COMMUNITY BANKS, INC.
PROXY STATEMENT
MARCH 16, 1995
GENERAL INFORMATION
This proxy statement is furnished in connection with solicitation
by the Board of Directors of Community Banks, Inc. ("CBI"), a
corporation organized under the laws of the Commonwealth of
Pennsylvania, of proxies to be voted at the Annual Meeting of
Shareholders of CBI to be held on May 2, 1995 at 9:30 a.m.
prevailing time and at any and all adjournments or postponements
thereof. This Proxy Statement and the enclosed Form of Proxy (the
"Proxy") are first being sent to shareholders of CBI on or about
March 16, 1995.
The costs of preparing, printing and mailing the Proxy and all
materials used in the solicitation thereof will be borne by CBI.
In addition to the use of the mail, proxies may be solicited by
officers, directors and employees of CBI personally, by telephone
or by telegraph.
CBI's executive offices are located at 150 Market Square,
Millersburg, Pennsylvania, and its telephone number is (717)
692-4781. CBI's mailing address is P.O. Box 350, Millersburg,
Pennsylvania 17061.
Date by which Security Holder Proposals must be Received to be
Presented at Next Annual Meeting of Shareholders.
Proposals of security holders of CBI intended to be presented at
the next annual meeting of shareholders of CBI must be received by
CBI for inclusion in CBI's proxy statement and the form of proxy
relating to that meeting by November 17, 1995.
If the date of the next annual meeting of shareholders of CBI is
advanced or delayed by more than 30 days from May 2, 1996, security
holders will be timely informed of the change of the annual meeting
of shareholders and the date by which proposals of security holders
must be received.
Voting; Revocation of Proxies
Each Proxy may be revoked at any time before its exercise by, among
other methods, giving written notice to the Secretary of CBI. A
subsequently dated Proxy will, if presented to the Secretary of
CBI, revoke a prior dated Proxy. Any shareholder of CBI may attend
the meeting and vote in person whether or not he has previously
given a Proxy.
The enclosed Proxy confers discretionary authority to vote with
respect to any and all of the following matters that may come
before the Annual Meeting of Shareholders: (i) matters which the
Board of Directors does not know, a reasonable time before the
proxy solicitation, are to be presented at the meeting; (ii)
approval of the minutes of a prior meeting of the shareholders, if
such approval does not amount to ratification of the action taken
at that meeting; and (iii) matters incident to the conduct of the
meeting. In connection with such matters, the persons named in the
enclosed Proxy will vote in accordance with their best judgment.
The Board of Directors of CBI is not presently aware of any matters
(other than procedural matters) which will be brought before the
Annual Meeting of Shareholders which are not referred to in the
Notice of Annual Meeting of Shareholders. If other business is
properly brought before the Annual Meeting of Shareholders, the
persons named in the Proxies will act or vote in accordance with
their judgment.
Vote Required; Shares Entitled To Vote
The presence in person or by proxy of the holders of a majority of
the outstanding shares of CBI's Common Stock will constitute a
quorum for the transaction of business at the Annual Meeting of
Shareholders. At the close of business on the Record Date, there
were 2,028,310 shares of CBI Common Stock outstanding. Each share
of CBI's Common Stock outstanding on the Record Date is entitled to
one vote on all matters, including the election of directors, to
come before the Annual Meeting.
Management of CBI in the aggregate beneficially owned 449,653
shares of the outstanding stock of CBI on the Record Date. The
Trust Department of Community Banks, N.A. ("CBNA"), held, as sole
trustee, in the aggregate, 21,354 shares of CBI Common Stock, which
may not be voted in the election of directors of CBI. To the
knowledge of management, two persons beneficially owned 5% or more
of the outstanding Common Stock of CBI on the Record Date. The
number and percentage of shares of Common Stock of CBI owned by
said persons are disclosed below under "BENEFICIAL OWNERSHIP OF
CERTAIN SHAREHOLDERS."
All matters which are expected to come before the shareholders,
including election of directors and approval of Coopers & Lybrand L.L.P.
as independent certified public accountants for CBI for the year
ending December 31, 1995, will require the affirmative vote of the
holders of a majority of CBI's outstanding Common Stock represented
at the meeting, if a quorum is present.
At the Annual Meeting, the Judges of Election will manually
tabulate all votes which are cast in person or by proxy. Those
Shareholders wishing to vote in person will be provided ballots
with which to vote.
Voting is an important right of Shareholders. If a Shareholder
abstains or otherwise fails to cast a vote on any matter brought
before the Shareholders, the Pennsylvania Business Corporation Law
provides that notwithstanding any intention to the contrary, the
abstention or failure is not a vote and will not be counted. This
is true of broker nonvotes as well as nonvotes by other
Shareholders.
PURPOSES OF THE MEETING
The Annual Meeting of Shareholders will be held for the following
purposes:
1. To elect (3) Class D Directors to serve until the 1999 Annual
Meeting of Shareholders;
2. To approve the selection of Coopers & Lybrand L.L.P., Certified
Public Accountants, Harrisburg, Pennsylvania, as independent
certified public accountants for CBI for the year ending December
31, 1995; and
3. To transact such other business as may be properly brought
before the meeting or any adjournment thereof.
ELECTION OF DIRECTORS OF CBI
The Bylaws of CBI provide that the Board of Directors may, from
time to time, fix the number of directors. The number of directors
that shall constitute the whole Board of Directors shall be not
less than 5 nor more than 25. The Bylaws of CBI also provide that
the Board of Directors shall be classified into four (4) classes as
nearly equal in number as possible, each class to be elected for a
term of four (4) years. Each class shall be elected in a separate
election. At each annual meeting of shareholders, successors to
the class of directors whose term is expiring shall be elected to
hold office for a term of four (4) years so that the term of office
of one class of directors expires in each year.
Nomination for elections to the Board of Directors may be made by
the Board of Directors or by any holder of the Common Stock of CBI
entitled to vote at the election of directors. Nominations, other
than those made by or in behalf of the existing management of CBI,
shall be made in writing and shall be delivered or mailed to the
Secretary of CBI not less than 45 days prior to the date of any
meeting of shareholders called for the election of directors. Such
notification shall contain the following information to the extent
known by the notifying shareholder: (a) the name and address of
each proposed nominee; (b) the age of each proposed nominee; (c)
the principal occupation of each proposed nominee; (d) the number
of shares of CBI owned by each proposed nominee; (e) total number
of shares that, to the knowledge of the notifying shareholder, will
be voted for each proposed nominee; (f) the name and residence
address of the notifying shareholder; and (g) the number of shares
of CBI owned by the notifying shareholder. Any nomination for
director not made in accordance with the above procedure shall be
disregarded by the chairman of the meeting, and votes cast for each
such nominee shall be disregarded by the judges of election.
It is the intention of persons named in the Proxy to vote for the
election of the three individuals listed as Class D directors to
serve as Class D directors until the 1999 Annual Meeting of
Shareholders.
In absence of instructions to the contrary, proxies will be voted
in favor of the election of the management's nominees. In the
event any nominee should become unavailable, it is intended that
the proxies will be voted for such substitute nominee as may be
nominated by management. Management has no present knowledge that
any of the nominees will be unavailable to serve.
Each nominee is currently a director of CBI and is also a Director
of CBNA, CBI's wholly-owned banking subsidiary.
The following table sets forth the name and age of all directors,
including nominees for director of CBI, as well as the director's
business experience, including principal occupation for the past
five years, the period during which he has served as a director of
CBI or CBNA (formerly Upper Dauphin National Bank), and the number
and percentage of outstanding shares of Common Stock of CBI
beneficially owned by said director as of February 15, 1995.
Directors of CBI
Business Experience, Amount and Percentage
Including Principal Nature of of
Occupation for the Director Beneficial Outstanding
Name and Age Past Five Years Since<F1> Ownership<F2> Stock Owned
CLASS D DIRECTORS:
To be elected for a four year term ending
in 1999:
Leon E. Kocher Chairman of the 1963 15,705 .77%
Age 82 Board, Kocher Coal
Co. (coal mining),
Valley View, PA
Robert W. Rissinger President,Kocher 1968 134,932<F3> 6.66%
Age 68 Coal Co. (coal <F4>
mining),
Valley View, PA
William C. Troutman President, 1968 84,065<F5> 4.15%
Age 79 The W.C. Troutman Co.
(auto dealership)
Millersburg, PA
CLASS C DIRECTORS:
To continue in office to 1998:
Kenneth L. Deibler Self-Employed 1966 19,527<F6> .96%
Age 72 Insurance Broker,
Elizabethville, PA
Allen Shaffer Attorney-at-Law, 1961 24,613<F7> 1.21%
Age 69 Millersburg and
Harrisburg, PA
Ernest L. Lowe President 1990 8,784<F8> .43%
Age 58 CBI
CLASS A DIRECTORS:
To continue in office to 1996:
Thomas L. Miller Chairman and C.E.O., 1966 16,964<F9> .83%
Age 62 CBI, and President
and C.E.O., CBNA
James A. Ulsh Attorney-at-Law, 1977 8,839 .44%
Age 48 Mette, Evans &
Woodside,
Harrisburg, PA
Ronald E. Boyer President, Alvord- 1981 9,469<F10> .47%
Age 57 Polk Tool Company
(manufacturing of
cutting tools),
Millersburg, PA
Peter DeSoto President, Metal 1981 23,479 1.16%
Age 55 Industries, Inc.
(manufacturing of
metal products),
Elizabethville, PA
CLASS B DIRECTORS:
To continue in office to 1997:
Ray N. Leidich Dentist, Tremont, 1985 38,948<F11> 1.92%
Age 66 PA
Thomas W. Long Owner, Millersburg 1981 12,498<F12> .62%
Age 65 Hardware Co.,
Millersburg, PA
Donald L. Miller President, Miller 1981 50,797 2.51%
Age 65 Bros. Dairy,
Millersburg, PA
Samuel E. Cooper Superintendent, 1992 1,034 .05%
Age 61 Warrior Run School
District
<FN>
<F1> Includes service as a director of CBNA (formerly Upper Dauphin National
Bank), a wholly-owned subsidiary of CBI, prior to 1983 and service as a director
of CBI after 1983.
<F2> 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 minor 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 March 16, 1995. Beneficial ownership may be
disclaimed as to certain of the securities.
<F3> Includes 3,260 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.
<F4> Includes 7,265 shares owned by Engle Ford, Inc., 372 shares owned by Mr.
Rissinger's spouse, Shirley Rissinger, and 3,394 shares owned by Engle Ford, Inc
Profit Sharing Plan (R. Rissinger and H. Engle, Co-Trustees).
<F5> Includes 18,703 shares owned by Mr. Troutman's spouse, Dorothy Troutman,
and 5,295 shares owned by W. C. Troutman Co.
<F6> Includes 1,451 shares owned by Mr. Deibler's grandchildren.
<F7> Includes 4,198 shares owned by Mr. Shaffer's Retirement account.
<F8> Includes 87 shares owned by Mr. Lowe's spouse, Barbara Lowe and 60 shares
owned by Mr. Lowe's children, and also includes Incentive Stock Options to
acquire 7,700 shares.
<F9> Includes incentive stock options to acquire 13,367 shares.
<F10> Includes 3,260 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 130
shares owned by Mr. Boyer's spouse, Judith Boyer, and her mother.
<F11> Includes 19,474 shares owned by Mr. Leidich's wife, Dolores Leidich.
<F12> Includes 7,416 shares owned by the Trust of Mr. Long's mother, Leah Long.
</FN>
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.
The following is all shares owned beneficially by all directors and
executive officers of CBI as a group:
Amount and Nature of
Beneficial Ownership
Title of Class Direct Indirect Percent of Class
Common 408,760 19,826 21.14%
BENEFICIAL OWNERSHIP OF CERTAIN SHAREHOLDERS
The following table sets forth the name, address, amount and nature
of beneficial ownership, and percent of class of outstanding CBI
Common Stock of each person known to CBI to be the beneficial owner
of more than 5% of CBI's Common Stock. Share information is stated
as of February 15, 1995.
Percent
Name and Address of Amount and Nature of of
Beneficial Owner Beneficial Ownership(1) Outstanding Stock
Robert W. Rissinger 134,932(2) 6.66%
900 Manor Drive
Millersburg, PA 17061
Andrew C. Long 108,882 5.37%
660 Center Street
Shamokin, PA 17872
(1) See prior footnote 2.
(2) See prior footnotes 3 and 4.
MANAGEMENT OF CBI
Executive Officers
The following table sets forth the executive officers of CBI (as
determined in accordance with the rules and regulations of the
Securities and Exchange Commission), their ages, their positions
with CBI and the beneficial ownership of Common Stock of CBI by
each of such persons. Share information is stated as of February
15, 1995.
Executive Officers of CBI
Amount and Percentage
Nature of of
Beneficial Outstanding
Name and Age Title Ownership(1) Stock
Thomas L. Miller Chairman and Chief 16,964 .83%
Age 62 Executive Officer
Ernest L. Lowe President and 8,784 .43%
Age 58 Chief Operating
Officer
(1) Includes currently exercisable Incentive Stock Options to acquire shares
of CBI.
BOARD EXECUTIVE COMMITTEE REPORT ON EXECUTIVE COMPENSATION
CBI does not have a Compensation Committee. The Board of Directors
has delegated to the Executive Committee initial review and
recommendations for executive compensation. Recommendations of the
Executive Committee are reviewed and ratified by the full Board of
Directors.
Members of the Executive Committee are Robert W. Rissinger, William
C. Troutman, Peter DeSoto, Allen Shaffer, James A. Ulsh and Donald
L. Miller. None of these committee members have been officers or
employees of CBI or any of its subsidiaries at any time, and none
had any relationship with CBI or any of its subsidiaries requiring
specific disclosure under applicable Securities and Exchange
Commission regulations.
The CBI Executive Committee adopted an Executive Compensation
Policy which sets forth the following goals to be achieved in
determining compensation of the executive officers of CBI and CBNA:
(i) integrate compensation with CBI and CBNA annual and long-term
performance goals; (ii) reward above average performance; (iii)
recognize individual initiative and achievements; (iv) attract and
retain qualified executives; (v) be consistent with compensation
packages offered by other similarly situated bank holding companies
and banks; and (vi) encourage stock ownership by executive
officers.
In order to achieve the goals set forth in the Executive
Compensation Policy, a variety of criteria in evaluating and
establishing compensation are to be considered. The Executive
Committee has identified several reports and groups as appropriate
sources of comparative information in evaluating executive
compensation. These are: the SNL Securities Bank Performance
Report, the SNL Executive Compensation Review for Commercial Banks,
and the NASDAQ Bank Performance Summary.
The Executive Committee recognizes that compensation, particularly
for the Chief Executive Officer and other Executive Officers, can
best be accomplished through a combination of techniques, including
salary, the CBI Bonus Plan, the Long-Term Incentive Plan, and the
provision of appropriate fringe benefits.
CBI Bonus Plan
CBI has adopted the CBI Bonus Plan for the Chief Executive Officer
and other officers of CBI and CBNA. Pursuant to this plan, a
certain percent (15% for 1994) of net income, before security gains
and losses, of the amount in excess of one percent of the return on
average assets for the year, is placed in a bonus pool. From this
pool, between 20% and 25% (23% in 1994) is allocated to bonuses for
staff officers. The remainder of the pool is distributed to the
Chief Executive Officer and the other senior officers of the bank.
The percentage distributable to the CEO and the other officers is
reviewed on an annual basis and adjusted as deemed appropriate.
For 1994 the CEO received 26% of the Net Bonus Pool remaining after
staff officers' bonuses were deducted, and the President received
15%. The Executive Committee delegated to the CEO the distribution
of the staff officers' bonuses and the remainder of the Net Bonus
Pool to senior officers.
Long-Term Incentive Plan
In 1988, CBI adopted a Long-Term Incentive Plan which authorizes
the issuance of incentive stock options, stock appreciation rights,
and nonqualified stock options. The Executive Committee believes
that stock ownership by management is beneficial in aligning
management's interests with the interests of the shareholders in
enhancing and increasing the value of CBI common stock. The
Executive Committee considers the same criteria in awarding stock
options that it considers in making other compensation decisions.
These criteria are outlined above.
Executive Compensation
In 1994 the trading price performance of CBI Common stock seemed to
follow the trend of comparable Pennsylvania Banks and NASDAQ
Financial stocks. CBI market value dropped from an adjusted value
of $30.71 at year-end 1993 to $23.75 at year-end 1994. The reason
for the sharp drop in price is also demonstrated by a NASDAQ Report
that showed CBI stock trading at an excessive price times earnings
ratio (21.1) at year-end 1993 versus an acceptable times earnings
ratio of 12.4 at year-end 1994. The report also showed that in the
last quarter of 1994 the performance of CBI Common stock began to
show a positive trend.
Using 1993 data from a SNL Executive Compensation Review, the
Committee compared Mr. Miller's compensation to a group of 20 banks
with assets between 200 million and 325 million, headquartered in
Pennsylvania, New York, New Jersey, and Maryland. This report
showed that CBI was ranked 9th out of 20 in asset size. While Mr.
Miller's salary was also ranked 9th out of 20, CBI's return on
assets was ranked 3rd. The SNL report also compared CBI's
performance with all banks under $500 million in asset size and
showed that CBI had a 1.4% Return on Average Assets versus the peer
group's average of .60%; a 13.85 Return on Average Equity versus
the peers' 5.71%; an Equity to Assets ratio of 10.36% versus the
peer group's average of 8.71%; and a Non Performing Assets to Total
Assets ratio of .45% versus the peer group's average of 2.23%. CBI
outperformed the peers' average performance in all indices reported
by the SNL Report.
In summary the Committee concluded that Mr. Miller's compensation,
when compared to that of his peers and the performance of CBI in
1994, required adjustment. For 1995 Mr. Miller's annual salary was
increased to $176,000. He is also a participant in the CBI Long
Term Incentive Plan and CBI Bonus Plan. Mr. Miller's Bonus for
1993, paid in 1994, was $38,367. His 1995 bonus, based on 1994
performance, was $33,079. In addition Mr. Miller was awarded
Incentive Stock Options to purchase 5,000 shares of CBI Common
Stock at an exercise price of $23.61 per share. This option,
granted in 1995, was based on 1994 performance. Mr. Miller was
also awarded a Supplemental Pension Benefit which is in this Proxy
Statement.
The Executive Committee considered the same factors in evaluating
the compensation of the President, Mr. Lowe, and reached similar
conclusions about his compensation.
This report is given over the signatures of the Executive
Committee, consisting of Robert W. Rissinger, Peter DeSoto, Allen
Shaffer, James A. Ulsh and Donald L. Miller.
Stock Performance Table
The following table sets forth the yearly percentage change in
CBI's cumulative total shareholder return on its Common Stock from
December 31, 1989 to December 31, 1994. This percentage change is
measured by dividing (i) the sum of (A) the cumulative amount of
dividends for the period measured, assuming dFividend reinvestment
and (B) the difference between CBI's share price at December 31, 1994
and December 31, 1989 by (ii) the share price as of December 31, 1989. This
result, on the following performance graph, is compared with cumulative total
return of the NASDAQ Stock Market (US Companies) and the NASDAQ Bank Stocks
Indices:
COMPARISON OF FIVE YEAR-CUMULATIVE TOTAL RETURNS
Performance Table for Community Banks, Inc.
Prepared by the Center for Research in Security Prices - Produced
on 01/16/95 including data to 12/30/94
CRSP Total Returns Index for:
12/29/89 12/31/90 12/31/91 12/31/92 12/31/93 12/30/94
Community Banks, Inc 100.0 97.4 95.9 165.9 262.3 207.4
Nasdaq Stock Market 100.0 84.9 136.3 158.6 180.9 176.9
(U.S. Companies)
Nasdaq Bank Stocks 100.0 73.2 120.2 174.9 199.3 198.7
SIC 6020-6029,
67110-6719 US &
Foreign
NOTES:
A. The lines represent monthly index levels derived from
compounded daily returns that include all dividends.
B. The indexes are reweighted daily, using the market
capitalization on the previous trading day.
C. If the monthly interval, based on the fiscal year-end, is not
a trading day, the preceeding trading day is used.
D. The index level for all series was set to 100.0 on 12/29/89
Cash Compensation
The following Summary Compensation Table sets forth the executive
officers of CBI (as defined in applicable securities regulations),
the annual salary and bonus of those officers for the preceding
three years, and certain information concerning stock option awards
to these officers pursuant to the CBI Long-Term Incentive Plan:
SUMMARY COMPENSATION TABLE
Long Term Compensation
Annual Compensation Awards Payouts
Other
Name Annual Restricted All Other
and Compen- Stock Options/ LTIP Compen-
Principal sation<F1>Awards<F2> SARs<F3> Payouts<F4>sation
Position Year Salary ($) Bonus ($) ($) ($) (#) ($) ($)
Thomas L. Miller 1994 160,000 38,367 4,800 0 3,500 0 0
Chairman & CEO 1993 139,463 34,400 4,800<F5> 0 3,300 0 0
1992 127,971 18,856 4,800 0 2,500 0 0
Ernest L. Lowe, 1994 114,500 22,135 2,400 0 2,000 0 0
President & COO 1993 106,590 20,000 2,400<F6> 0 2,000 0 0
1992 103,911 10,879 2,400 0 1,500 0 0
<FN>
<F1> The aggregate of personal benefits provided by CBI and its
subsidiaries for any executive officer, individually or all
executive officers as a group did not exceed the lesser of (i)
$50,000 or (ii) 10% of the salary and bonus of the officer for any
of the years referenced. This does not include benefits that are
available to all salaried officers, directors and employees on a
non-discriminatory basis.
<F2> CBI has not issued any Restricted Stock Awards to any
executive officer.
<F3> In 1992, 1993, and 1994, Mr. Miller and Mr. Lowe each were
awarded Incentive Stock Options to acquire the number of shares
disclosed in the Summary Compensation Table. These options,
granted pursuant to the CBI Long-Term Incentive Plan, are
discussed in greater detail below. See "Incentive Stock Options".
<F4> CBI does not maintain any Long-Term Incentive Plan as
defined in the applicable Securities and Exchange Commission
Regulations, and consequently has made no payouts pursuant to any
such plan.
<F5> Includes $4,800 in fees for service as a dirctor of CBNA and
CBI in 1994, $4,800 for service as a director of CBI and CBNA in
1993, and $4,800 for service as a director of CBI and CBNA in
1992.
<F6> Includes $2,400 in fees for service as a director of CBI in
1994, $,2,400 in fees for service as a director in 1993, and
$2,400 in fees for service as a director in 1992.
</FN>
Incentive Stock Options
In 1988, the shareholders of CBI adopted the CBI
Long-Term Incentive Plan. This Plan authorizes the
issuance of Awards to key officers of CBI. Awards may
be made in the form of Incentive Stock Options,
Nonqualified Stock Options and Stock Appreciation
Rights. To date, all Awards under the Plan have been
in the form of Incentive Stock Options ("ISOs").
The Internal Revenue Code requires all ISOs to be
granted at a price not less than 100% of the fair
market value of CBI Common Stock on the date the ISO is
granted. ISOs are not transferable, except upon death
by will or descent and distribution, and may not have
a term of exercise in excess of ten years. In
addition, no ISO may be exercised for a period of at
least six months after the ISO is granted.
All ISOs granted by CBI to date are subject to a
vesting schedule, and may only be exercised to the
extent vested on the date of the exercise. If the
optionee is 55 years or older on the date the ISO is
awarded, ISOs are 33.33% vested after one year, 66.67%
vested after two years, and 100% vested three years
from the date awarded. If the optionee is under 55
years on the date the ISO is awarded, ISOs vest at the
rate of 20% per year after year one, becoming fully
vested in the fifth year.
The Plan requires adjustment of the option price for
all ISOs as appropriate to reflect changes in the
number of outstanding shares caused, among other
events, by the declaration and payment of a stock
dividend. Consequently, the option price of all ISOs
granted has been adjusted each time a stock dividend
has been declared and paid.
Stock Option Grants
The following table sets forth, for each executive
officer, the number of ISOs granted in 1994, the
percentage the ISOs awarded to the executive officer
bears to total ISOs granted to all key employees during
the years, the option price, the expiration of the
option, and the potential realizable value of the ISOs
assuming certain rates of stock appreciation:
INCENTIVE STOCK OPTION GRANTS
IN LAST FISCAL YEAR
Potential
Realizable Value at
Assumed Annual Alternative
Rates of Stock Price
Appreciation
Individual Grants for Option Term
Number of % of Total
Securities Options/
Underlying SARs
Options/ Granted to Exercise
SARs Employees or Base Expira-
Granted in Fiscal Price tion
Name (#) Year ($/Sh)<F1>Date 5% ($)<F2> 10% ($)<F2>
Thomas L. Miller 3,500 15.35% $35.72 1-03-04 $ 78,763 $198,782
Ernest L. Lowe 2,000 8.77% $35.72 1-03-04 $ 45,007 $113,589
<FN>
<F1> All ISOs granted in 1994 to any employee carried an
exercise price of $35.72 per share (adjusted to $29.77 for
stock dividends during 1994), the fair market value of CBI
Common Stock on the date of the grant.
<F2> Applicable Securities and Exchange Regulations require
disclosure of the potential appreciation in ISOs granted to
executive officers, assuming annualized rates of stock price
appreciation of 5% and 10% over the term of the ISO, with
appreciation to be determined as of the expiration date of
the ISO. The figures disclosed above assume such rates of
appreciation on an annual basis, with annual compounding of
the appreciation rate, beginning with the original option
price of $35.72 per share.
</FN>
Stock Option Exercises
The following table sets forth all ISOs exercised
by each executive officer of CBI during 1994, the
number of shares acquired on exercise, the value
realized by the executive officer upon exercise,
the number of exercisable and unexercisable ISOs
outstanding for each executive officer as of
December 31, 1994, and the value of those ISOs as
of December 31, 1994:
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES
Value of
Number of Unexercised
Unexercised In-the-Money
Options/SARs at Options/SARs at
FY-End (#) FY-End ($)
Shares Acquired Exercisable/ Exercisable/
Name on Exercise (#)<F1> Value Realized ($)<F1>Unexercisable<F2> Unexercisable<F2><F3>
Thomas L. Miller -0- -0- 10,267/6,533 103,637/(3,007)
Ernest L. Lowe -0- -0- 5,260/4,740 51,953/9,102
<FN>
<F1> Neither Mr. Miller nor Mr. Lowe have exercised any ISOs.
<F2> All ISOs granted through December 31, 1994 are reported.
Exercisable ISOs are fully vested. ISOs to vest in the
future are reported as unexercisable.
<F3> The dollar values set forth above were calculated by
determining the difference between the closing trading price
of CBI Common Stock at December 31, 1994, which was $23.75
per share, and the option price of each ISO as of December
31, 1994.
</FN>
Pension Plan
CBI and its subsidiaries maintain a pension plan
for their 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 of 21
years. The cost of the pension is actuarially
determined and paid by the CBI subsidiary with whom
the employee is employed. 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. The years of
service for the additional portion are limited to
a maximum of 37. Average monthly pay is based upon
the 5 consecutive plan years of highest pay
preceding 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 five years of
service. The early retirement benefit is the
actuarial equivalent of the pension accrued to the
date of early retirement. As of December 31, 1994,
Thomas L. Miller has been credited with 36 years of
service and Ernest L. Lowe has been credited with
10 years of service under the Pension Plan.
The amount shown on the following table assumes an
annual retirement benefit for an employee who chose
a straight life annuity and who will retire at the
age of 65 years.
PENSION PLAN TABLE
Remuneration Years of Service
15 20 25 30 35 40
35,000 $ 8,486 $ 11,314 $ 14,143 $ 16,971 $ 19,800 $ 22,138
55,000 $ 13,736 $ 18,314 $ 22,893 $ 27,471 $ 32,050 $ 35,778
75,000 $ 18,986 $ 25,314 $ 31,643 $ 37,971 $ 44,300 $ 49,418
95,000 $ 24,236 $ 32,314 $ 40,393 $ 48,471 $ 56,550 $ 63,058
115,000 $ 29,486 $ 39,314 $ 49,143 $ 58,971 $ 68,800 $ 76,698
135,000 $ 34,736 $ 46,314 $ 57,893 $ 69,471 $ 81,050 $ 90,338
150,000 $ 38,673 $ 51,564 $ 64,455 $ 77,346 $ 90,237 $100,568
175,000 $ 38,673 $ 51,564 $ 64,455 $ 77,346 $ 90,237 $100,568
200,000 $ 38,673 $ 51,564 $ 64,455 $ 77,346 $ 90,237 $100,568
Supplemental Pension Benefits Agreement/Thomas L. Miller
On August 2, 1994, CBI and Thomas L. Miller entered
into a Supplemental Pension Benefits Agreement.
The Agreement provides a benefit to Mr. Miller upon
termination of employment for any reason on or
after his normal retirement date. Mr. Miller's
normal retirement date is defined by the CBI
Pension Plan. Mr. Miller will receive a
supplemental pension benefit equal to the lesser of
(i) the portion of pension benefits which Mr.
Miller would normally have received pursuant to the
CBI Pension Plan but which will not accrue for his
benefit due to the annual limitations on
compensation provided in Section 401(a)(17) of the
Internal Revenue Code of 1986, as amended and (ii)
Twenty-four Thousand ($24,000) Dollars per year.
Section 401(a)(17) of the Internal Revenue Code
precludes compensation in excess of One Hundred
Fifty Thousand ($150,000) Dollars per annum from
being used in computing benefits under the Pension
Plan. As of December 31, 1994, Mr. Miller's annual
pension benefit would be reduced by approximately
Twelve Thousand ($12,000) Dollars per year because
of the limits imposed by the Internal Revenue Code.
The impact of these rules is expected to increase
in future years. The Agreement is a non-qualified
and non-funded contractual obligation of CBI.
Community Banks, N.A. Executive Survivor Income
Agreements
On June 1, 1994, Community Banks, N.A. entered into
Survivor Income Agreements with Thomas L. Miller,
Robert W. Lawley, Ernest L. Lowe, Terry L. Burrows,
Lewis C. Bogle, and David E. Hawley. In these
Agreements, CBNA promised to pay to each executive
employee's designated beneficiary a survivor income
benefit. The survivor's income benefit is payable
only if the executive employee dies before
terminating employment with CBNA and only to the
extent that CBNA owns life insurance policies on
the executive employee's life at the time of his or
her death. The death benefit is equal to the
lesser of (i) three times the executive employee's
base salary as established by the Board of
Directors for the calendar year in which the
executive's death occurs, or (ii) the amount of
life insurance proceeds received by CBNA due to the
executive's death. The life insurance proceeds,
however, will first be reduced by the cash
surrender value of the policy on the day before
the executive employee's death multiplied by CBI's
projected highest marginal federal income tax rate
for the year in which the executive's death occurs.
The survivor's income benefit will be paid in a
lump sum within 60 days after the executive
employee's death. These Agreements are funded by
life insurance policies on each executive
employee's life. The life insurance policies are
owned by CNBA, and are in lieu of each executive
employee's participation in CBNA's group life
insurance plan.
Directors' Compensation
In 1994, each director of CBI was paid a quarterly
fee of $600, plus each outside director receives a
fee of $200 for each Board meeting attended. Each
director who was not an executive officer also
received $150 for each Committee meeting attended.
Compliance with Section 16(a) of Securities
Exchange Act
In 1994, to the knowledge of CBI, all Executive
Officers and directors timely filed all reports
with the Securities Exchange Commission.
Transactions with Officers and Directors
During 1994, CBNA has had, and expects to have in
the future, banking transactions in the ordinary
course of business with directors, officers and
principal shareholders of CBI and their associates
on the same terms, including interest rates and
collateral on loans as those prevailing at the time
for comparable transactions with other persons.
Such loans present, in the opinion of management,
no more than the normal risk of collectibility, or
present other unfavorable features.
Allen Shaffer, a director of CBI, is an attorney
practicing in Harrisburg and Millersburg,
Pennsylvania, who has been retained in the last
fiscal year by CBI and who CBI proposes to retain
in the current fiscal year. James A. Ulsh, a
director of CBI, is a shareholder/employee of the
law firm of Mette, Evans & Woodside, Harrisburg,
Pennsylvania, which CBI has retained in the last
fiscal year 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 fiscal year and proposes to
retain in the current fiscal year.
Committees of the Board of Directors of CBI
The Board of Directors of CBI has established three
(3) committees of the Board: the Executive
Committee, the Dividend Reinvestment Committee, and
the Audit Committee. CBI does not have a
nomination committee but provides for the
nomination of directors as described under
"ELECTION OF DIRECTORS OF CBI".
The total number of CBI's Board of Directors'
meetings during 1994 was four (4) and no director
attended fewer than 75% of the aggregate of the
total number of meetings of the Board of Directors
and the total number of meetings held by all
committees of the Board on which he served, except
Samuel Cooper who attended 66% of such meetings,
and Leon Kocher who attended 66% of such meetings.
Audit Committee
Members of the Audit Committee are Kenneth L.
Deibler, Samuel E. Cooper, Ronald Boyer, Ray N.
Leidich, and Leon E. Kocher. The Committee met
twice during 1994. The Audit Committee supervises
and recommends to the Board of Directors all
changes in audit procedures, recommends to the
Board the hiring of the outside auditors, reviews
the complete audit of the books and financial
statements of CBI and its subsidiaries, and upon
receipt and review of the internal auditor's report
and certified public accountants' audit report, the
Committee brings to the Board of Directors its
recommendations concerning the audit. The
Committee also reviews the examination reports by
the Comptroller of the Currency and reviews all
insurance of CBI and its subsidiaries on an annual
basis.
Executive Committee
Members of the Executive Committee are Robert W.
Rissinger, William C. Troutman, Peter DeSoto, Allen
Shaffer, James A. Ulsh and Donald L. Miller. The
Committee met nine times during 1994. The
Committee meets when called by the Chairman and
acts for the Board of Directors. It reviews
salaries and remuneration, policies, and other
items that would come before the Board of Directors
of CBI.
RATIFICATION OF APPOINTMENT OF
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors has selected the firm of
Coopers & Lybrand L.L.P., Harrisburg, Pennsylvania, as
independent certified public accountants to audit
the books, records and accounts of CBI and its
subsidiaries for 1995. This firm audited CBI for
1994, has no material relationship with CBI or its
subsidiaries and is considered to be well
qualified. A representative of the firm is
expected to be at the Annual Meeting of
Shareholders. If the shareholders do not ratify
the selection of this firm, the selection of
another firm of independent certified public
accountants will be considered by the Board of
Directors.
OTHER BUSINESS
To transact any other matters connected with and
incidental to the election of directors that may
properly come before the Annual Meeting of
Shareholders.
Management, at present, knows of no other business
except those items explained herein that may
require the vote of the shareholders to be
presented by or on behalf of CBI or its management
at the meeting.
FORM 10-K ANNUAL REPORT
SECURITIES AND EXCHANGE COMMISSION FORM 10-K ANNUAL
REPORT IS AVAILABLE FREE OF CHARGE. IF YOU DESIRE
A COPY OF THIS REPORT, FORWARD YOUR REQUEST TO:
TERRY L. BURROWS, EVP/CFO
COMMUNITY BANKS, INC.
P.O. BOX 350
MILLERSBURG, PENNSYLVANIA 17061
RETURN OF PROXY
YOU ARE URGED TO SIGN, DATE AND RETURN THE
ACCOMPANYING PROXY AS PROMPTLY AS POSSIBLE WHETHER
OR NOT YOU PLAN TO ATTEND THE MEETING IN PERSON.
IF YOU DO ATTEND THE MEETING, YOU MAY THEN WITHDRAW
YOUR PROXY.
BY ORDER OF THE BOARD OF DIRECTORS
/S/ Patricia E. Hoch
Secretary
Millersburg, Pennsylvania
March 16, 1995
COMMUNITY BANKS, INC.
150 Market Square
P.O. Box 350
Millersburg, PA 17061
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 2, 1995
TO OUR SHAREHOLDERS:
NOTICE IS HEREBY GIVEN that the Annual Meeting of
Shareholders of Community Banks, Inc. ("CBI") will
be held at 9:30 a.m. on May 2, 1995 at CBI's
executive offices, 150 Market Square, Millersburg,
Pennsylvania, for the purpose of considering and
voting upon the following matters:
1. Election of Directors. To elect three (3) Class
D Directors to serve until the 1999 Annual
Meeting of Shareholders.
2. Approval of Accountants. To approve the
selection of Coopers & Lybrand L.L.P., Certified Public
Accountants, Harrisburg, Pennsylvania, as
independent certified public accountants for CBI
for the year ending December 31, 1995.
3. Other Business. Such other business as may be
properly brought before the Annual Meeting of
Shareholders or any adjournment or adjournments
thereof.
Information regarding the matters to be acted upon
at the meeting is contained in the Proxy Statement
accompanying this notice.
IN ACCORDANCE with the statutes in such case made
and PROVIDED only those holders of record of Common
Stock of CBI at the close of business on February
28, 1995 (the "Record Date"), are entitled to
notice of and to vote at the Annual Meeting of
Shareholders and any adjournment or adjournments
thereof. The Stock Transfer Books of CBI will not
be closed.
BY ORDER OF THE BOARD OF DIRECTORS
/S/ PATRICIA E. HOCH
Secretary
Millersburg, Pennsylvania
March 16, 1995
WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL
MEETING, MANAGEMENT URGES THAT YOU SIGN AND DATE
THE ENCLOSED PROXY AND RETURN IT IN THE PREPAID
ENVELOPE PROVIDED. THIS PROXY WILL NOT BE USED IF
YOU ARE PRESENT AND DESIRE TO VOTE IN PERSON.
PROXY
COMMUNITY BANKS, INC.
P. O. Box 350
Millersburg, PA 17061
Telephone: (717) 692-4781
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF
DIRECTORS OF COMMUNITY BANKS, INC.
The undersigned hereby appoints Paul W. Latsha, Earl A. Buffington, and Norwood
D. Hoover, as Proxies, each with the power to appoint his substitute, and
authorizes them to represent and vote, as designated below, all the shares of
Common Stock of Community Banks, Inc. held on record by the undersigned on
February 28, 1995 at the Annual Meeting of Shareholders to be held on May 2,
1995 or any adjournments thereof.
1. ELECTION OF DIRECTORS:
For all Nominees Listed Below Withhold Authority
(except as indicated below)
CLASS D
Leon E. Kocher
Robert W. Rissinger
William C. Troutman
INSTRUCTION: To withhold authority to vote for any individual nominee(s),
write that nominee's name(s) in the space immediately below.
2. APPROVAL OF THE SELECTION OF COOPERS & LYBRAND L.L.P. AS INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS.
FOR AGAINST ABSTAIN
3. OTHER BUSINESS: Take action on other business which may properly
come before the meeting.
FOR AGAINST ABSTAIN
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS SPECIFIED. IF NO
SPECIFICATION OR DIRECTION IS MADE, THEY WILL BE VOTED FOR THE ELECTION OF EACH
CLASS C DIRECTOR, IN FAVOR OF THE APPROVAL OF COOPERS & LYBRAND L.L.P. AS
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS AND FOR ANY OTHER BUSINESS IN
ACCORDANCE WITH THE RECOMMENDATIONS OF MANAGEMENT. THIS PROXY MAY BE REVOKED
PRIOR TO ITS EXERCISE. PLEASE RETURN THIS PROXY AS SOON AS POSSIBLE IN THE
ENCLOSED POSTAGE PAID ENVELOPE.
Dated the day of , 1995.
(SEAL)
Signature
(SEAL)
Signature
Please date and sign exactly as
your name appears hereon. When
signing as an Attorney, Executor,
Administrator, Trustee or
Guardian, please give full
title. If more than one
Trustee, all must sign.
All joint owners must sign.
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