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 September 30, 1997
[ ] 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)
96 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 September 30, 1997
Common Stock 2,809,649 Shares
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Drovers Bancshares Corporation and Subsidiaries
CONTENTS
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Statements of Condition ..................................... 3
September 30, 1997 and December 31, 1996
Consolidated Statements of Income ........................................ 4
Three Months Ended September 30, 1997 and 1996
Nine Months Ended September 30, 1997 and 1996
Consolidated Statements of Cash Flows .................................... 5
Nine Months Ended September 30, 1997 and 1996
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 ................................................................ 14
2 <PAGE>
Drovers Bancshares Corporation and Subsidiaries
PART I FINANCIAL INFORMATION
CONSOLIDATED STATEMENTS OF CONDITION
(In thousands)
SEPT 30, DEC 31,
ASSETS 1997 1996
Cash and due from banks .................................. $ 14,273 $ 17,512
Money market investments ................................. 9,202 271
Investment securities (fair value $179,325 and $128,605).. 178,550 128,082
Loans (net of unearned income of $3,348 and $3,494) ...... 301,689 283,117
Reserve for loan losses .................................. 3,312 3,130
Net loans ................................................ 298,377 279,987
Bank premises and equipment .............................. 13,853 14,007
Other assets ............................................. 6,735 6,854
TOTAL ASSETS ............................................. $520,990 $446,713
LIABILITIES
Deposits:
Noninterest-bearing ...................................... $ 38,980 $ 34,702
Interest-bearing ......................................... 373,266 325,502
Total deposits ........................................... 412,246 360,204
Federal funds purchased and securities sold under
agreements to repurchase ................................ 11,654 15,254
Other borrowings ......................................... 49,612 29,385
Other liabilities ........................................ 5,611 3,778
TOTAL LIABILITIES ........................................ 479,123 408,621
SHAREHOLDERS' EQUITY
Common stock($5 par value), 10,000,000 shares authorized;
issued and outstanding-2,809,649 shares in 1997 and
2,809,180 shares in 1996................................. 14,048 14,046
Additional paid-in capital ............................... 14,715 14,707
Retained earnings ........................................ 11,959 8,969
Unrealized holding gains on available-for-sale
securities .............................................. 1,145 370
TOTAL SHAREHOLDERS' EQUITY ............................... 41,867 38,092
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ............... $520,990 $446,713
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 NINE MONTHS
ENDED SEPT 30, ENDED SEPT 30,
1997 1996 1997 1996
INTEREST INCOME
Interest and fees on loans ................ $6,434 $5,881 $18,788 $17,099
Interest on deposits with banks ........... 34 39 45 128
Interest and dividends on
investment securities .................... 2,802 1,774 7,743 4,818
Total interest income ..................... 9,270 7,694 26,576 22,045
INTEREST EXPENSE
Interest on deposits ...................... 4,148 3,179 11,481 8,898
Federal funds purchased and securities
sold under agreements to repurchase ...... 224 144 931 423
Interest on borrowed funds ................ 597 482 1,575 1,443
Total interest expense .................... 4,969 3,805 13,987 10,764
Net interest income ....................... 4,301 3,889 12,589 11,281
Provision for loan losses ................. 120 105 306 390
Net interest income after
provision for loan losses ................ 4,181 3,784 12,283 10,891
OTHER INCOME
Trust income .............................. 290 235 834 737
Service charges on deposit accounts ....... 333 329 958 875
Securities gains .......................... 3 -70 105 196
Net gains on residential
mortgage loan sales ...................... 144 104 374 293
Equity in losses of real estate venture ... -29 -40 -70 -118
Other ..................................... 239 169 695 509
Total other income ........................ 980 727 2,896 2,492
OTHER EXPENSES
Salaries and employee benefits ............ 1,869 1,694 5,538 5,122
Occupancy and premises .................... 239 216 632 617
Furniture and equipment ................... 277 220 808 632
FDIC insurance ............................ 11 0 33 2
Marketing ................................. 119 134 360 406
Net (gain) cost of operation
of other real estate ..................... -12 1 61 16
Supplies .................................. 115 100 289 289
Other taxes ............................... 90 74 268 241
Other...................................... 534 551 1,630 1,562
Total other expenses ...................... 3,242 2,990 9,619 8,887
Income before income taxes ................ 1,919 1,521 5,560 4,496
Applicable income taxes ................... 465 316 1,306 932
NET INCOME ................................ $ 1,454 $ 1,205 $ 4,254 $ 3,564
PER SHARE DATA
Net income ................................ $ 0.52 $ 0.43 $ 1.51 $ 1.27
Dividends ................................. $ 0.15 $ 0.15 $ 0.45 $ 0.42
See notes to consolidated financial statements.
4 <PAGE>
Drovers Bancshares Corporation and Subsidiaries
PART I FINANCIAL INFORMATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands) NINE MONTHS
ENDED SEPT 30,
1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income .......................................... $ 4,254 $ 3,564
Adjustments to reconcile net income to net cash
from operating activities:
Depreciation ........................................ 985 847
Net amortization (accretion) of
investment security premiums ....................... -151 19
Provision for loan losses ........................... 306 390
Gain on sale of securities held-to-maturity ......... -1 -11
Gain on sale of securities available-for-sale ....... -104 -185
Loans originated for sale ........................... -21,577 -16,318
Proceeds from sales of loans ........................ 22,238 16,818
Gain on sale of loans ............................... -374 -293
Other gains ......................................... -5 -3
Net deferred loan fees .............................. -466 -188
Equity in loss of real estate venture................ 69 118
Increase in interest/dividends receivable ........... -608 -69
Increase (decrease) in interest payable ............. 772 -11
Other ............................................... 695 -85
Net cash provided by operating activities ........... 6,033 4,593
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales and maturities of securities
held-to-maturity ................................... 4,483 4,425
Proceeds from sales and maturities of securities
available-for-sale ................................. 22,904 23,259
Purchases of securities held-to-maturity ............ -19,590 -943
Purchases of securities available-for-sale .......... -56,834 -46,027
Increase in net loans ............................... -18,843 -21,432
Capital expenditures ................................ -774 -993
Proceeds from sale of fixed assets .................. 75 2
Purchase of investment in real estate venture ....... 14 0
Proceeds from sale of other real estate ............. 787 156
Net cash used in investing activities ............... -67,778 -41,553
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in demand deposits
and savings accounts ............................... 17,437 19,078
Net increase in certificates of deposit ............. 34,628 10,245
Net increase (decrease) in federal funds purchased
and repurchase agreements .......................... -3,601 10,402
Net increase (decrease) in other borrowings.......... 20,254 -1,717
Payments made for capital leases .................... -26 -22
Dividends paid ...................................... -1,264 -1,185
Proceeds from issuance of common stock .............. 9 83
Net cash provided by financing activities ........... 67,437 36,884
NET INCREASE IN CASH & CASH EQUIVALENTS ............. 5,692 -76
CASH & CASH EQUIVALENTS AT JANUARY 1, ............... 17,783 18,771
CASH & CASH EQUIVALENTS AT SEPT 30, ................. $ 23,475 $ 18,695
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
September 30, 1997 and December 31, 1996. Operating results and changes in cash
flows for the nine months ended September 30, 1997 are not necessarily
indicative of the results that may be expected for the year ended December 31,
1997. For further information, refer to the consolidated financial statements
and footnotes included in the Annual Report for the year ended December 31,
1996.
NOTE B - CALCULATION OF EARNINGS PER SHARE
On August 16, 1996, the Corporation paid a 5 for 4 stock split in the form of a
25% stock dividend. Earnings per share are based on the weighted average shares
of stock outstanding during each period, giving retroactive effect to the stock
dividends.
NOTE C - INVESTMENT SECURITIES
The amortized cost and estimated fair value of investment securities classified
as held-to-maturity as of September 30, 1997 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 ... $10,467 $ 110 $ 1 $10,576
Obligations of states and political
subdivisions ......................... 18,185 606 3 18,788
Mortgage-backed securities and
collateralized mortgage obligations .. 15,023 151 88 15,086
Total investment securities ........... $43,675 $ 867 $ 92 $44,450
6 <PAGE>
Drovers Bancshares Corporation and Subsidiaries
PART I FINANCIAL INFORMATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE C - INVESTMENT SECURITIES, continued
The amortized cost and estimated fair value of investment securities classified
as available-for-sale as of September 30, 1997 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 .. $ 20,326 $ 89 $ 6 $ 20,409
Obligations of states and political
subdivisions ........................ 5,496 136 0 5,632
Corporate obligations ................ 500 0 7 493
Mortgage-backed securities and
collateralized mortgage obligations . 92,541 905 54 93,392
Total debt securities ................ 118,863 1,130 67 119,926
Equity securities .................... 14,278 671 0 14,949
Total investment securities .......... $ 133,141 $ 1,801 $ 67 $ 134,875
The amortized cost and estimated fair value of investment securities classified
as held-to-maturity as of December 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 $ 23 $ 0 $ 1,023
Obligations of states and political
subdivisions ........................ 14,748 496 22 15,222
Mortgage-backed securities and
collateralized mortgage obligations . 12,780 175 149 12,806
Total investment securities .......... $ 28,528 $ 694 $ 171 $ 29,051
The amortized cost and estimated fair value of investment securities classified
as available-for-sale as of December 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 .. $ 24,338 $ 108 $ 58 $ 24,388
Obligations of states and political
subdivisions ........................ 3,697 22 2 3,717
Corporate obligations................. 500 0 0 500
Mortgage-backed securities and
collateralized mortgage obligations . 62,482 465 229 62,718
Total debt securities ................ 91,017 595 289 91,323
Equity securities .................... 7,976 255 0 8,231
Total investment securities .......... $ 98,993 $ 850 $ 289 $ 99,554
For additional information, see pages 20-21 of the Corporation's 1996 Annual
Report.
7 <PAGE>
Drovers Bancshares Corporation and Subsidiaries
PART I FINANCIAL INFORMATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE D - LOANS
Loans are comprised of the following as of September 30, 1997 and December 31,
1996:
SEPT 30, DEC 31,
(In thousands) 1997 1996
Commercial, financial and industrial loans ............. $ 75,718 $ 72,828
Real estate mortgage loans:
Real estate construction-related ..................... 12,386 8,908
Real estate mortgage loans secured by
1-4 family residential properties ................. 105,175 98,559
Other real estate .................................... 75,151 68,637
Total real estate mortgage loans ....................... 192,712 176,104
Consumer loans:
Monthly payment ...................................... 31,746 32,616
Other revolving credit ............................... 1,490 1,543
Total consumer loans ................................... 33,236 34,159
Leasing and other ...................................... 23 26
Total loans ............................................ $301,689 $283,117
Changes in the reserve for loan losses for the periods ended September 30,
were as follows:
(In thousands) 1997 1996
Balance, beginning of year ............................. $ 3,130 $ 2,937
Provision for loan losses .............................. 306 390
LESS: Loans charged-off ................................ 221 344
Recoveries ............................................. 97 146
Balance, September 30................................... $ 3,312 $ 3,129
As of September 30, 1997, the total recorded investment in impaired loans was
$2,365,000. Nonaccrual loans at September 30, 1997 were $770,000 compared to
$615,000 at December 31, 1996.
Residential mortgage loans with a book value of $2,206,000 were held for sale at
September 30, 1997. The cumulative fair value exceeded the book value of these
loans. Loans held for sale are included in total loans. During the first nine
months of 1997, the Corporation capitalized $87,000 in mortgage servicing rights
and amortized $39,000.
For additional information, see pages 21-22 of the Corporation's 1996 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 nine months ending September 30, 1997:
BALANCE BALANCE
SEPT 30, INCREASE DEC 31,
1997 (DECREASE) % 1996
FUNDING USES: (In thousands)
Money market investments ............ $ 9,202 $ 8,931 999.9% $ 271
Investment securities ............... 178,550 50,468 39.4% 128,082
Loans (net) ......................... 298,377 18,390 6.6% 279,987
Total interest-bearing assets ....... 486,129 77,789 19.1% 408,340
Noninterest-bearing assets .......... 34,861 -3,512 -9.2% 38,373
TOTAL USES .......................... $520,990 $ 74,277 16.6% $446,713
FUNDING SOURCES:
Interest-bearing demand deposits .... $ 40,602 $ -2,630 -6.1% $ 43,232
Savings deposits .................... 110,149 13,331 13.8% 96,818
Time deposits ....................... 222,515 37,063 20.0% 185,452
Short-term borrowings ............... 11,654 -3,600 -23.6% 15,254
Long-term borrowings ................ 49,612 20,227 68.8% 29,385
Total interest-bearing liabilities .. 434,532 64,391 17.4% 370,141
Noninterest-bearing demand deposits . 38,980 4,278 12.3% 34,702
Other liabilities ................... 5,611 1,833 48.5% 3,778
Shareholders' equity ................ 41,867 3,775 9.9% 38,092
TOTAL SOURCES ....................... $520,990 $ 74,277 16.6% $446,713
Total assets increased $74,277,000, or 16.6%, since December 31, 1996. The
Corporation continued to leverage its strong capital base by purchasing
investments funded by strong deposit growth and other borrowings. The strategy
increases net interest income and provides some protection to the interest rate
margin in the event of falling interest rates. Investment securities increased
$50,468,000, or 39.4%, since the end of 1996. Holdings of mortgage-backed
securities and collateralized mortgage obligations increased $32,917,000.
Holdings of municipal bonds and equity securities increased $12,070,000. Net
loans grew $18,390,000, or 6.6%. Real estate loans accounted for most of the
growth in net loans. The unexpected loss of several corporate relationships
through acquisitions have hampered this year's commercial loan growth. These
loans totaled about $6,500,000.
Total deposits grew $52,042,000, or 14.4%, since December 31, 1996. Successful
promotions of various certificate of deposit products and a temporary increase
in certificates of deposit greater than $100,000 helped increase time deposits
$37,063,000. About $13,000,000 in certificates of deposit will mature and not
renew in October. The Indexed Money Fund, a savings product paying money market
interest rates, continues to attract new deposits. Savings deposits increased
$13,331,000, or 13.8%, since yearend. Noninterest-bearing demand deposits
increased $4,278,000. Other borrowings increased $16,627,000. These balances
are made up of customer repurchase agreements and borrowings from the Federal
Home Loan Bank of Pittsburgh.
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 September 30, 1997 were $2,365,000 compared to $2,682,000 at
December 31, 1996. Nonaccrual loans at September 30, 1997 were $770,000 compared
to $615,000 at December 31, 1996. Overall loan quality remains very good.
Loan charge-offs and recoveries for the first nine months of 1997 were $221,000
and $97,000, respectively. All loans charged-off in 1997 were consumer. Third
quarter net charge-offs were $68,000 compared to $42,000 in the second quarter.
RESULTS OF OPERATION
Drovers Bancshares recorded net income of $4,254,000 and $3,564,000 for the nine
months ended September 30, 1997 and 1996, respectively.
The return on assets (ROA)and return on equity (ROE) for the nine months ended
September 30, 1997 was 1.18% and 14.30%, respectively. This compares to an ROA
and ROE for the same period last year of 1.20% and 13.24%, 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 NINE MONTHS
ENDED SEPT 30, ENDED SEPT 30,
(In thousands) 1997 1996 97/96 1997 1996 97/96
Interest income ............ $ 9,270 $ 7,694 20.5% $ 26,576 $ 22,045 20.6%
Interest expense ........... 4,969 3,805 30.6% 13,987 10,764 29.9%
Net interest income ........ 4,301 3,889 10.6% 12,589 11,281 11.6%
Provision for loan losses .. 120 105 14.3% 306 390 -21.5%
Net interest income after
provision for loan losses . $ 4,181 $ 3,784 10.5% $ 12,283 $ 10,891 12.8%
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.
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
Net interest income increased $412,000, or 10.6%, for the third quarter and
$1,308,000, or 11.6% so far in 1997. Lower net interest spreads and margins were
more than offset by an increase in earning assets. Average earning assets were
$447,445,000 in the first nine months of 1997 compared to $365,703,000 a year
ago. This represents an increase of $81,742,000, or 22.4%. The net interest
spread and margin for the first nine months of 1997 was 3.25% and 3.76%,
respectively. This compares to a spread and margin for the first nine months of
1996 of 3.62% and 4.12%, respectively. The third quarter net interest spread
and margin was 3.09% and 3.64%, respectively. The spread and margin for the
second quarter of 1997 was 3.25% and 3.74%, respectively. The increase in lower
yielding investment securities as a percent of earning assets and the reliance
on higher yielding funds has caused the spread and margin to decline.
The Corporation sold about $4,800,000 in investment securities during the second
quarter. Most of the securities had variable interest rates. The proceeds were
invested in fixed rate securities and variable rate securities with rates fixed
for the first one to five years. The new holdings will increase net interest
income in 1997 and help protect the Corporation from interest rate declines.
The Corporation employed a similar strategy in the third quarter of 1996. Low
yielding fixed rate securities were sold for a $70,000 loss and reinvested in
similar securities with higher yields.
The provision for loan losses was $120,000 for the quarter and $306,000 for the
first nine months of 1997. The third quarter provision was increased due to
strong third quarter loan growth and an increase in net charge-offs. The
reserve for loan losses to loan ratio was 1.10% at September 30, 1997.
NONINTEREST INCOME
THREE MONTHS NINE MONTHS
ENDED SEPT 30, ENDED SEPT 30,
(In thousands) 1997 1996 97/96 1997 1996 97/96
Trust income ........................ $ 290 $235 23.4% $ 834 $ 737 13.2%
Service charges on deposit accounts . 333 329 1.2% 958 875 9.5%
Securities gains (losses) ........... 3 -70 104.3% 105 196 -46.4%
Net gains on residential
mortgage loan sales ................ 144 104 38.5% 374 293 27.6%
Equity in losses of real
estate venture ..................... -29 -40 27.5% -70 -118 40.7%
Other ............................... 239 169 41.4% 695 509 36.5%
Total ...............................$ 980 $ 727 34.8% $2,896 $2,492 16.2%
Noninterest income increased $253,000 for the third quarter and $404,000 for the
first nine months of 1997. Trust income increased $55,000 for the quarter and
$97,000 year-to-date. The Corporation now manages assets with a book value of
$175,723,000, an increase of 18.5% over last year. Non-recurring estate fees
account for $27,000 of this year's increase.
Service charges on deposit accounts increased $4,000 for the quarter and $83,000
for the first nine months. Checking account, NSF and ATM service charges have
all increased.
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 INCOME, continued
Investments sold in the third quarter of 1996 caused net losses of $70,000. Net
gains for 1997 total $105,000, a decrease of $91,000 for the first nine months
of 1997. Favorable interest rates and introduction of new mortgage products
boosted gains on residential mortgage loan sales in the third quarter. Gains
for the quarter were $40,000 higher than the third quarter last year and stand
$81,000 ahead for the first nine months.
Earlier this year, the Corporation implemented a $1.00 surcharge on non-
customers using our automated teller machines. The new fee accounts for most of
the increase in other income during the quarter and for the year.
NONINTEREST EXPENSE
THREE MONTHS NINE MONTHS
ENDED SEPT 30, ENDED SEPT 30,
(In thousands) 1997 1996 97/96 1997 1996 97/96
Salaries and employee benefits . $1,869 $1,694 10.3% $5,538 $5,122 8.1%
Occupancy and premises ......... 239 216 10.6% 632 617 2.4%
Furniture and equipment ........ 277 220 25.9% 808 632 27.8%
FDIC insurance ................. 11 0 999.9% 33 2 999.9%
Marketing ...................... 119 134 -11.2% 360 406 -11.3%
Net cost of operation
of other real estate .......... -12 1 -999.9% 61 16 281.3%
Supplies ....................... 115 100 15.0% 289 289 0.0%
Other taxes .................... 90 74 21.6% 268 241 11.2%
Other........................... 534 551 -3.1% 1,630 1,562 4.4%
Total .......................... $3,242 $2,990 8.4% $9,619 $8,887 8.2%
Noninterest expense increased $252,000, or 8.4%, compared to the third quarter
of 1996. For the first nine months, noninterest income increased $732,000, or
8.2%. Salaries and employee benefits increased $175,000 in the third quarter
and $416,000 year-to-date. Salaries alone accounted for the increase as benefit
expenses remained stable. Increased staffing levels caused the salaries
increase. Full-time equivalents at September 30, 1997 were 209 compared to 194
one year ago.
Occupancy and premises increased $23,000 for the quarter and $15,000 so far in
1997. Expenses related to the new Dover branch office opened in the fourth
1998. quarter of 1996 and a decline in occupancy at the 96 S. George Street
1999. office building account for the overall increases. Furniture and
2000. equipment expense increased $57,000 for the third quarter and $176,000
for the first nine months of 1997. Depreciation for the new branch office
and depreciation and service contracts related to the mainframe computer
2003. upgrade accounted for most of the increase.
12 <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, continued
Net cost of operation of other real estate decreased $13,000 for the third
quarter and has increased $45,000 this year. Most of the property held at June
30, 1997 was disposed of during the third quarter. A provision for anticipated
losses on disposal accrued in the second quarter of 1997 was eliminated. Net
other real estate held at September 30, 1997 was $183,000. All property was 1-4
family residential real estate acquired through mortgage foreclosures.
Other noninterest expenses decreased $17,000 in the third quarter. A decline in
legal fees accounted for the overall decrease in third quarter. Data
processing, professional services and mortgage servicing right amortization have
all increased over last year. Data processing has increased due to the
expansion of the ATM network and increased third party costs for trust
department accounting. A $52,000 gain from the first quarter sale of a
previously closed branch office held the year-to-date increase in other
noninterest expense to $68,000.
TAXATION
The Corporation recognized a provision for income taxes of $1,306,000 for the
nine months ending September 30, 1997. The average tax rate, applicable income
taxes divided by income before taxes, was 23.5%. This compares to an average
tax rate of 18.3% for all of 1996. The lower tax rate in 1996 was caused by
$633,000 in tax credits, including $397,000 in historic tax credits received
from the Elm View Limited Partnership. The Partnership owns a 32 apartment low
income housing development which opened in the first quarter of 1996. Estimated
tax credits for 1997 are $273,000. In order to lessen the impact of lower tax
credits, the Corporation increased its holdings in tax free investments. Since
December 31, 1996, holdings of municipal bonds and equity securities, mainly
preferred stock, increased $12,070,000.
FUTURE OUTLOOK
The Penvale branch office located just north of York along Route 83 will open in
November 1997. The branch is a shared site with a Tom's convenience store,
similar to the Dover branch opened in 1996.
Construction began on September 15 on a stand alone branch office in Shrewsbury.
The office will be the Corporation's first branch in the fast growing Southern
York County area. A temporary office will open in November 1997. The permanent
office will open in early 1998.
The Board of Directors declared a five percent stock dividend payable November
28, 1997 to shareholders of record November 14, 1997. The announcement came
after release of the Corporation's third quarter earnings. The effect of the
stock dividend has not been reflected in the earnings per share information
presented in this report.
13 <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: November 6, 1997
14 <PAGE>
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