<PAGE>
Registration No. 333-88285
Pursuant to Rule 424(b)(1)
PROSPECTUS
232,558 SHARES OF COMMON STOCK
[LOGO]
Drovers Bancshares Corporation is offering up to 232,558 shares of its
common stock at the purchase price of $21.50 per share. There is no aggregate
minimum number of shares or dollar amount that must be purchased as a
condition to the offering.
The common stock of Drovers Bancshares Corporation is listed on the Nasdaq
National Market under the symbol "DROV". On October 13, 1999, the last
reported sale price for our common stock was $22.50 per share.
You should read the "Risk Factors" section beginning on page 7 before
investing.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of the common stock or determined if
this Prospectus is true or complete. Any representation to the contrary is a
criminal offense.
These securities are not deposits or accounts of a bank and are not insured
or guaranteed by the Federal Deposit Insurance Corporation or any other
governmental agency.
We have engaged Hopper Soliday, a Division of Tucker Anthony Incorporated,
a registered broker-dealer, as our financial advisor and exclusive sales agent
to assist, on a "best efforts" basis, in the solicitation of subscriptions to
purchase shares in the offering. We intend to sell the shares during an
initial offering period expiring November 30, 1999. If all of the shares
offered hereby are not sold during such period, we may continue to sell shares
thereafter pursuant to this Prospectus. Hopper Soliday may establish a selling
group that may include itself and enter into selected dealer agreements with
each member of the selling group to assist in the sale of shares in the
offering after the initial offering period. Neither Hopper Soliday nor any
member of the selling group will have any obligation to purchase any shares in
the offering.
<TABLE>
<CAPTION>
Estimated Estimated Net
Price to Public Expenses (1) Proceeds to Drovers (1)
--------------- ------------ -----------------------
<S> <C> <C> <C>
Per Share............. $ 21.50 $ 1.18 $ 20.32
Total Maximum (2)..... $5,000,000 $275,000 $4,725,000
</TABLE>
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(1) Includes estimated expenses of the offering, including estimated
commissions, assuming that all shares are sold in the initial offering
period and that 50% of the shares are sold to current shareholders. Actual
expenses and net proceeds may vary.
(2) Although we are offering shares with an aggregate offering price of
approximately $5,000,000, we have filed a registration statement covering
shares with an aggregate value of $5,750,000. If we find that demand for
the shares at the offering price is sufficient, we may sell additional
shares with an aggregate offering price of up to $5,750,000. If we sell
all of the additional shares in the initial offering period, estimated net
proceeds to Drovers would increase by approximately $731,250.
We will conduct an initial closing after the initial offering period ending
November 30, 1999. If we offer shares after the initial offering period, we
plan to keep the offering open for an additional 30 days, although we may
terminate it early or extend it at our discretion (but for not more than an
additional 30 days). We will conduct a second closing after the end of this
additional offering period. Payments for stock orders will be held in a non-
interest bearing escrow account pending a closing. You should read the "Plan
of Distribution and How to Order" section beginning on page 52 before
investing.
Hopper Soliday
A Division of Tucker Anthony Incorporated
The date of this Prospectus is October 15, 1999.
<PAGE>
DROVERS BANCSHARES CORPORATION
HEADQUARTERED IN YORK, PENNSYLVANIA
[MAP OF BRANCH LOCATIONS]
BRANCH LOCATIONS: SUPERMARKET FUTURE BRANCH
Cape Horn Square BRANCH LOCATIONS: LOCATIONS:
Emigsville (Located in "Giant Food" Stores) Dillsburg
Hellam East York Marketplace Newberrytown
Main Office South York Plaza
Memory Lane West Manchester LOAN PRODUCTION
Mt. Rose Avenue OFFICE LOCATIONS:
Queensgate CONVENIENCE STORE Mechanicsburg, PA
Richland Avenue BRANCH LOCATIONS: Frederick, MD
Shrewsbury (Located in "Tom's" Stores)
Westgate Dover OPERATIONS CENTER:
York Haven Penvale Research and
Administrative
Services Center -
York, PA
<PAGE>
PROSPECTUS SUMMARY
The following is a summary of Drovers' business operations and the major terms
of the offering of common stock. You should carefully read the more detailed
discussion and financial information appearing elsewhere or incorporated by
reference in this Prospectus before you decide to invest.
DROVERS BANCSHARES CORPORATION
GENERAL.
Drovers is a Pennsylvania one-bank holding company headquartered in York,
Pennsylvania.
The Drovers & Mechanics Bank is a wholly-owned subsidiary of Drovers. The
Bank is a Pennsylvania commercial bank subject to the supervision of the
Pennsylvania Department of Banking and the Federal Deposit Insurance
Corporation. The Bank was organized in 1883 as a national bank and became a
state-chartered non-member of the Federal Reserve System on February 14, 1979.
The Bank offers a wide variety of banking, investment management and trust
services to individuals and commercial customers in its service area. Personal
banking services include checking accounts, savings and time accounts,
certificates of deposit, personal and mortgage loans, home improvement loans,
safe deposit services, estate planning and administration, and personal trust
and investment management services. Commercial banking services are provided to
businesses, nonprofit organizations and local municipalities. These services
include checking accounts, savings and time accounts, cash management services,
financing activities and corporate trust services in the areas of pension,
profit sharing and employee benefit plans.
Drovers had $643.5 million in assets and $483.6 million in deposits at June
30, 1999. Our deposits are insured by the FDIC up to FDIC limits. On June 30,
1999, the Bank employed 218 full-time equivalent employees.
The Bank has 16 branches, including the main office in downtown York,
Pennsylvania, nine branches located in the surrounding suburbs of the City of
York and six branches located in Shrewsbury, Emigsville, Hellam, York Haven,
Dover and Red Lion, Pennsylvania. The Hellam location, which is a full-service
bank office, opened in January 1999.
The Bank plans to open two new branch offices in the near future. Construction
of a new branch located near Dillsburg, Pennsylvania began in July 1999. The
office is scheduled to open in November 1999. A contract has been signed to
purchase land at the Newberrytown exit of I-83 in Newberry Township for a new
branch office. Construction of this branch should begin in October 1999 and be
completed in early 2000. The Bank opened its first loan production office
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in April 1999 at the Rossmoyne Business Center in Cumberland County, near
Harrisburg, Pennsylvania. The Bank opened its second loan production office in
August 1999 in Frederick, Maryland. The Bank also has 28 ATMs, 12 of which are
remote service facilities.
Our principal executive offices are located at 30 South George Street,
York, PA 17401. Our telephone number at such location is (717) 843-1586.
STRATEGIC HIGHLIGHTS.
Our vision is to be "The First Choice for Financial Solutions" within our
market area. To achieve our vision, we plan to further capitalize on the
opportunities created by recent bank consolidations and the overall economic
strength of our markets. Our goal is to enhance our regional presence and
deliver shareholder value by:
. increasing penetration of and expanding our geographic market;
. expanding lending activities;
. diversifying sources of income;
. delivering high quality products and services through our
associates; and
. growing our business in a safe and sound manner.
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<PAGE>
THE OFFERING
Securities Being Offered By Us.... Up to 232,558 shares of common stock. (This
does not include the additional 34,883
shares that we have registered and may issue
in connection with this offering. See the
footnote on the cover page of this
Prospectus.)
Shares of Common Stock Outstanding
at September 24, 1999............. 4,698,037 shares. (This does not include
shares issuable upon exercise of outstanding
options as of September 24, 1999.)
Offering Price.................... $21.50 per share.
Nasdaq National Market Symbol..... DROV
Common Stock to be Outstanding
After the Offering................ 4,930,595 (maximum) shares. (This does not
include the additional 34,883 shares that we
have registered and may issue in connection
with this offering or any shares issuable
upon exercise of currently outstanding
options or pursuant to our dividend
reinvestment and stock purchase plan.)
Use of Proceeds................... We will contribute most of the net proceeds
we receive, after payment of the expenses of
the offering, to the Bank as equity capital
to be used for general corporate purposes of
the Bank, including:
. financing growth, which may include
expansion of the Bank's lending
activities, construction of new branches
or acquisitions of other financial
services companies, including banks and
thrifts; and
. investment in securities.
Proceeds that we retain at the holding
company level will be used to pay the
expenses of this offering, for investments
and general corporate purposes.
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Limitations on your Purchases..... Minimum purchase is 100 shares and maximum
purchase is 11,627 shares, representing 5%
of the 232,558 shares we are offering,
unless we change these amounts. Our articles
of incorporation prohibit purchases of our
common stock by 10% or more beneficial
owners (individuals or group) without either
an 85% affirmative shareholder vote or
advance approval by a majority of our
directors in office who were elected prior
to the time the 10% beneficial ownership was
acquired. We may reject any subscription in
our discretion for any reason.
Offering.......................... The initial offering period will be from the
date of this Prospectus until November 30,
1999, unless earlier terminated at our
discretion. We will have a closing as soon
as practicable after this initial offering
period.
After completion of the initial offering
period, we may, in our discretion, continue
the offering for an additional 30 days,
unless earlier terminated. We may extend
this additional offering period for up to an
additional 30 days, at our discretion. We
will have a second closing as soon as
practicable after the end of this additional
offering period.
Certificates for Shares........... We intend to deliver certificates
representing shares for accepted stock
orders as soon as practicable after each
closing.
Termination of Offering........... We may terminate the offering at any time
without notice. We currently anticipate
terminating the entire offering within 108
days after the date of this Prospectus.
Handling of Funds................. Funds received in payment of stock orders
will be held in a non-interest bearing
escrow account at the Bank until a
subsequent closing occurs. Checks received
will be deposited into the escrow account by
Noon of the next business
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day. Any funds received with respect to
stock orders that are not accepted will be
returned, without interest, promptly after
rejection of the stock order.
Allocation if Offering
Oversubscribed.................... If the offering is oversubscribed, we may,
but are not required to, allocate available
shares in our discretion.
In allocating shares, we may take into
account any factors, including the order in
which stock orders are received, our desire
to have a broad distribution of stock
ownership and administrative convenience.
Risk Factors...................... See the "Risk Factors" section of this
Prospectus.
How to Order...................... During the initial offering period, complete
and execute the stock order form that
accompanies this Prospectus and return it
with payment in full. After the initial
offering period, contact the Stock
Information Center at 717-519-2333 for
instructions on submitting stock orders and
payment.
For Further Information on
Ordering.......................... See the "Plan of Distribution and How to
Order" section of this Prospectus.
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<PAGE>
SUMMARY SELECTED CONSOLIDATED FINANCIAL DATA
OF DROVERS BANCSHARES CORPORATION
We have selected consolidated financial data as of and for the dates or period
indicated. You should read our consolidated financial statements and related
notes included in our annual report on Form 10-K for the year ended December 31,
1998 and our quarterly report on Form 10-Q for the six months ended June 30,
1999, which are incorporated by reference herein.
<TABLE>
<CAPTION>
(All dollar amounts presented in thousands, except per share data)
At or For the Six Months
Ended June 30, At or For the Years Ended December 31,
------------------------------ -----------------------------------------------------------------------
SUMMARY RESULTS OF
OPERATIONS: 1999 1998 1998 1997 1996 1995 1994
------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Net interest income $ 10,647 $ 9,424 $ 19,255 $ 17,013 $ 15,264 $ 14,524 $ 12,894
Provision for loan losses 851 468 1,266 386 645 501 382
--------------------------------------------------------------------------------------------------
Net interest income after
provision 9,796 8,956 17,989 16,627 14,619 14,023 12,512
Noninterest income 2,724 2,718 5,408 3,953 3,364 2,837 2,457
Noninterest expense 8,068 7,410 15,231 13,234 12,050 11,058 10,355
--------------------------------------------------------------------------------------------------
Income before taxes 4,452 4,264 8,166 7,346 5,933 5,802 4,614
Income taxes 764 1,016 1,356 1,715 1,084 1,521 845
--------------------------------------------------------------------------------------------------
Net income $ 3,688 $ 3,248 $ 6,810 $ 5,631 $ 4,849 $ 4,281 $ 3,769
==================================================================================================
SHARE DATA (1):
Net income - basic $ 0.79 $ 0.70 $ 1.46 $ 1.21 $ 1.04 $ 0.92 $ 0.82
Net income - diluted 0.78 0.68 1.43 1.20 1.04 0.92 0.82
Dividends per share 0.23 0.21 0.44 0.37 0.35 0.30 0.25
Book value 10.36 9.79 10.27 9.32 8.20 7.54 6.43
BALANCE SHEET DATA:
Investments $177,829 $166,249 $161,619 $179,299 $128,082 $ 91,823 $ 94,359
Loans, net 421,598 351,716 386,197 310,369 279,987 252,468 226,737
Total assets 643,472 559,183 597,793 524,892 446,713 382,791 352,287
Deposits 483,629 425,684 457,672 402,086 360,204 306,653 283,173
Borrowings 104,389 79,145 86,155 74,918 44,639 30,172 22,246
Shareholders' equity 48,649 45,796 48,193 43,470 38,092 34,921 29,724
PROFITABILITY RATIOS:
Return on average assets
(2) 1.21% 1.20% 1.22% 1.15% 1.20% 1.16% 1.11%
Return on average equity
(2) 14.90% 14.51% 14.69% 13.88% 13.31% 13.04% 12.76%
Net interest margin (2) 3.74% 3.70% 3.67% 3.71% 4.09% 4.26% 4.13%
Efficiency Ratio (3) 60.64% 62.21% 62.42% 63.72% 65.38% 64.09% 67.59%
ASSET QUALITY RATIOS:
Reserve for loan
losses/Total loans 0.98% 1.03% 1.00% 1.05% 1.11% 1.15% 1.15%
Reserve for loan
losses/Non-
performing assets (4) 130.99% 175.27% 140.06% 356.45% 122.41% 152.26% 212.74%
Net charge-offs as % of
average loans 0.15% 0.03% 0.19% 0.07% 0.17% 0.08% 0.04%
CAPITAL RATIOS:
Equity to assets 7.56% 8.19% 8.06% 8.28% 8.53% 9.12% 8.44%
Leverage ratio (5) 7.70% 7.92% 7.84% 7.98% 8.44% 8.99% 8.92%
Risk based capital ratios:
Tier 1 capital 10.78% 11.39% 11.30% 12.14% 12.50% 12.96% 12.92%
Total capital 11.74% 12.33% 12.34% 13.10% 13.53% 14.07% 14.00%
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</TABLE>
(1) All per share calculations have been restated to reflect all stock splits
and stock dividends.
(2) Data for the six months ended June 30, 1998 and June 30, 1999 have been
annualized.
(3) Equals other expenses as a percentage of net interest income plus other
income, excluding gain/loss on sale of securities.
(4) Nonperforming assets includes non accrual loans, restructured loans, loans
90 days past due but still accruing, and other real estate.
(5) Equals Tier 1 risk based capital as a percentage of total assets.
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RISK FACTORS
Investing in the common stock will provide you with an equity ownership
interest in Drovers. As a shareholder, you will be subject to risks inherent in
our business. The value of your investment may increase or decrease and could
result in a loss. The common stock offered by this Prospectus does not
constitute a deposit or other obligation of a bank and is not insured by the
Federal Deposit Insurance Corporation or any other governmental agency. You
should carefully consider the following factors, as well as other information
contained or incorporated by reference in this Prospectus, before deciding to
invest in our shares of common stock.
RISK FACTORS RELATED TO THE COMPANY.
WE MAY NOT BE ABLE TO SUSTAIN OUR CURRENT RATE OF GROWTH.
During recent years, we have experienced significant growth, and our business
strategy calls for continued similar expansion. In particular, we intend to use
the funds raised in this offering to support anticipated increases in our loans
and investments and new branches. Our ability to continue to grow depends, in
part, upon our ability to expand our market areas, successfully attract deposits
to those locations, and identify loan and investment opportunities. Our ability
to manage growth successfully will also depend on whether we can continue to
efficiently fund asset growth and maintain asset quality and cost controls, as
well as on factors beyond our control, such as economic conditions and interest
rate trends. The growth of our commercial and industrial loans and commercial
real estate loans has been the principal factor in our increased earnings in the
past few years. In the event that we are unable to sustain our historic growth
rate, our earnings could be adversely impacted. We recognize the challenge in
managing growth while controlling costs and maintaining asset quality and its
potential impact on our financial performance.
OUR LOAN MIX MAY INCREASE OUR CREDIT RISK.
There are certain risks inherent in making all loans. These risks include
interest rate changes over the time period in which loans may be repaid, risks
resulting from changes in our regional economy, risks inherent in dealing with
individual borrowers, and, in the case of a loan backed by collateral, risks
resulting from uncertainties about the future value of the collateral.
Commercial and industrial loans and commercial real estate loans comprised
60.9% of our total loans as of June 30, 1999. Commercial loans are typically
larger than residential real estate loans and consumer loans. Because our loan
portfolio contains a significant number of commercial and industrial loans and
commercial real estate loans with relatively large balances, the deterioration
of one or a few of these loans may cause a significant increase in
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nonperforming loans. An increase in nonperforming loans could result in a loss
of earnings from these loans, an increase in the provision for loan losses and
an increase in loan charge-offs.
The Bank maintains an allowance for loan losses based on, among other things,
historical experience, an evaluation of economic conditions, and regular reviews
of delinquencies and loan portfolio quality. We cannot assure you that charge-
offs in future periods will not exceed the allowance for loan losses or that
additional increases in the allowance for loan losses will not be required.
Additions to the allowance for loan losses would result in a decrease in our net
income and, possibly, our capital.
CHANGES IN INTEREST RATES MAY ADVERSELY AFFECT OUR EARNINGS AND FINANCIAL
CONDITION.
Our net income depends principally upon our net interest income. Net interest
income is the difference between interest earned on loans, investments and other
interest-earning assets and the interest paid on deposits and borrowed funds.
Net interest income represented approximately 78.1% of our net revenues in
fiscal year 1998. Changes in interest rates can increase or reduce net interest
income and net income.
Different types of assets and liabilities may react differently, and at
different times, to changes in market interest rates. When interest-bearing
liabilities mature or reprice more quickly than interest-earning assets in a
period, an increase in market rates of interest could reduce net interest
income. When interest-earning assets mature or reprice more quickly than
interest-bearing liabilities, falling interest rates could reduce net interest
income. Changes in market interest rates are affected by many factors beyond
our control, including inflation, unemployment, money supply, international
events, and events in the United States and other financial markets.
We attempt to manage risk from changes in market interest rates, in part, by
controlling the mix of interest rate sensitive assets and interest rate
sensitive liabilities. However, interest rate risk management techniques are
not exact and a rapid increase or decrease in interest rates could adversely
affect our financial performance.
ADVERSE CONDITIONS IN OUR MARKET AREA MAY HAVE AN ADVERSE EFFECT ON US.
Substantially all of our business is with customers located within York
County, Pennsylvania, and contiguous counties. The businesses to whom we make
loans are small and medium sized and are dependent upon the regional economy.
Adverse economic and business conditions in our market area could affect our
borrowers, their ability to repay their loans and consequently our financial
condition and performance.
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COMPETITION WITH OTHER FINANCIAL INSTITUTIONS COULD ADVERSELY AFFECT OUR
PROFITABILITY.
We face substantial competition in originating loans and in attracting
deposits. This competition in originating loans comes principally from other
banks, savings institutions, credit unions, mortgage banking companies and other
lenders. Some of our competitors may enjoy advantages such as greater financial
resources, a wider geographic presence, a wider array of services, or more
favorable pricing alternatives and lower origination and operating costs. This
competition could decrease the number and size of loans which we originate and
the interest rate which we receive on these loans.
In attracting deposits, we compete with other insured depository institutions
such as banks, savings institutions and credit unions, as well as institutions
offering uninsured investment alternatives, including money market funds. These
competitors may offer higher interest rates than we do, which could decrease the
deposits that we attract or require us to increase our rates to attract new
deposits. Increased deposit competition could increase our cost of funds and
adversely affect our ability to generate the funds necessary for our lending
operations and investment opportunities.
CHANGES IN GOVERNMENT REGULATION MAY ADVERSELY AFFECT OUR BUSINESS.
The banking industry is extensively regulated. Banking regulations are
intended primarily to protect depositors and the federal deposit insurance
funds, not stockholders. We are subject to regulation and supervision by the
Board of Governors of the Federal Reserve System. The Bank is subject to
regulation and supervision by the Pennsylvania Department of Banking and FDIC.
Regulatory requirements affect our lending practices, capital structure,
investment practices, dividend policy and growth. For example, the Bank is
subject to various regulatory capital requirements, which involve both
quantitative measures of the Bank's assets and liabilities and qualitative
judgments by regulators regarding risk and other factors. The Bank's failure to
meet minimum capital requirements could result in actions by its regulators that
could adversely affect our ability to pay dividends or otherwise adversely
impact our operations. Changes in laws, regulations and regulatory practices
affecting the banking industry could impose additional costs on us and adversely
affect the market price of our common stock.
PROBLEMS RELATED TO THE YEAR 2000 ISSUE COULD ADVERSELY AFFECT OUR BUSINESS.
The Year 2000 issue is the result of computer programs being written using two
digits rather than four to define the applicable year. We have tested all
computer programs and systems and taken the necessary remedial action. However,
the failure to detect a problem or to correct any such programs or hardware
could result in system failures or miscalculations causing
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disruptions of our operations, including a temporary inability to process
transactions or engage in similar normal business activities.
The Year 2000 issue may adversely affect the credit quality of our loan
portfolio if our customers were unable to service their bank debt due to their
own Year 2000 problems or that of their key customers or suppliers. Year 2000
problems for our suppliers may have an adverse effect on us. For example,
without electrical power and telephone communications, it would be very
difficult for the Bank to operate effectively.
ANTI-TAKEOVER PROVISIONS MAY PREVENT SHAREHOLDERS FROM RECEIVING A PREMIUM FOR
THEIR SHARES.
Our Articles of Incorporation presently contain provisions which may be deemed
to be "anti-takeover" in nature in that such provisions may deter, discourage or
make more difficult the assumption of control by another corporation or person
through a tender offer, merger, proxy contest or similar transaction or series
of transactions. These provisions include limitations on the issuance (other
than pursuant to an employee stock option plan, a dividend reinvestment plan or
an underwritten public offering) of any voting securities to, and mergers with
or sales of substantially all of our assets to, any person or group beneficially
owning or controlling 10% or more of our voting securities, without the
affirmative vote of the holders of at least 85% of all our securities entitled
to vote. These provisions may be waived if the particular transaction is
approved in advance by a majority of the directors who were elected prior to the
time such person or group beneficially owned or controlled 10% or more of our
voting securities. The ability of continuing directors to waive these provisions
may give them a veto with respect to certain types of offers for control of the
Company. We also maintain a classified Board of Directors, and directors may be
removed by our shareholders only for cause. The Pennsylvania business
corporation law also includes anti-takeover provisions that may be applicable
under certain circumstances because our stock is registered with the SEC under
the Securities Exchange Act. These anti-takeover provisions may make it more
difficult for a third party to acquire control of the Company, even if such
change in control involves the payment of a premium to shareholders for their
shares. In addition, applicable federal and state banking laws and regulations
impose requirements for regulatory approval of acquisitions of controlling
interests in bank holding companies and financial institutions which could make
it more difficult for a third party to acquire the Company.
RISK FACTORS RELATED TO THIS OFFERING.
OUR STOCK IS NOT AN INSURED DEPOSIT.
Investments in the shares of common stock in this offering are not deposits
insured against loss by the FDIC or any other entity.
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WE HAVE DETERMINED THE OFFERING PRICE, WHICH MAY NOT REFLECT THE ACTUAL
MARKET PRICE OF THE STOCK AFTER THIS OFFERING.
The offering price does not necessarily reflect the price at which the common
stock will sell following this offering and may be higher or lower than recent
market prices for the shares.
THERE IS NO ASSURANCE THAT ALL THE SHARES BEING OFFERED WILL BE SOLD BECAUSE
THERE WILL NOT BE AN UNDERWRITER.
The offering will not be undertaken through the services of an underwriter and
there can be no assurances that all or any of the shares of common stock offered
hereby will be sold or that the liquidity of such shares will increase in the
future. Hopper Soliday is not obligated to purchase any shares in this offering.
THERE IS NO MINIMUM NUMBER OF SHARES TO BE SOLD.
No minimum number of shares is required to be sold under the terms of this
offering. All orders will be irrevocable by subscribers. Although our goal is
to sell at least $5,000,000 of common stock in the offering, we may terminate
the offering at any time before or after selling $5,000,000 of stock.
POSSIBLE VOLATILITY OF STOCK PRICE.
The market price of our common stock may fluctuate in response to numerous
factors, including variations in our annual or quarterly financial results, or
our competitors, changes by financial research analysts in their estimates of
our earnings or our competitors or our failure or our competitors to meet such
estimates, conditions in the economy in general or the banking industry in
particular, or unfavorable publicity affecting us, the Bank, or the industry.
In addition, equity markets have, on occasion, experienced significant price and
volume fluctuations that have affected the market price for many companies'
securities and have been unrelated to the operating performance of those
companies. Any fluctuation may adversely affect the market price of our common
stock.
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USE OF PROCEEDS
The net proceeds, after payment of financial advisory fees, commissions and
other fees and expenses, from the sale of shares of common stock with an
aggregate purchase price of $5.0 million offered hereby, are estimated to be
approximately $4.725 million if shares are purchased during the initial offering
period and 50% of the shares are sold to current shareholders. Net proceeds
will be less if fewer shares are sold, if all of the shares are not sold during
the initial offering period or if a smaller percentage of shares are sold to
current shareholders. Net proceeds will be more if we sell the additional
shares that we have registered.
We intend that most of the net proceeds to us from the sale of the common
stock will be contributed to the Bank as equity capital to be used for general
corporate purposes, which may include:
. expansion of lending activities;
. construction of new branches;
. acquisitions of other financial services companies, including banks and
thrifts; and
. investments in securities.
Proceeds that we retain at the holding company level will be used for
investments and other general corporate purposes, including payment of the
expenses of this offering. The precise amounts and timing of the application of
proceeds will depend upon our funding requirements.
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CAPITALIZATION
The following table sets forth Drovers' consolidated capitalization at June
30, 1999 and as adjusted to give pro forma effect (i) to our sale of $5.0
million aggregate offering price of shares of common stock in this offering, and
(ii) to the sale on September 17, 1999 of $7.5 million aggregate liquidation
amount of 9.25% capital securities due September 30, 2029 by our subsidiary,
Drovers Capital Trust I, and a like aggregate principal amount of our 9.25%
Junior Subordinated Deferrable Interest Debentures to the Drovers Capital Trust
I. For this table we have assumed that all shares are sold during the initial
offering period, that our net proceeds will be approximately $4.725 million
after estimated offering expenses (including commissions), and that these
proceeds will be invested in assets with a 50% risk weighting for regulatory
capital purposes. Because of increased sales expenses in a broker-assisted
offering, estimated net proceeds will be less than the assumed amounts if shares
are sold after the initial offering period with the assistance of broker-
dealers. This table does not reflect any shares of stock that may have been
sold since June 30, 1999 pursuant to our dividend reinvestment plan or any of
our stock option plans.
<TABLE>
<CAPTION>
At June 30, 1999
(Dollars in thousands) Actual As Adjusted
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<S> <C> <C>
Corporation-obligated mandatorily redeemable capital
securities of subsidiary trust....................... $ 0 $ 7,500
SHAREHOLDERS' EQUITY:
Common Stock, no par value per share - authorized
15,000,000 shares; issued and outstanding, June 30,
1999, 4,697,637 shares and as adjusted
for the offering..................................... 38,828 43,553
Retained Earnings....................................... 10,753 10,753
Accumulated Other Comprehensive Income.................. -932 -932
Total Shareholders' Equity.............................. $48,649 $53,374
Total Capitalization................................... $48,649 $60,874
Book Value Per Share.................................. $10.36 $10.83(1)
Capital Ratios:
Tier I Leverage Ratio........................... 7.70% 9.42%
Tier I Capital to Risk-Weighted Assets.......... 10.78% 13.26%
Total Capital to Risk-Weighted Assets........... 11.74% 14.21%
- ------------------
</TABLE>
(1) Assumes 232,558 shares are sold in the offering, resulting in 4,930,195
issued and outstanding shares being used in the calculation of book value
per share as adjusted for the offering.
-13-
<PAGE>
MARKET FOR COMMON STOCK AND DIVIDENDS
MARKET FOR COMMON STOCK.
Since June 2, 1998, the common stock of Drovers has been traded on the Nasdaq
National Market System under the symbol "DROV". Prior to that date, the stock
was traded in the over-the-counter market.
The following table sets forth high and low closing prices per share for the
common stock for each quarter of 1997 and 1998 and for the quarters thereafter
through October 13, 1999. High and low sales prices before July 1, 1998, were
provided by Bloomberg Business News. The table also reflects cash dividends
declared on the common stock. High and low sales prices after July 1, 1998 are
from the Nasdaq Stock Market. Prices and dividends have been re-stated to
reflect a 5% stock dividend in 1999, a three-for-two stock split in 1998 and a
5% stock dividend issued in 1997.
Dividends
High Low Declared
--------- ------- --------
1997
- ----
First Quarter $14.82 $12.54 $0.09
Second Quarter 14.50 13.15 0.09
Third Quarter 17.70 14.36 0.09
Fourth Quarter 22.70 17.60 0.10
1998
- ----
First Quarter $24.92 $21.43 $0.10
Second Quarter 30.95 23.97 0.11
Third Quarter 30.48 24.65 0.11
Fourth Quarter 25.71 23.22 0.11
1999
- ----
First Quarter $24.05 $21.48 $0.11
Second Quarter 23.50 22.00 0.12
Third Quarter 23.25 20.75 0.12
Fourth Quarter 24.25 22.50 --
Through Oct. 13,
1999
On October 13, 1999, the last reported sale price of the common stock on the
Nasdaq National Market System was $22.50 per share. As of September 24, 1999,
4,698,037 shares were outstanding held of record by approximately 1,450 persons.
This number does not include the number of beneficial holders of Drovers common
stock held in street name; we believe this number was approximately 600. On
September 24, 1999, there were outstanding options which were exercisable on
that date (or within 90 days thereof) for 147,799 shares of common stock with a
weighted average exercise price of $14.90 per share.
-14-
<PAGE>
DIVIDENDS.
The holders of the common stock are entitled to receive dividends when, as
and if declared by the Board of Directors out of funds legally available
therefor. Funds for the payment of dividends are primarily obtained from
dividends paid by the Bank to the Company.
We have adopted a dividend reinvestment and stock purchase plan available
to stockholders who elect to reinvest their cash dividends for the purchase of
additional shares of common stock. Participants may also elect to make
voluntary cash payments not to exceed $2,500 each quarter for the purchase of
additional shares. Shares issued under this plan may be acquired in the open
market or issued by us.
It is the present intention of our Board of Directors to continue to pay
regular quarterly cash dividends; however, the declaration and payment of future
dividends is at the sole discretion of the Board of Directors, and the amount of
dividends depends upon the earnings, financial condition and capital needs of
the Company and the Bank and certain other factors, including restrictions
arising from federal banking laws and regulations to which the Company and the
Bank are subject.
We are largely a non-operating holding company and most of our operating
assets are owned by the Bank and the Bank's subsidiaries. We rely primarily on
dividends from the Bank to meet our obligations. We are a legal entity separate
and distinct from our banking and other non-banking subsidiaries. The principal
source of our income is dividends from the Bank. The Bank is subject to certain
restrictions imposed by federal and state law on any extensions of credit to,
and certain other transactions with, us and certain other affiliates, and on
investments in stock or other securities thereof. Such restrictions prevent us
and such other affiliates from borrowing from the Bank unless the loans are
secured by various types of collateral. Further, such secured loans, other
transactions and investments by the Bank are generally limited in amount as to
us and as to each of such other affiliates to 10% of the Bank's capital stock
and surplus and as to us and all of such other affiliates to an aggregate of 20%
of the Bank's capital stock and surplus. In addition, payment of dividends to
us by the Bank is subject to ongoing review by banking regulators and is subject
to various statutory limitations and in certain circumstances requires approval
by banking regulatory authorities. Because we are a holding company, our right
to participate in any distribution of assets of any subsidiary upon such
subsidiary's liquidation or reorganization or otherwise, is subject to the prior
claims of creditors of the subsidiary, except to the extent we may ourselves be
recognized as a creditor of that subsidiary.
-15-
<PAGE>
BUSINESS
Drovers Bancshares Corporation is a one-bank holding company registered
under the Bank Holding Company Act of 1956, as amended, that was organized on
May 17, 1982, under the Pennsylvania business corporation law. Our principal
executive offices are located at 30 South George Street, York, Pennsylvania
17401. Our telephone number at such location is (717) 843-1586.
The Drovers & Mechanics Bank (the "Bank") is a wholly-owned subsidiary of
Drovers Bancshares Corporation. The Bank is chartered pursuant to the laws of
the Commonwealth of Pennsylvania and is subject to the supervision of the
Banking Department of the Commonwealth and the Federal Deposit Insurance
Corporation. The Drovers & Mechanics Bank was organized in 1883 as a national
bank and became a state-chartered non-member of the Federal Reserve System in
1979.
The Bank offers a wide variety of banking, investment management and trust
services to individuals and commercial customers in its service area. Personal
banking services include checking accounts, savings and time accounts,
certificates of deposit, personal and mortgage loans, home improvement loans,
safe deposit services, estate planning and administration and personal trust and
investment management services. Commercial banking services are provided to
businesses, nonprofit organizations and local municipalities. These services
include checking accounts, savings and time accounts, financing activities and
corporate trust services in the areas of pension, profit sharing and employee
benefit plans.
On June 30, 1999, the Bank employed 218 full-time equivalent employees.
The Bank has 16 branches, including the main office in the City of York, nine
additional branches located in the surrounding suburbs, and six branches located
in Shrewsbury, Emigsville, Hellam, York Haven, Dover and Red Lion, Pennsylvania.
A research and administrative services center is located in the York suburbs.
The Hellam location, which is a full-service bank, opened in January 1999.
The Bank plans to open two new branch offices in the near future. Construction
of a new branch located near Dillsburg, Pennsylvania began in July 1999. The
office is scheduled to open in November 1999. A contract has been signed to
purchase land at the Newberrytown exit of I-83 in Newberry Township,
Pennsylvania for a new branch office. Construction of this branch should begin
in October 1999 and be completed in early 2000. The Bank opened its first loan
production office in April 1999. The office is located at the Rossmoyne
Business Center in Cumberland County, near Harrisburg. This is the Bank's first
facility outside York County. The Bank opened its second loan production office
in August 1999, at the Patrick Center in Frederick, Maryland. This office is
the Bank's first facility located outside of Pennsylvania. The staff at the loan
production offices will initially focus on commercial lending.
The Bank also has 28 ATMs, 12 of which are located at remote service
facilities.
-16-
<PAGE>
In December 1993, the Bank purchased the office building adjacent to the
Bank's main office. The five-story complex, known as 96 South George, provides
for future growth and enables the Corporation to maintain its headquarters in
downtown York. The accounting, corporate banking, and executive offices of the
Bank are located on the fifth floor of 96 South George Street.
The Bank is a limited partner in five ventures to renovate and operate
apartment buildings. All five ventures provide low-income housing to qualified
families. The first building opened in 1994. The second opened in March, 1996.
The third opened in December, 1998. The fourth opened in September, 1999. The
fifth is scheduled to be opened in the fourth quarter of 1999. The investments
are accounted for under the equity method of accounting. The combined carrying
value of the investments at June 30, 1999 was $5,664,000 and was $5.4 million
and $2.3 million, respectively, at December 31, 1998 and 1997.
RECENT DEVELOPMENTS.
On September 17, 1999, we completed the private placement to accredited
investors of $7.5 million of 9.25% capital securities due September 30, 2029
issued by our newly formed Delaware trust subsidiary, Drovers Capital Trust I.
Securities of this type qualify as Tier I capital and interest payable thereon
is currently considered to be tax-deductible. Proceeds of the issue were
invested by Drovers Capital Trust I in junior subordinated debentures issued by
Drovers. Net proceeds from the sale of the debentures will be used for general
corporate purposes, including the purposes described under the "Use of Proceeds"
section of this Prospectus.
PRODUCTS AND SERVICES.
Through the Bank we offer a wide variety of banking, investment management
and trust services to individuals and commercial customers in our service area.
Personal banking services include:
. checking accounts;
. savings and time deposits;
. certificates of deposit;
. personal and mortgage loans;
. safe deposit services;
-17-
<PAGE>
. estate planning and administration; and
. personal trust and investment management services.
Commercial banking services to businesses, non-profit organizations and
local municipalities include:
. checking accounts;
. savings and time accounts;
. financing activities;
. corporate trust services in the areas of pension, profit sharing and
employee benefit plans; and
. cash management services.
STRATEGIC HIGHLIGHTS.
Our vision is to be "The First Choice for Financial Solutions" within our
market area. To achieve our vision, we plan to further capitalize on the
opportunities created by recent bank consolidations and the overall economic
strength of our markets. Our goal is to enhance our regional presence and
increase shareholder value by (i) increasing penetration of and expanding our
geographic market, (ii) expanding our lending activities, (iii) diversifying our
sources of income, (iv) delivering high quality products and services through
our associates, and (v) growing our business in a safe and sound manner.
INCREASE PENETRATION OF AND EXPAND OUR GEOGRAPHIC MARKET.
We have made a significant increase in our market penetration in York
County during the past seven years. One key strategy to continue long-term
growth is to increase our total financial services relationship with our
existing clients. Additionally, we plan to expand by entering economically and
demographically attractive markets through de novo branching. During 1999 we
opened our Hellam office and plan to open offices in Dillsburg and Newberrytown
later this year or in early 2000. We recently opened loan production offices in
Mechanicsburg, Pennsylvania and Frederick, Maryland to capitalize on market
opportunities. We also plan to expand through acquisitions of and alliances
with other financial services companies that we believe will add value to our
franchise by bringing new products, services and customers to our institution.
Lastly, we will expand through alternative delivery channels, such as our ATM
-18-
<PAGE>
network which as of June 30, 1999 had increased 33% to 28 ATM's since June 30,
1998. We have also experienced success with our supermarket and convenience
store branches, which give us the opportunity to be in locations that are
convenient to existing and potential customers.
EXPAND LENDING ACTIVITIES.
We intend to continue our focus on lending to small and medium-sized
businesses in our market. Our commercial loan portfolio has grown from $122.0
million at December 31, 1995 to $259.4 million at June 30, 1999, a 112.6%
increase. Our commercial loan portfolio accounted for 47.8% of the total loan
portfolio at December 31, 1995 and accounted for 60.9% of the total loan
portfolio at June 30, 1999. Because of the consolidation in the York County
banking market, we have had opportunities to develop new lending and deposit
relationships with established businesses.
DIVERSIFY SOURCES OF INCOME.
In addition to growing our net interest income, our strategy is to continue
improving our profitability by increasing non-interest income, particularly in
our Investment Services & Trust Division. To accomplish this strategy, we
recently hired a new manager of the Investment Services & Trust Division who has
extensive commercial banking and investment management experience.
Additionally, we earn non-interest income from other areas including gains on
sales of residential mortgage loans, deposit product service fees, non-credit
corporate banking fees and ATM fees. We are evaluating other initiatives that
will complement our existing products and services and increase non-interest
income.
DELIVER HIGH QUALITY PRODUCTS AND SERVICES THROUGH OUR ASSOCIATES.
We believe that the recent trend towards consolidation in the banking
industry has created a shortage of institutions capable of providing high
quality, personalized banking services to individuals and local businesses. We
have initiated a comprehensive strategy to achieve our goal of superior sales
and service by (i) training our front line personnel to become trusted advisers
to our clients, (ii) implementing compensation strategies that reward employees
for delivering superior sales and service, (iii) using technology to ensure that
we match the appropriate products to the needs of our customers and potential
customers, and (iv) enhancing our positive image in the community by encouraging
participation in community activities by all of our employees.
-19-
<PAGE>
GROW OUR BUSINESS IN A SAFE AND SOUND MANNER.
Economic conditions have been favorable for financial institutions in
Pennsylvania and Maryland during the last eight years. During this period, we
have experienced significant growth in our loan portfolio. We are cognizant of
the relationship in the banking industry between rapid loan growth and poor loan
quality. Maintaining strong loan quality has been and will continue to be a
strategic focus. To accomplish this goal, we continually evaluate and update
our internal control framework, particularly in relation to credit quality.
Additionally, we have implemented a formal risk management policy and procedures
for executing our lending policy. In addition to credit risk, we assess
interest rate risk, market risk and operations risk on a regular basis to ensure
our institution is run in a safe and sound manner.
MARKET OPPORTUNITY.
We are a community-focused financial institution with our main office in
York, Pennsylvania, 16 branches located throughout York County and loan
production offices in Cumberland County, Pennsylvania and Frederick, Maryland.
York County is located along the Interstate 83 corridor between Baltimore and
Harrisburg, Pennsylvania's capital. York County is accessible to Pennsylvania's
largest metropolitan markets, Philadelphia and Pittsburgh, via the Pennsylvania
Turnpike which passes through the northern tier of the county. The southern end
of the county is a bedroom community for the Baltimore metropolitan area.
Travel Distance from City of York
Area Miles
---------------------------------------------
Baltimore 45
Philadelphia 97
Washington, D.C. 90
New York City 200
Pittsburgh 220
---------------------------------------------
LOCAL BANKING INDUSTRY.
York County is served by approximately eighteen banks and three thrifts
operating 145 branches. Consolidations, particularly among our largest
competitors, and the resulting disruption in customer relationships have allowed
community-based financial institutions such as ours to improve our market share
position by offering a quality alternative to the larger financial institutions.
During the three years ended June 30, 1999, we have increased deposits in excess
of
-20-
<PAGE>
54.1%, or 18.0% on an annualized basis. During the three years ended June
30, 1999, we have increased loans in excess of 60.6%, or 20.2% on an annualized
basis.
DEMOGRAPHICS.
According to Woods & Poole Economics, Inc., York County is ranked 8th of 67
Pennsylvania counties in terms of total population (see table below). Total
population grew 8.6% between 1980 and 1990. The current population is
approximately 373,000.
-----------------------------------------------------------------
York
County PA U.S.
-----------------------------------------------------------------
Population 373,000 12,049,000 270,051,000
State Rank * 8th
Unemployment Rate (4/99) 3.1% 4.1% 4.1%
State Rank * 8th
-----------------------------------------------------------------
* Rank of 67 counties
EMPLOYMENT.
York County's economic strength is grounded in its employment diversity
and solid manufacturing base. According to Woods & Poole Economics, Inc.,
manufacturing accounts for approximately 25% of jobs in the county, compared to
approximately 15% in Pennsylvania and 13% nationwide. York County's
manufacturers include well-known names such as Harley Davidson, Dentsply, York
International and Pfaltzgraff. Other significant employers are in the health
care, services and snack food industries. From April 1998 to April 1999, retail
trade expanded by 1,200 jobs as York County's economy remained strong. Other
growth industries and the respective increase in jobs from April 1998 to April
1999 include: services (+600 jobs), transportation and utilities (+500 jobs),
wholesale trade (+300 jobs), transportation equipment (+200 jobs) and food
products (+200 jobs). The York County unemployment rate as of April 30, 1999 was
3.1%, compared to 4.1% in Pennsylvania and 4.1% in the United States.
The positive economic environment and our focus on the communities we
serve have contributed to our strong growth. We plan to continue capitalizing on
the customer service disruptions that have taken place as a result of bank
consolidations in our marketplace. We believe our continued emphasis on
customer relationships, combined with a positive economic and industry
environment, will continue to present us with opportunities to continue our
long-term growth.
-21-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following section of this Prospectus sets forth information concerning
the financial condition and results of operations of Drovers as of and for the
six month periods ending June 30, 1999 and June 30, 1998 and for the years ended
December 31, 1998 and indicated prior years. The information presented is not
intended to be complete. You should read Drovers' consolidated financial
statements and related notes included in our annual report on Form 10-K for the
year ended December 31, 1998 and our quarterly report on Form 10-Q for the six
months ended June 30, 1999, and the management's discussion and analysis set
forth in such reports, which are incorporated by reference in this Prospectus.
RESULTS OF OPERATIONS
The consolidated earnings of Drovers are derived primarily from the
operations of its wholly-owned subsidiaries. Drovers is a bank holding company.
The Bank, Drovers' principal subsidiary, is a Pennsylvania state-chartered, FDIC
insured bank. The Bank has two wholly-owned subsidiaries, 96 South George
Street, Inc. and Drovers Investment Company. 96 South George Street, Inc.'s
primary asset is an office building attached to the Bank's main office, which
houses its corporate headquarters. Drovers Investment Company holds certain
investment assets. Drovers Realty Company, a direct wholly-owned subsidiary of
Drovers, has various real estate holdings, including ground and building leases.
It rents the real estate to the Bank for use as branch offices. Drovers Capital
Trust I is a newly formed Delaware trust subsidiary that issued on September 17,
1999 $7.5 million of 9.25% capital securities, the proceeds of which were
invested in junior subordinated debentures issued by Drovers.
SIX MONTH PERIODS ENDED JUNE 30, 1999 AND 1998.
Drovers recorded net income of $3.7 million and $3.3 million for the six
months ended June 30, 1999 and 1998, respectively. The return on average equity
(ROAE) and return on assets (ROAA) for the six months ended June 30, 1999 were
14.90% and 1.21%, respectively. This compares to an ROAE and ROAA for the same
period last year of 14.51% and 1.20%, respectively.
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996.
Drovers recorded net income of $6.8 million, $5.6 million and $4.8 million
in 1998, 1997 and 1996, respectively. The return on average equity (ROAE) and
return on average assets (ROAA) in 1998 were 14.69% and 1.22%, respectively.
This compares to an ROAE and ROAA in 1997 of 13.88% and 1.15%, respectively, and
an ROAE and ROAA in 1996 of 13.31% and 1.20%, respectively.
-22-
<PAGE>
NET INTEREST INCOME.
Net interest income represents the difference between the interest earned
on loans and investments and the interest paid on deposits and other sources of
funds. Net interest income is a measurement of how well management balances
interest rate sensitive assets and liabilities while maintaining adequate
interest margins.
SIX MONTH PERIODS ENDED JUNE 30, 1999 AND 1998.
The following table presents the trends in net interest income for the six
month periods ended June 30, 1999 and 1998:
Six Months Ended June 30,
(In thousands) 1999 1998 Change
- --------------------------------------------------------------------------------
Interest income $21,749 $20,142 $1,607
Interest expense 11,102 10,718 384
---------------------------------------------------
Net interest income $10,647 $ 9,424 $1,223
===================================================
Drovers' largest category of earning assets consists of loans to businesses
and individuals. The majority of earning assets are supported by commercial and
consumer deposits and shareholders' equity. Changes in net interest income are
determined by variations in the volume and mix of assets and liabilities as well
as their sensitivity to interest rate movements.
Net interest income increased $1.2 million during the first six months of
1999 over the same period of 1998. Average earning assets increased 12.0% to
$574.9 million for the first half of 1999 compared to $513.6 million for the
same period last year and 9.6% compared to $524.7 million for all of 1998. The
margin for the first six months of 1999 was 3.74% compared to 3.70% for the
first half of 1998 and 3.67% for all of last year. Contributing to the boost in
the margin was a decline in the average cost on time deposits, which decreased
0.37% during the first six months of 1999 from the same period in 1998 and 0.33%
from all of 1998. The decline in the cost on time deposits and the increase in
average earning assets for the first six months of 1999 offset a decline in
yield on loans.
YEARS ENDED DECEMBER 31, 1998 AND 1997.
Net interest income rose 13.2% or $2.2 million in 1998 as compared to 1997,
after advancing 11.5% or $1.7 million in 1997 as compared to 1996. Increased
volume drove the increases in net interest income for 1998 and 1997.
-23-
<PAGE>
<TABLE>
<CAPTION>
Years Ended December 31, % Change
(In thousands) 1998 1997 1996 98/97 97/96
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total interest income $40,991 $36,267 $30,055 13.0% 20.7%
Total interest expense 21,736 19,254 14,791 12.9% 30.2%
----------------------------------------------------------
Net interest income $19,255 $17,013 $15,264 13.2% 11.5%
==========================================================
</TABLE>
The following table depicts the changes in rate and volume components of net
interest income :
<TABLE>
<CAPTION>
1998 over 1997 1997 over 1996
------------------------------- --------------------------------
Total Change Due To Total Change Due To
(In thousands) Change Rate Volume Change Rate Volume
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Total interest income $ 4,724 $ -787 $ 5,511 $6,212 $ 14 $6,198
Total interest expense 2,482 -132 2,614 4,463 714 3,749
------- ------- ------- ------ ------ ------
Net interest income $ 2,242 $ -655 $ 2,897 $1,749 $ -700 $2,449
======= ======= ======= ====== ====== ======
</TABLE>
Two of the primary performance measures that indicate how successful a
bank is in managing its asset and liability structure are net interest spread
and net interest margin. Net interest spread is the average rate earned on
earning assets less the average rate paid on interest-bearing funds. Net
interest margin incorporates both the net interest spread and margin on earning
assets financed by noninterest-bearing funds. The following table illustrates
the net interest spread and the net interest margin:
<TABLE>
<CAPTION>
1998 Average 1997 Average
------------------- -------------------
(In thousands) Balance Rate Balance Rate
- -------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Earning assets $524,729 7.81% $458,752 7.91%
===================================
Financed by:
Interest-bearing funds $463,520 4.69% $408,069 4.72%
Noninterest-bearing funds 61,209 -- 50,683 --
-----------------------------------
Total $524,729 4.14% $458,752 4.20%
===================================
Net interest income $ 19,255 $17,013
======== =======
Net interest spread 3.12% 3.19%
Net interest income margin 3.67% 3.71%
</TABLE>
The average spread and margin declined 0.07% and 0.04%, respectively,
in 1998 as compared to 1997. The average yield on earning assets decreased
0.10% in 1998 as compared to 1997. This decrease was partially offset by a
0.03% decline in the cost of interest-bearing funds.
Drovers increased holdings in investment securities throughout 1997.
This strategy generated net interest income used to offset the costs of an
expanding branch office network. The increased holdings in lesser yielding
investment securities, however, resulted in a narrower
-24-
<PAGE>
spread and margin, which bottomed out in the fourth quarter of 1997 when the
margin was 3.56%.
Drovers experienced extraordinary loan demand in 1998. The
combination of a strong local economy, low interest rates and customer
dissatisfaction with large bank mergers caused the demand. This resulted in
strong loan growth accounting for nearly all of the increase in interest-bearing
assets. This change in mix of higher yielding loans compared to investment
securities caused the margin to increase throughout most of 1998.
NONINTEREST INCOME.
SIX MONTH PERIODS ENDED JUNE 30, 1999 AND 1998.
Six Months
Ended June 30,
(In thousands) 1999 1998 Change
- ------------------------------------- ------ ------ ------
Trust income $ 674 $ 588 $ 86
Service charges on deposit accounts 921 792 129
Securities gains 67 231 -164
Net gains on loan sales 549 584 -35
Equity in losses of real
estate ventures -111 -55 -56
Other 624 578 46
------ ------ -----
Total $2,724 $2,718 $ 6
====== ====== =====
Noninterest income increased slightly for the six months ended June
30, 1999 as compared to the six months ended June 30, 1998. The gain on sale of
loans declined $35,000 for the first half of 1999 as compared to the first half
of 1998 as mortgage refinancing activity decreased. Income from gain on sale of
securities decreased $164,000 for the six month period ended June 30, 1999
compared with the same period in 1998. Drovers sold a portion of its community
bank stock portfolio during the first half of 1998.
Offsetting the decline in gains from asset sales was an increase in
service charges on deposit accounts and trust income, which increased $129,000
and $86,000, respectively, for the six month period ended June 30, 1999 versus
the comparable period of 1998. An increase in collection of insufficient fund
and return check charges caused most of the growth in service charges on deposit
accounts.
The fair value of investments managed by the Investment Services and
Trust Division was $254.9 million at June 30, 1999, an increase of $25.3
million, or 11.0%, over June 30, 1998. The division has experienced growth in
employee benefits, personal trust and investment management accounts. Overall
increases in the equity markets continued to boost the value of assets managed
and the related fee income.
-25-
<PAGE>
YEARS ENDED DECEMBER 31, 1998 AND 1997.
<TABLE>
<CAPTION>
Years Ended December 31, % Change
(In thousands) 1998 1997 1996 98/97 97/96 96/95
- ---------------------------- ------ ------ ------ ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Investment services and
trust income $1,295 $1,105 $1,020 17.2% 8.3% 10.4%
Service charges on deposit
accounts 1,692 1,293 1,199 30.9% 7.8% 22.1%
Securities gains 262 197 196 33.0% 0.5% 84.9%
Net gains on loan sales 1,044 491 390 112.6% 25.9% 40.3%
Equity in losses of
real estate ventures -104 -81 -137 28.4% -40.9% 114.1%
Other 1,219 948 696 28.6% 36.2% 13.9%
------ ------ ------ ----- ----- -----
Total other income $5,408 $3,953 $3,364 36.8% 17.5% 18.6%
====== ====== ====== ===== ===== =====
</TABLE>
Noninterest income was $5.4 million in 1998, an increase of $1.5
million from 1997. The 1997 noninterest income was $4.0 million, an increase of
$589,000 over the 1996 level of $3.4 million.
Income from the Investment Services and Trust Division increased
$190,000, or 17.2%, in 1998 versus 1997. The fair value of investments managed
by the Division was $252.1 million at the end of 1998, an increase of 16.2% over
the prior yearend. The Division experienced strong growth in the trust services
area, including employee benefits, personal trust and in investment management
accounts. Overall increases in the equity markets the past three years helped
boost the value of assets managed and the related fee income.
Service charges on deposit accounts increased $399,000, or 30.9%, in
1998 versus 1997. Drovers engaged a consulting group in the fourth quarter of
1997. The consultants completed an analysis of various products and processes
that sought ways to enhance productivity by reducing expenses and improving
noninterest income. Most of the increase in deposit service charges was a
direct result of implementing their recommendations. Fees from business
checking accounts grew in 1997 due to growth in business deposits. In April
1996, Drovers raised automatic teller machine (ATM) transaction fees which
helped increase deposit service charges throughout 1998 and 1997.
Net gains from investment securities sales were $262,000 in 1998.
Drovers liquidated some of its community bank stock portfolio accounting for
most of the gains. A similar liquidation in late 1997 accounted for $74,000 in
gains. The other gains in 1997 and in 1996 came from investment portfolio
restructuring used to increase interest income and decrease overall asset
sensitivity.
Net gains on loan sales result mostly from the sale of residential
mortgages. Low interest rates, a strong economy and a mild winter pushed gains
to record levels in 1998. Mortgage loans
-26-
<PAGE>
sold were $60.8 million, $30.3 million and $23.8 million in 1998, 1997 and 1996,
respectively. When Drovers sells loans and retains servicing, it recognizes a
servicing asset. This recognition increases the loan sale gains. Mortgage
servicing rights recognized and included in loan sale gains were $361,000,
$197,000 and $176,000 in 1998, 1997 and 1996, respectively. Drovers sold a small
credit card portfolio in 1998 for a gain of $43,000. The sale of commercial loan
participations in 1998 totaled $3.7 million and generated a $28,000 gain from
capitalizing the loan servicing rights.
Drovers recognized a $104,000 loss during 1998 from its equity
investments in four real estate limited partnerships. The partnerships were
formed to renovate properties for lease as low-income housing apartments. The
first two partnerships opened in 1994 and 1996. Both remain fully occupied.
The third partnership opened its first of two buildings in late 1998. Apartment
rent-up has exceeded projections. Construction has begun on the building owned
by the fourth partnership and is expected to open in 1999. Drovers receives
substantial financial benefits from these investments in the form of historic
and low-income tax credits.
Other income increased $271,000, or 28.6%, in 1998 versus 1997.
Drovers offers ATM and debit cards, charges surcharges for non-customers using
our ATM machines and provides electronic interchange services for various
merchants. The fees associated with these various electronic transactions have
steadily increased. In 1998, these fees increased $157,000 as compared to 1997,
and provided most of the growth in other income. The ATM surcharge generated
$180,000 in fees in 1997, its first year of implementation. Loan servicing
income continues to provide a steady source of other income. Total mortgage
loans serviced were $106.6 million, $100.4 million and $93.3 million at the end
of 1998, 1997 and 1996, respectively.
NONINTEREST EXPENSE.
SIX MONTH PERIODS ENDED JUNE 30, 1999 AND 1998.
Six Months
Ended June 30,
(In thousands) 1999 1998 Change
- -------------------------------- ------ ------ ------
Salaries and employee benefits $4,365 $4,013 $352
Occupancy and premises 644 545 99
Furniture and equipment 679 595 84
Marketing expense 350 302 48
Net cost of operation of other
of other real estate -24 18 -42
Supplies 255 243 12
Other taxes 217 193 24
Other 1,582 1,501 81
------ ------ ----
Total $8,068 $7,410 $658
====== ====== ====
-27-
<PAGE>
Noninterest expenses increased $658,000 for the first six months of 1999 as
compared to the first six months of 1998. Salaries and benefits are the largest
component of noninterest expense and increased $352,000 for the first half of
1999 as compared to the first half of 1998. Staffing at the new Hellam office,
which opened in January 1999, contributed to the increase. Average full-time
equivalent staffing levels were 218 at June 30, 1999 compared to 215 at June 30,
1998. Accrued incentive compensation increased $94,000 for the first half of
1999 as compared to the first half of 1998.
Occupancy and premises expense increased $99,000 for the six month period
ended June 30, 1999 as compared to the first half of 1998. The opening of the
Hellam office contributed to this increase. Furniture and equipment expense
increased $84,000 for the first six months of 1999 as compared to the first six
months of 1998 due to increases in equipment depreciation and maintenance
contracts.
Noninterest expenses increased $81,000 for the six month period ended June
30, 1999 as compared to the first half of 1998. Affecting this increase were
increases in data processing, legal, loan servicing rights amortization and over
and short charges. The increase in expenses was partially offset by a decrease
in consulting services.
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996.
Years Ended December 31, % Change
(In thousands) 1998 1997 1996 98/97 97/96 96/95
- ----------------------------------------------------- ------------------------
Salaries and employee
benefits $ 8,006 $ 7,597 $ 6,818 5.4% 11.4% 6.1%
Occupancy and premises 1,246 917 827 35.9% 10.9% 3.6%
Furniture and equipment 1,365 1,111 896 22.9% 24.0% 22.1%
Marketing 645 441 627 46.3% -29.7% 61.2%
Net cost of operation of
other real estate 56 53 26 5.7% 103.8% 766.7%
Supplies 535 443 442 20.8% 0.2% 27.7%
Other taxes 375 331 325 13.3% 1.8% 10.5%
Other 3,003 2,341 2,089 28.3% 12.1% 1.0%
---------------------------------------------------
Total other expenses $15,231 $13,234 $12,050 15.1% 9.8% 9.0%
===================================================
Noninterest expenses include all expenses except interest, provision for
loan losses and income taxes. In 1998, total noninterest expenses increased $2.0
million, or 15.1%
Salaries and employee benefits are the most significant noninterest expense
category, representing 52.6% of total noninterest expenses for 1998. In 1998,
salaries and employee benefits increased $409,000, or 5.4% over 1997. Full-time
equivalent staffing levels were 215 at the end of 1998 compared to 209 in 1997
and 193 in 1996. Drovers maintains two incentive
-28-
<PAGE>
compensation plans. Both plans require minimum earnings targets before
incentives are paid. Drovers paid incentives of $511,000, $391,000 and $234,000
in 1998, 1997 and 1996, respectively.
Occupancy and premises expense increased $329,000, or 35.9%, during
1998 as compared to 1997. Two branch offices opened in late 1997 caused most of
this year's increase. Lease payments for the new Hellam office, opened in
January 1999, began in the fourth quarter. During December 1998 Drovers
accelerated the depreciation expense on a branch office scheduled for relocation
within a grocery store. This resulted in an additional $56,000 in expense.
Occupancy and premises expense includes the lease revenues less operating
expenses of the 96 South George Street office building for office space not
occupied by Drovers. This resulted in a reduction of total occupancy and
premises expense of $17,000, $111,000 and $134,000 in 1998, 1997 and 1996,
respectively. The positive impact to occupancy and premises expense has
declined due to an increase in space occupied by Drovers and its subsidiaries.
Furniture and equipment expense increased $254,000, or 22.9%, in 1998
versus 1997. Personal computer and Year 2000 software upgrades contributed to
the increase. Depreciation expense rose due to the equipment purchased for the
new branch offices. Costs associated with a mainframe and ATM network upgrade
and the depreciation expense related to the Dover branch office caused the 1997
increase. Drovers installed a wide area computer network and renovated office
space in two buildings in the fourth quarter of 1995. The full impact of the
depreciation from these capital expenditures occurred in 1996.
Marketing expense grew $204,000, or 46.3%, during 1998 versus 1997.
During 1998 Drovers conducted an extensive image and branding campaign. The
campaign focused on Drovers' community bank image and commitment to the markets
it serves. The Bank celebrated its 115th anniversary in June of 1998.
The net cost of operating other real estate was $56,000 in 1998
compared to $53,000 in 1997 and $26,000 in 1996. Other real estate held was
$148,000, $154,000 and $803,000 at yearend 1998, 1997 and 1996, respectively.
Other expenses increased $662,000, or 28.3%, in 1998 versus 1997.
Professional services increased $146,000 in 1998 as compared to 1997 mainly due
to consulting services discussed previously. Total costs for consulting
services were approximately $270,000, well below the savings received from
implementing the consultants' recommendations. In addition, Drovers
commissioned an organizational sales assessment in 1998. As a result, extensive
sales and sales management training was begun in 1999. The training will help
sustain growth and high performance. Amortization of loan servicing rights
increased $96,000 in 1998 due to an increase in residential mortgage loan
refinancings. Data processing expenses increased $106,000 caused primarily by
the expansion of our ATM network. Higher consulting and data processing
expenses contributed to the 1997 increase. Legal fees and checking account
benefits purchased from a third party caused the increase in 1996.
-29-
<PAGE>
TAXATION.
SIX MONTH PERIODS ENDED JUNE 30, 1999 AND 1998.
Drovers recognized a provision for income taxes of $764,000 for the
six months ending June 30, 1999. The average tax rate, applicable income taxes
divided by income before taxes, was 17.2%. This compares to an average tax rate
of 16.6% for all of 1998.
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996.
Drovers seeks to minimize its tax liability by investing in low-income
housing partnerships that provide tax credits, purchasing tax-free municipal
bonds and purchasing equity investments eligible for partially tax-free
dividends. The effective tax rate was 16.6% in 1998, 23.3% in 1997 and 18.3% in
1996. Tax credits received were $807,000, $279,000 and $633,000 in 1998, 1997
and 1996, respectively. Average municipal bonds were $23.5 million, $22.2
million and $14.7 million in 1998, 1997 and 1996, respectively. Average equity
securities were $18.2 million in 1998, $13.1 million in 1997 and $5.5 million in
1996. The effective tax rate fluctuates mainly from the level of tax credits
received. Drovers increased its holdings in tax advantaged investments to help
offset increasing taxable income. Projected tax credits are $789,000 in 1999,
$595,000 per year in 2000 through 2003 and $2.2 million thereafter.
-30-
<PAGE>
FINANCIAL CONDITION
SIX MONTH PERIOD ENDED JUNE 30, 1999.
The following comparison of actual balances indicates how Drovers has
generated and employed its funds for the six months ending June 30, 1999:
Balance Balance
June 30, December 31
(In thousands) 1999 1998 $ Change % Change
- ------------------------------------------------------------------------------
FUNDING USES:
Money market investments............ $ 2,109 $ 479 $ 1,630 340.3%
Investment securities............... 177,829 161,619 16,210 10.0%
Loans (net)......................... 421,598 386,197 35,401 9.2%
-----------------------------------------
Total interest-bearing assets....... 601,536 548,295 53,241 9.7%
Noninterest-bearing assets.......... 41,936 49,498 -7,562 -15.3%
-----------------------------------------
TOTAL USES.......................... $643,472 $597,793 $45,679 7.6%
=========================================
FUNDING SOURCES:
Interest-bearing demand deposits.... $ 52,615 $ 51,211 $ 1,404 2.7%
Savings deposits.................... 132,024 121,479 10,545 8.7%
Time deposits....................... 248,384 229,643 18,741 8.2%
Short-term borrowings............... 29,680 23,325 6,355 27.2%
Long-term borrowings................ 74,709 62,830 11,879 18.9%
-----------------------------------------
Total interest-bearing liabilities.. 537,412 488,488 48,924 10.0%
Noninterest-bearing demand
deposits....................... 50,606 55,339 -4,733 -8.6%
Other liabilities................... 6,805 5,773 1,032 17.9%
Shareholders' equity................ 48,649 48,193 456 0.9%
-----------------------------------------
TOTAL SOURCES....................... $643,472 $597,793 $45,679 7.6%
=========================================
Total assets have increased $45.7 million, or 7.6%, since December 31,
1998. Net loans grew $35.4 million and investment securities grew $16.2 million
during the first half of 1999. Commercial loan demand remained strong during
the first six months of 1999. During the first half of 1999, commercial loans
grew $26.0 million, or 11.9%, with $19.9 million, or 76.7%, of
-31-
<PAGE>
this growth comprised of loans secured by real estate. Consumer installment
loans, including loans secured by residential real estate, increased $5.5
million, or 8.3%, primarily as a result of a Home Equity Lending Program in our
branch offices during the first half of 1999.
During the first six months of 1999, management increased holdings in
investment securities $16.2 million to leverage Drovers' capital base. Total
investment purchases during the first half of 1999 were $49.9 million. The
purchases included fixed rate mortgage-backed and collateralized mortgage
obligations, variable rate corporate obligations, fixed rate municipal bonds and
fixed rate agency notes. Drovers also sold $6.0 million of U.S. government
corporate and agency bonds, classified as held-to-maturity during the first half
of 1999. These bonds were within three months of a probable call date and the
sales resulted in gains of $26,000.
Deposits, which grew $26.0 million, or 5.7%, during the first half of
1999, funded most of the asset growth during that time frame. Certificates of
deposit and other time deposits and savings deposits contributed most of the
growth, increasing $18.7 million and $10.5 million, respectively, during the
first half of 1999. Drovers' Indexed Money Fund, a savings product that pays a
money market interest rate, grew $6.8 million, or 12.9%, during the first half
of 1999. The remaining assets were funded with short-term and long-term
borrowings from the Federal Home Loan Bank of Pittsburgh. The long-term
borrowings included $12.0 million with a fixed rate of interest until at least
2004.
-32-
<PAGE>
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996.
Drovers functions as a financial intermediary and, therefore, its financial
condition and progress may be examined in terms of trends in its sources and
uses of funds. The following comparison of average daily balances indicates how
Drovers has generated and employed its funds:
<TABLE>
<CAPTION>
1998 1997 1996
------------------------------- ----------------------------- --------
Average Increase Average Increase Average
(In thousands) Balance (Decrease) % Balance (Decrease) % Balance
- ------------------------- -------- ---------- --------- -------- ---------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Funding uses:
Interest-bearing
deposits $ 653 $ (601) (47.9)% $ 1,254 $(1,621) (56.4)% $ 2,875
Investment securities 169,069 4,578 2.8% 164,491 60,010 57.4% 104,481
Loans 355,007 62,000 21.2% 293,007 27,474 10.3% 265,533
-------- ------- ------ -------- ------- ------ --------
Total interest-
earning assets 524,729 65,977 14.4% 458,752 85,863 23.0% 372,889
Noninterest-earning
assets 34,443 1,958 6.0% 32,485 753 2.4% 31,732
-------- ------- ------ -------- ------- ------ --------
Total uses $559,172 $67,935 13.8% $491,237 $86,616 21.4% $404,621
======== ======= ====== ======== ======= ====== ========
Funding sources:
Demand deposits $ 45,935 $ 3,349 7.9% $ 42,586 $ 1,140 2.8% $ 41,446
Savings deposits 119,555 18,243 18.0% 101,312 27,010 36.4% 74,302
Time deposits 218,759 18,136 9.0% 200,623 28,997 16.9% 171,626
Short-term borrowings 28,418 2,758 10.7% 25,660 13,373 108.8% 12,287
Long-term borrowings 50,853 12,965 34.2% 37,888 6,852 22.1% 31,036
-------- ------- ------ -------- ------- ------ --------
Total interest-
bearing liabilities 463,520 55,451 13.6% 408,069 77,372 23.4% 330,697
Demand deposits 41,752 4,677 12.6% 37,075 3,821 11.5% 33,254
Other liabilities 7,550 2,013 36.4% 5,537 1,296 30.6% 4,241
Shareholders' equity 46,350 5,794 14.3% 40,556 4,127 11.3% 36,429
-------- ------- ------ -------- ------- ------ --------
Total sources $559,172 $67,935 13.8% $491,237 $86,616 21.4% $404,621
======== ======= ====== ======== ======= ====== ========
</TABLE>
Total average assets were $559.2 million in 1998, representing a $67.9
million, or 13.8%, increase from 1997. Loans accounted for nearly all the
growth, increasing $62.0 million, or 21.2%, in 1998 versus 1997. Commercial and
residential mortgage lending provided most of the growth in loans.
Total deposits grew $44.4 million, or 11.6%, in 1998 versus 1997. The deposit
growth in 1998 funded 65.4% of the asset growth in 1998. The popular Indexed
Money Fund provided most of the growth in savings deposits, which grew $18.2
million from yearend 1998 over yearend 1997. Certificate of deposit balances
continued to grow, increasing time deposits $18.1 million from yearend 1998 over
yearend 1997. Average short and long term borrowings increased $15.7 million
from yearend 1998 over yearend 1997. Additional borrowings at the Federal Home
Loan Bank accounted for most of the increase.
-33-
<PAGE>
AVERAGE BALANCES AND RATES.
SIX MONTH PERIODS ENDED JUNE 30, 1999 AND 1998.
<TABLE>
<CAPTION>
YTD June 1999 YTD June 1998
---------------------------- -------------------------
Average Average Average Average
(In thousands) Balance Interest Rate Balance Interest Rate
- ----------------------------------- -------- -------- -------- -------- -------- -----
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Interest-earning assets:
Interest-bearing deposits
with banks $ 361 $ 12 6.70% $ 1,078 $ 32 5.99%
Taxable investment securities 127,537 4,021 6.36% 132,857 4,261 6.47%
Equity securities 19,367 554 5.77% 17,892 503 5.67%
Tax-exempt investment securities 24,015 633 5.32% 23,802 646 5.47%
Loans 403,655 16,529 8.26% 337,927 14,700 8.77%
-------- ------- ---- -------- ------- ----
TOTAL 574,935 $21,749 7.63% 513,556 $20,142 7.91%
======= =======
Noninterest-earning assets 37,948 33,259
-------- --------
TOTAL ASSETS $612,883 $546,815
======== ========
LIABILITIES AND
SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
Demand deposits $ 52,158 $ 249 0.96% $ 44,830 $ 268 1.21%
Savings deposits 129,053 2,140 3.34% 117,524 2,187 3.75%
Time deposits 239,680 6,383 5.37% 212,405 6,048 5.74%
Short-term borrowings 20,064 468 4.70% 30,170 790 5.28%
Long-term borrowings 69,661 1,862 5.39% 49,947 1,425 5.75%
-------- ------- ---- -------- ------- ----
TOTAL 510,616 $11,102 4.38% 454,876 $10,718 4.75%
======= =======
Noninterest-bearing liabilities:
Demand deposits 44,849 39,727
Other liabilities 7,500 7,060
Shareholders' equity 49,918 45,152
-------- --------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $612,883 $546,815
======== ========
NET INTEREST SPREAD 3.25% 3.16%
==== ====
INTEREST EXPENSE AS A
PERCENT OF EARNING
ASSETS 3.89% 4.21%
NET INTEREST INCOME
MARGIN $10,647 3.74% $ 9,424 3.70%
======= ==== ======= ====
</TABLE>
Average nonaccrual loans included in average loans for the six months ended
June 30, 1999 and 1998 were $1.1 million and $631,000, respectively. Year-to-
date loan fees included in interest income were $617,000 and $682,000 for 1999
and 1998, respectively.
-34-
<PAGE>
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996.
<TABLE>
<CAPTION>
1998 1997 1996
----------------------------- ---------------------------- -----------------------------
Average Average Average Average Average Average
(In thousands) Balance Interest Rate Balance Interest Rate Balance Interest Rate
- ---------------------------------- -------- --------- -------- --------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-earning assets:
Interest-bearing deposits
with banks $ 653 $ 41 6.28% $ 1,254 $ 70 5.58% $ 2,875 $ 155 5.39%
Taxable investment securities 127,311 8,156 6.41% 129,170 8,712 6.74% 84,232 5,492 6.52%
Equity securities 18,212 1,033 5.67% 13,114 767 5.85% 5,503 336 6.11%
Tax-exempt investment
securities 23,546 1,278 5.43% 22,207 1,231 5.54% 14,746 873 5.92%
Loans 355,007 30,483 8.59% 293,007 25,487 8.70% 265,533 23,199 8.74%
-------- ------- ------- -------- ------- ---- -------- ------- ----
TOTAL 524,729 $40,991 7.81% 458,752 $36,267 7.91% 372,889 $30,055 8.06%
======= ======= =======
Noninterest-earning assets 34,443 32,485 31,732
-------- -------- --------
TOTAL ASSETS $559,172 $491,237 $404,621
======== ======== ========
LIABILITIES AND
SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
Demand deposits $ 45,935 $ 534 1.16% $ 42,586 $ 514 1.21% $ 41,446 $ 510 1.23%
Savings deposits 119,555 4,379 3.66% 101,312 3,600 3.55% 74,302 2,116 2.85%
Time deposits 218,759 12,461 5.70% 200,623 11,530 5.75% 171,626 9,696 5.65%
Short-term borrowings 28,418 1,491 5.25% 25,660 1,353 5.27% 12,287 584 4.75%
Long-term borrowings 50,853 2,871 5.65% 37,888 2,257 5.96% 31,036 1,885 6.07%
-------- ------- ------- -------- ------- ---- -------- ------- ----
TOTAL 463,520 $21,736 4.69% 408,069 $19,254 4.72% $330,697 $14,791 4.47%
======= ======= =======
Noninterest-bearing liabilities:
Demand deposits 41,752 37,075 33,254
Other liabilities 7,550 5,537 4,241
Shareholders' equity 46,350 40,556 36,429
-------- -------- --------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $559,172 $491,237 $404,621
======== ======== ========
NET INTEREST SPREAD 3.12% 3.19% 3.59%
======= ======= =======
INTEREST EXPENSE AS A
PERCENT OF EARNING
ASSETS 4.14% 4.20% 3.97%
NET INTEREST INCOME
MARGIN $ 19,255 3.67% $17,013 3.71% $15,264 4.09%
======== ======= ======= ======== ======= ====
</TABLE>
Average nonaccrual loans included in average loans for 1998, 1997 and 1996
were $797,000, $680,000 and $2.2 million, respectively. Loan fees included in
interest income were $1.2 million, $483,000 and $356,000 in 1998, 1997 and 1996,
respectively.
-35-
<PAGE>
INVESTMENT SECURITIES.
The amortized cost and estimated fair value of investment securities
classified as held-to-maturity as of June 30, 1999 are as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
(In thousands) Cost Gains Losses Value
- ------------------------------------------ ---------- ---------- ------ -------
<S> <C> <C> <C> <C>
U.S. Treasury securities and obligations
of U.S. government corporations
and agencies $ 1,488 $ 26 $ 0 $ 1,514
Obligations of states and political
subdivisions 15,167 353 1 15,519
Mortgage-backed securities and
collateralized mortgage obligations 6,805 85 14 6,876
------- ---- --- -------
Total investment securities $23,460 $464 $15 $23,909
======= ==== === =======
</TABLE>
The amortized cost and estimated fair value of investment securities
classified as available-for-sale as of June 30, 1999 are as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
(In thousands) Cost Gains Losses Value
- ------------------------------------------ ---------- ---------- ------ --------
<S> <C> <C> <C> <C>
U.S. Treasury securities and obligations
of U.S. government corporations
and agencies $ 13,494 $ 6 $ 193 $ 13,307
Obligations of states and political
subdivisions 11,941 73 272 11,742
Corporate obligations 10,154 57 116 10,095
Mortgage-backed securities and
collateralized mortgage obligations 101,022 303 1,851 99,474
-------- ------ ------ --------
Total debt securities 136,611 439 2,432 134,618
Equity securities 19,170 673 92 19,751
-------- ------ ------ --------
Total investment securities $155,781 $1,112 $2,524 $154,369
======== ====== ====== ========
</TABLE>
-36-
<PAGE>
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996.
The amortized cost and estimated fair value of investment securities
classified as held-to-maturity as of December 31, 1998 are as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
(In thousands) Cost Gains Losses Value
- ------------------------------------------ ---------- ---------- ------ -------
<S> <C> <C> <C> <C>
U.S. Treasury securities and obligations
of U.S. government corporations
and agencies $ 8,476 $139 $ 0 $ 8,615
Obligations of states and political
subdivisions 16,926 697 0 17,623
Mortgage-backed securities and
collateralized mortgage obligations 8,857 124 23 8,958
------- ---- --- -------
Total investment securities $34,259 $960 $23 $35,196
======= ==== === =======
</TABLE>
The amortized cost and estimated fair value of investment securities
classified as available-for-sale as of December 31, 1998 are as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
(In thousands) Cost Gains Losses Value
- ------------------------------------------ ---------- ---------- ------ --------
<S> <C> <C> <C> <C>
U.S. Treasury securities and obligations
of U.S. government corporations
and agencies $ 7,014 $ 105 $ 0 $ 7,119
Obligations of states and political
subdivisions 7,541 243 24 7,760
Corporate obligations 4,726 21 81 4,666
Mortgage-backed securities and
collateralized mortgage obligations 88,304 973 243 89,034
-------- ------ ---- --------
Total debt securities 107,585 1,342 348 108,579
Equity securities 17,884 930 33 18,781
-------- ------ ---- --------
Total investment securities $125,469 $2,272 $381 $127,360
======== ====== ==== ========
</TABLE>
-37-
<PAGE>
The amortized cost and estimated fair value of investment securities
classified as held-to-maturity as of December 31, 1997 were as follows:
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
(In thousands) Cost Gains Losses Value
- ------------------------------------- ---------- ---------- ------ -------
<S> <C> <C> <C> <C>
U.S. Treasury securities and
obligations of U.S. government
corporations and agencies $10,469 $ 153 $ 0 $10,622
Obligations of states and political
subdivisions 18,318 707 0 19,025
Mortgage-backed securities and
collateralized mortgage
obligations 13,965 165 79 14,051
------- ------ --- -------
Total investment securities $42,752 $1,025 $79 $43,698
======= ====== === =======
</TABLE>
The amortized cost and estimated fair value of investment securities
classified as available-for-sale as of December 31, 1997 were as follows:
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
(In thousands) Cost Gains Losses Value
- ------------------------------------- ---------- ---------- ------ --------
<S> <C> <C> <C> <C>
U.S. Treasury securities and
obligations of U.S. government
corporations and agencies $ 18,003 $ 109 $ 5 $ 18,107
Obligations of states and political
subdivisions 5,898 198 0 6,096
Corporate obligations 500 0 14 486
Mortgage-backed securities and
collateralized mortgage
obligations 93,729 1,047 29 94,747
-------- ------ --- --------
Total debt securities 118,130 1,354 48 119,436
Equity securities 16,004 1,107 0 17,111
-------- ------ --- --------
Total investment securities $134,134 2,461 $48 $136,547
======== ====== === ========
</TABLE>
Proceeds from sales of investment securities classified as available-for-sale
during 1998, 1997 and 1996 were $471,000, $6.8 million and $14.6 million,
respectively. Gross realized gains during 1998, 1997 and 1996 were $262,000,
$196,000 and $293,000, respectively. Gross realized losses during 1998, 1997
and 1996 were $0, $0 and $108,000, respectively.
No held-to-maturity investment securities were sold during 1998, 1997 or 1996,
however, gains were recognized on securities with call options exercised by the
issuer. Realized gains were $0, $1,000 and $11,000 in 1998, 1997 and 1996,
respectively.
-38-
<PAGE>
At December 31, 1998 and 1997, assets with a carrying value of $40.7 million
and $42.9 million, respectively, were pledged as required or permitted by law to
secure certain public and trust deposits and repurchase agreements. The
aggregate book value of debt securities from a single issuer did not exceed 10%
of stockholders' equity at December 31, 1998 or 1997.
The amortized cost and estimated fair value of debt securities at December 31,
1998, by contractual maturity, are shown below. Expected maturities may differ
from contractual maturities because some issues have the right to call or prepay
obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
Held-to-Maturity Available-for-Sale
----------------------------- --------------------
Estimated Estimated
Amortized Fair Amortized Fair
(In thousands) Cost Value Cost Value
- ---------------------------------------- ------------------ --------- -------- --------
<S> <C> <C> <C> <C>
Due in one year or less $ 1,303 $ 1,311 $ 2,500 $ 2,513
Due after one year through five years 4,773 5,016 2,514 2,568
Due after five years through ten years 14,734 15,142 5,726 5,870
Due after ten years 4,592 4,769 8,541 8,594
------- ------- -------- --------
25,402 26,238 19,281 19,545
Mortgage-backed securities and
collateralized mortgage obligations 8,857 8,958 88,304 89,034
------- ------- -------- --------
Total debt securities $34,259 $35,196 $107,585 $108,579
======= ======= ======== ========
</TABLE>
-39-
<PAGE>
LOANS AND LOAN QUALITY.
LOAN DATA.
Loans are comprised of the following as of June 30, 1999 and December 31,
1998 and 1997:
<TABLE>
<CAPTION>
June 30, Dec. 31, Dec. 31,
(In thousands) 1999 1998 1997
- --------------------------------------------- -------- -------- --------
<S> <C> <C> <C>
Commercial, financial and industrial loans $124,046 $117,997 $ 80,636
Real estate mortgage loans:
Real estate construction-related 16,174 13,523 12,105
Real estate mortgage loans secured by 1-4
family residential properties 133,156 126,542 107,797
Other real estate 120,532 100,585 80,462
-------- -------- --------
Total real estate mortgage loans 269,862 240,650 200,364
Consumer loans:
Monthly payment 30,769 30,498 30,952
Other revolving credit 779 791 1,476
-------- -------- --------
Total consumer loans 31,548 31,289 32,428
Leasing and other 293 173 245
-------- -------- --------
Total loans $425,749 $390,109 $313,673
======== ======== ========
</TABLE>
-40-
<PAGE>
MATURITIES AND RATE SENSITIVITY OF THE LOAN PORTFOLIO.
The following table shows the amounts of loans (excluding consumer,
residential real estate and other loans) outstanding as of December 31, 1998
which, based on remaining scheduled repayments of principal, are due in the
periods indicated:
<TABLE>
<CAPTION>
After
Remaining Maturities One Year One To Over
(In thousands) Or Less Five Years Five Years Total
- -------------- ------------------------ ---------- ----------- ----------------
<S> <C> <C> <C> <C>
Domestic loans:
Commercial, financial and industrial $85,617 $22,579 $ 9,424 $117,620
Real estate construction 8,486 3,971 1,066 13,523
------- ------- ------- --------
Total $94,103 $26,550 $10,490 $131,143
======= ======= ======= ========
Rate sensitivity:
Predetermined rate $ 3,127 $20,380 $ 9,542 $ 33,049
Floating or adjustable rate 90,976 6,170 948 98,094
------- ------- ------- --------
Total $94,103 $26,550 $10,490 $131,143
======= ======= ======= ========
</TABLE>
NONPERFORMING ASSETS.
Nonperforming assets were comprised of the following at June 30, 1999 and
December 31, 1998, 1997 and 1996:
<TABLE>
<CAPTION>
(In thousands) 1999 1998 1997 1996
- -------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Nonaccrual loans $ 788 $1,435 $ 740 $ 615
90 days past due still accruing 0 7 33 0
Restructured loans 2,178 1,203 0 1,139
--------------------------------
Nonperforming loans 2,966 2,645 773 1,754
Other real estate 203 148 154 803
--------------------------------
Nonperforming assets $3,169 $2,793 $ 927 $2,557
================================
Nonperforming loans to total loans 0.70% 0.68% 0.25% 0.62%
Nonperforming assets to total assets 0.49% 0.47% 0.18% 0.57%
</TABLE>
As of June 30, 1999, the total recorded investment in impaired loans was
$2.2 million. Nonaccrual loans at June 30, 1999 were $788,000 compared to $1.4
million at December 31, 1998.
Nonaccrual loans were $1.4 million, $740,000 and $615,000 at December 31,
1998, 1997 and 1996, respectively. If interest due on all nonaccrual loans had
been accrued at the original contract rates, it is estimated that income before
taxes would have been greater by $60,000,
-41-
<PAGE>
$56,000 and $37,000 at December 31, 1998, 1997 and 1996, respectively. Accruing
loans which were contractually past due 90 days or more were $7,000, $33,000 and
$0 at December 31, 1998, 1997 and 1996, respectively.
The total recorded investment in impaired loans was $1.7 million and $1.3
million at December 31, 1998 and 1997, respectively. Loans classified as
impaired as a result of troubled debt restructurings which are in compliance
with modified terms recognize interest under the accrual method of accounting.
Interest on all other impaired loans is recognized on the accrual method of
accounting until principal or interest is past due 90 days or more and when full
principal or interest is unlikely. At that time the loans are placed on
nonaccrual status. The average recorded investment in impaired loans during
1998, 1997 and 1996 was $1.7 million, $2.5 million, and $1.8 million,
respectively. The Corporation recognized interest income on impaired loans of
$123,000 in 1998, $233,000 in 1997 and $193,000 in 1996. Interest income
recognized on a cash basis would have been $122,000 in 1998, $206,000 in 1997
and $214,000 in 1996. The recorded reserve for impaired loans as of December
31, 1998 and 1997 was $150,000 and $0, respectively.
RESERVE FOR LOAN LOSSES.
Changes in the reserve for loan losses for the six months ended June 30,
1999 and the years ended December 31, 1998, 1997 and 1996 were as follows:
<TABLE>
<CAPTION>
Six months
ended
June 30, Years ended December 31,
(In thousands) 1999 1998 1997 1996
- ------------------------------------------------ ----------- ------------ ----------- -------------
<S> <C> <C> <C> <C>
Balance, January 1.............................. $3,912 $3,304 $3,130 $2,937
Provision for loan losses....................... 851 1,266 386 645
Charge-offs:
Commercial, financial and industrial........... 500 522 0 25
Real estate.................................... 0 0 0 215
Consumer....................................... 133 235 327 369
------ ------ ------ ------
Total loans charged-off......................... 633 757 327 609
Recoveries:
Commercial, financial and industrial........... 0 0 32 6
Real estate.................................... 0 0 15 36
Consumer....................................... 21 99 68 115
------ ------ ------ ------
Total recoveries................................ 21 99 115 157
------ ------ ------ ------
Net charge-offs................................. 612 658 212 452
Balance, end of period.......................... $4,151 $3,912 $3,304 $3,130
====== ====== ====== ======
Reserve for loan losses to total loans.......... 0.97% 1.00% 1.05% 1.11%
Reserve for loan losses to nonperforming loans.. 1.40% 1.48% 4.27% 1.78%
</TABLE>
-42-
<PAGE>
The provision for loan losses was $851,000 for the first half of 1999. This
compares to a provision of $468,000 for the first six months of 1998. The
increase in the provision for loan losses is related to the charge-off of
commercial loans to one borrower and also to the increase in total loans. The
loan loss provision as a percentage of loans was 0.97% at June 30, 1999 compared
to 1.00% at the end of 1998.
The provision for loan losses was $1.3 million, $386,000 and $645,000 for
1998, 1997 and 1996, respectively. Management analyzes the loan portfolio and
the reserve for loan losses each quarter. The analysis estimates loan losses
and determines the required provision. The analysis considers many factors
including charge-off history, loan quality and loan growth. Net charge-offs for
1998, 1997 and 1996 were $658,000, $212,000 and $452,000, respectively. As a
percentage of average loans, net charge-offs were 0.18%, 0.07% and 0.17% in
1998, 1997 and 1996, respectively. Nonaccrual loans as a percentage of total
loans at December 31, 1998, 1997 and 1996 were 0.37%, 0.24% and 0.22%,
respectively. Loans grew $76.4 million, $30.6 million and $27.7 million in
1998, 1997 and 1996, respectively. The reserve for loan losses as a percentage
of loans at December 31, 1998, 1997 and 1996 was 1.00%, 1.05% and 1.11%,
respectively. An increase in net charge-offs, nonaccrual loans and total loans
caused management to increase the 1998 provision. Management believes the
present reserve is adequate to absorb losses in the existing portfolio. A
significant degradation of loan quality, however, could require a change in
estimated losses and cause a material change in net income.
The following table presents the changes in the balance of other real estate
for the six months ended June 30, 1999 and the years ended December 31, 1998,
1997 and 1996:
<TABLE>
<CAPTION>
Six Months
Ended
June 30, Years Ended December 31,
(In thousands) 1999 1998 1997 1996
- -------------------------------- ----- ----- ----- -----------
<S> <C> <C> <C> <C>
Balance at beginning of year $ 148 $ 154 $ 803 $ 195
Assets acquired by foreclosure
or repossession 252 277 211 822
Dispositions -197 -252 -827 -203
Other 0 -31 -33 -11
----- ----- ----- -----
Balance at end of year $ 203 $ 148 $ 154 $ 803
===== ===== ===== =====
</TABLE>
Other real estate consists of assets which have been repossessed or acquired
through workout situations on defaulted loans.
-43-
<PAGE>
DEPOSITS.
Average deposits for the first six months of 1999 and for the years 1998 and
1997 were as follows:
<TABLE>
<CAPTION>
YTD 1999 1998 1997
--------------------- --------------------- ---------------------
(In thousands) Average % of Total Average % of Total Average % of Total
- ------------------------------------- -------- ----------- -------- ----------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
Noninterest-bearing demand deposits $ 44,849 9.6% $ 41,752 9.8% $ 37,075 9.7%
Interest-bearing deposits:
Demand 52,158 11.2% 45,935 10.8% 42,586 11.2%
Savings 129,053 27.7% 119,555 28.1% 101,312 26.5%
Time 239,680 51.5% 218,759 51.4% 200,623 52.6%
-------- ----- -------- ----- -------- -----
Total interest-bearing deposits 420,891 90.4% 384,249 90.2% 344,521 90.3%
-------- ----- -------- ----- -------- -----
Total deposits $465,740 100.0% $426,001 100.0% $381,596 100.0%
======== ===== ======== ===== ======== =====
</TABLE>
Maturities of time deposits of $100,000 or more outstanding at June 30, 1999
and December 31, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
June 30, Dec. 31, Dec. 31,
(In thousands) 1999 1998 1997
- ---------------------------------- -------- -------- -------
<S> <C> <C> <C>
Three months or less $ 6,931 $ 5,983 $ 4,675
Over three months to six months 5,623 4,423 1,598
Over six months to twelve months 8,298 9,175 5,811
Over twelve months 6,743 7,456 8,340
------- ------- -------
Total $27,595 $27,037 $20,424
======= ======= =======
</TABLE>
-44-
<PAGE>
OTHER BORROWINGS AND LEASE COMMITMENTS.
Other borrowings were comprised of the following at June 30, 1999 and
December 31, 1998 and 1997:
<TABLE>
<CAPTION>
June 30, Dec. 31, Dec. 31,
(In thousands) 1999 1998 1997
- ---------------------------------------------------- -------- -------- -------
<S> <C> <C> <C>
Notes payable to FHLB Pittsburgh:
Due 1998, 5.43% - 6.72% $ 0 $ 0 $ 3,500
Due 1998, variable 0 0 10,000
Due 2000, 6.01% 100 100 100
Due 2000, variable 4,000 4,000 4,000
Due 2002, 5.48% - 5.60%, convertible
quarterly after 1998 20,000 20,000 20,000
Due 2003, 6.40% 400 400 400
Due 2003, 5.13%, convertible quarterly after 2000 8,000 8,000 0
Due 2005, 5.24%, convertible quarterly after 2001 5,000 5,000 0
Due 2008, 4.86% - 4.94%, convertible
quarterly after 1999 15,000 15,000 0
Due 2008, 5.15%, convertible in 2005 5,000 5,000 0
Due 2009, 4.93%, convertible quarterly after 2004 7,000 0 0
Due 2014, 5.60% convertible quarterly 2004 5,000 0 0
Due 2015, 3.75%, amortizing 368 372 378
Note payable to First Union:
Due 2003, 6.53% 4,711 4,805 4,987
------- ------- -------
74,579 62,677 43,365
Capital lease obligations 130 153 193
------- ------- -------
$74,709 $62,830 $43,558
======= ======= =======
</TABLE>
The Federal Home Loan Bank of Pittsburgh (FHLB) notes payable are secured by
FHLB stock, deposits held by the FHLB and other mortgage collateral. The fair
value of the FHLB stock as of December 31, 1998 and 1997 was $6.7 million and
$5.5 million, respectively. The interest rates on the variable notes reprice
quarterly or more frequently and are based on LIBOR or prime. Borrowings at a
fixed rate until after a specified date are Convertible Select borrowings.
These borrowings include a put option if the FHLB elects to convert the debt to
a variable interest rate. The Corporation also maintains a credit line with the
FHLB secured by the same collateral. The unused credit line totaled $92.1
million at December 31, 1998. The First Union note payable is secured by a
mortgage on the 96 South George Street office building. The note is payable in
monthly installments based on a twenty-year amortization. The amounts of notes
payable and capital leases maturing in the years ended December 31, 1999 through
2003 are as follows: $246,000; $4.4 million; $266,000; $20.3 million and $12.4
million, respectively.
At December 31, 1998 and 1997, the Corporation and its subsidiaries were
obligated under noncancelable leases for premises and equipment. The terms
include various renewal options and provide for rental increases based upon
predetermined factors. The Hellam land
-45-
<PAGE>
lease contains a purchase option. The rental expense under such leases amounted
to $390,000 in 1998, $270,000 in 1997 and $164,000 in 1996.
Future minimum rental payments under capital leases and noncancelable
operating leases with terms of one year or more at December 31, 1998 were:
<TABLE>
<CAPTION>
Capital Operating
Leases Leases
------- ---------
<S> <C> <C>
1999...................................... $ 65 $ 422
2000...................................... 65 376
2001...................................... 45 338
2002...................................... 11 342
2003...................................... 0 348
Thereafter................................ 0 1,766
---- ------
Total future minimum rental payments...... 186 $3,592
======
Less interest............................. 33
----
Present value of minimum rental payments.. $153
====
</TABLE>
MANAGEMENT
The following table lists senior executive officers of Drovers and the Bank
and the current directors of Drovers and the Bank as of September 24, 1999:
Name Age Positions
- --------------------------- --- ---------
A. Richard Pugh 58 Chairman of the Board, President and CEO
of Drovers and the Bank
Debra A. Goodling 41 Executive Vice President and Treasurer of
Drovers and Executive Vice President and
Chief Financial Officer of the Bank
Michael J. Groft 44 Executive Vice President of Drovers and
Executive Vice President and Senior
Loan Officer of the Bank
-46-
<PAGE>
Shawn A. Stine 44 Executive Vice President of Drovers and
Executive Vice President and Senior
Corporate Banking Officer of the Bank
Michael E. Kochenour 47 Senior Vice President and Senior Investment
Services and Trust Officer of the Bank
John D. Blecher 38 Senior Vice President and Secretary of
Drovers; Senior Vice President, Secretary
and Controller of the Bank
L. Doyle Ankrum 70 Director
J. Samuel Gregory 68 Director
Daniel E. Hess 67 Director
George W. Hodges 48 Director
Herbert D. Lavetan 69 Director
Richard M. Linder 68 Director
David C. McIntosh 70 Director
Frank Motter 71 Director
Robert L. Myers, Jr. 70 Director
Harlowe R. Prindle 56 Director
Basel A. Shorb, III 53 Director
D. John Sparler 50 Director
Gary A. Stewart 51 Director
Robert H. Stewart, Jr. 59 Director
Delaine A. Toerper 55 Director
James S. Wisotzkey 45 Director
-47-
<PAGE>
A. RICHARD PUGH is Chairman of the Board, President and Chief
Executive Officer of Drovers and the Bank. Mr. Pugh joined the organization in
1988 as Chief Operating Officer, and was appointed President in 1990 and CEO in
1994. He has extensive and diversified experience in bank management.
DEBRA A. GOODLING is Executive Vice President and Treasurer of Drovers
and Executive Vice President, Treasurer and Chief Financial Officer of the Bank.
Ms. Goodling joined the organization in February 1977. She has served in
various financial officer positions since 1981.
MICHAEL J. GROFT is Executive Vice President of Drovers and Executive
Vice President and Senior Loan Officer of the Bank. Mr. Groft joined the
organization in March 1978. He has served in various loan officer positions
since 1978.
SHAWN A. STINE is Executive Vice President of Drovers and Executive
Vice President and Senior Corporate Banking Officer of the Bank. Mr. Stine
joined the organization in August 1991 in the position of Vice President and
Senior Corporate Banking Officer.
MICHAEL E. KOCHENOUR is Senior Vice President and Senior Investment
Services and Trust Officer of the Bank. Mr. Kochenour joined the Bank in August
1999. Prior to joining the Bank, he was employed by First Union as a Senior
Vice President, Consumer Banking Executive. Prior to the First Union/CoreStates
merger in April 1998, Mr. Kochenour held various positions at CoreStates and was
promoted to Senior Vice President in 1988.
JOHN D. BLECHER is Senior Vice President, Secretary and Assistant
Treasurer of Drovers and Senior Vice President, Secretary and Controller of the
Bank. Mr. Blecher joined the organization in February 1987. He has served as
Controller since 1989.
L. DOYLE ANKRUM has served as a Director since 1979. Mr. Ankrum is a
retired President of Ettline Foods, Inc.
J. SAMUEL GREGORY has served as a Director since 1978. Mr. Gregory is
the Chairman and CEO of AAA Southern Pennsylvania, which provides insurance,
travel and member services.
DANIEL E. HESS has served as a Director since 1982. Mr. Hess is
President of Hess Management, Inc., management consultants.
GEORGE W. HODGES has served as a Director since 1994. Mr. Hodges is
the President of The Wolf Organization, Inc., distributors of lumber and
building supplies.
HERBERT D. LAVETAN has been a Director since 1979. Mr. Lavetan
retired in January 1999 from his position as a Director of Lavetan & Associates,
Inc., a provider of postal, business and communication services.
-48-
<PAGE>
RICHARD M. LINDER has been a Director since 1976. Mr. Linder retired
in March 1996 from his position as Chairman of Drovers and the Bank.
DAVID C. MCINTOSH has been a Director since 1985. Mr. McIntosh
retired in February 1999 from his position as President of MCD Technologies,
Inc. Mr. McIntosh is currently Chairman of the Susquehanna Area Regional
Airport Authority.
FRANK MOTTER has served as a Director since 1975. Mr. Motter is the
Chairman of the Board and President of Motter Printing Press Co.
ROBERT L. MYERS, JR. has been a Director since 1968. Mr. Myers is the
President of John H. Myers & Sons, Inc., a lumber and building supplies
business.
HARLOWE R. PRINDLE has been a Director since 1982. Mr. Prindle is
President of York Auto Parts Co. and Chairman and CEO of Shenk & Tittle
Management Co.
BASIL A. SHORB, III, has been a Director since 1993. Mr. Shorb is the
President of REH Holdings, Inc., a holding company providing management services
to five wholly owned subsidiaries engaged in steel fabrication, highway sign
manufacturing and specialty construction.
D. JOHN SPARLER has been a Director since 1984. Mr. Sparler, who
currently manages his investments, is the former President, Treasurer and Chief
Operating Officer of Yorktowne Paper Mills, Inc., a manufacturer of paperboard
and paperboard products.
GARY A. STEWART has been a Director since 1996. Mr. Gary Stewart is a
partner in Stewart Associates. Until January 1999, he was Chairman and CEO of
Stewart & March, Inc., general contractors.
ROBERT H. STEWART, JR. has been a Director since 1987. Mr. Robert
Stewart is the President of York Building Products Co., Inc., a producer of
concrete masonry units, crushed stone and bituminous concrete.
DELAINE A. TOERPER has been a Director since 1995. Mrs. Toerper is a
self-employed consultant and retired in August 1996 from her position as
Executive Vice President and Chief Operating Officer of Tighe Industries, Inc.,
manufacturers, designers and marketers of dance costume, dance apparel and
gymnastic apparel.
JAMES S. WISOTZKEY has been a Director since 1997. Mr. Wisotzkey is
the President and Chief Operating Officer of The Maple Press Company, a book
manufacturing company.
-49-
<PAGE>
STOCK OWNERSHIP OF MANAGEMENT AND
PRINCIPAL STOCKHOLDERS
The table below sets forth the beneficial ownership of our common
stock as of August 31, 1999, by each person we know to beneficially own 5% or
more of the common stock, each director and executive officer, and all directors
and executive officers of Drovers as a group. The number of beneficially owned
shares includes shares over which the named person, directly or indirectly,
through any contract, arrangement, understanding, relationship or otherwise, has
or shares voting power (which includes the power to vote, or direct the voting
of, such security) or investment power (which includes the power to dispose, or
to direct the disposition of, such security). All shares of a named person are
deemed to be subject to that person's sole voting and investment power unless
otherwise indicated. Shares subject to stock options are included as
outstanding shares of common stock, unless these options are not exercisable
within 60 days:
<TABLE>
<CAPTION>
Percentage
Number of Shares of Outstanding
Name of Beneficial Owner Beneficially Owned Common Stock Owned
- -------------------------------------- --------------------------------- -------------------
<S> <C> <C> <C>
L. Doyle Ankrum 8,733 (1) *
J. Samuel Gregory 11,093 *
Daniel E. Hess 12,844 *
George W. Hodges 4,391 (2) *
Herbert D. Lavetan 132,914 2.83%
Richard M. Linder 14,587 (3) *
David C. McIntosh 5,309 (4) *
Frank Motter 46,742 *
Robert L. Myers, Jr. 35,967 (5) *
Harlowe R. Prindle 27,241 *
A. Richard Pugh 74,558 (6) 1.59%
Basil A. Shorb, III 98,238 (7) 2.09%
D. John Sparler 15,950 *
Gary A. Stewart 185,343 (8) 3.95%
Robert H. Stewart, Jr. 149,721 (8) 3.19%
Delaine A. Toerper 1,782 *
James S. Wisotzkey 1,653 *
All Directors and Executive Officers
as a Group (22) 895,679 19.06%
- -------------------
</TABLE>
* Less than 1%.
(1) Includes 6,540 shares owned by Mr. Ankrum's wife.
-50-
<PAGE>
(2) Includes 3,839 shares owned by Mr. Hodges' wife.
(3) Includes 406 shares owned by Mr. Linder's wife.
(4) Includes 170 shares owned by Mr. McIntosh's wife.
(5) Includes 5,256 shares held jointly with Mr. Myers' wife and 18,087 shares
held by the Elsbeth M. Myers Trust, of which Mr. Myers is a trustee sharing
investment and voting authority.
(6) Includes 11,143 shares held jointly with Mr. Pugh's wife, 175 shares owned
by Mr. Pugh's children for which he is custodian and 60,223 shares Mr. Pugh
has the right to acquire upon exercise of stock options granted pursuant to
our 1985 Stock Incentive Plan and 1995 Stock Incentive Plan.
(7) Includes 33,122 shares owned by Mr. Shorb's wife, 9,743 shares owned by Mr.
Shorb's son for which he is custodian, 9,728 shares owned by his son for
which Mr. Shorb's wife is custodian and 40,211 shares held by Triple M
Associates of which Mr. Shorb's wife is a partner sharing voting and
investment authority.
(8) 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 no
member of such group beneficially owns or has power to vote more than 5% of
our shares. However, as a group such persons may be deemed to beneficially
own approximately 16.16% of our issued and outstanding shares.
-51-
<PAGE>
DETERMINATION OF OFFERING PRICE
We determined the offering price for the shares of common stock offered by
this Prospectus after considering several factors, including recent trading
prices of the common stock, book value per share, earnings per share, historical
results of operations, assessment of our management and financial condition and
market activity of stock for other financial institutions. Because the offering
is expected to take place over a period of several months, the market price for
the common stock could vary during the offering.
PLAN OF DISTRIBUTION AND HOW TO ORDER
GENERAL.
Our goal is to sell approximately $5,000,000 of common stock, before
expenses, or 232,558 shares. We have registered an additional 34,883 shares or
approximately $750,000 of common stock that we may issue at our discretion in
order to permit us to satisfy unfilled orders. We may terminate the offering at
any time before or after selling $5,000,000 of common stock.
The initial offering period will end at 5:00 P.M., local time, York,
Pennsylvania, on November 30, 1999, after which a closing will occur as soon as
practicable. If shares remain to be sold after the initial offering period, we
may, at our discretion, continue the offering with the assistance of Hopper
Soliday and any selling group of selected broker-dealers formed by Hopper
Soliday for approximately 30 additional days, unless earlier terminated. We may
extend this additional offering period, at our discretion, but in no event for
more than an additional 30 days. We will have another closing as soon as
practicable after the end of this additional offering period, unless the
offering period is terminated without further sales.
FINANCIAL ADVISOR AND SELLING AGENT.
We have engaged Hopper Soliday, a Division of Tucker Anthony Incorporated, as
our financial advisor and exclusive selling agent with respect to the entire
offering on a "best efforts" basis. If we continue the offering after the
initial offering period, Hopper Soliday may sell the shares for our account
through itself or through selected broker-dealers appointed by Hopper Soliday as
agents for us.
Hopper Soliday is a division of Tucker Anthony Incorporated, a registered
broker-dealer and a member of the National Association of Securities Dealers,
Inc. Neither Hopper Soliday nor any other registered broker-dealer is obligated
to purchase any shares in the offering. In addition to acting as our sales
agent, Hopper Soliday will assist in the offering in the following manner: (i)
training and educating our employees regarding the mechanics and regulatory
requirements of the offering process; (ii) marketing program development and
implementation;
-52-
<PAGE>
(iii) managing the sales efforts in the offering, including sales and stock
information center operations; and (iv) keeping records of all stock orders.
We have paid Hopper Soliday a $20,000 financial advisory fee in connection
with the offering. We will pay Hopper Soliday the following additional fees in
connection with the offering:
. 2% of gross proceeds from sales to shareholders during the initial
offering period (other than our directors, officers and employees),
. 3% of gross proceeds from sales to any other persons during the initial
offering period (other than to our directors, officers and employees),
and
. if we sell shares after the initial offering period with the assistance
of Hopper Soliday and selected broker-dealers, 6% of gross proceeds
from such sales through Hopper Soliday and 6% of gross proceeds from
such sales through selected broker-dealers, of which 4.5% will go to
the broker-dealer and 1.5% will go to Hopper Soliday.
We have agreed to reimburse Hopper Soliday for its out of pocket expenses, not
to exceed $5,000 without our written approval, and for its legal fees, not to
exceed $15,000 without our written approval. We have also agreed to indemnify
Hopper Soliday and certain other persons against certain liabilities, including
liabilities under the Securities Act of 1933.
Hopper Soliday has in the past provided investment banking services to us for
which it has received customary fees and commissions.
THE AMOUNT OF STOCK YOU MAY PURCHASE.
The minimum you may purchase in the offering is 100 shares, which totals
$2,150. You may purchase in the offering no more than 11,627 shares,
representing 5% of the shares offered. In determining whether you have exceeded
the maximum purchase limitation, we will include shares purchased by individuals
on joint accounts with you or having the same address as you on our records, as
well as shares purchased by your related interests or related persons who are
helping you acquire shares. We may decrease or increase the maximum purchase
limitation without notifying you. Our articles of incorporation prohibit our
issuance or delivery of shares of our common stock to 10% or more beneficial
owners without an 85% affirmative shareholder vote or advance waiver by a
majority of our directors in office prior to the time the individual or group
became a 10% beneficial owner.
-53-
<PAGE>
HOW TO ORDER.
DURING THE INITIAL OFFERING PERIOD:
During the initial offering period, you may subscribe to purchase shares by
mailing or delivering to us:
. a completed stock order form (which accompanies this Prospectus); and
. making payment of the purchase price in accordance with instructions in
the stock order form.
AFTER THE INITIAL OFFERING PERIOD:
If we offer shares in the offering after the expiration of the initial
offering period, you may purchase shares through Hopper Soliday or a member of
the selling group of selected broker-dealers, who will submit orders to us on
your behalf. During the additional offering period, we may accept orders
submitted to us through a completed stock order form at our discretion.
If you elect to purchase shares through a member of the selling group of
broker-dealers after the initial offering period, any broker-dealer who
participates in the selling group may be required upon receipt of confirmation
by such broker-dealer of your interest in purchasing shares, and following an
acknowledgment by such broker-dealer to you on the business day next following
receipt of confirmation, to debit your account on the third business day next
following receipt of confirmation and to forward the aggregate purchase price to
us on or before 12:00 Noon, prevailing time, of the business day next following
such debiting. If you do not have an account with one of the selling group of
broker-dealers, you will be required to make satisfactory arrangements to pay
for your order in full prior to the closing of the offering.
STOCK INFORMATION CENTER:
To obtain further information on ordering during either the initial offering
period or any additional offering period, you may contact the Stock Information
Center at (717) 519-2333.
The mailing address for the Stock Information Center is Drovers Bancshares
Corporation, 30 South George Street, York, PA 17401.
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PAYMENT FOR SHARES.
Payment for shares of common stock may be made (i) in cash, if delivered in
person to us, (ii) by check or money order payable to Drovers Bancshares
Corporation, or (iii) by wire transfer of funds to the escrow account maintained
by us for such purposes at the Bank, Account No. 168955; ABA No. 031301590.
HANDLING OF FUNDS.
All funds received by us in payment of stock orders will be held in a non-
interest bearing escrow account at the Bank until a subsequent closing of the
offering. Checks received in payment of orders will be deposited in the escrow
account by Noon of the next business day after receipt. Any funds received with
respect to stock orders that are not accepted will be returned, without
interest, promptly after the order is rejected.
As soon as practicable after each closing, we will mail to each of you whose
stock order we have accepted a stock certificate, registered in your name or as
directed by you, for the shares you have purchased. Certificates for shares
purchased through Hopper Soliday or another member of the selling group of
broker-dealers will be registered or delivered in accordance with instructions
we receive from the selling group member.
WE MAY REJECT ANY SUBSCRIPTION OR ORDER.
We have the right to accept or reject any subscription or order for the
purchase of shares, in whole or in part, for any reason. We will notify you in
writing whether we have accepted your order as soon as practicable after we hold
a closing subsequent to receiving your order. An executed stock order form or
order submitted through a member of the selling group, once received by us, may
not be modified, amended or rescinded without our consent.
In the event a stock order form (i) is not received or is received after the
expiration of the initial offering period or (ii) is defectively completed or
executed, we may, but will not be required to, waive any irregularity on any
stock order form or require the submission of corrected stock order forms or the
remittance of full payment for subscribed shares by such date as we may
otherwise specify. The waiver of an irregularity on a stock order form in no
way obligates us to waive any other irregularity on any other stock order form.
Waivers will be considered on a case by case basis. Our interpretation of the
acceptability of any order will be final.
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FILLING OF ORDERS.
Shares will be sold pursuant to accepted stock orders at the end of the
offering periods at the related closing. If shares available are
oversubscribed, we may allocate available shares among all subscribers at the
time of a closing. We may allocate shares any way we determine. We may take
into account any factors we think relevant, including the order in which the
stock order is received, our desire to have a broad distribution of stock
ownership and administrative convenience.
RESTRICTION ON SALES ACTIVITIES.
The shares will be offered in the offering principally by the distribution of
this Prospectus and through activities conducted through the Stock Information
Center. The Stock Information Center is expected to operate during normal
business hours throughout the offering. A registered representative employed by
Hopper Soliday will supervise the operation of the Stock Information Center.
Hopper Soliday will be responsible for overseeing the mailing of materials
relating to the offering, responding to questions regarding the offering and
processing stock order forms and orders through the selling group of broker-
dealers.
Our directors and executive officers may participate in the solicitation of
offers to purchase common stock in jurisdictions where such participation is not
prohibited. Other employees of Drovers and the Bank may participate in the
offering in ministerial capacities or providing clerical work. Such employees
have been instructed not to solicit offers to purchase shares in the offering or
provide advice regarding the purchase of the shares. Questions of prospective
purchasers will be directed to the Stock Information Center. No officer,
director or employee of Drovers or the Bank will be compensated in connection
with such person's solicitations or other participation in the offering by the
payment of commissions or other remuneration based either directly or indirectly
on transactions in the shares.
RIGHT TO AMEND OR TERMINATE THE OFFERING.
We expressly reserve the right to amend the terms and conditions of the
offering, whether the terms and conditions are more or less favorable to you.
In the event of a material change to the terms of the offering, we will file a
post-effective amendment to our registration statement of which this Prospectus
is a part and resolicit subscribers to the extent required by the Commission.
We expressly reserve the right, at any time prior to delivery of shares of
common stock offered hereby, to terminate the offering if the offering is
prohibited by law or regulation or if we conclude that it is not in our best
interests to complete the offering under the circumstances. The offering would
be terminated by us by giving oral or written notice thereof to Hopper Soliday
and making a public announcement thereof. If the offering is terminated without
any sales of shares, all funds received from subscribers will be promptly
refunded, without interest.
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We may also terminate any offering period early, at our discretion, and sell
shares pursuant to orders received and accepted prior to the termination.
DESCRIPTION OF OUR CAPITAL STOCK
The following summary description of our capital stock is qualified in its
entirety by reference to our Articles of Incorporation and Bylaws, each as
amended. Copies of our Articles of Incorporation and the Bylaws are exhibits to
the registration statement of which this Prospectus is a part.
CAPITAL STOCK.
We are authorized to issue 15,000,000 shares of common stock, without par
value. As of September 24, 1999, there were 4,698,037 shares of common stock
outstanding and 167,840 shares were reserved for issuance upon exercise of
outstanding stock options.
RIGHTS OF HOLDERS OF COMMON STOCK.
DIVIDEND RIGHTS.
The holders of our common stock are entitled to receive dividends when, as
and if declared by our Board of Directors. Dividends must be paid out of funds
legally available for the payment of dividends. In addition, funds for the
payment of dividends by us must come primarily from the earnings of the Bank.
Various federal and state laws, regulations and policies limit the ability of
the Bank to pay dividends to us. See the "Market for Common Stock and
Dividends" section of this Prospectus.
VOTING RIGHTS.
Each holder of common stock is entitled to one vote per share. The quorum
for shareholders' meetings is a majority of the outstanding shares entitled to
vote represented in person or by proxy.
AMENDMENT OF ARTICLES OF INCORPORATION.
Provisions of our Articles of Incorporation providing for the classified
board of directors, restrictions on transactions with 10% or more beneficial
owners and express authorization for directors to consider listed factors in
deciding whether to approve certain transactions may only
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be amended or repealed with the approval of a majority of our directors and the
affirmative vote of at least 85% of the votes which all shareholders are
entitled to cast. See "Election Classification and Removal of Directors,"
"Transactions with 10% or More Beneficial Owners" and "Anti-Takeover Provisions"
below.
PREEMPTIVE RIGHTS.
The holders of our common stock do not have preemptive rights to purchase
shares of our common stock.
ELECTION, CLASSIFICATION AND REMOVAL OF DIRECTORS.
Our Articles of Incorporation provide for a classified Board of Directors,
with approximately one-fourth of the entire board being elected each year and
with directors serving for terms of four years. Directors are elected by a
plurality of votes cast. Holders of common stock do not have cumulative voting
rights. Our Bylaws provide that nominations for election to the Board of
Directors, other than those made by the Board of Directors, must be in writing
and delivered not less than 14 days prior to the meeting at which directors are
to be elected, unless the notice is mailed more than 20 days prior to the
meeting, in which case the nomination must be received no later than the seventh
day following mailing of the notice of the meeting. The entire Board of
Directors, any class of directors or any individual director may only be removed
from office by vote of the shareholders for cause.
TRANSACTIONS WITH 10% OR MORE BENEFICIAL OWNERS.
Article X of our Articles of Incorporation requires that certain transactions
involving a shareholder or group of shareholders beneficially owning or
controlling 10% or more of our voting securities (i.e., the common stock)
require the affirmative vote of at least 85% of the shares entitled to vote.
These transactions include:
. any merger, consolidation or sale, lease, exchange or other disposition
of all or a substantial part of our assets involving the 10% or more
beneficial owners of shares; or
. our issuance or delivery to these beneficial owners of any voting
securities (or securities convertible into voting securities) other than
pursuant to a stock option plans for our officers and employees, a
dividend reinvestment plan or any underwritten public offering.
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The requirement that such transactions be approved by an 85% affirmative
shareholder vote will not apply if the transaction is approved in advance by a
majority of our directors then in office who were elected prior to the time the
person or group acquired a 10% or more beneficial ownership.
APPROVAL OF MAJOR TRANSACTIONS.
Except for transactions with a person or group that beneficially owns or
controls 10% or more of our shares, we are able to merge or consolidate with
other corporations or to make a bulk sale of our assets not in the regular
course of business, if the majority of the votes cast at the shareholders
meeting (at which a quorum is present) called for the purpose of considering any
such action are cast in favor of the proposal.
LIQUIDATION RIGHTS.
In the event of our liquidation, dissolution or winding up, holders of our
common stock are entitled to receive equally and pro rata per share any assets
distributable to shareholders, after payment of debts and liabilities.
OTHER MATTERS.
Except in connection with certain business combinations and except as noted
below, we can issue new shares of authorized but unissued common stock without
shareholder approval.
The bylaws of the National Association of Securities Dealers, Inc. governing
the Nasdaq National Market, on which the common stock is quoted, require issuers
to obtain shareholder approval for the issuance of securities in connection with
the acquisition of a business, company, assets, property, or securities
representing such interests where the present or potential issuance of common
stock or securities convertible into common stock could result in an increase of
20% or more in the outstanding shares of common stock.
ANTI-TAKEOVER PROVISIONS.
The classified board of directors and the restrictions on transactions with
10% or more beneficial owners of our shares (described above under "Transactions
with 10% or More Beneficial Owners") may have the effect of delaying, deferring
or preventing a change of control of Drovers. The restrictions on transactions
with 10% or more beneficial owners does not impact directly upon the ability of
a potential acquirer to accumulate, by tender offer, open-market purchases or
other means, a controlling position in our voting securities, but may have an
effect
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on the extent to which, and the manner in which, the acquirer is able to
exercise that control. For this reason, these restrictions may discourage
potential acquirers from making proposals which certain of our shareholders
would find attractive. Similarly, these restrictions may be viewed as having the
effect of protecting incumbent management and as affording to one or more
shareholders having a substantial minority position a "veto power" over major
corporate actions which would not otherwise exist.
Our Articles of Incorporation set forth express authorization for directors,
in deciding whether to approve, recommend or oppose a tender offer, merger,
consolidation or sale of assets, whether or not the transaction involves a 10%
or more beneficial owner, to consider a list of factors. These factors include
the character of other parties to the proposed transaction, effects of the
proposed transaction upon employees, suppliers, customers and communities,
general desirability of our remaining independent and such other factors as the
directors deem relevant. It is possible that such provisions would deter or
discourage a third party from proposing an acquisition or other transaction to
the Board of Directors.
Because our common stock is registered under the Securities Exchange Act of
1934, we are subject to various provisions of the Pennsylvania corporation law
applicable to "registered corporations" which may have an anti-takeover effect.
The cumulative effect of the statutory anti-takeover provisions and
provisions of our Articles of Incorporation and Bylaws discussed above may be to
deter or discourage a transaction or acquisition of shares that is not
negotiated in advance with the Board of Directors.
TRANSFER AGENT.
Registrar and Transfer Company serves as the transfer agent of our issued and
outstanding common stock.
SEC POSITION ON INDEMNIFICATION.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to our directors, officers and controlling persons, we
have been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act, and is
therefore, unenforceable.
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SHARES ELIGIBLE FOR FUTURE SALE
The shares of common stock outstanding after this offering, other than shares
held by our "affiliates", will generally be freely tradable.
Shares of common stock held by our "affiliates" may not be sold unless they
are registered under the Act or are sold pursuant to an applicable exemption
from registration, including pursuant to Rule 144. In general, under Rule 144
as currently in effect, an "affiliate" (or persons whose shares are required to
be aggregated with such affiliate) is entitled to sell, within any three-month
period, a number of shares of common stock not exceeding the greater of (a) 1%
of the number of shares of common stock then outstanding or (b) the average
weekly reported volume of trading during the four calendar weeks preceding the
date on which notice of sale is filed with the Securities and Exchange
Commission.
Sales in reliance on Rule 144 must also comply with certain manner of sale
provisions, notice requirements and the availability of current public
information about us. A person or persons whose shares are aggregated who is
not deemed to have been an affiliate of us at any time during the 90 days
preceding a sale would be entitled to sell their shares under Rule 144(k)
without regard to the requirements described above.
No precise predictions can be made of the effect, if any, that market sales
of shares or the availability of shares for sale will have on the market price
prevailing from time to time. Nevertheless, sales of substantial amounts of the
common stock of the Company may adversely affect prevailing market prices.
We have agreed with Hopper Soliday to furnish to Hopper Soliday, prior to the
closing to be held after the end of the initial offering period, an agreement of
each of our officers and directors that they will not offer for sale, sell,
pledge or otherwise dispose of (or enter into any agreement or transaction with
such result) any shares of our common stock or securities convertible or
exchangeable into shares of our common stock in the open market or otherwise,
for a period of 90 days from the date of this Prospectus, without the prior
written consent of Hopper Soliday.
LEGAL MATTERS
An opinion has been rendered by Rhoads & Sinon LLP, Harrisburg, Pennsylvania,
to the effect that the shares of our common stock offered hereby, when issued
and paid for as contemplated in this Prospectus, will be legally issued, fully
paid and non-assessable. Certain matters will be passed upon for Hopper Soliday
by Duane, Morris & Heckscher LLP, Harrisburg, Pennsylvania.
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EXPERTS
Our consolidated financial statements incorporated in this Prospectus by
reference to our Annual Report on Form 10-K for the year ended December 31, 1998
have been audited by Stambaugh . Ness, P.C., independent certified public
accountants, to the extent and for the periods indicated in their report
accompanying our consolidated financial statements, which is incorporated herein
by reference, and have been so incorporated in reliance upon such report and
upon the authority of such firm as experts in accounting and auditing.
INCORPORATION BY REFERENCE
The SEC allows us to "incorporate" into this prospectus information we file
with the SEC in other documents. This means that we can disclose important
information to you by referring to other documents that contain that
information. The information may include documents filed after the date of this
prospectus which update and supersede the information you read in this
prospectus. We incorporate by reference the documents listed below, except to
the extent information in those documents is different from the information
contained in this prospectus.
The following documents of Drovers which have been filed with the SEC are
hereby incorporated by reference in this prospectus:
. Annual Report on Form 10-K for the year ended December 31, 1998;
. Quarterly Report on Form 10-Q for the quarterly period ended March 31,
1999;
. Quarterly Report on Form 10-Q for the quarterly period ended June 30,
1999;
. Current Report on Form 8-K filed on September 20, 1999; and
. The description of our common stock which appears in our registration
statement on Form 8-A under the Exchange Act filed March 1, 1983 with
the SEC, including any amendments or reports filed for the purpose of
updating such description.
We also incorporate by reference all future documents we file with the SEC
under Sections 13(a), 13(c), 14, or 15(d) of the Securities Exchange Act of 1934
until we terminate the offering of the common shares.
You may request a copy of these documents, at no cost, by writing to:
Drovers Bancshares Corporation, 30 South George Street, York, PA 17401,
telephone (717) 843-1586, attention: Corporate Secretary.
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ABOUT THIS PROSPECTUS
You should only rely on the information contained or incorporated by
reference in this Prospectus. Drovers has not authorized anyone to provide you
with information different from that contained in this Prospectus. We are
offering to sell, and soliciting offers to buy, shares of our common stock only
in jurisdictions where offers, sales and solicitations are permitted. The
information contained in this Prospectus is accurate only as of the date of this
Prospectus, regardless of the time of delivery of this Prospectus or of any sale
of common stock.
To understand the offering fully and for a more complete description
of the offering you should read this entire document carefully, including
particularly the "Risk Factors" section, as well as the documents identified in
the sections called "Incorporation by Reference" and "Where You Can Find More
Information."
FORWARD-LOOKING STATEMENTS RELATING TO
FUTURE PERFORMANCE OR EXPECTATIONS
Drovers has used and incorporated by reference "forward-looking
statements" in this Prospectus. Words such as "believes," "expects," "may,"
"will," "should," "projected," "contemplates" or "anticipates" may constitute
forward-looking statements. These statements are within the meaning of the
Private Securities Litigation Reform Act of 1995 and are subject to risks and
uncertainties that could cause our actual results to differ materially. Drovers
has used these statements to describe our expectations and estimates in various
areas, including:
. our overall business conditions particularly in the markets in which
we operate,
. fiscal and monetary policy,
. the market for loan originations,
. year 2000 compliance issues,
. competitive products and pricing,
. credit risk management and
. changes in regulations affecting financial institutions.
Actual results could vary materially from the future results covered
in our forward-looking statements. The statements in the "Risk Factors" section
are cautionary statements identifying important factors, including certain risks
and uncertainties, that could cause our results to vary materially from the
future results covered in such forward-looking statements. Other factors, such
as the general state of the United States or our local economy, could also
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cause actual results to vary materially from the future results covered in such
forward-looking statements. Drovers disclaims any obligation to announce
publicly or to inform you about future events or developments that affect the
forward-looking statements in this Prospectus.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement on Form S-3 (File
No. 333-88285) under the Securities Act and the rules and regulations
promulgated thereunder with respect to the common stock offered hereby. This
Prospectus, which is included in the registration statement, omits certain
information contained in the registration statement or in any amendments to the
registration statement, including in exhibits and schedules, and you should look
at the registration statement and the exhibits and schedules thereto for further
information with respect to us and the common stock offered hereby. Statements
contained in this Prospectus concerning the provisions or contents of any
contract, agreement or any other document are not necessarily complete with
respect to each such contract, agreement or document filed as an exhibit to the
registration statement, and reference is made to the exhibit for a more complete
description of the matters involved.
We file annual, quarterly and special reports, proxy statements and
other information with the SEC. You may read and copy any materials that we
file at the SEC's Public Reference Room at 450 Fifth Street, N.W., Washington,
D.C. 20549. You may obtain information on the operation of the Public Reference
Room by calling the SEC at 1-800-SEC-0330. We file information electronically
with the SEC. The SEC maintains an Internet site that contains reports, proxy
and information statements and other information regarding issuers that file
electronically with the SEC. The address of the SEC's Internet site is
http://www.sec.gov.
Drovers furnishes its shareholders with annual reports containing
audited consolidated financial statements and an opinion thereon expressed by an
independent public accounting firm.
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These securities are not deposits or accounts of a bank and are not insured
or guaranteed by the Federal Deposit Insurance Corporation or any other
governmental agency.
You should only rely on the information contained or incorporated by
reference in this Prospectus. Drovers has not authorized anyone to provide you
with information different from that contained in this Prospectus. Drovers is
offering to sell, and soliciting offers to buy, shares of our common stock only
in jurisdictions where offers, sales and solicitations are permitted. The
information contained in this Prospectus is accurate only as of the date of
this Prospectus, regardless of the time of delivery of this Prospectus or of
any sale of common stock.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C>
Prospectus Summary....................................................... 1
Summary Selected Consolidated Financial Data of Drovers Bancshares
Corporation............................................................. 6
Risk Factors............................................................. 7
Use of Proceeds.......................................................... 12
Capitalization........................................................... 13
Market for Common Stock and Dividends.................................... 14
Business................................................................. 16
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 22
Management............................................................... 46
Stock Ownership of Management and Principal Shareholders................. 50
Determination of Offering Price.......................................... 52
Plan of Distribution and How to Order.................................... 52
Description of Our Capital Stock......................................... 57
Shares Eligible for Future Sale.......................................... 61
Legal Matters............................................................ 61
Experts.................................................................. 62
Incorporation By Reference............................................... 62
About This Prospectus.................................................... 63
Forward-Looking Statements Relating to Future Performance or
Expectations............................................................ 63
Where You Can Find More Information...................................... 64
</TABLE>
232,558 Shares
[LOGO]
Common Stock
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PROSPECTUS
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October 15, 1999
Hopper Soliday
A Division of
Tucker Anthony Incorporated
