DROVERS BANCSHARES CORPORATION
______________________________
30 SOUTH GEORGE STREET, YORK, PENNSYLVANIA 17401
April 20, 1998
Dear Shareholder:
You are cordially invited to attend the Annual Meeting of Shareholders of
Drovers Bancshares Corporation to be held, Friday, May 22, 1998, at
2:00 p.m. at the Research and Administrative Services Center of The
Drovers & Mechanics Bank, 915 Indian Rock Dam Road, York, Pennsylvania
17403.
The notice of meeting and Proxy Statement that appear on the following
pages contain information about the matters which are to be considered
at the meeting.
To ensure that your shares are represented at the Annual Meeting, please
review the material and complete, sign, date and return promptly the proxy
card in the enclosed envelope. Every shareholder's vote is important
whether or not you are personally able to attend. If you do attend the
meeting and wish to vote in person, you must give written notice thereof
to the Secretary of the Company so your proxy will be superseded by any
ballot that you submit during the meeting.
Sincerely,
/s/A. Richard Pugh
A. Richard Pugh
Chairman of the Board
and President
1<PAGE>
DROVERS BANCSHARES CORPORATION
______________________________
30 SOUTH GEORGE STREET, YORK, PENNSYLVANIA 17401
NOTICE OF
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY 22, 1998
TO THE SHAREHOLDERS OF DROVERS BANCSHARES CORPORATION:
Notice is hereby given that the Annual Meeting of Shareholders of DROVERS
BANCSHARES CORPORATION (the "Company") will be held on Friday, May 22,
1998, at 2:00 p.m. at the Research and Administrative Services Center of
The Drovers & Mechanics Bank, 915 Indian Rock Dam Road, York,
Pennsylvania, 17403, for the following purposes:
1. To elect four (4) Directors for a four-year term expiring in 2002 and
until their successors are elected and qualified. The nominees of the
Company's Board of Directors are named in the accompanying Proxy
Statement.
To transact such other business as may properly come before the Annual
Meeting and any adjournment or postponement thereof.
The Board of Directors has fixed April 3, 1998, as the record date for the
meeting and only shareholders of record at the close of business on such
date will be entitled to notice of, and to vote at, the Annual Meeting and
any adjournment or postponement thereof.
You are cordially invited to attend the meeting. In order to assure your
representation at the meeting, please mark, sign, date and return your
proxy as promptly as possible. An envelope which requires no postage if
mailed in the United States is enclosed for this purpose. The prompt
return of your signed proxy, regardless of the number of shares you hold,
will aid the Company in reducing the expense of additional proxy
solicitation. The giving of such proxy does not affect your right to vote
in person if you attend the meeting and give written notice to the
Secretary of the Company.
By Order of the Board of Directors
/s/George L.F. Guyer, Jr.
York, Pennsylvania George L. F. Guyer, Jr.
April 20, 1998 Secretary
2<PAGE>
DROVERS BANCSHARES CORPORATION
Proxy Statement for the Annual Meeting of Shareholders
To be Held on May 22, 1998
INTRODUCTION
This Proxy Statement and the accompanying proxy card are being furnished
in connection with the solicitation by the Board of Directors of DROVERS
BANCSHARES CORPORATION (the "Company"), a Pennsylvania business
corporation, of proxies to be voted at the Annual Meeting of Shareholders
of the Company to be held on Friday, May 22, 1998, at 2:00 p.m. at the
Research and Administrative Services Center of The Drovers & Mechanics
Bank, 915 Indian Rock Dam Road, York, Pennsylvania 17403. The expense of
soliciting proxies will be borne by the Company. In addition to the use
of the mails, certain officers and other employees of the Company may
solicit proxies personally or by telephone but will receive no special
compensation for performing this service. The company will make
arrangements with brokerage houses and other custodians, nominees and
fiduciaries to send proxies and proxy materials to their principals and
will reimburse them for their expenses.
A shareholder who returns a proxy may revoke the proxy at any time before
it is voted only: (1) by giving written notice of revocation to George L.
F.Guyer, Jr., Secretary, Drovers Bancshares corporation at 30 South George
Street, York, Pennsylvania 17401; (2) by executing a later-dated proxy and
giving written notice thereof to the Secretary of the Company; or (3) by
voting in person after giving written notice to the Secretary of the
Company.
This Proxy Statement and the enclosed form of proxy (the "Proxy") are
first being sent to shareholders of the Company on or about April 20,
1998.
Shares represented by proxies on the accompanying Proxy, if properly
signed and returned, will be voted in accordance with the specifications
made thereon by the shareholders. Any Proxy not specifying to the
contrary will be voted FOR the nominees named in the accompanying Proxy.
Execution and return of the enclosed Proxy will not affect a shareholder's
right to attend the Annual Meeting and vote in person, after giving
written notice to the Secretary of the Company.
Only shareholders of record at the close of business on April 3, 1998, are
entitled to notice of, and to vote at, the Annual Meeting. On that date,
there were 2,965,641 common shares of the Company outstanding, each of
which will entitle the holder thereof to one vote at the Annual Meeting.
In the election of Directors, each shareholder, or his duly authorized
proxy, will have the right to vote the number of shares owned by him for
each of the four (4) Directors to be elected. There are no cumulative
voting rights.
The Company's annual report for the year ended December 31, 1997, was
previously mailed to shareholders of record. It is not to be regarded as
proxy solicitation material.
3<PAGE>
SHARE OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
There are no persons known to the Company who beneficially own more than
five percent (5%) of the Company's outstanding common shares, except as
disclosed in the following chart:
Percentage of
Outstanding
Name and Address Number of Shares Common Stock
of Beneficial Owner Beneficially Owned 1 Owned
Gary A. Stewart 94,382 3.18%
910 Upland Road, York, PA 17403
Robert H. Stewart, Jr. 93,349 3.14%
RD #4, Spring Grove, PA 17362
1 Mr. Gary A. Stewart, Mr. Robert H. Stewart, Jr. and other members of the
Stewart family have filed, as a group, a Schedule 13D, as amended, with
the Securities and Exchange Commission. The Schedule 13D disclosed that,
while no member of such group beneficially owns or has power to vote more
than 5% of the Company's shares, as a group such persons may be deemed to
beneficially own approximately 16.92 % of the Company's issued and
outstanding shares.
ELECTION OF DIRECTORS
At the Annual Meeting, four (4) Directors of the Company are to be
elected, each Director to hold office for four-year term expiring in 2002
and until his successor shall have been elected and qualified. Shares
represented by properly executed Proxies in the accompanying form will be
voted for the nominees named below unless authority to vote is withheld by
instructions. The persons receiving a plurality of the votes cast will be
elected as Directors. The Board has no reason to believe any of the
nominees will be unable to serve as a Director. In the event that any of
the nominees is unable to accept nomination or election, any Proxy given
pursuant to this solicitation will be voted in favor of such other persons
as the management of the Company may recommend. The following table
provides information as of April 3, 1998, concerning the nominees and
continuing Directors, including their principal occupations during the
past five years. All of the nominees are presently members of the Board
of Directors of the Company. Each Director of the Company also serves as
a Director of the Company's wholly-owned bank subsidiary, The Drovers &
Mechanics Bank (the "Bank").
4<PAGE>
Name and Principal Common Shares Percent of
Occupation for Past Director Beneficially Total Shares
Five Years Age Since 1 Owned 2 Outstanding
NOMINEES FOR A FOUR-YEAR TERM EXPIRING IN 2002:
Harlowe R. Prindle
President, York Auto Parts, Inc. 55 1982 17,296 *
Basil A. Shorb, III
President, Helm Coal Corporation 52 1993 70,318 3 2.37%
(Holding Company Providing
Management Services to Five
Wholly Owned Subsidiaries Engaged
in Steel Fabrication, Highway Sign
Manufacturing and Specialty
Construction)
Delaine A. Toerper 54 1995 1,050 *
Retired; formerly Executive Vice
President and Chief Operating
Officer of Tighe Industries, Inc.
(Manufacturers, Designers and Marketers
of Dance Costumes, Dance Apparel and
Gymnastic Apparel)
James S. Wisotzkey 44 1997 l,050 *
President and Chief Operating Officer
The Maple Press Company (Printer)
INFORMATION REGARDING CONTINUING DIRECTORS
Name and Principal Common Shares Percent of
Occupation for Past Director Beneficially Total Shares
Five Years Age Since Owned Outstanding
TERMS EXPIRING IN 1999:
D. John Sparler 4 49 1984 9,061 *
Investments; formerly President, Treasurer
and Chief Operating Officer, Yorktowne
Paper Mills, Inc. (Paperboard and
Paperboard Products)
David C. McIntosh 69 1985 4,131 5 *
President, MCD Technologies, Inc.
(Industrial Product Research); formerly
President, Market Access, Inc. until May 1994
Gary A. Stewart 50 1996 94,382 6 3.18%
Chairman & CEO, Stewart & March, Inc.
(General Contractors)
5<PAGE>
Name and Principal Common Shares Percent of
Occupation for Past Director Beneficially Total Shares
Five Years Age Since Owned Outstanding
TERMS EXPIRING IN 1999: (cont.)
George W. Hodges 47 1994 2,789 7 *
President, The Wolf Organization, Inc.
(Distributors of Lumber & Building
Supplies)
6<PAGE>
Name and Principal Common Shares Percent of
Occupation for Past Director Beneficially Total Shares
Five Years Age Since Owned Outstanding
TERMS EXPIRING IN 2000:
J. Samuel Gregory 67 1978 6,884 *
Chairman and CEO, AAA Southern
Pennsylvania (Insurance, Travel and
Member Services)
Daniel E. Hess 66 1982 7,971 *
President, Hess Management, Inc.
(Management Consultant)
Herbert D. Lavetan 68 1979 84,390 2.85%
Director, Lavetan & Associates, Inc.
(Postal, Business and Communications
Services)
L. Doyle Ankrum 69 1979 5,546 8 *
Retired
Robert H. Stewart, Jr. 58 1987 93,349 6 3.14%
President, York Building Products Co., Inc.
(Concrete Masonry Units, Crushed
Stone-Bituminous Concrete)
TERMS EXPIRING IN 2001:
Richard M. Linder 67 1976 11,161 9 *
Retired; formerly Chairman of the
Company and the Bank until March 1996
Frank Motter 10 70 1975 30,478 1.03%
Chairman of the Board & President
Motter Printing Press Co. (Web-Fed
Printing Equipment)
Robert L. Myers, Jr. 69 1968 23,103 11 *
President, John H. Myers & Son, Inc.
(Lumber & Building Supplies)
A. Richard Pugh 57 1990 39,704 12 1.33%
Chairman of the Board, President and
Chief Executive Officer of the Company
and the Bank; formerly President and
Chief Executive Officer of the Company
and the Bank until March 1996
7<PAGE>
Name and Principal Common Shares Percent of
Occupation for Past Director Beneficially Total Shares
Five Years Age Since Owned Outstanding
DIRECTOR EMERITUS:
Daniel J. Sparler 80 1963 38,592 1.30%
Retired; formerly Chairman & Chief
Executive Officer Yorktowne Paper
Mills, Inc. (Paperboard & Paperboard
Products)
All Directors and Executive Officers as a 546,809 13 18.43%
Group (23)
__________________________________________________________________________
* Less than 1%
1 Includes period served as Director of the Bank.
2 Except as otherwise noted, the person listed possesses sole voting
and investment power of shares voting and investment power with
their spouse.
3 Includes 21,030 shares owned by his wife, 6,046 shares owned by his
son for which he is custodian, 6,037 shares owned by his son for
which his wife is custodian and 33,833 shares held by Helm Coal
Company of which his wife is a partner sharing voting and investment
authority.
4 D. John Sparler and Daniel J. Sparler are father and son.
5 Includes 465 shares held by him in nominee name and 108 shares held
by his wife in nominee name.
6 See footnote number 1 under Share Ownership of Certain Beneficial
Owners.
7 Includes 2,438 shares owned by his wife.
8 Includes 4,153 shares owned by his wife.
9 Includes 54 shares owned by his wife, 204 shares held by his wife in
nominee name and 10,257 shares held by him in nominee name.
10 Mr. Motter is a director of York Water Company (a company with a
class of securities registered pursuant to Section 12 of the
Securities Exchange Act of 1934).
11 Includes 3,004 shares owned by his wife and 11,484 shares held by
the Elsbeth M. Myers Trust, of which he is a trustee sharing
investment and voting authority.
12 Includes 141 shares held by him in nominee name, 273 shares held
jointly with his wife, 108 shares owned by his children for which
he is custodian and 38,335 shares Mr. Pugh has the right to acquire
(at present exercise price of $9.63 per share for 9,217 shares under
options granted on December 19, 1990, $16.73 per share for 4,915
shares under options granted on November 23, 1994, $15.40 per share
for 7,022 shares under options granted on May 22, 1995, $19.62 per
share for 6,563 shares under options granted on April 15, 1996,
$21.43 per share for 6,825 shares under options granted on April 23,
1997 and $37.50 per share for 3,793 shares under options granted on
February 13, 1998 ), upon exercise of stock options granted pursuant
to the Company's 1985 Incentive Stock Option Plan and 1995 Stock
Option Plan.
13 Beneficial ownership is as of April 3, 1998.
8<PAGE>
ADDITIONAL INFORMATION
During 1997 the Boards of Directors of the Bank and the Company met 12 and
7 times, respectively. The Company has no committees. The Bank has
Executive, Audit, Nominating and Personnel Committees. Other Committees
are appointed as necessary to conduct the business of the Bank.
The Executive Committee, which met 12 times in 1997 during intervals
between the meetings of the Board of Directors, may exercise the authority
of the Board in the management of the Bank's business to the extent
permitted by law. As of December 31, 1997, this committee's members were
Richard M. Linder (Chairman), L. Doyle Ankrum, George W. Hodges, David C.
McIntosh, Frank Motter, Robert L. Myers, Jr., Harlowe R. Prindle, A.
Richard Pugh and Gary A. Stewart.
The Audit Committee, which met 4 times in 1997, is responsible for
recommending to the Board a firm of independent certified public
accountants to conduct an annual audit of the books and accounts of the
company and its subsidiaries. The Board has adopted an Audit committee
Charter that designates the responsibilities of the Audit Committee in the
areas of financial reporting, corporate governance and internal control.
As of December 31, 1997, this committee's members were L. Doyle Ankrum
(Chairman), Daniel E. Hess, Herbert D. Lavetan, Basil A. Shorb, III, D.
John Sparler, Robert H. Stewart, Jr., Delaine A. Toerper and James S.
Wisotzkey.
The Nominating Committee is responsible for recommending candidates for
Board membership. Shareholder nominations will be considered if made in
writing and delivered to the Company's principal office not later than the
seventh day on which the notice of meeting was mailed. Nominations must
contain the same information about each candidate as is required to be
contained in the Company's Proxy Statement about management's candidates,
the name and address of the notifying shareholder and the number of shares
of the Company owned by the notifying shareholder. The committee met 4
times in 1997. As of December 31, 1997, this committee's members were J.
Samuel Gregory (Chairman), George W. Hodges, Herbert D. Lavetan, Frank
Motter, A. Richard Pugh, Basil A. Shorb, III, D. John Sparler and Delaine
A. Toerper.
The Personnel Committee, which met 4 times in 1997, is responsible for
serving in an advisory and consulting capacity to management in the
development, implementation and/or assessment of personnel policies,
employee benefit issues, organizational and succession planning and
compensation and benefit programs. The committee reviews and recommends
for Board approval the election of Vice Presidents and above, and
compensation for Senior Vice Presidents and above. As of December 31,
1997, this committee's members were Robert L. Myers (Chairman), L. Doyle
Ankrum, George W. Hodges, Frank Motter, Harlowe R. Prindle and A. Richard
Pugh.
During 1997, all of the Directors of the Bank and of the Company attended
at least 75% of the aggregate of all meetings of the respective Boards and
committees on which they served.
EXECUTIVE COMPENSATION
Company officers, all of whom are also officers of the Bank, do not
receive compensation from the Company. The following table shows
information concerning the annual compensation paid by the Bank for
services in all capacities to the Company and the Bank for the fiscal
9<PAGE>
years ended December 31, 1997, 1996 and 1995 of those persons who were, at
December 31, 1997, Chairman, President and Chief Executive Officer and
other executive officers of the Company or the Bank who received a total
annual salary and bonus exceeding $100,000 in 1997.
SUMMARY COMPENSATION TABLE
Annual
Compensation
Other
Name Annual
And Compen-
Principal Salary Bonus sation
Position Year ($) ($) ($)1
A Richard Pugh 1997 210,000 56,224 -
Chairman, 1996 200,000 22,000 -
President & CEO 1995 175,000 17,500 -
Debra A. Goodling 1997 107,000 28,112 -
Executive Vice 1996 97,000 10,670 -
President 1995 4 - - -
Michael J. Groft 1997 107,000 28,112 -
Executive Vice 1996 97,000 10,670 -
President 1995 4 - - -
Long-Term
Compensation
All
Name Securities Other
And Restricted Underlying LTIP Compen-
Principal Stock Awards Options Payouts sation
Position Year ($) SARs (#)2 ($) ($) 3
A Richard Pugh 1997 0 6,825 0 2,375
Chairman, 1996 0 6,563 0 2,250
President & CEO 1995 0 7,022 0 2,250
Debra A. Goodling 1997 0 2,730 0 1,409
Executive Vice 1996 0 3,019 0 1,014
President 1995 4 0 - 0 -
Michael J. Groft 1997 0 2,730 0 562
Executive Vice 1996 0 3,019 0 531
President 1995 4 0 - 0 -
1 Perquisites and other personal benefits which do not exceed the lesser
of $50,000 or 10% of total annual salary and bonus are excluded.
2 Includes effect of a 25% dividend in the form of a 5 for 4 stock split
issued in August of 1996 and a 5% stock dividend issued in November of
1997.
3 Amounts shown represent contributions by the Bank to the Bank's Salary
Deferral Plan, described in page 11 of this Proxy Statement.
4 No disclosure is made for these years because total annual salary plus
bonus did not exceed $100,000.
10<PAGE>
OPTIONS/SAR GRANTS AND EXERCISES AND FISCAL YEAR-END VALUES
Shown below is information with respect to options granted in 1997
pursuant to the Company's 1995 Stock Option Plan and unexercised options
to purchase the Company's common stock granted in years prior to 1996
under the Company's 1985 Incentive Stock Option Plan to the named officers
and held by them at December 31, 1997.
OPTION GRANTS IN LAST FISCAL YEAR
Individual Grants
Percent
Number of of Total
Securities Options/Sars Exercise Grant
Underlying Granted to or Expir- Date
Options/SARs Employees in Base Price ation Present
Name Granted Fiscal Year ($)Share Date Value ($)1
A. Richard Pugh 6,825 27% $21.43 4/23/07 $36,036
Chairman,
President and CEO
Debra A. Goodling 2,730 11% $21.43 4/23/07 $14,414
Executive Vice
President
Michael J. Groft 2,730 11% $21.43 4/23/07 $14,414
Executive Vice
President
1 The Company uses the Black-Scholes Option Pricing Model to determine the
grant date value. The grant date value of options granted in 1997 was
$5.28 per option. The following assumptions were used: risk free
interest rate of 6.9%; expected life of 9.0 years; expected volatility of
12.7%; expected dividends of 2.4%.
11<PAGE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES
Number of Value of
Securities in-the-money
Shares Underlying Options/SARs
Acquired Unexercised at Fiscal
On Value Options/Sars at Year-End ($)
Exercise Realized Fiscal Year-End (#) Exercisable/
Name (#) ($) Exercisable/Unexercisable 1 Unexercisable
A. Richard Pugh 0 0.00 31,129/3,413 $596,838/$45,050
Chairman,
President and CEO
Debra A. Goodling 0 0.00 8,176/1,365 $135,292/$18,013
Executive Vice
President
Michael J. Groft 0 0.00 8,176/1,365 $135,292/$18,013
Executive Vice
President
1 Includes effect of a 5% stock dividend paid in August of 1993, a 25%
dividend in the form of a 5 for 4 stock split issued in September of 1994,
a 7% stock dividend paid in November of 1995, 25% dividend in the form of
a 5 for 4 stock split issued in August of 1996 and a 5% stock dividend
issued in November of 1997.
Change in Control Agreements
The Company and the Bank have entered into an agreement with Mr. Pugh
providing that in the event of the termination of Mr. Pugh's employment
(other than for cause) with the Company or the Bank under certain
circumstances following a change in control of the Company or the Bank,
Mr. Pugh will be entitled to additional compensation. A "change in
control" is defined to include an acquisition of 25% or more of the
outstanding voting securities of the Company or the Bank; a merger or
consolidation of the Company or the Bank if, as a result of the
transaction, less than 75% of the voting securities of the surviving
corporation are owned by the former shareholders of the Company
or the Bank, other than affiliates of any party to the merger or
consolidation; a sale of substantially all of the assets of the Company
or a change in a majority of the Directors of the Company or the Bank
during any two-year period. The agreement provides for the payment of Mr.
Pugh's full compensation for three years (subject to reduction by one-half
of the amount of any base annual salary from any new employment); a lump
sum payment of 40% of his annual salary at the time of termination;
continuation of benefits for up to three years; continuation of benefits
under the Supplemental Retirement Plan described under Pension Plan; and
an acceleration of the right to exercise his current options under the
Company's Stock Option Plans.
Pension Plan
The Bank maintains a qualified pension plan covering all full-time
employees of the Bank who are at least 21 years of age and who have
completed one year of service with the Bank. Participants become fully
vested in the plan after 5 years of service. Each participant in the plan
12<PAGE>
is entitled to a monthly benefit commencing at the participant's normal
retirement date, assuming the participant has attained at least 65 and has
completed five years of participation, and continuing for life, with
payments guaranteed for the first 120 months. Benefit amounts for a
fully-vested participant equal 33% of the participant's average monthly
pay if the participant has 15 or more years of service, plus .58% of
average monthly pay in excess of the Social Security integration level as
outlined in Table I Covered Compensation multiplied by years of service at
normal retirement up to a maximum of 25 years. Average monthly pay is
based upon the 5 plan years preceding the normal retirement date. The
Bank's contributions to the pension plan are determined on an actuarial
basis for all participants.
The following chart illustrates the estimated annual benefits payable upon
retirement to persons in specified salary and service classifications,
assuming retirement at age 65 during 1998. For this purpose, the Social
Security integration level assumed is $31,128.
FINAL AVERAGE ANNUAL RETIREMENT BENEFIT FOR
COMPENSATION YEARS OF SERVICE INDICATED
15 YEARS 25 YEARS 35 YEARS
$75,000 $28,567 $31,112 $31,112
100,000 38,991 42,987 42,987
125,000 49,417 54,862 54,862
150,000 59,842 66,737 66,737
175,000 64,012 71,486 71,486
200,000 64,012 71,486 71,486
225,000 64,012 71,486 71,486
The Omnibus Budget Reconciliation Act of 1993 (OBRA '93) has placed the
limit on compensation which may be taken into account under a defined
benefit plan reducing it from $235,840 in 1993 to $150,000 beginning in
1994. The new limit increases with inflation, not only when inflation
permits a full $10,000 increase. As of 1997, this limit increased to
$160,000. Only accruals after 1993 will be affected by the compensation
limit.
As of January 1, 1998, A. Richard Pugh, Debra A. Goodling and Michael J.
Groft were credited with 16 years, 21 years and 20 years of service,
respectively.
The Bank adopted a Supplemental Pension Plan for Mr. Pugh on January 1,
1995. Pursuant to this Plan, Mr. Pugh will be entitled to receive
payments, which, when added to his pension under the Bank's pension plan
and primary Social Security amount, increase his pension benefits to 65%
of his highest annual average compensation in three of his last five years
as an employee of the Bank.
Salary Deferral Plan
The Bank has a Salary Deferral Plan ("Plan") for employees who have
completed one year of service, attained the age of 21 and receive eligible
credit for each year of service in which they complete at least 1,000
hours. Eligible employees are permitted to make, by means of payroll
deductions, annual contributions up to the annual maximum of their gross
compensation as determined from time to time by Internal Revenue Service
regulations. These contributions constitute a salary reduction for
Federal income tax purposes until distribution from the Plan. Beginning
in 1998, the Bank will contribute an amount equal to 50% of the first 6%
13<PAGE>
of these contributions allocated to each participating employee in
proportion to their contribution. The amount of contribution made by the
Bank is fully vested in each participating employee. All contributions
are invested in either a principal stabilization fund, fixed income fund
or equity fund as directed by the participant. Investment earnings and
Bank contributions are not subject to federal income tax until distributed
to the participant. The benefits are generally payable following
retirement, disability, death, hardship or termination of employment;
however, in the event of a voluntary withdrawal for hardship, the amount
is limited to the amount of voluntary employee contributions to date.
The Bank's matching contribution for the plan year 1997 to A. Richard
Pugh, Debra A. Goodling and Michael J. Groft are included in the Summary
compensation Table.
Compensation Committee Interlocks and Insider Participants. There are no
interlocks between officers of the company and compensation committees and
boards of directors of other companies with which the Directors of the
company are affiliated. Likewise, the outside Directors on the Personnel
Committee of the Bank have no interlocking relationships with Company
executives.
REPORT ON EXECUTIVE COMPENSATION
The Company does not have a Compensation Committee. The Personnel
Committee of the Bank, composed of outside Directors and Mr. A. Richard
Pugh, conducts a full review each year of the executive compensation
programs. The Committee is responsible for making recommendations to the
Board with respect to the Bank's executive compensation programs. The
executive compensation programs are designed to attract, retain and
motivate the broad based executive talent required to achieve the
company's business objectives and increase shareholder value. The
Committee recommends to the board the compensation for the company's
Chairman, Chief Executive Officer and President, A. Richard Pugh.
The counsel of Mr. Pugh is solicited by the Committee prior to the
Committee's compensation recommendations to the Board for the other
executive officers.
As the Bank has grown, the Committee's methods of determining executive
compensation have evolved. In this regard, the element of corporate
performance now supplements individual performance and compensation paid
by similarly situated institutions as a factor in determining executive
compensation. Corporate performance is used as the sole factor in
determining annual incentive compensation and is also used, to a lesser
degree, to establish base salaries for senior officers. In the area of
annual incentive compensation, corporate performance is measured by a
formula based on return on average equity. The Committee believes
corporate performance is more appropriate than its stock price as a
supplemental measure for determining executive compensation in terms of
base salaries and annual incentive compensation. The Company's stock is
fairly thinly traded with a limited number of market makers and thus the
price of the Company's stock sometimes moves independently of the
Company's performance and other market factors and therefore the Committee
believes that short-term movements in its stock price are not necessarily
indicative of the stock's value. However, in order to encourage
management to pursue policies which will enhance long-term
shareholder value, the Committee believes that the use of stock options is
an effective long-term incentive compensation method. Thus, to the extent
stock options are part of a particular executive's compensation package,
the overall level of the executive's compensation is tied to the long-term
performance of the Company's stock.
14<PAGE>
The Committee and management retained an employee benefit consultant in
1993 to further refine the process of determining executive compensation
and, specifically, to take into consideration compensation packages at
comparable institutions and corporate performance in the process.
Utilizing the methodology developed by the consultant, the Committee
reviews, on an annual basis, the data provided by specific surveys on
competitive salary and the compensation practices of financial
institutions of similar asset size (i.e. institutions of between $350
million and $825 million in asset size) nationally and particularly in the
Mid-Atlantic region. During the past fiscal year, the Committee continued
the recent trend of viewing executive compensation as a whole rather than
focusing on individual elements. Thus, the Committee has attempted to
design compensation packages for individual executive officers by using
different components and weighing these components differently in
individual cases.
The Bank's executive compensation program has three main components:
Base Salary. Base salaries for executive officers are determined by
evaluating the responsibilities of the position, the experience of the
individual, the financial results of the Company and by reference to the
competitive marketplace. Base salary adjustments are considered by the
Committee on an annual basis. Using the surveys mentioned above as a
guide and based on the fact that the Company fits roughly in the middle of
such marketplace in terms of asset size, the Committee uses average base
salaries paid by companies in such marketplace to set an approximate range
for the Company's base salaries, with seniority, individual performance
and corporate performance determining actual base salaries. The base
salary increases in 1997 over amounts determined in 1996 as a result of
this process averaged approximately 8.0%, which included adjustments
reflecting increases in responsibilities of several executive officers.
To arrive at the average annual increase of base salaries, the Committee
considers the following three factors (i) the Committee conducts a survey
of certain South Central Pennsylvania banks to determine the average
increase in base salaries expected by such banks for the upcoming year;
(ii) the Company's employee benefit consultant provides an average annual
increase of base salaries expected by banks of similar asset size on a
national level; and (iii) the Committee determines the amount of increase
which will be feasible in terms of the Company's budget.
In general, specific individual performance is weighted more heavily than
corporate performance in determining base salaries of senior management.
However, as responsibility increases, more emphasis is place on corporate
performance in setting an individual's base salary. For this purpose,
corporate performance is measured using a number of factors, such as
achievement of various budget goals, growth of the institution and peer
group comparisons.
Annual Incentive Compensation. The annual incentive compensation program
was designed to support and promote the pursuit of the Bank's
organizational objectives and financial goals as defined in the Company's
strategic and financial plans. The program provides for the payment of an
annual cash bonus and stock options to executive and certain key officers.
The program is based on the Company's return on equity. Bonuses are only
paid to executive officers if the targeted return on equity is achieved.
In addition, other factors are considered, such as: most recent CAMELS
rating; most recent CRA rating and the Company's leverage ratio. Assuming
the target threshold is achieved, the bonus paid is determined by a
percentage of net income and is allocated to each participant based upon
a formula which considers level of responsibility and industry practices.
15<PAGE>
Long-Term Incentive Compensation. Long-term incentive compensation
opportunities are available to executives in positions with significant
responsibilities and impact on long-term performance. Long-term incentive
compensation has been and is anticipated to be made available in the form
of stock options under the Company's Stock Option Plans. The Personnel
Committee believes that stock option grants are an effective way to align
the interests of the Company's executives with its shareholders by making
a portion of an optionee's compensation dependent upon the long-term
performance of the Company's stock. In the past options had been granted
only to the Company's two most senior executive officers. Beginning in
1996, options were granted to officers with the title Vice President and
above. In determining the number of options granted in 1997, the
Committee considered information available to it regarding options granted
by other public companies, and in particular, banking institutions. The
Committee has followed a policy to date of providing that only 50% of
options granted are exercisable immediately. The Committee uses both
objective and subjective methods of determining the amount of shares
subject to future grants. Thus, it may consider such factors as the
potential realizable value of particular options based on an assumed
rate of appreciation in the price of the Company's stock, a desired level
of ownership in the Company based on an assumed rate of appreciation in
the price of the Company's stock, a desired level of ownership in the
Company based on position in the Company, formula grants and individual
performance. Stock option grants made to executive officers during fiscal
year 1997 are included in Option Grant Table.
Chief Executive Officer Compensation. The Company and its Chief Executive
Officer, A. Richard Pugh, have not entered into an employment agreement.
Thus, the factors involved in establishing a compensation package for the
Company's Chief Executive Officer are similar to those noted above for all
executives. However, the value of his compensation is more closely tied
to corporate performance and the long-term performance of the Company's
stock. Specifically, the Chief Executive's compensation is determined as
follows:
Base Salary. In the case of the Company's Chief Executive Officer,
corporate performance is weighted more heavily than individual performance
for purposes of determining base salary. Thus, in 1997 the Committee
emphasized the Company's achievement of its corporate performance goals
and the responsibilities of Mr. Pugh as Chairman of the Board and Chief
Executive Officer. Mr. Pugh's year-end base salary for 1997 was $210,000
which reflects an approximate 5% increase in year-end base salary over
1996.
Annual Incentive Compensation. The Committee calculates Mr. Pugh's annual
incentive compensation in accordance with the formula set forth above.
Thus, Mr. Pugh receives such compensation only if the Company's return on
equity and other criteria as set forth above are met. Mr. Pugh's annual
incentive compensation earned in 1997 was $56,224.
Long-Term Incentive Compensation. Stock options are an important portion
Of the Chief Executive Officer's overall compensation package,
particularly given the policy-making function of such position. The
Committee believes linking a portion of the Chief Executive Officer's
compensation to the long-term performance of the Company's stock
encourages such officer to pursue policies which enhance long-term
shareholder value. In 1997, 1996 and 1995, Mr. Pugh received stock
options to purchase 6,500, 5,000 shares and 5,000 shares, respectively.
The stock options granted represented 27%, 26% and 20% of all stock
options granted in 1997, 1996 and 1995, respectively.
16<PAGE>
Personnel Committee:
George W. Hodges, Chairman
L. Doyle Ankrum
Frank Motter
Robert L. Myers, Jr.
Harlowe R. Prindle
A. Richard Pugh
17<PAGE>
PERFORMANCE GRAPH
The following graph compares the yearly change in the cumulative total
shareholder return on the Company's common stock against the cumulative
total return on the S& P 500 Stock Index and a Peer Group Index for the
period of five fiscal years commencing January 1, 1993, and ended December
31, 1997. The shareholder return shown on the graph below is not
necessarily indicative of future performance.
1992 1993 1994 1995 1996 1997
Drovers Bancshares Corp 100.00 128.46 134.53 165.44 183.89 321.98
Peer Group Index 100.00 137.79 156.30 178.17 198.07 310.46
S&P 500 Index 100.00 110.02 111.51 153.26 188.36 251.12
The peer group for which information appears above includes the following
companies: ACNB Corp., Bryn Mawr Bank Corporation, Citizens & Northern
Corporation, CNB Financial Corporation, Community Banks, Inc., First West
Chester Corporation, Franklin Financial Services Corp., Hanover Bancorp
Inc., Heritage Bancorp, Inc., Keystone Heritage Group, Inc., Penn Security
Bank & Trust Co., PennRock Financial Services Corp., Pioneer American
Holding Company and Sterling Financial Corp. These companies were
selected based on the following criteria: total assets between $350
million and $845 million; market capitalization greater than $40 million;
and headquarters located in Pennsylvania.
Director Fees
Each Director of the Bank, who is not an employee of the Bank, received an
annual retainer of $8,000 in 1997 as compensation for services as a
Director and for attending meetings of the Board and committees of the
Board accept for Josephine D. Appell, who retired in October, 1997. In
March, 1997, James S. Wisotzkey became a Director. Ms. Appell and Mr.
Wisotzkey received retainers of $6,666.67 and $6,000.00, respectively.
The Company pays no retainer.
Transactions with Management and Others
During 1997, some of the Directors and Executive Officers of the Company
and of the Bank, members of their immediately families, and some of the
companies with which they are associated, had banking transactions with
the Bank in the ordinary course of the Bank's business and additional
transactions may be expected to take place in the future. These
transactions were made on substantially the same terms, including
interest rates, collateral requirements and repayment terms, as those
prevailing at the time for comparable transactions with non-affiliated
persons and did not involve more than the normal risk of collectability or
present other unfavorable features. The aggregate dollar amount of related
party loans on December 31, 1997, was $9,192,000. During 1997,
$19,923,000 of new loans were made to related parties and repayments
totaled $23,748,000.
18<PAGE>
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's Officers and Directors to file reports of ownership and changes
in ownership with the Securities and Exchange Commission ("SEC").
Officers and Directors are required by SEC regulations to furnish the
Company with copies of all Section 16(a) forms they file. Based solely on
review of the copies of such forms furnished to the Company, if any, and
written representations, if any, that no additional reports were required,
the Company believes that during the year ended December 31, 1997, its
Officers and Directors complied with all applicable Section 16(a) filing
requirements.
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
For the year ended December 31, 1997, the Company engaged Stambaugh *
Ness, P.C. independent certified public accountants. The Company
has instituted a policy of appointing its independent public
accountants through action of its Board of Directors. Representatives
of the Company's independent public accountants do not routinely
attend the Company's Annual Meetings and are not expected to attend
the 1998 Annual Meeting.
OTHER MATTERS
The Board of Directors is not aware of any matters to be presented for
action at the Annual Meeting other than stated in the meeting notice. If
any other matters should properly come before the meeting; however, the
enclosed proxy confers discretion of the persons named therein to act on
such matters.
Upon written request of any shareholder, a copy of the Company's report on
Form 10-K for its fiscal year ended December 31, 1997, including the
financial statements and the schedules thereto, required to be filed
with the Securities and Exchange Commission pursuant to Rule 13a-1 under
the Securities and Exchange Act of 1934, as amended, may be obtained
without charge from the Company's Secretary, George L. F. Guyer, Jr., P.O.
Box 2557, York, Pennsylvania 17405.
Shareholder Proposals for Next Annual Meeting
Any shareholder proposal for consideration at the Annual Meeting of
Shareholders to be held in 1999 must be received by the Company at its
principal offices, 30 South George Street, P.O. Box 2557, York,
Pennsylvania, 17405, no later than Friday, December 18, 1998, in order for
it to be included in the Company's proxy materials. Submission by
certified mail-return receipt requested is recommended.
By Order of the Board of Directors
/s/George L.F. Guyer, Jr.
George L. F. Guyer, Jr.
Secretary
19<PAGE>
REVOCABLE PROXY
DROVERS BANCSHARES CORPORATION
30 South George Street, York, Pennsylvania 17401
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby constitutes and appoints William H. Neff, Jr., and
Timothy P. Ruth, and each or any of them, with power of substitution in
each, as proxies to represent the undersigned at the annual meeting of
Shareholders of Drovers Bancshares Corporation (the "Company") to be held
at the Research and Administrative Services Center of The Drovers &
Mechanics Bank, 915 Indian Rock Dam Road, York, Pennsylvania, 17403, on
Friday, May 22, 1998, at 2:00 P.M., and at any adjournments or
postponements thereof, and to vote the same number of shares, and as fully
as the undersigned would be entitled to vote, if then personally present,
upon any matter which may properly come before the meeting.
1. ELECTION OF DIRECTORS TO SERVE FOR A FOUR (4) YEAR TERM:
FOR all nominees WITHHOLD For All Except
Harlowe R. Prindle, Basil A. Shorb, III, Delaine A. Toerper, James S.
Wisotzkey
Instruction: To withhold authority to vote for any individual nominee, mark
"For All Except" and write that nominee's name in the space provided below.
THIS PROXY WHEN PROPERLY EXECUTIED, WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY
WILL BE VOTED FOR ALL NOMINEES LISTED IN ITEM1. THE UNDERSIGNED HEREBY
REVOKES ANY PROXIES HERETOFORE GIVEN BY THE UNDERSIGNED TO VOTE AT THE
ANNUAL MEETING OR ANY ADJOURNMENTS THEREOF.
Please sign exactly as your name appears. When shares are held by joint
tenants, both should sign. When signing as attorney, executor,
administrator, trustee or guardian, please give full title as such. If a
corporation, please sign in full corporate name by President or other
authorized officer. If a partnership, please sign in partnership name
by authorized person.
Please be sure to sign and date Date
this proxy in the box below.
Shareholder sign above Co-holder (if any) sign above
DROVERS BANCSHARES CORPORATION
30 South George Street, York, Pennsylvania 17401
PLEASE ACT PROMPTLY
SIGN, DATE & MAIL YOUR PROXY CARD TODAY
