EXHIBIT 13

EXCERPTS FROM THE 1997 ANNUAL REPORT TO SHAREHOLDERS


NATURE OF THE BUSINESS

     Hanover Bancorp, Inc. is a Pennsylvania business corporation that is a
one-bank holding company with headquarters in Hanover, Pennsylvania.  Bank of
Hanover and Trust Company, the Corporation's wholly-owned subsidiary, was
incorporated in 1835 and is Hanover's oldest and only remaining
independent financial institution.  The Corporation's full service
commercial banking business, including trust services, is conducted through
its subsidiary, which operates ten full service branch offices in York and
Adams Counties, Pennsylvania, a drive-up location at the bank's
TeleServices Center and a trust and investment office in a local retirement
community.  Hanover Bancorp's income is derived primarily from the
operations of Bank of Hanover and Trust Company.

                                     19
<PAGE>
<TABLE>
SELECTED CONSOLIDATED FINANCIAL DATA
(In Thousands, Except Ratios, Per Share Data and Statistics)
<CAPTION>
                                                    Year-Ended December 31,

                                          1997       1996      1995      1994      1993
<S>                                     <C>        <C>       <C>       <C>        <C>
BALANCE SHEET
 Loans                                  $277,475   $254,573  $213,869  $192,396   $173,536
 Total assets                            406,356    356,129   337,222   308,354    278,430
 Deposits                                329,951    297,004   278,234   251,752    231,464
 Shareholders' equity - core (1)          32,662     30,943    31,308    28,997     26,392
 Shareholders' equity - total             34,314     31,541    32,862    27,565     28,354
 Total average assets                    377,604    344,146   321,949   293,079    272,554
 Total average equity                     32,616     31,910    30,602    28,246     25,043

EARNINGS DATA
 Interest income                         $28,319   $ 25,420  $ 23,892  $ 20,094   $ 19,807
 Interest expense                         13,941     12,148    11,409     8,517      8,730
 Net interest income                      14,378     13,272    12,483    11,577     11,077
 Provision for loan losses                   910        480       360       125        645
 Other income                              2,589      2,310     2,014     2,174      1,953
 Other expenses                           11,549     10,986    10,201     9,406      8,800
 Net income                                3,807      3,580     3,556     3,484      3,374
 Return on average assets                   1.01%      1.04%     1.10%     1.19%      1.24%
 Return on average equity - core  (1)      11.92%     11.41%    11.75%    12.45%     13.47%
 Return on average equity - total          11.67%     11.22%    11.62%    12.34%     13.47%
 Efficiency ratio                          65.36%     67.10%    65.97%    64.42%     62.96%

CAPITAL
 Equity to assets (average)                8.64%       9.27%     9.51%     9.64%      9.19%
 Leverage ratio                            8.19%       8.79%     9.54%     9.44%      9.31%
 Cash dividends declared               $  1,472    $  1,390  $  1,274  $  1,181    $  1,076
 Dividend payout ratio                    38.67%      38.83%    35.83%    33.90%      31.89%

ASSET QUALITY
 Nonperforming assets to total loans        .35%        .21%      .17%      .41%        .34%
 Allowance to nonperforming assets          302%        443%      597%      319%        381%

PER COMMON SHARE DATA (2)
 Net income - basic and diluted        $   1.29    $   1.18  $   1.14  $   1.12    $   1.10
 Cash dividends declared                    .50         .46       .41       .37         .35
 Book value - core equity  (1)            11.13       10.42     10.08      9.34        8.54
 Book value - total equity                11.70       10.62     10.58      8.88        9.18
 Market value                             22.75       18.50     18.75     19.17       15.87

STATISTICS
 Full service branch offices                 10          11        11        10          10
 Employees (full time equivalents)          202         205       198       157         146

<FN>
Certain reclassifications have been made in order to present a more accurate year-to-year comparison
(1)  Core equity includes all equity accounts except the component related to the application of FASB 115 which was adopted
on December 31, 1993.
(2)  All per common share data has been adjusted to give retroactive effect to the 3 for 2 stock split paid in April 1995,
the 5% stock dividend issued in April 1994 and the 3 for 2 stock split paid in May 1993.
</TABLE>

                                     20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS

     The following pages contain "Management's Discussion and Analysis" of
Hanover Bancorp, Inc.'s 1997 results of operations and financial
condition, including comparison with prior year's results and
identification of possible risks and trends.  This review should be read in
conjunction with the consolidated financial statements and related notes
beginning on page 23 as well as the letter to shareholders beginning on 
page 2.
     All forward looking information contained in "Management Discussion and
Analysis" and other statements contained in this report are based on
management's current knowledge of factors affecting the Corporation's
business.  Actual results may differ due to unforeseen events such as, but
not limited to, a significant downturn in the economic environment, changes
in interest rates, legislative changes or additional requirements mandated
by the numerous regulatory authorities.  All such forward-looking
statements are made pursuant to the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995

SUMMARY OF EARNINGS AND FINANCIAL CONDITION

     The year of 1997 was one of marked improvement in financial
performance for Hanover Bancorp, Inc.  With the completion of the market
expansion strategy in 1996, the Corporation experienced growing momentum in
revenues and stabilizing operating costs, which led to improved core
profitability.   The Corporation also capitalized on the positive movement
in the general bank stock market by realizing securities gains from its
portfolio.  These revenues were offset in part by a special loan loss
provision taken in the fourth quarter to raise the allowance to a level
more comparable with industry standards.  Total assets eclipsed the $400
million level, highlighted by the successful introduction of a new money
market account and another year of strong loan growth.  Asset quality
measures also remained very strong at a time when industry trends show
increasing delinquency and bankruptcy levels.  The Corporation remains well
capitalized with risk-adjusted core capital and total capital ratios above
regulatory minimums.


RESULTS OF OPERATIONS

Net Income
     Net income for 1997 was $3.8 million, an increase of $227,000 or 6.3% from
1996.  Earnings per share (EPS) increased $.11 or 9.3% in 1997 to $1.29
from $1.18 in 1996.  Return on average equity (ROE) was 11.67% in 1997
versus 11.22% in 1996.  These increases were driven primarily by improved
core earnings as revenue growth more substantially outpaced the normal
increases in the expense base.  The increases in EPS and ROE were also due
in part to the stock repurchase program, further discussed herein.

Net Interest Income
     Net interest income is the largest component of the Corporation's
operating revenues.  Changes in net interest income are the result of
fluctuations in the balance and/or mix of earning assets and interest
bearing liabilities, as well as changes in their yields and costs, as
detailed in Tables 1 and 11 and as discussed below.
     Net interest income increased by $1.0 million or 7.2% on a fully taxable
equivalent basis in 1997.  This increase was principally due to the $31.8
million increase in the average volume of earning assets, resulting from
loan and deposit growth and increased investment security activity, as
further discussed herein.   Net interest margin declined 10 basis points
from 1996 to 4.24%. This decrease was primarily attributable to higher
funding costs caused by a shift in the funding mix towards more costly
sources. This shift has mainly been spurred by growth in a new indexed,
variable rate money market deposit account introduced in 1997 and growth in
longer term certificates of deposit (CDs) at promotional rates.  The
margin was also affected by investment activity which was funded by Federal
Home Loan Bank of Pittsburgh (FHLB) borrowings at relatively narrow
spreads.  Although product introduction, promotional pricing and
investment/funding strategies have lowered the Corporation's margin as
anticipated by management, they have generated additional net interest
income and have thus positively impacted EPS and ROE.
     In addition to these internal factors, external forces have contributed to
this year's margin decline and to the general decline the Corporation has
experienced over the past few years.  Specifically, strong competition in
the local market has resulted in  more aggressive pricing on both loans and
deposits. In addition, the general interest rate environment has
contributed to the shrinking margin.  The treasury yield curve continued to
be relatively flat in 1997 compared to historic standards.  This flatness
is measured by reference to the shortest maturity (3 months) and the
longest maturity (30 years) on the yield curve.  The difference or spread
averaged 140 basis points from 1995 to 1997,  compared to an average of 331
basis points from 1991 to 1994.  While favorable economic conditions,
namely moderate growth and the low threat of inflation, support a generally
positive business climate, they contribute to an interest  rate environment
which is challenging in terms of net interest  margin.
                                     21

<PAGE>
<TABLE>
Table 1
VOLUME - RATE ANALYSIS
(In Thousands)
<CAPTION>
                                       1997 Compared to 1996     1996 Compared to 1995
                                        Increase (Decrease)       Increase (Decrease)
                                                 Due to                Due to
                                       Volume   Rate       Net   Volume     Rate       Net
<S>                                    <C>     <C>        <C>     <C>       <C>       <C>
 INTEREST EARNING ASSETS
   Loans                               $2,813  $ (68)     $2,745  $2,310    $(262)    $ 2,048
   Investment securities                  459     (7)        452  (1,204)      11      (1,193)
   Federal funds sold and other          (416)    31        (385)    541      (43)        498
        TOTAL INTEREST INCOME           2,856    (44)      2,812   1,647     (294)      1,353

 INTEREST BEARING LIABILITIES
   Interest bearing demand deposits        19    (49)        (30)     37     (120)        (83)
   Savings deposits                       (74)   (14)        (88)    (59)    (121)       (180)
   Money market deposits                  525    347         872      68      (62)          6
   Time deposits                          481     61         542   1,112      114       1,226
   Borrowed funds                         467     30         497    (226)      (4)       (230)
        TOTAL INTEREST EXPENSE          1,418    375       1,793     932     (193)        739
            NET INTEREST INCOME (FTE)  $1,438  $(419)     $1,019  $  715    $(101)    $   614
<FN>
Tax-exempt income is on a fully taxable equivalent basis using a tax rate of 34% for 1997, 1996 and 1995.  The change in
interest due to both volume and rate has been allocated proportionately between volume and rate based on the absolute dollar
amounts of the change in each.
</TABLE>


Provision For Loan Losses
     The Corporation's loan loss provision during 1997 was $910,000, an
increase of $430,000 from 1996. The increase was reflective of the
continued growth in the Corporation's loan portfolio as asset quality
measures remained favorable. The Corporation remains committed to making
loan loss provisions which maintain an allowance that adequately reflects
the risk inherent in the loan portfolio.  This is more fully discussed in
the Risk Management section which follows. A special provision of $250,000
was taken during the fourth quarter of 1997 primarily to boost the
allowance above the industry standard of 1% of loans.

Net Securities Gains
     Net securities gains totaled $670,000 in 1997, an increase of $68,000 from
1996.  Equity gains comprised $730,000 of this total in 1997 versus
$396,000 for 1996.  These gains resulted  from sales from the
Corporation's community bank stock holdings.  The bank stock market
continued to experience favorable valuations during 1997.  As such,
management realized gains on certain holdings where valuations were
considered excessive or to have reached peak levels.  The Corporation holds
these community bank stocks primarily for their potential long-term market
appreciation as the dividend yields are significantly less than those of
alternative debt securities.  Accordingly, management views the gains from
these holdings as the realization of deferred investment income.  At year-
end 1997, the unrealized appreciation in the equity securities portfolio
stood at $1.1 million, up from $540,000 at year-end 1996.  Offsetting these
gains in 1997 were net losses of $60,000 realized through debt securities
sales executed as part of ongoing portfolio and balance sheet management
strategies.  In 1996, $206,000 in net gains were realized from debt
securities sales.  All sales resulting in gains or losses were from
available-for-sale (AFS) securities.

Other Income
     Other fee-based income is an increasingly important component of the
Corporation's profitability.  During 1997 other income increased $279,000
or 12.1%.  The increase in service charges on deposit accounts was due to
higher overdraft fees, resulting from a change in collection philosophy,
and higher automated teller machine (ATM) fees generated by noncustomer
surcharging.  Other operating income increased as a result of higher loan
fees, and higher income realized through mortgage loan sale activity.  The
increase in loan fees is reflective of the growth in the loan portfolio
while mortgage-related income increased as a result of higher sales volumes
relative to 1996. 
                                     22
<PAGE>
Other Expense
     Other expense increased $563,000 or 5.1% during 1997.  Personnel related
expenses (salaries and benefits) increased $68,000 or 1.1% year over year.
This is reflective of a net decrease in full time equivalents from 205 at
year-end 1996 to 202 at year-end 1997.  In addition, temporarily unfilled
vacancies during 1997 and reduced healthcare costs contributed to the
stabilizing of these key cost components.  The increase in occupancy and
equipment expenses was associated with the full impact of a branch opening
in March 1996, a branch relocation in October 1996 and the addition of six
remote service ATMs in December 1996.  The increase was also impacted by
continued technology investments.   Marketing and advertising expenses
increased largely as a result of increased promotional activity.  The
higher other operating expenses were primarily due to increased
expenditures related to technology enhancements, the outsourcing of certain
operational functions, and employee development.
     The stabilizing level of operating expense, along with the increases in
operating revenues, favorably impacted the Corporation's efficiency ratio
(the cost to generate one dollar of revenue) which declined 174 basis
points from 67.10% in 1996 to 65.36% in 1997.


Income Taxes
     The level of tax-free income is the primary factor impacting the
Corporation's effective tax rate.  The Corporation recognized an income
tax provision which resulted in an effective tax rate of 26.5% in 1997, up
from 24.1% in 1996.  This increase was the result of a lower level of tax-
free assets in 1997 relative to 1996 and the impact of state corporate
income taxes at the holding company.

Analysis of 1996 Compared to 1995
     Net income for 1996 was $3.6 million, an increase of $24,000 from 1995.
Growth in revenues, both net interest income and other income, was offset
by increases in other expense. Earnings per share of $1.18 in 1996 was an
increase of $.04 or 3.5% over the prior year.  This increase was due in
part to the stock repurchase program initiated in 1996.
     Net interest income increased by $614,000 or 4.6% on a fully taxable
equivalent basis in 1996.  The increase in net interest income was mainly
due to the volume of average earning assets, which increased $19.4 million
in 1996.  Net interest margin declined 8 basis points to 4.34%.  Despite
the positive impact of a growing proportion of loans to earning assets, the
"cost" of ongoing portfolio and balance sheet management strategies
made in response to a rising interest rate environment in early 1996 had a
negative impact on margin.  In addition, increasing competitive pressures
impacted loan and deposit pricing, particularly in efforts to attract new
deposits to fund the growth in the loan portfolio.
     The Corporation's loan loss provision during 1996 was $480,000, an
increase of $120,000 from 1995. The increase was reflective of the growth
in the Corporation's loan portfolio.
     Net securities gains increased by $22,000 to $602,000.  The gains largely
resulted from sales of the Corporation's community bank stock holdings.
     During 1996 other income increased $296,000 or 14.7%.  Trust department
income increased $79,000 or 11.9%, due to a fee restructuring which was
implemented at the beginning of the year.  Service charges on deposit
accounts increased $81,000 or 9.8% as a result of growth in the number of
demand deposit accounts, the largest contributor of this type of income.
Other operating income increased during 1996 by $136,000 or 26.0% due in
part to a higher level of gains realized on loan sales relative to 1995.
In addition, the increase was reflective of higher loan and deposit levels.
     Other expense increased $785,000 or 7.7% during 1996.  Salaries and
employee benefits costs increased $657,000 or 11.9% due to additions of
management and staff related to expanding the branch network and enhancing
the internal infrastructure to facilitate this larger network. Occupancy-
related expenses increased $165,000 or 9.9% primarily due to additions and
enhancements to the Corporation's branch facilities and investments in
technology.  During 1996, the Corporation incurred the minimum level of
Federal Deposit Insurance Corporation (FDIC) insurance expense of $2,000.
This decrease of $293,000 or 99.3% from the prior year was due to a
revision in premiums as part of the recapitalization of the Bank Insurance
Fund by the FDIC in the third quarter of 1995.  Other operating expenses
increased $221,000 or 9.5% in 1996 due to the Corporation's expansion.

                                     23
<PAGE>
FINANCIAL CONDITION

     The Corporation's total assets were $406.4 million as of December 31,
1997, up $50.2 million or 14.1% from December 31, 1996. (Refer to Table 2.)
This growth continued a trend resulting from the Corporation's market
expansion activities.  In 1997, though loan growth was once again strong at
nearly 9%, deposits grew at a faster pace of 11%.  As a result, the excess
funding was used to increase the investment securities portfolio along with
borrowings which supported specific investment strategies.

<TABLE>
Table 2
TRENDS IN SOURCES AND USES OF FUNDS
(In Thousands, Except Percentages)
<CAPTION>
                                    December 31,             Change
                                  1997        1996         $       %
<S>                             <C>        <C>         <C>         <C>
FUNDING SOURCES                             
     Deposits                   $329,951    $297,004    $32,947    11.1%
     Borrowed funds               37,885      24,300     13,585    55.9%
     Other liabilities             4,206       3,284        922    28.1%
     Shareholders'equity          34,314      31,541      2,773     8.8%
          TOTAL SOURCES         $406,356    $356,129    $50,227    14.1%
                                            
FUNDING USES                                
     Loans                      $274,567    $252,170    $22,397     8.9%
     Investment securities        97,641      76,102     21,539    28.3%
     Federal funds sold and 
       short-term investments      5,694          72      5,622     N/M
     Other assets                 28,454      27,785        669     2.4%
          TOTAL USES            $406,356    $356,129   $ 50,227    14.1%
<FN>
N/M - Not meaningful
</TABLE>


Loans
     Loans outstanding  increased by $22.9 million or 9.0% from year-end 1996
to year-end 1997, reaching $277.5 million.  (Refer to Table 3.)  It should
be noted that this loan growth was net of loans sold of $12.6 million.  The
commercial and residential mortgage categories  increased by $7.9 million
and $17.7 million, respectively, while consumer loans decreased by $2.7
million.  The continued development of the Corporation's recently opened
facilities in Gettysburg, Littlestown and York as well as the relocation of
an existing facility in Hanover supported the overall growth in the
commercial and residential mortgage portfolios. Also contributing to these
increases were proactive sales efforts, several loan promotion programs, as
well as competitive pricing strategies.  The decrease in the consumer
category was the result of lower dealer loan activity spurred by slower
automobile sales and increased competition in addition to the sale of the
student loan portfolio.

                                     24
<PAGE>
<TABLE>
Table 3
LOANS
(In Thousands, Except Percentages)
<CAPTION>
                                     December 31,          Change
                                    1997      1996        $      %
<S>                              <C>        <C>       <C>       <C>
Commercial,                                
  financial and agricultural     $ 35,254   $ 31,991  $ 3,263   10.2%
Real estate-construction            5,666      3,775    1,891   50.1%
Real estate-commercial mortgage    34,216     29,563    4,653   15.7%
Real estate-residential mortgage  135,217    119,383   15,834   13.3%
Consumer                           67,122     69,861   (2,739)  (3.9)%
                                  277,475    254,573   22,902    9.0%
Allowance for loan losses          (2,908)    (2,403)    (505)  21.0%
                                 $274,567   $252,170  $22,397    8.9%
</TABLE> 


Investment Securities
     During 1997 investment securities increased $19.9 million or 26.5% and
ended the year at $95.1 million, excluding the FASB 115 component.  (Refer
to Table 4.)  This net activity reflects the trends in loans and deposits
during 1997.  As deposit growth outpaced loan growth during the year,
excess funding became available and was deployed in the investment
portfolio.  In addition, this increase was the result of a transaction
which funded approximately $10 million of investment securities with FHLB
borrowings.  Management viewed this transaction as an opportunity to
generate additional net interest income and boost EPS and ROE without
incurring significant interest rate risk.  Much of the investment activity
during 1997 was focused on mortgage-backed securities with variable interest
rates or fixed rates with intermediate average lives.  This emphasis,
driven largely by rate risk management objectives, offset the short-term
rate sensitive nature of the deposit base resulting from growth in the
indexed money market account.  At December 31, 1997, $13.2 million of
mortgage-backed securities had variable rates of interest with repricing
terms of 1 month to 3 years.  The increase in the net unrealized gains on
securities available-for-sale of $1.6 million from year-end 1996 to 1997
was a result of lower  market interest rates and favorable bank stock
valuations.
     The Corporation manages its investment portfolio in accordance with
established policies which include guidelines for liquidity, earnings, rate
sensitivity and pledging needs.  These guidelines call for investment
securities to be held with long-term objectives and do not allow for gains
trading (selling investments prior to maturity to realize market
appreciation, while continuing to hold securities with unrealized market
losses).  The guidelines do, however, permit prudent and reasonable sales
of investments before their maturity dates to support interest rate risk
and balance sheet management strategies, meet liquidity needs and carry out
tax planning objectives.  Most of the $16.4 million of sales executed in
1997 were for these  purposes. The Corporation had no concentrations of
investment securities in any single issuer that comprise 10% or more of
shareholders' equity at December 31, 1997, with the exception of the U.S.
Government and U.S. Government-sponsored agencies.
     Investment securities are accounted for under Financial Accounting
Standards Board (FASB) Statement No. 115, "Accounting for Certain
Investments in Debt and Equity Securities".  Most of the holdings
(approximately 95%) are classified as available-for-sale in order to
maintain flexibility with respect to managing the portfolio.  The remaining
holdings are classified as held-to-maturity.

                                     25
<PAGE>
<TABLE>
Table 4
INVESTMENT SECURITIES
(In Thousands, Except Percentages)
<CAPTION>
                                         December 31,          Change
                                       1997      1996        $        %
<S>                                  <C>       <C>       <C>       <C>                                           
U.S. Treasury securities and 
  obligations of the U.S. 
  Government and its agencies        $23,566   $28,047   $(4,481)  (16.0)%
Obligations of states 
  and political subdivisions          21,753    22,069      (316)   (1.4)%
Mortgage-backed securities            46,466    21,842    24,624   112.7%
     Total debt securities            91,785    71,958    19,827    27.6%
Equity securities                      3,353     3,238       115     3.6%
                                      95,138    75,196    19,942    26.5%
Net unrealized gains on 
  securities available-for-sale        2,503       906     1,597   176.3%
                                     $97,641   $76,102   $21,539    28.3%
</TABLE>                                           

Deposits
     Deposits are the most important funding source and the primary support
for the Corporation's growth.  Total outstanding deposits were $330.0
million at December 31,1997, an increase of $32.9 million or 11.1% from
1996.  (Refer to Table 5.)  This overall growth was supported by the
continued development of the Corporation's branch network.  The increase
in money market deposits was due to the growth in the new indexed money
market account introduced in early 1997.  This account grew to $34.0
million by year-end and, while it drew funds away from the Corporation's
existing products, it was successful in generating new deposits of more
than 50% of the year-end account balance.  The increase in time deposits
was largely due to a promotion which targeted longer-term CDs, in an effort
to further manage the interest rate risk resulting from growth in the short-
term rate sensitive account.  The decrease in non-interest bearing demand
deposits was due in part to a reclassification of certain program accounts
to the interest bearing demand deposit category, in addition to the normal
fluctuations in this category.  The decrease in the savings category was
due primarily to the shift in funds to the new money market account.

<TABLE>
Table 5
DEPOSITS
(In Thousands, Except Percentages)
<CAPTION>
                                            December 31,         Change
                                           1997    1996         $      %
<S>                                    <C>        <C>        <C>      <C>
Non-interest bearing demand deposits   $ 28,383   $ 29,128  $  (745)  (2.6)%
Interest bearing demand deposits         32,413     28,413    4,000   14.1%
Savings deposits                         19,923     23,552   (3,629) (15.4)%
Money market deposits                    83,408     54,713   28,695   52.4%
Time deposits:                             
     CDs under $100,000                 152,503    142,891    9,612    6.7%
     CDs over $100,000                   13,321     18,307   (4,986) (27.2)%
                                       $329,951   $297,004  $32,947   11.1%
</TABLE>

                                     26
<PAGE>
Borrowed Funds
     Total borrowed funds increased $13.6 million or 55.9% during 1997 to a
level of $37.9 million at December 31, 1997.  (refer to Table 6.)  Most of
this increase was due to the higher level of FHLB borrowings which were
part of the investment transaction referred to earlier.  The borrowings
were predominately fixed rate advances with features which allow the FHLB
to convert to a variable rate of interest.  These features are described in
greater detail in Note 7.  FHLB borrowings have become an increasingly
important source of funding for the Corporation. In addition to being a
source for match-funding opportunities, they are used to manage the balance
sheet, liquidity, and interest rate risk.

<TABLE>
Table 6
BORROWED FUNDS
(In Thousands, Except Percentages)
<CAPTION>
                                 December 31,          Change
                                 1997    1996         $      %
<S>                         <C>        <C>       <C>       <C>
Federal funds purchased     $   ---    $ 2,000   $(2,000)  (100.0)%
Securities sold under 
  repurchase agreements       9,915      8,866     1,049     11.8%
FHLB borrowings              26,248     12,623    13,625    107.9%
Other                         1,722        811       911    112.3%
                            $37,885    $24,300   $13,585     55.9%
</TABLE>

Capital and Dividends
     At December 31, 1997, total shareholders' equity was $34.3 million, an
increase of $2.8 million or 8.8% from December 31, 1996.  This change
consisted of an increase of $1.7 million in capital stock, surplus and
undivided profits (core equity) and an increase of $1.1 million in net
unrealized gains on AFS securities (net of tax effects).  The increase in
the core equity was primarily the result of earnings retained offset by
shares repurchased.  The change in the net unrealized gains on AFS
securities was due to the lower level of market interest rates at December
31, 1997 compared to December 31, 1996 as well as increased bank stock
valuations.
     The Corporation has an ongoing strategic objective of maintaining a
capital base which supports the pursuit of profitable business
opportunities, provides resources to absorb the risks inherent in its
activities and meets or exceeds all regulatory requirements.  As reflected
in Table 7, the Corporation continues to meet these objectives with strong
year-end capital levels.  The Bank remains above the regulatory minimums
for "well capitalized".  The decline in the ratios from 1996 reflects
dividends to the holding company to support the stock repurchase program.
     During 1996, the Board of Directors approved a program to repurchase, in
open market and privately negotiated transactions, up to 150,000 shares of
its outstanding common stock.  During the second quarter of 1997, the
Corporation completed this program.  The main goal of this buyback was to
effectively deploy capital in an effort to increase shareholder value.
Since its inception, the resulting reduction in total capital and shares
outstanding, in combination with increased earnings (after absorbing the
"cost" of reducing the capital base) has translated into improved ROE
and EPS.  Management views these performance indicators as being two of the
more important factors, under its  control, that drive shareholder value.
Based on this belief and the positive results achieved through the first
program, the Board of Directors, after carefully evaluating the capital
level necessary to satisfy the criteria described above, approved another
program to repurchase up to 140,000 shares of common stock on April 18,
1997.  As of December 31, 1997, 28,740 shares were repurchased under this
program.
     The Corporation continued to increase dividends to its shareholders in
1997.  Dividends per share for 1997, 1996 and 1995 were $.50, $.46 and
$.41, respectively.  The resulting dividend payout ratios for the same
periods were 38.7%, 38.8% and 35.8%.  The dividend rate is determined by
the Board of Directors after considering the Corporation's capital
requirements and projected level of earnings.
     In addition to earnings retained, capital is generated through several
other sources.  The dividend reinvestment plan allows existing shareholders
to reinvest their cash dividends and limited optional cash payments into
shares of Hanover Bancorp, Inc. common stock. Capital is also raised
through an employee stock purchase plan and through the Bank's defined
contribution 401(k) plan.  A total of $31,000, $57,000 and $35,000 was
raised through these sources in 1997, 1996 and 1995, respectively.

                                     27
<PAGE>
<TABLE>
Table 7
CAPITAL RATIOS
<CAPTION>

                                                    December 31,
                                              1997              1996
<S>                                          <C>                <C>
HANOVER BANCORP, INC.
 Tier 1 capital to risk-adjusted assets      12.47%             12.87%
 Total capital to risk-adjusted assets       13.58%             13.87%
 Leverage ratio                               8.19%              8.79%

BANK OF HANOVER AND TRUST COMPANY
 Tier 1 capital to risk-adjusted assets      10.82%             11.78%
 Total capital to risk-adjusted assets       11.93%             12.78%
 Leverage ratio                               7.09%              8.06%
</TABLE>

RISK MANAGEMENT

Asset Quality
     The Corporation has policies and procedures designed to control credit
risk and to maintain the quality of its loan portfolio.  These include
underwriting standards for new originations and ongoing monitoring and
reporting of asset quality and adequacy of the allowancefor loan losses.
     The Corporation's commercial, consumer and residential mortgage loans are
principally to borrowers within York and Adams Counties, Pennsylvania,
where it operates full service branches.  The commercial loan portfolio is
well diversified with no industry comprising greater than 10% of total
loans outstanding.
     Nonperforming assets include non-accrual and restructured loans, accruing
loans past due 90 days or more and other real estate (ORE) and other
repossessed assets.  These loans are typically returned to performing
status when the loan is brought current and has performed in accordance
with contractual terms for a reasonable period of time.
     A loan generally is classified as non-accrual when full collection of
principal or interest is doubtful and a loan becomes 90 days or more past
due as to principal or interest, unless management determines that the
estimated net realizable value of the collateral is sufficient to cover the
principal and accrued interest.  When a loan is placed on non-accrual
status, unpaid interest credited to income in the current year is reversed
and unpaid interest accrued in prior years is charged to the allowance for
loan losses.  A loan is considered restructured if the original interest
rate, repayment terms or both were modified due to the deterioration in the
financial condition of the borrower.  Real estate loans are classified as
ORE upon foreclosure proceedings, a receipt of a deed in lieu of
foreclosure or an in-substance foreclosure involving actual possession of
the collateral.
     Nonperforming assets at December 31, 1997 were $962,000, an increase of
$420,000 from 1996.  (Refer to Table 8.)  Non-accrual loans and other real
estate (ORE) and other repossessed assets increased by $293,000 and
$140,000, respectively, while loans past due 90 days or more and
restructured loans remained relatively constant.  Nonperforming assets as a
percent of loans increased from .21% in 1996 to .35% in 1997.  Despite the
increases year over year, the Corporation's nonperforming assets remain
low relative to the loan base and compare favorably to peer statistics.
     Potential problem loans are defined as performing loans which have
characteristics that cause management to have serious doubts as to the
ability of the borrower to comply with present loan repayment terms and
which may result in the reporting of these loans as nonperforming loans in
the future.  The Corporation's potential problem loans, or its
"watchlist", consist primarily of commercial loans which are less than
90 days past due and still accruing.  These loans are rated according to
the probability that noncompliance may occur. Those loans that management
feels the likelihood of future noncompliance is probable (as opposed to
possible) are considered impaired under FASB Statement No. 114,
"Accounting by Creditors for Impairment of a Loan".  At December 31,
1997, total potential problem loans, as determined by the Corporation's
internal loan review process, totaled $2.8 million, the same level as
December 31, 1996.  Of these amounts, $470,000 and $562,000 were considered
impaired under FASB 114 at 1997 and 1996, respectively.  Management
constantly monitors the status of these loans and their likelihood of
becoming nonperforming loans.

                                     28
<PAGE>
<TABLE>
Table 8
NON-ACCRUAL, PAST DUE AND RESTRUCTURED LOANS
(In Thousands)
<CAPTION>
                                                         December 31,
                                             1997    1996  1995  1994   1993
<S>                                          <C>     <C>   <C>   <C>    <C>
Non-accrual loans                            $331    $ 38  $ 10  $650   $484
Accruing loans past due 90 days or more       174     166    24    17     40
Restructured loans                            221     242   292   ---    ---
Other real estate and
 other repossessed assets                     236      96    46   115     67
TOTAL NONPERFORMING ASSETS                   $962    $542  $372  $782   $591

NON-ACCRUAL LOANS BY CATEGORY
 Commercial, financial and agricultural      $---    $---  $---  $479   $482
 Real estate-mortgage                         331      16   ---   141    ---
 Consumer                                     ---      22    10    30      2
                                             $331    $ 38  $ 10  $650   $484

PAST DUE LOANS BY CATEGORY
 Commercial, financial and agricultural      $---    $ 16  $---  $---   $---
 Real estate-mortgage                         153      65   ---     6     24
 Consumer                                      21      85    24    11     16
                                             $174    $166 $  24  $ 17  $  40
RESTRUCTURED LOANS BY CATEGORY
 Commercial, financial and agricultural      $---    $ 12  $ 13  $---   $---
 Real estate-mortgage                         221     230   279   ---    ---
                                             $221    $242  $292  $---   $---
</TABLE>

<TABLE>
<CAPTION>
                                                  December 31,
                                               1997   1996   1995
<S>                                            <C>    <C>    <C>
Non-accrual loans and restructured loans       $552   $280   $302
Interest income that would have been
 recorded under original terms                   48     28     29
Interest income recorded during the period       39     28     28
Interest lost for the year                        9      0      1
</TABLE>



Allowance for Loan Losses
     The allowance for loan losses is maintained at a level believed adequate
by management to absorb potential future losses in the portfolio.
Management's methodology in evaluating the adequacy of the allowance
considers potential specific losses, past loan loss experience, the volume,
growth and composition of the loan portfolio and the current economic
conditions and trends.  Management believes that the allowance for loan
losses is adequate to cover potential future losses within the overall
portfolio.  The allowance approximated 1.05% and .94% of total loans
outstanding at December 31, 1997, and 1996, respectively.  This statistic
increased from year to year primarily as a result of the $250,000 special
provision referred to earlier.  With the loan growth the Corporation has
experienced during the past few  years, this ratio has fallen below the
industry standard of 1.00%.  This special provision was taken to raise  the
allowance above this standard and to bring the Corporation more in line
with its peers.  In terms of coverage, the allowance measured as a ratio of
nonperforming assets was 302% and 443% for 1997 and 1996, respectively.
     Effective in 1995, the Corporation adopted FASB 114.  This statement
requires certain impaired loans to be reported at the present value of
expected future cash flows, or as a practical expedient, at the loan's
observable market price, or the fair value of the collateral if collateral-
dependent.  This standard applies to all loans that are identified as
impaired.  In addition, the statement addresses troubled debt
restructurings involving a modification of terms.  It does not apply to
large groups of smaller balance homogeneous loans that are evaluated
collectively such as consumer or residential mortgage loans.  Generally,
loans considered impaired under FASB 114 would be the Corporation's non-
homogeneous, non-accrual loans and restructured loans.  However, a loan may
also be considered impaired under FASB 114 if it is currently performing
according to its terms, but it is probable that the loan will not perform
as such in the future.

                                     29
<PAGE>
     Each loan identified as impaired under FASB 114 is evaluated periodically
to estimate any potential losses for which a specific reserve should be
established.  Since most of these loans are collateral-dependent, this
estimate is normally based on a comparison of the most recent appraised
value of the collateral and the recorded investment in the loan.  If the
collateral value is the lower amount of the two, the potential loss would
be the difference between them.  If the loan is not collateral-dependent,
the same procedure would be followed except that the present value of the
expected future cash flows would replace the collateral value.   In
addition to these specific individual reserves, allocated reserves are
established for the commercial, mortgage and consumer portfolios.  These
allocations are based on the overall level of loans identified as problem
or potential problem, past loan loss experience, adjusted for recent
portfolio growth and economic trends.  As a supplement to the specific
individual and allocated reserves, an unallocated general reserve is also
established.  This unallocated portion is determined based on judgments
regarding risk of error in specific allocations, other potential exposures
in the loan portfolio, economic conditions and trends, and other factors.
At December 31, 1997, the unallocated portion of the allowance was
determined to be $918,000 versus $695,000 at December 31, 1996.
     The allowance for loan losses is charged when management determines the
prospects for recovering the principal have significantly diminished.
Subsequent recoveries, if any, are credited to the allowance.  Loans
identified as impaired under FASB 114 are charged-off when management has
concluded, after ongoing evaluation of the impaired loans, that repayment
is unlikely.  Installment loans that are 90 to 120 days past due are
charged-off, unless current scheduled payments are being received.  Real
estate loans are written down to fair value upon the earlier of foreclosure
proceedings, a receipt of a deed in lieu of foreclosure or an in-substance
foreclosure involving actual possession of the collateral.
     In 1997, the Corporation realized net charge-offs of $405,000 in
comparison to net charge-offs of $297,000 in 1996.  (Refer to Table 9.).
The consumer portfolio was the source of this increase as net charge-offs
grew from $209,000 in 1996 to $421,000 in 1997.  This increase has been the
result of growing delinquencies within the Corporation's consumer loan
portfolio, which has been common to the industry.  Net charge-offs to
average loans outstanding during 1997 remained relatively low  at .15%
compared to .13% for 1996.

<TABLE>
Table 9
Allowance For Loan Losses
 (In Thousands, Except Ratios)
<CAPTION>

                                             1997   1996    1995    1994    1993
<S>                                        <C>     <C>     <C>     <C>     <C>
Balance at beginning of year               $2,403  $2,220  $2,498  $2,254  $2,082
CHARGE-OFFS
 Commercial, financial and agricultural        72     119     575     156     389
 Real estate-mortgages                        ---     ---      65     ---      67
 Consumer                                     514     241     123     120     112
  TOTAL CHARGE-OFFS                           586     360     763     276     568

RECOVERIES
 Commercial, financial and agricultural        87      31       9     370      69
 Real estate-mortgages                          1     ---      92       2     ---
 Consumer                                      93      32      24      23      26
   TOTAL RECOVERIES                           181      63     125     395      95

NET CHARGE-OFFS (RECOVERIES)                  405     297     638    (119)    473

 Provision charged to operations              910     480     360     125     645

Balance at end of year                     $2,908  $2,403  $2,220  $2,498  $2,254

 Ratio of net charge-offs (recoveries)
   to average loans outstanding               .15%    .13%    .31%   (.07)%   .29%
 Ratio of allowance for loan losses
   to nonperforming assets                    302%    443%    597%    319%    381%
</TABLE>

                                     30
<PAGE>

Liquidity
     Liquidity is the ability to meet funding requirements of customers'
deposit withdrawals or credit needs at a reasonable cost.  The
Corporation's Asset/Liability Management Committee (ALCO) has established
policies and procedures to control its liquidity position and to provide
for potential future needs.
     Maintaining a high percentage of "core" deposits is a fundamental
component of managing the Corporation's liquidity position.  Core deposits
(all deposits except CDs of $100,000 or more) are generated through the
community office network and represent a relatively stable source of funds.
On December 31, 1997, 77.9% of total assets were funded by core deposits
compared to 78.3% in 1996.  At  year-end 1997, CDs over $100,000 were 3.3%
of total assets while they represented 5.1% of total assets at year-end
1996.
     In addition to maintaining a stable deposit base, the Corporation has
access to a varied and high quality investment portfolio.  This portfolio
provides a consistent stream of cash flows and maturities to support
liquidity needs.  At December 31, 1997, $3.9 million of investment
securities were scheduled to mature in 1 year or less, while principal
payments on mortgage-backed securities averaged $420,000 per month during
1997.  Loan portfolio repayments and maturities also provide funds for
managing liquidity.  In 1997, the Corporation received an average of
approximately $6.9 million in loan repayments per month.  In addition, the
sale of portfolio loans provides an alternative for the management of
liquidity.  In 1997, $12.6 million of loans, mainly residential mortgage
loans, were sold by the Corporation.  Proceeds from these sales provided
funding to meet customers' ongoing credit needs.
     The Corporation maintains short-term borrowing arrangements with several
correspondent banks and the discount window at the Federal Reserve Bank of
Philadelphia.  In addition, it has access to the FHLB for permanent funding
needs. Through these relationships, the Bank has available short-term
funding of approximately $10 million and permanent funding of approximately
$80 million.

Market Risk
     In January 1997, the Securities and Exchange Commission (SEC) issued new
disclosure rules related to derivatives and exposures to market risk from
derivative financial instruments, other financial instruments and certain
derivative commodity instruments.  These rules became effective for the
Corporation's December 31, 1997 financial statements.  Market risk
includes interest rate risk, foreign currency exchange rate risk, commodity
price risk and equity price risk.  The new disclosure rules have two parts:
quantitative and qualitative market risk disclosures outside the financial
statements and accounting policy disclosures about derivatives in the notes
to the financial statements.  As further discussed within, the
Corporation's primary market risk is interest rate risk from its financial
assets and liabilities.  Derivatives are not presently utilized and thus
the expanded policy disclosures are not applicable
     Interest rate risk is the exposure to fluctuations in the Corporation's
current and future net interest income from movements in interest
rates.  This exposure results from differences between the amounts of
interest earning assets and interest bearing liabilities that reprice
within a specified time period.
     The primary objective of the Corporation's asset/liability management
process is to maximize current and future net interest income within
acceptable levels of interest rate risk while satisfying liquidity and
capital requirements.  Management recognizes that a certain amount of
interest rate risk is inherent and appropriate yet is not essential to the
Corporation's profitability.  Thus the goal of interest rate risk
management is to strike a balance between risk and reward such that net
interest income is maximized while risk is maintained at a tolerable level.
     The Corporation uses "gap" and simulation analysis for measuring
interest rate risk.  These methods allow  management to regularly monitor
both the direction and magnitude of the Corporation's risk exposure.  The
Corporation primarily uses the securities portfolio and FHLB advances to
manage its interest rate risk position.  Additionally, pricing, promotion
and product development activities are directed in an effort to emphasize
the term or repricing characteristics that best meet current interest rate
risk objectives.   At present, off-balance sheet instruments are not used
by the Corporation.
     Gap analysis assigns each interest earning asset and interest bearing
liability to a time frame reflecting its next repricing or maturity date.
Incorporated into this process are the trends in prepayments on loan
balances and mortgage-backed securities. The difference between total
interest-sensitive assets and liabilities at each time frame represents the
interest sensitivity gap for that interval.  A positive gap generally
indicates that rising interest rates during a particular interval will
increase net interest income, since more assets will reprice than
liabilities.  The opposite is true for a negative gap position.  As can be
seen by reference to this analysis in Table 10, the Corporation had a
cumulative gap within one year at December 31, 1997 of positive $6.3
million and a rate sensitivity ratio of positive 1.55%.   At December 31,
1996, the Corporation had a positive gap of $2.2 million and a rate
sensitivity ratio of positive .62%.  This shift in the gap position from
1996 to 1997 was largely the result of an increase in anticipated
prepayments on loans and mortgage-backed securities arising from the lower
interest rate environment.

                                     31
<PAGE>
     Simulation analysis prospectively evaluates the effect of upward and
downward changes in interest rates on net interest income. This process is
largely dependent on the underlying assumptions.  Key assumptions in the
model include maturity and repricing characteristics of the financial
assets and liabilities, prepayments on amortizing  assets, other imbedded
options, nonmaturity deposit sensitivity and loan and deposit growth and
pricing.  These assumptions are inherently uncertain  due to the timing,
magnitude and frequency of rate changes and changes in market conditions
and management strategies, among other factors.  In addition, the
Corporation has not yet developed alternative prepayment or balance sheet
growth assumptions for the various rate scenarios.  Therefore the model
cannot precisely estimate net interest income or predict the impact of
higher or lower interest rates on net interest income.  However, the model
is useful in that it helps to quantify interest rate risk and it provides a
relative gauge of the Corporation's interest rate risk position.
     Based on the results of the simulation  model as of December 31, 1997, the
Corporation would expect net interest income to decrease over the next
twelve months by 3.1% assuming an immediate  upward shift in market
interest rates of 200 basis points, and to increase by .9% if rates shifted
downward in the same manner.  The more pronounced change in the upward
scenario is primarily due to the Corporation's holdings of approximately
$18 million of convertible FHLB borrowings  These borrowings contain
features which allow the FHLB to convert them from fixed rate to variable
rate after a specified time period.  The model assumes that in the upward
scenario the FHLB would exercise these options as soon as they become
available.  The conversion feature of these advances cannot be reflected
in the gap analysis which is a key factor explaining why the gap shows a
fairly neutral position while the simulation  analysis indicates a more
liability sensitive position.

<TABLE>
Table 10
INTEREST RATE SENSITIVITY GAPS
(In Thousands, Except Ratios)
<CAPTION>
                                                       December 31, 1997

                                       0-30       31-90   91-364      1-5      Over 5
                                       Days       Days     Days      Years     Years
<S>                                  <C>       <C>       <C>       <C>        <C>
Loans                                $52,545   $17,394   $60,878   $123,257   $23,401
Investment securities:
 Taxable                               8,313     3,237    12,481     35,360    14,074
 Tax-exempt                              330       ---       390      1,798    19,155
Federal funds sold and other           5,694       ---       ---        ---       ---
 Interest earning assets              66,882    20,631    73,749    160,415    56,630

Interest bearing demand deposits         ---       ---       ---     25,931     6,482
Savings deposits                         ---       ---     1,060     11,318     7,545
Money market deposits                 33,971     5,086     3,164     34,600     6,587
Time deposits                         30,140    15,761    53,353     59,806     6,764
Other interest bearing liabilities    12,162        48       224     24,240     1,211
 Interest bearing liabilities         76,273    20,895    57,801    155,895    28,589

Rate sensitivity gap:
 Periodic gap                        $(9,391)  $  (264)  $15,948   $  4,520   $28,041
 Cumulative gap                      $(9,391)  $(9,655)  $ 6,293   $ 10,813   $38,854
Rate sensitivity ratio:
 Periodic ratio                        (2.31)%   (0.06)%    3.92%      1.11%     6.90%
 Cumulative ratio                      (2.31)%   (2.38)%    1.55%      2.66%     9.56%
</TABLE>

REGULATORY ISSUES

     Congress is currently considering legislative reform centered on repealing
the Glass-Steagall Act which prohibits commercial banks from engaging in
the securities industry.  The holding company structure would be regulated
by the Federal Reserve Board, and its subsidiaries would be supervised by
the applicable regulator based on their respective functions.

                                     32
<PAGE>
     From time to time, various types of federal and state legislation have
been proposed that could result in additional regulation of, and
restrictions on, the business of the Corporation and the Bank.  It cannot
be predicted whether such legislation will be adopted or, if adopted, how
such legislation would affect the business of the Corporation and the Bank.
As a consequence of the extensive regulation of commercial banking
activities in the United States, the Corporation's and the Bank's
business is particularly susceptible to being affected by federal
legislation and regulations that may increase the cost of doing business.
Except as specifically described above, management believes that the effect
of the provisions of the aforementioned legislation on the liquidity,
capital resources, and results of operations of the Corporation will be
immaterial.
     Further, the business of the Corporation is also affected by the state of
the financial services industry in general.  As a result of legal and
industry changes, management expects that the industry will continue to
experience consolidations and mergers as the financial services industry
strives for greater cost efficiencies and market share. Management believes
that such consolidations and mergers may enhance its competitive position
as a community bank.
     On September 30, 1996, the President signed into law the Deposit Insurance
Funds Act of 1996 to recapitalize the Savings Association Insurance Fund
(SAIF) administered by the FDIC and to provide for repayment of the
Financial Institution Collateral Obligation (FICO) bonds issued by the
United States Treasury Department.  Pursuant to this legislation, the FDIC
levied a one-time special assessment on SAIF deposits equal to 65.7 cents
per $100 of the SAIF-assessable deposit base as of March 31, 1995.
     During the years 1997, 1998 and 1999, the average regular annual deposit
insurance assessment is estimated to be about 1.29 cents per $100 of
deposits for Bank Insurance Fund (BIF) deposits and 6.44 cents per $100 of
deposits for SAIF deposits.  Individual institution's assessments will
continue to vary according to their capital and management ratings.  As
always, the FDIC will be able to raise the assessments as necessary to
maintain the funds at their target capital ratios provided by law.  After
1999, BIF and SAIF will share the FICO costs equally.  Under current
estimates, BIF and SAIF assessment bases would each be assessed at the rate
of approximately 2.43 cents per $100 of deposits. The FICO bonds will
mature in 2018-2019, ending the interest payment obligation.
     The law also provides that BIF and SAIF are to merge to form the Deposit
Insurance Fund ("DIF") at the beginning of 1999, provided that there
are no SAIF institutions in existence at that time.  Merger of the Funds
will require state laws to be amended in those states authorizing savings
associations to eliminate that authorization (state chartered savings banks
will not be affected).  This provision reflects Congress's apparent intent
to merge thrift and commercial bank charters by January 1999; however, no
law has yet been enacted to achieve that purpose.
     The Act also provides regulatory relief to the financial services industry
relative to environmental risks, frequency of examinations, and the
simplification of forms and disclosures.
     The regulation increased the Corporation's FDIC insurance premium costs
slightly in 1997.  This law did not have, nor is expected to have, a
material impact on the Corporation's liquidity, capital resources or
results of operations.
     Management is not aware of any other current specific recommendations by
regulatory authorities or proposed legislation, which if they were
implemented, would have a material adverse effect upon the liquidity,
capital resources or results of operations.  However, the general cost of
compliance with numerous and multiple federal and state laws and
regulations does have, and in the future may have, a negative impact on the
Corporation's results of operations.
     During the first quarter of 1997 the FDIC completed a routine examination
of the Bank including an assessment of asset quality.  During 1996 the
Pennsylvania State Department of Banking completed a similar examination of
the Bank.

IMPACT OF YEAR 2000

    Many older computer programs were designed using two digits rather than
four to define the applicable year.  As a result, those computer programs
have time-sensitive software that recognize a date using "00" as the
year 1900 rather than the year 2000.  This could cause a system failure or
miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions, send invoices, or
engage in similar normal business activities.  This situation, known by
many as the Year 2000 (Y2K) Issue, applies not only to the systems utilized
by the Corporation but also to the systems utilized by creditors, vendors
and suppliers of the Corporation.
    The Corporation has completed the awareness and initial assessment phases
of a Year 2000 Issues project.  The full assessment, renovation and
validation phases are expected to be largely completed by December 31,
1998, which is prior to any anticipated impact on its operating systems.
The Corporation believes that with modifications to existing software and
conversions to new software expected in the ordinary course of business,
the Year 2000 Issue will not pose significant operational problems for its
computer systems nor result in significant costs.  However, if such
modifications and conversions are not made, or are not completed in a
timely manner, the Year 2000 Issue could have a material impact on the
operations of the Corporation.
    The costs of the project and the date on which the Corporation believes
it will complete the Year 2000 modifications are based on management's
best estimates, which were derived utilizing numerous assumptions of future
events, including the continued availability of certain resources and other
factors.  However, there can be no guarantee that these estimates will be
achieved and actual results could differ materially from those anticipated.
Specific factors that might cause such material differences include, but
are not limited to, the availability and cost of personnel trained in this
area, the ability to locate and correct all relevant computer codes, and
similar uncertainties.

                                     33
<PAGE>
<TABLE>
Table 11
COMPARATIVE AVERAGE BALANCE SHEETS AND NET INTEREST INCOME/MARGIN ANALYSIS
(In Thousands, Except Ratios)
<CAPTION>
                                                                           Year-Ended December 31,
                                                       1997                         1996                         1995
                                          Average             Average  Average             Average   Average             Average
                                          Balance    Interest  Rate    Balance    Interest  Rate     Balance   Interest   Rate
<S>                                       <C>        <C>       <C>     <C>        <C>       <C>     <C>        <C>       <C>
ASSETS
INTEREST EARNING ASSETS
  Loans  (1) (2)                          $265,293   $22,856   8.62%   $232,643   $20,111   8.64%   $205,970   $18,063   8.77%
  Investment securities:
   Taxable                                  61,089     3,839   6.28%     52,702     3,179   6.03%     65,881     3,945   5.99%
   Tax-exempt (2)                           19,882     1,809   9.10%     21,682     2,017   9.30%     25,721     2,444   9.50%
  Federal funds sold and other assets        9,286       518   5.58%     16,754       903   5.39%      6,776       405   5.98%
   TOTAL INTEREST EARNING ASSETS           355,550    29,022   8.16%    323,781    26,210   8.09%    304,348    24,857   8.17%

NON-INTEREST EARNING ASSETS
  Cash and due from banks                   10,953                       10,404                        9,473
  Premises and equipment                     7,045                        6,579                        5,276
  Other assets                               6,593                        5,704                        5,483
  Allowance for loan losses                 (2,537)                      (2,322)                      (2,631)
   TOTAL ASSETS                           $377,604                     $344,146                     $321,949
LIABILITIES AND SHAREHOLDERS' EQUITY
INTEREST BEARING LIABILITIES
  Demand deposits                          $29,062       386   1.33%   $ 27,726       416   1.50%   $ 25,686       499   1.94%
  Savings deposits                          22,346       456   2.04%     25,943       544   2.10%     28,378       724   2.55%
  Money market deposits                     70,577     2,377   3.37%     53,845     1,505   2.80%     51,455     1,499   2.91%
  Time deposits                            163,107     9,119   5.59%    154,489     8,577   5.55%    134,436     7,351   5.47%
  Borrowed funds                            27,959     1,603   5.73%     19,794     1,106   5.59%     23,830     1,336   5.61%
       TOTAL INTEREST BEARING LIABILITIES  313,051    13,941   4.45%    281,797    12,148   4.31%    263,785    11,409   4.33%
NON-INTEREST BEARING LIABILITIES
       Demand deposits                      27,994                       26,892                       24,502
       Other liabilities                     3,943                        3,547                        3,060
   TOTAL LIABILITIES                       344,988                      312,236                      291,347
SHAREHOLDERS' EQUITY                        32,616                       31,910                       30,602
   TOTAL LIABILITIES AND
     SHAREHOLDERS' EQUITY                 $377,604                     $344,146                     $321,949
NET INTEREST SPREAD                                            3.71%                        3.78%                        3.84%
NET INTEREST INCOME (FTE)/
  NET INTEREST MARGIN                                 15,081   4.24%               14,062   4.34%               13,448   4.42%
Taxable-equivalent adjustment  (2)                      (703)                        (790)                        (965)
NET INTEREST INCOME PER FINANCIAL
  STATEMENTS                                         $14,378                      $13,272                      $12,483
<FN>
(1)  Non-accrual loans have been included within this category.
(2)  The taxable-equivalent adjustment for tax-exempt assets has been computed assuming  tax rate of 34% for 1997, 1996 and 1995.
</TABLE>
                                     34
<PAGE>
COMMON STOCK MARKET PRICES AND DIVIDENDS
     As of February 28, 1998, the approximate number of shareholders of record
of the Corporation's common stock was 1,524. The accompanying table sets
forth the range of bid-asked prices for the common stock and dividends
declared by Hanover Bancorp, Inc. during the most recent eight quarters
ended December 31, 1997.  The bid price for Hanover Bancorp, Inc. common
stock for the period indicated here represents inter-dealer prices without
adjustment for retail mark-up, mark-down or commission and does not
necessarily represent actual transactions.

<TABLE>
BID-ASKED PRICES FOR COMMON STOCK AND DIVIDENDS DECLARED
<CAPTION>
                                 1997                      1996
                        Stock Price     Cash     Stock Price     Cash
                           Range      Dividend      Range      Dividend
<S>                   <C>              <C>     <C>              <C>
QUARTER ENDED
  March 31            $17.00 - $18.50  $0.12   $18.00 - $19.25  $0.11
  June 30              17.00 -  17.88   0.12    18.13 -  19.13   0.11
  September 30         17.13 -  22.50   0.13    18.25 -  19.00   0.12
  December 31          21.25 -  24.00   0.13    18.00 -  19.00   0.12
</TABLE>

     The Corporation expects to continue its policy of paying regular
quarterly dividends although there is no assurance as to future dividends
because they are dependent on future earnings, capital requirements and
financial condition.  The Corporation has no restrictions affecting the
payment of dividends except those presented in Note 13 of the Notes to
Consolidated Financial Statements.

     Hanover Bancorp, Inc. is quoted under the symbol "HOVB" on the O.T.C.
Electronic Bulletin Board, an automated quotation service, made available
through, and governed by, the NASDAQ system.  Hanover Bancorp, Inc. common
stock trades in the local over-the-counter market and current price
information is available from account executives at most brokerage firms as
well as the following firms which are designated market makers of Hanover
Bancorp, Inc.'s common stock:

                                     35
<PAGE>
F.J. Morrissey & Co., Inc.
1700 Market Street
Suite 1420
Philadelphia, PA 19102
(800) 842-8928

Janney Montgomery Scott, Inc.
1801 Market Street,
10th Floor
Philadelphia, PA 19102
(800) 526-6397
(215) 665-6000 or
49 East Market Street
York, PA 17405
(717) 845-4511 or
(717) 632-4545

Fahnestock & Co., Inc.
110 Wall Street
New York, NY 10004
(800) 221-5588

Monroe Securities, Inc.
47 State Street
Rochester, NY 14614
(716) 546-5560

Sandler O'Neill & Partners, L.P.
Two World Trade Center
104th Floor
New York, NY 10048
(800) 635-6860

Hopper Soliday & Co.,  Inc.
1725 Oregon Pike
Lancaster, PA 17601
(717) 560-3000

Legg Mason Wood Walker, Inc.
1818 Market Street
Philadelphia, PA 19103
(800) 888-6673

Ryan, Beck & Company
3 Parkway
Philadelphia, PA 19102
(800) 223-8969 in PA
(215) 568-4433 elsewhere

                                     36
<PAGE>
REPORT OF INDEPENDENT AUDITORS AND INFORMATION FOR SHAREHOLDERS

REPORT OF INDEPENDENT AUDITORS

THE SHAREHOLDERS AND BOARD OF DIRECTORS
HANOVER BANCORP, INC.

     We have audited the accompanying consolidated balance sheets of Hanover
Bancorp, Inc. and its wholly-owned subsidiary as of December 31, 1997 and
1996, and the related consolidated statements of income, shareholders'
equity, and cash flows for each of the three years in the period ended
December 31, 1997.  These financial statements are the responsibility of
the Corporation's management.  Our responsibility is to express an opinion
on these financial statements based on our audits.
     We conducted our audits in accordance with generally accepted auditing
standards.  Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement.  An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements.  An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation.  We believe that our audits
provide a reasonable basis for our opinion.
     In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Hanover Bancorp, Inc. and its wholly-owned subsidiary at December 31, 1997
and 1996, and the consolidated results of their operations and their cash
flows for each of the three years in the period ended December 31, 1997, in
conformity with generally accepted accounting principles.

                                                     /s/ Ernst & Young LLP
Harrisburg, Pennsylvania
January 22, 1998


INFORMATION FOR SHAREHOLDERS

Dividend Reinvestment and Stock Purchase Plan
     Hanover Bancorp, Inc. offers a dividend reinvestment program whereby all
shareholders of record may reinvest their dividends into additional shares
of the Corporation.  Information concerning this optional program is
available by contacting Hanover Bancorp, Inc., 33 Carlisle Street, Hanover,
Pennsylvania 17331.

Annual Meeting
     The Annual Meeting of the Shareholders of Hanover Bancorp, Inc. is
scheduled to be held April 21, 1998, at 9:30 a.m. at the Hanover Country
Club located on Lincolnway East, Abbottstown, Pennsylvania.

Copies of 10-K
     Copies of Hanover Bancorp, Inc.'s Form 10-K or additional copies of the
Annual Report may be obtained without charge upon written request to Gerald
M. Warner, Secretary/Assistant Treasurer, Hanover Bancorp, Inc., 33
Carlisle Street, Hanover, Pennsylvania 17331.  In addition, the Securities
and Exchange Commission (SEC) maintains a web site which makes available
information pertaining to registrants whom file electronically with the
SEC.  As such, Hanover Bancorp, Inc. filings, including Form 10K, can be
obtained from the SEC web site at http: // www.sec.gov.

                                     37
<PAGE>
<TABLE>
CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Per Share Data)

<CAPTION>
                                                                            December 31,
                                                                         1997         1996
<S>                                                                    <C>         <C>
ASSETS
 Cash and due from banks                                               $15,643     $ 15,955
 Federal funds sold                                                      4,075          ---
  Cash and cash equivalents                                             19,718       15,955
 Interest bearing deposits with other banks                                 23           72
 Short-term investments                                                  1,596          ---
 Investment securities:
  Available-for-sale                                                    94,814       72,005
  Held-to-maturity (market value--$2,868 and $4,087, respectively)       2,827        4,097
                                                                        97,641       76,102
 Loans:
  Commercial, financial and agricultural                                35,254       31,991
  Real estate-construction                                               5,666        3,775
  Real estate-commercial mortgage                                       34,216       29,563
  Real estate-residential mortgage                                     135,217      119,383
  Consumer                                                              67,122       69,861
                                                                       277,475      254,573
 Less: Allowance for loan losses                                        (2,908)      (2,403)
  Net loans                                                            274,567      252,170
 Premises and equipment                                                  7,016        7,075
 Accrued interest receivable                                             2,644        2,348
 Other assets                                                            3,151        2,407
               TOTAL ASSETS                                           $406,356     $356,129

LIABILITIES AND SHAREHOLDERS' EQUITY
 Deposits:
  Non-interest bearing                                                $ 28,383     $ 29,128
  Interest bearing                                                     301,568      267,876
                                                                       329,951      297,004
 Borrowed funds:
  Short-term                                                            12,433       13,052
  Long-term                                                             25,452       11,248
                                                                        37,885       24,300
 Accrued interest payable                                                2,334        2,116
 Other liabilities                                                       1,490          811
 Dividends payable                                                         382          357
        TOTAL LIABILITIES
                                                                       372,042      324,588
 Shareholders' equity:
  Preferred stock, $2.50 par value; authorized, 2,000,000 shares;
   no shares issued or outstanding                                         ---          ---
  Common stock, $1.11 par value; authorized, 6,750,000 shares;
   issued and outstanding: 1997-2,933,965 shares; 
   1996-2,969,441 shares                                                 3,257        3,296
  Surplus                                                               18,687       18,659
  Net unrealized gains on securities available-for-sale, 
   net  of tax effects                                                   1,652          598
  Retained earnings                                                     10,718        8,988
           TOTAL SHAREHOLDERS' EQUITY                                   34,314       31,541
        TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                    $406,356     $356,129

 BOOK VALUE PER SHARE                                                 $  11.70     $  10.62
<FN>
See accompanying notes.
</TABLE>
                                     38
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands, Except Per Share Data)
<CAPTION>
                                            Year-Ended December 31,
                                             1997    1996     1995
<S>                                        <C>      <C>      <C>
INTEREST INCOME
  Interest and fees on loans               $22,768  $20,007  $17,929
  Interest on federal funds sold               370      707      346
  Interest on short-term investments           148      196       59
  Investment securities:
       Taxable                               3,839    3,179    3,945
       Tax-exempt                            1,194    1,331    1,613
                                             5,033    4,510    5,558
    TOTAL INTEREST INCOME                   28,319   25,420   23,892
INTEREST EXPENSE
  Interest on deposits                      12,338   11,042   10,073
  Interest on borrowed funds                 1,603    1,106    1,336
    TOTAL INTEREST EXPENSE                  13,941   12,148   11,409
    NET INTEREST INCOME                     14,378   13,272   12,483

PROVISION FOR LOAN LOSSES                      910      480      360
    NET INTEREST INCOME AFTER PROVISION 
      FOR LOAN LOSSES                       13,468   12,792   12,123

NET SECURITIES GAINS                           670      602      580

OTHER INCOME
  Trust department income                      751      742      663
  Service charges on deposit accounts        1,085      908      827
  Other operating income                       753      660      524
    TOTAL OTHER INCOME                       2,589    2,310    2,014

OTHER EXPENSE
  Salaries                                   5,198    5,075    4,498
  Pensions and other employee benefits       1,029    1,084    1,004
  Occupancy expense                            942      927      798
  Equipment expense                          1,009      906      870
  Marketing and advertising                    485      451      416
  FDIC insurance                                38        2      295
  Other operating expense                    2,848    2,541    2,320
    TOTAL OTHER EXPENSE                     11,549   10,986   10,201
    INCOME BEFORE INCOME TAXES               5,178    4,718    4,516

INCOME TAXES                                 1,371    1,138      960

       NET INCOME                          $ 3,807  $ 3,580  $ 3,556

PER SHARE DATA
    Net income-basic and diluted           $  1.29  $  1.18  $  1.14
    Cash dividends declared                    .50      .46      .41

<FN>

See accompanying notes.
</TABLE>
                                     39
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(In Thousands, Except Shares and Per Share Data)
<CAPTION>
                                                                                  Unrealized
                                                                 Common            Gains and  Retained
                                                                  Stock   Surplus    Losses   Earnings   Total
<S>                                                              <C>      <C>       <C>        <C>      <C>
Balance, January 1, 1995                                         $3,458   $18,573   $(1,432)   $6,966   $27,565

Net income for 1995                                                 ---       ---       ---     3,556     3,556
Cash dividends:
 $0.41 per share                                                    ---       ---       ---    (1,274)   (1,274)
Cash paid in lieu of fractional shares and other                    (11)      ---       ---         5        (6)
Issue of common stock:
 2,044 shares at an average price of $16.85 per share                 2        33       ---       ---        35
Net adjustment to net unrealized gains (losses) on securities
 available-for-sale, net of tax effects of $1,538                   ---       ---     2,986       ---     2,986

Balance, December 31, 1995                                        3,449    18,606     1,554     9,253    32,862

Net income for 1996                                                 ---       ---       ---     3,580     3,580
Cash dividends:
 $0.46 per share                                                    ---       ---       ---    (1,390)   (1,390)
Issue of common stock:
 3,435 shares at an average price of $16.71 per share                 4        53       ---       ---        57
Repurchase and retirement of common stock:
 141,312 shares at an average price of $18.48 per share            (157)      ---       ---    (2,455)   (2,612)
Net adjustment to net unrealized gains (losses) on securities
 available-for-sale, net of tax effects of $492                     ---       ---      (956)      ---      (956)

Balance, December 31, 1996                                        3,296    18,659       598     8,988    31,541

Net income for 1997                                                 ---       ---       ---     3,807     3,807
Cash dividends:
 $0.50 per share       .                                            ---       ---       ---    (1,472)   (1,472)
Issue of common stock:
 1,952 shares at an average price of $15.78 per share                 3        28       ---       ---        31
Repurchase and retirement of common stock:
 37,428 shares at an average price of $17.29 per share              (42)      ---       ---      (605)     (647)
Net adjustment to net unrealized gains (losses) on securities
 available-for-sale, net of tax effects of $543                     ---       ---     1,054       ---     1,054

Balance, December 31, 1997                                       $3,257   $18,687    $1,652   $10,718   $34,314
<FN>
See accompanying notes.
</TABLE>
                                     40
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
<CAPTION>
                                                                              Year-Ended December 31,
                                                                             1997      1996       1995
<S>                                                                      <C>        <C>        <C>
OPERATING ACTIVITIES
 Net income                                                              $  3,807   $  3,580   $  3,556
 Adjustments to reconcile net income to 
   net cash provided by operating activities:
   Provision for loan losses                                                  910        480        360
   Provision for depreciation and amortization                                883        776        673
   Net securities gains                                                      (670)      (602)      (580)
   (Increase) decrease in net deferred tax assets                             (27)      (166)       206
   (Increase) decrease in interest receivable                                (296)         7       (188)
   Increase in interest payable                                               218        243        647
   (Increase) decrease in other assets                                       (905)       (62)       240
   Increase (decrease) in other liabilities                                   135        249       (223)
   Increase (decrease) in accrued taxes                                       189       (143)      (136)
     NET CASH PROVIDED BY OPERATING ACTIVITIES                              4,244      4,362      4,555

INVESTING ACTIVITIES
 Increase in loans                                                        (35,877)   (50,891)   (33,746)
 Proceeds from loan sales                                                  12,570      9,890     11,635
 Proceeds from sale of available-for-sale investment securities            16,420     40,230     21,860
 Proceeds from maturities of investment securities                          8,288     12,279     23,966
 Purchases of investment securities                                       (43,980)   (37,526)   (36,838)
 Proceeds from maturities of short-term investments                        32,000     40,928      7,503
 Purchases of short-term investments                                      (33,547)   (34,114)   (14,367)
 Purchases of premises and equipment                                         (824)    (2,045)    (1,247)
     NET CASH USED IN INVESTING ACTIVITIES                                (44,950)   (21,249)   (21,234)

FINANCING ACTIVITIES
 Net increase (decrease) in demand, savings and money market deposits      28,321      6,983     (1,408)
 Net increase in time deposits                                              4,626     11,787     27,890
 Net increase (decrease) in borrowed funds                                 13,585      1,347     (3,483)
 Cash dividends paid                                                       (1,447)    (1,375)    (1,243)
 Cash paid in lieu of fractional shares                                       ---        ---         (6)
 Proceeds from issuance of common stock                                        31         57         35
 Repurchase and retirement of common stock                                   (647)    (2,612)       ---
     NET CASH PROVIDED BY FINANCING ACTIVITIES                             44,469     16,187     21,785

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                            3,763       (700)     5,106

Cash and cash equivalents at beginning of year                             15,955     16,655     11,549

CASH AND CASH EQUIVALENTS AT END OF YEAR                                  $19,718   $ 15,955   $ 16,655
<FN>
See accompanying notes.
</TABLE>
                                     41
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles Of Consolidation:  The consolidated financial statements include
the accounts of the Corporation and its wholly-owned subsidiary, Bank of
Hanover and Trust Company. All significant intercompany transactions and
accounts have been eliminated.

Investment Securities:  The Corporation accounts for its investment
securities under Financial Accounting Standards Board (FASB) Statement No.
115, "Accounting for Certain Investments in Debt and Equity
Securities".  Management determines the appropriate classification of
securities at the time of purchase and reevaluates such designation as of
each balance sheet date.  Debt securities are classified as held-to-
maturity when the Corporation has the ability and positive intent to hold
the securities to maturity.  Securities held-to-maturity are carried at
cost and adjusted for amortization of premiums and accretion of discounts.
Declines in value judged to be other than temporary are included in net
securities gains (losses).
     Debt securities not classified as held-to-maturity and equity
securities are classified as available-for-sale.  Securities available-for-
sale are stated at fair value, with the net unrealized gains and losses
reported as a separate component of shareholders' equity, net of tax
effect.  The cost of debt securities classified as available-for-sale is
adjusted for amortization of premiums and accretion of discounts.  Realized
gains and losses on securities available-for-sale and declines in value
judged to be other than temporary are included in net securities gains
(losses).  The decision to sell such securities is based on management's
assessment of changes in economic or financial market conditions, interest
rate risk and the Corporation's financial position and liquidity.
     Interest and dividends are included in interest income from investments.
Premiums are amortized to call and discounts are accreted to maturity under
the interest method except for mortgage-backed securities where the
recognition period is based on the estimated lives.  Such amortization and
accretion is included in interest income from investments.  The cost of
securities sold is determined principally under the specific identification
method.

Loans:  Interest on loans is recognized based upon the amount of principal
outstanding.  The accrual of interest is generally discontinued for a loan
when full collection of the principal or interest is doubtful and a loan
becomes 90 days or more past due.   Subsequent payments received on these
non-accrual loans are either applied against principal or reported as
interest income, according to management's judgment as to the collection
of principal. Loan origination fees, net of certain direct origination
costs, are deferred and recognized over the life of the related loan as a
yield adjustment.

Allowance For Loan Losses:  Management maintains the allowance at a level
believed adequate to absorb potential losses in the portfolio. Factors
considered in evaluating the adequacy of the allowance include potential
specific losses, past loan loss experience, the volume, growth and
composition of the loan portfolio and the current economic conditions and
trends.  The allowance is increased by provisions charged to operations and
reduced by net charge-offs.
     The Corporation accounts for impaired loans pursuant to the provisions
of FASB Statement No. 114, "Accounting by Creditors for Impairment of a
Loan", and FASB Statement No. 118, "Accounting by Creditors for
Impairment--Income Recognition and Disclosures".  Under FASB 114, the
allowance for credit losses related to loans that are identified for
evaluation in accordance with this standard is based on the discounted cash
flows using the loans initial effective interest rate or the fair value of
the collateral for certain collateral-dependent loans.   FASB 118
prescribes how a creditor should report income on impaired loans and
clarifies FASB 114's disclosure requirements.  In accordance with FASB
118, the Corporation will continue to recognize interest income as
described in the loans section above.

Premises And Equipment:  Premises and equipment are stated at cost less
accumulated depreciation and amortization, which is  computed on the
straight-line method.

Income Taxes:  The Corporation accounts for income taxes pursuant to the
provisions of FASB Statement No. 109, "Accounting for Income Taxes."
Under FASB 109, the liability method is used in accounting for income
taxes.  Under this method, deferred tax assets and liabilities are
determined based on differences between financial reporting and tax bases
of assets and liabilities and are measured using the enacted tax rates and
laws that will be in effect when the differences are expected to reverse.

Use Of Estimates:  The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes.  Actual results could differ from those
estimates.

Cash Flow Information:  For purposes of the statements of cash flows, the
Corporation considers cash and due from banks and federal funds sold as
cash and cash equivalents.  Generally, federal funds are purchased and sold
for one-day periods.
     Cash paid for interest and income taxes was $13,723,000 and $1,444,000,
respectively, during the year-ended December 31, 1997; $11,905,000 and
$1,217,000, respectively, during the year-ended December 31, 1996; and
$10,762,000 and $1,322,000, respectively, during the year-ended December
31, 1995.
     The increase in net unrealized gains on available-for-sale securities of
$1,054,000 (net of $543,000 in deferred tax effects) during the period
ended December 31, 1997, the decrease of $956,000 (net of $492,000 in
deferred tax effects) during the period ended December 31, 1996 and the
increase of $2,986,000 (net of $1,538,000 in deferred tax effects) during
the period ended December 31, 1995 are non-cash transactions for purposes
of the statements of cash flows.

Reclassifications:  Certain reclassifications have been made to the 1995
financial statements and accompanying notes to conform with the 1997 and
1996 presentation.

                                     42
<PAGE>
NOTE 2--RESTRICTIONS ON CASH AND DUE FROM BANK BALANCES

     The banking subsidiary is required to maintain reserve balances with the
Federal Reserve Bank.  The average amount of those balances for the year-
ended December 31, 1997, approximated $3,777,000.

NOTE 3--INVESTMENT SECURITIES

     The following is a summary of the investment portfolio by respective
security category  ((In Thousands):
<TABLE>
<CAPTION>
                                                     December 31, 1997

                                                  Gross     Gross    Estimated
                                    Amortized  Unrealized Unrealized   Market
                                      Cost        Gains     Losses     Value
<S>                                  <C>         <C>        <C>       <C>
AVAILABLE-FOR-SALE SECURITIES
  U.S. Treasury securities
   and obligations of the U.S.
   Government and its agencies       $23,566     $  107     $ (15)     $23,658
  Obligations of states and
   political subdivisions             19,231        883       ---       20,114
  Mortgage-backed securities          46,161        436       (44)      46,553
   Total debt securities              88,958      1,426       (59)      90,325
  Equity securities                    3,353      1,136       ---        4,489
   TOTAL AVAILABLE-
   FOR-SALE SECURITIES               $92,311     $2,562     $ (59)     $94,814


HELD-TO-MATURITY SECURITIES
  Obligations of states and
   political subdivisions            $ 2,522     $   48     $ ---      $ 2,570
  Mortgage-backed securities             305        ---        (7)         298
   TOTAL HELD-TO-
   MATURITY SECURITIES               $ 2,827     $   48     $  (7)     $ 2,868

</TABLE>
<TABLE>
<CAPTION>
                                                   December 31, 1996

                                                   Gross     Gross    Estimated
                                     Amortized   Unrealized Unrealized Market
                                       Cost        Gains     Losses     Value
<S>                                  <C>         <C>        <C>        <C>
AVAILABLE-FOR-SALE SECURITIES
  U.S. Treasury securities
   and obligations of the U.S.
   Government and its agencies       $28,047     $   89     $(214)     $27,922
  Obligations of states and
   political subdivisions             18,582        611       (45)      19,148
  Mortgage-backed securities          21,232        135      (210)      21,157
  Total debt securities               67,861        835      (469)      68,227
  Equity securities                    3,238        543        (3)       3,778
   TOTAL AVAILABLE-FOR-
   SALE SECURITIES                   $71,099     $1,378     $(472)     $72,005


HELD-TO-MATURITY SECURITIES
  Obligations of states and
   political subdivisions            $ 3,487     $   27     $ (13)     $ 3,501
  Mortgage-backed securities             610        ---       (24)         586
   TOTAL HELD-TO-
           MATURITY SECURITIES        $4,097     $   27     $ (37)     $ 4,087
</TABLE>
                                     43
<PAGE>
     The amortized cost and estimated market value of debt securities at
December 31, 1997, by contractual maturity, are shown below. Expected
maturities may differ from contractual maturities because borrowers may
have the right to call or prepay obligations with or without call or
prepayment penalties.  (In Thousands)
<TABLE>
<CAPTION>
                                                              Estimated
                                                   Amortized   Market
                                                      Cost      Value
<S>                                               <C>          <C>
AVAILABLE-FOR-SALE
  Due in one year or less                         $  3,706     $ 3,713
  Due after one year through five years             18,378      18,508
  Due after five years through ten years             5,787       5,807
  Due after ten years                               14,926      15,744
                                                    42,797      43,772
  Mortgage-backed securities                        46,161      46,553
  Equity securities                                  3,353       4,489
                                                   $92,311     $94,814



HELD-TO-MATURITY
  Due in one year or less                          $    80     $    80
  Due after one year through five years                ---         ---
  Due after five years through ten years               340         343
  Due after ten years                                2,102       2,147
                                                     2,522       2,570
  Mortgage-backed securities                           305         298
                                                   $ 2,827     $ 2,868
</TABLE>

     Proceeds from the sale of investments in debt and equity
securities during 1997, 1996 and 1995 were $16,420,000, $40,230,000 and
$21,860,000, respectively.  Gross gains realized on these sales were
$882,000, $970,000 and $628,000, respectively.  Gross losses realized on
these sales were $212,000, $368,000 and $48,000, respectively.   Net
unrealized gains on securities available-for-sale, net of the related
deferred tax effects, included as a separate component of shareholders'
equity, were $1,652,000 at December 31, 1997 and $598,000 at December 31,
1996.
     Securities having a carrying value of $40,667,000 at December 31, 1997,
and $46,311,000 at December 31, 1996 were pledged to secure public
deposits, repurchase agreements and other purposes required by law.

NOTE 4--ALLOWANCE FOR LOAN LOSSES
<TABLE>
      Transactions in the allowance for loan losses were as follows (In Thousands):
<CAPTION>
                                     1997     1996    1995
<S>                                <C>      <C>      <C>
Balance at beginning of year       $2,403   $2,220   $2,498
Recoveries on loans                   181       63      125
Provision charged to operations       910      480      360
Loans charged-off                    (586)    (360)    (763)
Balance at end of year             $2,908   $2,403   $2,220
</TABLE>

                                     44
<PAGE>
<TABLE>
     The following table provides information relating to the Corporation's impaired loans (In Thousands) :
<CAPTION>
                                               December 31,
                                               1997    1996
<S>                                            <C>     <C>
Impaired loans with no related
 allowance due to write-downs                  $470    $562
Impaired loans with no related
    allowance necessary                         412     242
   Recorded investment in impaired loans       $882    $804

Impaired loans on non-accrual status           $191    $---

Allowance related to impaired loans            $---    $---

Average recorded investment in impaired
 loans during the period                       $759    $887

Related amount of interest income
 recognized on impaired loans                  $ 69    $ 81

Amount of interest income on
 impaired loans using the cash
 basis method of accounting                    $---    $  1
</TABLE>

NOTE 5--PREMISES AND EQUIPMENT
<TABLE>
     Premises and equipment includes the following at December 31   (In Thousands):
<CAPTION>
                                                      1997      1996
<S>                                                 <C>        <C>
  Premises                                          $ 6,624    $6,609
  Equipment                                           6,089     5,692
                                                     12,713    12,301
  Less accumulated depreciation and amortization     (5,697)   (5,226)
                                                    $ 7,016    $7,075
</TABLE>

     The Corporation recognized depreciation and amortization expense of
$883,000, $776,000 and $673,000 for 1997, 1996 and 1995, respectively.
     The Corporation and its subsidiary occupy certain facilities under lease
arrangements and lease certain equipment.  Rentals amounted to $295,000,
$369,000 and $391,000 in 1997, 1996 and 1995, respectively.  Minimum annual
rental commitments at December 31, 1997, under noncancelable leases,
principally for real estate and equipment, are payable as follows (In
Thousands):
<TABLE>
<CAPTION>
                                         Annual Rental
                                           Payments
<S>                                       <C>
  1998                                     $  249
  1999                                        262
  2000                                        238
  2001                                        242
  2002                                        233
  2003 and thereafter                       2,231
   Total minimum lease payments            $3,455
</TABLE>
                                     45
<PAGE>
NOTE 6--SHORT-TERM BORROWINGS

<TABLE>
     Short-term borrowings and rates outstanding at December 31, 1997 and
1996 are summarized as follows
 (In Thousands, Except Percentages):
<CAPTION>
                                                        1997                1996
<S>                                             <C>         <C>      <C>        <C>
Federal funds purchased                         $    ---     ---     $ 2,000    5.00%
Securities sold under repurchase agreements        9,915    4.87%      8,866    4.84%
FHLB borrowings                                      796    5.94%      1,375    5.62%
Other                                              1,722    4.59%        811    5.16%
                                                $ 12,433    4.90%    $13,052    4.97%
</TABLE>

     The securities sold under repurchase agreements were U.S. Treasury and
agency securities which were maintained under the Corporation's control.

NOTE 7--LONG-TERM BORROWINGS

     The Bank utilizes the services of the Federal Home Loan Bank of Pittsburgh
(FHLB) by periodically borrowing funds to manage interest rate risk and to
provide match funding for specific loan and investment activities.  The
advances are fully collateralized as specified by the FHLB.  Qualifying
collateral includes U.S. Treasury, agency and mortgage-backed securities
and residential real estate loans.  These advances are subject to
restrictions or penalties related to prepayment.
     The Corporation paid $1,059,000 in interest on long-term borrowings
during 1997, $511,000 in 1996 and $673,000 in 1995.
     Included in long-term borrowings at December 31, 1997, was $2.8 million
of amortizing advances with remaining amortization periods ranging from 63
to 153 months and final maturities through 2003.  Also, $18.0 million of
advances had conversion features whereby the FHLB may convert the advances
to variable rates with subsequent quarterly resets.  Upon conversion, the
Corporation has the option of putting the advances back to the FHLB.  The
conversion features extend between 3 and 15 months from December 31, 1997,
and the advances have final maturities through 2002.  At December 31, 1997,
all advances had fixed rates of interest.
<TABLE>
     The following table presents the annual maturities and weighted average
rates of long-term borrowings at December 31, 1997
(In Thousands):
<CAPTION>
                                    Annual      Weighted
                                  Maturities  Average Rate
<S>                               <C>            <C>
  1999                            $ 1,317        7.31%
  2000                                948        6.98%
  2001                              3,820        6.24%
  2002                             18,152        5.88%
  2003 and thereafter               1,215        6.74%
                                  $25,452        6.09%
</TABLE>

NOTE 8--SHAREHOLDERS' EQUITY

     On January 20, 1995, the Board of Directors declared a 3 for 2 stock
split payable April 1, 1995, to shareholders of record March 15, 1995.
Related to this split, the Board of Directors also approved an amendment to
the Articles of Incorporation on January 20, 1995 to increase the number of
authorized shares of common stock from 4,500,000 shares to 6,750,000 shares
and to reduce the par value per share from $1.67 to $1.11.  All per share
data was retroactively adjusted to reflect these actions.
     The Corporation maintains a dividend reinvestment plan which allows
existing shareholders to reinvest cash dividends into additional shares of
the Corporation's common stock.  The Corporation has reserved 130,000
shares of common stock for issuance under this plan.  As of December 31,
1997, 105,075 shares were available.
     The Bank offers shares of the Corporation's stock as one of several
investment options in its defined contribution 401(k) plan.  The
Corporation has reserved 25,000 shares of common stock for issuance to
participants in the 401(k) plan.  As of December 31, 1997, 21,045 shares
were available.
     The Corporation also maintains an employee stock purchase plan.  This
plan is intended to encourage employees of the Corporation and its
subsidiary to acquire a stake in the future of the Corporation.  The plan
provides for the purchase of stock at 90% of the fair market value.  The
Corporation has reserved 47,250 shares of common stock for issuance
under the plan.  As of December 31, 1997, 39,801 shares were available.
    The Corporation adopted an omnibus stock plan effective January 15, 1993.
This plan is intended to provide incentive compensation opportunities for
selected officers and key employees of the Corporation and its subsidiary.
The Corporation has reserved 189,000 shares of common stock for issuance
pursuant to awards under this plan which must be granted within ten years
from the effective date.  As of December 31, 1997, 115,836 shares were
available for the granting of additional awards.  To date, only awards of
incentive stock options have been made from the plan.

                                     46
<PAGE>
     Financial Accounting Standards Board (FASB) Statement No. 123,
"Accounting for Stock Based Compensation", became effective in 1996.
This statement encourages companies to recognize compensation expense for
stock-based awards based on their fair value.  The statement allows
companies to continue to follow the existing intrinsic value method under
Accounting Principles Board (APB) Opinion No. 25 "Accounting for Stock
Issued to Employees", with the requirement that disclosures be provided
which present pro forma net income and earnings per share, had the new fair
value method been used.  The Corporation has elected to continue to follow
APB 25 to account for its employee stock purchase plan and employee stock
purchase plan and employee stock options.  No compensation expense was
recognized under APB 25 for these plans.
     The pro forma compensation expense for employee stock options under the
fair value method was determined with the aid of a Black-Scholes option
pricing model.   This option pricing model, like other models, requires the
input of subjective assumptions.  The weighted-average assumptions for
1997, 1996 and 1995, respectively, were: risk free interest rates of 5.77%,
6.25% and 5.76%; dividend yields of 2.30%, 2.57% and 2.34%; volatility
factors of .134, .132 and .147; and a weighted average expected life of ten
years. 
     For purposes of pro forma disclosures, the discount related to
the shares issued is considered compensation expense, whereas the estimated
fair value of the options is amortized to expense over the options'
vesting period.  Furthermore, these disclosures are required
to be applied prospectively from 1995.  Therefore, the initial impact on
pro forma net income may not be representative of future compensation
expense since the impact of option awards prior to 1995 are not considered.
<TABLE>
     The Corporation's pro forma information for the years-ended December 31,
is as follows (In Thousands, Except Per Share Data):
<CAPTION>

                                                       1997     1996      1995
<S>                                                   <C>      <C>       <C>
Pro forma net income                                  $3,762   $3,551    $3,555
Pro forma net income per share - basic and diluted    $ 1.28   $ 1.17    $ 1.14
</TABLE>

<TABLE>
     A summary of the Corporation's stock option activity, and related information is as follows:
<CAPTION>
                                             1997              1996             1995
                                               Weighted-         Weighted-        Weighted-
                                                Average           Average          Average
                                                Exercise         Exercise          Exercise
                                       Options   Price   Options   Price   Options   Price
<S>                                   <C>       <C>     <C>       <C>     <C>       <C>
Outstanding at beginning of year       46,108   $18.92   46,820   $18.97   24,438   $19.17
Granted                                31,962    22.33    5,280    18.52   22,382    18.76
Exercised                                 ---      ---      ---      ---      ---      ---
Forfeited                              (4,906)   18.97   (5,992)   18.97      ---      ---

Outstanding at end of year             73,164   $20.41   46,108   $18.92   46,820   $18.97

Exercisable at end of year             18,670   $19.17      ---               ---
Weighted-average fair value of
  options granted during the year     $  5.80           $  4.73           $  4.91
</TABLE>

     Options granted under the plan have ten-year terms and vest and become
fully exercisable at the end of three years of continued employment.
Exercise prices for options outstanding as of December 31, 1997 ranged from
$18.50 to $22.75.  The weighted average remaining contractual life of those
options is 8.37 years.
<TABLE>
     The following table sets forth capital ratios for the Corporation and its bank subsidiary:
<CAPTION>
                                                1997        1996
<S>                                            <C>         <C>
HANOVER BANCORP, INC.
  Tier 1 capital to risk-adjusted assets       12.47%      12.87%
  Total capital to risk-adjusted assets        13.58%      13.87%
  Leverage ratio                                8.19%       8.79%

BANK OF HANOVER AND TRUST COMPANY
  Tier 1 capital to risk-adjusted assets       10.82%      11.78%
  Total capital to risk-adjusted assets        11.93%      12.78%
  Leverage ratio                                7.09%       8.06%
</TABLE>
                                     47
<PAGE>
     The Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA") created a framework for supervisory actions in an effort to
reduce the risks of possible long-term losses to the deposit insurance
funds.  It established five levels of capital at which insured depository
institutions will be "well capitalized," "adequately capitalized,"
"undercapitalized," "significantly undercapitalized" and
"critically undercapitalized".  In 1992, the regulators adopted
regulations to implement the requirements of FDICIA.  Under the
regulations, the required minimum capital ratios for each category of
institutions are, with certain exceptions, as follows:
<TABLE>
<CAPTION>
                                                          Tier I
                                    Total Capital       Capital to
                                  to Risk-Adjusted    Risk-Adjusted
                                       Assets             Assets          Leverage
<S>                               <C>                 <C>                <C>
Well capitalized                  10% or above and    6% or above and    5% or above
Adequately capitalized             8% or above and    4% or above and    4% or above
Undercapitalized                     under 8% or        under 4% or        under 4%
Significantly undercapitalized       under 6% or        under 3% or        under 3%
Critically undercapitalized                                              2% or under
</TABLE>

     The appropriate federal bank regulatory agency has authority to downgrade
an institution's capital designation by one category if it determines that
an institution is in an unsafe or unsound condition or is engaging in
unsafe or unsound practices.
     FDICIA provides for increased supervision for banks not rated in one of
the highest categories under the "CAMELS" composite bank rating system.
Undercapitalized institutions are required to submit capital restoration
plans to the appropriate federal banking regulator and are subject to
restrictions on operations, including prohibitions on branching, engaging
in new activities, paying management fees, making capital distributions
such as dividends, and growing without regulatory approval.
     The Bank has been deemed "well capitalized".

NOTE  9 - NET INCOME PER SHARE

<TABLE>
     The computation of basic and diluted net income per share is as follows:
<CAPTION>

                                                             Year-Ended December 31,
                                                         1997        1996           1995
<S>                                                  <C>           <C>           <C>
NUMERATOR:
 Numerator for basic and diluted
      net income per share-net income                $3,807,000    $3,580,000    $3,556,000

DENOMINATOR:
 Denominator for basic net income per share-
      weighted average shares outstanding             2,948,029     3,043,047     3,106,298

 Effect of dilutive securities:
      Employee stock options                                537           ---           ---

 Denominator for diluted net income per share-
      adjusted weighted average shares outstanding    2,948,566     3,043,047     3,106,298

 Basic net income per share                          $     1.29    $     1.18    $     1.14
 Diluted net income per share                        $     1.29    $     1.18    $     1.14
</TABLE>

     For additional disclosures regarding the outstanding employee stock
options, see Note 8.  The weighted average shares outstanding have been 
retroactively restated to reflect the stock split.
     Options to purchase 47,914 shares at $18.96 per share and 24,985
shares at $19.17 per share were outstanding during 1996 and 1995, 
respectively, but were not included in the computation of diluted net 
income per share because the options' exercise prices were greater 
than the average market prices of the common shares and, therefore, 
the effects would be antidilutive.

                                     48
<PAGE>
NOTE 10- INCOME TAXES

     The significant components of the Corporation's deferred tax assets and
liabilities as of December 31, 1997 and 1996, respectively, which are
included in other liabilities in 1997, and other assets in 1996, are as
follows (In Thousands):
<TABLE>
<CAPTION>
                                               1997       1996
<S>                                          <C>        <C>
DEFERRED TAX ASSETS
  Loan loss reserve                          $  732     $  560
  Deferred loan fees                            135        166
  Deferred compensation                         220        215
  Other                                          31         92
   Total deferred tax assets                  1,118      1,033
DEFERRED TAX LIABILITIES
  Net unrealized securities gains               851        308
  Depreciation                                  192        171
  Accretion                                      63         51
  Pension                                        67         84
  Other                                         125         83
   Total deferred tax liabilities             1,298        697
      Net deferred tax assets (liabilities)  $ (180)    $  336
</TABLE>

<TABLE>
     The provision for income taxes included in the accompanying Statements of
Income consists of the following (In Thousands):
<CAPTION>

                          1997    1996     1995
<S>                     <C>      <C>      <C>
Current payable         $1,502   $1,244   $1,080
Deferred                  (131)    (106)    (120)
                        $1,371   $1,138   $  960
</TABLE>
<TABLE>
     A reconciliation of the federal statutory corporate income tax rate to
the Corporation's effective tax rate is as follows:
<CAPTION>
                                1997    1996     1995
<S>                            <C>      <C>      <C>
Federal statutory tax rate     34.0%    34.0%    34.0%
Tax-exempt interest income     (8.8)%  (10.3)%  (13.2)%
Other                           1.3%      .4%      .5%
Effective tax rate             26.5%    24.1%    21.3%
</TABLE>

     Income taxes applicable to realized net securities gains included in the
provision for income taxes totaled $228,000 in 1997,  $205,000 in 1996 and
$197,000 in 1995.

NOTE 11-RETIREMENT PLANS

     The Bank provides a defined contribution 401(k) plan to all employees who
have completed at least one year of employment as defined in the plan and
are 21 years of age.  In each pay period a participant may elect to defer
up to 15% of base salary/wages for contribution to the plan up to the
maximum allowable contribution as established by the Internal Revenue
Service.  The Bank matches, in cash, 50% of the participant's contribution
up to 4% of the participant's base salary/wages.  Beginning in 1996, the
Bank also made a discretionary annual contribution to all eligible
employees.  The Corporation's expense for the defined contribution plan,
including the discretionary contribution, was $205,000, $177,000 and
$64,000 in 1997, 1996 and 1995, respectively.
     The Bank's defined benefit pension plan was curtailed on January 19,
1996.  Under the curtailment, pension benefits were frozen as of March 31,
1996.  The plan will be administered in frozen status until such time as
management deems termination and final settlement appropriate.  While in
frozen status, the funding policy of the Bank will be to make contributions
as necessary to meet the minimum funding requirements set forth in the
Employee Retirement Income Security Act of 1974.  On September 16, 1996,
approximately two-thirds of the plan's accumulated benefit obligation was
settled via the purchase of annuity contracts.

                                     49
<PAGE>
     In 1996, as a result of the plan curtailment and the partial settlement,
the Corporation recognized a curtailment gain and a settlement loss in
accordance with Financial Accounting Standards Board (FASB) Statement No.
88, "Employers' Accounting for Settlements and Curtailments of Defined
Benefit Pension Plans and for Termination Benefits".  These events were
not material to the Corporation's results of operations.
     The actuarial present values of accumulated benefit obligations at
December 31, 1997, and 1996 were $1,041,000 and $988,000, respectively, all
of which were vested.  The following table sets forth the plan's funded
status and amounts recognized in the Corporation's balance sheet at
December 31, 1997 and 1996 (In Thousands):

<TABLE>
<CAPTION>
                                                                      1997      1996
<S>                                                                 <C>        <C>
Plan assets at fair value                                           $1,174     $1,142
Projected benefit obligation for service rendered to curtailment    (1,041)      (988)
Plan assets in excess of projected benefit obligation                  133        154
Unrecognized net loss                                                  119         92
Unrecognized net transition asset                                      ---        ---
Unrecognized prior service cost                                        ---        ---
 Prepaid pension costs                                              $  252     $  246
</TABLE>

<TABLE>
      Net periodic pension costs included the following components:
<CAPTION>
                                                      Year-Ended
                                                      December 31,
                                                  1997    1996    1995

<S>                                              <C>      <C>     <C>
Service costs                                    $ ---    $ ---   $  92
Interest costs on projected benefit obligation      73      166     224
Actual return on plan assets                      (100)     (92)   (352)
Net amortization and deferral                       21      (88)    122
 Net periodic pension costs                      $  (6)   $ (14)  $  86
</TABLE>


     The weighted average discount rate used in determining the actuarial
present value of the projected benefit obligations was 7% at December 31,
1997 and 1996.  The rate of increase in future compensation levels was 5%
at December 31, 1995.  The expected long-term rate of return on plan assets
was 7% in 1997 and 1996 and 8% in 1995.  Plan assets are invested primarily
in mutual funds, common stocks, U.S. Government securities and certificates
of deposit.  Among the common stock investments, the plan held 6,183 shares
of Hanover Bancorp, Inc. stock at December 31, 1996 with a market value of
approximately $113,000.  No shares were held at December 31, 1997.
Dividends received by the plan from Hanover Bancorp, Inc. stock were $1,000
and $7,000 in 1997 and 1996, respectively.

NOTE 12--RELATED PARTY TRANSACTIONS

     The Corporation's subsidiary has granted loans to the officers and
directors of the Corporation and its subsidiary and to their associates.
Related party loans are made on substantially the same terms, including
interest rates and collateral, as those prevailing at the time for
comparable transactions with unrelated persons and do not involve more than
normal risk of collection.  The aggregate dollar amount of these loans was
$2,751,000 and $2,786,000 at December 31, 1997 and 1996, respectively.
During 1997, $300,000 of new loans were made, and repayments totaled
$335,000.
     In addition, the Corporation's subsidiary has securities sold under
repurchase agreements to the directors of the Corporation and its
subsidiary and to their associates.  Related party securities sold under
repurchase agreements are on substantially the same terms, including
interest rates and collateral, as those prevailing at the time for
comparable transactions with unrelated persons.  The aggregate dollar
amount of these agreements was $3,448,000 and $2,995,000 at December 31,
1997 and 1996, respectively.

                                     50
<PAGE>
NOTE 13--HANOVER BANCORP, INC.
(PARENT COMPANY ONLY) FINANCIAL INFORMATION
(In Thousands)
<TABLE>
<CAPTION>
                                                       December 31,
BALANCE SHEETS                                        1997      1996
<S>                                                <C>      <C>
ASSETS
  Cash                                             $   736   $   861
  Investment securities:
       Available-for-sale                            3,172     2,424
  Accrued interest receivable                           11        10
  Other assets                                       2,160       337
  Investment in Bank of Hanover and Trust Company   29,127    28,451
     TOTAL ASSETS                                  $35,206   $32,083

LIABILITIES AND SHAREHOLDERS' EQUITY
  Other liabilities                                $   510   $   185
  Dividends payable                                    382       357
     TOTAL LIABILITIES                                 892       542
  Shareholders' Equity:
       Common stock                                  3,257     3,296
       Surplus                                      18,687    18,659
       Net unrealized gains on securities 
        available-for-sale, net of tax effects       1,652       598
       Retained earnings                            10,718     8,988
     TOTAL SHAREHOLDERS' EQUITY                     34,314    31,541
     TOTAL LIABILITIES AND
          SHAREHOLDERS' EQUITY                     $35,206   $32,083
</TABLE>

<TABLE>
<CAPTION>
                                            Year-Ended December 31,
STATEMENTS OF INCOME                        1997      1996     1995
<S>                                      <C>       <C>       <C>
INTEREST INCOME
  Investment securities:
   Taxable                               $   60    $   55    $   54
   Tax-exempt                                29        57       157
                                             89       112       211
  Interest on short-term investments        ---       ---         4
      TOTAL INTEREST INCOME                  89       112       215
NET SECURITIES GAINS                        526       363       135
OTHER EXPENSE
  Other operating expense                   130        95        87
  Income before applicable income taxes
   and equity in undistributed
     income of subsidiary                   485       380       263
INCOME TAXES                                169        86        23
  Income before equity in undistributed
     income of subsidiary                   316       294       240
EQUITY IN UNDISTRIBUTED INCOME
OF SUBSIDIARY
  Bank of Hanover and Trust Company       3,491     3,286     3,316

      NET INCOME                         $3,807    $3,580    $3,556
</TABLE>
                                     51
<PAGE>
<TABLE>
<CAPTION>
                                                      Year-Ended December 31,
STATEMENTS OF CASH FLOWS                              1997      1996     1995
<S>                                                  <C>       <C>       <C>
OPERATING ACTIVITIES
 Net income                                          $3,807    $3,580    $3,556
   Adjustments to reconcile net income to
   net cash provided by operating activities:
     Net securities gains                              (526)     (363)     (135)
     (Increase) decrease in interest receivable          (1)       20        22
     Increase (decrease) in other liabilities           (10)        2        (3)
     Increase in accrued taxes                          146        11        33
     Equity in undistributed income of subsidiary    (3,491)   (3,286)   (3,316)
     NET CASH PROVIDED BY (USED IN)
     OPERATING ACTIVITIES                               (75)      (36)      157

INVESTING ACTIVITIES
 Proceeds from sales of available-for-sale
   investment securities                              1,230     2,666       993
 Proceeds from maturities of
   investment securities                                ---       ---       341
 Purchases of investment securities                    (894)     (348)     (544)
 Proceeds from maturities of
   short-term investments                               ---       ---       600
 Purchases of short-term investments                    ---       ---      (600)
 Cash dividends received from subsidiary              1,677     1,371     1,243
     NET CASH PROVIDED BY
       INVESTING ACTIVITIES                           2,013     3,689     2,033

FINANCING ACTIVITIES
     Cash dividends paid                             (1,447)   (1,375)   (1,243)
     Cash paid in lieu of fractional shares             ---       ---        (6)
     Proceeds from issuance of common stock              31        57        35
     Repurchase and retirement of common stock         (647)   (2,612)      ---
NET CASH USED IN
  FINANCING ACTIVITIES                               (2,063)   (3,930)   (1,214)
INCREASE (DECREASE) IN CASH                            (125)     (277)      976
Cash at beginning of year                               861     1,138       162
CASH AT END OF YEAR                                  $  736    $  861    $1,138
</TABLE>

     The Corporation relies on dividends from Bank of Hanover and Trust Company
to fund dividends paid to shareholders of the Corporation.  Under
Pennsylvania statutes, the Bank is restricted, unless prior regulatory
approval is obtained, in the amount of dividends which it may declare in
relation to its accumulated profits, less any required transfer to surplus.
At December 31, 1997, retained earnings of the Bank available for dividends
were $19,337,000.  These restrictions have not had, nor are they expected
to have any impact on the Corporation's dividend policy.  Other regulatory
restrictions limit the ability of the Bank to transfer net assets to the
Corporation.  At December 31, 1997, these restricted net assets amounted to
$7,783,000.
                                     52
<PAGE>
NOTE 14--FAIR VALUE OF FINANCIAL INSTRUMENTS
(In Thousands)
<TABLE>
<CAPTION>
                                                              December 31, 
                                                    1997                    1996
                                            Carrying     Fair      Carrying      Fair
                                             Amount      Value      Amount       Value
<S>                                        <C>         <C>         <C>         <C> 
FINANCIAL ASSETS
 Cash and short-term investments           $ 21,337    $ 21,337    $ 16,027    $ 16,027
 Investment securities                       97,641      97,682      76,102      76,092
 Loans                                      277,475                 254,573
   Less: Allowance for loan losses           (2,908)                 (2,403)
 Net loans                                  274,567     278,959     252,170     255,232
     TOTAL FINANCIAL ASSETS                $393,545    $397,978    $344,299    $347,351

FINANCIAL LIABILITIES
 Deposits                                  $329,951    $330,226    $297,004    $296,996
 Short-term borrowings                       12,433      12,433      13,052      13,052
 Long-term borrowings                        25,452      25,698      11,248      11,526
     TOTAL FINANCIAL LIABILITIES           $367,836    $368,357    $321,304    $321,574
</TABLE>

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

       Cash and short-term investments:  The carrying amounts reported in the
balance sheet for cash and short-term investments approximate those assets' 
fair values.

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

       Loans:  Fair values for loans are estimated using discounted cash flow
calculation using interest rates based on U.S. Government security yields 
for similar terms adjusted for appropriate risks associated with each 
instrument.
       Deposits:  The fair values disclosed for demand deposits (e.g., interest
and non-interest checking, passbook savings and certain types of money market 
accounts) are, by definition, equal to the amount payable on demand at the 
reporting date (i.e., their carrying amounts).  Fair values for certificates 
of deposit are estimated using a discounted cash flow calculation that 
applies interest rates based on U.S. Government security yields to a schedule 
of aggregated expected maturities on time deposits.

       Short-term borrowings:  The carrying amounts of federal funds purchased,
borrowings under repurchase agreements and other short-term borrowings 
approximate their fair values.

       Long-term borrowings:  Fair values for long-term borrowings are
estimated using a discounted cash flow calculation that applies interest 
rates based on U.S. Government security yields to a schedule of aggregated 
expected maturities.

NOTE 15--COMMITMENTS

     As of December 31, 1997, the Bank had commitments outstanding to extend
credit totaling $56,270,000 and commitments under outstanding standby
letters of credit totaling $2,723,000.  Credit commitments generally
require the customers to maintain certain credit standards and are funded
at rates and terms prevailing at the time of extension.  Management does
not anticipate any material losses as a result of these credit commitments.

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<PAGE>
NOTE 16--CONCENTRATIONS OF CREDIT RISK

     Most of the Corporation's business activity, including loans and loan
commitments, is with customers located within York and Adams Counties,
Pennsylvania, where it has full service branches.  The Corporation's
commercial, consumer and mortgage portfolios are principally to borrowers
in this market area and are generally fully collateralized.  The commercial
loan portfolio is well diversified with no industry comprising greater than
10% of total loans outstanding.

NOTE 17--ACCOUNTING CHANGES

     Financial Accounting Standards Board (FASB) Statement No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of", was issued in March 1995 and was effective in
1996.  This standard prescribes the accounting for the impairment of long-
lived assets, such as property, plant and equipment; identifiable
intangibles, including patents and trademarks; and goodwill related to
those assets.  In addition, FASB 121 defines the accounting for long-lived
assets and identifiable intangibles that a company plans to dispose of,
other than those that are part of a discontinued operation.  This standard
has not had a material effect on the Corporation's liquidity, capital
resources, or results of operations.
     FASB Statement No. 123, "Accounting for Stock Based Compensation", was
issued in October 1995 and was effective in 1996.  As detailed in Note 8,
this standard has not had a material effect on the Corporation's
liquidity, capital resources or results of operations.
     In June 1996, the FASB issued Statement No. 125, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishment 
of Liabilities".  FASB 125 addresses the accounting for all types 
of securitization transactions, securities lending and repurchase
agreements, collateralized borrowing arrangements, and other transactions
involving the transfer of financial assets.  This statement superseded FASB
Statement No. 122, "Accounting  for Mortgage Servicing Rights, An
Amendment of FASB Statement No. 65" which was adopted in 1996.  The
provisions of FASB 125, in regards to mortgage servicing rights, are
essentially the same as those of FASB 122.  This statement is generally
effective for transactions that occur after December 31, 1996.  As amended
by FASB Statement No. 127, "Deferral of the Effective Date of Certain
Provisions of SFAS No. 125", certain provisions of the statement will be
effective beginning after December 31, 1997.  This new standard did not
have a material impact on the Corporation's liquidity, capital resources
or results of operations.
     In February 1997, FASB issued Statement No. 128, "Earnings Per Share"
effective for financial statements for periods presented after December 15,
1997.   This standard replaced the calculation of primary and fully diluted
earnings per share with basic and diluted earnings per share.  Unlike
primary earnings per share, basic earnings per share excludes any dilutive
effects of options, warrants and convertible securities.  Diluted earnings
per share is very similar to the previously reported fully diluted earnings
per share.  All earnings per share amounts presented have been calculated
in accordance with FASB 128 as detailed in Note 9.
     In June 1997, FASB issued Statement No. 130, "Reporting Comprehensive
Income". The focus of this statement is to establish standards for
reporting and displaying comprehensive income and its components in the
financial statements.  The new standard is effective for fiscal years
beginning after December 15, 1997.  These disclosure requirements will have
no impact on the Corporation's financial condition or results of
operations.
     In June 1997, FASB issued Statement No. 131, "Disclosures about Segments
of an Enterprise and Related Information".  This statement establishes
standards for the reporting of financial information from operating
segments in annual and interim financial statements. It requires that
segment financial information be reported on the basis that it is reported
internally. FASB 131 is effective for fiscal years beginning after December
15, 1997. These disclosure requirements will have no impact on the
Corporation's financial condition or results of operations.

                                     54