SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 0-10958
DROVERS BANCSHARES CORPORATION
(Exact name of registrant as specified in its charter)
PENNSYLVANIA 23-2209390
(State or other jurisdiction of incorporation or organization) (IRS employer ID)
30 SOUTH GEORGE STREET, YORK, PA 17401
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code (717) 843-1586
NONE
(Former name, address and 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 shorter periods 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 at March 31, 1996
Common Stock 2,243,529 Shares
<PAGE>
Drovers Bancshares Corporation and Subsidiaries
CONTENTS
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Statements of Condition ..................................... 3
March 31, 1996 and December 31, 1995
Consolidated Statements of Income ........................................ 4
Three Months Ended March 31, 1996 and 1995
Consolidated Statements of Cash Flows .................................... 5
Three Months Ended March 31, 1996 and 1995
Notes to Consolidated Financial Statements ............................... 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS .............................. 9
PART II OTHER INFORMATION
SIGNATURES ................................................................ 13
2 <PAGE>
Drovers Bancshares Corporation and Subsidiaries
PART I FINANCIAL INFORMATION
CONSOLIDATED STATEMENTS OF CONDITION
(In thousands)
MARCH 31, DEC 31,
ASSETS 1996 1995
Cash and due from banks .................................. $ 15,169 $ 17,418
Money market investments ................................. 3,054 1,353
Investment securities (fair value $95,152 and $92,554) ... 94,669 91,823
Loans (net of unearned income of $4,052 and $4,425) ...... 256,125 255,405
Reserve for loan losses .................................. 2,985 2,937
Net loans ................................................ 253,140 252,468
Bank premises and equipment .............................. 14,058 13,880
Other assets ............................................. 6,311 5,849
TOTAL ASSETS ............................................. $386,401 $382,791
LIABILITIES
Deposits:
Noninterest-bearing ...................................... $ 34,009 $ 34,154
Interest-bearing ......................................... 271,671 272,499
Total deposits ........................................... 305,680 306,653
Federal funds purchased and securities sold under
agreements to repurchase ................................ 10,931 7,302
Other borrowings ......................................... 30,126 30,172
Other liabilities ........................................ 4,324 3,743
TOTAL LIABILITIES ........................................ 351,061 347,870
SHAREHOLDERS' EQUITY
Common stock($5 par value), 10,000,000 shares authorized;
issued and outstanding--2,243,529 shares in 1996 and
2,240,775 shares in 1995 ................................ 11,218 11,204
Additional paid-in capital ............................... 14,644 14,657
Retained earnings ........................................ 9,302 8,536
Unrealized holding gains on available-for-sale
securities .............................................. 176 524
TOTAL SHAREHOLDERS' EQUITY ............................... 35,340 34,921
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ............... $386,401 $382,791
See notes to consolidated financial statements.
3 <PAGE>
Drovers Bancshares Corporation and Subsidiaries
PART I FINANCIAL INFORMATION
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data) THREE MONTHS
ENDED MARCH 31,
1996 1995
INTEREST INCOME
Interest and fees on loans ................ $5,569 $5,052
Interest on deposits with banks ........... 68 22
Interest on federal funds sold ............ 0 0
Interest and dividends on
investment securities .................... 1,442 1,562
Total interest income ..................... 7,079 6,636
INTEREST EXPENSE
Interest on deposits ...................... 2,873 2,525
Federal funds purchased and securities
sold under agreements to repurchase ...... 99 164
Interest on borrowed funds ................ 461 384
Total interest expense .................... 3,433 3,073
Net interest income ....................... 3,646 3,563
Provision for loan losses ................. 105 105
Net interest income after
provision for loan losses ................ 3,541 3,458
OTHER INCOME
Trust department income ................... 234 240
Service charges on deposit accounts ....... 252 232
Securities gains .......................... 200 47
Net gains on residential
mortgage loan sales ...................... 92 25
Equity in losses of real estate venture ... -38 -23
Other ..................................... 162 138
Total other income ........................ 902 659
OTHER EXPENSES
Salaries and employee benefits ............ 1,762 1,579
Occupancy and premises .................... 193 174
Furniture and equipment ................... 202 166
FDIC insurance ............................ 1 160
Marketing ................................. 136 88
Net (gain) cost of operation
of other real estate ..................... 13 0
Office supplies ........................... 95 67
Other taxes ............................... 86 72
Other operating expense ................... 518 416
Total other expenses ...................... 3,006 2,722
Income before income taxes ................ 1,437 1,395
Applicable income taxes ................... 289 363
NET INCOME ................................ $ 1,148 $ 1,032
PER SHARE DATA
Net income ................................ $ 0.51 $ 0.46
Dividends ................................. $ 0.17 $ 0.14
See notes to consolidated financial statements.
4 <PAGE>
Drovers Bancshares Corporation and Subsidiaries
PART I FINANCIAL INFORMATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands) THREE MONTHS
ENDED MARCH 31,
1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income .......................................... $ 1,148 $ 1,032
Adjustments to reconcile net income to net cash
from operating activities:
Depreciation ........................................ 230 223
Net amortization of investment security premiums .... 15 34
Provision for loan losses ........................... 105 105
Gain on sale of securities held-to-maturity ......... -7 0
Gain on sale of securities available-for-sale ....... -194 -47
Loans originated for sale ........................... -4,292 0
Proceeds from sales of loans ........................ 4,437 0
Gain on sale of loans ............................... -92 -25
(Gain) loss on sale of other real estate ............ -2 0
Net deferred loan fees .............................. -83 -46
Equity in loss of real estate venture................ 38 23
Increase in interest/dividends receivable ........... -59 -236
Increase (decrease) in interest payable ............. -126 146
Increase in other assets ............................ -385 -484
Increase in other liabilities ....................... 689 667
Other non-cash items ................................ 11 0
Net cash provided by operating activities ........... 1,433 1,392
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales and maturities of securities
held-to-maturity ................................... 1,412 980
Proceeds from sales and maturities of securities
available-for-sale ................................. 8,739 1,421
Purchases of securities held-to-maturity ............ 0 -274
Purchases of securities available-for-sale .......... -13,339 -2,057
Increase in net loans ............................... -781 -5,129
Capital expenditures ................................ -397 -109
Proceeds from sale of fixed assets .................. 1 0
Proceeds from sale of other real estate ............. 137 0
Net cash used in investing activities ............... -4,228 -5,168
CASH FLOWS FROM FINANCING ACTIVITIES:
Net decrease in demand deposits
and savings accounts ............................... -2,566 -6,563
Net increase in certificates of deposit ............. 1,610 15,284
Net increase (decrease) in federal funds purchased
and repurchase agreements .......................... 3,629 -7,488
Net increase (decrease) in other borrowings ......... -39 3,962
Payments made for capital leases .................... -7 -6
Dividends paid ...................................... -381 -314
Proceeds from issuance of common stock .............. 1 83
Net cash provided by financing activities ........... 2,247 4,958
NET INCREASE IN CASH & CASH EQUIVALENTS ............. - 548 1,182
CASH & CASH EQUIVALENTS AT JANUARY 1, ............... 18,771 12,508
CASH & CASH EQUIVALENTS AT MARCH 31, ................ $ 18,223 $ 13,690
See notes to consolidated financial statements.
5 <PAGE>
Drovers Bancshares Corporation and Subsidiaries
PART I FINANCIAL INFORMATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - BASIS OF PRESENTATION
In the opinion of management, the accompanying consolidated financial statements
contain all adjustments (including normal recurring accruals) considered
necessary to present fairly Drovers Bancshares' financial position as of
March 31, 1996 and December 31, 1995. Operating results and changes in cash
flows for the three months ended March 31, 1996 are not necessarily
indicative of the results that may be expected for the year ended
December 31, 1996. For further information, refer to the consolidated financial
statements and footnotes included in the Annual Report for the year ended
December 31, 1995.
NOTE B - ACCOUNTING POLICIES - MORTGAGE SERVICING RIGHTS
Effective January 1, 1996, the Corporation adopted Statement of Financial
Accounting Standards No. 122 (SFAS No. 122), "Accounting for Mortgage Servicing
Rights." The Standard was issued in May 1995 and was effective for any mortgage
banking enterprise beginning for fiscal years after December 15, 1995.
Statement No. 122 requires mortgage servicers that sell loans and retain
servicing rights to allocate the total cost of the loans to the servicing rights
and loans based on fair value. The mortgage servicing rights are amortized over
the expected life of the serviced loans. The Corporation evaluates the fair
value of the rights each quarter and recognizes impairment immediately if it
occurs. This Standard only effects loans sold after December 31, 1995. In
addition, any mortgages designated as held for sale are valued at the lower of
cost or fair value. Mortgage loans that the Corporation has both the ability
and intent to hold for the foreseeable future or until maturity are classified
as a long-term investment.
NOTE C - CALCULATION OF EARNINGS PER SHARE
On September 27, 1995, the Board of Directors declared a seven percent stock
dividend payable November 10, 1995. Earnings per share are based on the weighted
average shares of stock outstanding during each period, giving retroactive
effect to the stock dividend.
NOTE D - INVESTMENT SECURITIES
The amortized cost and estimated fair value of investment securities classified
as held-to-maturity as of March 31, 1996 are as follows:
Gross Gross
Amortized Unrealized Unrealized Fair
(In thousands) Cost Gains Losses Value
US Treasury securities and obligations
of US government corp and agencies ... $ 1,000 $ 31 $ 0 $ 1,031
Obligations of states and political
subdivisions ......................... 10,881 556 11 11,426
Mortgage-backed securities and
collateralized mortgage obligations .. 15,651 167 260 15,558
Total investment securities ........... $27,532 $ 754 $ 271 $ 28,015
6 <PAGE>
Drovers Bancshares Corporation and Subsidiaries
PART I FINANCIAL INFORMATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE D - INVESTMENT SECURITIES, continued
The amortized cost and estimated fair value of investment securities classified
as available-for-sale as of March 31, 1996 are as follows:
Gross Gross
Amortized Unrealized Unrealized Fair
(In thousands) Cost Gains Losses Value
US Treasury securities and obligations
of US government corp and agencies .. $ 18,946 $ 158 $ 89 $ 19,015
Obligations of states and political
subdivisions ........................ 3,606 12 10 3,608
Corporate obligations ................ 1,263 10 1 1,272
Mortgage-backed securities and
collateralized mortgage obligations . 39,817 416 322 39,911
Total debt securities ................ 63,632 596 422 63,806
Equity securities .................... 3,239 93 1 3,331
Total investment securities .......... $ 66,871 $ 689 $ 423 $ 67,137
The amortized cost and estimated fair value of investment securities classified
as held-to-maturity as of December 31, 1995 are as follows:
Gross Gross
Amortized Unrealized Unrealized Fair
(In thousands) Cost Gains Losses Value
US Treasury securities and obligations
of US government corp and agencies .. $ 1,000 $ 50 $ 0 $ 1,050
Obligations of states and political
subdivisions ........................ 11,421 667 8 12,080
Mortgage-backed securities and
collateralized mortgage obligations . 16,501 217 195 16,523
Total investment securities .......... $ 28,922 $ 934 $ 203 $ 29,653
The amortized cost and estimated fair value of investment securities classified
as available-for-sale as of December 31, 1995 are as follows:
Gross Gross
Amortized Unrealized Unrealized Fair
(In thousands) Cost Gains Losses Value
US Treasury securities and obligations
of US government corp and agencies .. $ 16,882 $ 220 $ 53 $ 17,049
Obligations of states and political
subdivisions ........................ 3,047 23 2 3,068
Corporate obligations................. 1,768 16 2 1,782
Mortgage-backed securities and
collateralized mortgage obligations . 37,682 678 161 38,199
Total debt securities ................ 59,379 937 218 60,098
Equity securities .................... 2,727 78 2 2,803
Total investment securities .......... $ 62,106 $ 1,015 $ 220 $ 62,901
For additional information, see pages 20-21 of the Corporation's 1995 Annual
Report.
7 <PAGE>
Drovers Bancshares Corporation and Subsidiaries
PART I FINANCIAL INFORMATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE E - LOANS
Loans are comprised of the following as of March 31, 1996 and December 31, 1995:
MARCH 31, DEC 31,
(In thousands) 1996 1995
Commercial, financial and Industrial loans ............. $ 65,486 $ 66,840
Real estate mortgage loans:
Real estate construction-related ..................... 6,450 5,910
Real estate mortgage loans secured by
1-4 family residential properties .................. 93,942 91,262
Other real estate .................................... 51,250 49,903
Total real estate mortgage loans ....................... 151,642 147,075
Consumer loans:
Monthly payment ...................................... 37,451 39,987
Other revolving credit ............................... 1,488 1,494
Total consumer loans ................................... 38,939 41,481
Leasing and other ...................................... 58 9
Total loans ............................................ $256,125 $255,405
Changes in the reserve for loan losses for the periods ended March 31, were
as follows:
(In thousands) 1996 1995
Balance, beginning of year ............................. $ 2,937 $ 2,638
Provision for loan losses .............................. 105 105
LESS: Loans charged-off ................................ 130 70
Recoveries ............................................. 73 39
Balance, March 31 ...................................... $ 2,985 $ 2,712
As of March 31, 1996, the total recorded investment in impaired loans was
$2,576,000. The amount of that recorded investment for which there is a related
reserve for loan losses is $0. Loans classified as impaired as a result of
troubled debt restructurings that are in compliance with modified terms
recognize interest under the accrual method of accounting. Interest on all
other impaired loans is recognized on a cash basis. The year-to-date average
recorded investment in impaired loans was $867,000. The Corporation recognized
interest income on those impaired loans of $48,000. Interest income recognized
on a cash basis would have been $59,000. Nonaccrual loans at March 31, 1996
were $2,634,000 compared to $934,000 at December 31, 1995 and $354,000 at March
31, 1995.
Residential mortgage loans with a book value of $2,224,000 were held for sale at
March 31, 1996. The cumulative fair value exceeded the book value of these
loans. Loans held for sale are included in total loans. During the first
quarter of 1996, the Corporation capitalized $35,000 in mortgage servicing
rights and amortized $1,000.
For additional information, see pages 21-22 of the Corporation's 1995 annual
report.
8 <PAGE>
Drovers Bancshares Corporation and Subsidiaries
PART I FINANCIAL INFORMATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
The following comparison of actual balances indicates how the Corporation has
generated and employed its funds for the three months ending March 31, 1996:
BALANCE BALANCE
MARCH 31, INCREASE DEC 31,
1996 (DECREASE) % 1995
FUNDING USES: (In thousands)
Money market investments ............ $ 3,054 1,701 125.7% $ 1,353
Investment securities ............... 94,669 2,846 3.1% 91,823
Loans (net) ......................... 253,140 672 0.3% 252,468
Total interest-bearing assets ....... 350,863 5,219 1.5% 345,644
Noninterest-bearing assets .......... 35,538 -1,609 -4.3% 37,147
TOTAL USES .......................... $386,401 $ 3,610 0.9% $382,791
FUNDING SOURCES:
Interest-bearing demand deposits .... $ 41,394 $ 1,416 3.5% $ 39,978
Savings deposits .................... 63,514 -4,682 -6.9% 68,196
Time deposits ....................... 166,763 2,438 1.5% 164,325
Short-term borrowings ............... 10,931 3,629 49.7% 7,302
Long-term borrowings ................ 30,126 - 46 -0.2% 30,172
Total interest-bearing liabilities .. 312,728 2,755 0.9% 309,973
Noninterest-bearing demand deposits . 34,009 - 145 -0.4% 34,154
Other liabilities ................... 4,324 581 15.5% 3,743
Shareholders' equity ................ 35,340 419 1.2% 34,921
TOTAL SOURCES ....................... $386,401 $ 3,610 0.9% $382,791
Total assets increased $3,610,000, or 0.9%, since December 31, 1995. An
increase in money market investments and investment securities accounted for
most of the growth in total assets. Net loans increased only $672,000 during
the quarter. Note E shows the various loan types and the balances at March 31,
1996 compared to the end of the previous year. Demand for commercial loans and
other real estate loans was flat during the quarter. Volume in this area is
expected to increase in the second quarter. Lower interest rates increased
demand for 1-4 family residential mortgage loans which caused balances to
increase $2,680,000. Monthly payment consumer loans, mainly automobile loans,
decreased $2,536,000. The Corporation traditionally generates most of its auto
loans through local auto dealers. Competition among lenders for these loans has
increased in the last six months and driven down interest rates. These loans
have historically suffered higher credit losses than other segments of the
portfolio. The Corporation has maintained above market rates throughout this
period which has caused balances to slowly fall.
The increase in assets was funded primarily by an increase in deposits. The
Corporation introduced a new interest-bearing demand account late in 1995. The
product helped increase these balances $1,416,000 since year-end. Savings
deposits show a decrease of $4,682,000 since December 31, 1995. During the
quarter, the Corporation eliminated its cash management savings product
switching customers to repurchase agreements which are shown as short-term
borrowings. The change allows the Corporation more flexibility in providing
sweep arrangements to corporate customers.
9 <PAGE>
Drovers Bancshares Corporation and Subsidiaries
PART I FINANCIAL INFORMATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
LOAN QUALITY
Impaired loans at March 31, 1996 were $2,536,000 compared to $851,000 at
December 31, 1995. The increase was caused by a single customer declaring
bankruptcy with loans of $1,755,000. The loans are fully collateralized and the
Corporation expects to collect all principle and interest. The loan is
currently on nonaccrual status which accounted for most of the increase in
nonaccrual loans.
Loan charge-offs were $130,000 in the first quarter, including $81,000 in
consumer loans. Total 1995 charge-offs were $333,000. The increase in charge-
offs is partly due to an increase in real estate losses on residential property.
First quarter real estate losses were $36,000 compared to $45,000 for all of
1995 and $0 for the preceding two years. Recoveries were $73,000 in the first
quarter. Last year's total was $131,000. Consumer and real estate loan charge-
offs are expected to level-off or decline in the second quarter.
RESULTS OF OPERATION
Drovers Bancshares recorded net income of $1,148,000 and $1,032,000 for the
three months ended March 31, 1996 and 1995, respectively.
The return on assets (ROA) and return on equity (ROE) for the three months ended
March 31, 1996 was 1.21% and 13.01%, respectively. This compares to an ROA
and ROE for the same period last year of 1.18% and 13.65%, respectively.
NET INTEREST INCOME
Net interest income is the difference between the interest earned on loans and
investments and the interest paid on deposits and other sources of funds. The
following table presents the trends in net interest income:
THREE MONTHS
ENDED MAR 31,
(In thousands) 1996 1995 96/95
Interest income ............ $ 7,079 $ 6,636 6.7%
Interest expense ........... 3,433 3,073 11.7%
Net interest income ........ 3,646 3,563 2.3%
Provision for loan losses .. 105 105 0.0%
Net interest income after
provision for loan losses . $ 3,541 $ 3,458 2.4%
The corporation's largest category of earning assets consists of loans to
businesses and individuals. The majority of earning assets are supported by
interest-bearing commercial and consumer deposits and shareholders' equity.
Changes in net interest income are determined by variations in the volume and
mix of assets and liabilities as well as their sensitivity to interest rate
movements.
Net interest income increased $83,000, or 2.4%, compared to the first quarter
last year. The Corporation's deposits are not as sensitive to interest rate
10 <PAGE>
Drovers Bancshares Corporation and Subsidiaries
PART I FINANCIAL INFORMATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
NET INTEREST INCOME, continued
movements as the repriceable assets which they help fund. Falling interest
rates throughout the last half of 1995 and early 1996 have squeezed the
Corporation's net interest spread and margin. The first quarter net interest
spread and margin were 3.65% and 4.16%, respectively. This compares to a spread
and margin of 3.88% and 4.39%, respectively, in the first quarter of 1995.
As discussed earlier, the Corporation increased it holdings of residential
mortgage loans with fixed interest rates. In addition, the Corporation sold
about $5,500,000 in variable rate investment securities during the first
quarter. The proceeds were invested primarily in fixed rate securities at
interest rates at or above the current rates on the variable securities. The
increased holdings in fixed rate assets should help protect the Corporation from
further interest rate declines.
NONINTEREST INCOME
THREE MONTHS
ENDED MAR 31,
(In thousands) 1996 1995 96/95
Trust department income ............. $ 234 $240 -2.5%
Service charges on deposit accounts . 252 232 8.6%
Securities gains .................... 200 47 325.5%
Net gains on residential
mortgage loan sales ................ 92 25 268.0%
Equity in earnings (losses) of
real estate venture ................ -38 -23 65.2%
Other ............................... 162 138 17.4%
Total ............................... $ 902 $ 659 36.9%
Noninterest income increased $243,000, or 36.9%, compared to the first quarter
last year. Lower interest rates provided the Corporation an opportunity to
restructure part of its investment portfolio resulting in securities gains of
$200,000. The lower interest rates also increased demand for residential
mortgage loans and increased the net gains on residential mortgage loan sales.
The gains were also boosted by the adoption of SFAS No. 122, "Accounting for
Mortgage Servicing Rights." The Standard causes gains to increase for sales of
mortgages where servicing is retained. Gains were increased $35,000 as a result
of implementing the Standard.
11 <PAGE>
Drovers Bancshares Corporation and Subsidiaries
PART I FINANCIAL INFORMATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
NONINTEREST EXPENSE
THREE MONTHS
ENDED MAR 31,
(In thousands) 1996 1995 96/95
Salaries and employee benefits . $1,762 $1,579 11.6%
Occupancy and premises ......... 193 174 10.9%
Furniture and equipment ........ 202 166 21.7%
FDIC insurance ................. 1 160 -99.4%
Marketing expense .............. 136 88 54.5%
Net (gain) cost of operation
of other real estate .......... 13 0 999.9%
Office supplies ................ 95 67 41.8%
Other taxes .................... 86 72 19.4%
Other operating expense ........ 518 416 24.5%
Total .......................... $3,006 $2,722 10.4%
Noninterest expense increased $284,000, or 10.4%, compared to the first quarter
of 1995. Salaries and employee benefits increased $183,000, or 11.6%. Salaries
increased $140,000, or 11.4%, due to increased staffing levels and annual salary
increases. Full-time equivalents were 193 at March 31, 1996 compared to 183 one
year ago.
Occupancy and premises increased $19,000, or 10.9%, mainly due to higher snow
removal and utility costs caused by an unusually harsh winter. Furniture and
equipment expense increased $36,000 due to higher equipment depreciation for
renovation costs and installation of a wide-area network in the fourth quarter
of 1995.
FDIC insurance fell to $1,000 as the minimum assessment rate was eliminated.
Marketing expense increased $84,000, or 54.5%, due to the first quarter
promotion of a new "Winner" checking product. Office supplies increased
$28,000, or 41.8%. The increase was caused by the timing of certain supply
purchases and costs of free checks provided to new "Winner" customers.
Other operating expenses increased $102,000. About $60,000 of the change was
due to non-recurring expenses. Expenses to purchase checking account benefits
from a third party for "Winner" customers were $16,000.
TAXATION
The Corporation recognized a provision for income taxes of $289,000 for the
three months ending March 31, 1996. The average tax rate, applicable income
taxes divided by income before taxes, was 20.1%. This compares to an average
tax rate of 26.0% for the same period in 1995. The lower tax rate is due to the
$400,000 in expected historic tax credits from the Elm View Limited Partnership.
The Partnership owns a 32 apartment low income housing development which opened
in the first quarter of 1996.
12 <PAGE>
Drovers Bancshares Corporation and Subsidiaries
PART II OTHER INFORMATION
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.
DROVERS BANCSHARES CORPORATION
__/s/_A._Richard Pugh___________________
A. Richard Pugh, Chairman, President and
Chief Executive Officer
__/s/_Debra_A._Goodling_________________
Debra A. Goodling, Executive Vice President
and Treasurer
Principal Financial Officer
__/s/_John_D._Blecher___________________
John D. Blecher, Vice President and
Assistant Treasurer
Principal Accounting Officer
Date: May 7, 1996
13 <PAGE>
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<LOANS-NON> 2634
<LOANS-PAST> 0
<LOANS-TROUBLED> 783
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 2937
<CHARGE-OFFS> 130
<RECOVERIES> 73
<ALLOWANCE-CLOSE> 2985
<ALLOWANCE-DOMESTIC> 1101
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1884
</TABLE>
