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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 or 15 (d) OF
THE SECURITIES EXCHANGE Act OF 1934
For the fiscal year ended December 31, 1996 Commission file number 0-15786
COMMUNITY BANKS, INC.
(Exact name of registrant as specified in its charter)
Pennsylvania 23-2251762
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
150 Market Street, Millersburg, PA 17061
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (717) 692-4781
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
Common Stock, par value $5 per share American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: NONE
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 such shorter period 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
As of March 1, 1997, the aggregate market value (based on recent selling
prices) of the voting stock of the registrant held by its nonaffiliates
(2,193,647 shares) was $74,583,998
Indicate the number of shares outstanding of each registrant's classes of
common stock, as of the latest practical date.
2,885,322 shares of common stock outstanding on March 1, 1997
DOCUMENTS INCORPORATED BY REFERENCE
Exhibit 13 contains portions of the Annual Report to Stockholders incorporated
by reference into Parts I, II, and III.
Exhibit index is located on page 18. This document contains 20 pages.
Indicate by check mark if disclosure of delinquent filers pursuant to item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
PART I
Item 1. Business:
Community Banks, Inc. (Bank) is a bank holding company whose banking
subsidiary is Community Banks, N.A. (CBNA) and whose non-banking subsidiaries
are Community Banks Investments, Inc. (CBII) and Community Banks Life
Insurance Company, Inc. (CBLIC).
The Bank conducts a full service commercial banking business and provides
trust services in Northern Dauphin County, Northumberland County, western
Schuylkill County, and southern Luzerene County. The Bank currently has
twenty-one offices. There are 57 offices of commercial banks and savings and
loan associations within its market area with which the Bank competes.
Deposits of the Bank represent approximately 14% of the total deposits in the
market area. The Bank has seven offices in Dauphin County, two offices in
Northumberland County, nine offices in Schuylkill County, and three offices
in Luzerne County. On January 12, 1996, Community Banks, Inc. completed its
merger of the Citizens National Bank of Ashland (Citizens). Citizens had three
banking offices which are located in Ashland, Gordon, and Lavelle,
Pennsylvania. This transaction was accounted for as a pooling-of-interests.
Like other depository institutions, the Bank has been subjected to
competition from brokerage firms, money market funds, consumer finance and
credit card companies and other companies providing financial services and
credit to consumers. As a result of federal legislation, regulatory
restrictions previously imposed on the Bank with respect to establishing money
market fund accounts have been eliminated and the Bank is now better able to
compete with other financial institutions in its service area with respect to
interest rates paid on time and savings deposits, service charges on deposit
accounts and interest rates charged on loans.
During 1986 the Bank formed CBLIC to provide credit life insurance to its
consumer credit borrowers. Total premiums earned were $453,000 for the year
ended December 31, 1996. During 1985 the Bank formed CBII to make investments
primarily in equity securities of other banks. Total assets of CBII at
December 31, 1996 were $2,920,000.
The Bank has approximately 253 full and part-time employees and considers
its employee relations to be satisfactory.
Community Banks, Inc. is registered as a bank holding company with the
Board of Governors of the Federal Reserve System in accordance with the
requirements of the Bank Holding Company Act of 1956. It is subject to
regulation by the Federal Reserve Board and the Comptroller of the Currency.
In 1989, the Federal Reserve Board issued final risk-based capital
guidelines for bank holding companies which were phased in through December
31, 1992. The intent of regulatory capital guidelines is to measure capital
adequacy based upon the credit risk of various assets and off-balance sheet
items. Risk categories, weighted at 0%, 20%, 50% and 100%, are specifically
identified. The sum of the results of each such category is then related to
the adjusted capital account of the Company. A minimum required capital ratio
at December 31, 1996, was 8 percent. The Bank's December 31, 1996 ratio
approximated 17%. Subsequently, in August 1990 the board announced approval of
capital to total assets (leverage) guidelines. This minimum leverage ratio was
set at 4% and would apply only to those banking organizations receiving a
regulatory composite 1 rating. Most banking organizations will be required to
maintain a leverage ratio ranging from 1 to 2 percentage points above the
minimum standard. The Bank's leverage ratio at December 31, 1996, approximated
10%. Risk-based capital requirements replace previous capital guidelines
which established minimum primary and total capital requirements.
The following summarizes the Bank's capital adequacy position:
Required
Bank Regulatory Capital
(in thousands) December 31, 1996 December 31, 1996
Risk-based capital $48,426 17.5% $22,138 8.0%
Leverage ratio
(tier 1 capital) 46,331 10.7% 17,320 4.0%
-2-
Statistical Data:
Pages 19 through 21 of the Community Banks, Inc. Annual report to
stockholders dated December 31, 1996 contain information concerning:
Financial Highlights
Average Balances, Effective Interest Differential, and Interest Yields
for the three years ended December 31, 1996.
Rate/Volume Analysis for the two years ended December 31, 1996.
Appendix A attached to Part I contains information concerning:
Return on Equity and Assets for the five years ended December 31, 1996.
Amortized cost and Estimated Market Values of Investment Securities as
of December 31, 1996, 1995, and 1994.
Maturity Distribution of Securities as of December 31, 1996
(Market Value).
Loan Account Composition as of December 31, 1996, 1995, 1994, 1993, and
1992.
Maturities and Sensitivity to Changes in Interest Rates for Commercial,
Financial, and Agricultural Loans as of December 31, 1996.
Nonperforming Loans as of December 31, 1996, 1995, 1994, 1993, and
1992.
Loan Loss Experience for the five years ended December 31, 1996.
Loans Charged Off and Recovered for the five years ended
December 31, 1996.
Allowance for Loan Losses as of December 31, 1996, 1995, 1994, 1993,
and 1992.
Maturity Distribution of Time Deposits over $100,000 as of
December 31, 1996.
Interest Rate Sensitivity as of December 31, 1996.
-3-
Item 2. Properties:
The Bank owns no real property except through its subsidiary
bank, CBNA which owns the following buildings: 150 Market Street, Millersburg,
Pennsylvania (its corporate headquarters); 13-23 South Market Street,
Elizabethville, Pennsylvania; 3679 Peters Mountain Road, Halifax, Pennsylvania;
906 N. River Road, Halifax, Pennsylvania; 800 Peters Mountain Road, Dauphin,
Pennsylvania; Main and Market Streets, Lykens, Pennsylvania; Route 209, Porter
Township, Schuylkill County, Pennsylvania; 29 E. Main Street, Tremont,
Schuylkill County, Pennsylvania; Second and Carroll Streets, St. Clair,
Schuylkill County, Pennsylvania; R.D. 3, Mill Creek Manor, Pottsville,
Schuylkill County, Pennsylvania; 300 East Independence Street, Shamokin,
Northumberland County, Pennsylvania; Route 61, R.D. 1, Orwigsburg, Schuylkill
County, Pennsylvania; One South Arch Street, Milton, Northumberland County,
Pennsylvania; 4 West Broad Street, Hazleton, Luzerne County, Pennsylvania;
702 West Main Street, Valley View, Schuylkill County, Pennsylvania; 735 Center
Street, Ashland, Schuylkill County, Pennsylvania; P.O. Box 44, Gordon,
Schuylkill County, Pennsylvania; and 436 Main Street, Lavelle, Schuylkill
County, Pennsylvania. Real property located at 911 N. Centre Street,
Pottsville, Schuylkill County, Pennsylvania and Westside Drive, Shamokin Dam,
Snyder County, Pennsylvania is owned in contemplation of future expansion. In
addition thereto, CBNA leases an office at Main Street, Pillow, Pennsylvania,
pursuant to a lease which, with renewal options, will extend to the year 2008.
Also, the Bank leases offices at Route 93, Conyngham, Luzerne County,
Pennsylvania; 77 Airport Road, Hazleton, Luzerne County, Pennsylvania; and
6700 Derry Street, Rutherford, Dauphin County, Pennsylvania. From time to time,
the subsidiary bank also acquires real estate by virtue of foreclosure
proceedings, which real estate is disposed of in the usual and ordinary course
of business as expeditiously as is prudently possible.
All the buildings used by the Bank are free-standing and are used
exclusively for banking purposes with the exception of offices and retail
space rented at the St. Clair and Milton locations.
Item 3. Legal Proceedings:
There are no material pending legal actions, other than routine
litigation incidental to the business of the Bank, to which the Bank is a party.
Item 4. Submission of Matters to a Vote of Security Holders:
No matters were submitted to a vote of security holders during the
fourth quarter of 1996.
APPENDIX A
-4-
RETURN ON EQUITY AND ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, 1994, 1993, and 1992
1996 1995 1994 1993 1992
Return on average equity 12.08% 11.27% 12.61% 12.54% 12.48%
Return on average assets 1.40% 1.28% 1.39% 1.40% 1.36%
Average equity to average assets 11.63% 11.36% 10.99% 11.18% 10.92%
Dividend payout ratio 40.13% 42.23% 36.74% 35.00% 33.85%
-5-
APPENDIX A
Continued
AMORTIZED COST AND ESTIMATED VALUES OF INVESTMENT
SECURITIES
(dollars in thousands)
AT DECEMBER 31, 1996, 1995, and 1994
1996 1995 1994
Estimated Estimated Estimated
Amortized Market Amortized Market Amortized Market
Cost Value Cost Value Cost Value
Mortgage backed U.S. Government agencies $ 69,837 $ 68,528 $ 45,888 $ 46,153 $ 43,926 $ 41,900
U.S. Treasury and U.S. Government agencies 40,267 40,432 27,719 28,031 39,929 38,318
Obligations of states and political sub-
divisions 30,496 30,958 34,067 34,941 42,428 41,926
Other securities 4,450 5,528 7,232 8,301 7,082 7,466
Total $145,050 $145,446 $114,906 $117,426 $133,365 $129,610
======== ======== ======== ======== ======== ========
COMMUNITY BANKS, INC. and SUBSIDIARIES
MATURITY DISTRIBUTION OF SECURITIES (Market Value)
(dollars in thousands)
as of December 31, 1996
One Five Weighted
Within Through Through After Average Average
One Year Five Years Ten Years Ten Years Total Maturity Yield
U.S. Government and agencies $27,367 $40,932 $23,446 $17,215 $108,960 6 yr. 11 mos. 6.69%
Obligations of states and political
subdivisions 3,379 13,226 13,564 789 30,958 4 yr. 10 mos. 6.59%
Other 4,405 1,034 89 --- 5,528 4 mos. 3.64%
Total $35,151 $55,192 $37,099 $18,004 $145,446 6 yr. 2 mos. 6.55%
======= ======= ======= ======= ========
Percentage of total 24.2% 37.9% 25.5% 12.4% 100.0%
===== ===== ===== ===== ======
Weighted average yield 5.73% 6.39% 7.11% 7.49% 6.55%
===== ===== ===== ===== =====
Weighted average yields were computed on a tax equivalent basis using a
federal income tax rate of 34%.
The Bank monitors investment performance and valuation on an ongoing basis to
evaluate investment quality. An investment which has experienced a decline in
market value considered to be other than temporary is written down to its net
realizable value and the amount of the write down is accounted for as a
realized loss.
-6-
Appendix A
Continued
LOAN ACCOUNT COMPOSITION
(dollars in thousands)
as of December 31
1996 1995 1994 1993 1992
Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent
Commercial, financial and agricultural $ 44,129 16.8% $ 38,251 15.7% $ 32,243 14.8% $ 28,087 14.5% $ 21,829 11.7%
Real estate-construction 1,816 0.7 3,283 1.4 3,354 1.6 1,573 0.8 1,796 1.0
Real estate-mortgage 151,299 57.8 133,389 54.8 124,320 57.0 108,112 55.6 101,866 54.6
Personal-installment 59,142 22.6 62,373 25.6 51,953 23.8 49,777 25.6 53,061 28.5
Other 5,590 2.1 6,012 2.5 6,142 2.8 6,705 3.5 7,879 4.2
261,976 100.0% 243,308 100.0% 218,012 100.0% 194,254 100.0% 186,431 100.0%
Less: ===== ===== ===== ===== =====
Unearned discount (11,965) (11,671) (9,141) (8,122) (8,692)
Reserve for loan losses (2,798) (2,574) (2,346) (2,120) (1,891)
$247,213 $229,063 $206,525 $184,012 $175,848
======== ======== ======== ======== ========
The Corporation's loan activity is principally with customers located
within the local market area. The Corporation continues to maintain a
diversified loan portfolio and has no significant loan concentration in any
economic sector. Increased loan demand in 1996 resulted in increases
in commercial, financial, and agricultural and real estate loan balances of
15%, and 12%, respectively. Commercial, financial and agricultural loans
represented 16.8% of total loans at December 31, 1996 and consist principally
of commercial lending secured by financial assets of businesses including
account receivables, inventories and equipment, and, in most cases, include
liens on real estate. Real estate construction and mortgage loans are
primarily 1 to 4 family residential loans secured by residential properties
within the bank's market area. Personal-installment loans comprised 22.6% of
total loans at December 31, 1996 and consist principally of secured loans for
items such as automobiles, property improvement, household and other consumer
goods. The Corporation continues to sell fixed rate mortgages in the secondary
market to avoid associated interest rate risk. Historically, relative credit
risk of commercial, financial, and agricultural loans has generally
been greater than that of other types of loans.
MATURITIES AND SENSITIVITY TO CHANGES IN INTEREST
RATES FOR COMMERCIAL, FINANCIAL AND AGRICULTURAL AND REAL ESTATE - CONSTRUCTION LOANS
(dollars in thousands)
as of December 31, 1996
Maturity Distribution
One Year One to Over Five
Or Less Five Years Years Total
Commercial, Financial and
agricultural $24,697 $14,676 $4,756 $44,129
Real estate-construction 1,816 --- --- 1,816
$26,513 $14,676 $4,756 $45,945
======= ======= ====== =======
Interest Sensitivity
Variable Fixed Total
Due in one year or less $24,385 $2,128 $26,513
Due after one year 19,276 156 19,432
$43,661 $2,284 $45,945
======= ====== =======
-7-
APPENDIX A
Continued
NONPERFORMING LOANS
(dollars in thousands)
as of December 31
1996 1995 1994 1993 1992
Loans past due 90 days or more:
Commercial, financial and agricultural $ 20 $ 120 $ 152 $ 9 $ 196
Mortgages 547 558 440 485 1,017
Personal installment 189 236 226 219 596
Other 11 --- 1 9 10
767 914 819 722 1,819
Loans renegotiated with the borrowers NONE NONE NONE NONE NONE
Loans on which accrual of interest has
been discontinued:
Commercial, financial and agricultural 723 415 327 50 64
Mortages 1,904 1,245 888 1,244 931
Other 283 99 30 59 77
2,910 1,759 1,245 1,353 1,072
Other real estate owned 351 302 338 381 167
Total $4,028 $2,975 $2,402 $2,456 $3,058
====== ====== ====== ====== ======
The determination to discontinue the accrual of interest on nonperforming
loans is made on the individual case basis. Such factors as the character and
size of the loan, quality of the collateral and the historical creditworthiness
of the borrower and/or guarantors are considered by management in assessing
the collectibility of such amounts.
The approximate amount that would have been accrued on those loans for
which interest was discontinued in 1996 was $217,000. Interest income from
these loans would have approximated $141,000 in 1995.
The change in nonperforming loans is primarily a result of the impact of
economic conditions upon the loan portfolio. The economic outlook remains
uncertain. If the economy in the Bank's trading area improves this could have
a positive impact on delinquency trends and collectibility of loans. However,
the commercial real estate market in the Bank's trading area remains stagnant.
The ability of borrowers to liquidate collateral is dependent upon the demand
for commercial real estate projects and a buyer's ability to finance
commercial real estate projects.
-8-
APPENDIX A
Continued
LOAN LOSS EXPERIENCE
(dollars in thousands)
For the years ended December 31, 1996, 1995, 1994, 1993, and 1992
1996 1995 1994 1993 1992
Loans at year-end, net of unearned income $250,011 $231,637 $208,871 $186,132 $177,739
======== ======== ======== ======== ========
Average loans balance $243,840 $222,624 $196,751 $187,513 $181,226
======== ======== ======== ======== ========
Balance, allowance for loan losses,
January 1 $ 2,574 $ 2,347 $ 2,120 $ 1,891 $ 1,735
Net charge-offs (818) (501) (286) (703) (702)
Provision for loan losses 1,042 728 513 932 858
Balance, allowance for loan losses,
December 31 $ 2,798 $ 2,574 $ 2,347 $ 2,120 $ 1,891
======== ======== ======== ======== ========
Net charge-offs to loans at year end .33% .22% .14% .38% .39%
Net charge-offs to average loans .34 .23 .15 .37 .39
Balance of allowance for loan losses
to loans at year end 1.12 1.11 1.12 1.14 1.06
Averages are a combination of monthly and daily averages.
For detail, see Schedule of Loans Charged Off and Recovered.
The allowance for loans losses is based upon management's continuing
evaluation of the loan portfolio. A review as to loan quality, current
macro-economic conditions and delinquency status is performed at least on a
quarterly basis. The provision for loan losses is adjusted quarterly based
upon current review. The table on page 10 presents an allocation by loan
categories of the allowance for loan losses at December 31 for the last five
years. In retrospect, the specific allocation in any particular category may
prove excessive or inadequate and consequently may be reallocated in the
future to reflect the then current condition. Accordingly, the entire
allowance is available to absorb losses in any category.
As discussed in the Corporation's Annual Report, the Corporation adopted
SFAS 114, as amended by SFAS 118, on January 1, 1995. The adoption of SFAS 114
did not result in any additional provision for loan losses.
The provision for loan losses totalled $1,042,000 for the year ended
December 31, 1996 compared to $728,000, $513,000, $932,000, and $858,000 for
the years ended December 31, 1995, 1994, 1993, and 1992, respectively. The
relationship of the allowance for loan losses to loans at year end approximated
1.12% compared to ratios of 1.06% to 1.14% for the previous four years. In
reviewing the adequacy of the allowance for loan losses, management considered
the relationship of nonaccrual loans, other real estate owned, and accruing
loans contractually past due 90 days or more to total assets. This
relationship approximated .93%, .78%, .65%, .71%, and .91% at year-end 1996,
1995, 1994, 1993, and 1992, respectively.
-9-
APPENDIX A
Continued
LOANS CHARGED OFF AND RECOVERED
(dollars in thousands)
for the years ended December 31, 1996, 1995, 1994, 1993, and 1992
1996 1995 1994 1993 1992
Loans charged off:
Commercial, financial and agricultural $ 17 --- --- --- $ 63
Real estate-mortgage 133 $115 $151 $ 156 210
Personal installment 1,053 647 493 828 681
Other 93 78 119 66 59
Total 1,296 840 763 1,050 1,013
Loans recovered:
Commercial, financial and agricultural 6 --- --- --- 6
Real estate-mortgage 27 29 83 79 4
Personal installment 415 295 361 254 291
Other 30 15 33 14 10
Total 478 339 477 347 311
Net charge-offs $ 818 $501 $286 $ 703 $ 702
====== ==== ==== ====== ======
ALLOCATION OF
ALLOWANCE FOR LOAN LOSSES
(dollars in thousands)
as of December 31
1996 1995 1994 1993 1992
Loans:
Commercial, financial and agricultural $ 631 $ 355 $ 452 $ 577 $ 715
Real estate-construction 2 -- 1 --- 19
Real estate-mortgage 684 690 353 260 568
Installment 823 639 598 564 482
Unallocated 658 890 943 719 107
Balance $2,798 $2,574 $2,347 $2,120 $1,891
====== ====== ====== ====== ======
See Schedule "Loan Account Composition" for the percent of loan
classification to total loans.
MATURITY DISTRIBUTION OF TIME
DEPOSITS OF $100,000 OR MORE
(dollars in thousands)
as of December 31, 1996
Remaining to Maturity:
Less than three months $ 3,596
Three months to six months 2,135
Six months to twelve months 2,968
More than twelve months 4,228
$12,927
=======
-10-
APPENDIX A
Continued
INTEREST RATE SENSITIVITY
The excess of interest-earning assets over interest-bearing
liabilities which are expected to mature or reprice within a given period is
commonly referred to as the "GAP" for that period. For an institution with a
negative GAP, the amount of income earned on its assets fluctuates less than
the cost of its liabilities in response to changes in the prevailing rates of
interest during the period. Accordingly, in a period of decreasing interest
rates, institutions with a negative GAP will experience a smaller decrease in
the yield on their assets than in the cost of their liabilities. Conversely,
in a period of rising interest rates, institutions with a negative GAP face a
smaller increase in the yield on their assets than in the cost of their
liabilities. A decreasing interest rate environment is favorable to
institutions with a negative GAP because more of their liabilities than their
assets adjust during the period and, accordingly, the decrease in the cost of
their liabilities is greater than the decrease in the yield on their assets.
The negative GAP between the Bank's interest-earning assets and
interest-bearing liabilities maturing or repricing within one year
approximated 1.0% of total assets at December 31, 1996.
Significant maturity/repricing assumptions include the presentation
of all savings and NOW accounts as being 75% interest rate sensitive. Equity
securities are reflected in the shortest time interval. Assumed paydowns on
mortgage-backed securities and loans have also been included in all time
intervals.
The following table sets forth the scheduled repricing or maturity of
the Bank's interest-earning assets and interest-bearing liabilities at
December 31, 1996.
Interest Rate Sensitivity
At December 31, 1996 1-90 90-180 180-365 1 year Total
Dollars in thousands days days days or more
Assets
Interest-bearing deposits in
other banks $ 1,297 $ 100 --- --- $ 1,397
Investment securities 15,213 7,206 $12,732 $110,295 145,446
Federal funds sold --- --- --- --- ---
Loans, net of unearned income 76,730 99,891 18,576 54,814 250,011
Loans held for sale 4,622 --- --- --- 4,622
Total $97,862 $107,197 $31,308 $165,109 $401,476
Liabilities
Savings $29,519 $29,518 $59,036 $32,296 $150,369
Time 34,784 33,359 28,476 55,996 152,615
Time in denominations of
$100,000 or more 3,596 2,135 2,968 4,228 12,927
Short-term borrowings 13,217 --- --- --- 13,217
Long-term debt --- --- 4,000 21,000 25,000
Total $81,116 $65,012 $94,480 $113,520 $354,128
Interest Sensitivity Gap
Periodic $16,746 $42,185 $(63,172) $51,589
Cumulative 58,931 (4,241) 47,348
Does not include nonaccrual loans.
-11-
PART II
Item 5. Market for Registrant's Common Stock and
Related Stockholder Matters:
Incorporated by reference is the information appearing under the
heading "Market for the Holding Company's Common Stock and Related Securities
Holder Matters" on page 3 of the Annual Report to Stockholders for the year
ended December 31, 1996 (hereafter referred to as the "Annual Report").
Item 6. Selected Financial Data:
Incorporated by reference is the information appearing under the
heading "Financial Highlights" on page 19 of the Annual Report.
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations:
Incorporated by reference is the information appearing under the
headings "Rate/Volume Analysis"; "Average Balances, Effective Interest
Differential and Interest Yields"; and "Management's Discussion of Financial
Condition and Results of Operations" on pages 20 through 24 of the Annual
Report.
Item 8. Financial Statements and Supplementary Data:
The consolidated financial statements, together with the report
thereon of Coopers & Lybrand L.L.P. dated January 13, 1997, are incorporated
by reference to pages 6 through 19 of the Annual Report.
Item 9. Disagreements on Accounting and Financial Disclosures:
None.
-12-
PART III
Item 10. Directors and Executive Officers of the Registrant:
The following table sets forth the name and age of each director of
Community Banks, Inc. as well as the director's business experience, including
occupation for the past 5 years, the period during which he has served as a
director of the Bank, or its wholly-owned subsidiary, Community Banks, N.A.
(Formerly Upper Dauphin National Bank), and the number and percentage of
outstanding shares of Common Stock of the Bank beneficially owned by said
directors as of December 31, 1996.
Percentage
Business Experience Amount and of
Including Principal Nature of Outstanding
Occupation for the Director Beneficial Common Stock
Name and Age Past Five Years Since (1) Ownership(2) Owned
Thomas L. Miller Chairman of Bank 1966 33,008 (12) 1.15%
Age 64
Kenneth L. Deibler Self-Employed 1966 21,785 (3) .76%
Age 74 Insurance Broker
Elizabethville, PA
Leon E. Kocher Chairman of the Board, 1963 17,275 .60%
Age 84 Kocher Enterprise, Inc.
Millersburg, PA
Ernest L. Lowe President of Bank 1990 19,553 (11) .68%
Age 60
Robert W. Rissinger Sec./Treasurer 1968 151,254 (4) 5.27%
Age 70 Alvord Polk Tool Co. (5)
(cutting tools)
Engle Rissinger Auto Group
Millersburg, PA
Allen Shaffer Attorney-at-Law 1961 27,073 (9) .94%
Age 71 Millersburg and
Harrisburg, PA
William C. Troutman President, 1968 92,470 (6) 3.22%
Age 81 The W. C. Troutman Co.
(automobile dealership)
Millersburg, PA
James A. Ulsh Attorney-at-Law 1977 9,722 .34%
Age 50 Mette, Evans &
Woodside
Harrisburg, PA
Samuel E. Cooper Superintendent, 1992 1,252 .04%
Age 63 Warrior Run
School District
Turbotville, PA
Susan K. Nenstiel Insurance Broker 1996 132 --
Age 45 Nenstiel and Nenstiel
Hazleton, PA
-13-
Percentage
Business Experience Amount and of
Including Principal Nature of Outstanding
Occupation for the Director Beneficial Common Stock
Name and Age Past Five Years Since (1) Ownership(2) Owned
Ronald E. Boyer President, 1981 12,999 (7) .45%
Age 59 Alvord-Polk Tool Co.
(manufacturing of
cutting tools)
Millersburg, PA
Peter DeSoto President, 1981 25,826 .90%
Age 57 Metal Industries, Inc.
(manufacturing of metal
products)
Elizabethville, PA
Thomas W. Long President, 1981 13,799 (8) .48%
Age 67 Millersburg Hardware
Millersburg, PA
Donald L. Miller President, Miller Bros. 1981 55,876 1.95%
Age 67 Dairy
Millersburg, PA
Ray N. Leidich Dentist 1985 42,842 (10) 1.49%
Age 68 Tremont, PA
(1) Includes service as a director of CBNA (formerly Upper Dauphin
National Bank), a wholly-owned subsidiary of the bank, prior to 1983 and
service as a director of the bank after 1983.
(2) The securities "beneficially owned" by an individual are determined in
accordance with the definition of "beneficial ownership" set forth in the
regulations of the Securities and Exchange Commission. Accordingly, they may
include securities owned by or for, among others, the wife and/or children of
the individual and any other relative who has the same home as such individual,
as well as other securities as to which the individual has or shares voting
or investment power or has the right to acquire under outstanding stock
options within 60 days after December 31, 1996. Beneficial ownership may
be disclaimed as to certain of the securities.
(3) Includes 1,697 shares owned by Mr. Deibler's grandchildren.
(4) Includes 3,819 shares owned by Alvord-Polk Tool Co., Inc. the stock of
which is held 50% by Robert Rissinger and 50% by Ronald E. Boyer.
(5) Includes 8,509 shares owned by Engle Ford, Inc., 27,512 shares owned by
Mr. Rissinger's spouse, Shirley Rissinger, and 4,693 shares owned by Engle
Ford, Inc. Profit Sharing Plan in which Mr. Rissinger is Co-Trustee.
(6) Includes 20,573 shares owned by Mr. Troutman's spouse, Dorothy Troutman
and 5,824 shares owned by W.C. Troutman Co.
(7) Includes 3,819 shares owned by Alvord-Polk Tool Co., Inc., the stock of
which is held 50% by Robert W. Rissinger and 50% by Ronald E. Boyer, and 151
shares owned by Mr. Boyer's wife, Judith Boyer.
(8) Includes 8,157 shares owned by the Trust of Mr. Long's mother,
Leah Long.
(9) Includes 4,617 shares owned by Mr. Shaffer's Pension plan.
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(10) Includes 21,421 shares owned by Dr. Leidich's wife, Dolores Leidich.
(11) Includes 112 shares owned by Mr. Lowe's wife, Barbara and 70 shares
owned by Mr. Lowe's children and incentive stock options to acquire 18,273
shares.
(12) Includes incentive stock options to acquire 24,225 shares.
(13) Includes incentive stock options to acquire 11,595 shares.
(14) Includes incentive stock options to acquire 7,220 shares and 115 shares
registered to Mr. Lawley for his minor children.
(15) Includes incentive stock options to acquire 4,384 shares.
Section 16(a) Beneficial Ownership Reporting Compliance
In 1996, to the knowledge of CBI, all Executive Officers and
directors timely filed all reports with the Securities Exchange Commission,
except for Thomas L. Miller, who filed one Form 4 report, regarding one
transaction, in an untimely manner.
None of the directors or nominee directors are directors of other
companies with a class of securities registered pursuant to Section 12 of the
Securities Exchange Act of 1934.
Executive Officers:
The following table sets forth the executive officers of Community
Banks, Inc., their ages, their positions with Community Banks, Inc. and the
beneficial ownership (as determined in accordance with the rules and
regulations of the Securities and Exchange Commission) of Common Stock of the
Bank by each of such persons as of December 31, 1996.
Amount and Percentage
Principal Occupation Nature of of
for the Past Five Beneficial Outstanding
Name and Age Years Term (1) Ownership(2) Common Stock
Thomas L. Miller Chairman & Chief Executive 1966 33,008 (12) 1.15%
Age 64 Officer
Ernest L. Lowe President, 1985 19,553 (11) .68%
Age 60 Chief Operating Officer
Terry L. Burrows Executive Vice President, 1977 11,761 (15) .41%
Age 48 Chief Financial Officer
David E. Hawley Executive Vice President, 1975 11,733 (13) .41%
Age 58 Corporate Property Officer
Robert W. Lawley Executive Vice President, 1980 7,369 (14) .26%
Age 42 Chief Lending Officer
(1) Initial year employed in this capacity.
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The following is all shares beneficially owned by all directors and
executive officers of the Bank as a group:
Amount and Nature
of Beneficial
Ownership
Percent
Title of Class Direct Indirect of Class
Common 378,943 172,967 19.24%
Item 11. Executive Compensation:
Information regarding executive compensation is omitted from this
report as the holding company has filed a definitive proxy statement for its
annual meeting of shareholders to be held May 6, 1997; and the information
included therein with respect to this item is incorporated herein by reference.
Pension Plan:
The Bank maintains a pension plan for its employees. An employee
becomes a participant in the pension plan on January 1 or July 1 after
completion of one year of service (12 continuous months) and attainment of
the age 21 years. The cost of the pension is actuarially determined and paid
by the Bank. The amount of monthly pension is equal to 1.15% of average
monthly pay up to $650, plus .60% of average monthly pay in excess of $650,
multiplied by the number of years of service completed by an employee. Average
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monthly pay is based upon the 5 consecutive plan years of highest pay preceeding
retirement. The maximum amount of annual compensation used in determining
retirement benefits is $150,000. A participant is eligible for early
retirement after attainment of the age of 60 years and the completion of 5
years of service. The early retirement benefit is the actuarial equivalent of
the pension accrued to the date of early retirement. Thomas L. Miller and
Ernest L. Lowe have been credited with 38 and 12 years of service, respectively,
under the pension plan as of December 31, 1996.
The amounts shown on the following table assume an annual retirement
benefit for an employee who chose a straight-line annuity and who is presently
50 years old and who will retire at the age of 65 years.
Remuneration
Years of
Service $35,000 $55,000 $75,000 $95,000 $115,000 $135,000 $150,000 $175,000 $200,000 $225,000
15 $ 8,486 $13,736 $18,986 $24,236 $29,486 $34,736 $38,673 $38,673 $38,673 $38,673
20 $11,314 $18,314 $25,314 $32,314 $39,314 $46,316 $51,564 $51,564 $51,564 $51,564
25 $14,143 $22,893 $31,643 $40,393 $49,143 $57,893 $64,455 $64,455 $64,455 $64,455
30 $16,971 $27,471 $37,971 $48,471 $58,971 $69,471 $77,346 $77,346 $77,346 $77,346
35 $19,800 $32,050 $44,300 $56,550 $68,800 $81,050 $90,237 $90,237 $90,237 $90,237
40 $22,138 $35,778 $49,418 $63,058 $76,698 $90,338 $100,568 $100,568 $100,568 $100,568
Directors' Compensation:
Each director of CBI is paid a quarterly fee of $600.00. In addition,
each outside director receives a fee of $200.00 for attendance at the regular
quarterly meetings of the Board of Directors of CBI. Each director who is not
an executive officer also receives $200 for attendance at each committee
meeting of CBI.
Item 12. Security Ownership of Certain Beneficial
Owners and Management:
Refer to Item 10 on pages 13 through 16.
Item 13. Certain Relationships and Related Transactions:
(a) Transactions with Management and Others
Incorporated by reference is the information appearing in Note 12
(Related Parties) of Notes to Consolidated Financial Statements on page 15 of
the Annual Report.
(b) Certain Business Relationships
Allen Shaffer, a director of the Bank, is an attorney practicing in
Harrisburg and Millersburg, Pennsylvania, who has been retained in the last
two fiscal years by the Bank and who the Bank proposes to retain in the
current fiscal year. James A. Ulsh, a director of the Bank, is a shareholder/
employee of the law firm of Mette, Evans & Woodside, Harrisburg, Pennsylvania
which the Bank has retained in the last two fiscal years and proposes to
retain in the current fiscal year. Thomas J. Carlyon, a director of CBNA, is
a partner in the law firm of Carlyon & McNelis, Hazleton, Pennsylvania, which
CBI has retained in the last two fiscal years and proposes to retain in the
current fiscal year.
All loans to directors and their business affiliates, executive
officers and their immediate families were made by the subsidiary bank in the
ordinary course of business, at the subsidiary bank's normal credit terms,
including interest rates and collateralization prevailing at the time for
comparable transactions with other non-related persons, and do not represent
more than a normal risk of collection.
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PART IV
Item 14. Exhibits, Financial Statements Schedules and
Reports on Form 8-K:
Reference (page)
Annual
Form Report to
10-K Shareholders
(a) (1) Consolidated Financial Statements
Report of Independent Public
Accountants -- 19
Balance Sheets as of December 31, 1996
and 1995 -- 6
Statements of Income for each of the three years
ended December 31, 1996 -- 7
Statements of Changes in Stockholders'
Equity for each of the three years ended
December 31, 1996 -- 8
Statements of Cash Flows for each of the three
years ended December 31, 1996 -- 8
Notes to Financial Statements -- 9-18
All other schedules are omitted since the required information is
not applicable or is not present in amounts sufficient to require submission
of the schedule.
(3) Exhibits
(3) Articles of Incorporation and By-Laws. Incorporated Registration
by reference to the Proxy Statements dated April 14, 1987 and April 12, 1988
and Amendment 2 to Form S-2 dated May 13, 1987.
(13) Portions of the Annual Report to Security Holders incorporated by
reference within this document is filed as part of this report.
(21) Subsidiaries of the Registrant (see Item 1, pages 2 and 3).
(b) The registrant did not file on Form 8-K during the Fourth quarter of the
Fiscal year ended December 31, 1996.
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CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statements of
Community Banks, Inc. on Form S-8 (File No. 0-15786 and File No. 33-24908) of
our report, dated January 13, 1997 on our audits of the consolidated financial
statements of Community Banks, Inc. as of December 31, 1996 and 1995, and for
the years ended December 31, 1996, 1995, and 1994, which report is incorporated
by reference in this Annual Report on Form 10-K.
Coopers & Lybrand, L.L.P.
One South Market Square
Harrisburg, Pennsylvania
March 20, 1997
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Signatures
Pursuant to the requirements of Section 13 or 15 (d) 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.
Community Banks, Inc.
By:/S/ Thomas L. Miller
(Thomas L. Miller)
Chairman
Chief Executive Officer
and Director
Date: March 6, 1997
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on behalf
of the registrant and in the capacities and on the dates indicated.
Signature Title Date
/S/ Terry L. Burrows Ex. Vice President and 3/6/97
(Terry L. Burrows) Principal Financial Officer
/S/ Ronald E. Boyer Director 3/6/97
(Ronald E. Boyer)
/S/ Kenneth L. Deibler Director 3/6/97
(Kenneth L. Deibler)
/S/ Peter Desoto Director 3/6/97
(Peter DeSoto)
/S/ Leon E. Kocher Director 3/6/97
(Leon E. Kocher)
/S/ Ray N. Leidich Director 3/6/97
(Ray N. Leidich)
/S/ Thomas W. Long Director 3/6/97
(Thomas W. Long)
/S/ Ernest L. Lowe Director 3/6/97
(Ernest L. Lowe)
/S/ Donald L. Miller Director 3/6/97
(Donald L. Miller)
/S/ Robert W. Rissinger Director 3/6/97
(Robert W. Rissinger)
/S/ Allen Shaffer Director 3/6/97
(Allen Shaffer)
/S/ William C. Troutman Director 3/6/97
(William C. Troutman)
/S/ James A. Ulsh Director 3/6/97
(James A. Ulsh)
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