EXHIBIT 13

Drovers Bancshares Corporation and Subsidiaries
CONTENTS
Cross Reference for electronic filing/hard copy
                                                               Electronic   Hard
                                                                  Copy      Copy
Cross Reference for electronic file/hard copy
Consolidated Financial Highlights...............................   2          1 
Common Stock Market Prices and Dividends........................   3          1 
Eleven-Year Summary of Selected Financial Information...........  38         12 
Consolidated Statements of Condition............................   4         15 
Consolidated Statements of Income...............................   5         16 
Consolidated Statements of Comprehensive Income.................   6         17 
Consolidated Statements of Changes in Shareholders' Equity......   6         17 
Consolidated Statements of Cash Flows...........................   7         18 
Notes to Consolidated Financial Statements .....................   8         19 
Independent Auditors' Report ...................................  26         33 
Management's Discussion and Analysis of Financial Condition and
 Results of Operations..........................................  27         34 
Supplemental Financial Data ....................................  40         43 
































1 <PAGE>
Drovers Bancshares Corporation and Subsidiaries

<TABLE>
CONSOLIDATED FINANCIAL HIGHLIGHTS
<CAPTION>
(All dollar amounts presented in thousands, except per share data)
                                                 1998           1997   % Change
FINANCIAL POSITION AT DECEMBER 31,                                             
<S>                                                <C>           <C>       <C> 
Assets ..................................       $597,793      $524,892   13.89%
Net loans ...............................        386,197       310,369   24.43%
Deposits ................................        457,672       402,086   13.82%
Shareholders' equity ....................         48,193        43,470   10.86%
                                                                               
RESULTS FOR THE YEAR                                                           
Interest income .........................       $ 40,991      $ 36,267   13.03%
Interest expense ........................         21,736        19,254   12.89%
Net interest income .....................         19,255        17,013   13.18%
Net income ..............................          6,810         5,631   20.94%
                                                                               
FINANCIAL RATIOS                                                               
Return on average assets ................           1.22%        1.15%    6.09%
Return on average shareholders' equity ..         14.69%        13.88%    5.84%

PER SHARE DATA*                                                                
Net income ..............................       $   1.53      $   1.27   20.47%
Net income, assuming dilution ...........       $   1.51      $   1.26   19.84%
Cash dividends ..........................       $   0.46      $   0.39   17.95%
Book value (year-end) ...................       $  10.79      $   9.79   10.21%
Weighted average shares outstanding .....      4,455,385     4,426,635    0.65%
Number of shareholders ..................          1,476         1,420    3.94%
                                                                               
INVESTMENT SERVICES AND TRUST DIVISION                                         
Fair value of trust assets administered .       $252,121      $217,005   16.18%

</TABLE>
* Per share data adjusted to reflect a three-for-two stock split issued in 1998
  and a 5% stock dividend issued in 1997.






















2<PAGE>
Drovers Bancshares Corporation and Subsidiaries
CONSOLIDATED FINANCIAL HIGHLIGHTS

COMMON STOCK MARKET PRICES AND DIVIDENDS
The Corporation's common stock trades on The NASDAQ Stock Market under the
symbol DROV.  Before June 2, 1998, the stock traded on the over-the-counter
market by several brokers.  The quarterly year-to-date average shares
outstanding and quarterly high and low prices were as follows:

<TABLE>
<CAPTION>
                                                                   Cash     
1998                             High**    Low**    Shares*  Dividends Paid*
<S>                              <C>       <C>       <C>          <C>       
March 31 ..................    $26.17    $22.50    4,445,700         $0.10  
June 30 ...................     32.50     25.17    4,446,690          0.12  
September 30 ..............     32.00     25.88    4,451,370          0.12  
December 31 ...............     27.00     24.38    4,455,385          0.12  
                                                                            
1997                                                                        
March 31... ...............    $15.56    $13.17    4,424,459         $0.10  
June 30 ...................     15.23     13.81    4,424,459          0.10  
September 30 ..............     18.58     15.08    4,424,462          0.10  
December 31 ...............     23.83     18.48    4,426,635          0.10  

</TABLE>

* Per share data adjusted to reflect a three-for-two stock split issued in 1998
and a 5% stock dividend issued in 1997.

**Per share data adjusted for the three-for-two stock split issued in 1998.

High and low sales prices before July 1, 1998, provided by Bloomberg
Business News.
























3 <PAGE>
Drovers Bancshares Corporation and Subsidiaries

<TABLE>
CONSOLIDATED STATEMENTS OF CONDITION
<CAPTION>

                                                                    December 31,  
(in thousands)                                                     1998      1997 
<S>                                                                <C>        <C> 
ASSETS                                                                            
Cash and due from banks .................................       $ 24,145  $ 14,549
Money market investments ................................            479       379
Investment securities (fair value $162,556 and $180,245).        161,619   179,299
Loans (net of unearned income of $3,253 and $3,320) .....        390,109   313,673
Reserve for loan losses .................................          3,912     3,304
  Net loans .............................................        386,197   310,369
Bank premises and equipment .............................         15,901    13,864
Other assets ............................................          9,452     6,432
TOTAL ASSETS ............................................       $597,793  $524,892


LIABILITIES  
Deposits:  
  Noninterest-bearing ...................................       $ 55,339  $ 41,973
  Interest-bearing ......................................        402,333   360,113
    Total deposits ......................................        457,672   402,086
Federal funds purchased and securities sold
  Under agreements to repurchase ........................         23,325    31,360
Other borrowings ........................................         62,830    43,558
Other liabilities .......................................          5,773     4,418
TOTAL LIABILITIES .......................................        549,600   481,422
SHAREHOLDERS' EQUITY
Common stock ($3.33 par value)15,000,000 shares 
  Authorized; issued and outstanding-4,468,461 
  Shares in 1998 and 2,961,127 in 1997 ..................         14,881    14,806
Additional paid-in capital ..............................         18,891    18,664
Retained earnings .......................................         13,173     8,407
Accumulated other comprehensive income ..................          1,248     1,593
TOTAL SHAREHOLDERS' EQUITY ..............................         48,193    43,470
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ..............       $597,793  $524,892

</TABLE>

See notes to consolidated financial statements.















4 <PAGE>
Drovers Bancshares Corporation and Subsidiaries

<TABLE>
CONSOLIDATED STATEMENTS OF INCOME
<CAPTION>
                                                   Years Ended December 31,   
(in thousands, except per share data)               1998       1997     1996  
<S>                                                  <C>       <C>       <C>  
INTEREST INCOME   
Interest and fees on loans ......................  $30,483   $25,487   $23,199
Interest on deposits with banks .................       41        70       155
Interest and dividends on investment securities:    
  Taxable investment securities .................    8,156     8,712     5,492
  Equity securities .............................    1,033       767       336
  Tax-exempt investment securities ..............    1,278     1,231       873
    Total interest income .......................   40,991    36,267    30,055
INTEREST EXPENSE   
Interest on deposits ............................   17,374    15,644    12,322
Federal funds purchased and securities sold         
  under agreements to repurchase.................    1,491     1,353       584
Interest on borrowed funds ......................    2,871     2,257     1,885
    Total interest expense ......................   21,736    19,254    14,791
    Net interest income .........................   19,255    17,013    15,264
Provision for loan losses .......................    1,266       386       645
Net interest income after provision for loan   
  losses ........................................   17,989    16,627    14,619
OTHER INCOME   
Investment services and trust income ............    1,295     1,105     1,020
Service charges on deposit accounts .............    1,692     1,293     1,199
Securities gains ................................      262       197       196
Net gains on loan sales .........................    1,044       491       390
Equity in losses of real estate ventures.........     -104       -81      -137
Other ...........................................    1,219       948       696
    Total other income ..........................    5,408     3,953     3,364
OTHER EXPENSES   
Salaries and employee benefits ..................    8,006     7,597     6,818
Occupancy and premises ..........................    1,246       917       827
Furniture and equipment .........................    1,365     1,111       896
Marketing .......................................      645       441       627
Net cost of operation of other real estate ......       56        53        26
Supplies ........................................      535       443       442
Other taxes .....................................      375       331       325
Other............................................    3,003     2,341     2,089
    Total other expenses ........................   15,231    13,234    12,050
Income before income taxes.......................    8,166     7,346     5,933
Applicable income taxes .........................    1,356     1,715     1,084
NET INCOME ......................................  $ 6,810   $ 5,631   $ 4,849

PER SHARE DATA   
NET INCOME ......................................  $  1.53   $  1.27   $  1.10
NET INCOME, assuming dilution ...................  $  1.51   $  1.26   $  1.09

</TABLE>

See notes to consolidated financial statements.





5 <PAGE> 
Drovers Bancshares Corporation and Subsidiaries
<TABLE>
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
<CAPTION>
                                                     Years Ended December 31,  
(in thousands)                                       1998       1997      1996 
<S>                                                   <C>       <C>       <C>  
Net income .....................................   $6,810     $5,631     $4,849
Other comprehensive income:                                                    
 Unrealized gains (losses) on securities                                       
  arising during period ........................     -260      2,049        -48
 Reclassification adjustment for gains                                         
  included in net income .......................     -262       -196       -185
Other comprehensive income (loss) before taxes .     -522      1,853       -233
Income taxes (benefits) related to other                                       
  Comprehensive income (loss) ..................     -177        630        -79
Other comprehensive income (loss)...............     -345      1,223       -154
  COMPREHENSIVE INCOME .........................   $6,465     $6,854     $4,695
</TABLE>

<TABLE>
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<CAPTION>
                                                                       Accumulated 
                                                          Additional       Other   
(in thousands, except                      Common   Paid-in  Retained Comprehensive
   number of shares)             Shares     Stock   Capital  Earnings     Income   
<S>                               <C>        <C>       <C>      <C>         <C>    
BALANCE, JANUARY 1, 1996 ...... 2,240,775  $11,204   $14,657  $ 8,536       $  524 
 Net income ...................                                 4,849              
 Cash dividends ...............                                -1,606              
 25% stock dividend issued ....   561,919    2,810             -2,810              
 Shares issued ................     6,486       32        50                       
 Change in unrealized holding                                                      
  gains (losses) on securities,                                                    
  net of reclassification                                                          
  adjustment ..................                                               -154 
BALANCE, DECEMBER 31, 1996 .... 2,809,180  $14,046   $14,707  $ 8,969       $  370 
 Net income ...................                                 5,631              
 Cash dividends ...............                                -1,707              
 5% stock dividend issued .....   140,710      704     3,782   -4,486              
 Shares issued ................    11,237       56       175                       
 Change in unrealized holding                                                      
  gains (losses) on securities,                                                    
  net of reclassification                                                          
  adjustment .................                                               1,223 
BALANCE, DECEMBER 31, 1997 .... 2,961,127  $14,806   $18,664  $ 8,407       $1,593 
 Net income ...................                                 6,810              
 Cash dividends ...............                                -2,050              
 Three-for-two stock split .... 1,482,821      -17                  6              
 Shares issued ................    24,513       92       227                       
 Change in unrealized holding                                                      
  gains (losses) on securities,                                                    
  net of reclassification                                                          
  adjustment ..................                                               -345 
BALANCE, DECEMBER 31, 1998 .... 4,468,461  $14,881   $18,891  $13,173       $1,248 

</TABLE>
See notes to consolidated financial statements.

6 <PAGE>
Drovers Bancshares Corporation and Subsidiaries
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
                                                     Years Ended December 31,
(in thousands)                                        1998     1997     1996 
<S>                                                    <C>      <C>      <C> 
CASH FLOWS FROM OPERATING ACTIVITIES:                                        
Net income ........................................  $6,810   $5,631   $4,849
Adjustments to reconcile net income to net cash                              
   from operating activities:                                                
Depreciation and amortization .....................   1,638    1,342    1,179
   Net (accretion) amortization of investment                                
     security (discounts) premiums ................     363     -178        3
   Provision for loan losses ......................   1,266      386      645
   Gain on calls of investment securities                                    
     held-to-maturity .............................       0       -1      -11
   Gain on sale of investment securities                                     
     available-for-sale ...........................    -262     -196     -185
   (Gain) loss on sale of fixed assets ............      11      -50      -46
   Gain on sale of loans ..........................  -1,044     -491     -390
   (Gain) loss on sale of other real estate .......     -14       33        2
   Net deferred loan fees .........................    -814     -559     -290
   Equity in losses of real estate ventures........     104       81      137
   (Increase) decrease in interest/dividend                                  
     receivable ...................................      30     -703     -142
   (Increase) decrease in other assets ............     318     -338   -1,007
   Increase in interest payable ...................     525      589      101
   Increase (decrease) in other liabilities .......    -109      140      -83
   Loans originated for sale ...................... -63,734  -29,794  -23,370
   Proceeds from sale of loans ....................  65,179   30,673   24,028
   Increase in other noncash items ................      45        1        9
Net cash provided by operating activities .........  10,312    6,566    5,429
CASH FLOWS FROM INVESTING ACTIVITIES:                                        
Proceeds from sales and maturities of investment                             
  securities held-to-maturity .....................   8,488    5,584    5,756
Proceeds from sales and maturities of investment                             
  securities available-for-sale ...................  41,377   31,619   26,931
Purchases of investment securities                                           
  held-to-maturity ................................       0  -19,763   -5,292
Purchases of investment securities available-                                
  for-sale ........................................ -32,810  -66,429  -63,694
Net increase in loans ............................. -77,321  -30,946  -28,316
Capital expenditures ..............................  -3,477   -1,111   -1,300
Proceeds from sale of fixed assets ................       6       78      108
Net (purchase) return of investment in real estate                           
  ventures.........................................  -2,209       18        0
Proceeds from sale of other real estate ...........     252      827      203
Net cash used in investing activities ............. -65,694  -80,123  -65,604

CASH FLOWS FROM FINANCING ACTIVITIES:   
Net increase in demand deposits and savings .......  35,074   18,827   32,648
Net increase in certificates of deposit ...........  20,508   23,072   20,898
Net increase (decrease) in federal funds purchased                           
  and repurchase agreements .......................  -8,035   16,106    7,952
Payments made for capital leases ..................     -40      -35      -30
Net increase (decrease) in other borrowings .......  19,312   14,208     -758
Proceeds from issuance of common stock ............     309      231       83
Dividends paid ....................................  -2,050   -1,707   -1,606
Net cash provided by financing activities .........  65,078   70,702   59,187
NET INCREASE (DECREASE) IN CASH & CASH EQUIVALENTS.   9,696   -2,855     -988
CASH & CASH EQUIVALENTS AT JANUARY 1, .............  14,928   17,783   18,771
CASH & CASH EQUIVALENTS AT DECEMBER 31, ........... $24,624  $14,928  $17,783
</TABLE>
See notes to consolidated financial statements.
(All amounts presented in the tables are in thousands, except per share data)
7 <PAGE>























































Drovers Bancshares Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Drovers Bancshares Corporation is a one bank holding company with a principal
subsidiary, The Drovers & Mechanics Bank.  The Bank offers a wide variety of
banking and trust services to individuals and commercial customers.  The
accounting and reporting policies followed by Drovers Bancshares Corporation
and its subsidiaries conform with generally accepted accounting principles
(GAAP) and general practice within the banking industry.  

BASIS OF PRESENTATION:
The consolidated financial statements include the accounts of all
subsidiaries, including The Drovers & Mechanics Bank, 96 South George Street,
Inc. and Drovers Realty Company.  All significant intercompany accounts and
transactions have been eliminated in consolidation.  Income and expenses are
recorded on the accrual basis of accounting except for trust and certain other
fees which are recorded principally on the cash basis, which does not differ
materially from the accrual basis.  Production costs of advertising are
expensed when advertising begins.

USE OF ESTIMATES:
In preparing the consolidated financial statements, management is required
to make estimates and assumptions that affect the reported amounts of assets
and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period.  Actual results
could differ from such estimates.

STATEMENTS OF CASH FLOWS:
For purposes of reporting cash flows, cash and cash equivalents include cash
and money market investments.

INVESTMENT SECURITIES:
Investments in debt securities which the Corporation has the positive intent
and ability to hold to maturity are classified as held-to-maturity.  These
securities are accounted for at amortized cost.  Other securities are
classified as available-for-sale.  Differences between the amortized cost
and fair value are considered an unrealized holding gain or loss and are shown
net of taxes in Shareholders' Equity.  The Corporation classified no
securities as trading at December 31, 1998 or 1997.  Such securities would be
bought principally for the purpose of selling them in the near term.
Management reassesses the appropriateness of the classifications each quarter.
The Corporation calculates amortization and accretion using the straight-line
method on most of the investments and the effective interest method on some of
the investments.  The amortization and accretion recognized on the straight-
line method does not differ materially from the interest method.  Security
gains and losses are determined using the specific identification method.

COMPREHENSIVE INCOME:
The Corporation adopted Statement of Financial Accounting Standards No. 131,
"Reporting Comprehensive Income," as of January 1, 1998.  Accounting
principles generally require that recognized revenue, expenses, gains and
losses be included in net income.  Certain changes in assets and liabilities,
such as unrealized gains and losses on available-for-sale securities, are
reported as a separate component of the equity section of the balance sheet.
Such items, along with net income, are also components of comprehensive
income.  The adoption of this Statement had no effect on the Corporation's net
income or shareholders' equity.

8 <PAGE>
Drovers Bancshares Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, (continued)

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, (continued)

LOANS:
Loans are stated at the principal amount outstanding, net of deferred loan
fees and costs.  Loan origination and commitment fees and related direct costs
are deferred and amortized to income over the term of the respective loan and
loan commitment period as a yield adjustment.

Loans held-for-sale primarily consist of residential mortgages and are carried
at the lower of aggregate cost or fair value.  Fair value is estimated on an
individual loan basis using quoted market prices.  Gains and losses on
residential mortgages held-for-sale are included in other income. 

Interest on commercial and real estate mortgage loans is accrued and credited
to operations based upon the principal amount outstanding.  Interest on
consumer loans is recognized on the accrual basis using the actuarial method
or simple interest method.

NONPERFORMING ASSETS:
Nonperforming assets are comprised of loans for which the accrual of interest
has been discontinued due to a serious weakening of the borrower's financial
condition.  In addition, nonperforming assets include other real estate
received in foreclosure and loans modified in troubled debt restructurings.

Loans are generally placed on a nonaccrual basis when principal or interest
is past due 90 days or more and when, in the opinion of management, full
collection of principal or interest is unlikely.  At the time a loan is placed
on nonaccrual status, the accrual of interest is discontinued.  Income on such
loans is then recognized only to the extent of cash received.  When prospects
of recovery of the loan principal have significantly diminished, the loan is
charged against the reserve for loan losses and any subsequent recoveries are
credited to the reserve account.

The basis in other real estate is carried at
the lower of fair market value less costs to liquidate or the carrying value
of the related loan at the time of acquisition.

RESERVE FOR LOAN LOSSES:
The reserve for loan losses is based on management's evaluation of the loan
portfolio and reflects an amount which, in management's opinion, is adequate
to absorb losses in the existing portfolio.  Additions are made to the reserve
through periodic provisions, which are charged to expense.  Management
evaluates the adequacy of its loan loss reserve on a quarterly basis.  The
impact of economic conditions on the creditworthiness of borrowers is
considered, as well as loan loss experience and changes in the composition and
volume of the loan portfolio.  These and other factors are considered in
assessing the overall adequacy of the reserve.  Significant change in the
estimate could result in a material change to net income.

Impaired loans are accounted for in accordance with Statement of Financial
Accounting Standards No. 114, "Accounting by Creditors for Impairment of a
Loan," as amended by SFAS No. 118.  Under this Statement, the allowance for
credit losses related to loans that are identified for evaluation is based on
discounted cash flows using the loan's initial effective interest rate or the
fair value of collateral for certain collateral-dependent loans.  Loans are
deemed impaired when it is probable that the Corporation will be unable to
collect all amounts due in accordance with the terms of the loan agreement.
Loans are identified as impaired through various means including a formal loan
review process, quarterly review of loan loss reserve adequacy, past due
listings and watch lists. Statement No. 114 excludes large groups of
smaller-balance homogeneous loans that are collectively evaluated for
impairment.
9 <PAGE>

























































Drovers Bancshares Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, (continued)

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, (continued)
LOAN SERVICING RIGHTS:
The Corporation uses Statement of Financial Accounting Standards No. 125,
"Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities" to account for purchased and originated loan
servicing rights.  This Statement is effective for transactions entered into
after December 31, 1996 and is required to be applied prospectively.  This
Statement superseded Statement No. 122, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities."

The Corporation allocates the total cost of loans originated or purchased
between loans and servicing rights based on the relative fair value of each.
The loan servicing rights are amortized, using the straight-line method, over
the period of estimated servicing income.  For purposes of evaluating and
measuring impairment, the Corporation stratifies the loan servicing rights
based on original term and date of origination and uses quoted market prices
to estimate fair value.  The Corporation did not have a valuation allowance
associated with the loan servicing rights as of December 31, 1998 or 1997.

PREMISES AND EQUIPMENT:
Premises and equipment are stated at cost less accumulated depreciation and
amortization.  Depreciation, computed on the straight-line method, is charged
to operations based on the following range of lives: buildings - 20 to 60
years and equipment - 3 to 20 years.  Leasehold improvements are amortized
over the terms of the respective leases or the estimated useful lives of the
improvements, whichever is shorter. Maintenance, repairs and minor
replacements are expensed as incurred.  Gains and losses on dispositions are
reflected in current operations.

TRUST ASSETS:
Assets held by the Corporation's subsidiary in fiduciary or agency capacity
for customers are not included in the consolidated financial statements, as
such items are not assets of the Corporation or its subsidiaries.

INCOME TAXES:
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases.  Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. The effect
on deferred tax assets and liabilities due to changes in tax rates is
recognized in income in the period that includes the enactment date.

PER SHARE DATA:
Earnings per common share is calculated by dividing net income by the weighted
average number of shares of common stock outstanding during each period.
Earnings per common share, assuming dilution, gives effect to all dilutive
potential common shares outstanding during each period.

NOTE 2 - CASH AND DUE FROM BANKS
The subsidiary Bank of the Corporation maintains average reserve balances
to comply with Federal Reserve Bank guidelines.  Reserve balances are based on
outstanding deposits and consist primarily of vault cash.  These reserves were
$4,521,000 and $3,167,000 at December 31, 1998 and 1997, respectively.
Average required reserves during 1998 and 1997 were $3,948,000 and $5,567,000,
respectively.
10 <PAGE>
Drovers Bancshares Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, (continued)

NOTE 3 - FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
The Corporation is a party to financial instruments with off-balance-sheet
risk in the normal course of business to meet the financing needs of its
customers.  These financial instruments include commitments to extend credit,
standby letters of credit and financial guarantees.  Those instruments
involve, to varying degrees, elements of credit and interest rate risk in
excess of the amount recognized in the statement of financial condition.  The
amounts of those instruments reflect the extent of involvement the Corporation
has in particular classes of financial instruments.

The Corporation's exposure to credit loss in the event of nonperformance by
the other party to the financial instrument for commitments to extend credit,
standby letters of credit and financial guarantees is represented by the amount
of those instruments.  The Corporation uses the same credit policies in making
commitments and conditional obligations as it does for on-balance-sheet
instruments.
<TABLE>
<CAPTION>
                                                                1998     1997 
<S>                                                             <C>       <C> 
Commitments to extend credit (legally binding) ............  $112,495  $80,762
Standby letters of credit and financial guarantees ........  $  8,712  $ 7,252
</TABLE>
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee.  Since many of the commitments are expected
to expire without being drawn upon, the total commitment amounts do not
necessarily represent future cash requirements. The Corporation evaluates each
customer's creditworthiness on a case by case basis.  The amount of collateral
obtained, if deemed necessary by the Corporation upon extension of credit, is
based on management's credit evaluation of the counter party.  Collateral held
varies but may include accounts receivable, inventory, property, plant and
equipment and income-producing commercial properties.

Standby letters of credit and financial guarantees are conditional commitments
issued by the Corporation to guarantee the performance of a customer to a
third party.  Most guarantees extend for one year.  The credit risk involved
in issuing letters of credit is essentially the same as that involved in
extending loan facilities to  customers.  The Corporation holds collateral
supporting those commitments when collateral is deemed necessary.

NOTE 4 - CONTINGENT LIABILITIES AND RESTRICTIONS ON DIVIDENDS
In the normal course of business, there are various legal proceedings pending
against the Corporation. Management considers that the aggregate liabilities,
if any, arising from such actions would not have a material adverse effect on
the consolidated financial position of the Corporation.

The Drovers & Mechanics Bank is a Pennsylvania state-chartered bank and must
comply with the State's banking code.  Under the code, cash dividends may be
declared and paid only out of accumulated net earnings.  In addition, surplus
(additional paid-in capital) cannot be reduced by the payment of a dividend.

NOTE 5 - CONCENTRATION OF CREDIT RISK
The Corporation maintains sixteen branch offices.  All are located in York
County, Pennsylvania.  The Corporation grants credit to customers,
substantially all of whom are local residents.  The Corporation emphasizes
diversification of credit risk among industries and borrowers.  Concentrations
of credit risk can exist in relation to certain groups.  A group concentration
arises when a number of customers have economic characteristics that could
similarly affect their ability to repay obligations due to changes in economic
or other conditions.

11 <PAGE>























































Drovers Bancshares Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, (continued)

NOTE 5 - CONCENTRATION OF CREDIT RISK, (continued)
Although the Corporation has a diversified loan portfolio, it grants loans to
a number of local auto dealers and to their closely-held real estate companies.
Loans to the auto dealers are used mainly to fund new and used car inventories
and leasing receivables.  Loans to the closely-held real estate companies are
used primarily to fund land leases to the auto dealers.  The Corporation
generally retains auto titles or first mortgages as collateral.  Other
collateral may be obtained based on the loan purpose or management's credit
evaluation.

The total credit exposure related to loans to auto dealers and
their closely-held real estate companies was as follows:
<TABLE>
<CAPTION>
                                                             1998     1997 
<S>                                                          <C>      <C>  
Principal balance ........................................ $35,835 $19,620 
Available credit .........................................  14,628   5,518 
Total credit exposure .................................... $50,463 $25,138 
</TABLE>
NOTE 6 - MONEY MARKET INVESTMENTS AND INVESTMENT SECURITIES
Money market investments are stated at cost, which approximates fair
value.  Money market investments as of December 31, 1998 and 1997 were
$479,000 and $379,000, respectively.  All money market investments were
in the form of interest-bearing deposits with other financial
institutions.

The amortized cost and estimated fair value of investment securities
classified as held-to-maturity as of December 31, 1998 were as follows:
<TABLE>
<CAPTION>
                                                 Gross      Gross   Estimated
                                    Amortized Unrealized Unrealized   Fair   
                                       Cost      Gains      Losses    Value  
<S>                                      <C>      <C>         <C>      <C>   
U.S. Treasury securities and                                                 
     obligations of U.S. government                                          
     corporations and agencies ...... $ 8,476      $139        $  0  $ 8,615 
Obligations of states and political                                          
     subdivisions ...................  16,926       697           0   17,623 
Mortgage-backed securities and                                               
     collateralized mortgage                                                 
     obligations ....................   8,857       124          23    8,958 
Total investment securities .......   $34,259      $960        $ 23  $35,196 
</TABLE>
The amortized cost and estimated fair value of investment securities
classified as available-for-sale as of December 31, 1998 were as follows:
<TABLE>
<CAPTION>
                                                 Gross      Gross   Estimated
                                    Amortized Unrealized Unrealized    Fair  
                                       Cost      Gains      Losses    Value  
<S>                                     <C>       <C>         <C>       <C>  
U.S. Treasury securities and                                                 
   Obligations of U.S. government                                            
   Corporations and agencies ......  $  7,014    $  105       $  0   $ 7,119 
Obligations of states and political                                          
   Subdivisions ...................     7,541       243         24     7,760 
Corporate obligations .............     4,726        21         81     4,666 
Mortgage-backed securities and
  collateralized mortgage
  obligations .....................    88,304       973        243    89,034 
Total debt securities .............   107,585     1,342        348   108,579 
Equity securities .................    17,884       930         33    18,781 
Total investment securities .......  $125,469    $2,272       $381  $127,360 
</TABLE>
12 <PAGE>




















































Drovers Bancshares Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, (continued)

NOTE 6 - MONEY MARKET INVESTMENTS AND INVESTMENT SECURITIES, (continued)
The amortized cost and estimated fair value of debt securities at December
31, 1998, by contractual maturity, are shown below.  Expected maturities may
differ from contractual maturities because some issuers have the right to
call or prepay obligations with or without call or prepayment penalties.

<TABLE>
<CAPTION>
                                        Held-to-Maturity     Available-for-Sale
                                                 Estimated            Estimated
                                      Amortized     Fair   Amortized    Fair   
                                         Cost       Value     Cost      Value  
<S>                                        <C>        <C>       <C>      <C>   
Due in one year or less ............... $ 1,303    $ 1,311   $  2,500 $  2,513 
Due after one year through five years..   4,773      5,016      2,514    2,568 
Due after five years through ten years.  14,734     15,142      5,726    5,870 
Due after ten years ...................   4,592      4,769      8,541    8,594 
                                         25,402     26,238     19,281   19,545 
Mortgage-backed securities and                                                 
   collateralized mortgage                                                     
   obligations ........................   8,857      8,958     88,304   89,034 
Total debt securities ................. $34,259    $35,196   $107,585 $108,579 
</TABLE>

The amortized cost and estimated fair value of investment securities
classified as held-to-maturity as of December 31, 1997 were as follows:
<TABLE>
<CAPTION>
                                                 Gross      Gross   Estimated
                                    Amortized Unrealized Unrealized    Fair  
                                       Cost      Gains      Losses    Value  
<S>                                     <C>        <C>       <C>       <C>   
U.S. Treasury securities and                                                 
   obligations of U.S. government                                            
   corporations and agencies ......  $ 10,469    $   153      $  0  $ 10,622 
Obligations of states and political                                          
   subdivisions ...................    18,318        707         0    19,025 
Mortgage-backed securities and                                               
   collateralized mortgage                                                   
   obligations ....................    13,965        165        79    14,051 
Total investment securities .......  $ 42,752    $ 1,025     $  79  $ 43,698 
</TABLE>

The amortized cost and estimated fair value of investment securities
classified as available-for-sale as of December 31, 1997 were as follows:
<TABLE>
<CAPTION>
                                                 Gross      Gross   Estimated
                                    Amortized Unrealized Unrealized    Fair  
                                       Cost      Gains      Losses    Value  
<S>                                     <C>       <C>        <C>       <C>   
U.S. Treasury securities and                                                 
   obligations of U.S. government                                            
   corporations and agencies ......  $ 18,003   $    109    $    5 $  18,107 
Obligations of states and political                                          
   subdivisions ...................     5,898        198         0     6,096 
Corporate obligations..............       500          0        14       486 
Mortgage-backed securities and                                               
   collateralized mortgage                                                   
   obligations ....................    93,729      1,047        29    94,747 
Total debt securities .............   118,130      1,354        48   119,436 
Equity securities .................    16,004      1,107         0    17,111 
Total investment securities .......  $134,134   $  2,461    $   48 $ 136,547 
</TABLE>
13<PAGE>






















































Drovers Bancshares Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, (continued)
NOTE 6 - MONEY MARKET INVESTMENTS AND INVESTMENT SECURITIES, (continued)
Proceeds from sales of investment securities classified as available-for-sale
during 1998, 1997 and 1996 were $471,000, $6,818,000 and $14,560,000,
respectively.  Gross realized gains during 1998, 1997 and 1996 were $262,000
$196,000 and $293,000, respectively.  Gross realized losses during 1998, 1997
and 1996 were $0, $0 and $108,000, respectively.

No held-to-maturity investment securities were sold during 1998, 1997 or 1996,
however, gains were recognized on securities with call options exercised by
the issuer.  Realized gains were $0, $1,000 and $11,000 in 1998, 1997 and
1996, respectively.

At December 31, 1998 and 1997, assets with a carrying value of $40,686,000 and
$42,895,000, respectively, were pledged as required or permitted by law to
secure certain public and trust deposits and repurchase agreements.  The
aggregate book value of debt securities from a single issuer did not exceed
10% of stockholders' equity at December 31, 1998 or 1997.

NOTE 7 - LOANS AND RESERVE FOR LOAN LOSSES
Loans were comprised of the following as of December 31:
<TABLE>
<CAPTION>
                                                     1998      1997 
<S>                                                  <C>       <C>  
Commercial, financial and industrial loans.....   $117,997  $ 80,636
Real estate mortgage loans:                                         
  Real estate construction-related ............     13,523    12,105
  Real estate mortgage loans secured by 1 to 4                      
   family residential properties ..............    126,542   107,797
  Other real estate ...........................    100,585    80,462
Total real estate mortgage loans ..............    240,650   200,364
Consumer loans:                                                     
  Monthly payment .............................     30,498    30,952
  Other revolving credit ......................        791     1,476
Total consumer loans ..........................     31,289    32,428
Other .........................................        173       245
Total loans ...................................   $390,109  $313,673
</TABLE>
Changes in the reserve for loan losses for the years ended December 31, were
as follows:
<TABLE>
<CAPTION>
                                                1998        1997         1996
<S>                                             <C>          <C>         <C> 
Balance, beginning of year ............        $3,304       $3,130     $2,937
Provision for loan losses .............         1,266          386        645
Loans charged-off:                                                           
  Commercial, financial and industrial.           522            0         25
  Real estate .........................             0            0        215
  Consumer ............................           235          327        369
Total loans charged-off ...............           757          327        609
Recoveries:                                                                  
  Commercial, financial and industrial.             0           32          6
  Real estate .........................             0           15         36
  Consumer ............................            99           68        115
Total recoveries ......................            99          115        157
Balance, end of year ..................        $3,912       $3,304     $3,130
</TABLE>
14 <PAGE>
Drovers Bancshares Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, (continued)
NOTE 7 - LOANS AND RESERVE FOR LOAN LOSSES, (continued)
Nonaccrual loans were $1,435,000, $740,000 and $615,000 at December 31,
1998, 1997 and 1996, respectively.  If interest due on all nonaccrual
loans had been accrued at the original contract rates, it is estimated that
income before taxes  would have been greater by $60,000, $56,000 and $37,000
at December 31, 1998, 1997 and 1996, respectively.  Accruing loans which were
contractually past due 90 days or more were $7,000, $33,000 and $0 at
December 31, 1998, 1997 and 1996, respectively.

The total recorded investment in impaired loans was $1,748,000 and $1,314,000
at December 31, 1998 and 1997, respectively. Loans classified as impaired as a
result of troubled debt restructurings which are in compliance with modified
terms recognize interest under the accrual method of accounting.  Interest on
all other impaired loans is recognized on the accrual method of accounting
until principal or interest is past due 90 days or more and when full
principal or interest is unlikely.  At that time the loans are placed on
nonaccrual status.  The average recorded investment in impaired loans during
1998, 1997 and 1996 was $1,672,000, $2,456,000, and $1,764,000, respectively.
The Corporation recognized interest income on impaired loans of $123,000 in
1998, $233,000 in 1997, and $193,000 in 1996.  Interest income recognized on a
cash basis would have been $122,000 in 1998, $206,000 in 1997, and $214,000 in
1996.  The recorded reserve for impaired loans as of December 31, 1998 and
1997 was $150,000 and $0, respectively.

The Corporation's banking subsidiary has granted loans to officers, directors
and their associates.  Related party loans are made on substantially the same
terms, including rates and collateral, as those prevailing at the time for
comparable transactions with unrelated parties and do not represent more than
a normal risk of collection.  The aggregate dollar amounts of the loans were
$18,119,000 and $9,192,000 at December 31, 1998 and 1997, respectively.
During 1998, $31,475,000 of new loans were made to related parties and
repayments totaled $22,548,000. 

Residential mortgage loans with a book value of $3,179,000 and $2,940,000 were
committed for sale and awaiting settlement at December 31, 1998 and 1997,
respectively.  The cumulative market value exceeded the book value of these
loans.  Total loans serviced were $106,647,000, $100,355,000 and $93,327,000
at December 31, 1998, 1997 and 1996, respectively.

NOTE 8 - PREMISES AND EQUIPMENT
Premises and equipment were comprised of the following as of December 31:
<TABLE>
<CAPTION>
                                                             1998      1997 
<S>                                                           <C>       <C> 
Land and land improvements .............................    $1,464    $1,109
Buildings ..............................................    11,423    10,894
Capitalized leased premises and equipment ..............       442       442
Furniture and equipment ................................    12,288    10,503
Construction in process ................................       704         0
                                                            26,321    22,948
Less accumulated depreciation ..........................    10,420     9,084
Total bank premises and equipment ......................   $15,901   $13,864
</TABLE>
Provisions for depreciation charged to operating expenses were $1,423,000,
$1,226,000 and $1,110,000 for 1998, 1997 and 1996, respectively. As of
December 31, 1998, construction in process was primarily related to the Hellam
branch, which opened in January, 1999.
15<PAGE>
Drovers Bancshares Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, (continued)

NOTE 9 - LOAN SERVICING RIGHTS
Changes in loan servicing rights for the years ended December 31, were
as follows:
<TABLE>
<CAPTION>

                                                             1998       1997 
<S>                                                           <C>        <C> 
Balance, beginning of year..............................     $297       $158 
Servicing rights recognized ............................      389        197 
Servicing rights amortized .............................      154         58 
Balance, end of year....................................     $532       $297 
Fair value, end of year.................................     $812       $443 
</TABLE>

NOTE 10 - INVESTMENT IN REAL ESTATE VENTURES
The Drovers & Mechanics Bank, a wholly-owned subsidiary of Drovers Bancshares
Corporation, is a limited partner in four ventures to renovate and operate
apartment buildings. The first building opened in 1994.  The second opened in
March, 1996.  The third opened in December, 1998.  The fourth is scheduled to
be opened in 1999.  All four partnerships provide low-income housing to
qualified families.  The investments are accounted for under the equity method
of accounting.  The combined carrying values of the investments at
December 31, 1998 and 1997 were $5,385,000 and $2,292,000, respectively.

NOTE 11 - TIME DEPOSITS
At December 31, 1998 and 1997, time deposits of $100,000 or more aggregated
$27,037,000 and $20,424,000, respectively.  Interest expense on these time
deposits amounted to approximately $1,390,000 in 1998, $1,258,000 in 1997 and
$1,010,000 in 1996. The amount of total time deposits maturing in the years
ended December 31, 1999 through 2003 are as follows: $157,431,000;
$44,756,000; $8,699,000; $6,334,000 and $3,510,000, respectively.

NOTE 12 - OTHER BORROWINGS AND LEASE COMMITMENTS
<TABLE>
<CAPTION>
                                                               1998    1997 
<S>                                                             <C>     <C> 
Notes payable to FHLB Pittsburgh:                                           
  Due 1998, 5.43% - 6.72% .................................. $     0 $ 3,500
  Due 1998, variable .......................................       0  10,000
  Due 2000, 6.01% ..........................................     100     100
  Due 2000, variable .......................................   4,000   4,000
  Due 2002, 5.48% - 5.60%, convertible quarterly after 1998.  20,000  20,000
  Due 2003, 6.40% ..........................................     400     400
  Due 2003, 5.13%, convertible quarterly after 2000 ........   8,000       0
  Due 2005, 5.24%, convertible quarterly after 2001 ........   5,000       0
  Due 2008, 4.86% - 4.94%, convertible quarterly after 1999.  15,000       0
  Due 2008, 5.15%, convertible in 2005 .....................   5,000       0
  Due 2015, 3.75%, amortizing ..............................     372     378
Note payable to First Union:                                                
  Due 2003, 6.53% ..........................................   4,805   4,987
                                                              62,677  43,365
Capital lease obligations ..................................     153     193
                                                             $62,830 $43,558
</TABLE>

16<PAGE>
Drovers Bancshares Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, (continued)

NOTE 12 - OTHER BORROWINGS AND LEASE COMMITMENTS, (continued)
The Federal Home Loan Bank of Pittsburgh (FHLB) notes payable are secured by
FHLB stock, deposits held by the FHLB and other mortgage collateral.  The fair
value of the FHLB stock as of December 31, 1998 and 1997 was $6,716,000 and
$5,533,000, respectively.  The interest rates on the variable notes reprice
quarterly or more frequently and are based on LIBOR or prime.  Borrowings at a
fixed rate until after a specified date are Convertible Select borrowings.
These borrowings include a put option if the FHLB elects to convert the debt
to a variable interest rate.  The Corporation also maintains a credit line
with the FHLB secured by the same collateral. The unused credit line totaled
$92,056,000 at December 31, 1998.  The First Union note payable is secured by
a mortgage on the 96 South George Street office building.  The note is payable
in monthly installments based on a twenty-year amortization. The amounts of
notes payable and capital leases maturing in the years ended December 31, 1999
through 2003 are as follows: $246,000; $4,365,000; $266,000; $20,252,000 and
$12,369,000, respectively.

At December 31, 1998 and 1997, the Corporation and its subsidiaries were
obligated under noncancelable leases for premises and equipment.  The terms
include various renewal options and provide for rental increases based upon
predetermined factors.  The Hellam land lease contains a purchase option.
The rental expense under such leases amounted to $390,000 in 1998, $270,000 in
1997 and $164,000 in 1996.

Future minimum rental payments under capital leases and noncancelable
operating leases  with terms of one year or more at December 31, 1998 were:
<TABLE>
<CAPTION>
                                                           Capital  Operating
                                                            Leases    Leases 
<S>                                                           <C>        <C> 
1999 .....................................................    $ 65     $  422
2000 .....................................................      65        376
2001 .....................................................      45        338
2002 .....................................................      11        342
2003 .....................................................       0        348
Thereafter................................................       0      1,766
Total future minimum rental payments .....................     186     $3,592
Less interest ............................................      33           
Present value of minimum rental payments .................    $153           
</TABLE>
NOTE 13 - ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair value amounts have been determined by the Corporation using
available market information and appropriate valuation methodologies.
However, considerable judgment is required to interpret market data to develop
the estimates of fair value.  Accordingly, the estimates presented herein are
not necessarily indicative of the amounts the Corporation could realize in a
current market exchange.  The use of different market assumptions and/or
estimation methodologies may have a material effect on the estimated fair
value amounts.

The information presented is based on pertinent information available to
management as of December 31, 1998 and 1997.  Although management is not aware
of any factors that would significantly affect the estimated fair value
amounts, such amounts have not been comprehensively revalued since that time
and current estimated fair value of these financial instruments may have
changed significantly.
17<PAGE>
Drovers Bancshares Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, (continued)

NOTE 13 - ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS, (continued)
<TABLE>
<CAPTION>
                                            1998                   1997   
                                             Estimated           Estimated
                                   Carrying    Fair     Carrying     Fair 
                                    Amount     Value     Amount     Value 
<S>                                   <C>       <C>        <C>        <C> 
FINANCIAL ASSETS:                                                         
 Cash and short-term investments.  $ 24,624  $ 24,624   $ 14,928  $ 14,928
 Investment securities ..........   161,619   162,556    179,299   180,245
 Net loans ......................   386,197   389,433    310,369   312,637
 Interest receivable ............     2,830     2,830      2,860     2,860
FINANCIAL LIABILITIES:                                                    
 Demand and savings deposits ....   228,029   228,029    193,319   193,319
 Time deposits ..................   229,643   230,673    208,767   208,125
 Federal funds purchased and                                              
   securities sold under                                                  
   agreement to repurchase ......    23,325    23,325     31,360    31,360
 Notes payable ..................    62,677    60,286     43,365    42,916
 Interest payable ...............     3,548     3,548      3,023     3,023
</TABLE>

The following  methods and assumptions were used to estimate fair value of
each class of financial instrument for which it is practicable to estimate
that value:  For short-term instruments, the carrying amount is a reasonable
estimate of fair value.  The fair value of investment securities is based on
quoted market prices, dealer quotes and prices obtained from independent
pricing services.  For floating rate loans which experienced no significant
change in credit risk and for deposits with floating interest rates it is
presumed that estimated fair values generally approximate the carrying amount.
The fair value of fixed rate loans and time deposits is estimated based on
present values using applicable risk-adjusted spreads to the U.S. Treasury
curve to approximate current rates offered for loans and deposits of similar
maturities.  Management believes that the risk factor embedded in the
currently offered rates results in a fair valuation of the loan portfolio.
The primary risks are credit risk and prepayment risk.  Rates  currently
available  to the Corporation for debt with similar terms and remaining
maturities are used to estimate fair value of other borrowings.

There is no material difference between the notional amount and the estimated
fair value of off-balance sheet items which total $121,207,000.  Off-balance
sheet items are primarily comprised of unfunded loan commitments, which are
generally priced at market at the time of funding.

NOTE 14 - INCOME TAXES
Total income tax expense for the years ended December 31, was allocated as
follows:
<TABLE>
<CAPTION>
                                                        1998    1997    1996 
<S>                                                      <C>     <C>     <C> 
Income from continuing operations ...................  $1,356  $1,715  $1,084
Shareholders' equity, for other comprehensive                                
  income ............................................    -177     630     -79
Total income tax expense ............................  $1,179  $2,345  $1,005
</TABLE>
18<PAGE>
Drovers Bancshares Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, (continued)

NOTE 14 - INCOME TAXES, (continued)
Income tax expense attributable to other comprehensive income consists of the
following at December 31:
<TABLE>
<CAPTION>
                                                 1998      1997      1996 
<S>                                               <C>       <C>       <C> 
Unrealized gains (losses) on securities                                   
  arising during the period ...............      $ -88      $697      $-13
Reclassification adjustment for gains                                     
  (losses) included in net income .........        -89       -67       -66
Income taxes (benefits) related to other                                  
  Comprehensive income ....................      $-177      $630      $-79
</TABLE>

Income tax expense attributable to income from continuing operations consists of
the following at December 31:
<TABLE>
<CAPTION>
                                                 1998      1997      1996 
<S>                                               <C>       <C>       <C> 
Currently payable ..........................    $1,447    $1,656    $1,145
Deferred expense (benefit)..................       -91        59       -61
Income tax expense .........................    $1,356    $1,715    $1,084
</TABLE>

For the years ended December 31, the income tax expense attributable to income
from continuing operations differed from the tax expense computed by applying
the Federal statutory rate to pretax earnings.  The reasons for the
differences were as follows:
<TABLE>
<CAPTION>
                                         1998      1997      1996 
<S>                                       <C>       <C>       <C> 
Income before income tax ............   $8,166    $7,346    $5,933
Tax at federal income tax rate ......   $2,776    $2,498    $2,017
Differences resulting from:                                       
 Effect of tax-exempt income ........     -391      -343      -256
 Historic and low income tax credits.     -808      -279      -633
 Effect of dividend income ..........     -246      -183       -80
 Excess provision for loan losses ...      236        59        66
 Other items, net ...................     -211       -37       -30
Applicable income tax ...............   $1,356    $1,715    $1,084
</TABLE>

The significant components of deferred income tax expense (benefit)
attributable to income from continuing operations for the years ended
December 31, were as follows:
<TABLE>
<CAPTION>
                                               1998    1997     1996
<S>                                             <C>     <C>      <C>
Excess provision for loan losses ...........  $-236    $-59     $-66
Alternative minimum tax credit carryforward.      0       0     -133
Other items, net ...........................    145     118      138
                                              $ -91    $ 59     $-61
</TABLE>
19<PAGE>
Drovers Bancshares Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, (continued)

NOTE 14 - INCOME TAXES, (continued)

The tax effects of temporary differences that give rise to significant
portions of deferred tax assets and deferred tax liabilities at
December 31, 1998 and 1997 are presented below:
<TABLE>
<CAPTION>
                                                     1998       1997  
<S>                                                   <C>        <C>  
Deferred tax assets:                                                  
  Allowance for loan losses ....................     $1,067     $  831
  Pension ......................................        155        183
  Other ........................................         70         70
    Total gross deferred tax assets ............      1,292      1,084
Deferred tax liabilities:                                             
  Bank premises and equipment ..................        381        427
  Unrealized holding gains on available-                              
  for-sale securities ..........................        643        821
  Other ........................................        388        229
    Total gross deferred tax liabilities .......      1,412      1,477
Net deferred tax liabilities ...................     $ -120     $ -393
</TABLE>

Federal income taxes on security gains were $89,000, $67,000 and $66,000 in
1998, 1997 and 1996, respectively.

Management believes the deferred tax assets are realizable since the
Corporation has had a long history of strong earnings and has a carryback
potential exceeding the deferred tax asset.  Management is not aware of any
evidence that would preclude the Corporation from ultimately realizing these
assets.

NOTE 15 - NET INCOME PER SHARE
Per share information is computed based on the weighted average number of
shares of stock outstanding during each year, giving retroactive effect to a
three-for-two stock split in 1998, a 5% stock dividend issued in 1997 and a
25% stock dividend issued 1996.  Net income per share and net income per
share, assuming dilution, were calculated as follows:

<TABLE>
<CAPTION>
                                            1998     1997     1996  
<S>                                          <C>      <C>      <C>  
Net income ..............................  $6,810   $5,631   $4,849 
Average shares outstanding ..............   4,455    4,427    4,421 
Effect of dilutive securities:                                      
 Stock options ..........................      67       40       21 
Average shares outstanding,                                         
 assuming dilution ......................   4,522    4,467    4,442 
Net income per share ....................  $ 1.53   $ 1.27   $ 1.10 
Net income per share, assuming dilution .  $ 1.51   $ 1.26   $ 1.09 

</TABLE>




20 <PAGE>
Drovers Bancshares Corporation and Subsidiaries 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, (continued)

NOTE 16 - COMMON STOCK
The Corporation issued the following stock dividends including a three-for-two
stock split during 1998:

<TABLE>
<CAPTION>
                                                  1998       1997  
<S>                                                <C>        <C>  
Percentage ...................................      50%        5%  
Record date ..................................   5-08-98   11-14-97
Payable date .................................   5-29-98   11-28-97
</TABLE>

NOTE 17 - CASH FLOW DISCLOSURES
The Corporation paid interest and income taxes of $21,211,000 and $1,670,000
in 1998, $18,667,000 and $1,570,000 in 1997 and $14,689,000 and $1,250,000 in
1996, respectively.  Transfers from loans to other real estate as a result of
foreclosure were $277,000, $211,000 and $822,000 in 1998, 1997 and 1996,
respectively.

NOTE 18 - RETIREMENT PLAN
The Corporation and its subsidiaries have a noncontributory pension plan
covering all eligible employees. The plan provides retirement benefits which
are a function of both the years of service and the highest level of
compensation during any consecutive five-year period of the last ten years
before retirement.  It is the Corporation's policy to fund the plan
sufficiently to meet the minimum funding requirements set forth in the
Employee Retirement Income Security Act, plus such additional amounts as the
Corporation determines to be appropriate from time to time.  Pension expense
was $161,000 in 1998, $139,000 in 1997 and $164,000 in 1996.  The Corporation
also has two nonqualified supplemental retirement plans covering the present
and former chairmen of the board.  The plans are based on a targeted wage
replacement percentage and are unfunded.

The following table sets forth the plan's funded status and amounts recognized
in the Corporation's consolidated financial statements at December 31:
<TABLE>
<CAPTION>
                                                               1998     1997
<S>                                                             <C>     <C> 
Change in benefit obligation:                                               
 Benefit obligation at  January 1, ......................... $-3,026 $-2,365
 Service cost ..............................................    -257    -208
 Interest cost .............................................    -219    -183
 Benefits paid .............................................     176      84
 Actuarial loss ............................................    -177    -354
 Benefit obligation at December 31, ........................ $-3,503 $-3,026
                                                                            
Change in plan assets:                                                      
 Fair value of plan assets at January 1, ................... $ 3,370 $ 2,554
 Employer contributions ....................................     312     242
 Actual return on assets ...................................     199     658
 Benefits paid .............................................    -176     -84
 Fair value of plan assets at December 31, ................. $ 3,705 $ 3,370
                                                                            
Funded status .............................................. $   202 $   344
Unrecognized net transition asset ..........................    -128    -141
Unrecognized prior service cost ............................       9      10
Unrecognized net gain ......................................     -17    -297
Prepaid (accrued) pension cost ............................. $    66 $   -84
</TABLE>
21 <PAGE>

























































Drovers Bancshares Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, (continued)
NOTE 18 - RETIREMENT PLAN, (continued)
The net periodic benefit cost included the following:
<TABLE>
<CAPTION>
                                                     1998     1997    1996 
<S>                                                   <C>      <C>     <C> 
Service cost ....................................    $257     $208    $258 
Interest cost ...................................     219      183     227 
Expected return on plan assets ..................    -303     -240    -309 
Amortization of net transition asset ............     -13      -13     -13 
Amortization of prior service cost ..............       1        1       1 
Net periodic benefit cost .......................    $161     $139    $164 
</TABLE>
The following weighted average assumptions were used for the plan:
<TABLE>
<CAPTION>
                                                     1998     1997     1996
<S>                                                   <C>     <C>      <C> 
Discount rate ....................................... 7.0%     7.3%    7.8%
Rate of increase in salary levels ................... 4.0%     5.0%    5.0%
Long-term rate of return on plan assets ............. 9.0%     9.0%    9.0%
</TABLE>
Plan assets are invested in mutual funds which consist of corporate and
government bonds and domestic and foreign equity securities.

The Corporation has a 401(k) Salary Deferral Plan.  This plan covers all
eligible employees who elect to contribute to the plan.   An eligible employee
is anyone over the age of 21 who has completed one year of service.  Effective
January 1, 1998, the Corporation's contribution equals 50% of the employee's
contribution up to a maximum of 6% of annual salary.  In 1997 and 1996, the
Corporation's contribution equalled 25% of the employee's contribution up to a
maximum of 6% of annual salary.  The annual expense included  in salaries and
employee  benefits amounted to $112,000, $47,000 and $42,000 in 1998, 1997 and
1996, respectively.

NOTE 19 - STOCK OPTION PLANS
The Corporation has an incentive stock option plan (option plan) and an
employee stock purchase plan (ESPP).  A committee of  the Corporation's Board
of Directors administers the option plan and, at its discretion, grants
options to eligible key employees.  The option price is the fair value of
shares on the day granted.  No options may be exercised after ten years.  The
options vest as follows:  50% on day of grant; 50% one year following grant
date.  Under the current option plan, 111,440 options have been authorized and
not yet granted.  The following shares and average options prices have been
adjusted for subsequent stock splits and dividends:
<TABLE>
<CAPTION>
                                   1998              1997           1996        
                              Stock  Exercise  Stock  Exercise  Stock  Exercise 
                              Options  Price  Options  Price  Options    Price  
<S>                               <C>    <C>      <C>   <C>       <C>     <C>   
Balance at January 1, .......     135  $11.77     105  $10.87      96    $ 9.74 
Granted .....................      24   25.00      38   14.29      37     13.08 
Exercised ...................      26   10.02       8   11.98      28      9.96 
Forfeited ...................       2   18.80       0     --        0       --  
Balance at December 31, .....     131  $14.38     135  $11.77     105    $10.87 
Exercisable at December, 31 .     120  $13.41     116  $11.36      87    $10.39 
</TABLE>
22 <PAGE>
Drovers Bancshares Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, (continued)

NOTE 19 - STOCK OPTION PLANS, (continued)
The following options were outstanding at December 31, 1998:
<TABLE>
<CAPTION>
                         Options   Exercise Remaining    Options  
                       Outstanding  Price     Life     Exercisable
<S>                         <C>       <C>     <C>           <C>   
Issued 1990 ..........       4      $ 6.42   1.9 years       4    
Issued 1994 ..........       9       11.16   5.9             9    
Issued 1995 ..........      31       10.27   6.3            31    
Issued 1996 ..........      32       13.08   7.3            32    
Issued 1997 ..........      33       14.29   8.3            33    
Issued 1998 ..........      22       25.00   9.1            11    
                           131      $14.38   7.4 years     120    
</TABLE>
The weighted average grant-date fair value of options granted during 1998,
1997 and 1996 was $9.98, $5.28 and $6.21, respectively.  The Corporation uses
the Black-Scholes Option Pricing Model to calculate the grant-date fair value.
The following significant assumptions were used:

<TABLE>
<CAPTION>
                                              1998    1997      1996   
<S>                                          <C>      <C>       <C>    
Risk free interest rate .................    5.6%     6.9%      6.5%   
Expected life ........................... 8.2 years 9.0 years 9.5 years
Expected volatility .....................   15.4%    12.7%     14.0%   
Expected dividends ......................    1.6%     2.4%      2.7%   
</TABLE>
The Corporation adopted the ESPP in 1997.  The ESPP allows eligible employees
to purchase stock in the Corporation at 85% of the lesser of the fair value of
the stock on the date of grant or on the date of exercise.  Under the terms of
the ESPP, 3,718 and 2,049 shares were purchased in 1998 and 1997, respectively.
As of December 31, 1998, 236,250 options have been reserved for future
issuances under the ESPP.

The Corporation applies APB Opinion 25 and related interpretations in
accounting for its plans.  Accordingly, no compensation cost has been
recognized for its stock option plans.  Had compensation cost for the
Corporation's stock option plans been determined based on the fair value at
the grant dates for awards consistent with the method of SFAS No. 123,
"Accounting for Stock-Based Compensation," the Corporation's net income and
earnings per share would have been reduced to the pro forma amounts indicated
below:
<TABLE>
<CAPTION>
                                                     1998   1997   1996 
<S>                                                   <C>    <C>    <C> 
Net Income
  As reported.....................................  $6,810 $5,631 $4,849
  Pro forma.......................................  $6,630 $5,489 $4,731
Earnings per share
  As reported.....................................  $ 1.53 $ 1.27 $ 1.10
  Pro forma.......................................  $ 1.49 $ 1.24 $ 1.07
Earnings per share, assuming dilution
  As reported.....................................  $ 1.51 $ 1.26 $ 1.09
  Pro forma.......................................  $ 1.47 $ 1.23 $ 1.07
</TABLE>

NOTE 20 - BUSINESS SEGMENTS
The Corporation conducts business in the Banking industry and offers a wide
variety of banking and trust services to individuals and commercial customers.
As of December 31, 1998 and 1997, the Corporation does use discreet financial
information on any segments that meet the reporting requirements of Statement
of Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information."  All revenues for the years ended
December 31, 1998, 1997, and 1996 were derived from sources within the United
States and no revenues from a single customer amounted to 10% or more of the
Corporation's annual revenues.

23 <PAGE>
















































Drovers Bancshares Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, (continued)

NOTE 21 - PARENT CORPORATION FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                            December 31,    
STATEMENTS OF CONDITION                                       1998    1997  
<S>                                                            <C>      <C> 
ASSETS                                                                      
  Cash ................................................    $   101   $   410
  Investments in and advances to subsidiaries:                              
    The Drovers & Mechanics Bank ......................     45,642    41,055
    Drovers Realty Company ............................        733       745
  Other assets ........................................      1,851     1,490
TOTAL ASSETS ..........................................    $48,327   $43,700
LIABILITIES AND SHAREHOLDERS' EQUITY                                        
  Other liabilities ...................................    $   134   $   230
  Total shareholders' equity ..........................     48,193    43,470
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ............    $48,327   $43,700

</TABLE>

<TABLE>
<CAPTION>
                                             Years Ended December 31, 
STATEMENTS OF INCOME                         1998      1997      1996 
<S>                                           <C>       <C>       <C> 
INCOME                                                                
 Dividends from subsidiaries ...........    $2,050    $2,227    $1,644
 Other income ..........................       302        95        21
     Total income ......................     2,352     2,322     1,665
OPERATING EXPENSES                                                    
 Other .................................       246       148       147
     Total operating expenses ..........       246       148       147
 Income before income taxes ............     2,106     2,174     1,518
 Applicable income taxes (benefit) .....         9       -23       -47
Income before undistributed earnings of                               
   subsidiaries ........................     2,097     2,197     1,565
 Undistributed earnings of subsidiaries:                              
   The Drovers & Mechanics Bank ........     4,725     3,437     3,282
   Drovers Realty Company ...............      -12        -3         2
NET INCOME ..............................   $6,810    $5,631    $4,849

</TABLE>














24 <PAGE>
Drovers Bancshares Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, (continued):

NOTE 21 - PARENT CORPORATION FINANCIAL STATEMENTS, (continued)

<TABLE>
<CAPTION>
                                                        Years Ended December 31,    
STATEMENTS OF CASH FLOWS                                1998      1997        1996  
<S>                                                      <C>       <C>         <C>  
CASH FLOWS FROM OPERATING ACTIVITIES:                                               
 Net income ....................................       $6,810    $5,631      $4,849 
 Undistributed earnings of subsidiaries ........       -4,713    -3,434      -3,284 
 Gain on sale of investment securities                                              
   available-for-sale ..........................         -262       -74          -5 
 Increase in other assets ......................           61       -78          -1 
 Net cash provided by operating activities .....        1,896     2,045       1,559 
CASH FLOWS FROM INVESTING ACTIVITIES:                                               
 Payments (receipts) from intercompany account .          -19        42         -12 
 Purchases of investment securities                                                 
  available-for-sale ...........................         -916      -401         -55 
 Proceeds from sales of investment securities                                       
  available-for-sale ...........................          471       180          49 
 Net cash provided by (used in) investing                                           
   activities ..................................         -464      -179         -18 
CASH FLOWS FROM FINANCING ACTIVITIES:                                               
 Issuance of stock .............................          309       231          83 
 Dividends paid ................................       -2,050    -1,707      -1,606 
 Net cash used in financing activities .........       -1,741    -1,476      -1,523 
NET INCREASE (DECREASE) IN CASH ................         -309       390          18 
CASH AT JANUARY 1, .............................          410        20           2 
CASH AT DECEMBER 31, ...........................       $  101    $  410      $   20 

</TABLE>


























25 <PAGE>
Drovers Bancshares Corporation and Subsidiaries
Independent Auditors' Report


Board of Directors and Shareholders
Drovers Bancshares Corporation


We have audited the accompanying consolidated statements of condition of
Drovers Bancshares Corporation and subsidiaries as of December 31, 1998 and
1997, and the related consolidated statements of income, comprehensive income,
changes in shareholders' equity and cash flows for each of the three years in
the period ended December 31, 1998.  These financial statements are the
responsibility of the Corporation's management.  Our responsibility is to
express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards.  Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement.  An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements.  An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation.  We believe our audits provide a reasonable basis for
our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Drovers
Bancshares Corporation and subsidiaries as of December 31, 1998 and 1997, and
the results of their operations and their cash flows for each of the three
years ended December 31, 1998, in conformity with generally accepted
accounting principles.



Stambaugh . Ness, P.C.

York, Pennsylvania
January 15, 1999





















26 <PAGE>
Drovers Bancshares Corporation and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The purpose of this discussion is to focus on information about Drovers
Bancshares Corporation, its financial condition and results of operations not
otherwise apparent in the consolidated financial statements of this Annual
Report.  The reader of this Annual Report should make reference to those
statements and other selected financial data presented elsewhere in the report
to fully understand the following discussion and analysis.

RESULTS OF OPERATIONS
The consolidated earnings of Drovers Bancshares Corporation are derived
primarily from the operations of its wholly-owned subsidiaries:  The Drovers &
Mechanics Bank and Drovers Realty Company.  Drovers Bancshares Corporation is
a bank holding company.  The Drovers & Mechanics Bank is a Pennsylvania state-
chartered, FDIC insured bank.  The Bank has one wholly-owned subsidiary, 96
South George Street, Inc.  The Bank subsidiary's primary asset is an office
building attached to the Bank's main office, which houses its corporate
headquarters.  Drovers Realty Company has various real estate holdings,
including ground and building leases.  It rents the real estate to the Bank for
use as branch offices.

FINANCIAL SUMMARY
The Corporation recorded net income of $6,810,000 in 1998 and $5,631,000 in
1997. The return on average assets (ROA) and return on average equity (ROE) in
1998 were 1.22% and 14.69%, respectively.  This compares to an ROA and ROE in
1997 of 1.15% and 13.88%, respectively.

NET INTEREST INCOME
Net interest income represents the difference between interest income and
interest expense. Net interest income is a measurement of how well management
balances the Corporation's interest rate sensitive assets and liabilities
while maintaining adequate interest margins.  Net interest income rose 13.2%
or $2,242,000 in 1998, after advancing 11.5% or $1,749,000 in 1997.

<TABLE>
<CAPTION>
                           Years Ended December 31,      Increase(Decrease)   
(in thousands)             1998      1997     1996     98/97    97/96    96/95
<S>                         <C>       <C>     <C>       <C>      <C>      <C> 
Total interest income ..  $40,991  $36,267  $30,055    13.0%     20.7%    7.1%
Total interest expense .   21,736   19,254   14,791    12.9%     30.2%    9.3%
Net interest income ....  $19,255  $17,013  $15,264    13.2%     11.5%    5.1%
</TABLE>

The Corporation's largest category of earning assets consists of loans to
businesses and individuals.  The majority of earning assets are supported by
interest-bearing commercial and consumer deposits and other borrowings.  In
addition to interest-bearing funds, assets are also supported by noninterest-
bearing funds including demand deposits and shareholders' equity.  Changes in
net interest income are determined by variations in the volume and mix of
assets and liabilities as well as their relative sensitivity to interest rate
movements.  Increased volume drove the increases in net interest income for
1998 and 1997.

The following table depicts the changes in rate and volume components of net
interest income:

<TABLE>
<CAPTION>
                              1998 over 1997             1997 over 1996    
                           Total     Change due to    Total   Change due to
(in thousands)             Change    Rate   Volume    Change   Rate  Volume
<S>                          <C>      <C>     <C>      <C>     <C>     <C> 
Total interest income ..   $4,724   $-787   $5,511  $6,212   $  14   $6,198
Total interest expense .    2,482    -132    2,614   4,463     714    3,749
Net interest income ....   $2,242   $-655   $2,897  $1,749   $-700    2,449
</TABLE>
27 <PAGE>





















































Drovers Bancshares Corporation and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS, (continued)

NET INTEREST INCOME,(continued)

There are two performance measures that indicate how successful a bank is in
managing its asset and liability structure.  The first, net interest spread,
is the average rate earned on earning assets less the average rate paid on
interest-bearing funds.  The second, net interest margin, incorporates both
the net interest spread and margin on earning assets financed by noninterest-
bearing funds.  The following table illustrates the net interest spread and
the net interest margin:

<TABLE>
<CAPTION>

                                      1998 Average     1997 Average  
(in thousands)                       Balance    Rate   Balance   Rate
<S>                                     <C>     <C>      <C>     <C> 
Earning assets .................... $524,729   7.81%  $458,752  7.91%
Financed by:                                                         
  Interest-bearing funds .......... $463,520   4.69%  $408,069  4.72%
  Noninterest-bearing funds .......   61,209     --     50,683    --   
     Total ........................ $524,729   4.14%  $458,752  4.20%
                                                                     
Net interest income ............... $ 19,255          $ 17,013       
Net interest spread ...............            3.12%            3.19%
Net interest income margin ........            3.67%            3.71%

</TABLE>

The average spread and margin declined 0.07% and 0.04%, respectively, in 1998.
The average yield on earning assets fell 0.10%.  This was partially offset by
a 0.03% decline in the yield on interest-bearing funds.

The Corporation increased holdings in investment securities throughout 1997.
This strategy generated net interest income used to offset the costs of an
expanding branch office network. The increased holdings in lesser yielding
investment securities, however, resulted in a narrower spread and margin,
which bottomed out in the fourth quarter of 1997.  The fourth quarter margin
was 3.56%.

The Corporation experienced extraordinary loan demand in 1998.  The
combination of a strong local economy, low interest rates and customer
dissatisfaction with large bank mergers caused the demand.  This resulted in
strong loan growth accounting for nearly all of the increase in interest-
bearing assets.  This change in mix of higher yielding loans compared to
investment securities caused the margin to increase throughout most of 1998.

In the fourth quarter of 1998, the Federal Reserve reduced short-term interest
rates by lowering the "discount rate."  The Corporation is asset sensitive,
with more interest-earning assets that reprice when short-term interest rates
change than interest-bearing liabilities.  The decrease in short-term interest
rates caused the margin to decline to 3.61% in the fourth quarter of 1998.





28 <PAGE>
Drovers Bancshares Corporation and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS,(continued)

PROVISION FOR LOAN LOSSES
The provision for loan losses was $1,266,000, $386,000 and $645,000 for 1998,
1997 and 1996, respectively.  As described in the summary of significant
accounting policies, management analyzes the loan portfolio and the reserve
for loan losses each quarter.  The analysis estimates loan losses and
determines the required provision.  The analysis considers many factors
including charge-off history, loan quality and loan growth.  Net charge-offs
for 1998, 1997 and 1996 were $658,000, $212,000 and $452,000, respectively.
As a percentage of average loans, net charge-offs were 0.18%, 0.07% and 0.17%
in 1998, 1997 and 1996, respectively.  Nonaccrual loans as a percentage of
total loans at December 31, 1998, 1997 and 1996 were 0.37%, 0.24% and 0.22%,
respectively.  Loans grew $76,436,000, $30,556,000 and $27,712,000 in 1998,
1997 and 1996, respectively.  The reserve for loan losses as a percentage of
loans at December 31, 1998, 1997 and 1996 was 1.00%, 1.05% and 1.11%,
respectively.  An increase in net charge-offs, nonaccrual loans and total loans
caused management to increase the 1998 provision. Management believes the
present reserve is adequate to absorb losses in the existing portfolio.  A
significant degradation of loan quality; however, could require a change in
estimated losses and cause a material change in net income.

<TABLE>
OTHER INCOME
<CAPTION>
                               Years Ended December 31,     Increase(Decrease)  
(in thousands)                 1998      1997     1996   98/97    97/96   96/95 
<S>                             <C>       <C>      <C>     <C>     <C>     <C>  
Investment services and                                                         
  trust income .............  $1,295   $1,105   $1,020    17.2%    8.3%    10.4%
Service charges on deposit                                                      
  accounts .................   1,692    1,293    1,199    30.9%    7.8%    22.1%
Securities gains ...........     262      197      196    33.0%    0.5%    84.9%
Net gains on loan sales ....   1,044      491      390   112.6%   25.9%    40.3%
Equity in losses                                                                
  of real estate ventures...    -104      -81     -137    28.4%  -40.9%   114.1%
Other ......................   1,219      948      696    28.6%   36.2%    13.9%
Total other income .........  $5,408   $3,953   $3,364    36.8%   17.5%    18.6%
</TABLE>
Noninterest income was $5,408,000 in 1998, an increase of $1,455,000 from 1997
The 1997 noninterest income was $3,953,000, an increase of $589,000 over the
1996 level of $3,364,000.

Income from the financial services and trust division increased $190,000, or
17.2%, in 1998.  The fair value of investments managed by the division was
$252,121,000 at the end of 1998, an increase of 16.2% over the prior year.
The division experienced strong growth in the trust services area, including
employee benefits, personal trust and in investment management accounts.
Overall increases in the equity markets the past three years helped boost the
value of assets managed and the related fee income.

Service charges on deposit accounts increased $399,000, or 30.9%, in 1998. The
Corporation engaged a consulting group in the fourth quarter of 1997.  They
completed an analysis of various products and processes that sought ways to
enhance productivity by reducing expenses and improving noninterest income.
Most of the increase in deposit service charges was a direct result of
implementing their recommendations. Fees from business checking accounts grew
in 1997 due to growth in business deposits.  In April 1996, the Corporation
raised automatic teller machine (ATM) transaction fees, which helped, increase
deposit service charges throughout 1998 and 1997.

Net gains from investment securities sales were $262,000 in 1998.  The
Corporation liquidated some of its community bank stock portfolio accounting
for most of the gains.   A similar liquidation in late 1997 accounted for
$74,000 in gains.  The other gains in 1997 and in 1996 came from investment
portfolio restructuring used to increase interest income and decrease overall
asset sensitivity.

29 <PAGE>



















































Drovers Bancshares Corporation and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS, (continued)

OTHER INCOME, (continued)
Net gains on loan sales result mostly from the sale of residential mortgages.
Low interest rates, a strong economy and a mild winter pushed gains to record
levels in 1998.  Mortgage loans sold were $60,817,000, $30,321,000 and
$23,814,000 in 1998, 1997 and 1996, respectively.  When the Corporation sells
loans and retains servicing, it recognizes a servicing asset.  This
recognition increases the loan sale gains.  Mortgage servicing rights
recognized and included in loan sale gains were $361,000, $197,000 and
$176,000 in 1998, 1997 and 1996, respectively.  The Corporation sold a small
credit card portfolio in 1998 for a gain of $43,000.  The sale of commercial
loan participations in 1998 totaled $3,682,000.  This generated a $28,000 gain
from capitalizing the loan servicing rights.

The Corporation recognized a $104,000 loss during 1998 from its equity
investments in four real estate limited partnerships.  The partnerships were
formed to renovate properties for lease as low-income housing apartments.  The
first two partnerships opened in 1994 and 1996.  Both remain fully occupied.
The third partnership opened its first of two buildings in late 1998.
Apartment rent-up has exceeded projections.  Construction has begun on the
building owned by the fourth partnership and is expected to open in 1999.  The
Corporation receives substantial financial benefits from these investments in
the form of historic and low-income tax credits.

Other income increased $271,000, or 28.6%, in 1998.  The Corporation offers
ATM and debit cards, charges surcharges for non-customers using our ATM
machines and provides electronic interchange services for various merchants.
The fees associated with these various electronic transactions have steadily
increased.  In 1998, these fees increased $157,000 and provided most of the
growth in other income.  The ATM surcharge generated $180,000 in fees in 1997,
its first year of implementation.  Loan servicing income continues to provide
a steady source of other income.  Total mortgage loans serviced were
$106,647,000, $100,355,000 and $93,327,000 at the end of 1998, 1997 and 1996,
respectively.

<TABLE>
OTHER EXPENSES
<CAPTION>
                                  Years Ended December 31,    Increase(Decrease)    
(in thousands)                      1998     1997    1996    98/97    97/96    96/95
<S>                                  <C>      <C>     <C>     <C>      <C>      <C> 
Salaries and employee benefits .  $ 8,006  $ 7,597 $ 6,818     5.4%    11.4%    6.1%
Occupancy and premises .........    1,246      917     827    35.9%    10.9%    3.6%
Furniture and equipment ........    1,365    1,111     896    22.9%    24.0%   22.1%
Marketing ......................      645      441     627    46.3%   -29.7%   61.2%
Net cost of operation                                                               
 of other real estate ..........       56       53      26     5.7%   103.8%  766.7%
Supplies........................      535      443     442    20.8%     0.2%   27.7%
Other taxes ....................      375      331     325    13.3%     1.8%   10.5%
Other ..........................    3,003    2,341   2,089    28.3%    12.1%    1.0%
Total other expenses ...........  $15,231  $13,234 $12,050    15.1%     9.8%    9.0%
</TABLE>


Other expenses include all expenses except interest, provision for loan losses
and income taxes.  In 1998, total other expenses increased $1,997,000,
or 15.1%.

Salaries and employee benefits are the most significant noninterest expense
category, representing 52.6% of total other expenses for 1998.  In 1998,
salaries and employee benefits increased $409,000, or 5.4%. Enhancing
productivity was a focal point of the recent consulting engagement.  Full-time
equivalent staffing levels were 215 at the end of 1998 compared to 209 in 1997
and 193 in 1996. The Corporation maintains two incentive compensation plans.
Both plans require minimum earnings targets before incentives are paid.  The
Corporation paid incentives of $511,000, $391,000 and $234,000 in 1998, 1997
and 1996, respectively. 



30 <PAGE>
















































Drovers Bancshares Corporation and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS, (continued)

OTHER EXPENSES, (continued)
Occupancy and premises expense increased $329,000, or 35.9%, during 1998.  Two
branch offices opened in late 1997 caused most of this year's increase.  Lease
payments for the new Hellam office, opened in January 1999, began in the
fourth quarter.  The Corporation accelerated the depreciation expense on a
branch office scheduled for relocation within a grocery store.  This resulted
in an additional $56,000 in expense.  Occupancy and premises expense includes
the lease revenues less operating expenses of the 96 South George Street
office building for office space not occupied by the Corporation.  This
resulted in a reduction of total occupancy and premises expense of $17,000,
$111,000 and $134,000 in 1998, 1997 and 1996, respectively. The positive
impact to occupancy and premises expense has declined due to an increase in
space occupied by the Corporation and its subsidiaries.

Furniture and equipment expense increased $254,000, or 22.9%, in 1998.
Personal computer and Year 2000 software upgrades contributed to the increase.
Depreciation expense rose due to the equipment purchased for the new branch
offices.  Costs associated with a mainframe and ATM network upgrade and the
depreciation expense related to the Dover branch office caused the 1997
increase.  The Corporation installed a wide area computer network and
renovated office space in two buildings in the fourth quarter of 1995.  The
full impact of the depreciation from these capital expenditures occurred in
1996.

Marketing expense grew $204,000, or 46.3%, during 1998.  The Corporation
conducted an extensive image and branding campaign.  The campaign focused on
the Corporation's community bank image and commitment to the markets it serves.
A subsidiary of the Corporation, The Drovers & Mechanics Bank, celebrated its
115th anniversary in June.

The net cost of operating other real estate was $56,000 in 1998 compared to
$53,000 in 1997 and $26,000 in 1996.  Other real estate held was $148,000,
$154,000 and $803,000 in 1998, 1997 and 1996, respectively.

Other expenses increased $662,000, or 28.3%, in 1998. Professional services
increased $146,000 mainly due to consulting services discussed previously.
Total costs for consulting services were about $270,000, well below the
savings received from implementing their recommendations.  In addition, the
Corporation commissioned an organizational sales assessment.  As a result,
extensive sales and sales management training will begin in 1999.  The
training will help sustain growth and high performance.  Amortization of loan
servicing rights increased $96,000 in 1998 due to an increase in residential
mortgage loan refinancings.  Data processing expenses increased $106,000
caused by the expansion of our ATM network.  Higher consulting and data
processing expenses contributed to the 1997 increase.  Legal fees and checking
account benefits purchased from a third party caused the increase in 1996.

TAXATION
The Corporation seeks to minimize its tax liability by investing in low-income
housing partnerships that provide tax credits, purchasing tax-free municipal
bonds and purchasing equity investments eligible for partially tax-free
dividends.  The effective tax rate was 16.6% in 1998, 23.3% in 1997 and 18.3%
in 1996.  Tax credits received were $807,000, $279,000 and $633,000 in 1998,
1997 and 1996, respectively.  Average municipal bonds were $23,546,000,
$22,207,000 and $14,746,000 in 1998, 1997 and 1996, respectively.  Average
equity securities were $18,212,000 in 1998, $13,114,000 in 1997 and $5,503,000
in 1996.  The effective tax rate fluctuates mainly from the level of tax
credits received.  The Corporation increased its holdings in tax advantaged
investments to help offset increasing taxable income.  Projected tax credits
are $789,000 in 1999, $595,000 per year in 2000 through 2003 and $2,168,000
thereafter.




31 <PAGE>




















































Drovers Bancshares Corporation and Subsidiaries 
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS, (continued)

FORWARD OUTLOOK
The Financial Accounting Standards Board issued Statement of Accounting
Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities."  The Statement establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts and for hedging activities.  The Standard becomes effective
for fiscal years beginning after June 15, 1999.  The Corporation has not
completed its assessment of the impact, if any, to earnings from applying this
Standard. 

The Corporation purchased land near Dillsburg, Pennsylvania in late 1998.
Construction of the new branch office will begin in early 1999.  The
Corporation expects to open its first loan production office (LPO) in the
first quarter of 1999.  The office will be located in Cumberland County, near
Harrisburg.  This will be the Corporation's first facility outside York
County.  The staff at the LPO will initially focus on commercial lending.
Negotiations continue to purchase land in Newberrytown, Pennsylvania to
establish a new branch office. Total capital expenditures are projected to be
$4,000,000 during 1999.  All capital expenditures will be funded from
operations.  

YEAR 2000 ISSUE
The following contains forward-looking statements which involve risks and
uncertainties.  The actual impact on the Corporation of the Year 2000 issue
could materially differ from that which is anticipated in the forward-looking
statements as a result of certain factors identified below.

The Year 2000 issue ("Y2K") is the result of computer programs being written
using two digits rather than four to define the applicable year.  It is
anticipated that some systems may recognize a date using "00" as the year
"1900" rather than "2000".  This could result in system failures,
miscalculations and disruptions of normal business operations including, among
other things, a temporary inability to process transactions, send statements
or engage in similar day-to-day business activities.

Corporation's State of Readiness

The Corporation relies heavily on various internal information technology (IT)
and non-information technology (Non-IT) systems and third parties.  In order
to prepare for the Year 2000 issue, the Corporation adopted the Federal
Financial Institutions Examination Council's (FFIEC) five step plan, which
includes awareness, assessment, remediation, testing and implementation.  As
part of the assessment step, the Corporation identified all IT and Non-IT
systems, as well as all significant third party relationships.  The
Corporation tested all IT and Non-IT systems identified as critical.  A small
number of systems were found to be noncompliant.  As of December 31, 1998,
remediation, testing and implementation of all mission critical systems was
complete.  The Corporation continues to assess all new systems and significant
upgrades to existing systems.

The Corporation implemented a vigorous vendor management program.  As part of
the program, Year 2000 certification information was requested from all
material third parties. Based on the responses received and information
gathered, the Corporation has not identified any material third parties with
Year 2000 issues that would interrupt normal business operations. The
Corporation is also addressing the impact, if any, the century date change may
have on its credit risk.

Costs of Year 2000

The costs to remediate the Corporation's IT and Non-IT systems have been minor
and are expected to total less than $100,000.  As of December 31, 1998, $65,000
has been expended on Year 2000 costs. The Corporation does not expect the
amounts required to be expensed over the next 12 months to have a material
effect on the financial position or results of operations.  However, if
compliance is not achieved in a timely manner by the Corporation or any of its
significant related third parties, be it a supplier of services or customer,
the Y2K issue could possibly have a material effect on the Corporation's
operations and financial position.


32 <PAGE>














































Drovers Bancshares Corporation and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS, (continued)

YEAR 2000 ISSUE, (continued)
Risks of Year 2000

At present, the Corporation believes its progress in remedying the critical
systems and monitoring its third parties' Y2K readiness is on target.  The Y2K
computer problem creates risk for the Corporation from unforeseen problems in
its own computer systems and from third party vendors' computer systems which
interface with the Corporation's computer applications.  Failure of third
party systems relative to the Y2K issue could have a material impact on the
Corporation's ability to conduct business.

Contingency Plans
At the present time, the Corporation is not aware of any reasonably likely
scenarios that would materially disrupt business operations.  The Corporation
recognizes the need to develop contingency plans to address situations that
could arise despite a low probability of occurrence.  The Corporation has
adopted the FFIEC four step plan: organizational planning, business impact
analysis, development of plan and validation.  The organizational planning phase
has been completed and a thorough business impact analysis is under way.
Contingency plans are being developed and will be tested throughout the
process.  The Corporation expects to complete contingency planning by June 30,
1999, but will continue updating and testing the plan throughout the year.

LIQUIDITY
The primary purpose of asset/liability management is to maintain adequate
liquidity and a desired balance between interest sensitive assets and
liabilities.  Liquidity management focuses on the ability to meet the cash
flow requirements of customers wanting to withdraw or borrow funds for their
personal or business needs.  Interest rate sensitivity management focuses on
consistent growth of net interest income in times of fluctuating interest
rates.  The management of liquidity and interest rate sensitivity must be
coordinated since decisions involving one may influence the other.

Liquidity needs may be met by either reducing assets or increasing
liabilities.  Sources of asset liquidity include short-term investments,
maturing and repaying loans and monthly cash flows from mortgage-backed
securities and collateralized mortgage obligations.  The loan portfolio
provides an additional source of liquidity due to the Corporation's
participation in the secondary mortgage market.  In addition to monthly cash
flows from certain investment securities, the Corporation designates a
substantial portion of its investment portfolio as available-for-sale.  At
December 31, 1998, this segment totaled $127,360,000, or 78.8% of the
investment portfolio.

Liquidity needs may be met by attracting deposits with competitive rates,
using repurchase agreements, buying federal funds or utilizing the facilities
of the Federal Reserve or the Federal Home Loan Bank of Pittsburgh.  The
Corporation maintains informal borrowing arrangements with several
correspondent banks to purchase overnight federal funds.  A formal arrangement
with the Federal Home Loan Bank allows the Corporation to borrow short and
intermediate advances up to approximately 80% of its investment in assets
secured by one to four family residential real estate.  The maximum borrowings
under this agreement at December 31, 1998 were $161,128,000, of which
$69,072,000, or 42.9%, was borrowed.  The ability to renew funding sources
depends on the financial institution's strength, asset portfolio, diversity of
depositors and types of deposit instruments offered.
33 <PAGE>
Drovers Bancshares Corporation and Subsidiaries 
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS, (continued)

LIQUIDITY, (continued)
Liquidity can be further analyzed by using the Statement of Cash Flows.  Cash
and cash equivalents increased $9,696,000 during 1998.  Cash used in investing
activities was $65,694,000 primarily as a result of a $77,321,000 increase in
net loans offset by a $17,055,000 decline in investment securities.  Funds
were also required for $3,477,000 of capital expenditures and $2,209,000 for
investments in real estate partnerships.  Cash provided by financing
activities was $65,078,000.  Deposits provided most of the cash.  Demand and
Savings deposits increased $35,074,000 and certificates of deposit increased
$20,508,000.  A net increase in short-term and long-term borrowings provided
an additional $11,237,000.  Operating activities provided the remaining cash
flows of $10,312,000. The significant components of operating activities are
net income, the add-back of noncash expenses like depreciation and provision
for loan losses and the net cash provided from the origination and sale of
mortgage loans generated for sale.

INTEREST RATE SENSITIVITY MANAGEMENT 
The Corporation's primary market risk is the risk of changes in net interest
income caused by changes in interest rates.  Interest rate sensitivity
management focuses on minimizing interest rate risk.  Management measures
ongoing interest rate risk through monthly "gap" reports and quarterly
computer simulations of net interest income.  A "gap" report measures the net
dollar exposure to changes in interest rates, at a given time, for various
repricing periods.  Results can sometimes be misleading since many interest-
bearing liabilities are not as sensitive to interest rate movements as the
repriceable assets which they help fund.  A better measure of interest rate
risk is simulations which project net interest income in rising, falling and
stable interest rate cycles.  The simulation results indicate the Corporation
is asset sensitive.  If interest rates fell for a sustained time period, net
interest income would decline.  This is mainly due to the relative
insensitivity in a downward rate environment of many interest-bearing deposit
liabilities.  Management has taken steps to mitigate this risk by increasing
holdings of variable rate borrowings, restructuring the investment portfolio
to include more fixed rate securities and decreasing holdings of adjustable
rate mortgages.  In addition, the Corporation successfully introduced a new
savings product in 1996 tied directly to short-term money market rates.  The
present interest rate risk is within tolerance limits established by
management.


















34 <PAGE>
Drovers Bancshares Corporation and Subsidiaries 
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS, (continued)

INTEREST RATE SENSITIVITY MANAGEMENT, (continued)
The table below provides information about the Corporation's financial
instruments sensitive to changes in interest rates.  The table presents
principal cash flows and related weighted average interest rates by expected
maturity dates.  Weighted average variable rates are based on implied forward
rates in the yield curve at December 31, 1998.

<TABLE>
<CAPTION>
                     Fair                                                          Over 5
(in thousands)      Value   Balance    1999     2000     2001     2002     2003    Years 
<S>                   <C>     <C>       <C>     <C>      <C>       <C>      <C>      <C>  
Cash............. $ 24,145 $ 24,145 $ 24,145  $     0  $     0 $      0  $     0  $     0 
    Average rate.              0.00%    0.00%    0.00%    0.00%    0.00%    0.00%    0.00%
Investments:                                                                              
  Fixed rate.....  132,823  130,097   40,359   23,566   14,664    7,024    2,891   41,593 
    Average rate.              6.16%    6.64%    6.67%    6.21%    5.95%    6.93%    5.39%
  Variable rate..   30,212   30,110   12,939    8,500    2,901      579      712    4,479 
    Average rate.              6.25%    6.27%    6.19%    6.09%    6.31%    7.38%    6.26%
Loans:                                                                                    
  Fixed rate.....  180,787  181,078   38,033   23,843   24,103   16,426   11,723   66,950 
    Average rate.              7.68%    6.69%    8.36%    8.35%    8.16%    8.15%    7.54%
  Variable rate..  208,646  209,031   48,024   17,390   10,929   13,463   10,078  109,147 
    Average rate.              8.31%    8.01%    8.34%    8.33%    8.48%    8.27%    7.99%
Deposits:                                                                                 
  Fixed rate.....  280,872  282,420  161,500   51,393   15,230   12,977   10,146   31,174 
    Average rate.              4.45%    5.24%    4.89%    3.13%    3.00%    1.88%    1.73%
  Variable rate..  175,252  175,252   20,644   19,638   18,856   18,856   18,856   78,402 
    Average rate.              2.71%    2.86%    2.78%    2.71%    2.71%    2.71%    2.66%
Other borrowings:                                                                         
  Fixed rate.....   56,286   58,677      199      311      225   20,241   12,369   25,332 
    Average rate.              5.34%    6.43%    6.29%    6.43%    5.54%    5.62%    5.01%
  Variable rate..   27,325   27,325   23,325    4,000        0        0        0        0 
    Average rate.              4.92%    4.78%    5.70%    0.00%    0.00%    0.00%    0.00%
</TABLE>

Investment securities are shown at amortized cost.  The table includes
prepayment assumptions for asset backed investments based on current
prepayment estimates.  Prepayment rates of 18%, 19% and 19% were used for
fixed rate consumer installment loans, fixed rate residential mortgages and
adjustable rate mortgages, respectively.  Core deposit decay rates of 5%-12%
were used based on historical experience, which allocated substantial amounts
into the over-five-year category.  Unfunded loan commitments comprise most of
the Corporation's off-balance sheet items.  These commitments are either
short-term or are priced at market at the time of funding.  Market risk is
minimal and, therefore, these items are not shown in the table.

Considerable judgment is necessary to develop these estimates.  The use of
different assumptions could materially change the estimated cash flows.
Changes in prepayment speeds, market interest rates or rates offered by the
Corporation could materially change the actual cash flows received.

Effective asset/liability management also considers the effects of changing
market prices on investment values.  As a financial institution, a large
portion of the Corporation's assets are monetary in nature and subject to an
increase/decrease in purchasing power during periods of deflation/inflation.
The gain/loss in purchasing power on these assets is primarily affected by the
degree of change in their interest rate spread relationships and, accordingly,
is a function of the level and magnitude of interest rate movements.
Minimizing the effects of inflation on investment values is necessary in the
management of interest rate risk.

35 <PAGE>























































Drovers Bancshares Corporation and Subsidiaries 
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS, (continued)

CAPITAL
Total shareholders' equity increased $4,723,000, or 10.9%, in 1998.  Equity,
before the impact of accumulated other comprehensive income, increased
$5,068,000, or 12.1%.  Newly generated capital can result from both internal
and external sources.  The majority of the Corporation's capital is generated
internally. A measure of internal capital generation is the percentage of
return on average equity times the percentage of earnings retained.  The
return on average equity was 14.7% for 1998 and 13.9% for 1997.  Total cash
dividends declared in 1998 represented 30.1% of net income, as compared to
30.3% in 1997.  The resulting internal capital growth percentage was 10.3% in
1998 and 9.7% in 1997.  The percentage of average shareholders' equity to
average total assets was 8.3% in 1998 and in 1997, indicative of a strong
capital base.  All of the above calculations involving average equity included
an average gain on available-for-sale investment securities of $1,641,000 in
1998 and $558,000 in 1997.

The Federal Reserve Board implemented risk-based capital guidelines for bank
holding companies in 1989.  The guidelines establish a systematic framework
making capital requirements more sensitive to differences in risk structure
among banking organizations.  The regulations require banking organizations to
maintain capital equivalent to 8.0% of risk weighted assets, at least half of
which must be common equity.  Capital is divided into two tiers.  Tier 1
capital includes common stock, additional paid-in capital and retained earnings.
Tier 2 includes the allowance for loan losses, up to a maximum of 1.25% of
risk adjusted assets.  In addition to the risk-based capital requirements,
regulations require a minimum leverage ratio of 3.0% to 5.0%, depending on the
strength of the organization.  The leverage ratio divides Tier 1 capital by
total assets.

The following table shows the Corporation exceeds all minimum capital adequacy
standards:

<TABLE>
<CAPTION>
                                                       December 31,    
(in thousands)                                       1998       1997   
<S>                                                   <C>        <C>   
Tier 1 Capital .................................   $ 46,891   $ 41,877 
Tier 2 Capital .................................      4,315      3,304 
  Total risk-based capital .....................   $ 51,206   $ 45,181 
                                                                       
Risk-adjusted on-balance sheet assets ..........   $400,895   $332,434 
Risk-adjusted off-balance sheet exposure .......     14,180     12,491 
  Total risk-adjusted assets ...................   $415,075   $344,925 
                                                                       
Ratios:                                                                
  Tier 1 risk-based capital ratio ..............       11.3%      12.1%
  Minimum required for December 31, ............        4.0%       4.0%
                                                                       
  Total risk-based capital ratio ...............       12.3%      13.1%
  Minimum required for December 31, ............        8.0%       8.0%
                                                                       
  Tier 1 leverage ratio ........................        8.1%       8.0%
  Minimum required for December 31, ............        4.0%       4.0%

</TABLE>
36 <PAGE>
Drovers Bancshares Corporation and Subsidiaries 
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS, (continued)

FINANCIAL CONDITION
The Corporation functions as a financial intermediary and, therefore, its
financial condition and progress may be examined in terms of trends in its
sources and uses of funds.  The following comparison of average daily balances
indicates how the Corporation has generated and employed its funds:

<TABLE>
<CAPTION>

                                      1998                        1997             1996   
                          Average   Increase          Average   Increase         Average  
(in thousands)            Balance  (Decrease)     %   Balance  (Decrease)    %   Balance  
<S>                          <C>       <C>       <C>    <C>        <C>      <C>     <C>   
Funding uses:                                                                             
  Money market                                                                            
   investments .......... $    653   $  -601   -47.9% $  1,254   $-1,621  -56.4% $  2,875 
  Investment securities .  169,069     4,578     2.8%  164,491    60,010   57.4%  104,481 
  Loans .................  355,007    62,000    21.2%  293,007    27,474   10.3%  265,533 
    Total interest-                                                                       
     earning assets .....  524,729    65,977    14.4%  458,752    85,863   23.0%  372,889 
  Noninterest-earning                                                                     
   assets ...............   34,443     1,958     6.0%   32,485       753    2.4%   31,732 
Total uses .............. $559,172   $67,935    13.8% $491,237   $86,616   21.4% $404,621 
                                                                                          
Funding sources:                                                                          
  Demand deposits ....... $ 45,935   $ 3,349     7.9% $ 42,586    $1,140    2.8% $ 41,446 
  Savings deposits ......  119,555    18,243    18.0%  101,312    27,010   36.4%   74,302 
  Time deposits .........  218,759    18,136     9.0%  200,623    28,997   16.9%  171,626 
  Short-term borrowings .   28,418     2,758    10.7%   25,660    13,373  108.8%   12,287 
  Long-term borrowings ..   50,853    12,965    34.2%   37,888     6,852   22.1%   31,036 
    Total interest-                                                                       
     bearing liabilities.  463,520    55,451    13.6%  408,069    77,372   23.4%  330,697 
  Demand deposits .......   41,752     4,677    12.6%   37,075     3,821   11.5%   33,254 
  Other liabilities .....    7,550     2,013    36.4%    5,537     1,296   30.6%    4,241 
  Shareholders' equity ..   46,350     5,794    14.3%   40,556     4,127   11.3%   36,429 
Total sources ........... $559,172   $67,935    13.8% $491,237   $86,616   21.4% $404,621 

</TABLE>

Total average assets were $559,172,000, representing a $67,935,000, or 13.8%,
increase from 1997.  Loans accounted for nearly all the growth, increasing
$62,000,000, or 21.2%.  Commercial and residential mortgage lending provided
most of the growth in loans.

Total deposits grew $44,405,000, or 11.6%, in 1998.  This funded 65.4% of the
asset growth.  The popular Indexed Money Fund provided most of the growth in
savings deposits, which grew $18,243,000.  Certificate of deposit balances
continued to grow, increasing time deposits $18,136,000.  Average short- and
long-term borrowings increased $15,723,000.  Additional borrowings at the
Federal Home Loan Bank accounted for most of the increase.






37 <PAGE>

Drovers Bancshares Corporation
<TABLE>
ELEVEN YEAR SUMMARY OF SELECTED FINANCIAL INFORMATION 
<CAPTION>
 (dollar amounts in thousands, except per
    share data)                              1998       1997       1996       1995        1994  
BALANCE SHEET DATA AT DECEMBER 31,                                                              
<S>                                            <C>       <C>        <C>        <C>        <C>   
Assets ..................................   $597,793   $524,892   $446,713   $382,791   $352,287
Investment securities ...................    161,619    179,299    128,082     91,823     94,359
Net loans ...............................    386,197    310,369    279,987    252,468    226,737
Deposits ................................    457,672    402,086    360,204    306,653    283,173
Shareholders' equity ....................     48,193     43,470     38,092     34,921     29,724
                                                                                                
Total average assets ....................    559,172    491,237    404,621    369,785    339,649
Total average shareholders' equity ......     46,350     40,556     36,429     32,823     29,538
                                                                                                
INCOME DATA                                                                                     
Interest income .........................   $ 40,991   $ 36,267   $ 30,055   $ 28,053   $ 23,300
Interest expense ........................     21,736     19,254     14,791     13,529     10,406
  Net interest income ...................     19,255     17,013     15,264     14,524     12,894
Provision for loan losses ...............      1,266        386        645        501        382
Net interest income after                                                                       
  provision for loan losses .............     17,989     16,627     14,619     14,023     12,512
Other income ............................      5,408      3,953      3,364      2,837      2,457
Other expenses ..........................     15,231     13,234     12,050     11,058     10,355
Income taxes ............................      1,356      1,715      1,084      1,521        845
Income before cumulative effect of change                                                       
  in accounting for income taxes ........      6,810      5,631      4,849      4,281      3,769
Cumulative effect of change in accounting                                                       
  for income taxes ......................          0          0          0          0          0
Net income ..............................      6,810      5,631      4,849      4,281      3,769
Dividends paid ..........................      2,050      1,707      1,606      1,407      1,156
                                                                                                
RATIOS                                                                                          
Return on average assets ................      1.22%      1.15%      1.20%      1.16%      1.11%
Return on average equity ................     14.69%     13.88%     13.31%     13.04%     12.76%
Equity to assets (year-end) .............      8.06%      8.28%      8.53%      9.12%      8.44%
Net loans to deposits (year-end) ........     84.38%     77.19%     77.73%     82.33%     80.07%
Dividend payout .........................     30.10%     30.31%     33.12%     32.87%     30.67%
PER SHARE DATA*                                                                                 
Net income ..............................   $   1.53   $   1.27   $   1.10   $   0.97   $   0.86
Net income, assuming dilution ...........       1.51       1.26       1.09       0.97       0.86
Cash dividends ..........................       0.46       0.39       0.36       0.32       0.26
Book value (year-end) ...................      10.79       9.79       8.61       7.92       6.75
Weighted average number of                                                                      
  shares outstanding ....................  4,455,385  4,426,635  4,420,899  4,411,382  4,379,013
Stock dividends and stock splits paid ...        50%         5%        25%         7%        25%
</TABLE>


* Per share figures are based on weighted average shares outstanding for the
    respective years as restated after giving effect to stock dividends. 
38<PAGE>
















































Drovers Bancshares Corporation
<TABLE>
ELEVEN YEAR SUMMARY OF SELECTED FINANCIAL INFORMATION, (Continued)
<CAPTION>
(dollar amounts in thousands, except per                                                                   
  share data)                                 1993      1992       1991       1990       1989       1988   
<S>                                             <C>      <C>         <C>       <C>        <C>         <C>  
BALANCE SHEET DATA AT DECEMBER 31,                                                                         
Assets ..................................   $320,851   $308,319   $276,537   $253,324   $240,886   $236,007
Investment securities ...................     85,836     99,011     86,054     66,222     63,682     68,556
Net loans ...............................    206,614    181,056    166,691    164,063    150,880    137,094
Deposits ................................    265,917    256,806    243,717    227,916    216,532    213,249
Shareholders' equity ....................     29,249     25,554     23,377     21,715     20,321     19,042
                                                                                                           
Total average assets ....................    315,138    288,792    266,000    247,502    234,210    223,991
Total average shareholders' equity ......     27,379     24,570     22,507     21,085     20,152     18,641
                                                                                                           
INCOME DATA                                                                                                
Interest income .........................   $ 22,445   $ 22,490   $ 23,651   $ 23,290   $ 21,829   $ 19,608
Interest expense ........................     10,246     11,363     13,561     14,106     13,334     11,814
  Net interest income ...................     12,199     11,127     10,090      9,184      8,495      7,794
Provision for loan losses ...............        447        552        568        416        365          0
Net interest income after provision for                                                                    
  loan losses ...........................     11,752     10,575      9,522      8,768      8,130      7,794
Other income ............................      2,651      2,216      1,715      1,381      1,243      1,115
Other expenses ..........................      9,866      8,877      7,966      7,366      6,895      6,632
Income taxes ............................      1,026        717        608        487        326        275
Income before cumulative effect of change                                                                  
  in accounting for income taxes ........      3,511      3,197      2,663      2,296      2,152      2,002
Cumulative effect of change in accounting                                                                  
  for income taxes ......................        352          0          0          0          0          0
Net income ..............................      3,863      3,197      2,663      2,296      2,152      2,002
Dividends paid ..........................      1,080      1,019      1,003        930        875        776
                                                                                                           
RATIOS                                                                                                     
Return on average assets ................      1.23%      1.11%      1.00%      0.93%      0.92%      0.89%
Return on average equity ................     14.11%     13.01%     11.83%     10.89%     10.68%     10.74%
Equity to assets (year-end) .............      9.12%      8.29%      8.45%      8.57%      8.44%      8.07%
Net loans to deposits (year-end) ........     77.70%     70.50%     68.40%     71.98%     69.68%     64.29%
Dividend payout .........................     27.96%     31.87%     37.66%     40.51%     40.66%     38.76%
PER SHARE DATA*                                                                                            
Net income ..............................   $   0.89   $   0.74   $   0.61   $   0.53   $   0.50   $   0.46
Net income, assuming dilution............       0.88       0.73       0.61       0.53       0.49       0.46
Cash dividends ..........................       0.25       0.24       0.23       0.21       0.20       0.18
Book value (year-end) ...................       6.72       5.89       5.39       5.01       4.69       4.40
Weighted average number of shares                                                                          
  outstanding ...........................  4,344,798  4,335,777  4,333,854  4,332,925  4,331,122  4,329,810
Stock dividends declared ................         5%         0%         0%         50%        5%         5%
</TABLE>
* Per share figures are based on weighted average shares outstanding for the
respective years as restated after giving effect to stock dividends.  39 <PAGE>
Drovers Bancshares Corporation and Subsidiaries
<TABLE>
AVERAGE BALANCES AND RATES
<CAPTION>
                                            1998                       1997                       1996   
                                  Average           Average  Average           Average  Average           Average
(in thousands)                    Balance Interest    Rate   Balance Interest    Rate   Balance Interest    Rate 
<S>                              <C>       <C>        <C>   <C>       <C>        <C>   <C>       <C>        <C>  
ASSETS                                                                                                           
Interest-earning assets:                                                                                         
  Interest-bearing deposits                                                                                      
    with banks ................. $    653  $    41    6.28% $  1,254  $    70    5.58% $  2,875  $   155    5.39%
  Taxable investment                                                                                             
    securities .................  127,311    8,156    6.41%  129,170    8,712    6.74%   84,232    5,492    6.52%
  Equity securities ............   18,212    1,033    5.67%   13,114      767    5.85%    5,503      336    6.11%
  Tax-exempt investment                                                                                          
    securities .................   23,546    1,278    5.43%   22,207    1,231    5.54%   14,746      873    5.92%
  Loans ........................  355,007   30,483    8.59%  293,007   25,487    8.70%  265,533   23,199    8.74%
        TOTAL ..................  524,729  $40,991    7.81%  458,752  $36,267    7.91%  372,889  $30,055    8.06%
Noninterest-earning assets .....   34,443                     32,485                     31,732                  
TOTAL ASSETS ................... $559,172                   $491,237                   $404,621                  
LIABILITIES AND                                                                                                  
SHAREHOLDERS' EQUITY                                                                                             
Interest-bearing liabilities:                                                                                    
  Demand deposits .............. $ 45,935  $   534    1.16% $ 42,586  $   514    1.21% $ 41,446     $510    1.23%
  Savings deposits .............  119,555    4,379    3.66%  101,312    3,600    3.55%   74,302    2,116    2.85%
  Time deposits ................  218,759   12,461    5.70%  200,623   11,530    5.75%  171,626    9,696    5.65%
  Short-term borrowings ........   28,418    1,491    5.25%   25,660    1,353    5.27%   12,287      584    4.75%
  Long-term borrowings .........   50,853    2,871    5.65%   37,888    2,257    5.96%   31,036    1,885    6.07%
        TOTAL ..................  463,520  $21,736    4.69%  408,069  $19,254    4.72%  330,697  $14,791    4.47%
Noninterest-bearing liabilities:                                                                                 
  Demand deposits ..............   41,752                     37,075                     33,254                  
  Other liabilities ............    7,550                      5,537                      4,241                  
  Shareholders' equity .........   46,350                     40,556                     36,429                  
TOTAL LIABILITIES AND                                                                                            
  SHAREHOLDERS' EQUITY ......... $559,172                   $491,237                   $404,621                  
NET INTEREST SPREAD ............                      3.12%                      3.19%                      3.59%
INTEREST EXPENSE AS A                                                                                            
  PERCENT OF EARNING ASSETS ....                      4.14%                      4.20%                      3.97%
NET INTEREST INCOME MARGIN .....           $19,255    3.67%           $17,013    3.71%           $15,264    4.09%


</TABLE>
Average nonaccrual loans included in average loans for 1998, 1997 and 1996
were $797,000, $680,000 and $2,167,000, respectively.  Loan fees included
in interest income were $1,202,000, $483,000 and $356,000 in 1998, 1997 and
1996, respectively.


40 <PAGE>