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, 1994 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: NONE
Securities registered pursuant to Section 12(g) of the Act:
Name of each exchange
Title of each class on which registered
Common Stock, par value $5 per share NASDAQ National Market System
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 15, 1995, the aggregate market value (based on recent selling
prices) of the voting stock of the registrant held by its nonaffiliates
(1,500,863 shares) was $38,272,007.
Indicate the number of shares outstanding of each registrant's classes of common
stock, as of the latest practical date.
2,028,310 shares of common stock outstanding on March 15, 1995
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. [ ]
-1-
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. (CBI) 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 fifteen
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 11% of the total deposits in the market area.
The Bank has six offices in Dauphin County, two offices in Northumberland
County, five offices in Schuylkill County, and two offices in Luzerne County.
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 $396,000 for the year
ended December 31, 1994. During 1985 the Bank formed CBI to make investments
primarily in equity securities of other banks. Total assets of CBI at December
31, 1994 were $1,735,000.
The Bank has approximately 172 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, 1994,
was 8 percent. The Bank's December 31, 1994 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, 1994, 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, 1994 December 31, 1994
Risk-based capital $34,136 17.2% $15,877 8.0%
Leverage ratio
(tier 1 capital) 30,740 10.0% 12,296 4.0%
-2-
Statistical Data:
Pages 18 through 20 of the Community Banks, Inc. Annual report to
stockholders dated December 31, 1994 contain information concerning:
Financial Highlights
Average Balances, Effective Interest Differential, and Interest Yields
for the three years ended December 31, 1994.
Rate/Volume Analysis for the two years ended December 31, 1994.
Appendix A attached to Part I contains information concerning:
Return on Equity and Assets for the five years ended December 31, 1994.
Amortized cost and Estimated Market Values of Investment Securities as
of December 31, 1994, 1993, and 1992.
Maturity Distribution of Securities as of December 31, 1994 (Market
Value).
Loan Account Composition as of December 31, 1994, 1993, 1992, 1991, and
1990.
Maturities and Sensitivity to Changes in Interest Rates for Commercial,
Financial, and Agricultural Loans as of December 31, 1994.
Nonperforming Loans as of December 31, 1994, 1993, 1992, 1991, and
1990.
Loan Loss Experience for the five years ended December 31, 1994.
Loans Charged Off and Recovered for the five years ended December 31, 1994.
Allowance for Loan Losses as of December 31, 1994, 1993, 1992, 1991, and
1990.
Maturity Distribution of Time Deposits over $100,000 as of December 31,
1994.
Interest Rate Sensitivity as of December 31, 1994.
-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; and
Route 93, Conyngham, Luzerne County, Pennsylvania. In addition thereto, CBNA
leases an office on Main Street, Pillow, Pennsylvania, pursuant to a lease
which, with renewal options, will extend to the year 2008. 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 1994.
-4-
<TABLE>
<CAPTION>
APPENDIX A
RETURN ON EQUITY AND ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993, 1992, 1991, and 1990
1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
Return on average equity 13.63% 13.85% 13.61% 10.81% 9.90%
Return on average assets 1.40% 1.41% 1.36% 1.05% 1.00%
Average equity to average assets 10.23% 10.16% 10.01% 9.70% 10.14%
Dividend payout ratio 34.24% 32.10% 30.88% 35.08% 40.23%
</TABLE>
-5-
<TABLE>
<CAPTION>
APPENDIX A
Continued
AMORTIZED COST AND ESTIMATED VALUES OF INVESTMENT
SECURITIES
(dollars in thousands)
AT DECEMBER 31, 1994, 1993, and 1992
1994 1993 1992
Estimated Estimated Estimated
Amortized Market Amortized Market Amortized Market
Cost Value Cost Value Cost Value
<S> <C> <C> <C> <C> <C> <C>
Mortgage backed U.S. Government agencies $ 43,926 $41,900 $ 58,764 $ 59,444 $ 60,437 $ 60,855
U.S. Treasury and U.S. Government agencies 18,807 17,832 4,192 4,312 4,578 4,672
Obligations of states and political sub-
divisions 33,185 32,733 32,216 33,805 27,267 28,251
Other securities 6,387 6,784 6,204 7,218 7,972 8,207
Total $102,305 $99,249 $101,376 $104,779 $100,254 $101,985
======== ======= ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
COMMUNITY BANKS, INC. and SUBSIDIARIES
MATURITY DISTRIBUTION OF SECURITIES (Market Value)
(dollars in thousands)
as of December 31, 1994
One Five Weighted
Within Through Through After Average Average
One Year Five Years Ten Years Ten Years Total Maturity Yield <F1>
<S> <C> <C> <C> <C> <C> <C> <C>
U.S. Government and agencies $2,000 $31,475 $12,246 $14,011 $59,732 3 yr. 1 mos. 6.86%
Obligations of states and political
subdivisions 1,535 6,167 21,112 3,919 32,733 7 yr. 5 mos. 8.58%
Other securities 3,285 2,556 943 --- 6,784 1 yr. 5 mos. 5.96%
Total $6,820 $40,198 $34,301 $17,930 $99,249 4 yr. 5 mos. 7.37%
====== ======= ======= ======= =======
Percentage of total 6.9% 40.5% 34.6% 18.0% 100.0%
===== ===== ===== ===== ======
Weighted average yield<F1> 6.84% 7.38% 7.50% 7.30% 7.37%
===== ===== ===== ===== =====
<FN>
<F1>
(a) 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.
</FN>
</TABLE>
-6-
<TABLE>
<CAPTION>
APPENDIX A
Continued
LOAN ACCOUNT COMPOSITION
(dollars in thousands)
as of December 31
1994 1993 1992 1991 1990
Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial, financial and agricultural $ 31,227 16.4% $ 26,990 16.2% $ 20,818 13.2% $ 21,625 13.5% $ 21,150 13.7%
Real estate-construction 3,354 1.8 1,573 .9 1,796 1.1 1,916 1.2 2,057 1.3
Real estate-mortgage 103,851 54.4 89,116 53.2 84,389 53.3 81,245 51.0 77,499 50.3
Personal-installment 46,342 24.3 43,193 25.8 43,774 27.6 45,911 28.8 43,996 28.6
Other 6,018 3.1 6,549 3.9 7,572 4.8 8,741 5.5 9,337 6.1
190,792 100.0% 167,421 100.0% 158,349 100.0% 159,438 100.0% 154,039 100.0%
Less: ===== ===== ===== ===== =====
Unearned discount (8,522) (7,389) (7,708) (7,860) (7,942)
Reserve for loan losses (2,069) (1,837) (1,589) (1,467) (1,307)
$180,201 $158,195 $149,052 $150,111 $144,790
======== ======== ======== ======== ========
<FN>
The Corporation's loan activity is with customers located within the local
market area. The Corporation maintains a diversified loan portfolio and has no
significant loan concentration in any economic sector.
</FN>
</TABLE>
<TABLE>
<CAPTION>
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, 1994
One Year One to Over Five
Or Less Five Years Years
<S> <C> <C> <C>
Maturity distribution $15,815 $18,766 ---
======= ======= ======
</TABLE>
<TABLE>
<CAPTION>
Variable Fixed Total
<S> <C> <C> <C>
Interest sensitivity:
Due in one year or less $12,864 $2,950 $15,814
Due after one year 18,363 404 18,767
$31,227 $3,354 $34,581
======= ====== =======
</TABLE>
-7-
<TABLE>
<CAPTION>
APPENDIX A
Continued
NONPERFORMING LOANS <F1>
(dollars in thousands)
as of December 31
1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
Loans past due 90 days or more:
Commercial, financial and agricultural $ 152 $ 9 $ 196 $ 331 $ 194
Mortgages 114 87 544 361 452
Personal installment 59 99 121 226 197
Other 1 9 10 4 10
326 204 871 922 853
Loans renegotiated with the borrowers NONE NONE NONE NONE NONE
Loans on which accrual of interest has
been discontinued:
Commercial, financial and agricultural 327 50 64 158 169
Mortgages 475 809 539 169 16
Other 30 59 77 102 75
832 918 680 429 260
Other real estate owned 338 366 145 631 290
Total $1,496 $1,488 $1,696 $1,982 $1,403
====== ====== ====== ====== ======
<FN>
<F1>
(a) 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 1994 was $77,000. Interest income from these loans would have approximated
$66,000 in 1993.
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. Prolonged continued weakness in the
commercial real estate market could result in an increase in delinquencies or
losses in commercial real estate loans.
</FN>
</TABLE>
-8-
<TABLE>
<CAPTION>
APPENDIX A
Continued
LOAN LOSS EXPERIENCE
(dollars in thousands)
For the years ended December 31, 1994, 1993, 1992, 1991, and 1990
1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
Loans at year-end, net of unearned income $182,270 $160,032 $150,641 $151,578 $146,097
======== ======== ======== ======== ========
Average loans balance <F1> $170,945 $159,976 $152,049 $151,900 $140,059
======== ======== ======== ======== ========
Balance, allowance for loan losses,
January 1 $ 1,837 $ 1,589 $ 1,467 $ 1,307 $ 1,186
Net charge-offs <F2> (230) (454) (561) (577) (541)
Provision for loan losses 462 702 683 737 662
Balance, allowance for loan losses,
December 31 <F2> $ 2,069 $ 1,837 $ 1,589 $ 1,467 $ 1,307
======== ======== ======== ======== =========
Net charge-offs to loans at year end .13% .28% .37% .38% .37%
Net charge-offs to average loans <F1> .13 .28 .37 .38 .39
Balance of allowance for loan losses
to loans at year end 1.14 1.15 1.05 .97 .89
<FN>
<F1>
(a) Averages are a combination of monthly and daily averages.
<F2>
(b) 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.
The provision for loan losses totalled $462,000 for the year ended December 31,
1994 compared to $702,000, $683,000, $737,000, and $662,000 for the years ended
December 31, 1993, 1992 1991, and 1990, respectively. The 1994 provision for
loan losses reflected managements' continued concern for the strength of the
local economy. The relationship of the allowance for loan losses to loans at
year end approximated 1.14% compared to ratios of .89% to 1.15% 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 .49%,.52%, .62%, .80%, and .60%,
at year-end 1994, 1993, 1992, 1991, and 1990, respectively.
</FN>
</TABLE>
-9-
<TABLE>
<CAPTION> APPENDIX A,
Continued
LOANS CHARGED OFF AND RECOVERED
(dollars in thousands)
for the years ended December 31, 1994, 1993, 1992, 1991, and 1990
1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
Loans charged off:
Commercial, financial and agricultural --- --- $ 63 $113 $324
Real estate-mortgage $ 82 $149 181 6 4
Personal installment 396 472 432 541 243
Other 99 66 59 34 39
Total 577 687 735 694 610
Loans recovered:
Commercial, financial and agricultural --- --- 6 4 25
Real estate-mortgage 83 77 4 -- 1
Personal installment 231 142 154 112 43
Other 33 14 10 1 --
Total 347 233 174 117 69
Net charge-offs $230 $454 $561 $577 $541
==== ==== ==== ==== ====
</TABLE>
<TABLE>
<CAPTION>
ALLOCATION OF
ALLOWANCE FOR LOAN LOSSES*
(dollars in thousands)
as of December 31
1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
Loans:
Commercial, financial and agricultural $ 399 $ 500 $ 601 $ 562 $ 501
Real estate-construction 1 --- 16 15 11
Real estate-mortgage 311 225 477 386 371
Installment 527 489 405 405 328
Unallocated 831 623 90 99 96
Balance $2,069 $1,837 $1,589 $1,467 $1,307
====== ====== ====== ====== ======
<FN>
*See Schedule "Loan Account Composition" for the percent of loan classification to total loans.
</FN>
</TABLE>
<TABLE>
<CAPTION>
MATURITY DISTRIBUTION OF TIME
DEPOSITS OF $100,000 OR MORE
(dollars in thousands)
as of December 31, 1994
<S> <C>
Remaining to Maturity:
Less than three months $ 522
Three months to six months 1,846
Six months to twelve months 998
More than twelve months 4,706
$8,072
=======
</TABLE>
-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
10.3% of total assets at December 31, 1994.
Significant maturity/repricing assumptions include the presentation of
all savings and NOW accounts as being 100% 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, 1994.
<TABLE>
<CAPTION>
Interest Rate Sensitivity
At December 31, 1994 1-90 90-180 180-365 1 year Total
Dollars in thousands days days days or more
<S> <C> <C> <C> <C> <C>
Assets
Interest-bearing deposits in
other banks $ 545 $ 100 --- --- $ 645
Investment securities 18,251 1,316 $ 3,195 $ 76,487 99,249
Federal funds sold --- --- --- --- ---
Loans, net of unearned income<F1> 55,173 62,503 14,323 50,271 182,270
Loans held for sale 35 --- --- --- 35
Total $ 74,004 $63,919 $17,518 $126,758 $282,199
Liabilities
Savings 115,104 --- --- --- 115,104
Time 18,124 15,484 19,508 55,477 108,593
Time in denominations of
$100,000 or more 422 1,846 998 4,806 8,072
Short-term borrowings 11,709 --- --- --- 11,709
Long-term debt --- --- 4,000 3,000 7,000
Total $145,359 $17,330 $24,506 $63,283 $250,478
Interest Sensitivity Gap
Periodic $(71,355) $46,589 $ (6,988) $63,475
Cumulative (24,766) (31,754) 31,721
<FN>
<F1>
*Does not include nonaccrual loans.
</FN>
</TABLE>
-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, 1994 (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 18 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 19 through 23 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 15, 1995, are incorporated by
reference to pages 6 through 18 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, 1994.
<TABLE>
<CAPTION>
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 <F1> Ownership<F2> Owned
<S> <C> <C> <C>
Thomas L. Miller Chairman of Bank 1966 16,964 <F12> .84%
Age 62
Kenneth L. Deibler Self-Employed 1966 19,527 <F3> .96%
Age 72 Insurance Broker
Elizabethville, PA
Leon E. Kocher Chairman of the Board, 1963 15,705 .78%
Age 82 Kocher Coal Co.
(coal mining)
Valley View, PA
Ernest L. Lowe President of Bank 1990 8,784 <F11> .43%
Age 58
Robert W. Rissinger President, 1968 134,932 <F4> 6.66%
Age 68 Kocher Coal Co. <F5>
(coal mining)
Valley View, PA
Allen Shaffer Attorney-at-Law 1961 24,613 <F9> 1.22%
Age 69 Millersburg and
Harrisburg, PA
William C. Troutman President, 1968 84,065 <F6> 4.15%
Age 79 The A. W. Troutman
Co. (automobile
dealership)
Millersburg, PA
James A. Ulsh Attorney-at-Law 1977 8,839 .44%
Age 48 Mette, Evans &
Woodside
Harrisburg, PA
Samuel E. Cooper Superintendent, 1991 1,034 .05%
Age 61 Warrior Run
School District
Turbotville, PA
Ronald E. Boyer President, 1981 9,469 <F7> .47%
Age 57 Alvord-Polk Tool Co.
(manufacturing of
cutting tools)
Millersburg, PA
Peter DeSoto President, 1981 23,479 1.16%
Age 55 Metal Industries,
Inc. (manufacturing
of metal products)
Elizabethville, PA
Thomas W. Long President, 1981 12,498 <F8> .62%
Age 65 Millersburg Hardware
Millersburg, PA
Donald L. Miller President, Miller 1981 50,797 2.51%
Age 65 Bros. Dairy
Millersburg, PA
Ray N. Leidich Dentist 1985 38,948 <F10> 1.92%
Age 66 Tremont, PA
<FN>
<F1> 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.
<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 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, 1994. Beneficial ownership may
be disclaimed as to certain of the securities.
<F3> Includes 1,451 shares owned by Mr. Deibler's grandchildren.
<F4> Includes 3,260 shares owned by Alvord-Polk Tool Co., Inc. the stock of which is
held 50% by Robert Rissinger and 50% by Ronald E. Boyer.
<F5> 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 in which Mr. Rissinger is Co-Trustee.
<F6> Includes 18,703 shares owned by Mr. Troutman's spouse, Dorothy Troutman and 5,295
shares owned by W.C. Troutman Co.
<F7> 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 wife, Judith Boyer.
<F8> Includes 7,416 shares owned by the Trust of Mr. Long's mother, Leah Long.
<F9> Includes 4,198 shares owned by Mr. Shaffer's Pension Plan.
-14-
<F10> Includes 19,474 shares owned by Dr. Leidich's wife, Dolores Leidich.
<F11> Includes 87 shares owned by Mr. Lowe's wife, Barbara and 60 shares owned by Mr.
Lowe's children and incentive stock options to acquire 7,700 shares.
<F12> Includes incentive stock options to acquire 13,367 shares.
<F13> Includes incentive stock options to acquire 1,200 shares.
<F14> Includes incentive stock options to acquire 3,672 shares.
<F15> Includes incentive stock options to acquire 2,940 shares and 127 shares
registered to Mr. Lawley for his minor children.
<F16> Includes incentive stock options to acquire 1,120 shares.
</FN>
</TABLE>
Compliance with Section 16(a) of Securities Exchange Act
In 1994, to the knowledge of CBI, all directors filed on a timely basis
reports required by the Securities Exchange Commission.
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.
<TABLE>
<CAPTION>
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, 1994.
Amount and Percentage
Principal Occupation Nature of of
for the Past Five Beneficial Outstanding
Name and Age Years Term <F1> Ownership<F2>Common Stock
<S> <C> <C> <C>
Thomas L. Miller Chairman & Chief Executive 1966 16,964 <F12> .84%
Age 62 Officer
Robert E. Lenker Executive Vice President, 1984 14,834 <F13> .73%
Age 66 Corporate Services
Ernest L. Lowe President, 1985 8,784 <F11> .43%
Age 58 Chief Operating Officer
David E. Hawley Executive Vice President, 1975 4,298 <F14> .21%
Age 56 Corporate Property Officer
Robert W. Lawley Executive Vice President, 1980 3,096 <F15> .15%
Age 40 Chief Lending Officer
Terry L. Burrows Executive Vice President, 1977 5,152 <F16> .25%
Age 46 Chief Financial Officer
<FN>
<F1> Initial year employed in this capacity.
<F11> Includes 87 shares owned by Mr. Lowe's wife, Barbara and 60 shares owned by Mr.
Lowe's children and incentive stock options to acquire 7,700 shares.
<F12> Includes incentive stock options to acquire 13,367 shares.
<F13> Includes incentive stock options to acquire 1,200 shares.
<F14> Includes incentive stock options to acquire 3,672 shares.
<F15> Includes incentive stock options to acquire 2,940 shares and 127 shares
registered to Mr. Lawley for his minor children.
<F16> Includes incentive stock options to acquire 1,120 shares.
</FN>
</TABLE>
-15-
<TABLE>
<CAPTION>
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
<S> <C> <C> <C>
Common 375,803 101,231 23.21%
</TABLE>
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 2, 1995; 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
-16-
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 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 36 and 10 years of service, respectively, under the
pension plan as of December 31, 1994. 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.
<TABLE>
<CAPTION>
Remuneration
Years of
Service $35,000 $55,000 $75,000 $95,000 $115,000 $135,000 $150,000 $175,000 $195,000
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
15 $ 8,486 $13,736 $18,986 $24,236 $29,486 $34,736 $38,763 $38,763 $38,763
20 $11,314 $18,314 $25,314 $32,314 $39,314 $46,316 $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
30 $16,971 $27,471 $37,971 $48,471 $58,971 $69,471 $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
40 $22,138 $35,778 $49,418 $63,058 $76,698 $90,338 $100,568 $100,568 $100,568
</TABLE>
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 $150 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 14 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.
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.
-17-
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 -- 18
Balance Sheets as of December 31, 1994
and 1993 -- 6
Statements of Income for each of the three years
ended December 31, 1994 -- 7
Statements of Changes in Stockholders'
Equity for each of the three years ended
December 31, 1994 -- 8
Statements of Cash Flows for each of the three
years ended December 31, 1994 -- 8
Notes to Financial Statements -- 9-17
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
within this document.
(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, 1994.
-18-
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, 1995 on our audits of the
consolidated financial statements of Community Banks, Inc. as of December 31,
1994 and 1993, and for the years ended December 31, 1994, 1993, and 1992, which
report is incorporated by reference in this Annual Report on Form 10-K.
Signature
/S/ Coopers & Lybrand L.L.P.
One South Market Square
Harrisburg, Pennsylvania
March 22, 1995
-19-
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 17, 1995
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 3/17/95
(Terry L. Burrows) Principal Financial Officer
/S/ Ronald E. Boyer Director 3/17/95
(Ronald E. Boyer)
/S/ Samuel E. Cooper Director 3/17/95
(Samuel E. Cooper)
/S/ Kenneth L. Deibler Director 3/17/95
(Kenneth L. Deibler)
/S/ Ray N.Leidich Director 3/17/95
(Ray N. Leidich)
/S/ Ernest L. Lowe Director 3/17/95
(Ernest L. Lowe)
/S/ Donald L. Miller Director 3/17/95
(Donald L. Miller)
/S/ Robert W. Rissinger_ Director 3/17/95
(Robert W. Rissinger)
/S/ Allen Shaffer _ Director 3/17/95
(Allen Shaffer)
/S/ William C. Troutman Director 3/17/95
(William C. Troutman)
/S/ James A. Ulsh _ Director 3/17/95
(James A. Ulsh)
-20-
Community Banks, Inc. and Subsidiaries
MARKET FOR THE HOLDING COMPANY'S COMMON STOCK
AND RELATED SECURITIES HOLDER MATTERS
The shares of Community Banks, Inc. are traded on the NASDAQ National Market
System and are transferred through local and regional brokerage houses. The
Holding Company has approximately 1,086 shareholders as of February 14, 1995.
The following table sets forth the high and low prices within the knowledge of
management of Community Banks, Inc. at which the Capital Stock has been
transferred during the periods indicated. The table is based solely upon
transactions known to management of the Holding Company and represents a portion
of the actual transfers of Capital Stock during the periods in
question.
Price Per Share Price Per Share
1994 Low High 1993 Low High
First Quarter.............$35.25 $37.25 First Quarter..........$23.75 $25.50
Second Quarter............ 34.38 37.00 Second Quarter......... 24.00 30.00
Third Quarter............. 32.00 35.75 Third Quarter.......... 27.75 32.00
Fourth Quarter............ 22.75 33.50 Fourth Quarter......... 32.00 37.00
Holders of the Capital Stock of the Holding Company are entitled to such
dividends as may be declared from time to time by the Board of Directors out of
funds legally available therefore. Community Banks, Inc. has paid cash dividends
per share of Common Stock during the last five years as follows: 1990-$0.44,
1991-$0.44, 1992-$0.54, 1993-$0.62 and 1994-$0.70. The market prices listed
above are based on historical market quotations and have not been restated for
the issuance ofstock dividends.
<TABLE>
<CAPTION>
Community Banks, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
At December 31, 1994 and 1993
(dollars in thousands except per share data)
1994 1993
<S> <C> <C>
ASSETS
Cash and due from banks.......................... $ 12,152 $ 9,626
Interest-bearing time deposits in other banks.... 645 576
Investment securities, held to maturity
(market value of $87,248 as of
December 31, 1993)............................. --- 84,668
Investment securities, available for sale (market
value of $99,249 and $17,531 as of December
31, 1994 and December 31, 1993, respectively).. 99,249 16,708
Loans............................................ 190,792 167,421
Less: Unearned income........................... (8,522) (7,389)
Allowance for loan losses................. (2,069) (1,837)
Net loans................................. 180,201 158,195
Premises and equipment, net...................... 6,589 5,851
Goodwill......................................... 1,629 1,871
Other real estate owned.......................... 338 366
Loans held for sale.............................. 35 4,096
Accrued interest receivable and other assets..... 6,283 2,766
Total assets................................... $307,121 $284,723
======== ========
LIABILITIES
Deposits:
Demand......................................... $ 24,343 $ 18,586
Savings........................................ 115,104 107,791
Time........................................... 108,593 108,754
Time in denominations of $100,000 or more...... 8,072 8,161
Total deposits................................. 256,112 243,292
Short-term borrowings............................ 11,709 1,205
Long-term debt................................... 7,000 9,000
Accrued interest payable and other liabilities... 1,933 1,692
Subordinated capital notes....................... 15 31
Total liabilities.............................. 276,769 255,220
STOCKHOLDERS' EQUITY
Preferred stock, no par value;
500,000 shares authorized;
no shares issued and outstanding............... --- ---
Common stock, $5.00 par value; 5,000,000 shares
authorized; 2,027,918 and 1,682,234 shares
issued in 1994 and 1993, respectively.......... 10,140 8,411
Surplus.......................................... 9,839 9,740
Retained earnings................................ 12,443 11,405
Net unrealized loss on investment securities
available for sale............................. (2,017) ---
Less: Treasury stock of 2,651
shares at cost................................. (53) (53)
Total stockholders' equity..................... 30,352 29,503
Total liabilities and stockholders' equity..... $307,121 $284,723
======== ========
<FN>
The accompanying notes are an integral part of the consolidated financial statements.
</FN>
</TABLE>
<TABLE>
<CAPTION>
Community Banks, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME
For the Years Ended December 31, 1994, 1993, and 1992
(dollars in thousands except per share data)
1994 1993 1992
<S> <C> <C> <C>
Interest Income:
Interest and fees on loans....................... $14,975 $14,177 $14,669
Interest and dividends on investment securities:
Taxable....................................... 4,490 4,613 4,708
Exempt from federal income tax................ 1,867 1,792 1,612
Other interest income............................ 67 102 62
Total interest income......................... 21,399 20,684 21,051
Interest expense:
Interest on deposits:
Savings....................................... 2,537 2,621 3,138
Time.......................................... 5,028 5,486 6,190
Time in denominations of $100,000 or more..... 397 409 485
Interest on short-term borrowings and
long-term debt.................................. 525 489 235
Interest on subordinated capital notes........... 2 4 5
Total interest expense........................ 8,489 9,009 10,053
Net interest income........................... 12,910 11,675 10,998
Provision for loan losses.......................... 462 702 683
Net interest income after provision for
loan losses................................. 12,448 10,973 10,315
Other income:
Trust department income.......................... 180 207 181
Service charges on deposit accounts.............. 687 597 584
Other service charges, commissions and fees...... 237 209 204
Investment security gains (losses)............... 395 154 (3)
Income on insurance premiums..................... 396 414 398
Gains on mortgage sales.......................... 210 933 601
Other income..................................... 177 174 193
Total other income............................ 2,282 2,688 2,158
Other expenses:
Salaries and employee benefits.................. 4,267 3,858 3,563
Net occupancy expense........................... 1,301 1,102 994
Operating expenses of insurance subsidiary...... 282 357 289
Other operating expense......................... 3,430 3,139 2,957
Total other expenses......................... 9,280 8,456 7,803
Income before income taxes................... 5,450 5,205 4,670
Provision for income taxes........................ 1,288 1,289 1,179
Net income................................... $ 4,162 $ 3,916 $ 3,491
======= ======= =======
Fully diluted earnings per share (based on average
shares outstanding)...........................<F1> $ 2.03 $ 1.92 $ 1.73
======= ======= =======
<FN>
<F1> Earnings per share have been restated to include a 20% stock dividend effective November 29, 1994.
The accompanying notes are an integral part of the consolidated financial statements.
</FN>
</TABLE>
<TABLE>
<CAPTION>
Community Banks, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CHANGES
IN STOCKHOLDERS' EQUITY
For the Years Ended December 31, 1994, 1993, and 1992
(dollars in thousands except per share data)
Total
Common Retained Valuation Treasury Stockholders'
Stock Surplus Earnings Allowance Stock Equity
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1991.......................... $ 6,635 $ 8,142 $ 9,523 $(39) $24,261
Net income for 1992................................. 3,491 3,491
Cash dividends ($0.54 per share).................... (1,078) (1,078)
20% stock dividend (additional 264,948 shares)...... 1,325 (1,325)
5% stock dividend (additional 79,059 shares)........ 395 1,472 (1,867)
Purchase of treasury stock (additional 780 shares).. (14) (14)
Issuance of additional 983 shares................... 5 10 15
Valuation allowance on marketable securities........ 28 28
Balance, December 31, 1992.......................... 8,360 9,624 8,772 (53) 26,703
Net income for 1993................................. 3,916 3,916
Cash dividends ($0.62 per share).................... (1,257) (1,257)
Issuance of additional 10,187 shares................ 51 116 (26) 141
Balance, December 31, 1993.......................... 8,411 9,740 11,405 (53) 29,503
Net income for 1994................................. 4,162 4,162
Cash dividends ($0.70 per share).................... (1,425) (1,425)
20% stock dividend (additional 337,248 shares)...... 1,686 (1,686)
Issuance of additional 8,436 shares................. 43 99 (13) 129
Valuation allowance on investment seucrities,
available for sale............................... $(2,017) (2,017)
Balance, December 31, 1994.......................... $10,140 $9,839 $12,443 $(2,017) $(53) $30,352
======= ====== ======= ======= ==== =======
<FN>
Per share data for all periods has been restated to reflect stock dividends.
The accompanying notes are an integral part of the consolidated financial statements.
</FN>
</TABLE>
<TABLE>
<CAPTION>
Community Banks, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1994, 1993, and 1992
(in thousands)
1994 1993 1992
<S> <C> <C> <C>
Operating Activities:
Net income.............................................. $ 4,162 $ 3,916 $ 3,491
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan losses............................ 462 702 683
Provision for depreciation and amortization.......... 716 625 586
Amortization of goodwill............................. 242 241 241
Investment security losses (gains)................... (395) (154) 3
Gains on mortgage sales.............................. (210) (933) (601)
Decrease (increase) in other assets.................. (2,450) (3,396) 1,428
Increase (decrease) in accrued interest payable
and other liabilities............................... 241 (384) 409
Net cash provided by operating activities......... 2,768 617 6,240
Investing Activities:
Net decrease (increase) in interest-bearing time
deposits in other banks................................ (69) (201) 83
Proceeds from sales of investment
securities............................................. 892 298 52
Proceeds from maturities of investment securities....... 17,513 22,580 28,552
Purchases of investment securities...................... (18,939) (23,866) (53,563)
Proceeds from sales of loans............................ 10,975 25,092 23,626
Net increase in total loans............................. (29,172) (34,004) (22,649)
Purchases of premises and equipment..................... (1,454) (1,235) (1,630)
Net cash used in investing activities............. (20,254) (11,336) (25,529)
Financing Activities:
Net increase in total deposits.......................... 12,820 7,695 17,440
Net increase (decrease) in short-term borrowings........ 10,504 330 (1,538)
Net increase (decrease) in long-term debt............... (2,000) 2,000 7,000
Repayment of subordinated capital notes................. (16) (15) (16)
Cash dividends.......................................... (1,425) (1,257) (1,078)
Purchase of treasury stock.............................. --- --- (14)
Proceeds from issuance of common stock.................. 129 141 15
Net cash provided by financing activities......... 20,012 8,894 21,809
Increase (decrease) in cash and cash equivalents.. 2,526 (1,825) 2,520
Cash and cash equivalents at beginning of year............ 9,626 11,451 8,931
Cash and cash equivalents at end of year.................. $12,152 $ 9,626 $11,451
======= ======= =======
<FN>
The accompanying notes are an integral part of the consolidated financial statements.
</FN>
</TABLE>
1. Organization and Basis of Presentation:
Community Banks, Inc. (Corporation) is a bank holding company
whose wholly-owned subsidiaries include Community Banks, N.A.
(CBNA), Community Banks Investments, Inc. (CBI) and Community
Banks Life Insurance Company (CBLIC). All significant
intercompany transactions have been eliminated.
2. Summary of Significant Accounting Policies:
The more significant accounting policies of the Corporation
are:
Investment Securities:
At January 1, 1994, the Corporation adopted Statement of
Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities" ("SFAS 115"). This
statement requires enterprises to classify debt and equity
securities as either "held-to-maturity," "available-for-sale,"
or "trading." Investments for which management has the intent,
and the corporation has the ability, to hold to maturity are
carried at the lower of cost or market adjusted for amortization
of premium and accretion of discount. Amortization and
accretion are calculated principally on the interest method.
Securities bought and held primarily for the purpose of selling
them in the near term are classified as "trading" and reported
at fair value. Changes in unrealized gains and losses on
"trading" securities are recognized in the Consolidated
Statements of Income. At December 31, 1994, there were no
securities identified as "trading." All other securities are
classified as "available-for-sale" and reported at fair value.
Changes in unrealized gains and losses for "available-for-sale"
securities, net of applicable taxes, are recorded as a component
of shareholder's equity.
Securities classified as "available-for-sale" include
investments management intends to use as part of its
asset/liability management strategy, and that may be sold in
response to changes in interest rates, resultant prepayment risk
and other factors. Realized gains and losses on the sale of
securities are recognized using the specific identification
method and are included in Other Income in the Consolidated
Statements of Income.
Allowance for Loan Losses:
The allowance for loan loss is based on those factors which, in
management's judgement, deserve current recognition in
estimating possible loan losses, including past loan loss
experience and changes in: a) economic conditions prevailing in
the Corporation's geographic lending area; b) character and size
of the loan portfolio; and c) overall credit-worthiness of
borrowers as monitored through delinquency analysis and loan
reviews.
Premises and Equipment:
Premises and equipment are stated at cost, less accumulated
depreciation. Depreciation is calculated using accelerated and
straight-line methods over the estimated useful lives of the
assets. Maintenance and repairs are expensed as incurred, while
major additions and improvements are capitalized. Gain or loss
on retirement or disposal of individual assets is recorded as
income or expense in the period of retirement or disposal.
Goodwill:
Goodwill which represents the excess of purchase price,
including acquisition costs over the fair market value of net
assets acquired under the purchase method of accounting is
amortized on a straight line basis over 15 years.
Pension Plan:
The Corporation has a noncontributory defined benefit pension
plan covering substantially all employees. Pension costs are
funded currently subject to the full funding limitation imposed
under federal income tax regulations.
Income Taxes:
In 1992, the Company elected the early adoption of Statement of
Financial Accounting Standards No. 109, "Accounting for Income
Taxes," which requires recognition of deferred tax liabilities
and assets for the expected future tax consequences of events
that have been included in the financial statements or tax
returns. Under this method, deferred tax liabilities and assets
are determined based on the difference between the financial
statement and tax basis of assets and liabilities using enacted
tax rates in effect for the year in which the differences are
expected to reverse (see Note 10). The cumulative effect of
this change did not have a material effect on reported income
for 1992.
Interest Income on Loans:
Interest income on commercial, consumer, and mortgage loans is
recorded on the interest method. Nonaccrual loans are those on
which the accrual of interest has ceased and where all
previously accrued and unpaid interest is reversed. Loans,
other than consumer loans, are placed on nonaccrual status when
principal or interest is past due 90 days or more and the
collateral may be inadequate to recover principal and interest,
or immediately, if in the opinion of management, full collection
is doubtful. Interest accrued but not collected as of the date
of placement on nonaccrual status is reversed and charged
against current income. Subsequent cash payments received
either are applied to the outstanding principal balance or
recorded as interest income, depending upon management's
assessment of the ultimate collectibility of principal and
interest. Loan origination fees and certain direct origination
costs are capitalized and recognized as an adjustment of the
yield on the related loan.
Other Real Estate Owned:
Real estate acquired through foreclosure is carried at the
lower of the recorded amount of the loan for which the
foreclosed property previously served as collateral or the
current appraised value of the property. Prior to foreclosure,
the recorded amount of the loan is written down, if necessary,
to the appraised value of the real estate to be acquired by
charging the allowance for loan losses. During 1994, 1993, and
1992 non-cash transactions related to real estate acquired
through foreclosure totalled $322,000, $646,000, and $134,000,
respectively.
Subsequent to foreclosure, gains or losses on the sale of and
losses on the periodic revaluation of real estate acquired
through foreclosure are credited or charged to noninterest
expense. Costs of maintaining and operating foreclosed property
are expensed as incurred. Expenditures to improve foreclosed
properties are capitalized only if expected to be recovered;
otherwise, they are expensed.
Statement of Cash Flows:
Cash and cash equivalents included cash and due from banks and
federal funds sold. The Corporation made cash payments of
$1,276,000, $1,268,000, and $1,229,000, and $8,545,000,
$9,085,000, and $10,156,000 for income taxes and interest,
respectively, in 1994, 1993, and 1992.
Earnings Per Common Share:
Net income per share is computed based upon the weighted
average shares of common stock outstanding which amounted to
2,053,475, 2,040,911, and 2,014,381 shares for the years ended
December 31, 1994, 1993, and 1992, respectively.
<TABLE>
<CAPTION>
3. Investment Securities:
The amortized cost and market value of investment securities at December 31, 1994 and 1993 are as follows:
December 31
1994 1993
Amortized Market Amortized Market
Cost Value Cost Value
(IN THOUSANDS)
<S> <C> <C> <C> <C>
U.S. Treasury securities and obligations of U.S.
government corporations and agencies $18,807 $17,832 $4,192 $4,312
Mortgage-backed U.S. government agencies 43,926 41,900 58,764 59,444
Obligations of states and political subdivisions 33,185 32,733 32,216 33,805
Corporate securities 3,518 3,499 3,370 3,570
Equity securities 2,869 3,285 2,834 3,648
Total $102,305 $99,249 $101,376 $104,779
<FN>
Investment securities available for sale at December 31, 1993, consisted of mortgage-backed U.S.
government agencies with amortized costs and market values of $15,454,000 and $15,463,000,
respectively, and equity securities with amortized costs and market values of $1,254,000 and
$2,068,000, respectively.
</FN>
</TABLE>
<TABLE>
<CAPTION>
The amortized cost and market value of all investment securities at December 31, 1994 are as follows:
Gross Gross
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
(IN THOUSANDS)
<S> <C> <C> <C> <C>
U.S. government corporations and agencies $18,807 $3 ($978) $17,832
Mortgage-backed U.S. government agencies 43,926 86 (2,112) 41,900
Obligations of states and political subdivisions 33,185 263 (715) 32,733
Corporate securities 3,518 54 (73) 3,499
Equity securities 2,869 416 0 3,285
Total $102,305 $822 ($3,878) $99,249
<FN>
The amortized cost and market value of all investment securities at December 31, 1994, by
contractual maturity, are shown below. Expected maturities will differ from contractual maturities
because borrowers may have the right to call or prepay obligations with or without call or
prepayment penalties.
</FN>
</TABLE>
<TABLE>
<CAPTION>
Amortized Market
Cost Value
(IN THOUSANDS)
<S> <C> <C>
Due in one year or less $3,542 $3,555
Due after one year through five years 15,960 15,584
Due after five years through ten years 32,575 31,532
Due after ten years 3,433 3,393
55,510 54,064
Mortgage-backed securities 43,926 41,900
Equity securities 2,869 3,285
$102,305 $99,249
<FN>
No sales of investments in debt securities occurred in 1994.
At December 31, 1994 and 1993, investment securities with carrying amounts of approximately
$25,548,000 and $19,109,000 respectively, are pledged to collateralize public deposits and for
other purposes as provided by law.
Effective January 1, 1994, the Corporation adopted the provisions of Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities",
which requires the Corporation to reflect securities available and held for sale at fair value on the
balance sheet. Upon adoption, the Corporation classified all investments held at January 1, 1994,
as available for sale and recorded the increase to fair value as a separate component of equity.
The increase recorded to stockholders' equity at January 1,1994 was $2,246,000, net of applicable
income taxes.
</FN>
</TABLE>
<TABLE>
<CAPTION>
4. Loans:
The composition of loans outstanding by lending classification is as follows:
December 31
1994 1993
(IN THOUSANDS)
<S> <C> <C>
Commercial, financial and agricultural $31,227 $26,990
Real-estate-construction 3,354 1,573
Real-estate-mortgage 103,851 89,116
Personal installment 46,342 43,193
Other 6,018 6,549
$190,792 $167,421
<FN>
Loans held for resale amounted to $35,000 and $4,096,000 at December 31, 1994 and 1993,
respectively.
</FN>
</TABLE>
<TABLE>
<CAPTION>
5. Allowance for Loan Losses:
The following is an analysis of the allowance for loan losses:
December 31
1994 1993 1992
(IN THOUSANDS)
<S> <C> <C> <C>
Balance, January 1 $1,837 $1,589 $1,467
Provision for loan losses 462 702 683
Loan charge-offs (577) (687) (735)
Recoveries 347 233 174
Balance, December 31 $2,069 $1,837 $1,589
</TABLE>
<TABLE>
<CAPTION>
6. Premises and Equipment:
Premises and equipment are comprised of the following:
December 31
1994 1993
(IN THOUSANDS)
<S> <C> <C>
Banking premises $7,547 $6,350
Furniture and fixtures 5,633 5,097
Leasehold improvements 72 26
13,252 11,473
Less accumulated depreciation and amortization (6,663) (5,622)
$6,589 $5,851
<FN>
Depreciation expense charged to operations amounted to approximately $716,000,
$619,000, and $562,000 in 1994, 1993, and 1992, respectively.
</FN>
</TABLE>
<TABLE>
<CAPTION>
7. Short-Term Borrowings and Long-Term Debt:
Short-term borrowings consist of the following:
December 31
1994 1993
(IN THOUSANDS)
<S> <C> <C>
Federal funds purchased, 6.61% and 3.25% in 1994
and 1993 respectively $11,025 $450
Treasury tax and loan note option account,
3.54% and 2.75% in 1994 and 1993, respectively 684 755
$11,709 $1,205
<FN>
Interest incurred on short-term borrowings amounted to $115,000, $29,000 and $88,000
for the years ended December 31, 1994, 1993, and 1992, respectively.
At December 31, 1994, long-term debt consists of long-term advances from the FHLB of
Pittsburgh of $7,000,000. The long-term advance is for a period of five years and is
due to mature in March, 1998. Monthly payments of interest are required at a fixed
rate, presently 5.24%, with principal due at maturity. Interest on long-term debt
amounted to $411,000 and $460,000 for the years ended December 31, 1994 and 1993,
respectively.
Maturities on long term debt at December 31, 1994 are as follows:
1995 4,000,000
1998 3,000,000
</FN>
</TABLE>
8. Subordinated Capital Notes:
Subordinated capital notes at December 31, 1994 and 1993 bear
interest at 11% and mature annually at $15,000 through February
4, 1995 and are subordinated to depositors and certain other
creditors.
<TABLE>
<CAPTION>
9. Pension Plan:
The following table sets forth the pension plan's funded status at and for the years ended December
31, 1994, 1993, and 1992.
1994 1993 1992
(IN THOUSANDS)
<S> <C> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligations, including vested
benefits of $1,903, $1,652, and $1,327, respectively $1,915 $1,661 $1,345
Projected benefit obligation for service rendered to date 2,780 2,516 1,983
Plan assets at fair value, primarily listed stocks, corporate, and U.S. bonds 2,550 2,403 2,122
Plan assets in excess of (less than) projected benefit obligations (230) (113) 139
Unrecognized net loss from past experience different from that
assumed and effects of changes in assumptions 791 528 153
Unrecognized net asset being recognized over 17 years (63) (71) (80)
Prepaid pension costs $498 $344 $212
Net pension cost for 1994, 1993, and 1992 included the following
components:
Service cost 159 128 120
Interest cost 175 147 132
Actual return on plan assets (29) (116) (159)
Net amortization and deferral (181) (86) (20)
Net pension cost $124 $73 $73
<FN>
The weighted average discount rate used in determining the actuarial present value of
the projected benefit obligation was 7.25% for 1994, 7.25% for 1993 and 7.75% for 1992.
The increase in future compensation levels used in determining the actuarial present
value of the benefit obligation was 5.0% in 1994, 5.0% in 1993 and 5.5% in 1992. The
expected long-term rate of return on assets was 9.00% in 1994, 1993, and 1992.
</FN>
</TABLE>
<TABLE>
<CAPTION>
10. Income Taxes:
The provision for income taxes consists of the following:
1994 1993 1992
(IN THOUSANDS)
<S> <C> <C> <C>
Current $1,365 $1,334 $1,203
Deferred (77) (45) (24)
$1,288 $1,289 $1,179
<FN>
As discussed in Note 2, the Corporation adopted the provisions of SFAS No. 109 effective
January 1, 1992. This change, treated as a cumulative effect, did not have a material
effect on reported income for 1992.
</FN>
</TABLE>
<TABLE>
<CAPTION>
The components of the net deferred tax asset (liability) as of December 31, 1994, 1993,
and 1992 were as follows:
1994 1993 1992
(IN THOUSANDS)
<S> <C> <C> <C>
Deferred tax assets:
Loan loss provision $514 $466 $382
Non-accrual loan interest income 104 62 48
Loan origination fees 25 21 18
Net unrealized loss on marketable securities 1,039 0 0
Miscellaneous 84 49 48
Total deferred tax assets 1,766 598 496
Deferred tax liabilities:
Depreciation 482 476 484
Accretion of discount 104 81 55
Pension expense 145 116 71
Miscellaneous 1 7 13
Total deferred tax liability 732 680 623
Net deferred asset (liability) $1,034 ($82) ($127)
<FN>
There were no valuation allowances recorded against deferred tax assets as of December
31, 1994, and December 31, 1993, as management expects to realize all deferred tax
assets in future years.
</FN>
</TABLE>
<TABLE>
<CAPTION>
The significant components of the deferred tax benefit in 1994, 1993, and 1992 were as
follows:
1994 1993 1992
(IN THOUSANDS)
<S> <C> <C> <C>
Loan origination fees $4 ($4) $17
Accretion of discount 23 26 20
Loan loss provision (48) (84) (42)
Non-Accrual loan interest income (42) (14) (21)
Depreciation expense (6) (8) (7)
Pension expense 29 45 30
Lease financing (7) (7) (7)
Miscellaneous (30) 1 (14)
Total deferred taxes ($77) ($45) ($24)
<FN>
Income tax provisions (benefits) related to securities gains and losses were $134,000,
$52,000 and $(1,000) for the years ended December 31, 1994, 1993, and 1992, respectively.
</FN>
</TABLE>
<TABLE>
<CAPTION>
The provision for income taxes differs from the amounts derived from applying the
statutory federal tax rate of 34%.
1994 1993 1992
(IN THOUSANDS)
<S> <C> <C> <C>
Computed "expected" tax provision $1,853 $1,769 $1,588
Effect of tax-exempt municipal bond and loan
interest, net of interest expense disallowance (634) (591) (541)
Goodwill amortization 82 82 82
Other, net (13) 29 50
Total provision for income taxes $1,288 $1,289 $1,179
</TABLE>
11. Stock Options, Preferred Stock, and Common Stock:
The Corporation has adopted a Long Term Incentive Plan. Under
the plan, awards in the form of Incentive Stock Options,
Nonqualified Stock Options or Stock Appreciation Rights may be
granted to certain Executive Officers and other key employees
selected by a committee of the Board of Directors. The price at
which common stock can be purchased pursuant to the exercise of
options cannot be less than 100% in the case of Incentive Stock
Options and 80% in the case of Nonqualified Stock Options, of
the fair market value of the common stock on the date of the
grant of the option. Options are exercisable starting one year
from the date of grant to the extent of 20.0% to 33.3% a year on
a cumulative basis and expire no later than ten years after the
date of grant. Incentive stock options issued under the plan
totalled 22,800, 21,350, 18,250, 17,750, and 18,000 in 1994,
1993, 1992, 1991, and 1990, respectively.
<TABLE>
<CAPTION>
The following is a summary of transactions under the plan:
Shares Shares Option
Under Available Price Per
Option For Option Share
<S> <C> <C> <C>
Balance, December 31, 1991 49,250 150,750
Options granted 18,250 (18,250) $11.97
Options exercised (983) 0 $16.07
Options cancelled or expired (1,400) 1,400
Balance, December 31, 1992 65,117 133,900
Options granted 21,350 (21,350) $20.00
Options exercised (11,921) 0 $15.56
Options cancelled or expired (250) 250
Balance, December 31, 1993 74,296 112,800
Options granted 22,800 (22,800) $29.77
Options exercised (9,098) 0 $16.82
Options cancelled or expired (1,550) 1,550
Balance, December 31, 1994 86,448 91,550 $11.65-29.77
<FN>
The Corporation has authorized 500,000 shares of no par preferred stock. No such shares
were issued or outstanding at December 31, 1994 and 1993.
</FN>
</TABLE>
<TABLE>
<CAPTION>
12. Related Parties:
Certain directors and their business affiliates (defined as the beneficial ownership of
at least a 10 percent interest), executive officers and their families are indebted to
Community Banks, N.A. At December 31, 1994, 1993, and 1992, loans to these persons and
their business affiliates amounted to $3,890,000, $4,292,000, and $4,853,000,
respectively.
In the opinion of management, such loans are consistent with sound banking practices and
are within applicable regulatory lending limitations.
1994 1993 1992
(IN THOUSANDS)
<S> <C> <C> <C>
Balance beginning of period $4,292 $4,853 $5,085
Additions 624 83 512
Amounts collected (1,026) (644) (744)
Amounts written off 0 0 0
Balance end of period $3,890 $4,292 $4,853
</TABLE>
<TABLE>
<CAPTION>
13. Condensed Financial Information of Community Banks, Inc. (Parent only):
1994 1993
Condensed Balance Sheets: (IN THOUSANDS)
<S> <C> <C>
Cash and investments $347 $218
Investment in Community Banks, N.A. 27,592 27,602
Investment in nonbank subsidiaries 2,413 1,683
Total assets $30,352 $29,503
Stockholders' equity 30,352 29,503
Total liabilities and stockholders' equity $30,352 $29,503
</TABLE>
<TABLE>
<CAPTION>
1994 1993 1992
Condensed Statements of Income: (IN THOUSANDS)
<S> <C> <C> <C>
Dividends from:
Community Banks, N.A. $1,425 $1,257 $1,078
Nonbank subsidiaries 0 0 0
Income before equity in undistributed earnings of
subsidiaries 1,425 1,257 1,078
Equity in undistributed earnings of:
Community Banks, N.A. 2,275 2,537 2,279
Nonbank subsidiaries 462 122 134
2,737 2,659 2,413
Net income $4,162 $3,916 $3,491
</TABLE>
<TABLE>
<CAPTION>
1994 1993 1992
Condensed Statements of Cash Flows: (IN THOUSANDS)
<S> <C> <C> <C>
Operating activities:
Net income $4,162 $3,916 $3,491
Adjustments to reconcile net cash provided by
operating activities:
Undistributed earnings of:
Community Banks, N.A. (2,275) (2,537) (2,279)
Nonbank subsidiaries (462) (122) (134)
Other liabilities 0 0 0
Net cash provided by operating activities 1,425 1,257 1,078
Investing activities:
Additional investment in nonbank subsidiaries 0 0 0
Net cash used in investment activities 0 0 0
Financing Activities:
Proceeds from issuance of common stock 129 141 0
Dividends paid (1,425) (1,257) (1,078)
Net cash used by financing activities (1,296) (1,116) (1,078)
Net change in cash and cash equivalents 129 141 0
Cash and cash equivalents at beginning of year 218 77 77
Cash and cash equivalents at end of year $347 $218 $77
</TABLE>
14. Dividend Restrictions:
CBNA is subject to legal limitations as to the amount of
dividends that can be paid to its shareholder (the Corporation).
The approval of certain banking regulatory authorities is
required if the total of all dividends declared by the bank
exceeds limits as defined by the regulatory authorities. CBNA
could declare dividends in 1995 without regulatory approval of
$5,473,000 plus an additional amount equal to the banks'
retained net profits in 1995 up to the date of any dividend
declaration.
15. Financial Instruments with Off-Balance Sheet Risk:
The Corporation is party to financial instruments with
off-balance sheet risk in the normal course of business to meet
the financing needs of its customers and to reduce its own
exposure to fluctuations in interest rates. These financial
instruments include commitments to originate loans and standby
letters of credit. The instruments involve, to varying degrees,
elements of credit and interest rate risk in excess of the
amount recognized in the consolidated statement of condition.
The contract or notional amounts of those instruments reflect
the extent of involvement the Corporation has in particular
classes of financial instruments.
The Corporation's exposure to credit loss in the event of
nonperformance by the other party to the financial instruments
for loan commitments and standby letters of credit is
represented by the contractual amount of these instruments. The
Corporation uses the same credit policies as it does for
on-balance sheet instruments.
Financial instruments with off-balance sheet risk at December
31, 1994, are as follows:
Contract or Notional Amount
(in thousands)
Financial instruments whose contract amounts
represent credit risk:
Commitments to originate loans $13,550
Unused lines of credit $10,403
Standby letters of credit $985
Unadvanced portions of construction loans $277
Commitments to originate loans are agreements to lend to a
customer provided there is no violation of any condition
established in the contract. Commitments generally have fixed
expiration dates or other termination clauses and may require
payment of a fee. Since many of the commitments are expected to
expire without being drawn upon, the total commitment amount
does not necessarily represent future cash requirements. Lines
of credit are similar to commitments as they have fixed
expiration dates and are driven by certain criteria contained
within the loan agreement. Lines of credit normally do not
extend beyond a period of one year. The Corporation evaluates
each customer's credit worthiness on a case-by-case basis. The
amount of collateral obtained, if deemed necessary by the
Corporation upon extension of credit, is based on management's
credit evaluation of the borrower.
Standby letters of credit are conditional commitments issued by
the Corporation to guarantee the performance by a customer to a
third party. The credit risk involved in issuing letters of
credit is essentially the same as that involved in extending
loan facilities to customers.
<TABLE>
<CAPTION>
16. Quarterly Results of Operations (Unaudited):
The following is a summary of the quarterly results of operations for the years ended December
31,1994 and 1993:
--------------------------------Three Months Ended------------------------------------
1994 1993
Mar. 31 June 30 Sept. 30 Dec. 31 Mar. 31 June 30 Sept. 30 Dec. 31
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest income $5,034 $5,222 $5,454 $5,689 $5,261 $5,183 $5,129 $5,111
Interest expense 2,073 2,094 2,113 2,209 2,320 2,253 2,252 2,184
Net interest income 2,961 3,128 3,341 3,480 2,941 2,930 2,877 2,927
Provision for loan losses 75 159 159 69 174 174 174 180
Net interest income
after provision for
loan losses: 2,886 2,969 3,182 3,411 2,767 2,756 2,703 2,747
Other income 368 428 447 434 382 414 411 394
Investment security 161 160 59 15 135 10 (7) 16
gains (losses)
Gains on mortgage sales 149 2 31 28 161 239 266 267
Other expenses 2,241 2,277 2,330 2,432 2,065 2,146 2,029 2,216
Income before income taxes 1,323 1,282 1,389 1,456 1,380 1,273 1,344 1,208
Income taxes 298 302 326 362 329 325 337 298
Net income $1,025 $980 $1,063 $1,094 $1,051 $948 $1,007 $910
Fully diluted earnings $0.50 $0.48 $0.52 $0.53 $0.52 $0.47 $0.49 $0.44
per share
Dividends per share $0.167 $0.167 $0.167 $0.200 $0.146 $0.156 $0.156 $0.167
<FN>
Per share data has been restated to include a 20% stock dividend effective November 29, 1994.
</FN>
</TABLE>
17. Fair Values of Financial Instruments:
In December 1991, the Financial Accounting Standards Board
released SFAS No. 107, Disclosures about Fair Value of Financial
Instruments, which requires disclosure of the fair value of all
financial instruments. The FASB previously released SFAS No.
105, Disclosure of Information about Financial Instruments with
Off-Balance-Sheet Risk and Financial Instruments with
Concentrations of Credit Risk, which required similar
disclosures relating to off-balance-sheet financing.
The following methodologies and assumptions were used by the
Corporation to estimate its fair value disclosures:
Cash, interest-bearing time deposits, and federal funds sold:
The carrying values for cash, interest-bearing time deposits,
and federal funds sold equal those assets' fair values.
Investment securities:
Fair values for investment securities are based on quoted
market prices, where available. If quoted market prices are not
available, fair values are based on quoted market prices of
comparable instruments.
Loans:
For variable-rate loans that reprice frequently with no
significant change in credit risk, fair value equals carrying
value. The fair values for fixed-rate residential mortgage
loans, consumer loans, commercial, and commercial real estate
loans are estimated by discounting the future cash flows using
comparable current rates at which similar loans would be made to
borrowers at similar credit risk. The carrying value of accrued
interest adjusted for credit risk equals its fair value. The
fair value of loans held for sale is based on quoted market
prices for similar loans sold in securitization transactions.
Deposit liabilities:
The fair values of demand and savings deposits equal their
carrying values. Statement 107 prohibits adjusting such fair
value for any value from retaining those deposit relationships
in the future. That component, known as a deposit intangible,
is not considered in the value disclosed nor is it recorded in
the balance sheet. The carrying values for variable rate money
market accounts approximate their fair values at the reporting
date. Fair values for fixed-rate certificates of deposit are
estimated using rates currently offered for similar deposits.
Short-term borrowings:
The fair values of short-term borrowings approximate their
carrying values.
Long-term borrowings:
The fair values of the Corporation's long-term borrowings are
estimated using discounted cash flow analyses, based on rates
available to the Corporation for similar types of borrowings.
Off-balance-sheet instruments:
Fair values for the Corporation's off-balance-sheet instruments
(guarantees and commitments) are based on fees currently charged
to enter similar agreements and the counterparties' credit
standing.
<TABLE>
<CAPTION>
The following table summarizes the carrying values and fair values of financial instruments at
December 31, 1994 and 1993:
December 31,
1994 1993
Carrying Fair Carrying Fair
Value Value Value Value
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Financial assets:
Cash, interest-bearing time
deposits, and federal funds sold $12,797 $12,797 $10,202 $10,202
Investment securities 99,249 99,249 101,376 104,779
Loans, net of unearned income 182,270 178,797 160,032 162,880
Less: Allowance for loan losses (2,069) 0 (1,837) 0
Net Loans 180,201 178,797 158,195 162,880
Loans held for sale 35 35 4,096 4,179
Total $292,282 $290,878 $273,869 $282,040
Financial liabilities:
Deposits $256,112 $254,914 $243,292 $245,993
Short-term borrowings 11,709 11,709 1,205 1,205
Long-term debt 7,000 6,668 9,000 9,095
Subordinated capital notes 15 15 31 33
Total $274,836 $273,306 $253,528 $256,326
Off-balance-sheet financial instruments:
Commitments to originate loans $13,550 $13,550 $11,001 $11,001
Unused lines of credit 10,403 10,403 9,002 9,002
Standby letters of credit 935 935 806 806
Unadvanced portions of construction loans 277 277 1,710 1,710
Total $25,165 $25,165 $22,519 $22,519
</TABLE>
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors and Shareholders
Community Banks, Inc.
Millersburg, Pennsylvania
We have audited the accompanying consolidated balance sheets of
Community Banks, Inc. and subsidiaries (Corporation) as of
December 31, 1994 and 1993 and the related consolidated
statements of income, changes in stockholders' equity and cash
flows for each of the three years in the period ended December
31, 1994. These financial statements are the responsibility of
the Corporation's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. These 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 consolidated
financial position of Community Banks, Inc. and subsidiaries as
of December 31, 1994 and 1993, and the consolidated results of
their operations and cash flows for each of the three years in
the period ended December 31, 1994, in conformity with generally
accepted accounting principles.
As discussed in Note 2 to the consolidated financial
statements, the Corporation has adopted Statement of Financial
Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities," effective January 1,
1994.
/S/ COOPERS & LYBRAND, L.L.P.
One South Market Square
Harrisburg, PA 17101
January 13, 1995
<TABLE>
<CAPTION>
Community Banks, Inc. and Subsidiaries
MANAGEMENT'S DISCUSSION OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Management's discussion of financial condition and results of operations is
based on the selected financial data listed below and should be read in
conjunction with the Consolidated Financial Statements and Notes thereto.
FINANCIAL HIGHLIGHTS 1994 1993 1992 1991 1990
(dollars in thousands except per share data)
<S> <C> <C> <C> <C> <C>
Balance Sheet Data
Total assets........................ $307,121 $284,723 $272,297 $246,560 $233,578
Loans (net of unearned income and
allowance for loan losses)........ 180,201 158,195 149,052 150,111 144,790
Deposits............................ 256,112 243,292 235,597 218,157 205,869
Shareholders' equity................ 30,352 29,503 26,703 24,261 22,472
Earnings Data
Net interest income................. 12,910 11,675 10,998 9,753 8,476
Provision for loan losses........... 462 702 683 737 662
Other income........................ 2,282 2,688 2,158 1,468 1,353
Other expense....................... 9,280 8,456 7,803 7,281 6,301
Net income.......................... 4,162 3,916 3,491 2,529 2,190
Per Share Data
Net income.......................... 2.03 1.92 1.73 1.27 1.09
Cash dividends...................... .70 .62 .54 .44 .44
Book value.......................... 14.99 14.64 13.33 12.11 11.22
Average shares outstanding.......... 2,053,475 2,040,911 2,014,381 2,003,032 2,003,032
</TABLE>
<TABLE>
<CAPTION>
Community Banks, Inc. and Subsidiaries
AVERAGE BALANCES, EFFECTIVE INTEREST DIFFERENTIAL AND INTEREST YIELDS
Income and Rates on a Tax Equivalent Basis (b) for the
Years Ended December 31, 1994, 1993, and 1992 (dollars in thousands)
1994 1993 1992
Average Average Average
Interest Rates Interest Rates Interest Rates
Average Income/ Earned/ Average Income/ Earned/ Average Income/ Earned/
Balance(c) Expense(a) Paid(a) Balance(c) Expense(a) Paid(a) Balance(c) Expense(a) Paid(a)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Assets:
Cash and due from banks... $ 9,862 $ 8,146 $ 8,068
Interest-bearing deposits in
other banks*............ 1,357 $ 29 2.14% 1,307 $ 29 2.22% 553 $ 17 3.07%
Investment securities:
Taxable*.................. 71,048 4,490 6.32 68,540 4,613 6.73 61,604 4,708 7.64
Tax-exempt* (b)........... 33,223 2,829 8.52 28,971 2,715 9.37 24,104 2,442 10.13
Total investment
securities............ 104,271 97,511 85,708
Federal funds sold*....... 1,081 38 3.52 2,454 73 2.97 1,442 45 3.12
Loans, net of unearned
income* (b)............. 170,945 15,037 8.80 159,976 14,213 8.88 152,049 14,712 9.68
Less allowance for loans
losses.................. (1,991) (1,783) (1,556)
Net loans............... 168,954 158,193 150,493
Premises, equipment and
other assets............ 12,790 10,549 9,988
Total assets............ 298,315 $22,423 $278,160 $21,643 $256,252 $21,924
Liabilities:
Demand deposits........... 21,452 18,033 17,226
Savings deposits.......... 116,334 2,537 2.18 103,932 2,621 2.52 91,419 3,138 3.43
Time deposits:
$100,000 or greater....... 8,573 8,049 8,317
Other................... 108,438 107,922 106,197
Total time deposits..... 117,011 5,425 4.64 115,971 5,895 5.08 114,514 6,675 5.83
Total time and savings
deposits.............. 233,345 219,903 205,933
Short-term borrowings..... 2,626 115 4.38 1,116 29 2.60 2,476 88 3.55
Long-term debt............ 7,871 410 5.21 9,014 460 5.10 3,057 147 4.81
Accrued interest, taxes and
other liabilities........ 2,477 1,789 1,859
Subordinated capital notes 17 2 11.00 32 4 11.00 48 5 11.00
Total liabilities....... 267,788 249,887 230,599
Stockholders' Equity........ 30,527 28,273 25,653
Total liabilities and
stockholders' equity... $298,315 $ 8,489 $278,160 $ 9,009 $256,252 $10,053
Total earning assets...... $277,654 $261,248 $239,752
Interest income to earning
assets.................. 8.08% 8.28% 9.14%
Interest expense to
earning assets ......... 3.06 3.45 4.19
Effective interest
differential........ $13,934 5.02% $12,634 4.83% $11,871 4.95%
Average effective rate
paid on interest-bearing
liabilities............. 3.48% 3.92% 4.75%
<FN>
*Indicates earning asset. (a) Amortization of net deferred fees included in interest income and rate
calculation. (b) Interest income on all tax-exempt securities and loans have been adjusted to tax equivalent
basis utilizing a federal income tax rate of 34%. (c) Averages are a combination of monthly and daily averages.
</FN>
</TABLE>
<TABLE>
<CAPTION>
Community Banks, Inc. and Subsidiaries
Management's Discussion of Financial Condition and Results of Operations
Rate/Volume Analysis (a)
For the Years Ended December 31, 1994 and 1993
(in thousands)
1994 vs 1993 1993 vs 1992
Volume Rate Total Volume Rate Total
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in interest income:
Loans................................... $ 948 $(124) $ 824 $ 748 $(1,247) $ (499)
Investment securities:
Taxable............................... 165 (288) (123) 499 (594) (95)
Tax-exempt............................ 375 (261) 114 466 (193) 273
Total.............................. 540 (549) (9) 1,713 (2,034) (321)
Federal funds sold...................... (46) 11 (35) 30 (2) 28
Interest-bearing deposits in other
banks.................................. 1 (1) 0 18 (6) 12
Total................................ 1,443 (663) 780 1,761 (2,042) (281)
Increase (decrease) in interest expense:
Savings deposits........................ 292 (376) (84) 390 (907) (517)
Time deposits........................... 52 (522) (470) 84 (864) 780
Short-term borrowings................... 57 29 86 (39) (20) (59)
Long-term debt and capital notes........ (61) 9 (52) 289 23 312
Total................................ 340 (860) (520) 724 (1,768) (1,044)
Increase (decrease) in effective
interest differential.................. $1,103 $ 197 $1,300 $1,037 $ (274) $ 763
<FN>
(a) Table shows approximate effect on the effective interest differential of volume and rate changes for the years
1994 and 1993. The effect of a change in average volume has been determined by applying the average yield or rate
in the earlier period to the change in average volume during the period. The effect of a change in rate has been
determined by applying the change in rate during the period to the average volume of the prior period. Any resulting
unallocated amount was allocated ratably between the volume and rate components. Nonaccrual loans have been included
in the average volume of each period. Tax-exempt income is shown on a tax equivalent basis assuming a federal income
tax rate of 34%.
</FN>
</TABLE>
Community Banks, Inc. and Subsidiaries
MANAGEMENT'S DISCUSSION OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The earnings of Community Banks, Inc. are derived exclusively
from the operations of its wholly owned subsidiaries; Community
Banks, N.A.; Community Banks Investments, Inc.; and Community
Banks Life Insurance Co.
Net income was $2.03 per share in 1994 compared to $1.92 per
share in 1993, and $1.73 in 1992. Net income per share in 1994
was 5.7% more than net income per share in 1993 and 17.3% more
than net income per share in 1992.
Net Interest Income:
The primary determinant of Community Banks, Inc. net income is
net interest income. This is the income which remains after
deducting from the total income generated by earning assets the
interest expense applicable to funds required to support the
earning assets.
Interest income increased $715,000 or 3.5% in 1994, compared to
decreases of $367,000 or 1.7% in 1993, and $1,049,000 or 4.9% in
1992. Interest and fees on loans increased $798,000 or 5.6% in
1994. This was a volume related change caused by an increase in
average balances of $10,969,000 or 6.9%. The decrease of $48,000
or 0.7% in interest and dividends on investment securities was
rate-related. The average balance of tax-exempt securities
increased $4,252,000 or 14.7% in 1994 which resulted in an
increase in tax-exempt interest income. Factors contributing to
the 1993 change included a rate-related decrease in interest and
fees on loans of $492,000 and a volume-related increase of
$85,000 in interest and dividends on investment securities. Two
primary factors contributing to the 1992 decrease in total
interest income were a decrease of $1,596,000 in loan interest
and an increase of $526,000 in interest and dividends on
investment securities.
Interest expense decreased $520,000 or 5.8% in 1994, $1,044,000
or 10.4% in 1993, and $2,339,000 or 18.9% in 1992. Material
factors affecting the 1994 decrease were decreases of $84,000 or
3.2% in savings interest expense and $470,000 or 8.0% in total
time deposit interest expense. These declines were slightly
offset by an increase of $36,000 in interest expense of
short-term borrowings and long-term debt. Although the average
balances of savings accounts increased $12,402,000 or 11.9%, this
increase was more than offset by the decline in the interest rate
of these deposits. The decline in time deposit interest expense
in 1994 was also rate-related. Material factors affecting the
1993 decrease were decreases of $517,000 in savings interest
expense and $780,000 in time deposit interest expense. The
primary cause of the decline in total interest expense in 1992
was a general decline in interest rates which more than offset
the increase in total average interest-bearing liabilities.
Average interest-bearing deposits represented 91.6% of average
total deposits in 1994 compared to 92.4% in 1993 and 92.3% in
1992.
Net interest income increased $1,235,000 or 10.6% in 1994,
compared to $677,000 or 6.2% in 1993 and $1,245,000 or 12.8% in
1992. Average earning assets increased $16,406,000 or 6.3%
compared to $21,496,000 or 9.0% in 1993 and $14,785,000 or 6.6%
in 1992. Average interest-bearing liabilities increased
$13,794,000 or 6.0% in 1994 compared to $18,551,000 or 8.8% in
1993 and $11,603,000 or 5.8% in 1992.
Net Interest Income Margin:
Net interest income margin for 1994 was 5.02% compared to 4.83%
in 1993 and 4.95% in 1992. Interest income to earning assets
declined from 8.28% in 1993 to 8.08% in 1994. Interest expense to
earning assets also decreased from 3.45% to 3.06%. Interest rates
applicable to earning assets and interest-bearing liabilities
(with the exception of the interest rates applicable to Fed funds
sold, short-term debt, long-term debt, and subordinated capital
notes) declined in 1994. Similar declines occurred in 1993 and
1992.
Provision for Loan Losses:
Net loan charge-offs for 1994 were $230,000 compared to $454,000
in 1993 and $561,000 in 1992. The provision for loan losses
charged to income was $462,000 in 1994 compared to $702,000 in
1993 and $683,000 in 1992. Total non-performing loans
approximated $1,158,000, $1,122,000, and $1,551,000 as of
December 31, 1994, 1993, and 1992, respectively. Total
delinquencies as a percentage of total loans approximated 3.9%,
4.9%, and 4.9% at December 31, 1994, 1993, and 1992,
respectively.
Other Income and Other Expenses:
Other income net of security gains decreased $647,000 or 25.5% in
1994 compared to increases of $373,000 or 17.3% in 1993 and
$355,000 or 19.7% in 1992. Most notable was the decrease in gains
on sales of mortgages in the secondary market in 1994. These
sales were composed of only fixed-rate real estate loans extended
specifically for resale. The market value of every loan of this
type equalled or exceeded its carrying value at year ends 1994
and 1993. Management determines at the time the loan is made as
to whether the loan is held for sale or portfolio. Increases in
gains on sales of mortgages in the secondary market contributed
to the 1993 and 1992 increases. These sales were also composed
only of fixed-rate real estate loans extended specifically for
resale. The net increases in securities gains in 1994 resulted
from the recognition of gross gains of $395,000. No losses were
recognized in 1994.
Other expense increased $824,000 or 9.7% in 1994 compared to
$653,000 or 8.4% in 1993, and $522,000 or 7.2% in 1992.
Increases of $409,000 or 10.6% in salaries and employee benefits
and $199,000 or 18.1% in net occupancy expense affected the 1994
increase. Contributing to these increases was the opening of two
new banking offices. Increases of $295,000 or 8.3% in salaries
and benefits and $108,000 or 10.9% in occupancy expense affected
the 1993 increase. Affecting the 1992 change was an increase of
$335,000 or 10.4% in salaries and employee benefits and $66,000
or 15.4% in F.D.I.C. insurance premiums.
Although the provision for income taxes essentially remained
unchanged from 1993 to 1994, the relationship to pre-tax income
declined slightly due in part to additional tax-free income.
Similar changes occurred in 1993. Materially affecting the
significant increase in the provision for income taxes in 1992
was a decline in the relationship of tax-free income to pre-tax
income from 52.4% in 1991 to 36.1% in 1992. In 1992, the
Corporation elected the early adoption of Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes,"
which requires recognition of deferred tax liabilities and assets
for the expected future tax consequences of events that have been
included in the financial statements of tax returns. The
cumulative effect of this change did not have a material impact
on reported income for 1992, 1993, or 1994.
These factors contributed to increases in net income for 1994 and
1993 of $246,000 or 6.3% and $425,000 or 12.2%, respectively.
Balance Sheet Data:
Earning assets represented 92.4% of total assets at year-end 1994
compared to 93.5% at year-end 1993. Changes in the composition of
earning assets reflect management's attempt to respond to
fluctuating loan demand and corresponding policies relating to
liquidity and asset/liability management.
The book value of investment securities exceeded market value by
$3,056,000 at December 31, 1994. The corporation owned no
securities below investment grade at year-end 1994. In response
to the various discussions among the authoritative accounting
bodies on classification of investment securities and the
appropriate definitions of Held for Investment, Available for
Sale and Trading Accounts, management has studied the investment
portfolio during the quarter ended December 31, 1992. As a
result, management revised the Corporation's investment policy
and classified certain investments as available for sale. If
management has the intent and the Corporation has the ability at
the time of purchase to hold securities until maturity or on a
long-term basis, securities are classified as investments and
carried at amortized historical cost. Securities to be held for
indefinite periods of time and not intended to be held to
maturity or on a long-term basis are classified as available for
sale and carried at the lower of cost or market value. Securities
held for indefinite periods of time include securities that
management intends to use as part of its asset/liability
management strategy and that may be sold in response to changes
in interest rates, resultant prepayment risk and other factors
related to interest rate and resultant prepayment risk changes.
At December 31, 1994, management classified investment
securities with book and market values of $102,305,000 and
$99,249,000 respectively, as available for sale. Gross unrealized
gains and losses relating to investment securities were $822,000
and $3,878,000, respectively, at year-end, 1994. No securities
were considered held for sale or for trading purposes at December
31, 1994 and December 31, 1993. Effective January 1, 1994, the
Corporation adopted the provisions of Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments
in Debt and Equity Securities", which requires the Corporation to
reflect securities available and held for sale at fair value on
the balance sheet. Upon adoption, the Corporation classified all
investments held at January 1, 1994, as available for sale and
recorded the increase to fair value as a separate component of
equity. The increase recorded to stockholders' equity at January
1, 1994 was $2,246,000, net of applicable income taxes. The net
decrease charged to equity at December 31, 1994 was $2,017,000.
These fluctuations are deemed to be temporary in nature and
result from changes in interest rates.Management believes that
this action is necessary to provide for proper administration of
the investment portfolio and can be accommodated by the
capitalization of the Corporation.
Net loans increased 13.9% from December 31, 1993 to December 31,
1994. Commercial, real estate, and personal and other loans
increased 15.7%, 10.3%, and 10.7%, respectively, during the
period.
The following table sets forth information regarding nonaccrual
loans, other real estate owned, and loans which are 90 days or
more delinquent but accruing interest at the dates indicated.
December 31
1994 1993 1992 1991 1990
(dollars in thousands)
Nonaccrual loans........... $ 832 $ 918 $ 680 $ 429 $ 260
Other real estate owned..... 338 366 145 631 290
Accruing loans contractually
past due 90 days or more... 326 204 871 922 853
Total................... $1,496 $1,488 $1,696 $1,982 $1,403
======= ====== ====== ====== ======
Ratio of nonaccrual loans,
other real estate owned,
and accruing loans contractu-
ally past due 90 days or
more to total assets........ .49% .52% .62% .80% .60%
Management has instituted procedures for performing periodic
reviews of its loans to identify risks in the loan portfolio. As
a result of these periodic reviews, problem loans and potential
problem loans are identified and the likelihood of collectibility
is assessed. Based upon the results of these reviews, which also
consider other pertinent data, management determines an
appropriate allowance for loan losses. Other relevant factors
include past loss experience, current economic conditions, and
the growth and composition of the loan portfolio. The allowances
for loan losses is maintained at a level believed by management
to be adequate to absorb potential losses in the respective
portfolios. The allowance for loan losses to loans net of
unearned income approximated 1.14%,1.15%, 1.05%, .97%, and .89%,
at year-end, 1994, 1993, 1992, 1991, and 1990, respectively.
At December 31, 1994, management is not aware of any loans or
lending relationships that are expected to deteriorate in the
next year. In addition, the Corporation is not aware of any
significant environmental liability related to real estate owned
or in-foreclosure procedures.
The increase of $738,000 or 12.6% in premises and equipment was
materially impacted by the previously noted new banking locations
and renovations. Goodwill is being amortized over fifteen years.
The decrease in loans held for sale reflects the demand
experienced for this product in 1994. Affecting the increase of
$3,517,000 in accrued interest receivable and other assets were
increases in accrued interest receivable of $328,000 and deferred
taxes related to the previously noted SFAS No. 115 adjustment of
$1,039,000. The net deferred tax asset at December 31, 1994 is
expected to be realized through available carrybacks and expected
future taxable income. Also affecting accrued interest receivable
and other assets during 1994 was the purchase of life insurance
policies on the lives of six executive officers. The cash
surrender value of these policies approximated $1,756,000 at
December 31, 1994.
Total deposits increased $12,820,000 or 5.3% in 1994. Total
deposits other than time deposits of $100,000 or more increased
5.5%. It is not management's general policy to bid aggressively
for funds. To complement deposit growth, management chose to
borrow $11,025,000 in short-term Fed Funds at December 31, 1994.
Liquidity:
The primary functions of asset/liability management are the
assurance of adequate liquidity and maintenance of an appropriate
balance between interest-sensitive earning assets and
interest-bearing liabilities. Liquidity management refers to the
ability to meet the cash flow requirements of depositors and
borrowers.
A continuous review of net liquid assets is conducted to assure
appropriate cash flow to meet needs and obligations in a timely
manner.
The Corporation's primary funding requirement is loan demand. The
loan demand is primarily funded through deposit growth.
Generally, any deposit growth not used in funding loan demand is
invested in short-term, interest-bearing deposits or longer term
investments. These short-term investments and shorter term
investment portfolio securities are a source of liquidity to fund
loan demand.
For the years ended December 31, 1994, 1993 and 1992, financing
activities provided cash of $20,012,000, $8,894,000, and
$21,809,000, respectively. Deposits accounted for the largest
portion of this funding source amounting to $12,820,000,
$7,695,000 and $17,440,000 for the years ended December 31, 1994,
1993 and 1992, respectively.
Net cash used in investing activities totalled $20,254,000,
$11,336,000, and $25,529,000 for the years ended December 31,
1994, 1993 and 1992, respectively. The primary uses of funds in
1994 were purchases of investment securities of $18,939,000 and
increases in loans of $29,172,000. The primary uses of funds in
1993 were also purchases of investment securities of $23,866,000
and increases in loans of $34,004,000. Similar uses of funds
occurred in 1992. In each of the years ended December 31, 1994,
1993 and 1992, investment securities purchased exceeded the
proceeds from sales and maturities of securities, resulting in a
net increase in investment securities.
Forward Outlook:
Management anticipates increased loan demand in 1995 and will
continue to carefully evaluate the demand based on the credit-
worthiness of the borrower and the relative strength of the
economy in the Corporation's market.
Effects on Inflation:
All business enterprises are affected by the constantly changing
economic environment. Changes in the economy, however, affect the
banking industry differently than other industries. A bank's
assets and liabilities are primarily monetary in nature and
values are established without regard to future price changes.
Also, banks, unlike industrial corporations are not required to
provide for large capital expenditures in the form of premises,
equipment and inventory. Interest rate changes and the actions of
the Federal Reserve Board have a greater impact on a bank's
operations than do the effects of inflation. Although occasional
deviations may occur, it is management's policy to generally
maintain rate-sensitive assets at a level approximating
rate-sensitive liabilities. Based on a one-year parameter, this
relationship approximated 87% at December 31, 1994.
Accordingly, management anticipates that any additional decrease
in interest rates will positively impact earnings of the
Corporation. Conversely, management may not be able to increase
rates on certain earning assets as rapidly as those of
interest-bearing liabilities if a significant increase in
interest rates would occur. This may result in a decline in the
net interest margin of the Corporation.
Capital Strength:
The current economic and regulatory environment has placed an
increased emphasis on capital strength. Risk-based capital
guidelines recognize the relative degree of credit risk
associated with various assets by setting lower capital
requirements for some assets which clearly have less credit risk
than others. Capital guidelines require banks to hold 4% Tier 1
and 8% Total Risk-based capital. Following is a summary of
significant capital ratios at the dates indicated.
Regulatory December 31,
Minimum 1994 1993
(dollars in thousands)
Core (Tier 1) Capital --- $30,740 $27,632
Leverage ratio (A) 4.0% 10.1% 9.7%
Risk-based Capital Ratios:
Tier 1 capital ratio (B) 4.0% 15.4% 15.2%
Total risk-based capital
ratio (C) 8.0% 17.2% 16.9%
(A) Core capital divided by total assets less
intangible assets.
(B) Core capital divided by year-end risk-adjusted
assets, as defined by risk-based capital
guidelines.
(C) Total capital divided by risk-adjusted assets,
as defined by risk-based guidelines.
As shown by the table, the Bank's capital ratios exceeded
regulatory minimums in 1994 and 1993. The core capital ratio
increased from 15.2% to 15.4%, and the total capital ratio
increased from 17.2% to 16.1%, well above the regulatory minimums
of 4.0% for core and 8.0% for total capital. These changes were
impacted by the Corporation's retention of earnings during the
year.
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<CASH> 12,152
<INT-BEARING-DEPOSITS> 645
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 99,249
<INVESTMENTS-CARRYING> 99,249
<INVESTMENTS-MARKET> 99,249
<LOANS> 182,270
<ALLOWANCE> 2,069
<TOTAL-ASSETS> 307,121
<DEPOSITS> 256,112
<SHORT-TERM> 11,709
<LIABILITIES-OTHER> 1,948
<LONG-TERM> 7,000
<COMMON> 10,140
0
0
<OTHER-SE> 20,212
<TOTAL-LIABILITIES-AND-EQUITY> 307,121
<INTEREST-LOAN> 14,975
<INTEREST-INVEST> 6,357
<INTEREST-OTHER> 67
<INTEREST-TOTAL> 21,399
<INTEREST-DEPOSIT> 7,962
<INTEREST-EXPENSE> 8,489
<INTEREST-INCOME-NET> 12,910
<LOAN-LOSSES> 462
<SECURITIES-GAINS> 395
<EXPENSE-OTHER> 9,280
<INCOME-PRETAX> 5,450
<INCOME-PRE-EXTRAORDINARY> 4,162
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,162
<EPS-PRIMARY> 2.06
<EPS-DILUTED> 2.03
<YIELD-ACTUAL> 8.08
<LOANS-NON> 832
<LOANS-PAST> 326
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,837
<CHARGE-OFFS> 577
<RECOVERIES> 347
<ALLOWANCE-CLOSE> 2,069
<ALLOWANCE-DOMESTIC> 1,238
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 831
</TABLE>
