SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C.  20549

FORM 10-K

(Mark One)

[X]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 *(NO**FEE REQUIRED)***For the Fiscal year ended December 31, 2000**
[  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 *(NO FEE REQUIRED)*
Commission file number **0-10958****DROVERS BANCSHARES CORPORATION
*(Exact name of registrant as specified in its charter)***PENNSYLVANIA23-2209390*(State or other jurisdiction of incorporation or organization)(IRS Employer ID)***30 SOUTH GEORGE STREET, YORK,PA17401*(Address of principal executive office)                                      (Zip Code)*
Registrant's telephone number, including area code  **(717) 843-1586**
Securities registered pursuant to Section 12(g) of the act:
**COMMON STOCK NO PARNASDAQ*(Title of each class)                  (Name of exchange on which registered)*
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for shorter periods that the registrant wasrequired to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X]No[ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statementsincorporated by reference in Part III of the Form 10-K or any amendment to the Form 10-K. [ ]

The aggregate market value of the voting stock held by nonaffiliates of the registrant as of February 28, 2001 was $112,138,000**.**  The number of shares of Drovers Bancshares Corporation Common Stock outstanding at February 28,2001 was 5,096,870.
**DOCUMENTS INCORPORATED BY REFERENCE**
Portions of the Annual Report for the year ended December 31, 2000 are incorporated by reference into Parts I, II and IV. 
**Drovers Bancshares Corporation and Subsidiaries***CONTENTS***PART I  
Item 1.  Business
4 
Item 2.  Properties
11 **Item 3.  Legal Proceedings   
The information required by this item is included in Note 4 on page 9 of the Drovers Bancshares Corporation 2000 Annual Report.  **Item 4.  Submission of Matters to a Vote of Security Holders   
This item is omitted since it is not applicable. **PART II  **Item 5.  Market for the Registrant's Common Equity and Related Stockholder Matters   
The information required by this item is contained in Note 4 on page 9 and on page 34 of the Drovers Bancshares Corporation 2000 Annual Report.  
Item 6.  Selected Financial Data
14 **Item 7.  Management's Discussion and Analysis of Financial Condition and Results of Operation   
The information required by this item is contained on pages 24-32 of the Drovers Bancshares Corporation 2000 Annual Report.  **Item 7a.  Quantitative and qualitative disclosures about market risk   
The information required by this item is contained on pages 30-32 of the Drovers Bancshares Corporation 2000 Annual Report.  
Item 8.  Financial Statements and Supplementary Data
15  
The quarterly information required by this item is contained on page 34 of the Drovers Bancshares Corporation 2000 Annual Report.  **Item 9.  Changes in and Disagreements with Accountants on Accounting and Financial Disclosure   
This item is omitted since it is not applicable. **PART III  
Item 10.  Directors and Executive Officers of the Registrant
22 
Item 11.  Executive Compensation
25 
Item 12.  Security Ownership of Certain Beneficial Owners and Management
30 
Item 13.  Certain Relationships and Related Transactions
32**PART IV  **Item 14.  Exhibits, Financial Statement Schedules, and Reports on Form 8-K   **A.  Financial statements are incorporated by reference to pages 3-34 of the Drovers Bancshares Corporation 2000 Annual Report.   **B.  Drovers Bancshares Corporation filed the following report on Form 8-K:   **(i) On January 3, 2001, a Form 8-K was filed to announce an Agreement and Plan of Merger dated December 27, 2000 by and between Drovers Bancshares Corporation and Fulton Financial Corporation and to provide the related documents asexhibits to the Form.    **C.  Listing of Exhibits.   **Exhibit 2 Agreement and Plan of Merger dated December 27, 2000 by and between Drovers Bancshares Corporation and Fulton Financial Corporation (Incorporated by reference to Exhibit 2 of the Drovers Bancshares Corporation Form 8-Kfiled with the SEC on January 3, 2001).     **Exhibit 3(i) - Articles of Incorporation. (Incorporated by reference to Exhibit 3(i) of the Drovers Bancshares Corporation Form 10-Q for the period ended June 30, 1999).   **Exhibit 3(ii) - By-laws. (Incorporated by reference to Exhibit 3(ii) of the Drovers Bancshares Corporation Form 10-Q for the period ended June 30, 1999).   **Exhibit 4 Instruments Defining the Rights of Holders of Long-term Debt of Drovers Bancshares Corporation and its subsidiaries are not filed as Exhibits because the amount of debt under each instrument is less than 10 percent of theconsolidated assets of the Corporation.  The Corporation undertakes to file these instruments with the Commission on request.   **Exhibit 10(a) - Salary Continuation Plan, dated June 1, 2000, between The Drovers & Mechanics Bank and A. Richard Pugh (incorporated by reference to Exhibit 10(a) of the Drovers Bancshares Corporation Form 10-Q for the periodended June 30, 2000). **Drovers Bancshares Corporation and Subsidiaries***CONTENTS, continued*  **Exhibit 10(b) - Amended and restated Change of Control Agreement, dated June 30, 1999, among Drovers Bancshares Corporation, The Drovers & Mechanics Bank and A. Richard Pugh. (Incorporated by reference to Exhibit 10(b) of theDrovers Bancshares Corporation Form 10-Q for the period ended September 30, 1999).   **Exhibit 10(c) - Form of Change of Control Agreement among Drovers Bancshares Corporation, The Drovers & Mechanics Bank and each of the following Executive Vice Presidents of the Company: Debra A. Goodling, Michael J. Groft,Michael E. Kochenour and Shawn A. Stine (incorporated by reference to Exhibit 10(c) of the Drovers Bancshares Corporation Form 10-K for the year ended December 31, 1998).   **Exhibit 10(d) - The Drovers Bancshares Corporation 1995 Stock Option Plan. (Incorporated by reference to Exhibit 10(d) of the Drovers Bancshares Corporation Form 10-Q for the period ended June 30, 2000).   **Exhibit 10(e) - The Drovers Bancshares Corporation Incentive Stock Option Plan. (Incorporated by reference to Exhibit 99.1 to the Drovers Bancshares Corporation Registration Statement on Form S-8 as filed with the Securities andExchange Commission on May 24, 1995).   **Exhibit 10(f) - The Drovers Bancshares Corporation 1999 Non-Employee Directors Stock Option Plan.  (Incorporated by reference to Exhibit 99.1 to the Drovers Bancshares Corporation Registration on Form S-8 as filed with theSecurities and Exchange Commission on July 8, 1999).   **Exhibit 10(g) - Executive Bonus Agreement, dated September 1, 2000, between The Drovers & Mechanics Bank and A. Richard Pugh. (Incorporated by reference to Exhibit 10(a) of the Drovers Bancshares Corporation Form 10-Q for theperiod ended June 30, 2000).   **Exhibit 10(h) - Form of Salary Continuation Agreement among The Drovers & Mechanics Bank and each of the following Executive Vice Presidents of the Company:  Debra A. Goodling, Michael J. Groft, Michael E. Kochenour and ShawnA. Stine (Incorporated by reference to Exhibit 10(a) of the Drovers Bancshares Corporation Form 10-Q for the period ended June 30, 2000).   **Exhibit 10(i) - Form of Executive Bonus Agreement among The Drovers & Mechanics Bank and each of the following Executive Vice Presidents of the Company:  Debra A. Goodling, Michael J. Groft, Michael E. Kochenour and Shawn A.Stine. (Incorporated by reference to Exhibit 10(a) of the Drovers Bancshares Corporation Form 10-Q for the period ended June 30, 2000).   **Exhibit 11 - Statements Regarding Computation of Per Share Earnings.  (Incorporated by reference to Note 17 on page 17 of the Drovers Bancshares Corporation 2000 Annual Report).   **Exhibit 13 - Annual Report to Security Holders.
37  
Exhibit 21 - Subsidiaries of the Registrant
35  
Exhibit 23 - Consents of experts and Counsel
36  **Exhibit 99 Warrant Agreement dated as of December 27, 2000 by and between Drovers Bancshares Corporation and Fulton Financial Corporation. (Incorporated by reference to Exhibit 99.1 of the Drovers Bancshares Corporation Form 8-Kfiled with the SEC on January 3, 2001).  ****SIGNATURES
34
Page numbers of Annual Report to shareholders referenced in this document refer to hard copy only.  See electronic copy of documents for corresponding page numbers.
**Drovers Bancshares Corporation and Subsidiaries

ITEM 1.  BUSINESS**
GENERAL

Drovers Bancshares Corporation ("Drovers") was organized on October 27, 1982, under the****Pennsylvania Business Corporation Law and holds all the stock of The Drovers & Mechanics Bank ("Drovers Bank").  The Managementof The Drovers & Mechanics Bank formed Drovers Bancshares Corporation for greater flexibility in providing a wider variety of banking services and in engaging in nonbanking activities permitted under the Bank Holding Company Act of 1956, as amended.

The Drovers & Mechanics Bank is a wholly-owned subsidiary of Drovers.  Drovers 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 theFederal Deposit Insurance Corporation.  Drovers Bank was organized in 1883 as a national bank and became a state-chartered non-member bank of the Federal Reserve System on February 14, 1979.  Drovers Bank has two wholly-owned subsidiaries: 96 South GeorgeStreet, Inc. and Drovers Investment Company.  96 South's primary asset is an office building attached to Drovers Bank's Main Office which houses our corporate headquarters.  Drovers Investment Company's assets consist of investment securities, primarilymunicipal bonds.  In addition, Drovers Bank is 60% owner of Drovers Settlement Services ("DSS"), a joint venture with Abstracting Company of York.  DSS offers real estate title insurance and settlement services.  The minority interest was$20,000 as of December 31, 2000 and was included in other liabilities. 

Drovers also wholly owns two other subsidiaries:  Drovers Realty Company and Drovers Capital Trust I.  Drovers Realty Company has various real estate holdings, including ground and building leases.  It rents the real estate to Drovers Bank for use asbranch offices.  Drovers Capital Trust I owns junior subordinated deferrable debentures due from Drovers.  The debentures are the sole asset of the Trust.  The Trust issued $7,500,000 of preferred securities to investors secured by the debentures.  Foradditional information on the Trust, see Note 14 on page 15 of the Drovers Corporation 2000 Annual Report filed as Exhibit 13 to this Form 10-K and incorporated herein by reference.  In addition, Drovers entered into a joint venture with seven otherPennsylvania banks to form Pennbanks Insurance Company, an offshore reinsurance company.  Each bank in the venture owns a segregated cell through which its respective premiums and losses from credit life and accident and health insurance are funded andfor which each bank has sole responsibility.  The Drovers' cell has been consolidated into the financial statements since we are sole owner of that cell.  

Drovers Bank offers a wide variety of banking 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 andmortgage loans, home improvement loans, safe deposit services, estate planning and administration, personal trust management and discount brokerage services.  Commercial banking services are provided to businesses, nonprofit organizations and localmunicipalities.  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.  Investment services and trust launched a newinitiative at the end of 1999, Oak Tree Investment Group.  Oak Tree Investment Group provides enhanced investment management, financial planning and brokerage services.

On December 31, 2000, Drovers Bank employed 237 full-time equivalents throughout its branch offices. The Main Office is located at 30 South George Street, York, Pennsylvania.  A Research and Administrative Services Center and nine branches are locatedin the surrounding suburbs of York City.  In addition, there are seven out-of-town offices located in Dillsburg, Shrewsbury, Emigsville, Hellam, Newberrytown , Dover and Red Lion, Pennsylvania.  Full-service bank offices at Memory Lane and Newberrytownwere opened in 2000, while our old Memory Lane branch office, the Mt. Rose branch office and the York Haven branch office were closed.  Drovers Bank opened its first loan production office (LPO) in the first quarter of 1999 in Mechanicsburg, Pennsylvania. We opened an additional loan production office in Frederick, Maryland in August 1999.  On February 21, 2000, the Frederick office began accepting deposits from business customers.  Drovers Bank also has twelve remote automated teller machines.  Locationsinclude the York Fairgrounds, York College of Pennsylvania, and ten inside convenience stores.

In December 1993, Drovers Bank purchased the office building attached to our Main Office.  The five-story complex is known as 96 South George.  The accounting, corporate banking, and executive offices are located on the fifth floor of 96 South George.

 
**Drovers Bancshares Corporation and Subsidiaries

ITEM 1.  BUSINESS, continued**
GENERAL, continued

Drovers Bank is a limited partner in six ventures that own and operate apartment buildings.  The apartments provide low-income housing to qualified families.  The investments are accounted for under the equity method of accounting.  The combinedcarrying values of the investments at December 31, 2000 and 1999 were $6,377,000 and $5,554,000, respectively.

On December 27, 2000, Drovers entered into a merger agreement with Fulton Financial Corporation ("Fulton"), pursuant to which Drovers will be merged with Fulton, with Fulton as the surviving corporation.  The merger agreement was approved by Drovers'Board of Directors on December 27, 2000.  Under the merger agreement, The Drovers & Mechanics Bank, the sole bank subsidiary of Drovers, will be merged into Fulton Bank, a bank subsidiary of Fulton.  The merger agreement was included as an exhibit toDrovers' Form 8-K filed with the SEC on January 3, 2001.  For additional information, see Note 24 and page 21 of the Drovers Bancshares Corporation 2000 Annual Report.
****
SUPERVISION AND REGULATION
*Bank Holding Company Regulation*
Drovers is registered as a bank holding company and is subject to the regulations of the Board of Governors of the Federal Reserve System (the "Federal Reserve") under the Bank Holding Company Act of 1956, as amended ("BHCA").Bank holding companies are required to file periodic reports with and are subject to examination by the Federal Reserve.  The Federal Reserve has issued regulations under the BHCA that require a bank holding company to serve as a source of financial andmanagerial strength to its subsidiary banks.  As a result, the Federal Reserve, pursuant to such regulations, may require Drovers to stand ready to use its resources to provide adequate capital funds to Drovers Bank during periods of financial stress oradversity.

Under the Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA"), a bank holding company is required to guarantee the compliance of any insured depository institution subsidiary that may become "undercapitalized"as defined by regulations) with the terms of any capital restoration plan filed by such subsidiary with its appropriate federal banking agency, up to specified limits.

Under the BHCA, the Federal Reserve has the authority to require a bank holding company to terminate any activity or relinquish control of a nonbank subsidiary (other than a nonbank subsidiary of a bank) upon the Federal Reserve's determination thatsuch activity or control constitutes a serious risk to the financial soundness and stability of any bank subsidiary of the bank holding company.

The BHCA prohibits Drovers from acquiring direct or indirect control of more than 5% of the outstanding shares of any class of voting stock or substantially all of the assets of any bank or merging or consolidating with another bank holding companywithout prior approval of the Federal Reserve.  Such a transaction would also require approval of the Pennsylvania Department of Banking.  Pennsylvania law permits Pennsylvania bank holding companies to control an unlimited number of banks.

Additionally, the BHCA prohibits Drovers from engaging in or from acquiring ownership or control of more than 5% of the outstanding shares of any class of voting stock of any company engaged in a nonbanking business unless such business is determinedby the Federal Reserve to be so closely related to banking as to be a proper incident thereto.  The Federal Reserve can differentiate between nonbanking activities that are initiated by a bank holding company or subsidiary and activities that are acquiredas a going concern.  The BHCA does not place territorial restrictions on the activities of such nonbanking-related activities.  Drovers and its subsidiaries are prohibited from engaging in certain tie-in arrangements in connection with any extension ofcredit, lease or sale of property, or furnishing of services.

Federal Reserve approval may be required before Drovers or its nonbank subsidiaries may begin to engage in any new activity and before acquiring a business.
****Drovers Bancshares Corporation and Subsidiaries

ITEM 1.  BUSINESS, continued**
SUPERVISION AND REGULATION, continued
*Dividend Restrictions*
Drovers is a legal entity separate and distinct from Drovers Bank and the Drovers' nonbank subsidiaries.  Drovers' revenues (on a parent company only basis) result almost entirely from dividends received from its subsidiaries.  The right ofDrovers and consequently the right of creditors and shareholders of Drovers, to participate in any distribution of the assets or earnings of any subsidiary through the payment of such dividends or otherwise is necessarily subject to the prior claims ofcreditors of the subsidiary (including depositors, in the case of Drovers Bank), except to the extent that claims of Drovers in its capacity as a creditor may be recognized.

Federal and state laws regulate the payment of dividends by Drovers' subsidiaries.  See "Supervision and Regulation - Regulation of Drovers Bank" herein.

Further, it is the policy of the Federal Reserve that bank holding companies should pay dividends only out of current earnings.  Federal banking regulators also have the authority to prohibit banks and bank holding companies from paying a dividend ifthey should deem such payment to be an unsafe or unsound practice.
*****Capital Adequacy*
Bank holding companies are required to comply with the Federal Reserve's risk-based capital guidelines.  The required minimum ratio of total capital to risk-weighted assets (including certain off-balance sheet activities, such as standby lettersof credit) is 8%.  At least half (4%) of the total capital is required to be "Tier 1 Capital," consisting principally of common shareholders' equity, noncumulative perpetual preferred stock, a limited amount of cumulative perpetual preferredstock, and minority interests in the equity accounts of consolidated subsidiaries, less certain intangible assets.  The remainder ("Tier 2 capital") may consist of a limited amount of subordinated debt and intermediate-term preferred stock,certain hybrid capital instruments and other debt securities, perpetual preferred stock, and a limited amount of the general loan loss allowance.  In addition to the risk-based capital guidelines, the Federal Reserve requires a bank holding company tomaintain a minimum "leverage ratio."  This requires a minimum level of Tier 1 capital (as determined under the risk-based capital rules) to average total consolidated assets of 3% for those bank holding companies that have the highest regulatoryexamination ratings and are not contemplating or experiencing significant growth or expansion.  All other bank holding companies are expected to maintain a ratio of at least 1% to 2% above the stated minimum.  Further, the Federal Reserve has indicatedthat it will consider a "tangible Tier 1 capital leverage ratio" deducting all intangibles and other indications of capital strength in evaluating proposals for expansion or new activities.  The Federal Reserve has not advised us that we shouldapply any specific minimum leverage ratio applicable to the Company.

Pursuant to FDICIA, the federal banking agencies have specified, by regulation, the levels at which an insured institution is considered "well capitalized," "adequately capitalized," "undercapitalized," "significantly undercapitalized," or "critically undercapitalized."  Under these regulations, an institution is considered "well capitalized" if it has a total risk-based capital ratio of 10% or greater, a Tier 1 risk-based capitalratio of 6% or greater, a leverage ratio of 5% or greater, and is not subject to any order or written directive to meet and maintain a specific capital level.  Drovers and the Drovers Bank, at December 31, 2000, qualify as "well capitalized"under these regulatory standards.
*FDIC Insurance*
Drovers Bank is subject to FDIC deposit insurance assessments.  The FDIC has adopted a risk-related premium assessment system for both the Bank Insurance Fund ("BIF") for banks and the Savings Association Insurance fund ("SAIF") for savings associations.  Under this system, FDIC insurance premiums are assessed based on capital and supervisory measures.

Under the risk-related premium assessment system, the FDIC, on a semiannual basis, assigns each institution to one of three capital groups (well capitalized, adequately capitalized, or undercapitalized) and further assigns such institution to one ofthree subgroups within a capital group corresponding to the FDIC's judgment of its strength based on supervisory evaluations, including examination reports, statistical analysis, and other information relevant to gauging the risk posed by the institution. Only institutions with a total risk-based capital to risk-adjusted assets ratio of 10% or greater, a Tier 1 capital to risk-adjusted assets ratio of 6% or greater, and a Tier 1 leverage ratio of 5% or greater, are assigned to the well-capitalized group.

 
**Drovers Bancshares Corporation and Subsidiaries

ITEM 1.  BUSINESS, continued**
SUPERVISION AND REGULATION, continued
*FDIC Insurance, *continued*
On September 30, 1996, the President of the United States signed into law the Deposit Insurance Funds Act of 1996 to recapitalize the Savings Association Insurance Fund ("SAIF") administered by the Federal Deposit Insurance Corporation("FDIC")and to provide for repayment of the FICO (Financial Institution Collateral Obligation) bonds issued by the United States Treasury Department.  The FDIC levied a one-time special assessment of SAIF deposits equal to 65.7 cents per $100 ofthe SAIF-accessible deposit base as of March 31, 1995.  During 1997, 1998 and 1999, the Bank Insurance Fund ("BIF") will pay $322 million of FICO debt service, and SAIF will pay $458 million.  During 1997, 1998 and 1999, the average regularannual deposit insurance assessment is estimated to be about 1.29 cents per $100 of deposits for BIF deposits and 6.44 cents per $100 of deposits for SAIF deposits.  Individual institution's assessments will continue to vary according to their capital andmanagement ratings.  As always, the FDIC will be able to raise the assessments as necessary to maintain the funds at their target capital ratios provided by law.  After 1999, BIF and SAIF will share the FICO cost equally. The FDIC established the FICOassessment for the third quarter of 2000 at approximately 2.1 cents per $100 annually for assessable deposits.  The assessments are adjusted quarterly to reflect changes in the bases of the FDIC's insurance funds and do not vary depending on a depositoryinstitution's capitalization or supervisory evaluations.  The FICO bonds will mature in 2018-2019, ending the interest payment obligation.
*Regulation of Drovers Bank*
The operations of Drovers Bank are subject to federal and state statues applicable to banks chartered under the banking laws of the Commonwealth of Pennsylvania that are not members of the Federal Reserve System and to banks whose deposits areinsured by the FDIC.

The FDIC, which has primary supervisory authority over Drovers Bank, regularly examines banks in such areas as reserves, loans, investments, management practices, and other aspects of operations.  These examinations are designed for the protection ofDrovers Bank's depositors rather than Drovers' shareholders.  Drovers Bank must furnish annual and quarterly reports to the FDIC, which has the authority under the Financial Institutions Supervisory Act to prevent a state non-member bank from engaging inan unsafe or unsound practice in conducting its business.

Federal and state banking laws and regulations govern, among other things, the scope of a bank's business, the investments a bank may take, the reserves against deposits a bank must maintain, the types and terms of loans a bank may make and thecollateral it may take, the activities of a bank with respect to mergers and consolidations, and the establishment of branches.  Pennsylvania law permits statewide branching.

Pennsylvania law permits State chartered financial institutions to sell insurance not limited by the town of 5,000 restriction applicable to national banks.  The Office of the Comptroller of the Currency has issued guidelines for national banks tosell insurance.  Drovers Bank has been licensed as an insurance agency within the State of Pennsylvania.  We presently sell fixed and variable rate annuity products and are evaluating our options regarding the sale of additional insurance products.

In 2000, Pennsylvania enacted Act 89, the Pennsylvania Parity Bill, which authorizes Pennsylvania-chartered banks to engage in any activity authorized for national banks.  

Under the Federal Deposit Insurance Act, as amended, Drovers Bank is required to obtain the prior approval of the FDIC for the payment of dividends if the total of all dividends declared by the Bank in one year would exceed the Drovers Bank's netprofits (as defined and interpreted by regulation) for the current year plus its retained net profits (as defined and interpreted by regulation)for the two preceding years, less any required transfers to surplus.  In addition, Drovers Bank may only paydividends to the extent that its retained net profits (including the portion transferred to surplus) exceed statutory bad debts (as defined by regulation).  Under FDICIA, any depository institution, including Drovers Bank, is prohibited from paying anydividends, making other distributions or paying any management fees if, after such payment, it would fail to satisfy its minimum capital requirements.
** 

Drovers Bancshares Corporation and Subsidiaries

ITEM 1.  BUSINESS, continued**
SUPERVISION AND REGULATION, continued
*Regulation of Drovers Bank, continued*
A subsidiary bank of a bank holding company, such as Drovers Bank, is subject to certain restrictions imposed by the Federal Reserve Act on any extensions of credit to the bank holding company or its subsidiaries, on investments in the stock orother securities of the bank holding company or its subsidiaries, and on taking such stock or securities as collateral for loans.  The Federal Reserve Act and Federal Reserve regulations also place certain limitations and reporting requirements onextensions of credit by a bank to the principal shareholders of its parent holding company, among others, and to related interests of such principal shareholders.  In addition, such legislation and regulations may affect the terms upon which any personbecoming a principal shareholder of a holding company may obtain credit from banks with which the subsidiary bank maintains a correspondent relationship.

Drovers Bank, and the banking industry in general, are affected by the monetary and fiscal policies of government agencies, including the Federal Reserve.  Through open market securities transactions and changes in its discount rate and reserverequirements, the Board of Governors of the Federal Reserve exerts considerable influence over the cost and unavailability of funds for lending and investment.

COMPETITION

The financial services industry in Drovers Bank's service area is extremely competitive.  Competitors within its service area include multi-bank holding companies, with resources substantially greater than ours.  Many competitor financialinstitutions have legal lending limits substantially higher than Drovers Bank's legal lending limit.  In addition, we compete with savings banks, savings and loan associations, credit unions, money market and other mutual funds, mortgage companies,leasing companies, finance companies, and other financial services companies that offer products and services similar to those offered by Drovers Bank on competitive terms.

GRAMM-LEACH-BLILEY FINANCIAL MODERNIZATION ACT OF 1999

Traditionally, the activities of bank holding companies have been limited to the business of banking and activities closely related or incidental to banking.  On November 12, 1999, however, the Gramm-Leach-Bliley Act was signed into law whichpermits bank holding companies to engage in a broader range of financial activities.  Specifically, bank holding companies may elect to become "financial holding companies" which may affiliate with securities firms and insurance companies and engage inother activities that are financial in nature or incidental to a financial activity.  A bank holding company may become a financial holding company under the new statute only if each of its subsidiary banks is well capitalized, is well managed and has atleast a satisfactory rating under the Community Reinvestment Act.  A bank holding company that falls out of compliance with such requirement may be required to cease engaging in certain activities.  Any bank holding company which does not elect to becomea financial holding company remains subject to the current restrictions of the Bank Holding Company Act.

While the Federal Reserve Board will serve as the "umbrella" regulator for financial holding companies and has the power to examine banking organizations engaged in new activities, regulation and supervision of activities which are financial in natureor determined to be incidental to such financial activities will be handled along functional lines.  Accordingly, activities of subsidiaries of a financial holding company will be regulated by the agency or authorities with the most experience regulatingthat activity as it is conducted in a financial holding company.

Under the Gramm-Leach-Bliley Act, among the activities that will be deemed "financial in nature" for "financial holding companies" are, in addition to traditional lending activities, securities underwriting, dealing in or making a market insecurities, sponsoring mutual funds and investment companies, insurance underwriting and agency activities, activities which FRB determines to be closely related to banking, and certain merchant banking activities.
** 

Drovers Bancshares Corporation and Subsidiaries

ITEM 1.  BUSINESS, continued**
PRIVACY

Under the Gramm-Leach-Bliley Act, federal banking regulators are required to adopt rules that will limit the ability of banks and other financial institutions to disclose non-public information about consumers to nonaffiliated third parties.These limitations will require disclosure of privacy policies to consumers and, in some circumstances, will allow consumers to prevent disclosure of certain personal information to a nonaffiliated third party.  Federal banking regulators issued finalrules on May 10, 2000.  Pursuant to the rules, financial institutions must provide:
- initial notices to customers about their privacy policies, describing the conditions under which they may disclose nonpublic personal information to nonaffiliated third parties and affiliates;
- annual notices of their privacy policies to current customers; and
- a reasonable method for customers to "opt out" of disclosures to nonaffiliated third parties.

The rules were effective November 13, 2000, but compliance is optional until July 1, 2001.  These privacy provisions will affect how consumer information is transmitted through diversified financial companies and conveyed to outside vendors.  It isnot possible at this time to assess the impact of the privacy provisions on Drovers' financial condition or results of operations.

To the extent that the Gramm-Leach-Bliley Act permits banks, securities firms and insurance companies to affiliate, the financial services industry may experience further consolidation.  This could result in a growing number of larger financialinstitutions that offer a wider variety of financial services than Drovers currently offers and that can aggressively compete in the markets that Drovers currently serves.

Effective March 23, 2001, Drovers became a Financial Holding Company under the Gramm-Leach-Bliley Act.

CONSUMER PROTECTION RULES - SALE OF INSURANCE

In December, 2000 pursuant to the requirements of the Gramm-Leach-Bliley Act, the federal bank and thrift regulatory agencies adopted consumer protection rules for the sale of insurance products by depository institutions.  The rule is effectiveon October 1, 2001.  The final rule applies to any depository institution or any person selling, soliciting, advertising or offering insurance products or annuities to a consumer at an office of the institution or on behalf of the institution.  Theregulation requires oral and written disclosure before the completion of the sale of an insurance product or annuity that such product:
- is not a deposit or other obligation of, or guaranteed by, the depository institution or its affiliate;
- is not insured by the FDIC or any other agency of the United States, the depository institution or its affiliates; and
- has certain risks of investment, including the possible loss of value.

The depository institution may not condition an extension of credit on the consumer's purchase of an insurance product or annuity from the depository institution or from any of its affiliates, or on the consumer's agreement not to obtain, or aprohibition on the consumer from obtaining, an insurance product or annuity from an unaffiliated entity.  Furthermore, to the extent practicable, a depository institution must keep insurance and annuity sales activities physically segregated from theareas where retail deposits are routinely accepted from the general public.  Finally, the rule addresses cross marketing and referral fees.
**Drovers Bancshares Corporation and Subsidiaries

ITEM 1.  BUSINESS, continued**
INTERSTATE BANKING LEGISLATION

In September 1994, the Riegle-Neal Interstate Banking and Branching Efficiency Act (the "Interstate Banking Act") was enacted.  The Interstate Banking Act facilitates the interstate expansion and consolidation of banking organizations(i) by permitting bank holding companies that are adequately capitalized and adequately managed, beginning September 29, 1995, to acquire banks located in states outside their home states regardless of whether such acquisitions are authorized under thelaw of the host state; (ii) by permitting the interstate merger of banks after June 1, 1997, subject to the right of individual states to "opt in" or "opt out" of this authority before that date; (iii) by permitting banks to establishnew branches on an interstate basis provided that such action is specifically authorized by the law of the host state; (iv) by permitting, beginning September 29, 1995, a bank to engage in certain agency relationships (i.e., to receive deposits, renewtime deposits, close loans (but not including loan approvals or disbursements), service loans, and receive payments on loans and other obligations) as agent for any bank or thrift affiliate, whether the affiliate is located in the same state or adifferent state then the agent bank; and (v) by permitting foreign banks to establish, with approval of the regulators in the United States, branches outside their "home" states to the same extent that national or state banks located in the homestate would be authorized to do so.  One effect of this legislation will be to permit Drovers to acquire banks and bank holding companies located in any state and to permit qualified banking organizations located in any state to acquire banks and bankholding companies located in Pennsylvania, irrespective of state law.

Since 1995, the Pennsylvania Banking Code has authorized full interstate banking and branching under Pennsylvania law.  Specifically, the legislation (i) eliminates the "reciprocity" requirement previously applicable to interstate commercialbank acquisitions by bank holding companies, (ii) authorized interstate bank mergers and reciprocal interstate branching into Pennsylvania by interstate banks, and (iii) permits Pennsylvania institutions to branch into other states with the prior approvalof the Pennsylvania Department of Banking.

Overall, this federal and state legislation has, as was predicted, had the effect of increasing consolidation and competition and promoting geographic diversification in the banking industry.

Under the Community Reinvestment Act of 1977 ("CRA"), the FDIC is required to assess the records of all financial institutions regulated by it to determine if these institutions are meeting the credit needs of the communities (including lowand moderate income neighborhoods) which they serve.  The FDIC also takes this record into account in its evaluation of any application made by any of such institutions for, among other things, approval of branch banking or other deposit facilities,office relocation, or merger and acquisitions of financial institutions.

The CRA requires the FDIC to provide written evaluation of an institution's CRA performance and requires public disclosure of an institution's CRA rating.  Drovers Bank received a "satisfactory" rating in its last CRA examination conductedby the FDIC.  

PROPOSED LEGISLATION AND REGULATIONS

From time to time, various federal and state legislation is proposed that could result in additional regulation of, and restriction on, the business of Drovers and Drovers Bank, or otherwise change the business environment.

We cannot predict whether any of this legislation, if enacted, will have a material effect on the business of Drovers.

Return to table of contents
**Drovers Bancshares Corporation and Subsidiaries

ITEM 2.  PROPERTIES**
Drovers and its Subsidiaries own in fee simple unencumbered the following land and buildings:
**Main Office**Emigsville Office
30 S George Street
2123 N George Street
York, PA  17401
Emigsville, PA  17318**Research & Administrative**Westgate Office 
Services Center
1500 Kenneth Road 
915 Indian Rock Dam Road
York, PA  17404 
York, PA  17403**Richland Avenue Office**Dillsburg Office
905 Indian Rock Dam Road
3 Tristan Drive
York, PA  17403
Dillsburg, PA 17019

 **York Haven Office**Memory Lane Office 
Landvale Street
200 Memory Lane 
York Haven, PA  17370
York, PA  17402 
Office closed on November 4, 2000
Office closed on May 13, 2000**Newberrytown Office
2220 Old Trial Road 
Etters, PA 17319
 
 

Drovers Bank is the sole occupant of all land and buildings listed above.  

The following property is pledged as collateral for a mortgage loan secured to purchase the property:
**96 South George Office Building**
96 South George Street

York, PA 17401

The accounting, corporate banking, and executive offices are located on the fifth floor of this five-store office building adjacent to the Main Office.

The following branch offices are leased:
**Queensgate Office**
Queensgate Shopping Center

York, PA  17403

$4,200 per month rental; lease expires October 1, 2005, and is renewable for one five-year option.
**Dover Office**
Dover Square, adjacent to Shipley Stores, Inc.

1 South Main Street

Dover, PA  17315

$4,800 per month rental; lease expires November 9, 2006, and is renewable for three five-year options.
**South York Plaza Office**
275 Pauline Drive

in the Giant Food Store

York, PA 17402

$3,333 per month rental; lease expires August 31, 2005.
**Drovers Bancshares Corporation and Subsidiaries

ITEM 2.  PROPERTIES, continued****Cape Horn Office**
3140 Cape Horn Road

Red Lion, PA 17356

$2,625 per month land rental; lease expires February 29, 2012, and is renewable for six five-year options.  The building is owned by Drovers.
**West Manchester Office**
1750 Loucks Road

in the Giant Food Store

York, PA 17404

$2,917 per month rental; lease expires February 29, 2004, and is renewable for one five-year option.
**York Marketplace Office**
2415 East Market Street

in the Giant Food Store

York, PA 17402

$2,917 per month rental; lease expires April 30, 2004, and is renewable for one five-year option.
**Penvale Office**
3183 Susquehanna Trail North

York, PA 17402

$7,000 per month rental; lease expires November 2, 2007, with a rent increase of $500 to $7,500 per month in 2002.  The lease is renewable for three five-year options.
**Shrewsbury Office**
611 Shrewsbury Commons Avenue

Shrewsbury, PA 17361

$4,422 per month land rental; lease expires November 30, 2017, with rent increases each year.  The land lease is renewable for four five-year options.  The building is owned by Drovers.
**Hellam Office**
599 W. Market Street

Hellam, PA 17406

$3,500 per month land rental; lease expires August 31, 2008.  The lease is renewable for three five-year options and contains a purchase option.  The building is owned by Drovers.
**Memory Lane Office**
York Marketplace  

York, PA 17403

$3,750 per month land rental; lease expires February 28, 2011, with rent increases each year, and is renewable for two five-year options.  The building is owned by Drovers.
**Loan Production Office**
Rossmoyne Business Center

4930 Ritter Road, Suite 103

Mechanicsburg, PA 17055

$1,125 per month rental; lease expires February 29, 2004, with rent increases each year.  
**Drovers Bancshares Corporation and Subsidiaries

ITEM 2.  PROPERTIES, continued****Frederick Office**
The Patrick Center

30 W. Patrick Street

Suite 430

Frederick, MD 21701

$2,257 per month rental; lease expires August 14, 2002, with rent increases each year, and is renewable for three one-year options.

We believe that our properties are suitable, adequate and have the correct capacity for the duties performed.

During 2000, we relocated the Memory Lane branch.  Simultaneously with the opening of the new Memory Lane branch, we closed the existing branch and the Mt. Rose branch.  The Mt. Rose branch's existing customer base was consolidated with one of thethree existing branches, which are located within one mile of the existing Mt. Rose branch.  Additionally, a new branch office at Newberrytown was opened in 2000.  The York Haven branch was closed upon the opening of the Newberrytown branch.  

Return to table of contents
**Drovers Bancshares Corporation and Subsidiaries

ITEM 6. SELECTED FINANCIAL DATA***(dollar amounts in thousands, except per share data)*******2000**1999**1998**1997**1996**BALANCE SHEET DATA AT DECEMBER 31,
Assets
$796,257
$720,108
$597,793
$524,892
$446,713
Investment securities
232,247
212,937
161,619
   179,299
   128,082
Net loans
502,526
456,293
386,197
   310,369
   279,987
Deposits
568,628
505,134
457,672
   402,086
   360,204
Long-term debt
110,308
102,737
62,830
43,558
29,385
Shareholders' equity
55,165
51,200
48,193
    43,470
    38,092
Total average assets
751,997
645,334
559,172
   491,237
   404,621
Total average shareholders' equity
52,837
50,158
46,350
    40,556
    36,429*INCOME DATA
Interest income
$56,663
$46,562
$40,991
$36,267
$30,055
Interest expense
33,338
24,286
21,736
    19,254
    14,791
  Net interest income
23,325
22,276
19,255
    17,013
    15,264
Provision for loan losses
6,379
1,727
1,266 
       386
       645
  Net interest income after provision for loan losses
16,946
20,549
17,989
16,627
14,619
Other income
5,707
5,349
5,408
     3,953
     3,364
Other expenses
19,763
16,751
15,231 
    13,234
    12,050
Income tax expense (benefit)
-218
1,546
1,356
     1,715
     1,084
Net income
3,108
7,601
6,810
5,631
4,849
Dividends paid
2,600
2,288
2,050
1,707
1,606*RATIOS
Return on average assets
0.41%
1.18%
1.22%
     1.15%
     1.20%
Return on average equity
5.88%
15.15%
14.69%
    13.88%
    13.31%
Equity to assets (average)
7.03%
7.77%
8.29%
     8.26%
     9.00%
Net loans to deposits (year-end)
88.38%
90.33%
84.38%
    77.19%
    77.73%
Dividend payout
83.66%
30.10%
30.10%
    30.31%
    33.12%*PER SHARE DATA*
Net income
$0.61
$1.54
$1.39
$1.15
$0.99
Net income, assuming dilution
0.61
1.52
1.37
     1.14
     0.99
Cash dividends
0.51
 0.46
0.42
0.35
0.33
Book value (year-end)
10.84
10.15
   9.78
8.88
7.81
Weighted average number of shares outstanding
5,059,616
4,938,547
4,912,062
4,880,365
4,874,041
Stock dividends and stock splits paid
5%
5%
50%
5%
25%
* Per share figures are based on weighted average shares outstanding for the respective years as restated after giving effect to stock dividends

Return to table of contents
** 

Drovers Bancshares Corporation and Subsidiaries

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA**
INVESTMENT PORTFOLIO

The following table sets forth the carrying amount of investment securities at the dates indicated:
**2000**1999**1998*(In thousands)**AFS**HTM**AFS**HTM**AFS
U.S. Treasury securities and obligations of U.S. government corporations and agencies
$13,497
$1,491
$16,035
$8,476
$7,119
Obligations of states and political subdivisions
19,982
14,567
22,190
16,926
7,760
Corporate obligations
18,109
-
16,250
-
4,666
Mortgage-backed securities and collateralized mortgage obligations
156,566
5,298
113,523
8,857
89,034
Total debt securities
208,154
21,356
167,998
34,259
108,579
Equity securities
24,093
-
23,583
-
18,781**Total investment securities**$232,247**$21,356**$191,581**$34,259**$127,360
The following table sets forth the contractual maturities of debt securities classified as available-for-sale at December 31, 2000:
* 

(In thousands)**ONE YEAR    OR  LESS**AFTER ONE TO FIVE YEARS**AFTER FIVE TO TEN YEARS**OVER TEN YEARS** 

TOTAL
U.S. Treasury securities and obligations of U.S. government corporations and agencies
$1,509
$3,997
$7,991
$-
$13,497
Obligations of states and political subdivisions
1,001
811
6,544
11,626
19,982
Corporate obligations
-
-
-
18,109
18,109**Total**$2,510**$4,808**$14,535**$29,735**$51,588
Mortgage-backed securities and collateralized mortgage obligations
$156,566
The following table depicts the average weighted yields of the available-for-sale investments by maturity at December 31, 2000:
* 

(In thousands)**ONE YEAR OR  LESS**AFTER ONE TO FIVE YEARS**AFTER FIVE TO TEN YEARS**OVER TEN YEARS** 

TOTAL
U.S. Treasury securities and obligations of U.S. government corporations and agencies
6.65%
6.60%
6.70%
-%
6.66%
Obligations of states and political subdivisions
12.69%
10.95%
7.96%
7.41%
8.00%
Corporate obligations
-%
-%
-%
8.92%
8.92%**Total**9.06%**7.33%**7.27%**8.33%**7.97%
Mortgage-backed securities and collateralized mortgage obligations
6.88%
The average yields are computed by dividing annual interest income, including the accretion of discounts and amortization of premiums, by the amortized cost of securities at December 31, 2000.  The yield on Municipal investments was restated on afully tax equivalent basis, using a federal tax rate of 34%.  Maturities for mortgage-backed securities and collateralized mortgage obligations are dependent upon the interest rate environment and prepayments on the underlying loans.  For the purposes ofthese tables, the entire balance and weighted average rate are shown in one period.

For additional information see Note 6 on pages 10-11 of the Drovers Bancshares Corporation 2000 Annual Report.
**Drovers Bancshares Corporation and Subsidiaries

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA**
LOAN DATA

Loans are comprised of the following:
**YEAR ENDED DECEMBER 31,*(In thousands)**2000**1999**1998**1997**1996
Domestic loans:
  Commercial, financial and industrial
$126,275
$120,041
$117,997
$80,636
$72,828
  Real estate:
    Construction
30,571
18,846
13,523
12,105
8,908
    Mortgage
323,700
290,480
227,127
188,259
167,196
  Consumer
27,031
30,018
31,289
32,428
34,159
  Leasing and other (net)
320
816
173
245
26
Total domestic loans
507,897
460,201
390,109
313,673
283,117
Foreign loans
-
-
-
-
-
 Total domestic and foreign loans
507,897
460,201
390,109
313,673
283,117
Reserve for loan losses
-5,371
-3,908
-3,912
-3,304
-3,130**Net loans**$502,526**$456,293**$386,197**$310,369**$279,987
For additional information see Note 7 on pages 12-13 of the Drovers Bancshares Corporation 2000 Annual Report.

MATURITIES AND RATE SENSITIVITY OF THE LOAN PORTFOLIO
*(Excluding consumer and residential real estate loans)*
The following table shows the amounts of loans outstanding as of December 31, 2000 which, based on remaining scheduled repayments of principal, are due in the periods indicated:
* 

(In thousands)**ONE YEAR OR  LESS**AFTER ONE TO FIVE YEARS**AFTER FIVE YEARS** 

TOTAL
Domestic loans:
  Commercial, financial and industrial
$5,126
$31,474
$89,675
$126,275
  Real estate construction
3,858
16,255
10,458
30,571
  Other
8,233
85,989
256,829
351,051
Foreign loans
0
0
0
0**Total**$17,217**$133,718**$356,962**$507,897
Rate sensitivity:
  Predetermined rate
$10,391
$92,237
$113,007
$215,635
  Floating or adjustable rate
6,826
41,481
243,955
292,262**Total**$17,217**$133,718**$356,962**$507,897
Drovers Bank has no set rollover policy.  Many of our loans are made on a short-term basis with full intention of renewal at time of maturity.  All loans, however, are reviewed on a continual basis for creditworthiness.  Should a loan becomequestionable or approach problem loan status, it then undergoes a formal review process by all appropriate levels of authority.  For additional information on the loan review process, see Note 1 on pages 7-8 and the Provision for Loan Losses on pages26-27 of the Drovers Corporation 2000 Annual Report.
**Drovers Bancshares Corporation and Subsidiaries

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA**
NONACCRUAL, RESTRUCTURED LOANS AND NONPERFORMING ASSETS

The following table shows loans on nonaccrual status or loans, which have been restructured for the past five years:
**PRINCIPAL AMOUNT AT YEAR END DECEMBER 31,*(In thousands)**2000**1999**1998**1997**1996
Domestic:
  Nonaccrual loans
$2,325
$5,336
$1,435
$740
$615
  90 days past due still accruing
8
33
7
33
0
  Restructured loans
0
1,283
1,203
0
1,139
Foreign:
  Nonaccrual loans
0
0
0
0
0
  90 days past due still accruing
0
0
0
0
0
  Restructured loans
0
0
0
0
0**Total**$2,333**$6,652**$2,645**$773**$1,754
Nonaccrual loans as a percentage of loans at December 31, 2000 and 1999 were 0.46% and 1.16%, respectively.  Nonaccrual loans as of December 31, 1999 included a significant corporate relationship secured by trade receivables.  During the secondquarter of 2000, continued deterioration in the underlying collateral caused us to charge-off the balance of the relationship that was not secured by real estate and under contract for sale.  Interest on restructured loans in compliance with modifiedterms is recognized under the accrual method of accounting.  Drovers held $1,327,000 of impaired loans at December 31, 2000.  The recorded allowance for impaired loans was $304,000. 

The following table presents the changes in the balance of other real estate over the past five years:
*(In thousands)**2000**1999**1998**1997**1996**Balance at beginning of year**$85**$148**$154**$803**$195
Assets acquired by foreclosure or repossession
377
318
277
   211
   822
Dispositions
-333
-368
-252
  -827
  -203
Other (net)
-25
-13
-31
   -33
   -11**Balance at end of year**$104**$85**$148**$154**$803
Other real estate consists of assets, which have been repossessed or acquired through workout situations on defaulted loans.

For additional information, see Note 1 on pages 7-8, Note 7 on pages 12-13 and the Provision for Loan Losses on pages 26-27 of the Drovers Bancshares Corporation 2000 Annual Report.
**Drovers Bancshares Corporation and Subsidiaries

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA**
ANALYSIS OF RESERVE FOR LOAN LOSSES
**YEARS ENDED DECEMBER 31,*(In thousands)**2000**1999**1998**1997**1996**Balance, January 1,**$3,908**$3,912 **$3,304 **$3,130 **$2,937
Provision for loan losses
6,379
  1,727
  1,266 
    386 
    645
Charge-offs:
  Commercial, financial and industrial
4,256
  1,536
    522 
-
     25
  Real estate construction
-
- 
-
-
-
  Real estate mortgage
589
14 
-
-
    215
  Consumer
177
311
    235 
    327 
    369
Total charge-offs
5,022
1,861
757
327
609
Recoveries:
  Commercial, financial and industrial
15
     48
-
     32 
      6
  Real estate construction
-
-
-
-
-
  Real estate mortgage
16
-
-
     15 
     36
  Consumer
75
     82 
     99 
     68 
    115
Total recoveries
106
130
99
115
157
Net charge-offs
4,916
  1,731
658
212
452**Balance, December 31,**$5,371**$3,908**$3,912**$3,304**$3,130**Ratio of net charge-offs to average loans outstanding**1.01%**0.41%**0.19%**0.07%**0.17%
We manage the risk characteristics of our loan portfolio through various control processes.  Risk is further controlled through the application of lending procedures such as the holding of adequate collateral, contractual guarantees, and compensatingbalances.

We also consider the amount of recent and expected charge-offs, the loan portfolio mix and changes in the economy when determining the provision for loan losses.  We believe these procedures provide adequate assurance against losses and the level ofthe Reserve for Loan Losses is sufficient to meet any present or potential risks.

For additional information, see Note 1 on pages 7-8, Note 7 on pages 12-13 and the Provision for Loan Losses on pages 26-27 of the Drovers Bancshares Corporation 2000 Annual Report.
**Drovers Bancshares Corporation and Subsidiaries

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA**
ALLOCATION OF RESERVE FOR LOAN LOSSES

The following table presents the amount of the reserve allocated to each of the loan categories and the percentage of total loans for the past five years:
**YEARS ENDED DECEMBER 31,**2000**1999**1998**Percent**Percent**Percent**Of Loans**Of Loans**of Loans**Reserve**To Total**Reserve**To Total**Reserve**to Total*(In thousands)**Amount**Loans**Amount**Loans**Amount**Loans
Commercial, financial and industrial
$3,090
24.9%
$2,248
   26.1%
$2,644
   30.2%
Real Estate:
  Construction
62
6.0%
    24
    4.1%
    19
    3.5%
  Mortgage
961
63.7%
   584
   63.1%
   382
   58.3%
Consumer
363
5.3%
   154
    6.5%
   128
    8.0%
Leasing and other
-
0.1%
     -
    0.2%
     -
    -%
Unallocated
895
N/A
   898
N/A
   739
N/A**Total**$5,371**100.0%**$3,908**100.0%**$3,912**100.0%**YEARS ENDED DECEMBER 31,**1997**1996**Percent**Percent**Of Loans**of Loans**Reserve**To Total**Reserve**to Total*(In thousands)**Amount**Loans**Amount**Loans
Commercial, financial and industrial
$  977 
   25.7%
$657
   25.7%
Real Estate:
  Construction
    44 
    3.9%
    46
    3.1%
  Mortgage
   338 
   60.0%
   321
   59.1%
Consumer
   131 
   10.3%
   123
   12.1%
Leasing and other
     - 
    0.1%
     -
    -%
Unallocated
 1,814 
    N/A 
 1,983
    N/A**Total**$3,304**100.0%**$3,130**100.0%
For additional information, see Note 1 on pages 7-8, Note 7 on pages 12-13 and the Provision for Loan Losses on pages 26-27 of the Drovers Bancshares Corporation 2000 Annual Report.
**Drovers Bancshares Corporation and Subsidiaries

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA**
DEPOSIT STRUCTURE

Maturities of time deposits of $100,000 or more outstanding at December 31, are summarized as follows:
*(In thousands)**2000**1999**1998
Three months or less
$5,097
$5,870
$5,983
Over three months to six months
4,167
6,101
4,423
Over six months to twelve months
10,217
8,985
9,175
Over twelve months
15,958
11,128
7,456**Total**$35,439**$32,084**$27,037
SHORT-TERM BORROWINGS

Short-term borrowings are borrowed funds generally with an original maturity of one year or less.  Securities sold under repurchase agreements and federal funds purchased mature in one day.  Other short-term borrowings have a maturity of greaterthan one day.
*(In thousands)**2000**1999**1998**Federal funds purchased and securities sold under repurchase agreements
     Balance at year-end
$38,263
$25,238
$23,325
     Average amount outstanding
$45,838
$30,837
$23,820
     Maximum amount outstanding at any month-end
$53,718
$58,413
$36,831
     Average interest rate for the year
5.95%
5.18%
5.17%
     Average interest rate on year-end balance
6.06%
5.18%
4.63%**Other short-term borrowings   
     Balance at year-end
$15,000
$30,000
$-
     Average amount outstanding
$6,079
$82
$4,597
     Maximum amount outstanding at any month-end
$15,000
$30,000
$13,000
     Average interest rate for the year
6.32%
4.59%
5.65%
     Average interest rate on year-end balance
6.45%
4.53%
-%
 

 
**Drovers Bancshares Corporation and Subsidiaries

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA**
INTEREST DIFFERENTIAL
**December 31,**2000**1999*(In thousands)**VOLUME**RATE**TOTAL**VOLUME**RATE**TOTAL**INTEREST INCOME
Increase (decrease) in:
Money market investments and

  Interest-bearing deposits with banks
$251
$2
$253
$-11
$-1
$-12
Federal funds sold
0
0
0
0
0
0
Total money market investments
251
2
253
   -11
    -1
   -12
Investment securities:
    Taxable investment securities
1,758
640
2,398
   657
   -13
   644
    Equity securities
259
61
320
   185
    17
   202
    Tax-exempt investment securities
57
-20
37
   286
   -49
   237
Total investment securities
2,074
681
2,755
   1,128
   -45
 1,083
Total loans
5,663
1,430
7,093
 5,459
  -959
 4,500
Total interest income
7,988
2,113
10,101
 6,576
  -1,005
 5,571**INTEREST EXPENSE
Increase (decrease) in:
Interest-bearing deposits:
    Demand
-3
16
13
    64
   -92
   -28
    Savings
572
1,179
1,751
   447
  -215
   232
    Time
2,118
1,404
3,522
 1,481
  -766
   715
Total interest-bearing deposits
2,687
2,599
5,286
 1,992
-1,073
   919
Borrowed funds:
    Short-term borrowings
1,257
254
1,511
   132
   -23
   109
    Long-term borrowings
1,354
407
1,761
 1,419
   -97
 1,322
Total borrowed funds
2,611
661
3,272
 1,551
  -120
 1,431
Corporation-obligated mandatory
  Redeemable capital securities of subsidiary trust
492
2
494
   200
0
200
Total interest expense
5,790
3,262
9,052
 3,743
-1,193
 2,550**Increase in interest differential**$2,198**$-1,149**$1,049**$2,833**$188**$3,021
The change in interest due to both rate and volume has been allocated to volume and rate changes in proportion to the relationship of the absolute dollar amounts of the change in cash.

For additional information see Note 1 on pages 7-8 and Average Balances and Yields on page 33 of the Drovers Bancshares Corporation 2000 Annual Report.

Return to table of contents
**Drovers Bancshares Corporation and Subsidiaries

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT**
The directors and principal executive officers of Drovers and its principal subsidiary, Drovers Bank, as of January 1, 2001, are as follows:

DIRECTORS

Name: J. Samuel Gregory, age: 70

Director since 1978 with current term expiring in 2004.  Mr. Gregory is chairman and CEO, AAA Southern Pennsylvania (insurance, travel and member services)

Name: Daniel E. Hess, age: 69

Director since 1982 with current term expiring in 2004.  Mr. Hess is President, Hess Management, Inc. (management consultant)

Name: George W. Hodges, age: 50

Director since 1994 with current term expiring in 2003.  Mr. Hodges is President, The Wolf Organization, Inc. (distributors of lumber and building supplies)

Name: Herbert D. Lavetan, age: 71

Director since 1979 with current term expiring in 2004.  Mr. Lavetan is retired.  He was formerly Director of Lavetan & Associates, Inc. (postal, business and communications services) until January 1999.

Name: Richard M. Linder, age: 70

Director since 1976 with current term expiring in 2001.  Mr. Linder is retired.  He was formerly Chairman of Drovers and Drovers Bank until March 1996.

Name: David C. McIntosh, age: 72

Director since 1985 with current term expiring in 2003.  Mr. McIntosh is retired.  He was formerly President, MCD Technologies, Inc. until February 1999.

Name: Frank Motter, age: 73

Director since 1975 with current term expiring in 2001.  Mr. Motter is Chairman of the Board and President, Motter Printing Press Co. (web-fed printing equipment).  Mr. Motter is a Director of York Water Company, a company with a class of securitiesregistered pursuant to Section 12 of the Securities Exchange Act of 1934.

Name: Robert L. Myers, Jr., age: 72

Director since 1968 with current term expiring in 2001.  Mr. Myers is President, John H. Myers & Son, Inc. (lumber and building supplies).

Name: A. Richard Pugh, age: 60

Director since 1990 with current term expiring in 2001.  Mr. Pugh is Chairman of the Board, President and Chief Executive Officer of Drovers and Drovers Bank; formerly President and Chief Executive Officer of Drovers and Drovers Bank until March 1996.

Name: Harlowe R. Prindle, age: 58

Director since 1982 with current term expiring in 2002.  Mr. Prindle is President, York Auto Parts Co.; Chairman & CEO, Shenk & Tittle Management Co. (sporting goods).

Name: Basil A. Shorb, III, age: 55

Director since 1993 with current term expiring in 2002.  Mr. Shorb is President, REH Holdings, Inc. (holding company providing management services to five wholly-owned subsidiaries engaged in steel fabrication, highway sign manufacturing and specialtyconstruction).
** 

Drovers Bancshares Corporation and Subsidiaries

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT, continued**
DIRECTORS, continued

Name: Gary A. Stewart, age: 53

Director since 1996 with current term expiring in 2003.  Mr. Stewart is a Partner - Stewart Associates. Formerly Chairman & CEO, Stewart & March, Inc. until January 1999 (general contractors).

Name: Robert H. Stewart, age: 61

Director since 1987 with current term expiring in 2004.  Mr. Stewart is President, York Building Products Co., Inc. (concrete masonry units, crushed stone-bituminous concrete).

Name: Delaine A. Toerper, age: 57

Director since 1995 with current term expiring in 2002.  Ms. Toerper is self-employed (consulting services) since August 1996.  She retired from her position as Executive Vice President and Chief Operating Officer of Tighe Industries, Inc.(manufacturers, designers and marketers of dance costumes, dance apparel and gymnastic apparel).

Name: James S. Wisotzkey, age: 47

Director since 1997 with current term expiring in 2002.  Mr. Wisotzkey is President and Chief Operating Officer of The Maple Press Company (printer/book manufacturer).

 

EXECUTIVE OFFICERS

Name:  A. Richard Pugh, age: 60

Position and Office: Chairman of the Board, President, and Chief Executive Officer of Drovers and Drovers Bank.  Mr. Pugh joined the organization in 1988, he was appointed President in 1990 and C.E.O. in 1994.  He has extensive and diversifiedexperience in bank management.

Name:  Michael J. Groft, age: 45

Position and Office: Executive Vice President of Drovers and Executive Vice President and Senior Lending Officer of Drovers Bank.  Mr. Groft joined the organization in March 1978.  He has served in various executive management positions since 1988.

Name:  Debra A. Goodling, age: 42

Position and Office: Executive Vice President and Treasurer of Drovers and Executive Vice President, Treasurer and Chief Financial Officer of Drovers Bank.  Ms. Goodling joined the organization in February 1977.  She has served in various executivemanagement positions since 1989.

Name:  Michael E. Kochenour, age: 48

Position and Office: Executive Vice President of Drovers and Executive Vice President and Senior Investment Services and Trust Officer of Drovers Bank.  Mr. Kochenour joined the organization in August 1999 as Senior Vice President and Senior TrustOfficer.  Prior to joining the organization, Mr. Kochenour served in numerous management and senior leadership roles in the Banking industry for over 28 years.
** 

Drovers Bancshares Corporation and Subsidiaries

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT, continued**
EXECUTIVE OFFICERS, continued

Name:  Shawn A. Stine, age: 45

Position and Office: Executive Vice President of Drovers and Executive Vice President and Senior Corporate Banking Officer of Drovers Bank.  Mr. Stine joined the organization in August 1991 in the position of Vice President and Senior CorporateBanking Officer.

Name:  John D. Blecher, age: 39

Position and Office: Senior Vice President, Secretary and Assistant Treasurer of Drovers and Senior Vice President, Secretary and Controller of Drovers Bank.  Mr. Blecher joined the organization in February 1987.  He has served as Controller since 1989.

Name:  Matthew A. Clemens, age: 36

Position and Office: Senior Vice President and Director of Human Resources of Drovers Bank.  Mr. Clemens joined the organization in January 1989.  He has served in various human resources position since 1989.

BENEFICIAL OWNERSHIP OF REPORTING COMPLIANCE

Section 16(a) of the Securities Exchange Act of 1934 requires Drovers officers and directors and persons who own more than ten percent of a registered class of Drovers securities to file reports of ownership and changes in ownership with the SEC.Officers, directors and 10% shareholders are required by SEC regulation to furnish Drovers with copies of all Section 16(a) forms filed.

Based solely on our review of the copies of such forms furnished to Drovers, we believe that during 2000 our directors and officers complied with all applicable Section 16(a) requirements, with the exception of  Mr. A. Richard Pugh, who exercisedstock options in June, 2000 that was erroneously not reported until October, 2000. 

Return to table of contents
**Drovers Bancshares Corporation and Subsidiaries

ITEM 11.  EXECUTIVE COMPENSATION**
SUMMARY COMPENSATION TABLE

The following table shows information on the annual compensation during the last three fiscal years paid to A. Richard Pugh, Chairman, President and Chief Executive Officer, and other executive officers who received a total annual salary and bonusof $100,000 or more in 2000:
**Annual Compensation**Long-Term Compensation** 

Name and Principal Position** 

Fiscal Year** 

Salary ($)** 

Bonus ($)**Other Annual Compen-sation ($) 1**Securities Underlying Options/ SARs (#) 2**All Other Compen-sation ($) 3
A. Richard Pugh, Chairman President and CEO
2000
245,000
-
-
16,431
5,100
1999
235,000
135,711
-
10,859
4,800
1998
225,000
91,855
-
6,274
2,375
Debra A. Goodling, Executive Vice President
2000
122,000
-
-
5,785
4,780
1999
117,000
47,782
-
5,430
4,753
1998
112,000
45,928
-
3,137
4,203
Michael J. Groft, Executive Vice President
2000
122,000
-
-
5,601
3,987
1999
117,000
46,258
-
5,430
3,350
1998
112,000
45,928
-
3,137
1,475
Shawn A. Stine, Executive Vice President
2000
104,000
-
-
3,749
4,048
1999
100,000
30,963
-
3,471
3,485
1998
92,000
30,081
-
2,041
3,326
Michael E. Kochenour, Executive Vice President 4
2000
104,000
-
-
1,042
720
1999
-
-
-
-
-
1998
-
-
-
-
-
1 - Excludes perquisites and other personal benefits which were less than $50,000 or 10% of total annual salary.

2 - Includes effect of 5% stock dividends issued in 2000 and 1999 and a three-for-two stock split issued in 1998.

3 - Amounts shown represent contributions by Drovers to the Salary Deferral Plan.

4 - No disclosure is made for 1999 or 1998 because total salary plus bonus was less than $100,000.

 
**Drovers Bancshares Corporation and Subsidiaries

ITEM 11.  EXECUTIVE COMPENSATION, continued**
OPTION/SAR GRANTS TABLE

Shown below is information with respect to options granted in 2000 pursuant to Drovers 1995 Stock Option Plan for the named executive officers:
** 

 

Name**Number of Securities Underlying Options/ SARs Granted**Percent of Total Options/SARs Granted to Employees in Fiscal Year** 

Exercise or Base price ($/Share) 1** 

 

Expiration Date**Grant Date Present Value ($)2
A.Richard Pugh, Chairman, President and CEO
16,431**31%
$17.02
2/11/2010
$73,085
Debra A. Goodling, Executive Vice President
5,785
11%
$17.02
2/11/2010
$25,732
Michael J. Groft, Executive Vice President
5,601
10%
$17.02
2/11/2010
$24,913
Shawn A. Stine, Executive Vice President
3,749
7%
$17.02
2/11/2010
$16,676
Michael E. Kochenour, Executive Vice President
1,042
2%
$17.02
2/11/2010
$4,635
1- Includes effect of a 5% stock dividend issued in 2000.

2 - Drovers uses the Black-Scholes Option Pricing Model to determine the grant date value.  The grant date value of options granted in 2000 was $4.45 per option, adjusted for the 5% stock dividend issued in 2000.  The following assumptions were used:risk free interest rate of 6.7%; expected life of 7.0 years; expected volatility of 20.6%; expected dividends of 2.9%.

AGGREGATED OPTION/SAR EXERCISED IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION/SAR VALUE TABLE

Shown below is information concerning the exercise of options during 2000 and unexercised options held as of the end of 2000 by the named executive officers: 
** 

 

Name** 

Shares Acquired on Exercise (#)** 

Value Realized ($)**Number of Securities Underlying Unexercised Options/SARs at Fiscal Year-end (#) Exercisable/ Unexercisable1**Value of Unexercised in-the-money Options/SARs at Fiscal Year-End ($) Exercisable/ Unexercisable
A.Richard Pugh, Chairman, President and CEO
12,347
$180,066
59,103/8,216
$706,514/$83,516
Debra A. Goodling, Executive Vice President
-
$-
27,238/2,893
$325,549/$29,407
Michael J. Groft, Executive Vice President
1,161
$19,813
25,986/2,800
$304,810/$28,462
Shawn A. Stine, Executive Vice President
-
$-
15,657/1,875
$176,732/$19,059
Michael E. Kochenour, Executive Vice President
-
$-
521/521
$5,297/$5,297
1 - Includes effect of all stock dividends and stock splits paid since options were granted.

 
**Drovers Bancshares Corporation and Subsidiaries

ITEM 11.  EXECUTIVE COMPENSATION, continued**
DEFINED BENEFIT OR ACTUARIAL PLAN DISCLOSURE
*Pension Plan*
Drovers maintains a qualified pension plan covering all full-time employees who are at least 21 years of age and who have completed one year of service.  Participants become fully vested in the plan after 5 years of service.  Each participant inthe plan is entitled to a monthly benefit commencing at the participant's normal retirement date, assuming the participant has attained at least age 65 and has completed five years of participation, and continuing for life, with payments guaranteed forthe first 120 months.  Benefit amounts for a fully-vested participant equal 33% of the participant's average monthly pay if the participant has 15 or more years of service, plus 0.58% of average monthly pay in excess of the Social Security integrationlevel as outlined in Table I Covered Compensation multiplied by years of service at normal retirement up to a maximum of 25 years.  Average monthly pay is based upon the five plan years preceding the normal retirement date.  Our contributions to thepension plan are determined on an actuarial basis.

Following are estimated annual benefits payable upon retirement to persons in specified salary and service classifications, assuming retirement at age 65 during 2001.  For this purpose, the Social Security integration level assumed is $37,212.
**FINAL AVERAGE COMPENSATION**ANNUAL RETIREMENT BENEFIT FOR YEARS OF SERVICE INDICATED 
15 Years
25 Years
35 Years
$75,000
$28,083
$30,229
$30,229
$100,000
$38,463
$42,104
$42,104
$125,000
$48,888
$53,979
$53,979
$150,000
$59,313
$65,854
$65,854
$175,000
$67,653
$75,354
$75,354
$200,000
$67,653
$75,354
$75,354
$225,000
$63,653
$75,354
$75,354**The Omnibus Budget Reconciliation Act of 1993 (OBRA -93) has placed the limit on compensation which may be taken into account under a defined benefit plan reducing it from $235,840 in 1993 to $150,000 beginning in 1994. The new limit increaseswith inflation, only when inflation permits a full $10,000 increase.  As of 2001, this limit increased to $170,000.  Only accruals after 1993 will be affected by the compensation limit.

As of December 31, 2000, A. Richard Pugh, Debra A. Goodling, Michael J. Groft, Shawn A. Stine and Michael E. Kochenour were credited with 19 years, 24 years, 23 years, 9 years and 1 year of service, respectively.
*Salary Continuation Agreements and Executive Bonus Agreements*
Drovers signed Salary Continuation Agreements with Messrs. Pugh, Groft, Stine and Kochenour and Ms. Goodling during 2000.  Pursuant to the Agreements, Messrs. Pugh, Groft, Stine and Kochenour and Ms. Goodling will be entitled to receive paymentson a monthly basis that total a specified annual amount for each of the respective Executives.  The payments will commence following Executive's Termination of Employment on or after the Normal Retirement Age, unless other provisions outlined in theAgreements are met.  The payments will continue for a total of 180 months.  The Agreements were filed as exhibits 10(a) and 10(h) to the Drovers Bancshares Corporation Form 10-Q for the period ended June 30, 2000.  

Messrs. Pugh, Groft, Stine and Kochenour and Ms. Goodling also have Executive Bonus Agreements with Drovers, which were signed during 2000. Pursuant to the Agreements, Messrs. Pugh, Groft, Stine and Kochenour and Ms. Goodling will be entitled toreceive a bonus to cover taxes on split dollar insurance benefits under the Group Term Replacement Plan.  The Bonus shall be paid annually commencing at age 65. The Agreements were filed as exhibits 10(g) and 10(i) to the Drovers Bancshares CorporationForm 10-Q for the period ended June 30, 2000.  
**Drovers Bancshares Corporation and Subsidiaries

ITEM 11.  EXECUTIVE COMPENSATION, continued**
DEFINED BENEFIT OR ACTUARIAL PLAN DISCLOSURE, continued
*Change in Control Agreements*
Messrs. Pugh, Groft, Stine and Kochenour and Ms. Goodling each have an Agreement with Drovers which provides certain benefits in the event of a change in control of Drovers.

A " change in control" is defined as:

	the acquisition of 25% or more of the outstanding voting securities by any entity, person or group,

	a merger or consolidation if, as a result of the transaction, less than 75% of the voting securities of the surviving corporation are owned by the former shareholders, other than affiliates of any party to the merger or consolidation,

	a sale of substantially all of our assets, or

	a change in a majority of our directors during any two-year period.

Mr. Pugh's Agreement provides for:

	continued full compensation for three years (subject to reduction by one-half of the amount of any base annual salary from any new employment),

	continuation of benefits under the Supplemental Retirement Plan described under Pension Plan,

	an acceleration of the right to exercise his current options under our stock option plans and

	retention of Mr. Pugh as an independent consultant for six months following a change in control termination.

The Agreements with Messrs. Groft, Stine and Kochenour and Ms. Goodling provide for:

	the continued payment of their full compensation for 18 months (subject to reduction by one-half of the amount of any Form W-2 income from any new employment) and 

	continuation of benefits for up to 18 months and an acceleration of the right to exercise current options held by the respective executive officer under our stock option plans

COMPENSATION OF DIRECTORS

Each director received $2,000 per quarter for a total retainer of $8,000 during 2000.  A director who is an officer or employee of Drovers is not compensated for service as a director.  Beginning July 1, 1999, non-employee directors could elect toreceive stock options in lieu of quarterly director fees.
****
BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION

The Personnel Committee reviews the executive compensation program annually and makes recommendations to the Board.  

Drovers executive compensation program has three main components:
*Base Salary*
Base salaries for executive officers are determined annually by evaluating**:- the responsibilities of the position
- the experience of the individual
- Drovers financial results  
- the competitive marketplace

The base salary increases in 2000 averaged approximately 4.0% over 1999. The Personnel Committee considers the following three factors in arriving at the average annual increase of base salaries:
- a survey conducted of certain South Central Pennsylvania banks to determine the average increase in base salaries they expect for the upcoming year
- an average annual increase of base salaries expected by banks of similar asset size on a regional level provided by our employee benefit consultant, and
- the amount of increase feasible in terms of our budget.

 
*** *
Drovers Bancshares Corporation and Subsidiaries

ITEM 11.  EXECUTIVE COMPENSATION, continued**
BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION, continued
*Base Salary, continued*
In general, specific individual performance is weighted more heavily than corporate performance to determine base salaries of senior management.  However, as responsibility increases, more emphasis is placed on corporate performance in setting anindividual's base salary.  Corporate performance is measured using:
- achievement of various budget goals, 
- growth of the institution and
- peer group comparisons.
*Annual Incentive Bonus*
The annual incentive bonus program was designed to support and promote the pursuit of our organizational objectives and financial goals as defined in our strategic and financial plans.  The program provides for the payment of an annual cash andstock option bonus to executive and certain key officers.  The program is based on Drovers return on equity.  Bonuses are paid only to executive officers if the targeted return on equity is achieved.  The following additional factors are considered:
- most recent CAMELS rating,
- most recent CRA rating and
- Drovers leverage ratio.

Assuming the target threshold is achieved, the bonus paid is determined by a percentage of net income and is allocated to each participant based upon a formula which considers level of responsibility and industry practices.  The formula provides that65% of the bonus is paid in cash and 35% is deferred and paid in the form of stock options.  
*Stock Options*
We provide stock options under Drovers Incentive Stock Option Plan to executives in positions with significant responsibilities and impact on long-term performance.  The Personnel Committee believes that stock option grants are an effective way toalign the interests of our executives with our shareholders by making a portion of an optionee's compensation dependent upon the long-term performance of our stock.  Options are granted to officers with the title vice president and above.   In determiningthe number of options granted in 2000, the Personnel Committee considered information available to it regarding options granted by other public companies, and in particular, banking institutions.  The Personnel Committee has followed a policy to date ofproviding that only 50% of options granted are exercisable immediately.  They use both objective and subjective methods of determining the amount of shares subject to future grants.  They may consider such factors as:
- the potential realizable value of particular options based on an assumed rate of appreciation in the price of Drovers stock,
- a desired level of ownership in Drovers based on assumed rate of appreciation in the price of Drovers stock, 
- a desired level of ownership in Drovers based on position,
- formula grants and
- individual performance.

Stock option grants made to executive officers during fiscal year 2000 are included in the Option Grant Table.
*Chief Executive Officer Compensation**			**
Drovers and our Chief Executive Officer, A. Richard Pugh, have not entered into an employment agreement.  Thus, the factors involved in establishing a compensation package for Mr. Pugh are similar to those noted above for all executives.However, the value of Mr. Pugh's compensation is more closely tied to corporate performance and the long-term performance of our stock.  Specifically, Mr. Pugh's compensation for 2000 was determined as follows:
Base Salary
: In 2000, the Personnel Committee emphasized our achievement of our corporate performance goals and the responsibilities of Mr. Pugh as Chairman of the Board and Chief Executive Officer.  Mr. Pugh's year-end base salary for 2000was $245,000 which reflects an approximate 4.2% increase in year-end base salary over 1999.
*Annual Incentive Bonus:
The Personnel Committee calculates Mr. Pugh's annual incentive bonus in accordance with the formula set forth above.  Thus, Mr. Pugh receives such compensation only if our return on equity and other criteria asset forth above are met.  Mr. Pugh's annual incentive bonus earned in 2000 was $0.
****Drovers Bancshares Corporation and Subsidiaries

ITEM 11.  EXECUTIVE COMPENSATION, continued**
BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION, continued
*Chief Executive Officer Compensation, continued
- Stock Options : Stock options are an important portion of Mr. Pugh's overall compensation package, particularly given the policy-making function of such position.  The Personnel Committee believes linking a portion of Mr. Pugh's compensation tothe long-term performance of our stock encourages him to pursue policies which enhance long-term shareholder value.  Mr. Pugh received stock options to purchase 16,431 shares in 2000, 10,859 shares in 1999, and 6,274 shares in 1998.  The stock optionsgranted represented 31% in 2000, 26% of all stock options granted in 1999, and 24% in 1998.

	

Personnel Committee:

George W. Hodges, Chairman

L. Doyle Ankrum, retired November 15, 2000

Frank Motter

Robert L. Myers, Jr.

Harlowe R. Prindle

A. Richard Pugh

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICPATION

Mr. Pugh is a member of the Personnel Committee, but is not present when they evaluate his performance, which is reported to the full Board.  With regard to other executive officers, the Personnel Committee considers Mr. Pugh's recommendations onother executive officers before making final recommendations to the full Board.

PERFORMANCE TABLE

The following table shows a five-year comparison of the cumulative total shareholder return on Drovers' common stock compared to the cumulative total return on the S&P 500 Stock Index and the Nasdaq Bank Index.  The table shows the five yearsending December 31, 2000.  Drovers joined Nasdaq in June, 1998.  The shareholder return shown on the table below is not necessarily indicative of future performance:
******1995**1996**1997**1998**1999**2000
Drovers Bancshares Corp  
100.00
116.36
209.58
217.99
196.79
282.58
Nasdaq Bank Index
100.00
129.34
215.28
193.17
182.03
214.13
S&P 500 Index
100.00
122.90
163.85
210.58
254.83
231.62
Return to table of contents
**Drovers Bancshares Corporation and Subsidiaries

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT**
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS

Mr. Gary A. Stewart, Mr. Robert H. Stewart, Jr. and other members of the Stewart family have filed, as a group, a Schedule 13D with the Securities and Exchange Commission.  The Schedule 13D disclosed that, while no member of such groupbeneficially owns or has power to vote more than 5% of Drovers shares, as a group such persons may be deemed to beneficially own 808,6011,12 shares of common stock, or approximately 15.14%, of Drovers issued and outstanding shares.  Besides the Stewart family, we are not aware of any other person or group who beneficially owns more than five percent (5%) of Drovers outstandingcommon stock.

In connection with the Agreement and Plan of Merger by and between Drovers and Fulton Financial Corporation, Drovers and Fulton Financial entered into a Warrant Agreement dated as of December 27, 2000.  Pursuant to the Warrant Agreement, Drovers hasgranted Fulton Financial a Warrant to purchase up to 1,250,000 shares of Drovers common stock, which represented 19.8% of the shares of Drovers common stock outstanding on December 27,2000, giving effect to the issuance of the shares pursuant to anexercise of the Warrant.   Generally, the Warrant may only be exercised under certain circumstances where another party attempts to acquire control of Drovers,

as specifically set forth in the Warrant Agreement.  As of February 28, 2001, the Warrant had not become exercisable and, in its Schedule 13D, filed with the Securities and Exchange Commission on January 4, 2001,

Fulton Financial has disclaimed beneficial ownership of the shares of common stock subject to the Warrant.
**Drovers Bancshares Corporation and Subsidiaries

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT, continued**
 SECURITY OWNERSHIP OF MANAGEMENT

The following table sets forth the amount and percentage of Drovers common stock beneficially owned each director, each named executive officer, and all directors and executive officers as a group:
** 

Name **Common Shares Beneficially Owned 2**Percent of Total Shares Outstanding*Directors:  
J. Samuel Gregory 14
12,225
*
Daniel E. Hess 15
16,282
*
George W. Hodges 13
8,049
*
Herbert D. Lavetan 16
132,202
2.47%
Richard M. Linder 3
17,099 
*
David C. McIntosh 11
6,162 
*
Frank Motter 4
54,360
1.02%
Robert L. Myers, Jr. 5
41,629 
*
A. Richard Pugh 6
86,439 
1.62%
Harlowe R. Prindle 7
31,781
*
Basil A. Shorb, III 8
110,356 
2.07%
Gary A. Stewart 12
 196,405 
3.68%
Robert H. Stewart, Jr. 12
148,642 
2.78%
Delaine A. Toerper 9
4,189
*
James S. Wisotzkey 10
7,673 
**Named Executive Officers:
Debra A. Goodling 17
31,659
*
Michael J. Groft 18
30,448
*
Shawn A. Stine 19
18,259
*
Michael E. Kochenour 20
1,177
*
All Directors and Executive Officers as a Group (21 persons) 
968,841
18.14%
*-    Less than 1%
- Beneficial ownership is as of February 28, 2001.
- Except as otherwise noted, the persons listed possess sole voting and investment power or share voting and investment power with their spouses.
- Includes 426 shares owned by his wife and 2,202 shares Mr. Linder has the right to acquire upon exercise of stock options granted pursuant to Drovers 1999 Non-Employee Director Stock Option Plan.
- Includes 2,202 shares Mr. Motter has the right to acquire upon exercise of stock options granted pursuant to Drovers 1999 Non-Employee Director Stock Option Plan. 
- Includes 6,171 shares owned by his wife, 18,991 shares held by the Elsbeth M. Myers Trust, of which he is a trustee sharing investment and voting authority and 2,202 shares Mr. Myers has the right to acquire upon exercise of stock options grantedpursuant to Drovers 1999 Non-Employee Director Stock Option Plan.
- Includes 212 shares owned by his children for which he is custodian and 67,319 shares Mr. Pugh has the right to acquire upon exercise of stock options granted pursuant to Drovers 1985 Incentive Stock Option Plan and 1995 Stock Option Plan.
- Includes 4,678 shares Mr. Prindle has the right to acquire upon exercise of stock options granted pursuant to Drovers 1999 Non-Employee Director Stock Option Plan.
- Includes 34,778 shares owned by his wife, 21,189 shares owned by his children, 13,236 shares held by Triple M Associates of which his wife is a partner sharing voting and investment authority, 30,521 shares held by the R.E. Hirschman/Shorb Trust ofwhich he is a trustee sharing investment and voting authority and 4,678 shares Mr. Shorb has the right to acquire upon exercise of stock options granted pursuant to Drovers 1999 Non-Employee Director Stock Option Plan.
- Includes 2,202 shares Ms. Toerper has the right to acquire upon exercise of stock options granted pursuant to Drovers 1999 Non-Employee Director Stock Option Plan.

Drovers Bancshares Corporation and Subsidiaries

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT, continued

SECURITY OWNERSHIP OF MANAGEMENT, continued
Includes 210 shares owned by his children and 4,678 shares Mr. Wisotzkey has the right to acquire upon exercise of stock options granted pursuant to Drovers 1999 Non-Employee Director Stock Option Plan.
Includes 178 shares owned by his wife and 2,202 shares Mr. McIntosh has the right to acquire upon exercise of stock options granted pursuant to Drovers 1999 Non-Employee Director Stock Option Plan.
See Security Ownership of Certain Beneficial Owners above.  Includes 2,202 shares Mr. Robert Stewart has the right to acquire and 4,678 shares Mr. Gary Stewart has the right to acquire upon exercise of stock options granted pursuant to Drovers 1999Non-Employee Director Stock Option Plan.
Includes 4,030 shares owned by his wife and 3,440 shares Mr. Hodges has the right to acquire upon exercise of stock options granted pursuant to Drovers 1999 Non-Employee Director Stock Option Plan.
Includes 2,202 shares Mr. Gregory has the right to acquire upon exercise of stock options granted pursuant to Drovers 1999 Non-Employee Director Stock Option Plan.
Includes 2,202 shares Mr. Hess has the right to acquire upon exercise of stock options granted pursuant to Drovers 1999 Non-Employee Director Stock Option Plan.
Includes 2,202 shares Mr. Lavetan has the right to acquire upon exercise of stock options granted pursuant to Drovers 1999 Non-Employee Director Stock Option Plan.
Includes 481 shares Ms. Goodling  holds as Custodian for her children and 28,970 shares Ms. Goodling has the right to acquire upon exercise of stock options granted pursuant to Drovers 1985 Incentive Stock Option Plan and 1995 Stock Option Plan.
Includes 2 shares Mr. Groft holds as Custodian for his children and 28,786 shares Mr. Groft has the right to acquire upon exercise of stock options granted pursuant to Drovers 1985 Incentive Stock Option Plan and 1995 Stock Option Plan.
Includes 210 shares Mr. Stine holds as Custodian for his children and 15,208 shares Mr. Stine has the right to acquire upon exercise of stock options granted pursuant to Drovers 1985 Incentive Stock Option Plan and 1995 Stock Option Plan.
Includes 1,042 shares Mr. Kochenour has the right to acquire upon exercise of stock options granted pursuant to Drovers 1995 Stock Option Plan.

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**Drovers Bancshares Corporation and Subsidiaries

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS**
Some of our directors and executive officers, members of their immediate families and some of their companies had ordinary banking transactions with Drovers Bank during 2000.  We expect additional transactions in the future.  All transactions weremade on substantially the same terms, including interest rates, collateral requirements and repayment terms, as we offered to all of our customers at the time for comparable transactions.  These transactions did not involve more than the normal risk ofcollectability or present other unfavorable terms.
** 

Drovers Bancshares Corporation and Subsidiaries

PART IV.  SIGNATURES**
Pursuant to the requirements of Section 13 of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Date: March 28, 2001**DROVERS BANCSHARES CORPORATION

                             (Registrant)

                 By /S/ A. Richard Pugh
                   A. Richard Pugh, Chairman of the Board,

                   President and Chief Executive Officer

Pursuant to the requirement of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated.

 

 

/S/ J. Samuel Gregory
 
 

/S/ Robert L. Myers, Jr.
J. Samuel Gregory, Director 
Robert L. Myers, Jr., Director
/S/ Daniel E. Hess  
/S/ Harlowe R. Prindle
Daniel E. Hess, Director 
Harlowe R. Prindle, Director
/S/ George W. Hodges 
/S/ Basil A. Shorb, III
George W. Hodges, Director 
Basil A. Shorb, III, Director
/S/ Herbert D. Lavetan 
/S/ Gary A. Stewart
Herbert D. Lavetan, Director 
Gary A. Stewart, Director 
  
 

/S/ Robert H. Stewart, Jr.
Richard M. Linder, Director 
Robert H. Stewart, Jr., Director
/S/ David C. McIntosh 
/S/ Delaine A. Toerper
David C. McIntosh, Director 
Delaine A. Toerper, Director
  
 

/S/ James S. Wisotzkey
Frank Motter, Director 
James S. Wisotzkey, Director
/S/ Debra A. Goodling 
/S/ John D. Blecher
Debra A. Goodling, Executive Vice 
John D. Blecher, Senior Vice President,
President and Treasurer 
Secretary and Assistant Treasurer
Principal Financial Officer 
Principal Accounting Officer
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**EXHIBIT 21

SUBSIDIARIES OF THE REGISTRANT**
The following are the subsidiaries of the Drovers Bancshares Corporation, all of which are 100% owned except for Penn Banks.  Pennbanks Insurance Company is a joint venture with seven other Pennsylvania Banks, which formed an offshore reinsurancecompany.  Each bank in the venture owns a segregated cell through which its respective premiums and losses from credit life and accident and health insurance are funded and for which each bank has sole responsibility.  Drovers' is a 100% owner of itsrespective cell, which is consolidated for financial reporting purposes, and a 1/8th owner of the Pennbanks holding company. 
 **Subsidiary**State of Incorporation or Organization**The Drovers & Mechanics Bank
Pennsylvania 
30 South George Street  
York, PA 17401 **Drovers Realty Corporation
Pennsylvania 
30 South George Street  
York, PA 17401 **Drovers Capital Trust I
Delaware 
103 Foulk Road, Suite 202  
Wilmington, Delaware 19803 **Pennbanks Insurance Company
Cayman Islands 
Genesis Building  
P.O. Box 1363 GT  
Grand Cayman, B.W.I. 
The following are the subsidiaries of The Drovers & Mechanics Bank, all of which are 100% owned except for Drovers Settlement Services.  Drovers Settlement Services is a joint venture and is owned 60% by Drovers Bank.
**Subsidiary**State of Incorporation or Organization**96 South George Street, Inc.
Pennsylvania 
96 South George Street  
York, PA 17401 **Drovers Investment Company
Delaware 
103 Foulk Road, Suite 202  
Wilmington, Delaware 19803 **Drovers Settlement Services
Pennsylvania 
96 South George Street  
York, PA  17401 
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**EXHIBIT 23

DROVERS BANCSHARES CORPORATION AND SUBSIDIARIES**
CONSENT OF INDEPENDENT AUDITORS

We consent to incorporation by reference in the Registration Statements on Form S-3 File Number 333-69963 and Form S-8 File Numbers 333-30023, 033-92682, 333-8249 and 033-92672 of Drovers Bancshares Corporation and Subsidiaries of our report datedJanuary 12, 2001, relating to the consolidated statements of condition of Drovers Bancshares Corporation and Subsidiaries as of December 31, 2000 and 1999 and the related consolidated statements of income, comprehensive income, changes in shareholders'equity and cash flows for each of the years in the three-year period ended December 31, 2000 which report appears in the December 31, 2000 annual report on Form 10-K of Drovers Bancshares Corporation and Subsidiaries.

/S/ Stambaugh Ness P.C.

York, Pennsylvania

March 26, 2001

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