UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 11-K
(Mark One)
x ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2004
OR
o TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to _____
COMMISSION FILE NUMBER 0-15786
COMMUNITY BANKS, INC., 401(k) PLAN
COMMUNITY BANKS, INC.
750 East Park Drive
Harrisburg, PA 17111
COMMUNITY BANKS, INC. 401(k) PLAN
REPORT ON FINANCIAL STATEMENTS
YEARS ENDED
DECEMBER 31, 2004 AND 2003
COMMUNITY BANKS, INC. 401(k) PLAN
TABLE OF CONTENTS
To the Trustees
Community Banks, Inc. 401(k) Plan
Millersburg, Pennsylvania
We have audited the accompanying statement of net assets available for plan benefits of Community Banks, Inc. 401(k) Plan as of December 31, 2004, and the related statements of changes in net assets available for benefits for the year then ended. These financial statements are the responsibility of the Plan’s management. Our responsibility is to express an opinion on these financial statements based on our audit. The financial statements of Community Banks, Inc. 401(k) Plan as of December 31, 2003 were audited by other auditors whose report dated May 25, 2004, expressed an unqualified opinion on those statements.
We conducted our audit in accordance with auditing standards generally accepted in the United States of America. 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 that our audit provides a reasonable basis for our opinion.
In our opinion, the December 31, 2004 financial statements referred to above present fairly, in all material respects, the net assets available for benefits of Community Banks, Inc. 401(k) Plan as of December 31, 2004, and the changes in net assets available for benefits for the years then ended, in conformity with accounting principles generally accepted in the United States of America.
Our audit was conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental schedule of assets held for investment is presented for the purpose of additional analysis and is not a required part of the basic financial statements but is supplementary information required by the Department of Labor’s Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974. This supplemental information has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole.
BUFFAMANTE WHIPPLE BUTTAFARO, P.C.
Olean, New York
May 20, 2005
STATEMENTS OF NET ASSETS AVAILABLE FOR PLAN BENEFITS | Page 2 |
As of December 31, | | 2004 | | 2003 | |
| | | | | | |
Assets | | | | | |
| | | | | | |
| Investments: | | | | | |
| At fair value | | | | | |
| Common stock | | $ | 3,939,981 | | $ | 4,165,186 | |
| Mutual funds | | | 10,326,757 | | | 7,779,356 | |
| | | | | | | | |
| Employer contribution receivable | | | 1,491,785 | | | 1,121,492 | |
| | | | | | | | |
| Other assets: | | | | | | | |
| Participants loans | | | 241,433 | | | 174,678 | |
| Cash surrender value of life insurance | | | 3,289 | | | 6,391 | |
| | | | | | | | |
Total assets | | $ | 16,003,245 | | $ | 13,247,103 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Net assets available for benefits | | $ | 16,003,245 | | $ | 13,247,103 | |
See accompanying independent auditors’ report and notes to financial statements.
| COMMUNITY BANKS, INC. 401(k) PLAN STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE FOR PLAN BENEFITS | Page 3 |
For the year ended December 31, | | 2004 | | 2003 | |
| | | | | | |
| | | | | | |
Additions to net assets attributable to: | | | | | |
| Investment income | | | | | |
| Interest and dividend earnings | | | | | |
| Interest bearing cash and cash equivalents | | $ | 2,194 | | $ | 1,772 | |
| Cash dividends | | | 91,470 | | | 79,126 | |
| Participant loan interest | | | 11,002 | | | 6,738 | |
| | | | | | | | |
| Total interest and dividends | | | 104,666 | | | 87,636 | |
| | | | | | | | |
| Realized capital gains | | | 94,825 | | | 10,229 | |
| Investment gain from pooled accounts | | | 1,062,809 | | | 1,369,848 | |
| Net appreciation (depreciation) in fair value of common stock | | | (523,715 | ) | | 1,334,967 | |
| | | | | | | | |
| Total Income | | | 738,585 | | | 2,802,680 | |
| | | | | | | | |
| Contributions: | | | | | | | |
| Participants | | | 1,142,202 | | | 947,091 | |
| Employer | | | 1,491,785 | | | 1,121,492 | |
| Rollover contributions | | | 263,079 | | | 629,777 | |
| | | | | | | | |
| Total contributions | | | 2,897,066 | | | 2,698,360 | |
| | | | | | | | |
Total additions | | | 3,635,651 | | | 5,501,040 | |
| | | | | | | | |
| | | | | | | | |
Deductions from net assets attributable to: | | | | | | | |
| Participant benefits | | | 841,173 | | | 536,887 | |
| Administrative fees | | | 37,695 | | | 30,160 | |
| Life insurance premiums | | | 641 | | | 735 | |
| | | | | | | | |
Total deductions | | | 879,509 | | | 567,782 | |
| | | | | | | | |
Net increase in plan assets | | | 2,756,142 | | | 4,933,258 | |
| | | | | | | | |
Net assets available for benefits | | | | | | | |
| Beginning of year | | | 13,247,103 | | | 8,313,845 | |
| | | | | | | | |
| End of year | | $ | 16,003,245 | | $ | 13,247,103 | |
See accompanying independent auditors’ report and notes to financial statements.
NOTES TO FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2004 AND 2003 | Page 4 |
NOTE 1 - PLAN DESCRIPTION
The following description of the Community Banks, Inc. 401(k) Plan provides only general information. Participants should refer to the Plan agreement for a more complete description of the Plan’s provisions.
General
The Community Banks, Inc. 401(k) Plan was established for the employees of Community Banks, Inc. on January 1, 1986 as a defined contribution plan providing retirement benefits to all eligible employees. Eligible employee must have completed three months of service with the Company, attained the age of 21 and be employed on the last day of the Plan year (December 31) to be eligible to receive the discretionary profit sharing distribution. An employee becomes a participant of the Plan on the first day of the calendar quarter following the date he/she satisfies the eligibility requirements. The Plan is subject to the Employee Retirement Income Security Act of 1974 (ERISA).
Contributions
Each year, participants may elect to defer not less than 1% nor more than 70% of their pretax annual compensation up to Internal Revenue Code limits. Participants may also contribute amounts representing distributions from other qualified defined benefit or contribution plans. Participants direct the investment of their contribution into various investment options offered by the Plan. The Plan currently offers more than 70 mutual fund and 3 guaranteed investment options. Participants may also elect to invest in company stock. The plan operated as a safe harbor 401(k) plan in 2004 and 2003, using the 3% non-elective safe harbor contribution. Additional profit sharing amounts may be contributed at the discretion of the Company’s Board of Directors. Contributions are subject to Federal limitations.
Participant Accounts
Each participant’s account is credited with the participant’s contribution and allocations of the Plan’s earnings and is charged with an allocation of administrative expenses. Allocations are based on participant earnings or account balances. The benefit to which a participant is entitled is the benefit that can be provided from the participant’s account.
NOTE 1 - PLAN DESCRIPTION (CONT’D)
Vesting
Participants are immediately vested in their contributions and the employer’s safe harbor non-elective contribution plus actual earnings thereon. Vesting in the employer discretionary profit sharing contribution is based upon continuous years of service. A participant is 100% vested after five years of continuous service. The participant must be actively employed, with the exception of retirement or illness, on December 31 of the applicable year to receive the company’s discretionary profit sharing contribution.
Participant Loans
Participants may apply to the Administrator for a loan from the Plan in an amount not less than $1,000 and not greater than one-half of their vested account balance. All loans must bear a reasonable rate of interest and have a definite repayment period which provides for payments to be made not less frequently than quarterly and not to exceed a period of five years unless the loan proceeds are used to acquire a principal residence.
Payment of Benefits
On termination of service due to retirement, death or disability, a participant may elect to receive either a single lump-sum or installments over a period of not more than their assumed life expectancy determined at the date of distribution. For termination of service due to other reasons, a participant may receive only the value of the vested interest in his or her account.
Forfeitures
Non-vested balances of terminated participants are forfeited and allocated to remaining participants.
NOTE 2 - SUMMARY OF ACCOUNTING POLICIES
The accompanying financial statements are prepared on the accrual basis of accounting. The Plan’s investments are stated at fair value. Quoted market prices are used to value investments. Stock dividends on Community Banks, Inc. stock are included in the net appreciation or depreciation of the fair value of the common stock. Participant notes receivable are valued at their outstanding balances, which approximate fair value.
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of American requires the Plan Administrator to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results may differ from those estimates.
COMMUNITY BANKS, INC. 401(k) PLAN NOTES TO FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2004 AND 2003 | Page 5 |
NOTE 3 - INVESTMENTS
The following presents investments that represent 5% or more of the Plan’s net assets:
| | | 2004 | | 2003 | |
| | | | | | |
| Lifestyle Moderate Fund | | $ | 849,728 | | $ | 634,563 | |
| | | | | | | | |
| Lifestyle Balances Fund | | $ | 3,058,801 | | $ | 2,142,640 | |
| | | | | | | | |
| Lifestyle Growth Fund | | $ | 1,692,018 | | $ | 1,210,794 | |
| | | | | | | | |
Community Banks, Inc. Common stock | | $ | 3,939,981 | | $ | 4,165,186 | |
During 2004 and 2003, the Plan’s investments (including gains and losses on investments bought and sold, as well as held during the year) appreciated in value by $633,919 and $2,715,044 as follows:
| | | 2004 | | 2003 | |
| | | | | | |
| Mutual funds | | $ | 1,062,809 | | $ | 1,369,848 | |
| Common stock | | | (428,890 | ) | | 1,345,196 | |
| | | | | | | | |
| | | $ | 633,919 | | $ | 2,715,044 | |
NOTE 4 - PLAN TERMINATION
While the Company has not expressed any intention to discontinue its contributions, it may do so at any time, subject to penalties set forth by ERISA. In the event such discontinuance resulted in the termination of the Plan, the net assets of the Plan would be allocated to Plan participants and beneficiaries in the order prescribed by ERISA.
NOTE 5 - TAX STATUS
The Internal Revenue Service has determined and informed the Company by a letter dated January 30, 1991 that the Plan and related trust are designed in accordance with applicable sections of the Internal Revenue Code (IRC). The plan has been amended since receiving the determination letter and has applied for an updated letter. The Plan Administrator, however, believes that the Plan is designed and is currently being operated in compliance with the applicable requirements of the IRC.
NOTE 6 - RISKS AND UNCERTAINTIES
The Plan invests in various investment securities. Investment securities are exposed to various risks such as interest rate, market, and credit risks. Due to the level of risk associated with certain investment securities, it is at least reasonably possible that changes in the values of investment securities will occur in the near term and that such changes could materially affect participants’ account balances and the amounts reported in the statement of net assets available for benefits.
ASSETS HELD FOR INVESTMENT | Page 6 |
| (a) | (b) Identity of issue, borrower lessor or similary party | (c) Description of investment including maturity date, rate of interest, collateral, par or maturity value | (d) Cost | |
| | Manulife Financial | 3 Year Compound | N/A | 19,480 |
| | Manulife Financial | 5 Year Compound | N/A | 37,747 |
| | Manulife Financial | 10 Year Compound | N/A | 14,748 |
| | Manulife Financial | MFC American Funds Am Balanced | N/A | 39,797 |
| | Manulife Financial | MFC American Funds Wash Mutual | N/A | 25,461 |
| | Manulife Financial | MFC American Funds Inv Co Am | N/A | 2,703 |
| | Manulife Financial | MFC American Funds Growth Fund | N/A | 11,428 |
| | Manulife Financial | MFC American Funds EuroPacific | N/A | 222 |
| | Manulife Financial | Lifestyle Conservative 280 (VS) | N/A | 462,001 |
| | Manulife Financial | Lifestyle Moderate 460 (VS) | N/A | 849,728 |
| | Manulife Financial | Lifestyle Balanced 640 | N/A | 3,058,801 |
| | Manulife Financial | Lifestyle Growth 820 (VS) | N/A | 1,692,018 |
| | Manulife Financial | Lifestyle Aggressive 1000 (VS) | N/A | 322,430 |
| | Manulife Financial | Money Market Fund (VS) | N/A | 218,677 |
| | Manulife Financial | US Government Secs Fund (VS) | N/A | 79,262 |
| | Manulife Financial | Real Return Bond Fund (VS) | N/A | 2,410 |
| | Manulife Financial | Total Return Fund (VS) | N/A | 138,576 |
| | Manulife Financial | Investment Qual Bond Fund (VS) | N/A | 69,591 |
| | Manulife Financial | Diversified Bond Fund (VS) | N/A | 155,797 |
| | Manulife Financial | Global Bond Fund (VS) | N/A | 20,062 |
| | Manulife Financial | Strategic Bond Fund (VS) | N/A | 39,304 |
| | Manulife Financial | High Yield Fund (VS) | N/A | 45,820 |
| | Manulife Financial | Global Allocation Fund (VS) | N/A | 11,272 |
| | Manulife Financial | Income & Value Fund (VS) | N/A | 227,415 |
| | Manulife Financial | Equity Income Fund (VS) | N/A | 339,349 |
| | Manulife Financial | Growth & Income Fund | N/A | 166,052 |
| | Manulife Financial | Fundamental Value Fund (VS) | N/A | 72,888 |
| | Manulife Financial | 500 Index Fund | N/A | 144,837 |
| | Manulife Financial | All Cap Value Fund (VS) | N/A | 23,156 |
| | Manulife Financial | Value Fund (VS) | N/A | 113,989 |
| | Manulife Financial | Mid Cap Value Fund (VS) | N/A | 78,745 |
| | Manulife Financial | Special Value Fund (VS) | N/A | 27 |
| | Manulife Financial | Small Company Value Fund (VS) | N/A | 208,410 |
| | Manulife Financial | Small Cap Opportunities (VS) | N/A | 4,275 |
| | Manulife Financial | Real Est. Securities Fund (VS) | N/A | 196,203 |
| | Manulife Financial | Utilities Fund (VS) | N/A | 19,718 |
| | Manulife Financial | Large Cap Value Fund (VS) | N/A | 4,125 |
| | Manulife Financial | Strategic Value Fund (VS) | N/A | 37,575 |
| | Manulife Financial | US Large Cap Fund (VS) | N/A | 58,915 |
| | Manulife Financial | Blue Chip Growth Fund (VS) | N/A | 132,586 |
| | Manulife Financial | Total Stock Market Index Fund | N/A | 57,652 |
| | Manulife Financial | Large Cap Growth Fund (VS) | N/A | 35,239 |
| | Manulife Financial | All Cap Core Fund (VS) | N/A | 22,217 |
| | Manulife Financial | Capital Appreciation Fund (VS) | N/A | 20,541 |
| | Manulife Financial | Strategic Growth Fund (VS) | N/A | 29,056 |
| | Manulife Financial | Global Fund (VS) | N/A | 55,477 |
| | Manulife Financial | Mid Cap Core Fund (VS) | N/A | 73 |
| | Manulife Financial | Mid Cap Index Fund | N/A | 218,692 |
| | Manulife Financial | Quantitive Mid Cap Fund (VS) | N/A | 8,547 |
| | Manulife Financial | International Value Fund (VS) | N/A | 28,129 |
| | Manulife Financial | International Equity Index Fund | N/A | 10,674 |
| | Manulife Financial | Intl Small Cap Fund (VS) | N/A | 4,256 |
| | Manulife Financial | Overseas Fund (VS) | N/A | 17,583 |
| | Manulife Financial | International Stock Fund (VS) | N/A | 30,124 |
| | Manulife Financial | Financial Services Fund (VS) | N/A | 32,059 |
| | Manulife Financial | Strategic Opps Fund (VS) | N/A | 69,430 |
| | Manulife Financial | All Cap Growth Fund (VS) | N/A | 52,162 |
| | Manulife Financial | Natural Resources Fund (VS) | N/A | 3,725 |
| | Manulife Financial | Mid Cap Stock Fund (VS) | N/A | 54,093 |
| | Manulife Financial | Dynamic Growth Fund (VS) | N/A | 32,015 |
| | Manulife Financial | Small Cap Index Fund | N/A | 59,784 |
| | Manulife Financial | Small Company Blend Fund (VS) | N/A | 116,808 |
| | Manulife Financial | Emerging Small Co Fund (VS) | N/A | 34,335 |
| | Manulife Financial | Aggressive Growth Fund (VS) | N/A | 29,609 |
| | Manulife Financial | Health Schiences Fund (VS) | N/A | 55,819 |
| | Manulife Financial | Pacific Rim Fund (VS) | N/A | 4,541 |
| | Manulife Financial | Science & Technology Fund (VS) | N/A | 71,832 |
| | MassMutual Life Insurance Co. | Life Insurance Contracts | N/A | 3,289 |
| | Community Banks, Inc. | Community Banks, Inc. Common Stock | 2,619,691 | 3,939,981 |
| | Participant Loans | various interest rates | N/A | 241,433 |
See accompanying independent auditors’ report.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the trustees (or other persons who administer the employee benefit plan) have duly caused this annual report to be signed on its behalf by the undersigned hereunto duly authorized.
| | COMMUNITY BANKS, INC. 401(k) PLAN |
| | |
| Date: June 27, 2005 | By: /s/ Richard A. Soulies |
| | Richard A. Soulies |
| | Plan Administrator |
| EXHIBIT INDEX |
| | | |
| Exhibit No. | | Exhibit Description |
| | Consent of Buffamante Whipple Buttafaro, P.C. |
| | Consent of Custer & Custer, P.C. |
| | | |
