent  imprecision  in the
process.  This portion of the allowance is particularly  subjective and requires
judgments  based on  qualitative  factors which do not lend  themselves to exact
mathematical calculations such as:
                                       9
<PAGE>

o       trends in delinquencies and nonaccruals;
o       trends in volume, terms and portfolio mix;
o       new credit products;
o       changes in lending policies and procedures;
o       changes in the outlook for the local, regional and national economy; and
o       peer group comparisons.

         At  least  quarterly,  the  Bank's  management  evaluates  the  need to
establish  reserves  against losses on loans and other assets based on estimated
losses on specific loans and on any real estate held for sale or investment when
a  finding  is made  that a loss is  estimable  and  probable.  This  evaluation
includes  a  review  of all  loans  for  which  full  collectibility  may not be
reasonably assured and considers,  among other matters: (1) the estimated market
value of the underlying  collateral of problem loans, (2) prior loss experience,
(3) economic conditions and (4) overall portfolio quality.

         Provisions for losses are charged  against  earnings in the period they
are established. The Bank had $168,000 in allowances for loan losses at December
31, 1999.

         While the Bank believes it has established  its existing  allowance for
loan losses in accordance with GAAP,  there can be no assurance that regulators,
in  reviewing  the  Bank's  loan  portfolio,   will  not  request  the  Bank  to
significantly  increase its allowance for loan losses,  or that general economic
conditions,  a deteriorating real estate market, or other factors will not cause
the Bank to significantly  increase its allowance for loans losses,  which would
negatively affect the Bank's financial condition and earnings.

         In  making  loans,  the Bank  recognizes  that  credit  losses  will be
experienced  and that the risk of loss will vary with,  among other things,  the
type of loan being made, the  creditworthiness  of the borrower over the term of
the loan and, in the case of a secured loan, the quality of the security for the
loan.

         It is the Bank's  policy to review its loan  portfolio,  in  accordance
with  regulatory  classification  procedures,  on at  least a  quarterly  basis.
Additionally,  the Bank maintains a program of reviewing loan applications prior
to making the loan and immediately after loans are made in an effort to maintain
loan quality.

         The following table sets forth  information  with respect to the Bank's
allowance for loan losses at the dates indicated:

                                       10

<PAGE>



                                                 At December 31,
                                              ----------------------
                                                 1999         1998
                                                 ----         ----
                                              (Dollars in thousands)

Total loans outstanding (net) .............   $ 32,027     $ 27,784
                                              ========     ========
Average loans outstanding .................     28,035       29,889
                                              ========     ========
Allowance balances (at beginning of period)        166          126
Provision (credit):
  1-4 family residential ..................         (1)          (4)
  Non-residential real estate .............          3            4
  Consumer ................................         --           42
  Commercial (business) ...................         --            8
Charge-offs :
  1-4 family residential ..................         --           --
  Non-residential real estate .............         --           --
  Consumer ................................         --           10
  Commercial (business) ...................         --           --
Recoveries ................................         --           --
                                              --------     --------
Allowance balance (at end of period) ......   $    168     $    166
                                              ========     ========
Allowance for loan losses as a percent
  of total loans outstanding ..............       0.52%         .60%
Loans charged off as a percent
  of average loans outstanding ............         --%         .04%

         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,  net, 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.

                                           At December 31,
                            --------------------------------------------------
                                     1999                      1998
                            -----------------------    -----------------------
                                        Percent of               Percent of
                                         Loans to                 Loans to
                              Amount    Total Loans    Amount     Total Loans
                              ------    -----------    ------     -----------
                                          (Dollars in thousands)
At end of period allocated to:
1-4 family....................   $ 91      54.17%       $92           55.42%
Non-residential real estate...      4       2.38          4            2.41
Consumer......................     65      38.69         62           37.35
Commercial (business).........      8       4.76          8            4.82
                                  ---     ------        ---          ------
Total allowance...............   $168     100.00%      $166          100.00%
                                  ===     ======        ===          ======

Investment Activities

         General. Federally chartered savings Banks have the authority to invest
in various types of liquid assets, including United States Treasury obligations,
securities of various Federal agencies (including  securities  collateralized by
mortgages),  certain  certificates  of  deposits  of

                                       11

<PAGE>

insured banks and savings  institutions,  municipal  securities,  corporate debt
securities and loans to other banking institutions.

         The Bank  maintains  liquid  assets  which may be invested in specified
short-term  securities and certain other  investments.  Liquidity  levels may be
increased or decreased depending upon the yields on investment  alternatives and
upon management's judgment as to the attractiveness of the yields then available
in relation to other  opportunities  and its expectation of future yield levels,
as well as management's  projections as to the short-term demand for funds to be
used in the Bank's loan origination and other activities.  The Bank maintains an
investment  securities  portfolio and a mortgage-backed  securities portfolio as
part of its  investment  portfolio.  At  December  31,  1999,  the  Bank  had an
investment  securities portfolio with a carrying value of $7.2 million (13.3% of
total assets) and a mortgage-backed  securities  portfolio with a carrying value
of $8.8 million (16.3% of total assets).  At December 31, 1999, the market value
of the investment  securities portfolio was $7.1 million and the market value of
the mortgage-backed securities portfolio was $8.6 million.

         Investment  Policies.  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  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.  Management  must
demonstrate the business  advantage of those types of investments.  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 off-balance  sheet  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).

                                       12
<PAGE>

         Investment  Securities.  The Bank  maintains a portfolio of  investment
securities,  classified  as either  available  for sale or held to maturity,  to
enhance total return on investments.  At December 31, 1999, primarily all of the
Bank's  investment  securities  consisted  of  obligations  of state  and  local
governments and U.S. Government Agency obligations with varying  characteristics
as  to  rate,   maturity  and  call  provisions.   Callable  agency  securities,
representing 90.2% of the Bank's U.S.  Government Agency  obligations,  totaling
approximately  $4.6  million  at  December  31,  1999,  could  reduce the Bank's
investment  yield if these  securities  are called prior to  maturity.  The Bank
invests  in  obligations  of state and local  governments  as part of the Bank's
efforts to lower its tax burden.  These obligations are backed by the full faith
and credit of these governmental bodies.

         Mortgage-backed   Securities.   The  Bank  invests  in  mortgage-backed
securities to provide earnings,  liquidity,  cash flows, and  diversification to
the  Banks'  overall  balance  sheet.  These   mortgage-backed   securities  are
classified as either available for sale or held to maturity.  The securities are
participation  certificates  that are secured by interest in pools of mortgages.
At December 31, 1999,  the Bank held  mortgage-backed  securities  totaling $7.6
million that were issued and guaranteed by the Government National Mortgage Bank
("GNMA"),  the Federal National  Mortgage  Association  ("FNMA") and the Federal
Home Loan Mortgage  Corporation  ("FHLMC").  At December 31, 1999, the Bank held
mortgage-backed securities totaling $1.2 million that were issued by a financial
institution  and were not guaranteed by the issuer.  Mortgage-backed  securities
typically  represent  a  participation  interest in a pool of  single-family  or
multi-family   mortgages,   although  the  Bank  focuses  its   investments   on
mortgage-backed securities secured by single-family mortgages.

         Expected  maturities  will differ from  contractual  maturities  due to
scheduled  repayments and because borrowers may have the right to call or prepay
obligations with or without prepayment penalties.

         Mortgage-backed  securities  typically are issued with stated principal
amounts.  The  securities  are backed by pools of mortgages that have loans with
interest  rates that are  within a set range and have  varying  maturities.  The
underlying pool of mortgages can be composed of either  fixed-rate or adjustable
rate mortgage  loans.  Mortgage-backed  securities are generally  referred to as
mortgage participation certificates or pass-through  certificates.  The interest
rate  risk  characteristics  of the  underlying  pool  of  mortgages,  including
fixed-rate or  adjustable-rate,  and the  prepayment  risk, are passed on to the
certificate holder. The life of a mortgage-backed pass-through security is equal
to the life of the underlying mortgages.

         Collateralized  Mortgage Obligations ("CMOs"). The Bank also invests in
CMOs,  issued or sponsored by FNMA and FHLMC which  totaled  $14,700 at December
31, 1999.  CMOs are a type of debt security that  aggregates  pools of mortgages
and  mortgage-backed  securities and creates different classes of CMO securities
with  varying  maturities  and  amortization  schedules  as well  as a  residual
interest with each class having different risk  characteristics.  The cash flows
from the underlying  collateral are usually  divided into  "tranches" or classes
whereby tranches have descending  priorities with respect to the distribution of
principal and interest repayment of the underlying mortgages and mortgage-backed
securities  as opposed to pass  through  mortgage-backed


                                       13
<PAGE>

securities  where cash flows are distributed  pro rata to all security  holders.
Unlike  mortgage-backed   securities  from  which  cash  flow  is  received  and
prepayment  risk is shared pro rata by all securities  holders,  cash flows from
the  mortgages  and  mortgage-backed  securities  underlying  CMOs  are  paid in
accordance with a predetermined  priority to investors  holding various tranches
of the  securities  or  obligations.  A  particular  tranche  or class may carry
prepayment  risk which may be different from that of the  underlying  collateral
and other tranches.  Investing in CMOs allows the Bank to moderate  reinvestment
risk resulting from unexpected  prepayment activity associated with conventional
mortgage-backed  securities.  Management  believes  these  securities  represent
attractive alternatives relative to other investments due to the wide variety of
maturity, repayment and interest rate options available.

         Other   Securities.   Other  securities  used  by  the  Bank,  but  not
necessarily included in the investment portfolio,  consist of equity securities,
interest-bearing  deposits  and federal  funds  sold.  Equity  securities  owned
consist of a $692,000 investment in FHLB of Pittsburgh common stock (this amount
is not  shown  in  the  securities  portfolio).  As a  member  of  the  FHLB  of
Pittsburgh,  ownership of FHLB of  Pittsburgh  common  shares is  required.  The
remaining  securities provide  diversification and complement the Bank's overall
investment strategy.

         The  following  table  sets  forth  the  carrying  value of the  Bank's
investment and mortgage-backed securities portfolio at the dates indicated.

                                                  At December 31,
                                                 ------------------
                                                   1999      1998
                                                 ------------------
                                                  (In thousands)
Certificates of Deposit ......................   $   100   $  --
                                                 -------   -------

Securities Held to Maturity:
 U.S. Government and Federal Agencies ........       621       500
 Mortgage-backed Securities ..................     3,740     3,405
 Obligations of State and Local Governments ..     1,296     1,295
                                                 -------   -------
   Total Securities Held to Maturity .........     5,757     5,200
                                                 -------   -------

Securities Available for Sale (at fair value):
 U.S. Government and Federal Agencies ........     4,426       200
 Mortgage-backed Securities ..................     5,074     3,705
 Obligations of State and Local Governments ..       752        99
                                                 -------   -------
   Total Securities Available for Sale .......    10,252     4,004
                                                 -------   -------
 Total Investment and
   Mortgage-backed Securities ................   $16,009   $ 9,204
                                                 =======   =======

                                       14


<PAGE>



         The  following  table  sets forth  certain  information  regarding  the
carrying values, weighted average yields and maturities of the Bank's investment
and mortgage-backed securities portfolio at December 31, 1999.
<TABLE>
<CAPTION>


                                                                    At December 31, 1999
                          ---------------------------------------------------------------------------------------------------------
                            One Year or Less  One to Five Years  Five to Ten Years  More than Ten Years  Total Investment Securities
                          ------------------ ------------------- -----------------  ------------------   ---------------------------
                          Carrying  Average  Carrying  Average   Carrying  Average   Carrying   Average   Carrying Average    Market
                           Value     Yield     Value    Yield      Value    Yield      Value     Yield      Value   Yield      Value
                          -------  --------- --------  --------- ---------  -------  ---------  --------  --------  -------  -------
                                                                      (Dollars in thousands)

<S>                       <C>     <C>      <C>         <C>      <C>       <C>      <C>         <C>      <C>        <C>     <C>
Certificates of Deposit..... $ --      --%   $  100      5.22%    $   --       --%   $    --        --%   $   100    5.22%   $   100
U.S. Government and
  Federal Agencies..........  500    5.79       732      5.24      1,084     6.84      2,732      7.33      5,048    6.88      5,000
Mortgage-backed securities..   --      --       176      7.00        340     5.50      8,298      6.66      8,814    6.62      8,620
Obligations of State and
  local governments.........   --      --       380      3.93        414     4.30      1,253      5.11      2,047    4.73      1,993
                              ---    ----     -----      ----      -----     ----     ------      ----     ------    ----     ------
  Total..................... $500    5.79%   $1,388      5.10%    $1,838     6.02%   $12,283      6.65%   $16,009    5.27%   $15,713
                              ===    ====     =====      ====      =====     ===      ======      ====     ======    ====     ======
</TABLE>



                                       15
<PAGE>

Sources of Funds

         General.  Deposits are the major source of the Bank's funds for lending
and other investment purposes.  Borrowings  (principally from the FHLB) are used
to  supplement  the amount of funds for lending and  investment.  In addition to
deposits and  borrowings,  the Bank derives funds from loan and  mortgage-backed
securities principal repayments,  and proceeds from the maturity,  call and sale
of  mortgage-backed  securities  and investment  securities.  Loan and mortgage-
backed  securities  payments  are a  relatively  stable  source of funds,  while
deposit inflows are significantly influenced by general interest rates and money
market conditions.

         Deposits. The Bank offers a variety of deposit accounts.  Over the past
year, demand deposits have increased significantly. The increase in non-interest
bearing checking  accounts is attributed to the fact that the Bank, unlike local
competitors,  does not  require a minimum  balance  on this type of  account.  A
majority  of  deposits  are in  fixed-term,  market-rate  certificate  accounts.
Deposit account terms vary, primarily as to the required minimum balance amount,
the amount of time that the funds  must  remain on  deposit  and the  applicable
interest rate.

         The Bank's current  deposit  products  include  certificates of deposit
accounts  ranging  in  terms  from  90 days to ten  years  as well as  checking,
savings,  NOW, money market and club accounts.  Individual  retirement  accounts
(IRAs) are included in these  accounts,  depending on the  customers  investment
preference.

         Deposits are obtained  primarily from residents of Dauphin County.  The
Bank attracts  deposit  accounts by offering  outstanding  service,  competitive
interest  rates,  and  convenient  locations  and service  hours.  The Bank uses
traditional  methods of  advertising  to attract  new  customers  and  deposits,
including print media advertising,  billboards,  radio and direct mail. The Bank
does not utilize the services of deposit brokers and management believes that an
insignificant   number  of  deposit   accounts  are  held  by  non-residents  of
Pennsylvania.

         The Bank pays  interest on its deposits  which are  competitive  in its
market.  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.

         From  time to time,  the Bank has  offered  depositors  incentives  for
making  deposits  into its  accounts.  These  offers have been made on a limited
basis for a limited  amount of time. In 1997,  when the Bank opened a new branch
in Woodridge,  the Bank offered  premiums for new deposits for a period of three
months. The Bank does not currently offer any premiums and has no plans to do so
in the near future.

                                       16
<PAGE>

         Because  of the large  percentage  of  certificates  of  deposit in the
deposit  portfolio  (68% at December 31, 1999),  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.

         Deposits in the Bank as of  December  31,  1999,  were  represented  by
various types of savings programs described below.3
<TABLE>
<CAPTION>

                                                               Minimum         Balance at       Percentage of
Category                      Term      Interest Rate(1)   Balance Amount   December 31, 1999   Total Deposits
--------                      ----      ----------------   --------------   -----------------   --------------
                                                                           (In thousands)
<S>                        <C>            <C>            <C>             <C>                  <C>
Checking Accounts             None               --%         $ --            $ 1,779              5.33%
NOW Accounts                  None             1.50           300              1,331              3.99
Savings Accounts              None             2.65           100              5,457             16.34
Money Market Accounts         None             2.47         2,500              2,111              6.32

Certificates of Deposit(2):
Fixed Term, Fixed Rate        3 Months         2.80         1,000                378              1.13
Fixed Term, Fixed Rate        6 Months         4.00         1,000              1,233              3.69
Fixed Term, Fixed Rate        7-12 Months      4.35           500              3,771             11.29
Fixed Term, Fixed Rate        13-36 Months     4.75           500             12,040             36.05
Fixed Term, Fixed Rate        37+ Months       5.00           500              5,297             15.86
                                                                              ------            ------
                              Total                                          $33,397            100.00%
                                                                              ======            ======
</TABLE>

--------------
(1)  Weighted average rate as of December 31, 1999.
(2)  Includes  jumbo  certificates  of  deposit  of $3.8  million.  See table of
     maturities of certificates of deposit of $100,000 or more.
(3)  Includes IRA accounts depending on the customers investment preference.

         The following table sets forth the time deposits in the Bank classified
by interest rate as of the dates indicated.

                                             At December 31,
                                          1999           1998
                                          ----           ----
                                            (In thousands)
Interest Rate
3.99% or less.................          $ 243             $176
4.00-4.99%....................          6,622            4,369
5.00-5.99%....................          5,004            8,154
6.00-6.99%....................          7,205            3,655
7.00-7.99%....................          3,333            2,076
8.00% or more.................            312            1,986
                                       ------           ------
  Total.......................        $22,719          $20,416
                                       ======           ======

                                       17
<PAGE>

         The  following  table  sets forth the  amount  and  maturities  of time
deposits at December 31, 1999.


                                         Amount Due
                 -------------------------------------------------------------
                                                            After
                 December 31, December 31,  December 31,  December 31,
Interest Rate       2000         2001          2002          2003       Total
-------------    -------      -----------   -----------   -----------   -----

                                         (In thousands)
3.99% or less.... $   243        $   --        $   --        $   --    $   243
4.00-4.99%.......   5,504           943           172             4      6,623
5.00-5.99%.......   2,472         1,250           216         1,066      5,004
6.00-6.99%.......   2,238         2,743         2,020           203      7,204
7.00-7.99%.......     117            --           100         3,117      3,334
8.00% or more....     160            --            --           151        311
                   ------         -----         -----         -----     ------
  Total.......... $10,734        $4,936        $2,508        $4,541    $22,719
                   ======         =====         =====         =====     ======

         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,
1999.

                                                  Certificates
Maturity Period                                    of Deposits
---------------                                    -----------
                                                (In thousands)
Three months or less                                     $ 204
Over three through six months                              320
Over six through twelve months                             935
Over twelve months                                       2,300
                                                         -----
                                                        $3,759
                                                        ======

         Borrowings.  Deposits  are the  primary  source of funds of the  Bank's
lending and investment  activities and for its general  business  purposes.  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.  The
Bank  typically  has funded  loan  demand and  investment  opportunities  out of
current loan and mortgage-backed  securities  repayments,  investment maturities
and new  deposits.  However,  the Bank  recently has utilized  FHLB  advances to
supplement  these  sources  and as a match  against  certain  assets in order to
better  manage  interest  rate risk.  Short-term  advances at December  31, 1999
totaled  $6.1  million.  See Note 8 to the Notes to the  Consolidated  Financial
Statements.

                                       18

<PAGE>

Subsidiary Activity

         The Company's  only  subsidiary  is the Bank.  The Bank is permitted to
invest its assets in the capital  stock of, or  originate  secured or  unsecured
loans to, subsidiary corporations. The Bank's sole subsidiary is Baldwin Service
Corporation.  The sole purpose of Baldwin Service Corporation was to temporarily
hold a six-unit  apartment  house that  nearly  adjoins  the Bank's  main office
location until the property could be used for  expansion.  The Company  acquired
additional  property  next to the  main  office  in 1999 for  $106,000  and will
demolish buildings on the acquired property and the Baldwin Service  Corporation
property in the first quarter of 2000 for expansion of parking and drive-through
banking  services.  At December  31,  1999,  the Company  had a  commitment  for
building demolition totaling $58,000.

Personnel

         As of December 31,  1999,  the Bank had 14  full-time  employees  and 4
part-time  employees.   The  employees  are  not  represented  by  a  collective
bargaining  unit.  The Bank believes its  relationship  with its employees to be
satisfactory.

Regulation

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

Recent Legislation

         On  November  12,  1999,   President   Clinton   signed  into  law  the
Gramm-Leach-Bliley  Act (the "Act") which will, effective March 11, 2000, permit
qualifying  bank holding  companies to become  financial  holding  companies and
thereby  affiliate with securities  firms and insurance  companies and engage in
other  activities  that are financial in nature.  The Act defines  "financial in
nature"  to  include  securities   underwriting,   dealing  and  market  making;
sponsoring  mutual funds and investment  companies;  insurance  underwriting and
agency;  merchant  banking  activities;  and activities that the Federal Reserve
Board has  determined to be closely  related to banking.  A qualifying  national
bank also may engage,  subject to limitations on investment,  in activities that
are financial in nature,  other than insurance  underwriting,  insurance company
portfolio  investment,  real estate  development,  and real  estate  investment,
through a financial subsidiary of the bank.

         The Act also  prohibits  new  unitary  thrift  holding  companies  from
engaging in  nonfinancial  activities or from  affiliating  with an nonfinancial
entity.  As a  grandfathered  unitary thrift holding  company,  the Company will
retain its authority to engage in nonfinancial activities.

                                       19

<PAGE>

Company Regulation

         General.  The  Company is a unitary  savings and loan  holding  company
subject to regulatory  oversight by the OTS. As such, the Company 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
Company 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 Company.

         Qualified  Thrift  Lender Test.  As a unitary  savings and loan holding
company, the Company generally is not subject to activity restrictions, provided
the Bank  satisfies  the Qualified  Thrift  Lender  ("QTL") test. If the Company
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  Company  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 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.

                                       20
<PAGE>


         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 of at least  0.064% of its  total  deposits.  The FDIC  also  maintains
another insurance fund, the Bank Insurance Fund ("BIF"), which primarily insures
commercial bank deposits. Most members of BIF pay a lower premium to the FDIC.

         After 1999, assessments for BIF and SAIF members should be the same. It
is expected that these continuing assessments for both SAIF and BIF members will
be used to repay outstanding Financing Corporation bond obligations.

         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, 1999
                                               ------------------------------
                                                                  Percentage
                                                   Amount          of Assets
                                               ------------      ------------
                                                   (Dollars in Thousands)

Tangible capital.........................         $5,630             10.59%
Tangible capital requirement.............            797              1.50%
                                                   -----              ----
Excess...................................         $4,833              9.09%
                                                   =====              ====

Core capital.............................         $5,630             10.59%
Core capital requirements................          2,127              4.00%
                                                   -----             -----
Excess...................................         $3,503              6.59%
                                                   =====             =====

Total risk-based capital.................         $5,798             23.59%
Total risk-based capital requirement.....          1,966              8.00%
                                                   -----             -----
Excess...................................         $3,832             15.59%
                                                   =====             =====

                                       21
<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  statue,  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, 1999, the Bank
was in compliance  with its QTL  requirement  with 79% 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


                                       22
<PAGE>

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.

         Liquidity  Requirements.  All  savings  associations  are  required  to
maintain an average daily balance of liquid assets equal to a certain percentage
of the sum of its average daily balance of net withdrawable deposit accounts and
borrowings payable in one year or less. The liquidity  requirement may vary from
time to time (between 4% and 10%) depending upon economic conditions and savings
flows of all savings  associations.  At December 31, 1999,  the Bank's  required
liquid asset ratio was 4%.

         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  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, 1999, the Bank was in compliance  with these Federal  Reserve Board
requirements.

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

(a) The  Company  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 Bank also owns
property located next to its main office,  including a six-unit  apartment house
that nearly adjoins the Bank's main office  location and a second  adjoining lot
previously managed by Baldwin Service Corporation. These properties will be used
for the expansion of the Bank's main office.  The Company's total  investment in
office  property  and  equipment  is $1.8  million with a net book value of $1.2
million at December 31, 1999.

(b)      Investment Policies.

         See "Item 1. Business" above for a general description of the Company's
investment  policies and any  regulatory  or Board of  Directors'  percentage of
assets limitations regarding certain investments.  The Company'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 - Regulation of the Bank," and "Item
          2. Description of Property."

     (2)  Investments in Real Estate Mortgages.  See "Item 1. Business - Lending
          Activities and - Regulation of the Bank."

                                       23
<PAGE>

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

(c)      Description of Real Estate and Operating Data.

         Not Applicable.

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

         There  are  various   claims  and  lawsuits  in  which   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 forth
quarter of the fiscal year.

                                     PART II

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

         The  information  contained  under the section  captioned  "Stock Price
Information" of the Company's  Annual Report to stockholders for the fiscal year
ended  December  31,  1999  (the  "Annual  Report")  is  incorporated  herein by
reference.

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

         The  information  contained  in  the  section  captioned  "Management's
Discussion and Analysis of Financial Condition and Results of Operations" in the
Annual Report is incorporated herein by reference.

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.
--------------------------------------------------------------------------------

         Not applicable.

                                       24
<PAGE>


                                    PART III

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

         The information  contained under the sections  captioned "Section 16(a)
Beneficial Ownership Reporting  Compliance" and "I - Information with Respect to
Nominees for Director,  Directors Continuing in Office, and Executive Officers -
Election  of  Directors"  and " -  Biographical  Information"  in the  Company's
definitive  proxy statement for the Annual Meeting of Stockholders to be held on
April 19, 2000 (the"Proxy Statement") is incorporated herein by reference.

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

         The  information  contained  in the  section  captioned  "Director  and
Executive Officer Compensation" in the Proxy Statement is incorporated herein by
reference.

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

         (a)      Security Ownership of Certain Beneficial Owners

                  Information  required by this item is  incorporated  herein by
                  reference  to the first  chart in the section  captioned  "I -
                  Information  with Respect to Nominees for Director,  Directors
                  Continuing  in Office,  and  Executive  Officers" in the Proxy
                  Statement.

         (b)      Security Ownership of Management

                  Information  required by this item is  incorporated  herein by
                  reference  to the first  chart in the section  captioned  "I -
                  Information  with Respect to Nominees for Director,  Directors
                  Continuing  in Office,  and  Executive  Officers" in the Proxy
                  Statement.

         (c)      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.

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

         The  information  required  by this  item  is  incorporated  herein  by
reference  to  the  section   captioned   "Certain   Relationships  and  Related
Transactions" in the Proxy Statement.

                                       25

<PAGE>

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

(a)  Listed below are all  financial  statements  and exhibits  filed as part of
     this report.

     1.   The  following  financial  statements  and the  report of  independent
          accountants  of the  Registrant  included in the  Registrant's  Annual
          Report to Stockholders are incorporated herein by reference.

               Independent Auditors' Report

               Consolidated Statements of Financial Condition as of December 31,
               1999 and 1998.

               Consolidated  Statements  of Income for the Years Ended  December
               31, 1999 and 1998

               Consolidated  Statements  of  Comprehensive  Income for the Years
               Ended December 31, 1999 and 1998

               Consolidated  Statements of Changes in  Stockholders'  Equity for
               the Years Ended December 31, 1999 and 1998

               Consolidated  Statements  of  Cash  Flows  for  the  Years  Ended
               December 31, 1999 and 1998.

               Notes to Consolidated Financial Statements

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

                  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. 1999 Stock Option Plan**
                 10.3     Mechanics Savings Bank Restricted Stock Plan**
                 13       1999 Annual Report to Stockholders
                 21       Subsidiaries of Registrant (see "Item 1 - Business")
                 23       Consent of McKonly & Asbury, LLP
                 27       Financial Data Schedule (electronic filing only)

---------------------
*    Incorporated  by  reference  to an  identically  numbered  exhibit  to  the
     registration statement on Form SB-2 (File No. 333-74279) filed with the SEC
     on March 11, 1999.
**   Incorporated by reference to the Proxy Statement for the Special Meeting on
     February 3, 2000 filed with SEC on January 3, 2000.

(b)      Not applicable.

                                       26
<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 27, 2000.

                                      STEELTON BANCORP, INC.



                                      By:  /s/Harold E. Stremmel
                                           -------------------------------
                                           Harold E. Stremmel
                                           President and Chief Executive Officer
                                           (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 27, 2000.

<TABLE>
<CAPTION>


<S>                                <C>
/s/Harold E. Stremmel                    /s/James E. Nelson
--------------------------------         ---------------------------------
Harold E. Stremmel                       James E. Nelson
President and Chief Executive Officer    Senior Vice President and Director
(Principal Executive Officer)



/s/Marino Falcone                        /s/Joseph A. Wiedeman
---------------------------------        ---------------------------------
Marino Falcone                           Joseph A. Wiedeman
Chairman of the Board                    Treasurer and Director



/s/James F. Stone                        /s/Victor J. Segina
---------------------------------        ---------------------------------
James F. Stone                           Victor J. Segina
Director                                 Secretary and Director



/s/Richard E. Farina                     /s/Shannon Aylesworth
---------------------------------        ---------------------------------
Richard E. Farina                        Shannon Aylesworth
Director                                 Chief Financial Officer
                                         (Principal Financial and Accounting Officer)

</TABLE>