SECURITIES AND EXCHANGE COMMISSION 
                             WASHINGTON, D.C.  20549 
                                    FORM 10-Q 
 
(Mark One) 
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES 
    EXCHANGE ACT OF 1934 
 
                  For the quarterly period ended March 31, 1998 
 
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES 
    EXCHANGE ACT OF 1934 
 
                         Commission file number 0-10958 
 
 
                         DROVERS BANCSHARES CORPORATION 
             (Exact name of registrant as specified in its charter) 
 
                      PENNSYLVANIA                                23-2209390 
(State or other jurisdiction of incorporation or organization)(IRS employer ID) 
 
            30 SOUTH GEORGE STREET, YORK, PA                         17401 
        (Address of principal executive office)                    (Zip Code) 
 
       Registrant's telephone number, including area code  (717) 843-1586 
 
 
 
                                      NONE 
      (Former name, address and fiscal year, if changed since last report.) 
 
 
Indicate by check mark whether the registrant (1) has filed all reports 
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 
1934 during the preceding 12 months (or for shorter periods that the registrant 
was required to file such reports), and (2) has been subject to such filing 
requirements for the past 90 days. Yes [X] No [ ] 
 
Indicate the number of shares outstanding of each of the issuer's classes of 
common stock, as of the latest practicable date. 
 
 
 
               Class                      Outstanding at March 31, 1998 
           Common Stock                            2,965,641 Shares 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
1 <PAGE> 
Drovers Bancshares Corporation and Subsidiaries 
CONTENTS 
PART I  FINANCIAL INFORMATION 
 
 ITEM 1.  FINANCIAL STATEMENTS 
 
  Consolidated Statements of Condition ...................................  3 
   March 31, 1998 and December 31, 1997 
 
  Consolidated Statements of Income ......................................  4 
   Three Months Ended March 31, 1998 and 1997 
 
  Consolidated Statements of Comprehensive Income ........................  5 
   Three Months Ended March 31, 1998 and 1997 
 
  Consolidated Statements of Cash Flows ..................................  6 
   Three Months Ended March 31, 1998 and 1997 
 
  Notes to Consolidated Financial Statements .............................  7 
 
 ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL 
          CONDITION AND RESULTS OF OPERATIONS ............................ 11 
 
PART II  OTHER INFORMATION 
 SIGNATURES .............................................................. 16 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2 <PAGE> 
Drovers Bancshares Corporation and Subsidiaries 
PART I  FINANCIAL INFORMATION 
CONSOLIDATED STATEMENTS OF CONDITION 
(In thousands) 
                                                             
                                                          MARCH 31,  DEC 31, 
ASSETS                                                       1998      1997 
Cash and due from banks ................................  $ 19,030   $ 14,549 
Money market investments ...............................     3,341        379 
Investment securities (fair value $171,217 and $180,245)   170,298    179,299 
   
Loans (net of unearned income of $3,307 and $3,320) ....   340,980    313,673 
Reserve for loan losses ................................     3,511      3,304 
                                                          ____________________ 
Net loans ..............................................   337,469    310,369 
 
Bank premises and equipment ............................    13,650     13,864 
Other assets ...........................................     9,450      6,432 
                                                          ____________________ 
TOTAL ASSETS ...........................................  $553,238   $524,892 
                                                          ==================== 
LIABILITIES   
Deposits:   
Noninterest-bearing ....................................  $ 45,527   $ 41,973 
Interest-bearing .......................................   381,381    360,113 
                                                          ____________________ 
Total deposits .........................................   426,908    402,086 
Federal funds purchased and securities sold under 
 agreements to repurchase ..............................    19,586     31,360 
Other borrowings .......................................    53,503     43,558 
Other liabilities ......................................     8,509      4,418 
                                                          ____________________ 
TOTAL LIABILITIES ......................................   508,506    481,422 
 
SHAREHOLDERS' EQUITY   
Common stock($5 par value), 10,000,000 shares authorized; 
 issued and outstanding--2,965,641 shares in 1998 and 
 2,961,127 shares in 1997 ..............................    14,828     14,806 
Additional paid-in capital .............................    18,697     18,664 
Retained earnings ......................................     9,571      8,407 
Accumulated other comprehensive income..................     1,636      1,593 
                                                          ____________________ 
TOTAL SHAREHOLDERS' EQUITY .............................    44,732     43,470 
                                                          ____________________ 
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY .............  $553,238   $524,892 
                                                          ==================== 
 
See notes to consolidated financial statements. 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
3 <PAGE> 
Drovers Bancshares Corporation and Subsidiaries 
PART I  FINANCIAL INFORMATION 
CONSOLIDATED STATEMENTS OF INCOME 
(In thousands, except per share data)          THREE MONTHS     
                                              ENDED MARCH 31,  
                                              1998      1997   
INTEREST INCOME   
Interest and fees on loans ................  $7,170   $6,101  
Interest on deposits with banks ...........       5        4  
Interest and dividends on  
 investment securities ....................   2,806    2,324  
                                             ________________ 
Total interest income .....................   9,981    8,429  
INTEREST EXPENSE   
Interest on deposits ......................   4,195    3,538  
Federal funds purchased and securities 
 sold under agreements to repurchase ......     365      318  
Interest on borrowed funds ................     731      466  
                                             _________________ 
Total interest expense ....................   5,291    4,322  
                                             _________________ 
Net interest income .......................   4,690    4,107  
Provision for loan losses .................     239      120  
                                             _________________ 
Net interest income after 
 provision for loan losses ................   4,451    3,987  
OTHER INCOME   
Trust income ..............................     270      262  
Service charges on deposit accounts .......     375      305  
Securities gains ..........................     222        1  
Net gains on residential  
  mortgage loan sales .....................     247      157  
Equity in losses of real estate ventures...     -37      -13  
Other .....................................     253      193  
                                             _________________ 
Total other income ........................   1,330      905  
OTHER EXPENSES   
Salaries and employee benefits ............   2,016    1,819  
Occupancy and premises ....................     251      181  
Furniture and equipment ...................     295      260  
Marketing .................................     151      121  
Net cost of operation 
 of other real estate .....................       6       11  
Supplies ..................................     119       61  
Other taxes ...............................      96       90  
Other .....................................     763      521  
                                             _________________ 
Total other expenses ......................   3,697    3,064  
                                             _________________ 
Income before income taxes ................   2,084    1,828  
Applicable income taxes ...................     476      438  
                                             _________________ 
NET INCOME ................................ $ 1,608  $ 1,390  
                                             ================= 
PER SHARE DATA   
 
Net income ................................  $ 0.36   $ 0.31  
                                             ================= 
Net income, assuming dilution..............  $ 0.36   $ 0.31  
                                             =================  
Dividends .................................  $ 0.10   $ 0.09  
                                             ================= 
See notes to consolidated financial statements. 
 
 
 
4 <PAGE> 
Drovers Bancshares Corporation and Subsidiaries 
PART I  FINANCIAL INFORMATION 
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME 
 
                                                             THREE MONTHS 
                                                             ENDED MARCH 31, 
(In thousands)                                             1998         1997 
______________________________________________________________________________ 
Net income ............................................  $1,608       $1,390 
Other comprehensive income: 
Unrealized gains (losses) on securities arising during 
  period ..............................................     288         -729 
Reclassification adjustment for gains included in net 
  income ..............................................    -222            1 
                                                         _____________________ 
Other comprehensive income (loss) before tax ..........      66         -728 
Income taxes (benefits) related to other comprehensive 
  income ..............................................      23         -247 
                                                         _____________________ 
Other comprehensive income (loss) .....................      43         -481 
                                                         _____________________ 
COMPREHENSIVE INCOME ..................................  $1,651       $  909 
See notes to consolidated financial statements.          ===================== 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
5 <PAGE> 
Drovers Bancshares Corporation and Subsidiaries 
PART I  FINANCIAL INFORMATION 
CONSOLIDATED STATEMENTS OF CASH FLOWS 
(In thousands)                                              THREE MONTHS  
                                                           ENDED MARCH 31,  
                                                          1998        1997 
______________________________________________________________________________ 
CASH FLOWS FROM OPERATING ACTIVITIES:   
Net income ..........................................   $  1,608   $  1,390 
Adjustments to reconcile net income to net cash 
 from operating activities: 
Depreciation and amortization........................        330        311 
Net (accretion) amortization of investment security 
 (discounts) premiums ...............................         49        -29 
Provision for loan losses ...........................        239        120 
Gain on sale of securities held-to-maturity .........          0         -1 
Gain on sale of securities available-for-sale .......       -222          0 
Gain on sale of fixed assets ........................          0        -53 
Loans originated for sale ...........................    -14,450     -8,364 
Proceeds from sales of loans ........................     15,045      8,630 
Gain on sale of loans ...............................       -247       -157 
(Gain) loss on sale of other real estate ............          0          1 
Net deferred loan fees ..............................       -282       -229 
Equity in losses of real estate ventures.............         37         13 
Increase in interest/dividends receivable ...........         -2       -289 
Increase (decrease) in interest payable .............        279        354 
Increase in other assets ............................       -820        -48 
Increase in other liabilities .......................      2,201        676 
                                                         _____________________ 
Net cash provided by operating activities ...........      3,765      2,325 
CASH FLOWS FROM INVESTING ACTIVITIES:   
Proceeds from sales and maturities of securities 
 held-to-maturity ...................................      1,457        872 
Proceeds from sales and maturities of securities 
 available-for-sale .................................     12,877      2,605 
Purchases of securities held-to-maturity ............          0     -5,528 
Purchases of securities available-for-sale ..........     -5,095    -28,382 
(Increase)decrease in net loans .....................    -27,479      1,111 
Capital expenditures ................................       -103       -432 
Proceeds from sale of fixed assets ..................          1         73 
Net (purchase) return of investment in real estate 
 ventures ...........................................       -721          5 
Proceeds from sale of other real estate .............        134         73 
                                                        ______________________ 
Net cash used in investing activities ...............    -18,929    -29,603 
CASH FLOWS FROM FINANCING ACTIVITIES:   
Net increase(decrease)in demand deposits 
 and savings accounts ...............................     22,845      3,633 
Net increase in certificates of deposit .............      1,982      4,629 
Net increase in federal funds purchased 
 and repurchase agreements ..........................    -11,774     13,528 
Net increase (decrease) in other borrowings .........      9,954      4,957 
Payments made for capital leases ....................        -10         -8 
Dividends paid ......................................       -445       -421 
Proceeds from issuance of common stock ..............         55          0 
                                                        ______________________ 
Net cash provided by financing activities ...........     22,607     26,318 
                                                        ______________________ 
NET DECREASE IN CASH & CASH EQUIVALENTS .............      7,443       -960  
CASH & CASH EQUIVALENTS AT JANUARY 1, ...............     14,928     17,783 
                                                        ______________________ 
CASH & CASH EQUIVALENTS AT MARCH 31, ................    $22,371    $16,823 
See notes to consolidated financial statements.         ====================== 
 
 
 
6 <PAGE> 
Drovers Bancshares Corporation and Subsidiaries 
PART I  FINANCIAL INFORMATION 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
 
NOTE A - BASIS OF PRESENTATION 
 
In the opinion of management, the accompanying consolidated financial
statements contain all adjustments (including normal recurring accruals)
considered necessary to present fairly Drovers Bancshares' financial position
as of March 31, 1998 and December 31, 1997.  Operating results and changes in
cash flows for the three months ended March 31, 1998 are not necessarily 
indicative of the results that may be expected for the year ended 
December 31, 1998.  For further information, refer to the consolidated
financial statements and footnotes included in the Annual Report for the year
ended December 31, 1997. 
 
NOTE B - CALCULATION OF EARNINGS PER SHARE 
 
On April 22, 1998, the Corporation declared a 3-for-2 stock split to 
shareholders of record on May 8, 1998 and payable May 29, 1998.  Net income per 
share is computed based on the weighted average number of shares outstanding 
each period, giving retroactive effect to the 3-for-2 stock split declared in 
1998, a 5% dividend paid in 1997 and a 25% dividend paid in 1996.  Earnings per 
common share, assuming dilution gives effect to all dilutive potential common 
shares during each period. 
 
NOTE C - INVESTMENT SECURITIES 
 
The amortized cost and estimated fair value of investment securities classified 
as held-to-maturity as of March 31, 1998 are as follows: 
 
                                                     Gross      Gross  
                                        Amortized Unrealized Unrealized  Fair 
(In thousands)                             Cost      Gains      Losses   Value 
US Treasury securities and obligations 
 of US government corp and agencies ...  $10,471   $  149  $      0     $10,620 
Obligations of states and political 
 subdivisions .........................   18,117      654         0      18,771 
Mortgage-backed securities and 
 collateralized mortgage obligations ..   12,706      173        57      12,822 
                                        ________________________________________
Total investment securities ...........  $41,294   $  976  $     57     $42,213 
                                        ========================================
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
7 <PAGE> 
Drovers Bancshares Corporation and Subsidiaries 
PART I  FINANCIAL INFORMATION 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 
 
NOTE C - INVESTMENT SECURITIES, continued 
 
The amortized cost and estimated fair value of investment securities 
classified as available-for-sale as of March 31, 1998 are as follows: 
                                                    Gross      Gross    
                                       Amortized Unrealized Unrealized  Fair 
(In thousands)                            Cost      Gains      Losses   Value 
US Treasury securities and obligations 
 of US government corp and agencies ..  $ 11,002   $  80   $      4    11,078 
Obligations of states and political 
 subdivisions ........................     5,896     174          0     6,070 
Corporate obligations ................       500       0         15       485 
Mortgage-backed securities and 
 collateralized mortgage obligations .    92,388   1,230         16    93,602 
                                      ________________________________________ 
Total debt securities ................   109,786   1,484         35   111,235 
Equity securities ....................    16,739   1,030          0    17,769 
                                      ________________________________________ 
Total investment securities ..........  $126,525  $2,514   $     35  $129,004 
                                      ======================================== 
The amortized cost and estimated fair value of investment securities classified 
as held-to-maturity as of December 31, 1997 are as follows: 
                                                    Gross      Gross  
                                       Amortized Unrealized Unrealized  Fair 
(In thousands)                            Cost      Gains     Losses    Value 
US Treasury securities and obligations 
 of US government corp and agencies .. $ 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 
                                      ======================================== 
The amortized cost and estimated fair value of investment securities classified 
as available-for-sale as of December 31, 1997 are as follows: 
                                                    Gross      Gross  
                                       Amortized Unrealized Unrealized  Fair 
(In thousands)                            Cost      Gains     Losses    Value 
US Treasury securities and obligations 
 of US government corp and agencies ..  $ 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 
                                       ======================================= 
For additional information, see pages 22-23 of the Corporation's 1997 Annual 
Report. 
 
 
 
 
 
 
 
 
8 <PAGE> 
Drovers Bancshares Corporation and Subsidiaries 
PART I  FINANCIAL INFORMATION 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 
 
NOTE D - LOANS 
 
Loans are comprised of the following as of March 31, 1998 and December 31, 1997:
 
                                                         MARCH 31,   DEC 31, 
(In thousands)                                             1998      1997 
Commercial, financial and industrial loans ..........   $ 95,357   $ 80,636  
Real estate mortgage loans:   
  Real estate construction-related ...................     8,890     12,105  
  Real estate mortgage loans secured by 
    1-4 family residential properties ................   112,855    107,797  
  Other real estate ..................................    91,691     80,462  
                                                        _____________________ 
Total real estate mortgage loans .....................   213,436    200,364  
Consumer loans:   
  Monthly payment ....................................    30,489     30,952  
  Other revolving credit .............................     1,527      1,476  
                                                        _____________________ 
Total consumer loans .................................    32,016     32,428  
Leasing and other ....................................       171        245  
                                                        _____________________ 
Total loans ..........................................  $340,980   $313,673  
                                                        ===================== 
Changes in the reserve for loan losses for the periods ended March 31, were 
as follows: 
   
(In thousands)                                             1998       1997 
Balance, beginning of year ...........................  $  3,304   $  3,130  
Provision for loan losses ............................       239        120  
LESS: Loans charged-off ..............................        62         48  
Recoveries ...........................................        30         34  
                                                        _____________________ 
Balance, March 31 ....................................  $  3,511   $  3,236  
                                                        ===================== 
As of March 31, 1998, the total recorded investment in impaired loans was 
$1,367,000. Nonaccrual loans at March 31, 1998 were $459,000 compared to 
$740,000 at December 31, 1997. 
 
Residential mortgage loans with a book value of $6,609,000 were held for sale 
at March 31, 1998.  The cumulative fair value exceeded the book value of these 
loans.  Loans held for sale are included in total loans.  During the first 
quarter of 1998, the Corporation capitalized $98,000 in mortgage servicing 
rights and amortized $27,000. 
 
For additional information, see pages 23-24 of the Corporation's 1997 annual 
report. 
 
NOTE E - COMPREHENSIVE INCOME 
 
Effective beginning with March 31, 1998 interim reports, Financial Accounting 
Standard No. 130, "Reporting Comprehensive Income," (FAS 130) requires the 
reporting of comprehensive income.  Accordingly, the Consolidated Statements 
of Comprehensive Income was added to our interim financial statements.  The 
income tax expense or benefit allocated to each component of other 
comprehensive income for the periods ended March 31, were as follows: 
 
 
 
 
 
 
 
9 <PAGE> 
Drovers Bancshares Corporation and Subsidiaries 
PART I  FINANCIAL INFORMATION 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 
 
 
 
NOTE E - COMPREHENSIVE INCOME, continued 
      
(In thousands)                                               1998      1997 
Unrealized gains (losses) on securities arising during 
  period ...............................................     $98       $-247 
Reclassification adjustment for gains included in  
  net income ...........................................     -75           0 
                                                            __________________ 
Income taxes (benefits) related to other comprehensive 
  income ...............................................     $23       $-247 
                                                            ================== 
Accumulated other comprehensive income as of March 31, was as follows: 
    
(In thousands)                                               1998      1997 
Balance, January 1,.....................................    $1,593     $-481 
Current-period change ..................................        43       370 
                                                            __________________ 
Balance, March 31, .....................................    $1,636     $-111 
                                                            ================== 
All components of accumulated other comprehensive income were as a result of  
unrealized gains (losses) on investment securities available-for-sale. 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
10 <PAGE> 
Drovers Bancshares Corporation and Subsidiaries 
PART I  FINANCIAL INFORMATION 
MANAGEMENT'S DISCUSSION AND ANALYSIS OF 
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 
 
FINANCIAL CONDITION 
 
The following comparison of actual balances indicates how the Corporation has 
generated and employed its funds for the three months ending March 31, 1998: 
                                        BALANCE                       BALANCE 
                                        MARCH 31,  INCREASE            DEC 31, 
                                         1998     (DECREASE)    %      1997 
FUNDING USES:                                         (In thousands)    
Money market investments ............  $  3,341   $ 2,962    781.5%  $    379 
Investment securities ...............   170,298    -9,001     -5.0%   179,299 
Loans (net) .........................   337,469    27,100      8.7%   310,369 
                                       _______________________________________ 
Total interest-bearing assets .......   511,108    21,061      4.3%   490,047 
Noninterest-bearing assets ..........    42,130     7,285     20.9%    34,845 
                                       _______________________________________ 
TOTAL USES ..........................  $553,238   $28,346      5.4%  $524,892 
                                       ======================================= 
FUNDING SOURCES:     
Interest-bearing demand deposits ....  $ 46,195   $ 3,436      8.1%  $ 42,759 
Savings deposits ....................   123,458    14,870     13.8%   108,588 
Time deposits .......................   211,728     2,962      1.4%   208,766 
Short-term borrowings ...............    19,586   -11,774    -37.5%    31,360 
Long-term borrowings ................    53,503     9,945     22.8%    43,558 
                                       _______________________________________ 
Total interest-bearing liabilities ..   454,470    19,439      4.5%   435,031 
Noninterest-bearing demand deposits .    45,527     3,554      8.5%    41,973 
Other liabilities ...................     8,509     4,091     92.6%     4,418 
Shareholders' equity ................    44,732     1,262      2.9%    43,470 
                                       _______________________________________ 
TOTAL SOURCES .......................  $553,238   $28,346      5.4%  $524,892 
                                       ======================================= 
Total assets increased $28,346,000 since December 31, 1997.  Loans grew 
$27,100,000, or 8.7%, accounting for nearly all the asset growth.  Commercial 
loan demand was strong.  Commercial loans grew $14,721,000, including auto 
dealer floorplan loans which grew $7,707,000.  Commercial real estate loans 
increased $11,229,000.  Low interest rates and mild weather fueled demand for 
residential mortgage loans.  Loans secured by residential real estate grew 
$5,058,000.  Consumer loan growth remained flat. 
 
Last year, management increased holdings in investment securities to leverage 
the Corporation's strong capital base.  Maturities and accelerating prepayments 
from mortgage-backed securities caused investment securities balances to fall 
$9,001,000.  Many of these funds were reinvested in higher yielding loans. 
During the first quarter, the Corporation made a $2,200,000 equity investment 
in a low-income housing partnership.  The investment will provide historic and 
low-income housing tax credits beginning as early as the fourth quarter of 1998.
The investment is shown as a noninterest-bearing asset. 
 
Deposits funded most of the asset growth during the quarter.  Total deposits 
grew $24,822,000, or 6.2%.  Nearly every deposit category increased.  The 
Corporation's Indexed Money Fund, a savings product which pays a money market 
interest rate, grew $13,979,000.  Some of the increase in overall deposits was 
due to seasonal fluctuations in account balances. 
 
 
 
 
 
 
 
 
11 <PAGE> 
Drovers Bancshares Corporation and Subsidiaries 
PART I  FINANCIAL INFORMATION 
MANAGEMENT'S DISCUSSION AND ANALYSIS OF 
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) 
 
 
LOAN QUALITY 
 
Impaired loans at March 31, 1998 were $1,367,000 compared to $1,314,000 at 
December 31, 1997.  Nonaccrual loans were $459,000 compared to $740,000 at the 
end of 1997.  Overall loan quality remains very good. 
 
Loan charge-offs were $62,000 in the first quarter.  All were consumer loans. 
Recoveries were $30,000.  
 
RESULTS OF OPERATION 
 
Drovers Bancshares recorded net income of $1,608,000 and $1,390,000 for the 
three months ended March 31, 1998 and 1997, respectively.  
 
The return on assets (ROA) and return on equity (ROE) for the three months 
ended March 31, 1998 was 1.21% and 14.67%, respectively.  This compares to an 
ROA and ROE for the same period last year of 1.23% and 14.53%, respectively. 
 
NET INTEREST INCOME 
 
Net interest income is the difference between the interest earned on loans and 
investments and the interest paid on deposits and other sources of funds.  The 
following table presents the trends in net interest income: 
 
                                      THREE MONTHS         
                                      ENDED MARCH 31,        
(In thousands)                  1998      1997  98/97 
Interest income ............  $ 9,981   $ 8,429  18.4% 
Interest expense ...........    5,291     4,322  22.4% 
                              __________________________  
Net interest income ........    4,690     4,107  14.2% 
Provision for loan losses ..      239       120  99.2% 
                              __________________________ 
Net interest income after 
 provision for loan losses .  $ 4,451   $ 3,987  11.6% 
                              ========================== 
The Corporation's largest category of earning assets consists of loans to 
businesses and individuals.  The majority of earning assets are supported by 
interest-bearing commercial and consumer deposits and shareholders' equity.  
Changes in net interest income are determined by variations in the volume and 
mix of assets and liabilities as well as their sensitivity to interest rate 
movements.  
 
Net interest income increased $583,000, or 14.2%, compared to the first quarter 
last year.  The net interest margin declined from 3.92% in the first quarter 
last year to 3.75% this year.  An increase in earning assets more than offset 
the decline in margin.  Average earning assets were $507,029,000 and 
$425,056,000 during the first quarter of 1998 and 1997, respectively.  The net 
interest margin fell each quarter in 1997 as the Corporation leveraged its 
balance sheet by purchasing investment securities.  The fourth quarter 1997 
margin was 3.56% and averaged 3.71% for the year.  An increase in the mix of 
higher yielding loans compared to investment securities boosted the margin from 
the fourth quarter 1997.  In addition, the Corporation collected about $100,000 
in non-recurring loan service charges during the first quarter. 
 
 
 
 
 
 
12 <PAGE> 
Drovers Bancshares Corporation and Subsidiaries 
PART I  FINANCIAL INFORMATION 
MANAGEMENT'S DISCUSSION AND ANALYSIS OF 
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) 
 
 
NET INTEREST INCOME, continued 
 
Strong loan growth caused management to increase the provision for loan losses 
from $120,000 last year to $239,000 in the first quarter of 1998.  Loan quality 
remains very good.  The reserve for loan losses as a percentage of loans was 
1.03% at March 31, 1998.  This compares to 1.05% at the end of 1997. 
 
NONINTEREST INCOME    
                                           THREE MONTHS       
                                           ENDED MARCH 31,      
(In thousands)                          1998   1997  98/97 
Trust income ........................  $ 270   $262    3.1% 
Service charges on deposit accounts .    375    305   23.0% 
Securities gains ....................    222      1  999.9% 
Net gains on residential 
 mortgage loan sales ................    247    157   57.3% 
Equity in losses of 
 real estate ventures................    -37    -13  184.6% 
Other ...............................    253    193   31.1% 
                                      _______________________ 
Total ............................... $1,330  $ 905   47.0% 
                                      ======================= 
Noninterest income increased $425,000, or 47.0%, during the first quarter. 
Securities gains increased $221,000 as the Corporation liquidated a portion of 
its community bank stock portfolio.  The remaining portfolio had a cost basis 
of $1,056,000 at March 31, 1998 and unrealized gains of $511,000.  Low interest 
rates and a mild winter boosted mortgage activity.  Net gains on residential 
mortgage loan sales were $247,000 in the first quarter, a 57.3% increase over 
the same period last year.  Mortgage loan sales totaled about $14,700,000 in 
the first quarter.  We expect strong mortgage activity to continue in the 
second quarter. 
 
Service charges on deposit accounts increased $70,000 the first quarter.  The 
Corporation engaged a consulting group in the fourth quarter of 1997.  They 
have now completed their analyses of various products and processes, that 
sought ways to enhance productivity, reduce expenses and improve non-interest 
income.  The increase in deposit service charges was a direct result of 
implementing their recommendations. 
 
Other income increased $60,000, or 31.1%.  The Corporation implemented a 
surcharge for non-customers using our ATM machines beginning in the second 
quarter of 1997. Foreign ATM transaction fees increased $42,000 over the first 
quarter last year. 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
13 <PAGE> 
Drovers Bancshares Corporation and Subsidiaries 
PART I  FINANCIAL INFORMATION 
MANAGEMENT'S DISCUSSION AND ANALYSIS OF 
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) 
 
NONINTEREST EXPENSE    
                                         THREE MONTHS         
                                         ENDED MARCH 31,        
(In thousands)                     1998    1997   98/97  
Salaries and employee benefits .  $2,016  $1,819   10.8% 
Occupancy and premises .........     251     181   38.7% 
Furniture and equipment ........     295     260   13.5% 
Marketing ......................     151     121   24.8% 
Net cost of operation 
 of other real estate ..........       6      11  -45.5% 
Supplies .......................     119      61   95.1% 
Other taxes ....................      96      90    6.7% 
Other ..........................     763     521   46.4% 
                                  ________________________ 
Total ..........................  $3,697  $3,064   20.7% 
                                  ======================== 
Noninterest expense increased $633,000, or 20.7%, compared to the first 
quarter of 1997.  Two new branch offices, opened in late 1997, added about 
$150,000 to noninterest expense.  Other professional services increased 
$150,000, mainly due to the consultants discussed above.  Nearly all fees 
related to the engagement have now been recognized.  In the first quarter of 
1997, the Corporation sold a branch office that had been previously closed 
resulting in a gain of $50,000 This gain was netted against other expense last 
year.  A decline in tenant occupancy at the 96 South George Street Office 
Building, owned by the Corporation, increased occupancy and premises expense 
$43,000 during the first quarter. 
 
Enhancing productivity was a focal point of the recent consulting engagement 
Full-time equivalent (FTE's) staffing levels were 210 at March 31, 1998 
compared to 209 at the end of 1997 and 205 a year ago.  We have had some 
success in increasing productivity, especially in the branch offices. 
One full service branch office was recently reduced to drive-up 
operations only. 
 
TAXATION 
 
The Corporation recognized a provision for income taxes of $476,000 for the 
three months ending March 31, 1997.  The average tax rate, applicable income 
taxes divided by income before taxes, was 22.8%.  This compares to an average 
tax rate of 23.3% for all of 1997.  The Corporation manages its tax rate 
through the purchase of tax exempt investment securities and investments in 
low-income housing partnerships that provide historic and low-income tax 
credits.  
 
MARKET RISK 
 
The Corporation's primary market risk is the risk of changes in net interest  
income caused by changes in interest rates.  Management monitors ongoing  
interest rate risk through monthly "gap" reports and quarterly computer  
simulations of net interest income.  Measurements continue to indicate the  
Corporation is asset sensitive but well within the tolerance limits 
established by Management. 
 
 
 
 
 
 
 
 
 
14 <PAGE> 
Drovers Bancshares Corporation and Subsidiaries 
PART I  FINANCIAL INFORMATION 
MANAGEMENT'S DISCUSSION AND ANALYSIS OF 
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) 
 
 
FUTURE OUTLOOK 
 
The Corporation recently applied for listing on the Nasdaq National Market. 
The Nasdaq trading symbol, DROV, has been reserved for us pending approval. 
If approved, we will likely begin trading on Nasdaq sometime during the second 
quarter. Listing on Nasdaq should make it easier for shareholders to buy and 
sell our common stock.  Prices listed in the newspaper will also more 
accurately reflect prices from recent trades. 
 
In March 1998, the Corporation invested in its third low-income housing 
partnership. The partnership will renovate two buildings in Red Lion, 
Pennsylvania into fifty one-, two- and three-bedroom apartments for low-income 
families.  Construction begins in May and should conclude by yearend.  In 
addition to helping provide much needed quality, affordable housing, the 
Corporation will receive substantial tax credits beginning as soon as this year.
When the apartments open, the Corporation expects to immediately receive about 
$525,000 in historic tax credits.  This will result in a direct reduction in 
applicable income taxes and an increase in net income.  The impact of these tax 
credits has not been reflected in the Corporation's financial statements. 
 
Construction of a new branch office in Hellam, Pennsylvania will begin in May. 
The branch office is expected to open in October 1998.  The Corporation 
continues to negotiate a land purchase near Dillsburg, Pennsylvania.  If 
successful, we plan to open a branch on that site in 1999. 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
15 <PAGE> 
Drovers Bancshares Corporation and Subsidiaries 
PART II  OTHER INFORMATION 
SIGNATURES 
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the 
registrant has duly caused this report to be signed on its behalf by the 
undersigned thereunto duly authorized. 
 
                                   DROVERS BANCSHARES CORPORATION 
 
 
 
 
                                   /s/ A. Richard Pugh
                                   A. Richard Pugh, Chairman, President and 
                                   Chief Executive Officer 
 
 
 
 
                                   /s/ Debra A. Goodling
                                   Debra A. Goodling, Executive Vice President 
                                     and Treasurer 
                                   Principal Financial Officer 
 
 
 
 
                                   /s/ John D. Blecher
                                   John D. Blecher, Vice President and 
                                     Assistant Treasurer 
                                   Principal Accounting Officer 
 
 
                                   Date:  May 1, 1998 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
16 <PAGE>