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, 2003
OR
( ) 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
(Full title of the Plan)
COMMUNITY BANKS, INC.
750 East Park Drive
Harrisburg, PA 17111
(Name of issuer of the securities held pursuant to the plan
and the address of its principal executive office)
- --------------------------------------------------------------------------------
The Plan. 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 28, 2004 By: /s/ Richard A. Soulies
---------------------------------
Richard A. Soulies
Plan Administrator
COMMUNITY BANKS,INC.,401(k) PLAN
REPORT OF INDEPENDENT ACCOUNTANTS
ON FINANCIAL STATEMENTS
AND SUPPLEMENTAL SCHEDULES
FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002
To the Trustees
Community Banks, Inc. 401(k) Plan
Millersburg, PA 17061
Independent Auditor's Report
----------------------------
We have audited the accompanying statements of net assets available for benefits
of Community Banks, Inc. 401(k) Plan as of December 31, 2003 and 2002, and the
related statement of changes in net assets available for benefits for the years
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 audits.
We conducted our audits 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 audits provide a
reasonable basis for our opinion.
In our opinion, the 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, 2003 and 2002, 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 audits were conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental schedules of assets held
for investment at the end of the years and the reportable transactions, together
referred to as "supplemental information" are presented for the purpose of
additional analysis and are not a required part of the basic financial
statements but are 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 audits of the basic
financial statements and, in our opinion, are fairly stated in all material
respects in relation to the basic financial statements taken as a whole.
/s/ Custer & Custer
CUSTER & CUSTER, P.C.
May 25, 2004
COMMUNITY BANKS INC. 401(k) PLAN
STATEMENT OF NET ASSETS AVAILABLE FOR BENEFITS
DECEMBER 31, 2003 AND 2002
2003 2002
ASSETS
Investments:
Investments at Market Value:
Common Stock $ 4,165,186.14 $ 2,535,507.63
Mutual Fund 7,779,356.03 4,302,297.48
------------------- ---------------
Total Investments 11,944,542.17 6,837,805.11
Receivables:
Employee Contribution 0.00 0.00
Employer Contribution 1,121,491.55 1,389,361.75
Other Assets
Participants Loans 174,678.10 81,150.18
Cash Surrender Value of Life Insurance 6,391.17 5,528.35
------------------- ---------------
TOTAL ASSETS $ 13,247,102.99 $ 8,313,845.39
=================== ===============
LIABILITIES
Benefits Payable 0.00 0.00
------------------- ---------------
NET ASSETS AVAILABLE FOR PLAN BENEFITS $ 13,247,102.99 $ 8,313,845.39
=================== ===============
See Accountant's Report and Notes to Financial Statements
COMMUNITY BANKS INC. 401(k) PLAN
STATEMENT OF CHANGES OF NET ASSETS AVAILABLE FOR
PLAN BENEFITS FOR THE PERIOD OF JANUARY 1 TO DECEMBER 31, 2003 AND 2002
2003 2002
ADDITIONS TO NET ASSETS ATTRIBUTED TO:
Investment Income
Interest and Dividend Earnings:
Interest Bearing Cash & Cash Equivalents $ 1,771.86 $ 3,500.75
Taxable Bond Funds 0.00 19,409.35
Stock & Bond Funds 0.00 6,907.66
Common Stock 79,126.39 59,583.54
Participant Loan Interest 6,738.89 5,407.14
------------------- ------------------
Total Interest & Dividends 87,637.14 94,808.44
Realized Capital Gains 10,228.83 90,931.32
Investment gain from pooled accounts 1,369,847.15 0.00
------------------- ------------------
Total Income 1,467,713.12 185,739.76
Contributions:
Participants 947,091.44 737,263.11
Employer 1,121,491.55 1,389,361.75
Rollover and Transfer 629,776.57 969,320.38
------------------- ------------------
Total Contributions 2,698,359.56 3,095,945.24
Net appreciation in fair market value of investments 1,334,966.87 365,441.73
------------------- ------------------
TOTAL ADDITIONS 5,501,039.55 3,647,126.73
DEDUCTIONS FROM NET ASSETS ATTRIBUTED TO:
Participant benefits 536,887.41 817,806.38
Realized Capital Losses 0.00 757,584.04
Administrative Fees 30,160.02 8,364.84
Life Insurance Premiums 734.52 734.52
------------------- ------------------
TOTAL DEDUCTIONS 567,781.95 1,584,489.78
------------------- ------------------
NET INCREASE IN PLAN ASSETS 4,933,257.60 2,062,636.95
NET ASSETS AVAILABLE FOR PLAN BENEFITS
Beginning of the Year 8,313,845.39 6,251,208.44
------------------- ------------------
End of Year $ 13,247,102.99 $ 8,313,845.39
=================== ==================
See Accountant's Report and Notes to Financial Statements
COMMUNITY BANKS, INC. 401(k) PLAN
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2003
NOTE A - 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.
1. General - The Community Banks, Inc. 401(k) Plan was established for the
employees of the Community Banks, Inc. on January 1, 1986 as a defined
contribution plan providing retirement benefits to all eligible employees .
Eligible employees 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 coinciding with or next following date
he/she satisfies the eligibility requirements. The Plan is subject to the
Employee Retirement Income Security Act of 1974 (ERISA).
2. Contributions - Each year, participants may elect to defer not less than
1.00% nor more than 70% of their pretax annual compensation. However, the
total deferral may not exceed the dollar limit set by law. The limit for
2003 is $ 12,000. 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 a mutual
fund with more than 70 mutual funds 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 2003, using the 3% non-elective safe harbor
contribution which was allocated to all participants with active service
and compensation in 2003. Additional profit sharing amounts may be
contributed at the discretion of the Company's Board of Directors.
Contributions are subject to Federal limitations.
3. Participant Accounts - Each participant's account is credited with the
participant's contribution and allocations of the Plan's earnings and
charged with an allocation of administrative expenses. Allocations are
based on participant earnings or account balances, as defined. The benefit
to which a participant is entitled is the benefit that can be provided from
the participant's account.
4. 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.
5. 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.
6. 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.
COMMUNITY BANKS, INC. 401(k) PLAN
NOTES TO FINANCIAL STATEMENTS Continued
DECEMBER 31, 2003
NOTE B - SUMMARY OF ACCOUNTING POLICIES
- ---------------------------------------
Basis of Accounting - The plan uses the accrual basis of accounting.
Investment Evaluation - Investments are valued at the last reported sales price
on the last business day of the Plan year. Dividend income is recorded on the
ex-dividend date.
The Plan presents, in the statement of changes in net assets available for
benefits, the net appreciation or depreciation in the fair value of its
investments, which consists of the realized gains and losses and the unrealized
appreciation of those investments. Purchases and sales of investments are
reflected on a trade-date basis. Realized gains or losses on sales of
investments are determined on a first-in, first-out basis.
Market Risk - The fair values of the Plan's investments are subject to
fluctuations in the prevailing market prices of those investments. As a result,
net assets available for benefits may be impacted by changes in economic
conditions.
NOTE C - 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 D - RECONCILIATION OF FINANCIAL STATEMENTS TO FORM 5500
- ------------------------------------------------------------
The following is a reconciliation of net assets available for benefits per the
financial statements at December 31, 2003 and to Form 5500:
Net assets available for benefits per the financial statements $ 13,247,103.
Net assets available for benefits per the Form 5500 $ 13,247,103.
===========
NOTE E - TAX STATUS
- -------------------
The Internal Revenue Service has determined that the Plan is designed in
accordance with applicable sections of the Internal Revenue Code and is therefor
not subject to income taxes.
SUPPLEMENTAL SCHEDULES
COMMUNITY BANKS INC. 401(k) PLAN
ASSETS HELD FOR INVESTMENT
DECEMBER 31, 2002 and 2003
Investments at Fair Value as Determined by Quoted Market Price
DECEMBER 31, 2003
Shares or Fair
Units Description Value
Wells Fargo Investments
-----------------------
105957.418 Community Banks Inc - Stocks 4,165,186.09
Mutual Fund
-----------
Manulife Financial 7,957,894.92
DECEMBER 31, 2002
Shares or Fair
Units Description Value
Wells Fargo Investments
-----------------------
91534.569 Community Banks Inc - Stocks 2,535,507.63
Mutual Fund
-----------
Manulife Financial 4,383,447.66
See Accountant's Report and Notes to Financial Statements
COMMUNITY BANKS INC. 401(k) PLAN
REPORTABLE TRANSACTIONS
FOR THE YEARS ENDING DECEMBER 31, 2003 AND 2002
Transactions in Excess of Five Percent (5%) of the Current Value of Plan Assets
Identity of Description Purchase Price
Party Involved of Asset or Cost
Year Ended December 31, 2003
- ----------------------------
None in excess of 5% 0
Year Ended December 31, 2002
- ----------------------------
Series Transactions
Oppenheimer Funds:
Main Street Growth & Income Fund Class A Mutual Fund 501,645
Community Banks N.A Common Stock 504,789
See Accountant's Report and Notes to Financial Statements