FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
( X )QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
OR
( )TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-12524
Hanover Bancorp, Inc.
(Exact name of registrant as specified in its charter)
Pennsylvania 23-2219814
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
33 Carlisle Street, Hanover, Pennsylvania 17331
(address of principal executive office and zip code)
(717) 637-2201
Registrant's Telephone Number, including area code
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
YES X NO
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
CLASS OUTSTANDING June 30, 1998
Common Stock, 3,935,537 shares
par value $.83 per share
1
<PAGE>
INDEX
HANOVER BANCORP, INC. AND ITS WHOLLY-OWNED SUBSIDIARY
Page #
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets -
June 30, 1998, and December 31, 1997 . . . . . . .. . 3
Consolidated Statements of Income -
Three Months Ended June 30, 1998 and 1997 . . . . . . 4
Consolidated Statements of Income -
Six Months Ended June 30, 1998 and 1997 . . . . . . . 5
Consolidated Statements of Cash Flows -
Six Months Ended June 30, 1998 and 1997 . . . . . . . 6
Notes to Consolidated Financial Statements . . . . . . 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations . . . . 8
Part II. Other Information
Item 1. Legal Proceedings. . . . . . . . . . . . . . . . . . . 21
Item 2. Changes in Securities. . . . . . . . . . . . . . . . . 21
Item 3. Defaults Upon Senior Securities. . . . . . . . . . . . 21
Item 4. Submission of Matters to a Vote of Security Holders. . 21
Item 5. Other Information. . . . . . . . . . . . . . . . . . . 21
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . 21
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
2
<PAGE>
<TABLE>
PART I. FINANCIAL INFORMATION
HANOVER BANCORP, INC. AND ITS WHOLLY-OWNED SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Unaudited: in thousands of dollars, except per share data)
<CAPTION>
June 30, December 31,
1998 1997
<S> <C> <C>
ASSETS
Cash and due from banks $ 18,886 $ 15,643
Federal funds sold 10,425 4,075
Cash and cash equivalents 29,311 19,718
Interest bearing deposits with other banks 22 23
Short-term investments - 1,596
Investment securities:
Available-for-sale 111,893 94,814
Held-to-maturity (market value - $2,058 and 2,868, respectively) 2,026 2,827
113,919 97,641
Loans:
Commercial, financial and agricultural 42,314 35,254
Real estate-construction 4,781 5,666
Real estate-commercial mortgage 39,790 34,216
Real estate-residential mortgage 130,780 135,217
Consumer 64,896 67,122
282,561 277,475
Less: Allowance for loan losses (3,283) (2,908)
Net loans 279,278 274,567
Premises and equipment 7,458 7,016
Accrued interest receivable 2,726 2,644
Other assets 3,010 3,151
TOTAL ASSETS $ 435,724 $ 406,356
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Non-interest bearing $ 32,837 $ 28,383
Interest bearing 319,584 301,568
352,421 329,951
Borrowed Funds:
Short-term 12,249 12,433
Long-term 30,297 25,452
42,546 37,885
Accrued interest payable 3,115 2,334
Other liabilities 1,445 1,490
Dividends payable 394 382
TOTAL LIABILITIES 399,921 372,042
SHAREHOLDERS' EQUITY
Common Stock, $.83 par value; authorized, 9,000,000 shares;
issued and outstanding: 1998-3,935,537 shares;1997-3,911,953 shares 3,266 3,257
Surplus 19,073 18,687
Accumulated other comprehensive income 1,548 1,652
Retained earnings 11,916 10,718
TOTAL SHAREHOLDERS' EQUITY 35,803 34,314
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 435,724 $ 406,356
Book value per share $ 9.10 $ 8.78
<FN>
See notes to consolidated financial statements.
</TABLE>
3
<PAGE>
<TABLE>
HANOVER BANCORP, INC. AND ITS WHOLLY-OWNED SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited: in thousands of dollars, except per share data)
<CAPTION>
Three months ended
June 30,
1998 1997
<S> <C> <C>
INTEREST INCOME
Interest and fees on loans $ 6,074 $ 5,640
Interest on federal funds sold 73 98
Interest on short-term investments - 59
Investment securities:
Taxable 1,311 845
Tax-exempt 346 275
1,657 1,120
TOTAL INTEREST INCOME 7,804 6,917
INTEREST EXPENSE
Interest on deposits 3,356 2,994
Interest on borrowed funds 577 352
TOTAL INTEREST EXPENSE 3,933 3,346
NET INTEREST INCOME 3,871 3,571
PROVISION FOR LOAN LOSSES 210 150
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 3,661 3,421
NET SECURITIES GAINS 384 129
OTHER INCOME
Trust department income 215 188
Services charges on deposit accounts 313 262
Other operating income 286 164
TOTAL OTHER INCOME 814 614
OTHER EXPENSE
Salaries 1,406 1,322
Pensions and other employee benefits 292 291
Occupancy expense 242 238
Equipment expense 268 243
Marketing and advertising 131 145
FDIC Insurance 10 9
Other operating expense 1,106 666
TOTAL OTHER EXPENSE 3,455 2,914
Income before income taxes 1,404 1,250
INCOME TAXES 371 328
NET INCOME $ 1,033 $ 922
PER SHARE DATA
Net income - basic and diluted $ 0.26 $ 0.23
Cash dividends declared $ 0.10 $ 0.09
<FN>
See notes to consolidated financial statements.
</TABLE>
4
<PAGE>
<TABLE>
HANOVER BANCORP, INC. AND ITS WHOLLY-OWNED SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited: in thousands of dollars, except per share data)
<CAPTION>
Six months ended
June 30,
1998 1997
<S> <C> <C>
INTEREST INCOME
Interest and fees on loans $ 11,971 $ 11,081
Interest on federal funds sold 94 127
Interest on short-term investments 6 65
Investment securities:
Taxable 2,556 1,654
Tax-exempt 654 597
3,210 2,251
TOTAL INTEREST INCOME 15,281 13,524
INTEREST EXPENSE
Interest on deposits 6,545 5,800
Interest on borrowed funds 1,120 678
TOTAL INTEREST EXPENSE 7,665 6,478
NET INTEREST INCOME 7,616 7,046
PROVISION FOR LOAN LOSSES 655 300
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 6,961 6,746
NET SECURITIES GAINS 732 194
OTHER INCOME
Trust department income 431 376
Services charges on deposit accounts 609 500
Other operating income 502 330
TOTAL OTHER INCOME 1,542 1,206
OTHER EXPENSE
Salaries 2,788 2,569
Pensions and other employee benefits 572 576
Occupancy expense 472 470
Equipment expense 540 489
Marketing and advertising 262 255
FDIC Insurance 20 18
Other operating expense 1,895 1,362
TOTAL OTHER EXPENSE 6,549 5,739
Income before income taxes 2,686 2,407
INCOME TAXES 712 615
NET INCOME $ 1,974 $ 1,792
PER SHARE DATA
Net income - basic and diluted $ 0.50 $ 0.45
Cash dividends declared $ 0.20 $ 0.18
<FN>
See notes to consolidated financial statements.
</TABLE>
5
<PAGE>
<TABLE>
HANOVER BANCORP, INC. AND ITS WHOLLY-OWNED SUBSIDIARY
Consolidated Statements of Cash Flows
(Unaudited: in thousands of dollars, except per share data)
<CAPTION>
Six months ended
June 30,
1998 1997
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 1,974 $ 1,792
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan losses 655 300
Provision for depreciation and amortization 489 439
Securities gains (732) (194)
Increase in net deferred tax assets (32) (184)
Increase in interest receivable (82) (100)
Increase in interest payable 781 398
(Increase) decrease in other assets 141 (611)
Increase in other liabilities 321 50
Increase (decrease) in accrued taxes (281) 68
NET CASH PROVIDED BY
OPERATING ACTIVITIES 3,234 1,958
INVESTING ACTIVITIES:
Net increase in loans (18,517) (13,187)
Proceeds of loan sales 13,151 4,627
Proceeds from sale of
available-for-sale investment securities 10,322 7,336
Proceeds from maturities of investment securities 7,773 4,575
Purchases of investment securities (33,798) (11,706)
Proceeds from maturities of short-term investments 1,600 13,000
Purchases of short-term investments (3) (17,936)
Purchases of premises and equipment (931) (478)
NET CASH USED IN
INVESTING ACTIVITIES (20,403) (13,769)
FINANCING ACTIVITIES
Net increase in demand deposits, NOW accounts,
money market accounts, and savings accounts 14,052 28,034
Net increase in certificates of
deposit and other time deposits 8,418 906
Net increase in borrowed funds 4,661 2,452
Cash dividends paid (765) (713)
Cash paid in lieu of fractional shares (9) -
Proceeds from issuance of common stock 405 11
Repurchase and retirement of common stock - (526)
NET CASH PROVIDED BY
FINANCING ACTIVITIES 26,762 30,164
INCREASE IN CASH AND CASH EQUIVALENTS 9,593 18,353
Cash and cash equivalents at beginning of period 19,718 15,955
CASH AND CASH EQUIVALENTS AT END OF PERIOD $29,311 $34,308
<FN>
See notes to consolidated financial statements.
</TABLE>
6
<PAGE>
HANOVER BANCORP, INC. AND ITS WHOLLY-OWNED SUBSIDIARY
Notes to Consolidated Financial Statements
(1) In the opinion of management, the accompanying unaudited consolidated
financial statements contain all adjustments which are of a normal
recurring nature necessary to present fairly Hanover Bancorp, Inc's.
financial position as of June 30, 1998, and December 31, 1997, the
results of its operations for the three months and six months ended
June 30, 1998 and 1997 and cash flows for the six months ended June
30, 1998 and 1997.
(2) The information contained in this report is unaudited and is subject to
year-end adjustment and audit.
(3) These statements should be read in conjunction with the consolidated
financial statements and notes thereto included in the Corporation's
Annual Report on Form 10-K for the year ended December 31, 1997.
(4) Net income and cash dividends per share are based on the weighted
average number of shares outstanding which were 3,934,807 during the
quarter ended June 30, 1998; 3,938,628 during the quarter ended June
30, 1997; 3,928,313 during the six months ended June 30, 1998; and
3,948,497 during the six months ended June 30, 1997. Weighted average
shares and all per share data have been adjusted to give retroactive
effect to the 4 for 3 stock split declared April 17, 1998 and paid June
1, 1998.
(5) The results of operations for the six months ended June 30, 1998, are
not necessarily indicative of the results that may be expected for the
year ended December 31, 1998.
(6) Management maintains the allowance for loan losses 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.
(7) Effective January 1, 1998, the Corporation adopted Financial Accounting
Standards Board (FASB) Statement No. 130, "Reporting Comprehensive
Income". FASB 130 establishes new rules for the reporting and display
of comprehensive income and its components; however, the adoption of
this statement had no impact on the Corporation's net income or
shareholders' equity. The statement requires unrealized gains or
losses on the Corporation's available-for-sale securities to be
included in other comprehensive income, which prior to adoption were
reported separately in shareholders' equity. Prior year financial
statements have been reclassified to conform to the requirements of
FASB 130.
Comprehensive income and its components for the quarter and six months
ended June 30, are as follows:
<TABLE>
<CAPTION>
Quarter Six months
Ended Ended
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Net income $1,033 $ 922 $1,974 $1,792
Adjustment to net unrealized gains on
securities available-for-sale, net of
tax effects and reclassification adjustment
for gains included in net income 75 470 (104) (40)
Comprehensive Income $1,108 $1,392 $1,870 $1,752
</TABLE>
Accumulated other comprehensive income consists of the net unrealized
gain on securities available-for-sale, net of tax effects.
7
<PAGE>
(8), Financial Accounting Standards Board (FASB) Statement No. 131,
"Disclosures about Segments of an Enterprise and Related
Information" became effective for fiscal years ending after
December 15, 1997. 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 used by management to evaluate
the operating performance of its business units. FASB 131 is not
required to applied to interim financial statements in the initial
year of its application. As a disclosure requirement, FASB 131 will
not have an impact on the Corporation's financial condition or
results of operations.
********
8
<PAGE>
HANOVER BANCORP, INC. AND ITS WHOLLY-OWNED SUBSIDIARY
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Results of Operations:
The consolidated operations of Hanover Bancorp Inc., (the "Corporation")
are derived primarily from the operations of its wholly-owned subsidiary, the
Bank of Hanover and Trust Company (the "Bank"). The following discussion
and analysis sets forth results of operations through the second quarter of
1998, including basic performance trends. There are no known trends, events
or uncertainties that will have or are likely to have a material effect on
the Corporation's liquidity, capital resources or operations.
All forward looking information contained in this discussion and
analysis is 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.
Second Quarter of 1998 Compared to Second Quarter of 1997:
Net income for the three months ended June 30, 1998, increased $111,000
or 12.0% from 1997 while earnings per share (EPS) increased $.03 or 13.0%
during the same period.
Net interest income on a fully taxable equivalent basis was $4.1 million
for the quarter ended June 30, 1998, an increase of $358,000 or 9.6% from
1997's level of $3.7 million. This increase was due to higher earning asset
levels, driven by loan and deposit growth and increased investment security
activity. Net interest margin decreased 20 basis points from 4.31% in 1997
to 4.11% in 1998. This decrease was due largely to increased investment
security activity funded by Federal Home Loan Bank of Pittsburgh borrowings
at relatively narrow spreads. In addition, the margin has been impacted by a
shift in the deposit mix towards more costly sources, specifically to the
indexed, variable rate money market deposit account introduced at the
beginning of 1997. Although these growth strategies have lowered the
Corporation's margin, as was anticipated by management, they have boosted
earning asset levels and net interest income which has positively impacted
EPS and Return on Equity (ROE).
The provision for loan losses during the second quarter of 1998 increased
$60,000 over the same period in 1997. This increase is reflective of the
growth in the loan portfolio.
9
<PAGE>
Securities gains increased from $129,000 during the three months ended June
30, 1997 to $384,000 for the same period in 1998. This increase was due to
higher equity gains realized from the Corporation's bank stock portfolio,
as management continued to capitalize on the general positive movement in the
market. Management views these gains as deferred investment income as the
return on these investments comes primarily in the form long term market
appreciation.
Other income for the three months ended June 30, 1998 increased $200,000 or
32.6% over the same period in 1997. The increase in trust department income
is reflective of growth in assets under management which increased by
approximately 22% from period to period. Service charges on deposit accounts
increased due to higher automated teller machine (ATM) related fees generated
through the implementation of noncustomer surcharging and a debit card
product in addition to higher overdraft fees. Other operating income was up
primarily as a result of increased income realized through mortgage loan
sales which was spurred by the recent surge in refinancing activity.
Total other expense during the second quarter of 1998 was $541,000 or 18.6%
higher than in 1997. The increase in other operating expense was largely
related to a loss of $252,000 related to the termination of the
Corporation's pension plan which had been frozen in 1996. The remaining
increase in other operating expense and the increase in equipment expense was
primarily related to continued technology investments. The increase in salary
expense was affected by several temporary vacancies during the prior year.
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 26.4% for the quarter
ended June 30, 1998 compared to 26.2% rate in 1997.
Six Months Ended June 30, 1998 Compared to Six Months Ended June 30 1997:
Net interest income on a fully taxable equivalent basis for the six months
ended June 30, 1998 increased $636,000 or 8.6% from the same period in 1997.
This increase was due to higher earning asset levels, driven by loan and
deposit growth and increased investment security activity. Net interest
margin decreased 22 basis points from 4.36% in 1997 to 4.14% in 1998. As
discussed, this decrease was due primarily to increased investment security
activity and a shift in the deposit mix towards more costly sources.
10
<PAGE>
The provision for loan losses during the first half of 1998 increased
$355,000 over the same period in 1997. This increase was primarily related
to a special $250,000 provision taken in the first quarter to raise the
allowance to a level more comparable to industry standards. The higher
provision is also reflective of the growth in the loan portfolio.
Securities gains increased $538,000 during the period ended June 30, 1998
from the same period in 1997. This increase was due to higher gains realized
from the Corporation's bank stock portfolio.
Other income for the six months ended June 30, 1998 increased $336,000 or
27.9% over 1997. The increase in trust department income is reflective of
growth in assets under management. Service charges on deposit accounts
increased primarily due to higher ATM related fees and higher overdraft fees,
as discussed above. The increase in other operating income was largely
related to higher income realized through mortgage loan sale activity.
Total other expense during the first half of 1998 was $6.5 million, an
increase of $810,000 or 14.1% from 1997. As discussed, the increase in other
operating expense was due largely to the loss related to the pension plan
termination. Continued technology investments also contributed to the
increase in this category as well as to the increase in equipment expense.
The increase in salary expense was affected by several temporary vacancies
during the prior year while benefits expense was down due to lower healthcare
costs. The resulting efficiency ratio (the cost to generate one dollar of
revenue), excluding the nonrecurring pension termination loss, for the six
months ended June 30, 1998 was 65.80% compared to 66.75% in 1997.
The Corporation recognized an income tax provision which resulted in an
effective tax rate of 26.5% for the period ended June 30, 1998 up from the
25.6% rate in 1997. The increase was the result of a lower proportion of tax
free assets to earning assets in 1998 relative to 1997 as well as additional
state corporate income taxes incurred at the parent company.
11
<PAGE>
<TABLE>
Trends in Sources and Uses of Funds
<CAPTION>
June 30, DECEMBER 31, Change
1998 1997 $ %
<S> <C> <C> <C> <C>
Funding Sources
Deposits $ 352,421 $ 329,951 $ 22,470 6.8%
Borrowed funds 42,546 37,885 4,661 12.3%
Other liabilities 4,954 4,206 748 17.8%
Shareholders equity 35,803 34,314 1,489 4.3%
TOTAL SOURCES $ 435,724 $ 406,356 $ 29,368 7.2%
Funding Uses
Loans $ 279,278 $ 274,567 $ 4,711 1.7%
Investment securities 113,919 97,641 16,278 16.7%
Federal Funds Sold and other
short-term investments 10,447 5,694 4,753 83.5%
Other assets 32,080 28,454 3,626 12.7%
TOTAL USES $ 435,724 $ 406,356 $ 29,368 7.2%
</TABLE>
12
<PAGE>
Financial Condition
The Corporation uses funds primarily to support its lending activities. Net
loans outstanding increased by $4.7 million or 1.7% from December 31, 1997 to
June 30, 1998. This increase was net of residential mortgage loans sold of
$13.2 million. The growth was comprised primarily of increases in the
commercial categories offset by decreases in the consumer and residential
mortgage categories. The decrease in the consumer category was due to lower
dealer loan activity resulting from generally slower automobile sales. The
decrease in the residential mortgage category was a result of the loan sales
in addition to increased prepayment activity driven by the current low rate
environment. Investment securities, another major use of funds, increased
$16.3 million or 16.7% through the first half of 1998 while federal funds
sold and other short-term investments increased by $4.8 million during this
period. These increases reflect the deployment of funding resulting from
deposit growth exceeding loan growth. In addition, the Corporation increased
its investment portfolio, with FHLB funding, in order to boost earning asset
levels and net interest income. To limit the interest rate risk exposure,
most of this activity was focused on intermediate term, fixed rate mortgage
backed and tax exempt municipal securities.
Deposits are the most important funding source and the primary support for
the Corporation's growth. During the first six months of 1998, total
deposits increased $22.5 million or 6.8%. This growth came primarily from
the demand and money market categories and certificates of deposit over
$100,000 (large CDs). The increase in money market deposits was reflective of
the continued growth of the indexed account mentioned earlier. The increase
in large CDs was related primarily to one temporary municipal deposit.
Borrowed funds increased primarily as a result of the additional usage of
FHLB borrowings as discussed above. In addition to being a source for funding
specific investments, these borrowings are used to manage the balance sheet
and interest rate risk.
Capital Resources and Dividends
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.
At June 30, 1998, total shareholders' equity was $35.8 million, an increase
of $1.5 million or 4.3% from December 31, 1997. This change consisted of an
increase of $1.6 million in capital stock, surplus and undivided profits
(core equity) and an decrease of $104,000 in unrealized gains on AFS
securities. The increase in the core equity was primarily the result of
earnings retained.
On April 17, 1998, the Board of Directors declared a 4-for-3 stock split
which was paid June 1, 1998 to shareholders of record May 1, 1998. The
primary objective of this split was to enhance liquidity and improve
marketability by increasing the number of shares outstanding, while
maintaining the strong market climate for Hanover Bancorp stock. Another tool
available to management for supporting the market for the Corporation's
stock is the repurchase program approved April 18, 1997 by the Board of
Directors. As of June 30, 1998, 148,347 shares were still available for
purchase under the program. This program and the prior program have benefitted
the Corporation in terms of improved EPS and ROE, two performance factors key
to driving shareholder value.
13
<PAGE>
During the quarter ended June 30, 1998, the Board of Directors declared a
cash dividend of $.10 per share payable August 1, 1998, an increase of $.01
or 11.1% per share from a year ago. The Corporation relies on net income
rather than retained earnings for the payment of dividends to shareholders.
The dividend rate is determined by the Board of Directors after considering
the level of internal capital growth necessary to maintain an appropriate
ratio of equity to assets and the projected level of earnings. Management
anticipates that the internal growth rate of equity is more than adequate to
support the Corporation's asset growth.
As can be seen by the following tables, the Corporation and the Bank remain
well capitalized as defined by the regulatory authorities.
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
<S> <C> <C>
Hanover Bancorp, Inc.
Tier 1 capital to risk-adjusted assets 12.46% 12.47%
Total capital to risk-adjusted assets 13.65% 13.58%
Leverage ratio 8.15% 8.19%
Bank of Hanover and Trust Company
Tier 1 capital to risk-adjusted assets 10.99% 10.82%
Total capital to risk-adjusted assets 12.20% 11.93%
Leverage ratio 7.15% 7.09%
</TABLE>
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:
Tier I
Total Capital Capital to
to Risk-Adjusted Risk-Adjusted
Assets Assets
Leverage
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
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".
14
<PAGE>
Asset Quality and Allowance for Loan Losses:
The following tables illustrate the Corporation's nonperforming asset
position as of June 30, 1998 compared to its position at December 31, 1997.
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
<S> <C> <C>
Non-accrual loans $ 531 $ 331
Accruing loans past due 90 days or more 378 174
Restructured loans 177 221
Other real estate and other
repossessed assets 90 236
Total non-performing assets $1,176 $ 962
Non-accrual loans by category
Commercial, financial and agricultural $ 82 $ ---
Real estate-construction --- ---
Real estate-mortgage 441 331
Consumer 8 ---
$ 531 $ 331
Past due loans by category
Commercial, financial and agricultural $ 66 $ ---
Real estate-construction --- ---
Real estate-mortgage 287 153
Consumer 25 21
$ 378 $ 174
Restructured loans by category
Commercial, financial and agricultural $ --- $ ---
Real estate-construction --- ---
Real estate-mortgage 177 221
Consumer --- ---
$ 177 $ 221
</TABLE>
Nonperforming assets were .42% of total loans at June 30, 1998 compared to
.35% at December 31, 1997. In addition, potential problem loans at June 30,
1998, as determined by the Corporation's internal review process, were $2.3
million in comparison to $2.8 million at December 31, 1997. Of these
amounts, $408,000 and $470,000 were considered impaired under FASB 114 for
June 30, 1998 and December 31, 1997, respectively. Loans considered impaired
under FASB 114 represent those potential problem loans which management feels
are probable (as opposed to possible) to result in future noncompliance in
addition to the Corporation's applicable nonaccrual loans and restructured
loans.
15
<PAGE>
Transactions in the allowance for loan losses were as follows:
<TABLE>
<CAPTION>
Period ended Year ended
June 30, December 31,
1998 1997
<S> <C> <C>
Balance at beginning of period $2,908 $2,403
Recoveries on loans 108 181
Provision charged to operations 655 910
Loans charged-off (388) (586)
Balance at end of period $3,283 $2,908
</TABLE>
The Corporation remains committed to making provisions in order to maintain a
strong allowance relative to its level of specific potential losses and to
its growing overall loan portfolio. A total provision of $655,000 was made
during the first half of 1998. As discussed, this amount included a special
$250,000 provision. The resulting allowance for loan losses at June 30, 1998
was $3.3 million in comparison to $2.9 million at December 31, 1997. This
allowance approximated 1.16% of total loans and 279% of nonperforming assets
at June 30, 1998 versus 1.05% and 302% at year end 1997. Management feels
that the allowance for loan losses is adequate to cover potential losses
within the overall portfolio.
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. The Corporation's liquidity position is enhanced by a
relatively stable funding base. The ratio of deposits (excluding CDs over
$100,000) to total assets was 76.1% at June 30, 1998, while CDs over $100,000
and other borrowed funds to total assets was 14.5%. To manage its liquidity
needs, the Corporation looks to a number of sources on both sides of its
balance sheet.
On the asset side of the balance sheet, the Corporation relies on federal
funds sold, short-term investments, maturities in the investment portfolio,
principal repayments on outstanding loans and amortizing investment
securities and sales of loans in the secondary markets. At June 30, 1998,
the balance of the federal funds sold account was $10.4 million, while a
total of $5.4 million of the Corporation's investment portfolio was
scheduled to mature in one year or less. Additionally, an average of $8.6
million in loan principal repayments and $790,000 in mortgage-backed and
asset-backed securities repayments were received by the Corporation during
each month of the first six months of 1998. Also during this period, the
Corporation sold $13.2 million of loans in the secondary markets.
The Corporation maintains borrowing agreements 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 Corporation has available short-term credit of
approximately $10.0 million and permanent funding of approximately $90.0
million.
16
<PAGE>
<TABLE>
HANOVER BANCORP INC. CONSOLIDATED GAP ANALYSIS
<CAPTION>
0-30 31-90 91-365
DAYS DAYS DAYS
(In thousands of dollars)
<S> <C> <C> <C>
June 30,1998
Interest Earning Assets $ 75,069 $ 20,518 $ 74,004
Interest Bearing Liabilities $ 81,827 $ 20,060 $ 53,937
Rate Sensitivity GAP:
Periodic Gap $ (6,758) $ 458 $ 20,067
Cumulative Gap $ (6,758) $ (6,300) $ 13,767
Rate Sensitivity Ratio
Periodic Gap (1.55%) 0.11% 4.61%
Cumulative Gap (1.55%) (1.45%) 3.16%
December 31, 1997:
Rate Sensitivity GAP:
Periodic Gap $ (9,391) $ (264) $ 15,948
Cumulative Gap $ (9,391) $ (9,655) $ 6,293
Rate Sensitivity Ratio
Periodic Gap (2.31%) (0.06%) 3.92%
Cumulative Gap (2.31%) (2.38%) 1.55%
</TABLE>
17
<PAGE>
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 in the accompanying table, the Corporation had a cumulative gap within one
year at June 30, 1998 of positive $13.8 million and a rate sensitivity
ratio of positive 3.16%, in comparison to a positive gap of $6.3 million
and a rate sensitivity ratio of positive 1.55% at December 31, 1997.
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
18
<PAGE>
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 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.
Management does not believe this risk position has changed significantly
since year-end.
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.
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.
19
<PAGE>
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 1998 the Pennsylvania State Department of
Banking completed a routine examination of the Bank including an assessment
of asset quality. During 1997 the FDIC completed a similar examination of
the Bank.
20
<PAGE>
PART II. OTHER INFORMATION
HANOVER BANCORP, INC. AND ITS WHOLLY-OWNED SUBSIDIARY
Item 1. Legal Proceedings
In the opinion of the management of the Corporation and the Bank, there
are no proceedings pending to which the Corporation and/or Bank is a party or
to which their property is subject, which, if determined adversely to the
Corporation or Bank, would be material in relation to the Corporation's and
the Bank's undivided profits or financial condition. There are no
proceedings pending other than ordinary routine litigation incident to the
business of the Corporation or the Bank. In addition, no material
proceedings are pending or are known to be threatened or contemplated against
the Corporation or the Bank by government authorities.
Item 2. Changes in Securities - None.
Item 3. Defaults Upon Senior Securities - None.
Item 4. Submission of Matters to a Vote of Security Holders
(a) An annual meeting of shareholders was held April 21, 1998.
(b)-(c) One matter was voted upon, as follows:
Four directors were elected, as below:
Votes Votes
Term Cast Cast Votes
Expires "For" "Against" "Abstained"
Re-elected
Bertram F. Elsner 2001 2,154,539 16,649 0
J. Daniel Frock 2001 2,154,539 16,649 0
Gordon A Haaland, Ph.D. 2001 2,150,782 20,406 0
John S. Hollinger, Jr. 2001 2,151,463 19,725 0
Directors whose term continued after meeting
Michael D. Bross 1999
Thomas M. Bross, Jr. 1999
Earl F. Noel, Jr. 1999
J. Bradley Scovill 1999
Terrence L. Hormel 2000
Vincent P. Pisula, M.D. 2000
Charles W. Test 2000
S. Eisenhart, Jr. 2000
Item 5. Other Information - None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
3(i). Amended and Restated Articles of Incorporation of the Registrant
3(ii). Amended and Restated Bylaws of the Registrant
27. Financial Data Schedule
(b) Reports on Form 8-K - None
21
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HANOVER BANCORP, INC.
Date: August 13, 1998 /s/ Bradley Scovill
J. Bradley Scovill
President and
Chief Executive Officer
(Principal Executive Officer)
Date: August 13, 1998 /s/ Thomas J. Paholsky
Thomas J. Paholsky
Treasurer
(Principal Accounting and
Financial Officer)
22
<PAGE>
EXHIBIT 3(i)
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
HANOVER BANCORP, INC
In compliance with the requirements of Section 204 of the Business
Corporation Law, act of May 5, 1933 (P.L. 364) (15 P.S.section 1204) the
undersigned, desiring to be incorporated as a business corporation, hereby
certifies (certify) that:
1. The name of the corporation is: Hanover Bancorp, Inc.
2. The location and post office address of the initial registered office
of the corporation in this Commonwealth is: 25 Carlisle Street, Hanover,
Pennsylvania 17331
3. The corporation is incorporated under the Business Corporation
Law of the Commonwealth of Pennsylvania for the following purpose or
purposes: The corporation shall have unlimited power to engage in and do any
lawful act concerning any and all lawful business for which corporations may be
incorporated under the Act of May 5, 1933, P. L. 364, its amendments and
supplements, under the provisions of which said Act this corporation is
incorporated.
4. The date of incorporation is: April 8, 1982
5. A. The aggregate number of shares which the Corporation shall
have authority to issue is Eleven Million (11,000,000) shares, consisting
of Nine Million (9,000,000) shares of common stock, par value $.83 per
share (hereinafter referred to as the "Common Stock"), and Two Million
(2,000,000) shares of preferred stock, par value $2.50 per share
(hereinafter referred to as the "Preferred Stock").
B. Any number of shares of the 2,000,000 shares of Preferred
Stock may be issued from time to time in one or more series
of Preferred Stock. The designations, the relative preferences
and participating, optional and other special rights, and the
qualifications, limitations or restrictions of each such series, if
any, may differ from those of any and all other series; and the
Board of Directors is hereby expressly authorized to fix by
resolution or resolutions prior to the issuance of any shares of
any series of the Preferred Stock, the designations,
preferences, relative, participating, optional and other special
rights or the qualifications, limitations or restrictions of such
series, including, without limiting the generality of the
foregoing, the following:
1) The date and time at which, and the terms and conditions on
which,dividends, if any, on such series of Preferred Stock shall be paid;
2) The right, if any, of the holders of shares of such series of
Preferred Stock to vote and the manner of voting, except as
may otherwise be provided by the Pennsylvania Business
Corporation Law;
3) The right, if any, of the holders of shares of such series of
Preferred Stock to convert the same into or exchange the same
for other classes of stock of the Corporation and the terms and
conditions for such conversion and exchange;
4) The redemption price or prices, if any, and the time at which,
and the terms and conditions on which, the series of such
series of Preferred Stock may be redeemed;
5) The rights of the holders of shares of such series of Preferred
Stock upon the voluntary or involuntary liquidation, distribution or sale
of assets, dissolution or winding up of the corporation; and
6) The terms of the sinking fund or redemption or purchase account, if any, to
be provided for such series of Preferred Stock.
C. Subject to the provisions of the Preferred Stock, dividends
payable on the Common Stock of the Corporation in cash or otherwise
may be declared and paid on the shares of the Common Stock of the
Corporation from time to time out of any funds or property legally
available therefor, and in the event of any such declaration or payment the
holders of Common Stock of the Corporation shall be entitled, to the
exclusion of the holders of the Preferred Stock, to share therein.
D. In the event of any liquidation, dissolution or winding up of
the Corporation, after distribution and payment in full shall have been made
to the holders of the Preferred Stock in accordance with the terms thereof,
the remainder of the assets, if any, of the corporation shall be distributed
pro rata among the holders of the Common Stock of the Corporation.
6. The name(s) and post office address(es) of each incorporator(s)
and the number and class of shares subscribed by such incorporator(s)
is (are):
NAME ADDRESS NUMBER AND CLASS OF SHARES
John V. Silcox R. D. #3, Spring Grove, PA 17362 40 shares, common
E. B. Frock 7 Oak St., Hanover, PA 17331 40 shares, common
Jesse L. Crabbs 31 York St., Hanover, PA 17331 40 shares, common
7. A. Except as otherwise herein provided or otherwise required by
law, the entire voting power of the Corporation shall be vested in the
holders of the Common Stock of the Corporation ("Common Stock").
B. Each shareholder of the Corporation who at the time possesses
voting power for any purpose shall, for such purpose, be entitled to one
vote for each share of such stock standing in his name on the books of the
Corporation. Cumulative voting rights shall not exist with respect to the
election of members of the Board of Directors of the Corporation ("Board
of Directors"). The affirmative vote of the holders of at least 75% of the
outstanding shares of Common Stock shall be required to remove any
member of the Board of Directors during his or her term of office or to fill
the vacancy caused by such a removal. Provided, however, that, except to
fill the vacancies caused by such removal, any other vacancy may be filled
in the manner as prescribed in the by-laws.
C. The affirmative vote of the holders of at least 75% of the
outstanding shares of Common Stock shall be required to amend or repeal this
Paragraph 7.
8. No merger, consolidation, liquidation or dissolution of the
Corporation, nor any action that would result in the sale or other
disposition of all or substantially all of the assets of the
Corporation shall be valid unless first approved by the affirmative
vote of:
1) the holders of at least seventy-five percent (75%) of the
outstanding shares of voting stock of the Corporation; or
2) the holders of at least a majority of the outstanding shares of
voting stock of the Corporation, provided that such transaction
has received the prior approval of at least seventy-five percent
(75%) of all of the members of the Board of Directors.
9. A. The Board of Directors may, if it deems it advisable,
oppose a tender or other offer for the Corporation's securities, whether the
offer is in cash or in the securities of a corporation or otherwise. When
considering whether to oppose an offer, the Board of Directors may, but is
not legally obligated to, consider any pertinent issue; by way of
illustration, but not limitations, the Board of Directors may, but shall not
be legally obligated to, consider any or all of the following:
(1) Whether the offer price is acceptable based on the
historical and present operating results or financial
condition of the Corporation;
(2) Whether a more favorable price could be obtained
for the Corporation's securities in the future;
(3) The impact which an acquisition of the Corporation
would have on the employees, depositors and customers of
the Corporation and its subsidiaries and the communities
which they serve;
(4) The reputation and business practices of the offeror
and its management and affiliates as they would affect the
employees, depositors and customers of the corporation and
its subsidiaries and the future value of the Corporation's
stock;
(5) The value of the securities (if any) which the
offeror is offering in Any antitrust or other legal and regulatory
exchange for the Corporation's securities, based on an analysis of the
worth of the Corporation as compared to the Corporation or other
entity whose securities are being offered; and
(6) Any antitrust or other legal and regulatory issues
that are raised by the offer.
B. If the Board of Directors determines that an offer should be
rejected, it may take any lawful action to accomplish its purpose,
including, but not limited to, any or all of the following: advising
shareholders not to accept the offer; litigation against the offeror;
filing complaints with all governmental and regulatory authorities;
acquiring the Corporation's securities; selling or otherwise issuing
authorized but unissued securities or treasury stock or granting
options with respect thereto; acquiring a company to create an
antitrust or other regulatory problem for the offeror; and obtaining a
more favorable offer from another individual or entity.
10. Subchapters G and H of Chapter 25 of the Pennsylvania Business
Corporation Law of 1988, as added and amended by Act 36 of 1990 shall
apply to this Corporation.
EXHIBIT 3(ii)
AMENDED AND RESTATED
BY-LAWS
OF
HANOVER BANCORP, INC.
ARTICLE I
PLACE OF BUSINESS
The principal office and place of business of the Corporation shall
be located at 25 Carlisle Street, Hanover, York County, Pennsylvania.
Additional places of business may be established from time to time, and
thereafter changed or discontinued, in the manner prescribed by law.
ARTICLE II
MEETINGS OF SHAREHOLDERS
Section 1.
a. The annual meeting of the shareholders shall be held at the
principal office of the Corporation or at such other place within the
Commonwealth as the Board of Directors shall designate no later than
April 30 of each year, at such particular time on said date as the Board
shall designate.
b. A written or printed notice of every such meeting shall be
mailed, charges prepaid, at least five (5) days before the date of the
meeting, to every shareholder of record entitled to vote at the meeting.
Such notice shall specify the date and the hour of the meeting and shall be
sent to the last known residence or place of business of the shareholder
entitled to receive such notice.
Section 2.
At each annual meeting, the shareholders shall elect the number of
Directors specified in these By-Laws to serve until the next succeeding
annual meeting and until their successors are duly elected and qualified;
and they shall transact such other business as may come before them.
Section 3.
a. Special meetings of the shareholders may be called at any
time by the President or a majority of the Board of Directors.
b. Upon receipt of a written request that a meeting be called
under the provisions of paragraph "a" of this Section 3, the Secretary shall
call a special meeting of the shareholders which shall be held at a time not
more than sixty (60) days after the receipt of such request by the
Secretary. If the Secretary neglects or refuses to fix the time of the
meeting, the person or persons calling the meeting may do so.
c. A written or printed notice of every special meeting shall
be mailed, charges prepaid, at least ten (10) days before the date of the
meeting, to every shareholder of record entitled to vote at the meeting.
The notice so to be sent shall state the purpose for which the meeting is
being called and shall specify the day, the hour and the place of such
special meeting. The notice shall be sent to the last known residence or
place of business of the shareholder entitled to receive such notice.
<PAGE>
Section 4.
Any annual or special meeting of the shareholders may be adjourned
for any period of time; provided, however, that any meeting at which
Directors are to be elected may be adjourned only from day to day until
such Directors shall have been elected; provided, further, however, that
such election shall be held at the second of such adjourned meetings.
Section 5.
a. In advance of any meeting of shareholders, the Board of
Directors shall appoint a judge or judges of election to act at such meeting
or any adjournment thereof. Such judges need not be shareholders of the
Corporation. If a judge or judges of election for any reason be not so
appointed, the chairman of any such meeting shall make such appointment
at the meeting.
b. The number of judges shall be one or three. If appointed at a
meeting, the majority
of shares present and entitled to vote shall determine whether one or three
judges are to be appointed.
c. No person who is candidate for office shall act as judge.
d. If any person so appointed as judge fails to appear at the
meeting or fails or refuses
to act, the vacancy, thus created, may be filled by appointment made by
the Board of Directors in advance of the convening of the meeting, or, at
the meeting, by the person acting as chairman of the meeting.
e. The judge or judges of election shall determine the number
of shares outstanding; the voting rights of each share; the shares
represented at the meeting; whether or not a quorum is in attendance or is
represented; the authenticity, validity, and the effect of proxies; receive
votes or ballots; hear and determine all challenges and questions in any
way arising in connection with the right to vote; count and tabulate all
votes; determine the results of all ballots cast and the votes taken; and do
such acts and establish such procedures as may be proper to conduct the
election and balloting with fairness to all shareholders. If there be three
judges of election, the decision, act, or certificate of majority shall be as
effective, in all respects, as the decision, act or certificate of all.
f. Upon the request of the chairman of the meeting, or of any
shareholder or his proxy, the judge or judges shall make a report in
writing, of any challenge or question or matter determined by him or
them, and shall execute a certificate of any fact found by him or them.
Any report or certificate so made by the judge or judges, shall be prima
facie evidence of the conclusions therein reached and/or the facts therein
found.
Section 6.
a. At any meeting of the shareholders, annual or special, the
presence in person or by
proxy of a majority of the shares outstanding and entitled to vote shall
constitute a quorum.
b. If a quorum is present at the convening of any shareholders'
meeting, then, notwithstanding the withdrawal of some of the shareholders
leaving less that a quorum, the shareholders who remain at such a meeting
which shall have been so duly organized may continue to do business until
the adjournment of the meeting.
<PAGE>
c. If a shareholders' meeting cannot be organized for want of
a quorum, those present may adjourn the meeting to such time and place
as they may determine; provided, however, that a meeting called for the
election of Directors may be adjourned twice only and, even though there
shall be present at the second adjourned meeting less than a quorum, as
herein defined, Directors may and shall be elected by those present at the
second of such adjourned meetings.
Section 7.
At all meetings of shareholders, each shareholder shall be entitled to
one vote for each share outstanding in his name on the books of the
Corporation. Each shareholder shall have the right to vote his share or
shares either in person or by proxy duly executed in writing; provided,
however, that no proxy executed more that eleven (11) months previous to
an annual meeting shall be valid at such annual meeting; provided,
further, that no proxy executed prior to the date of the notice of any
special meeting shall be valid at such special meeting.
Section 8.
a. At least five (5) days before each meeting of shareholders,
annual or special, the Officer of the Corporation who has charge of the
stock transfer books for shares shall make a complete list of all
shareholders entitled to vote at the forthcoming meeting; said list shall be
arranged in alphabetical order with the address of each shareholder and
the number of shares held by him. Such list shall be kept on file and shall
be subject to inspection by any shareholder for any proper purpose at the
principal place of business of this corporation during usual business hours.
b. The list which shall have been prepared in accordance with
the provisions of paragraph "a" of this Section 8, shall be produced and
kept open at the time and place of each shareholders' meeting; the same
shall be available for inspection by any shareholder for any purpose during
the entire meeting.
ARTICLE III
BOARD OF DIRECTORS
Section 1.
a. The business of this Corporation shall be managed by a
Board of Directors of not
less than five (5) or more than twenty-five (25) in number.
b. The directors shall be classified with respect to the time
they shall severally hold
office by dividing them into three (3) classes, each consisting as nearly as
possible of one-third (1/3) of the number of the whole Board of Directors;
provided, however, that nothing herein shall be construed to require exact
equality in the number of directors in each class. At the Annual Meeting
of Shareholders to be held in 1983, the directors of one class shall be
elected to hold office for a term of one year; the directors of a second
class shall be elected to hold office for a term of two (2) years; and the
directors of a third class shall be elected to hold office for a term of three
(3) years and at each Annual Meeting of Shareholders thereafter the
successors to the class of directors whose term shall expire that year shall
be elected to hold office for a term of three (3) years so that the term of
office of one (1) class of directors shall expire in each year. The directors
shall hold office until the expiration of the term for which they were
elected and until their successors are elected and have qualified. The
number of directors in each class and the total number of directors that
shall constitute the whole Board of Directors shall, from time to time, be
determined by the Board of Directors.
<PAGE>
c. Any shareholder who intends to nominate or to cause to
have nominated any candidate for election to the Board of Directors (other
than any candidate proposed by the Corporation's then existing Board of
Directors) shall so notify the Secretary of the Corporation in writing not
less than sixty (60) days prior to the anniversary date of the meeting of
shareholders held for the election of directors in the immediately
preceding year. Such notification shall contain the following information:
(1) the name and address of each proposed nominee;
(2) the age of each proposed nominee;
(3) the principal occupation of each proposed nominee;
(4) the number of shares of the Corporation owned by each
proposed nominee;
(5) the total number of shares that, to the knowledge of the
notifying shareholder, will be voted for each proposed
nominee;
(6) the name and residence address of the notifying
shareholder;
(7) the number of shares of the Corporation owned by the
notifying shareholder; and
(8) an indication of whether each nominee has agreed to
serve on the Corporation's Board of Directors.
Any nomination for director not made in accordance with Section
shall be disregarded by the presiding officer of the meeting, and votes cast
for each such nominee shall be disregarded by the judges of election. In
the event that the same person is nominated by more than one shareholder,
if at least one nomination for such person complies with this Section, the
nomination shall be honored and all votes cast for such nominee shall be
counted.
Section 2.
a. Every Director shall be a shareholder of this Corporation
and he shall own, in his own right, as tenant by the entirety with his
spouse, or beneficially, one hundred (100) shares of the common stock of
this Corporation.
b. No person, except those who are presently serving as
Directors, shall be eligible for election after he or she shall have attained
age seventy (70) years. (Adopted June 2, 1982)
c. Except those Directors who are presently serving as
Directors, Directors shall retire at age seventy (70) years. Directors, who
are presently serving shall retire at age eighty (80) years. (Adopted June 2,
1982)
<PAGE>
Section 3.
Any vacancy or vacancies on the Board of Directors caused by
death, resignation or disqualification of a Director or otherwise, may be
filled by the remaining members of the Board, though less than a quorum.
Any Director or Directors so elected shall hold office for the unexpired
term of the Director or Directors whom he, she or they replace, and until
his, her or their successor or successors are elected by the shareholders
and qualify.
Section 4.
The Board of Directors shall meet for reorganization on the third
Friday of May in each year.
Section 5.
All meetings of the Board of Directors, regular or special, shall be
held at such place within the Commonwealth of Pennsylvania as the
Board of Directors, by majority action thereof, shall designate.
Section 6.
Regular meetings shall be held on such days and at such hour as the
Board, by action of a majority thereof, shall, from time to time, designate.
Section 7.
a. Special meetings of the Board of Directors may be called
by the Chairman of the Board or by the President or by the Secretary and a
Vice President. Special meetings shall be called whenever three (3) or
more members of the Board shall deliver to the Secretary or any Assistant
Secretary a request in writing that a special meeting be called. Such
request shall specify the purpose for which the special meeting is to be
called.
b. Notice of every special meeting shall be given by the
Secretary, in writing, by telephone or telegraph, at least one (1) day before
the date of such meeting. Such notice shall specify the business to be
transacted at the special meeting.
c. No official action may be taken on any merger or
acquisition except at a special meeting of the Board of Directors with
notice thereof, in writing, by telephone or by telegraph, at least fourteen
(14) days before the date of said meeting. Such notice shall specify the
nature of the business to be transacted at the special meeting.
Section 8.
The order of business at all meetings of the Board of Directors shall
be determined by the Board of Directors.
Section 9.
The Board of Directors shall keep complete and accurate records of
their proceedings in a minute book which shall be kept for that purpose
only.
Section 10.
Whenever any Director shall so request, the vote of each Director
upon a particular question shall be recorded in the minutes.
<PAGE>
Section 11.
The Board of Directors shall cause to be made, at least once each
year, a complete examination of the books, papers, records and affairs of
the Corporation and the loans and discounts thereof and such other
matters as may be required by law. For the accomplishment of such
examination, the Board of Directors shall have the authority to employ a
Certified Public Accountant or a firm of Certified Public Accountants. A
report of each such examination shall be reasonably made to the Board of
Directors who shall thereupon take such action thereon as shall be
necessary. The report of audit shall be required to be filed by the
accountant or accountants who made the audit. A final copy of the report
shall be filed with the Department of Banking of the Commonwealth of
Pennsylvania and such other governmental agencies or departments of the
Commonwealth of Pennsylvania as shall be required by law. A final copy
shall be kept in the files of this Corporation.
Section 12.
No Director shall be entitled to any salary, as such; the Board of
Directors may, however, from time to time, fix a reasonable fee or
compensation to be paid each Director for his services in attending
meetings of the Board.
Section 13.
a. No Director of the Corporation shall be personally liable
for monetary damages for any action or any failure to take any action
unless:
1. The Director has breached or failed to perform the
duties of his office in good faith in a manner which he reasonably
believes to be in the best interest of the Corporation and with such
care, including reasonable inquiry, skill and diligence, as a person
of ordinary prudence would use under similar circumstances; and
2. the breach or failure to perform constitutes self-
dealing, willful misconduct or recklessness.
b. The provisions of this Section shall not apply to:
1. Any breach of performance of duty or nay failure of
performance of duty by any Director occurring prior to January 27,
1987.
2. The responsibility or liability of a Director pursuant
to any criminal statue.
3. The liability of a Director for payment of taxes
pursuant to local, state or federal law.
Section 14.
At all meetings of the Board of Directors, a majority of the directors
in office shall constitute a quorum for the transaction of business, and the
acts of a majority of the directors present at a meeting in person at which a
quorum is present shall be the acts of the Board of Directors, except as
may be otherwise specifically provided by statute or by the Articles of
Incorporation or by these By-laws. If a quorum shall not be present in
person at any meeting of the directors, the directors present may adjourn
the meeting from time to time, without notice other than announcement at
the meeting, until the quorum shall be present or as permitted herein. Any
action required or permitted to be taken at a meeting of the Board of
Directors must be taken at a meeting duly called pursuant to these By-
Laws and no meeting may be held by conference telephone or similar
communications equipment.
<PAGE>
Section 15.
A director who is present at a meeting of the Board of Directors, or
of a committee of the Board of Directors, at which action on any corporate
matter is taken shall be presumed to have assented to the action taken
unless his dissent is entered in the minutes of the meeting or unless he
files his written dissent to the action with the Secretary before the
adjournment thereof or transmits the dissent in writing to the Secretary
immediately after the adjournment of the meeting. The right to dissent
shall not apply to a director who voted in favor of the action. Nothing in
this Article III, Section 15 shall bar a director from asserting that minutes
of any meeting incorrectly omitted his dissent if, promptly upon receipt of
a copy of such minutes, he notifies the Secretary, in writing, of the
asserted omission or inaccuracy.
Section 16.
The Board of Directors may appoint a person who previously held
the position of Director to be a Director Emeritus. A Director Emeritus
may attend meetings of the Board of Directors by invitation only. A
Director Emeritus may advise the Board of Directors on any proposed
corporate action, but shall not have any voting rights. For purposes of
indemnification pursuant to ARTICLE VI-A of these By Laws, Directors
Emeritus shall be deemed to be "Directors" and the term "Director" in
ARTICLE VI-A shall include in its meaning all those holding the position
of Director Emeritus.
ARTICLE IV
STANDING COMMITTEES
Section 1.
At the first meeting of the Board of Directors after the annual
Meeting of Shareholders, or as soon thereafter as practicable, the
Chairman of the Board of Directors shall appoint, subject to approval by
the Board, an Executive Committee and such other Committees as shall
be necessary for the expeditious management of the business affairs of
this Corporation.
Section 2.
The Executive Committee shall be comprised of the Chairman of
the Board and the President and, in addition thereto, of not less than three
nor more than seven members of the Board of Directors. The Chairman
of the Board shall be the Chairman of the Executive Committee.
Section 3.
Of all committees., except the Executive Committee, appointed in
the manner provided in this ARTICLE, the Chairman of the Board shall
designate a Chairman.
Section 4.
The Chairman of the Board shall be an ex officio member of every
committee; the President shall be an ex officio member of every
committee; except the Audit Committee.
<PAGE>
Section 5.
As soon as practicable after the appointment of a committee, each
committee shall meet and organize, by the appointment of a secretary and
such other officers as may be necessary. A record of the proceedings of
all committees shall be kept and submitted to the Board of Directors at the
regular Board meeting immediately following such committee meeting.
Committee meetings shall be called by the Chairman and shall be held at
such place and time as designated by the Chairman in calling the meeting.
ARTICLE V
OFFICERS
Section 1.
At the annual reorganization meeting, the Board of Directors may
elect a Chairman of the Board, a Vice-Chairman of the Board, a President,
one or more Vice-Presidents, a Secretary and a Treasurer. The Board, at
each reorganization meeting, may also elect one or more Assistants to any
of the aforesaid officers as they shall deem necessary.
Section 2.
No person not a member of the Board of Directors shall be eligible
for election to the offices of Chairman of the Board of Directors, Vice
Chairman of the Board or President.
Section 3.
Any two (2) or more offices may be held by the same person except
that the same individual may not hold the Offices of President and of
Treasurer.
Section 4.
The President shall be and hereby is designated as the Chief
Executive Officer.
Section 5.
The Board of Directors may, from time to time, create such other
offices and assign such duties as they shall deem to be necessary for the
proper management of the affairs of this Corporation. Any officer or
agent of the Corporation may be removed by the Board of Directors with
or without cause. The removal shall be without prejudice to the contract
rights, if any, of any person so removed. Election or appointment of any
officer or agent shall not of itself create contract rights.
<PAGE>
Section 6. The Chairman of the Board
The Chairman of the Board shall be Chairman of the Executive
Committee; he shall preside at all meetings of shareholders, of the Board
of Directors and of the Executive Committee; he shall act in an advisory
capacity to the Board of Directors, the Executive Committee and officers
of the Corporation. In the absence of the President, the Chairman of the
Board shall discharge the duties of the President. In absence of both
President and the Chairman of the Board, the Vice-Chairman of the Board
shall discharge the duties of the President.
Section 7. The President
The President shall have general supervision of the business of the
Corporation. He shall be responsible to the Board of Directors for
planning, directing, coordinating and controlling the Corporation's
activities within the scope of basic policies established and authority
delegated by the Board and in so doing, for maintaining the direction and
momentum of the business of the Corporation toward the objectives
established by the Board. He shall perform such other duties as may, from
time to time, be prescribed by the Board of Directors.
Section 8. The Vice President
The Vice President or Vice Presidents shall perform such duties as
may be prescribed by the Chief Executive Officer.
Section 9. The Secretary
The Secretary shall keep the minutes of the meetings of the Board
of Directors and of the meetings of the shareholders. He or one of the
Assistant Secretaries shall see that proper notices are given of all meetings
of which notice is required. He shall have authority, when necessary, to
attest to the Corporate Seal when affixed to written instruments property
executed on behalf of the Corporation. Generally, he shall perform such
other duties as may be prescribed from time to time, by the Board, the
Executive Committee or the President.
Section 10. The Assistant Secretaries
The Assistant Secretaries shall perform such duties as shall be
prescribed by the President, or the Secretary.
ARTICLE VI
AUTHORITY OF EXECUTIVE OFFICERS
Section 1.
The President and such other officer(s) as may be designated by
the Board of Directors shall each have authority and power to execute and
to affix the Corporate Seal to any Power of Attorney necessary to effect
the transfer of any stocks, bonds, loans or scrip standing in the name of the
Corporation in its own right.
Section 2.
The President and such officer(s) as may be designated by the
Board of Directors shall each have the power and authority to assign any
and all registered bonds standing at any time in the name of the
Corporation in its own right, and to appoint one or more attorneys for that
purpose.
<PAGE>
Section 3.
The President and such other officer(s) as may be designated by
the Board of Directors shall each have the power and authority to transfer
any policies of insurance at any time standing in the name of the
Corporation.
Section 4.
The President or any Vice-President, together with the Secretary or
the Assistant Secretaries, are authorized to do and perform such Corporate
and Official acts as are necessary in the carrying on of the business of the
Corporation, subject always to the directions of the Board of Directors and
the Executive Committee. Subject to like limitations, the said Officers are
fully empowered to make and execute all deeds, leases, releases,
agreements, contracts, bills of sale, assignments, letters of attorney or
substitution and other instruments or contracts as may be necessary or
desirable for the proper conduct of business of the Corporation; and to
cause the Corporate Seal to be affixed to any and all such instruments, and
attested by the Secretary of an Assistant Secretary and duly acknowledged.
Section 5.
"The President shall have authority to designate such of the
officers and/or employees who shall have power and authority to sign
checks, drafts, letters of credit, orders, receipts or acquittances and to
endorse checks, orders, drafts and vouchers made payable or endorsed to
the Corporation."
ARTICLE VI-A
INDEMNIFICATION
a. The Corporation shall indemnify any officer or director of
the Corporation made or threatened to be made a party to any civil,
criminal, administrative or investigative action, suit or proceeding
(whether brought by or in the name of the Corporation or otherwise)
arising out of such person's service to the Corporation or to another
organization at the Corporation's request against all expenses, (including
attorneys' fees), judgments, fines and amounts paid in settlement actually
and reasonably incurred by such person in connection with such action,
suit or proceeding. Such right to indemnification shall not apply in
relation to matters as to which such person shall be finally adjudicated to
have been guilty of willful misconduct or recklessness.
b. Expenses incurred by any officer or director in defending
any civil or criminal action, suit or proceeding shall be paid by the
Corporation in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking, in form and scope satisfactory
to Corporation, by or on behalf of such person to repay such amount if it
shall ultimately be determined that such officer or director is not entitled
to such indemnification.
c. The indemnification and advancement of expenses
provided by this Article shall not be deemed exclusive of any other rights
to which a person seeking indemnification may be entitled under any by-
law, vote of shareholders or directors, agreement or otherwise, and shall
continue as to any person who has ceased to be an officer or director of
Corporation and shall ensure to the benefit of the heirs, executors and
administrators of such person.
d. The Corporation may purchase and maintain insurance,
create a fund of any nature, grant a security interest or otherwise secure or
insure in any manner its indemnification obligations, whether arising
hereunder or otherwise.
<PAGE>
e. The provisions of this ARTICLE shall not apply to any
action, suit or proceeding filed prior to January 27, 1987, or to any breach
of performance of duty or any failure of performance of duty by any
officer or director occurring prior to January 27, 1987.
ARTICLE VII
EMPLOYEES
Section 1.
a. Employees of the Corporation, other than the Officers may
be appointed or dismissed by the President, or, in his absence, by a Vice-
President. A list of employees, their duties, and salaries shall be
submitted to the Board or the Executive Committee should they, or either
of them, at any time so require.
b. The President, or any of the Officers to whom he shall
delegate the power and authority, shall assign the duties and
responsibilities to the employees.
c. Training and supervision of the employees shall be the
responsibilities of the President who may delegate these powers and duties
among the several Officers.
d. Heads of various departments within the Corporation shall
be designated, from time to time, by the Chief Executive Officer who
shall define the duties and indicate the responsibilities of such heads of
departments.
e. The Chief Executive Officer shall, at all times, maintain an
organization chart of all officers and employees of the Corporation. Such
chart shall be maintained on a current basis to reflect accurately the
assignment of personnel and shall be consistent with the provisions of
these by-laws.
Section 2.
Except for necessary information to patrons concerning their own
business, no Director, officer or employee shall disclose any of the
business of the Corporation which is not of a public nature or required by
law.
ARTICLE VIII
SURETY BONDS
All officers and employees of the Corporation as well as any
Director who is authorized to receive payments of money or to handle
negotiable securities on behalf of the Corporation, shall, before entering
upon the performance of their duties, furnish a bond in such amount and
with such surety as shall be approved by the Board of Directors. The cost
or premium on such bonds shall be paid by the Corporation.
ARTICLE IX
DIVIDENDS
Section 1.
The Board of Directors may, from time to time, at any duly
convened regular or special meeting or by unanimous consent in writing,
declare and pay dividends upon the outstanding shares of capital stock of
the corporation in cash, property or shares of the Corporation, as long as
any dividend shall not be in violation of law and the Articles of
Incorporation.
<PAGE>
Section 2.
Before payment of any dividend, there may be set aside out of any
funds of the Corporation available for dividends such sum or sums as the
Board of Directors from time to time, in their absolute discretion, think
proper as a reserve fund to meet contingencies, or for equalizing
dividends, or for the repairing or maintaining any property of the
Corporation, or for such other purposes as the Board of Directors shall
believe to be for the best interests of the Corporation, and the Board of
Directors may reduce or abolish any such reserve in the manner in which
it was created.
ARTICLE X
CERTIFICATES FOR SHARES
Section 1.
The share certificates of the Corporation shall be numbered and
registered in a share register as they are issued; shall bear the name of the
registered holder, the number and class of shares represented thereby,
shall be signed by the President or a Vice President and the Secretary or
the Treasurer or any other person properly authorized by the Board of
Directors, and shall bear the corporate seal, which seal may be a facsimile
engraved or printed. Where the certificate is signed by a transfer agent or
a registrar, the signature of any corporate officer on such certificate may
be a facsimile engraved or printed. In case any officer who has signed, or
whose facsimile signature has been placed upon, any share certificate
shall have ceased to be such officer because of death, resignation or
otherwise before the certificate is issued, it may be issued by the
Corporation with the same effect as if the officer had not ceased to be
such at the date of its issue.
Section 2.
If a certificate for shares be lost or destroyed another may be
issued in its place only upon the following condition the owner shall
furnish to the Corporation:
(1) An affidavit that such share certificate or
certificates have been lost or destroyed and that the owner is
unable to locate the same; that the owner has not at any time sold,
pledged or otherwise disposed of his interest in such shares or his
title to same; that the affidavit is made for the purpose of obtaining
a new share certificate or certificates.
(2) A bond, in such form and with such surety as may
be approved by the President or Vice-President and in such amount
as the Board of Directors shall determine, but, in no event less than
double the amount of the then current market value of the shares
represented by the lost certificate or certificates; the bond shall be
conditioned to indemnify against any loss by reason of the issuance
of the new certificate.
(3) An agreement to deliver to the Corporation duly
endorsed the lost certificate or certificates if found.
<PAGE>
Section 3.
The transfer book for shares of the Corporation may be closed for
such length of time as the Directors may determine, from time to time,
before the payment of any dividends and before any annual or special
meeting of shareholders.
Section 4:
Upon surrender to the Corporation of a share certificate duly
endorsed by the person named in the certificate or by attorney duly
appointed in writing and accompanied where necessary by proper
evidence of succession, assignment or authority to transfer, a new
certificate shall be issued to the person entitled thereto and the old
certificate canceled and the transfer recorded upon the transfer books
shall be made if it would not be inconsistent with the provisions of Article
8 of the Pennsylvania Uniform Commercial Code.
ARTICLE XI
CORPORATE SEAL
Section 1.
The seal of the Corporation shall contain the words "Hanover
Bancorp, Inc."
Section 2.
The affixation of the corporate seal shall not be necessary to the
valid execution, assignment or endorsement by the corporation of any
instrument or other document.
ARTICLE XII
BUSINESS HOURS
The Corporation shall be open for business at such times as the
Board of Directors shall, from time to time, designate.
ARTICLE XIII
FISCAL YEAR
The fiscal year of the Corporation shall begin on the first day of
January in each year and end on the 31st day of December in each year.
ARTICLE XIV
CONTRIBUTIONS
The Board of Directors shall have authority to make charitable
donations, or any other contributions which, in the opinion of the Board of
Directors, are considered necessary or desirable, for the proper conduct
and development of the business of the Corporation.
<PAGE>
ARTICLE XV
NOTICES AND WAIVERS
Section 1.
Whenever written notice is required to be given to any person
under the provisions of applicable law, the Articles of Incorporation or of
these By-laws, it may be given to the person either personally or by
sending a copy thereof by first class or express mail, postage prepaid, or
by telegram (with messenger service specified), telex or TWX (with
answerback received) or courier service, charges prepaid, or by telecopies,
to his address (or to his telex, TWX, telecopier or telephone number)
appearing on the books of the Corporation or, in the case of directors,
supplied by him to the Corporation for the purpose of notice. If the notice
is sent by mail, telegraph or courier service, it shall be deemed to have
been given to the person entitled thereto when deposited in the United
States mail or with a telegraph office or courier service for delivery to that
person or, in the case of telex or TWX, when dispatched. A notice of
meeting shall specify the place, day and hour of the meeting and any other
information required by any other provisions of these By-laws.
Section 2.
Whenever any written notice is required to be given under the
provisions of applicable law, the Articles of Incorporation or of these By-
laws, a waiver thereof in writing, signed by the person or persons entitled
to the notice, whether before or after the time stated therein, shall be
deemed equivalent to the giving of the notice. Except as otherwise
required by these By-laws, neither the business to be transacted at, nor the
purpose of, a meeting need be specified in the waiver of notice of the
meeting. In the case of a special meeting of shareholder, the waiver of
notice shall specify the general nature of the business to be transacted.
Section 3.
Attendance of a person at any meeting shall constitute a waiver of
notice of the meeting except where a person attends a meeting for the
express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting was not lawfully called or
convened.
ARTICLE XVI
EMERGENCIES
Section 1.
The Board of Directors may not adopt emergency By-Laws during
any emergency resulting from an attack on the United States, a nuclear
disaster or any other catastrophe as a result of which a quorum of the
Board of Directors cannot readily be assembled.
Section 2.
The Board of Directors, either before or during any emergency,
may not provide or modify lines of succession in the event that, during any
emergency, any or all officers or agents of the Corporation shall for any
reason be rendered incapable of discharging their duties and may not
change the head offices or designate alternate head offices and may not
authorize the officers to do so.
Section 3.
The By-Laws of this Corporation shall remain in effect during any
emergency.
<PAGE>
ARTICLE XVII
AMENDMENTS
Section 1.
Subject to the provisions of this ARTICLES XVII, these By-Laws
may be amended at any regular meeting of the Board of Directors or at
any special meeting of the Board of Directors called for that specific
purpose. Notice of such proposed amendment shall be given, in writing,
to each Director at least ten (10) days prior to the meeting at which such
amendment or amendments are to be voted on. The notice shall contain a
complete copy of the proposed amendment.
Section 2.
These By-Laws may be amended at such meeting and after such
notice as specified in Section 1 of this ARTICLE XVII by the affirmative
vote of two-thirds of a number of Directors then constituting the Board of
Directors.
Section 3.
The affirmative vote of the holders of at least seventy-five (75%)
percent of the outstanding shares of voting stock of the Corporation shall
be required to amend or repeal ARTICLE III, Section 13, and ARTICLE
VI-A of these By-Laws.
ARTICLE XVIII
Section 1
This corporation specifically adopts the provisions of Section 522
(d), (e) and (f) and Section 1721 (e), (f) and (g) of the Pennsylvania
Consolidated Statutes as added and amended by Act 36 of 1990.
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 18,886
<INT-BEARING-DEPOSITS> 22
<FED-FUNDS-SOLD> 10,425
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 111,893
<INVESTMENTS-CARRYING> 2,026
<INVESTMENTS-MARKET> 2,058
<LOANS> 282,561
<ALLOWANCE> 3,283
<TOTAL-ASSETS> 435,724
<DEPOSITS> 352,421
<SHORT-TERM> 12,249
<LIABILITIES-OTHER> 4,954
<LONG-TERM> 30,297
0
0
<COMMON> 3,266
<OTHER-SE> 32,537
<TOTAL-LIABILITIES-AND-EQUITY> 435,724
<INTEREST-LOAN> 11,971
<INTEREST-INVEST> 3,210
<INTEREST-OTHER> 100
<INTEREST-TOTAL> 15,281
<INTEREST-DEPOSIT> 6,545
<INTEREST-EXPENSE> 7,665
<INTEREST-INCOME-NET> 7,616
<LOAN-LOSSES> 655
<SECURITIES-GAINS> 732
<EXPENSE-OTHER> 6,549
<INCOME-PRETAX> 2,686
<INCOME-PRE-EXTRAORDINARY> 1,974
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,974
<EPS-PRIMARY> .50
<EPS-DILUTED> .50
<YIELD-ACTUAL> 0
<LOANS-NON> 531
<LOANS-PAST> 378
<LOANS-TROUBLED> 177
<LOANS-PROBLEM> 2,300
<ALLOWANCE-OPEN> 2,908
<CHARGE-OFFS> 388
<RECOVERIES> 108
<ALLOWANCE-CLOSE> 3,283
<ALLOWANCE-DOMESTIC> 3,283
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
