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 June 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 June 30, 1997
Common Stock 2,809,180 Shares
<PAGE>
Drovers Bancshares Corporation and Subsidiaries
CONTENTS
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Statements of Condition ..................................... 3
June 30, 1997 and December 31, 1996
Consolidated Statements of Income ........................................ 4
Three Months Ended June 30, 1997 and 1996
Six Months Ended June 30, 1997 and 1996
Consolidated Statements of Cash Flows .................................... 5
Six Months Ended June 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 ................................................................ 15
2 <PAGE>
Drovers Bancshares Corporation and Subsidiaries
PART I FINANCIAL INFORMATION
CONSOLIDATED STATEMENTS OF CONDITION
(In thousands)
JUNE 30, DEC 31,
ASSETS 1997 1996
Cash and due from banks .................................. $ 18,219 $ 17,512
Money market investments ................................. 382 271
Investment securities (fair value $161,910 and $128,605).. 161,402 128,082
Loans (net of unearned income of $3,402 and $3,494) ...... 292,603 283,117
Reserve for loan losses .................................. 3,260 3,130
Net loans ................................................ 289,343 279,987
Bank premises and equipment .............................. 13,907 14,007
Other assets ............................................. 7,348 6,854
TOTAL ASSETS ............................................. $490,601 $446,713
LIABILITIES
Deposits:
Noninterest-bearing ...................................... $ 44,524 $ 34,702
Interest-bearing ......................................... 347,022 325,502
Total deposits ........................................... 391,546 360,204
Federal funds purchased and securities sold under
agreements to repurchase ................................ 19,609 15,254
Other borrowings ......................................... 34,283 29,385
Other liabilities ........................................ 4,959 3,778
TOTAL LIABILITIES ........................................ 450,397 408,621
SHAREHOLDERS' EQUITY
Common stock($5 par value), 10,000,000 shares authorized;
issued and outstanding-2,809,180 shares in 1997 and
1996 .................................................... 14,046 14,046
Additional paid-in capital ............................... 14,708 14,707
Retained earnings ........................................ 10,926 8,969
Unrealized holding gains on available-for-sale
securities .............................................. 524 370
TOTAL SHAREHOLDERS' EQUITY ............................... 40,204 38,092
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ............... $490,601 $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 SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
1997 1996 1997 1996
INTEREST INCOME
Interest and fees on loans ................ $6,253 $5,649 $12,354 $11,218
Interest on deposits with banks ........... 7 21 11 89
Interest on federal funds sold ............ 0 0 0 0
Interest and dividends on
investment securities .................... 2,617 1,602 4,941 3,044
Total interest income ..................... 8,877 7,272 17,306 14,351
INTEREST EXPENSE
Interest on deposits ...................... 3,795 2,846 7,333 5,719
Federal funds purchased and securities
sold under agreements to repurchase ...... 389 180 707 279
Interest on borrowed funds ................ 512 500 978 961
Total interest expense .................... 4,696 3,526 9,018 6,959
Net interest income ....................... 4,181 3,746 8,288 7,392
Provision for loan losses ................. 66 180 186 285
Net interest income after
provision for loan losses ................ 4,115 3,566 8,102 7,107
OTHER INCOME
Trust income .............................. 282 268 544 502
Service charges on deposit accounts ....... 320 294 625 546
Securities gains .......................... 101 66 102 266
Net gains on residential
mortgage loan sales ...................... 73 97 230 189
Equity in losses of real estate venture ... -28 -40 -41 -78
Other ..................................... 263 178 456 340
Total other income ........................ 1,011 863 1,916 1,765
OTHER EXPENSES
Salaries and employee benefits ............ 1,850 1,666 3,669 3,428
Occupancy and premises .................... 212 208 393 401
Furniture and equipment ................... 271 210 531 412
FDIC insurance ............................ 12 1 22 2
Marketing ................................. 120 136 241 272
Net (gain) cost of operation
of other real estate ..................... 62 2 73 15
Office supplies ........................... 113 94 174 189
Other taxes ............................... 88 81 178 167
Other...................................... 585 493 1,096 1,011
Total other expenses ...................... 3,313 2,891 6,377 5,897
Income before income taxes ................ 1,813 1,538 3,641 2,975
Applicable income taxes ................... 403 327 841 616
NET INCOME ................................ $ 1,410 $ 1,211 $ 2,800 $ 2,359
PER SHARE DATA
Net income ................................ $ 0.50 $ 0.43 $ 1.00 $ 0.84
Dividends ................................. $ 0.15 $ 0.14 $ 0.30 $ 0.27
See notes to consolidated financial statements.
4 <PAGE>
Drovers Bancshares Corporation and Subsidiaries
PART I FINANCIAL INFORMATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands) SIX MONTHS
ENDED JUNE 30,
1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income .......................................... $ 2,800 $ 2,359
Adjustments to reconcile net income to net cash
from operating activities:
Depreciation ........................................ 650 560
Net amortization of investment security premiums .... -89 34
Provision for loan losses ........................... 186 285
Provision for losses on other real estate owned ..... 54 0
Gain on sale of securities held-to-maturity ......... -1 -11
Gain on sale of securities available-for-sale ....... -102 -255
Loans originated for sale ........................... -13,140 -9,557
Proceeds from sales of loans ........................ 13,518 9,879
Gain on sale of loans ............................... -230 -189
Other gains ......................................... -42 0
Net deferred loan fees .............................. -287 -119
Equity in loss of real estate venture................ 41 78
Increase in interest/dividends receivable ........... -447 -159
Increase (decrease) in interest payable ............. 705 -181
Other ............................................... 186 -252
Net cash provided by operating activities ........... 3,802 2,472
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales and maturities of securities
held-to-maturity ................................... 3,146 3,438
Proceeds from sales and maturities of securities
available-for-sale ................................. 14,317 12,137
Purchases of securities held-to-maturity ............ -9,827 -943
Purchases of securities available-for-sale .......... -40,529 -34,074
Increase in net loans ............................... -9,499 -9,990
Capital expenditures ................................ -522 -633
Proceeds from sale of fixed assets .................. 75 1
Purchase of investment in real estate venture ....... 9 0
Proceeds from sale of other real estate ............. 99 156
Net cash used in investing activities ............... -42,731 -29,908
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in demand deposits
and savings accounts ............................... 18,534 3,706
Net increase in certificates of deposit ............. 12,803 3,509
Net increase (decrease) in federal funds purchased
and repurchase agreements .......................... 4,354 11,541
Net increase in other borrowings .................... 4,916 8,323
Payments made for capital leases .................... -17 -14
Dividends paid ...................................... -843 -763
Proceeds from issuance of common stock .............. 0 83
Net cash provided by financing activities ........... 39,747 26,385
NET INCREASE IN CASH & CASH EQUIVALENTS ............. 818 -1,051
CASH & CASH EQUIVALENTS AT JANUARY 1, ............... 17,783 18,771
CASH & CASH EQUIVALENTS AT JUNE 30, ................. $ 18,601 $ 17,720
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
June 30, 1997 and December 31, 1996. Operating results and changes in cash
flows for the six months ended June 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 June 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 ... $ 5,465 $ 55 $ 0 $ 5,520
Obligations of states and political
subdivisions ......................... 16,897 467 14 17,350
Mortgage-backed securities and
collateralized mortgage obligations .. 12,874 135 135 12,874
Total investment securities ........... $35,236 $ 657 $ 149 $35,744
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 June 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 .. $ 22,822 $ 45 $ 74 $ 22,793
Obligations of states and political
subdivisions ........................ 5,778 52 8 5,822
Corporate obligations ................ 500 0 8 492
Mortgage-backed securities and
collateralized mortgage obligations . 81,927 553 211 82,269
Total debt securities ................ 111,027 650 301 111,376
Equity securities .................... 14,344 451 5 14,790
Total investment securities .......... $ 125,371 $ 1,101 $ 306 $ 126,166
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 June 30, 1997 and December 31, 1996:
JUNE 30, DEC 31,
(In thousands) 1997 1996
Commercial, financial and industrial loans ............. $ 72,583 $ 72,828
Real estate mortgage loans:
Real estate construction-related ..................... 10,991 8,908
Real estate mortgage loans secured by
1-4 family residential properties ................. 101,715 98,559
Other real estate .................................... 74,140 68,637
Total real estate mortgage loans ....................... 186,846 176,104
Consumer loans:
Monthly payment ...................................... 31,686 32,616
Other revolving credit ............................... 1,456 1,543
Total consumer loans ................................... 33,142 34,159
Leasing and other ...................................... 32 26
Total loans ............................................ $292,603 $283,117
Changes in the reserve for loan losses for the periods ended June 30, were
as follows:
(In thousands) 1997 1996
Balance, beginning of year ............................. $ 3,130 $ 2,937
Provision for loan losses .............................. 186 285
LESS: Loans charged-off ................................ 136 259
Recoveries ............................................. 80 130
Balance, June 30 ....................................... $ 3,260 $ 3,093
As of June 30, 1997, the total recorded investment in impaired loans was
$2,502,000. Nonaccrual loans at June 30, 1997 were $674,000 compared to $615,000
at December 31, 1996.
Residential mortgage loans with a book value of $1,622,000 were held for sale at
June 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 six
months of 1997, the Corporation capitalized $96,000 in mortgage servicing rights
and amortized $25,000.
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 six months ending June 30, 1997:
BALANCE BALANCE
JUNE 30, INCREASE DEC 31,
1997 (DECREASE) % 1996
FUNDING USES: (In thousands)
Money market investments ............ $ 382 $ 111 41.0% $ 271
Investment securities ............... 161,402 33,320 26.0% 128,082
Loans (net) ......................... 289,343 9,356 3.3% 279,987
Total interest-bearing assets ....... 451,127 42,787 10.5% 408,340
Noninterest-bearing assets .......... 39,474 1,101 2.9% 38,373
TOTAL USES .......................... $490,601 $ 43,888 9.8% $446,713
FUNDING SOURCES:
Interest-bearing demand deposits .... $ 42,421 $ - 811 -1.9% $ 43,232
Savings deposits .................... 104,721 7,903 8.2% 96,818
Time deposits ....................... 199,880 14,428 7.8% 185,452
Short-term borrowings ............... 19,609 4,355 28.5% 15,254
Long-term borrowings ................ 34,283 4,898 16.7% 29,385
Total interest-bearing liabilities .. 400,914 30,773 8.3% 370,141
Noninterest-bearing demand deposits . 44,524 9,822 28.3% 34,702
Other liabilities ................... 4,959 1,181 31.3% 3,778
Shareholders' equity ................ 40,204 2,112 5.5% 38,092
TOTAL SOURCES ....................... $490,601 $ 43,888 9.8% $446,713
Total assets increased $43,888,000, or 9.8%, 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
$33,320,000, or 26.0%, since the end of 1996. Holdings of mortgage-backed
securities and collateralized mortgage obligations increased $19,645,000.
Holdings of municipal bonds and equity securities increased $10,813,000. Net
loans grew $9,356,000, or 3.3%. Growth in commercial real estate loans
accounted for most of the growth in net loans.
Total deposits grew $31,342,000, or 8.7%, since December 31, 1996. Successful
promotions of various certificate of deposit products helped increase time
deposits $14,428,000. The Indexed Money Fund, a savings product paying money
market interest rates, continues to attract new deposits. Savings deposits
increased $7,903,000, or 8.2%, since yearend. Noninterest-bearing demand
deposits increased $9,822,000. Some of the increase was caused by fluctuations
in commercial account balances. Other borrowings increased $9,253,000. 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 June 30, 1997 were $2,502,000 compared to $2,682,000 at
December 31, 1996. Nonaccrual loans at June 30, 1997 were $674,000 compared to
$615,000 at December 31, 1996. Overall loan quality remains very good.
Loan charge-offs and recoveries for the first half of 1997 were $136,000 and
$80,000, respectively. All loans charged-off in 1997 were consumer. Second
quarter net charge-offs were $42,000. Charge-offs are expected to remain at
current levels in the third quarter.
RESULTS OF OPERATION
Drovers Bancshares recorded net income of $2,800,000 and $2,359,000 for the six
months ended June 30, 1997 and 1996, respectively.
The return on assets (ROA) and return on equity (ROE) for the six months ended
June 30, 1997 was 1.20% and 14.47%, respectively. This compares to an ROA
and ROE for the same period last year of 1.22% and 13.30%, respectively. Net
income for the quarter was $1,410,000 compared to $1,211,000 for the second
quarter last year and $1,390,000 for the first quarter of 1997. The ROA and ROE
for the second quarter of 1997 was 1.18% and 14.42%, respectively.
<TABLE>
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:
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE
30,
<S> <C> <C> <C> <C> <C>
<C>
(In thousands) 1997 1996 97/96 1997 1996
97/96
Interest income ............ $ 8,877 $ 7,272 22.1% $17,306 $14,351
20.6%
Interest expense ........... 4,696 3,526 33.2% 9,018 6,959
29.6%
Net interest income ........ 4,181 3,746 11.6% 8,288 7,392
12.1%
Provision for loan losses .. 66 180 -63.3% 186 285 -
34.7%
Net interest income after
provision for loan losses . $ 4,115 $ 3,566 15.4% $ 8,102 $ 7,107
14.0%
</TABLE>
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 $435,000, or 11.6%, for the second quarter and
$896,000, or 12.1% for the first half of 1997. Lower net interest spreads and
margins were more than offset by an increase in earning assets. Average earning
assets were $436,440,000 in the first half of 1997 compared to $357,843,000 a
year ago. This represents an increase of $78,597,000, or 22.0%. The net
interest spread and margin for the first half of 1997 was 3.34% and 3.83%,
respectively. This compares to a spread and margin for the first six months of
1996 of 3.64% and 4.15%, respectively. The second quarter net interest spread
and margin was 3.25% and 3.74%, respectively. The spread and margin for the
first quarter of 1997 was 3.43% and 3.92%, respectively. The increase in lower
yielding investment securities as a percent of earning assets and the reliance
on higher yielding funding 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 provision for loan losses was $66,000 for the quarter and $186,000 for the
first half of 1997. The second quarter provision was lowered due to lower than
anticipated year-to-date net charge-offs and continued strong quality of the
loan portfolio. The reserve for loan losses to loan ratio was 1.11% at June 30,
1997.
<TABLE>
NONINTEREST INCOME
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE
30,
(In thousands) 1997 1996 97/96 1997 1996
97/96
<S> <C> <C> <C> <C> <C>
<C>
Trust income ........................ $ 282 $268 5.2% $ 544 $ 502
8.4%
Service charges on deposit accounts . 320 294 8.8% 625 546
14.5%
Securities gains .................... 101 66 53.0% 102 266 -
61.7%
Net gains on residential
mortgage loan sales ................ 73 97 -24.7% 230 189
21.7%
Equity in losses of real
estate venture ..................... -28 -40 -30.0% -41 -78 -
47.4%
Other ............................... 263 178 47.8% 456 340
34.1%
Total ............................... $1,011 $ 863 17.1% $1,916 $1,765
8.6%
</TABLE>
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
Noninterest income increased $148,000 for the second quarter and $151,000 for
the first six months of 1997. Gains from the sale of investment securities and
the implementation of a $1.00 surcharge on non-customers using our automated
teller machines caused the second quarter increase. For the first six months of
1997, trust income increased $42,000, or 8.4%. Fees from employee benefit plan
management increased $30,000. Total book value of assets under management
increased 31.1% over the past twelve months. Service charges on deposit
accounts increased $79,000 over last year as checking account fees, overdraft
charges and ATM fees all increased. Net gains on residential mortgage loan
sales increased $41,000 on total year-to-date sales of $13,384,000. Other
income increased $116,000 for the first six months of 1997 due to implementation
of ATM surcharges and an increase in letter of credit fees.
NONINTEREST EXPENSE
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
(In thousands) 1997 1996 97/96 1997 1996 97/96
Salaries and employee benefits . $1,850 $1,666 11.0% $3,669 $3,428 7.0%
Occupancy and premises ......... 212 208 1.9% 393 401 -2.0%
Furniture and equipment ........ 271 210 29.0% 531 412 28.9%
FDIC insurance ................. 12 1 999.9% 22 2 999.9%
Marketing expense .............. 120 136 -11.8% 241 272 -11.4%
Net cost of operation
of other real estate .......... 62 2 999.9% 73 15 999.9%
Office supplies ................ 113 94 20.2% 174 189 -7.9%
Other taxes .................... 88 81 8.6% 178 167 6.6%
Other........................... 585 493 18.7% 1,096 1,011 8.4%
Total .......................... $3,313 $2,891 14.6% $6,377 $5,897 8.1%
Noninterest expense increased $422,000, or 14.6%, compared to the second quarter
of 1996. For the first six months, noninterest income increased $480,000, or
8.1%.
Salaries and employee benefits increased $184,000 in the second quarter and
$241,000 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 June 30, 1997 were 208 compared to 205 at
March 31, 1997 and 198 at June 30, 1996.
Furniture and equipment expense increased $61,000 for the second quarter and
$119,000 for the first half of 1997. Depreciation for the new branch office and
main frame computer upgrade accounted for most of the increase.
Net cost of operation of other real estate increased $60,000 for the second
quarter. A provision for anticipated losses on disposal was recognized. Net
other real estate held at June 30, 1997 was $643,000. All property was 1-4
family residential real estate acquired from mortgage foreclosures.
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
Other noninterest expenses increased $92,000 in the second quarter. Increases
in data processing, legal and professional services caused the increase. 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 $85,000.
TAXATION
The Corporation recognized a provision for income taxes of $841,000 for the
six months ending June 30, 1997. The average tax rate, applicable income
taxes divided by income before taxes, was 23.1%. 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 $10,813,000.
VOTING RESULTS
Shareholders' voted on the following items at this year's Annual Meeting
held May 23, 1997:
1. Election of four directors for a four-year term expiring 2001
2. Ratification of adoption of Drovers Bancshares Corporation 1997 Employee
stock Purchase Plan.
The voting results were as follows:
For Against/Withheld Abstain
Richard M. Linder (Director) ...... 2,322,294 23,485 --
Frank Motter (Director) ........... 2,322,294 23,485 --
Robert L. Myers, Jr.(Director) .... 2,322,294 23,485 --
A. Richard Pugh (Chairman,
President, and CEO)............... 2,322,294 23,485 --
1997 Employee Stock Purchase Plan.. 2,030,247 73,372 114,442
13 <PAGE>
Drovers Bancshares Corporation and Subsidiaries
PART I FINANCIAL INFORMATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
FUTURE OUTLOOK
The Corporation will install five new remote automated teller machines (ATMs) in
the second quarter of 1997. The machines will be located in Tom's convenience
stores throughout York County. The Corporation will operate eighteen ATMs after
completing the installation.
Construction continues on the Penvale branch office located just north of York
along Route 83. The branch is a shared site with a Tom's convenience store,
similar to the Dover branch opened in 1996. Penvale will open in November.
Construction will begin about 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. The office will open in December or early
1998.
14 <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: August 6, 1997
15 <PAGE>
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