SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the Quarter Ended June 30, 1996
No. 0-15786
(Commission File Number)
COMMUNITY BANKS, INC.
(Exact Name of Registrant as Specified in its Charter)
PENNSYLVANIA 23-2251762
(State of Incorporation) (IRS Employer ID Number)
150 Market Street, Millersburg, PA 17061
(Address of Principal Executive Offices) (Zip Code)
(717) 692-4781
(Registrant's Telephone Number)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Sections 12, 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
Number of Shares Outstanding as of June 30, 1996.
CAPITAL STOCK-COMMON 2,864,952
(Title of Class) (Outstanding Shares)
COMMUNITY BANKS, INC. and SUBSIDIARIES
Index 10-Q
Part I
Financial Information.............................................1
Consolidated Balance Sheets.......................................2
Consolidated Statements of Income.................................3
Consolidated Statements of Cash Flows.............................4
Notes to Consolidated Financial Statements........................5-8
Management's Discussion and Analysis of Financial
Condition and Results of Operation.............................9-12
Part II
Other information and Signatures..................................13
PART I - FINANCIAL INFORMATION
COMMUNITY BANKS, INC. and SUBSIDIARIES
The following financial information sets forth the operations of
Community Banks, Inc. and Subsidiaries for the three month and six
month periods ending June 30, 1996 and 1995.
In the opinion of management, the following Consolidated Balance
Sheets and related Consolidated Statements of Income and Cash Flows
reflect all adjustments (consisting of normal recurring accrual
adjustments) necessary to present fairly the financial position and
results of operations for such periods.
-1-
Community Banks, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(unaudited)
(dollars in thousands except per share data)
June 30, December 31,
1996 1995
ASSETS
Cash and due from banks................... $ 17,768 $ 14,870
Interest-bearing time deposits in other
banks.................................. 1,399 434
Investment securities, available for sale
(market value)......................... 119,895 117,426
Federal funds sold........................ 3,700 2,215
Loans..................................... 249,191 243,308
Less: Unearned income.................... (11,693) (11,671)
Allowance for loan losses.......... (2,646) (2,574)
Net loans.......................... 234,852 229,063
Premises and equipment, net............... 7,809 7,657
Goodwill.................................. 1,268 1,388
Other real estate owned................... 403 302
Loans held for sale....................... 2,201 2,206
Accrued interest receivable and other
assets................................. 7,565 6,261
Total assets........................... $396,860 $381,822
======== ========
LIABILITIES
Deposits:
Demand................................. $ 26,281 $ 28,337
Savings................................ 151,686 133,004
Time................................... 150,285 150,908
Time in denominations of $100,000 or
more.................................. 11,905 11,848
Total deposits......................... 340,157 324,097
Short-term borrowings..................... 760 1,016
Long-term debt............................ 7,000 7,000
Accrued interest payable and other
liabilities............................ 2,994 3,709
Total liabilities...................... 350,911 335,822
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; 2,876,179 and
2,611,409 shares issued in 1996 and
1995, respectively..................... 14,381 13,057
Surplus................................... 7,110 8,381
Retained earnings......................... 24,624 22,951
Net unrealized gain on investment
securities available for sale, net of tax 48 1,664
Less: Treasury stock of 11,227 and 3,907
shares, respectively, at cost.......... (214) (53)
Total stockholders' equity............. 45,949 46,000
Total liabilities and stockholders'
equity................................ $396,860 $381,822
======== ========
All periods reflect the combined data of Community Banks, Inc. and the
Citizens' National Bank of Ashland.
The accompanying notes are an integral part of the consolidated financial
statements.
-2-
<TABLE>
Community Banks, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
(dollars in thousands except per share data)
<S>
Three Months Ended Six Months Ended
June 30 June 30,
1996 1995 1996 1995
Interest income: <C> <C> <C> <C>
Interest and fees on loans................. $ 5,456 $ 5,171 $ 10,985 $ 9,984
Interest and dividends on investment
securities:
Taxable............................... 1,475 1,408 2,834 2,877
Exempt from federal income tax........ 391 525 833 1,101
Other interest income...................... 125 67 218 103
Total interest income................. 7,447 7,171 14,870 14,065
Interest expense:
Interest on deposits:
Savings............................... 810 782 1,570 1,562
Time.................................. 2,014 1,902 4,067 3,569
Time in denominations of $100,000 or
more................................. 165 134 320 278
Interest on short-term borrowings and
long-term debt............................ 112 203 226 380
Total interest expense................. 3,101 3,021 6,183 5,789
Net interest income................... 4,346 4,150 8,687 8,276
Provision for loan losses.................. 183 168 385 290
Net interest income after provision
for loan losses...................... 4,163 3,982 8,302 7,986
Other income:
Trust department income............... 65 51 132 98
Service charges on deposit accounts... 246 216 466 413
Other service charges, commissions
and fees............................. 66 76 111 150
Investment security gains ............ 130 40 277 76
Income on insurance premiums.......... 164 135 297 263
Gains on mortgage sales............... 70 48 70 66
Other income.......................... 48 62 80 89
Total other income............... 789 628 1,433 1,155
Other expenses:
Salaries and employee benefits........ 1,547 1,413 3,054 2,756
Net occupancy expense................. 448 385 919 756
Operating expense of insurance
subsidiary.......................... 100 102 187 204
Other operating expense............... 957 1,064 1,932 2,110
Total other expense.............. 3,052 2,964 6,092 5,826
Income before income taxes....... 1,900 1,646 3,643 3,315
Provision for income taxes................. 460 398 857 794
Net income....................... $ 1,440 $ 1,248 $ 2,786 $ 2,521
========== ========== ========= =========
Average number of fully diluted shares
outstanding............................... 2,895,418 2,895,922 2,895,004 2,894,125
========== ========= ========= =========
Earnings per share:
Primary................................. $ .50 $ .44 $ .97 $ .88
Fully diluted........................... $ .50 $ .43 $ .96 $ .87
Dividends paid per share................... $ .20 $ .17 $ .38 $ .35
Per share data has been adjusted to reflect a 10 percent stock dividend
payable May 30, 1996.
All periods reflect the combined data of Community Banks, Inc. and the
Citizens' National Bank of Ashland.
The accompanying notes are an integral part of the consolidated financial
statements.
-3-
</TABLE>
Community Banks, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(dollars in thousands)
Six Months Ended
June 30
1996 1995
Operating Activities:
Net income...................................... $ 2,786 $ 2,521
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan losses.................... 385 290
Provision for depreciation and amortization.. 457 440
Amortization of goodwill..................... 120 120
Investment security gains.................... (277) (76)
Loans originated for sale.................... (3,800) (4,794)
Proceeds from sales of loans................. 3,875 3,497
Gains on mortgage sales...................... (70) (66)
Increase in other assets..................... (1,304) (736)
Increase in accrued interest payable
and other liabilities....................... 117 72
Net cash provided by operating activities.. 2,289 1,268
Investing Activities:
Net increase in interest-bearing time
deposits in other banks........................ (965) (396)
Proceeds from sales of investment
securities..................................... 653 161
Proceeds from maturities of investment
securities..................................... 16,647 10,936
Purchases of investment securities.............. (21,940) (477)
Net increase in total loans..................... (6,275) (14,586)
Purchases of premises and equipment............. (609) (502)
Purchases of common stock....................... (161) ---
Net cash used by investing activities...... (12,650) (4,864)
Financing Activities:
Net increase in total deposits.................. 16,060 8,142
Net decrease in short-term borrowings........... (256) (4,431)
Net increase in long-term debt.................. --- 4,000
Repayment of subordinated capital notes......... --- (15)
Cash dividends.................................. (1,113) (992)
Proceeds from issuance of common stock.......... 53 52
Net cash provided by financing activities.. 14,744 6,756
Increase in cash and cash
equivalents............................... 4,383 3,160
Cash and cash equivalents at beginning of period... 17,085 15,105
Cash and cash equivalents at end of period......... $21,468 $18,265
======= =======
All periods reflect the combined data of Community Banks, Inc. and the
Citizens' National Bank of Ashland.
The accompanying notes are an integral part of the consolidated financial
statements.
-4-
Community Banks, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(dollars in thousands)
1. Accounting Policies
The information contained in this report is unaudited and is
subject to future adjustments. However, in the opinion of management, the
information reflects all adjustments necessary for a fair statement of
results for the three month and six month periods ended June 30, 1996 and
1995.
The accounting policies of Community Banks, Inc. and subsidiaries,
as applied in the consolidated interim financial statements presented herein,
are substantially the same as those followed on an annual basis as presented
on page 9 of the 1995 Annual Report to shareholders, except for the adoption
of Statements of Financial Accounting Standards No. 114 and 118 effective
January 1, 1995, which had no impact on the provision for loan losses or the
allowance for loan losses.
2. Investment Securities
The amortized cost and estimated market values of investment
securities at June 30, 1996 and December 31, 1995, were as follows:
1996
Estimated
Amortized Market
Cost Value
U.S. Treasury securities and obligations
of U.S. government corporations and
agencies............................... $ 39,795 $ 39,607
Mortgage-backed U.S. government
agencies................................ 42,863 42,055
Obligations of states and political
subdivisions............................ 30,123 30,448
Corporate securities..................... 3,718 3,790
Equity securities........................ 3,323 3,995
Total.............................. $119,822 $119,895
======== ========
1995
U.S. Treasury securities and obligations
of U.S. government corporations and
agencies............................... $ 27,719 $ 28,031
Mortgage-backed U.S. government
agencies................................ 45,888 46,153
Obligations of states and political
subdivisions............................ 34,067 34,941
Corporate securities..................... 3,990 4,123
Equity securities........................ 3,241 4,178
Total.............................. $114,905 $117,426
======== ========
-5-
3. Allowance for loan losses
Changes in the allowance for loan losses are as follows:
Six months ended Year Ended
June 30 December 31,
1996 1995
Balance, January 1.................. $2,574 $2,347
Provision for loan losses........... 385 728
Loan charge-offs.................... (567) (825)
Recoveries.......................... 254 324
Balance, June 30, 1996 and
December 31, 1995.................. $2,646 $2,574
====== ======
NONPERFORMING LOANS (a) AND OTHER REAL ESTATE
June 30, December 31,
1996 1995
Loans past due 90 days or more
and still accruing interest:
Commercial, financial and
agricultural................... $ 143 $ 120
Mortgages....................... 526 558
Personal installment............ 204 236
Other........................... 15 ---
888 914
Loans renegotiated with the borrowers NONE NONE
Loans on which accrual of interest
has been discontinued:
Commercial, financial and
agricultural.................... 184 415
Mortgages........................ 1,255 1,245
Other............................ 145 99
1,584 1,759
Other real estate................... 403 302
Total............................ $2,875 $2,975
====== ======
(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.
Impaired Loans
The Corporation adopted FAS 114 "Accounting by Creditors for Impairment
of a Loan", as amended by FAS 118, on January 1, 1995. Under the new
standard, a loan is considered impaired, based on current information and
events, if it is probable that the Corporation will be unable to collect the
scheduled payments of principal or interest when due according to the
contractual terms of the loan agreement. For purposes of applying FAS 114,
larger groups of smaller-balance loans such as residential mortgage and
installment loans are collectively evaluated for impairment. Management has
established a smaller-dollar-value threshold of $250,000 for all loans.
Loans exceeding this threshold are evaluated in accordance with FAS 114. An
insignificant delay or shortfall in the amount of payments, when considered
-6-
independent of other factors, would not cause a loan to be rendered
impaired. Insignificant delays or shortfalls may include, depending on
specific facts and circumstances, those that are associated with temporary
operational downturns or seasonal business delays.
Management performs periodic reviews of its loans to identify impaired
loans. The measurement of impaired loans is based on the present value of
expected future cash flows discounted at the historical effective interest
rate, except that all collateral-dependent loans are measured for impairment
based on the fair value of the collateral. The adoption of FAS 114 did not
result in an additional provision for credit losses at January 1, 1995.
Loans continue to be classified as impaired unless they are brought
fully current and the collection of scheduled interest and principal is
considered probable. When an impaired loan or portion of an impaired loan is
determined to be uncollectible, the portion deemed uncollectible is charged
against the related valuation allowance and subsequent recoveries, if any,
are credited to the valuation allowance. The company does not accrue
interest on impaired loans. While a loan is considered impaired, cash
payments received are applied to principal or interest depending upon
management's assessment of the ultimate collectibility of principal and
interest.
At June 30, 1996, the Corporation recorded no investment in impaired
loans recognized in accordance with FAS 114 and no related FAS 114 valuation
allowance. For the six month period ended June 30, 1996, the average balance
of impaired loans was negligible. The application of FAS 114 has not had any
effect on the comparability of the non-performing loan table in footnote 3
between the periods presented. The company recognized no interest on
impaired loans on the cash basis.
4. Statement of Cash Flows
Cash and cash equivalents include cash and due from banks and
federal funds sold. The company made cash payments of $1,025,000 and
$907,000, and $6,358,000 and $5,573,000 for income taxes and interest,
respectively, for each of the six month periods ended June 30, 1996 and
1995.
Excluded from the consolidated statements of cash flows for the
periods ended June 30, 1996 and 1995 was the effect of certain non-cash
activities. The company acquired real estate through foreclosure totalling
$246,000 and $547,000, respectively. The company also recorded a decrease to
deferred tax liabilities of $833,000 in 1996, and a decrease of $1,039,000
to deferred tax assets in 1995. In addition, an increase to deferred tax
liabilities of $173,000 was recognized in 1995. These variations related to
the effects of changes in the net unrealized gain (loss) on investment
securities available for sale.
5. Merger
On January 12, 1996, Community Banks, Inc., (Community) completed
its merger of Citizens National Bank of Ashland (Citizens). Citizens has
three banking offices which are located in Ashland, Gordon, and Lavelle,
Pennsylvania. Community issued 578,081 shares of common stock for all of the
outstanding common stock of Citizens. This transaction was accounted for as
-7-
a pooling of interests and combined unaudited financial information is as
follows:
Six Months Ended June 30, 1995
(dollars in thousands except per share data)
Community Citizens' Combined
Interest income $11,946 $2,119 $14,065
Interest expense 4,906 883 5,789
Net interest income 7,040 1,236 8,276
Loan loss provision 290 --- 290
Other income 1,064 91 1,155
Other expense 4,996 830 5,826
Income before taxes 2,818 497 3,315
Taxes 700 94 794
Net income $ 2,118 $ 403 $ 2,521
===============================================
Earnings per common share:
Net income $ 0.94 $0.63 $ 0.87
-8-
Community Banks, Inc. and Subsidiaries
Management's Discussion and Analysis
of Financial Condition and Results of Operations
Results of Operations
Net interest income after provision for loan losses for the first
six months of 1996 was $316,000 or 4.0% greater than net interest income
after provision for loan losses for the first six months of 1995. Total
interest income increased $805,000 or 5.7% during the period while total
interest expense increased $394,000 or 6.8%. Average earning assets were
approximately 4.7% greater during the first six months of 1996 than the
first six months of 1995. Average loan balances increased 10.4% while
average investment securities decreased approximately 7.9% in 1996.
Average interest-bearing liabilities increased approximately 4.3%. The
average yields realized on earning assets approximated 8.2% and 8.1%
during the first six months of 1996 and 1995, respectively. The average
costs of interest-bearing liabilities approximated 3.9% and 3.8%,
respectively, for the same periods. Net interest margins on a tax
equivalent basis approximated 5.0% and 5.1% for the first six months of
1996 and 1995, respectively. The provision for loan losses charged to
income increased 32.8% in 1996. Total loans past due 90 days and still
accruing interest, non-performing loans, and other real estate
approximated $2,875,000 and $2,975,000, respectively, as of June 30,
1996 and December 31, 1995. Declines have occurred in loans past due 90
days or more and nonaccrual commercial, financial, and agricultural
loans.
Total other income for the first six months of 1996 was $278,000 or
24.1% more than total other income for the first six months of 1995.
Affecting this change were security gains of $277,000 and $76,000
recognized in 1996 and 1995, respectively. Gains recognized on mortgage
sales totalled $70,000 and $66,000, respectively in 1996 and 1995. Loans
held for sale are comprised for the most part of fixed-rate real estate
and education loans extended specifically for resale. Demand for these
products has been lower in 1996 than 1995. Typically, the relationship
of the volume of loans sold to gains recognized during a period is
relatively constant and a larger volume results in increased gains.
Loans held for sale as of June 30, 1996 totalled $2,201,000. The market
value of these loans approximated book value at that time. Total other
expenses for the first six months of 1996 increased $266,000 or 4.6%.
Contributing factors were increases of $298,000 or 10.8% in salaries and
employee benefits and $163,000 in net occupancy expense. Affecting these
increases were three new banking offices located in Hazleton,
Rutherford, and Valley View, Pennsylvania.
The provision for income taxes increased $63,000 for the first six
months of 1996 in comparison to the first six months of 1995. The
effective tax rates approximated 23.5% and 24.0% for the respective
periods.
The previously described factors contributed to a net increase of
$265,000 or 10.5% in net income for the six month period ended June 30,
1996.
-9-
Management's Discussion, Continued
The significant changes and related causes which occurred during
the three month period ending June 30, 1996 were generally consistent
with those described for the six month period ending June 30, 1996.
Investment security gains and gains on mortgage sales increased in the
second quarter of 1996. Gains on mortgage sales were $70,000 and
$48,000, respectively, for the three month periods ending June 30, 1996
and 1995. Investment security gains were $130,000 and $40,000 for the
three month periods ending June 30, 1996 and 1995, respectively.
Net interest income after provision for loan losses for the first
six months of 1995 was $817,000 or 11.4% greater than net interest
income after provision for loan losses for the first six months of 1994.
Total interest income increased 13.7% during the period while total
interest expense increased 5.1%. Average earning assets were
approximately 4.7% greater during the first six months of 1995 than the
first six months of 1994. Average interest-bearing liabilities increased
approximately 4.9%. In general, yields on earning assets increased
during the first six months of 1995 while the costs of interest-bearing
liabilities remained essentially unchanged. The provision for loan
losses charged to income decreased 12.0% in 1995. Total loans past due
90 days and still accruing interest, non-performing loans, and other
real estate approximated $2,648,000 as of June 30, 1995.
Total other income for the first six months of 1995 was $189,000 or
14.1% less than total other income for the first six months of 1994.
Security gains of $76,000 and $322,000 were recognized in 1995 and 1994,
respectively. Income on insurance premiums increased $68,000 or 34.9%
while gains on mortgage sales were $85,000 less in 1995. Loans held for
sale as of June 30, 1995 totalled $1,398,000. The market value of these
loans approximated book value at that time. Total other expenses during
this same period increased $540,000 or 10.2%. Contributing to this
change was an increase of $329,000 or 13.6% in salaries and employee
benefits. Affecting these increases were two new banking offices located
in Hazleton and Conyngham, Pennsylvania.
The provision for income taxes increased $65,000 for the first six
months of 1995 in comparison to the first six months of 1994. An
increase in the effective tax rate for 1995 related primarily to the
recognition of relatively less tax-free income.
The previously described factors contributed to a net increase of
$23,000 or 0.9% in net income for the six month period ending June 30,
1995.
The significant changes and related causes which occurred during
the three month period ending June 30, 1995 were generally consistent
with those described for the six month period ending June 30, 1995.
Gains on mortgage sales approximated $48,000 and $2,000 in 1995 and
1994, respectively.
-10-
Management's Discussion, Continued
Financial Condition
As of June 30, 1996 cash and due from banks was $2,898,000 or 19.5%
greater than it was at December 31, 1995. Affecting this increase were
the previously noted new banking offices. As a result of decreased loan
demand, interest-bearing time deposits in other banks, investment
securities, and federal funds sold increased $4,919,000 or 4.1% during
this same period. The approximate market value of debt securities was
$599,000 less than amortized cost at June 30, 1996. The approximate
market value of debt securities was $1,584,000 more than amortized cost
at December 31, 1995. 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 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 June 30, 1996 and December 31, 1995,
management classified investment securities with amortized costs and
market values of $119,822,000 and $119,895,000, and $114,905,000 and
$117,426,000, respectively, as available for sale. Gross unrealized
gains and losses relating to debt securities approximated $782,000 and
$1,381,000, respectively, at June 30, 1996. Net loans increased
$5,789,000 or 2.5% from December 31, 1995 to June 30, 1996. While Real
estate loans increased approximately $8,800,000 during the period, most
other types of loans experienced modest increases or declines. The
allowance for loan losses approximated 1.11% of net loans at June 30,
1996 and December 31, 1995. Much of the increase in net premises and
equipment of $152,000 related to the new banking offices. Goodwill
continues to be amortized at an annualized rate of $240,000. As
previously noted, Community Banks, Inc. sells only fixed-rate real
estate and education loans specifically designated for resale on the
secondary market and at June 30, 1996 and December 31, 1995 these loans
totalled $2,201,000 and $2,206,000, respectively. Affecting the increase
of $1,304,000 in accrued interest receivable and other assets was an
increase in accrued interest. These factors contributed to an increase
of $15,038,000 or 3.9% in total assets from December 31, 1995 to June
30, 1996.
Total deposits increased $16,060,000 or 5.0% from December 31, 1995
to June 30, 1996. All of the increase can be attributed to increases in
savings deposits. It is management's philosophy to generally maintain
competitive but not overly-aggressive interest rates relative to
interest-bearing liabilities. Management reduced short-term borrowings
in 1996 in an attempt to better balance rate sensitive assets and
liabilities. At June 30, 1996 long-term debt totalling $7,000,000 was
comprised entirely of borrowings from the Federal Home Loan Bank of
Pittsburgh at a weighted average interest rate of 6.15%. Affecting the
decline in accrued interest payable and other liabilities was a
reduction in deferred tax liabilities of $832,000.
Based on a one year interval, rate sensitive assets to rate
sensitive liabilities approximated 90% as of June 30, 1996.
-11-
Management's Discussion, Continued
As of June 30, 1996 the Corporation had risk-based capital in
excess of the fully implemented regulatory requirements, and tier 1 plus
tier 2 capital approximated 19% of risk-weighted assets. 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 investment securities as available for sale and recorded the
increase to fair value of $2,246,000, net of applicable income taxes,
as a separate component of equity. The increase recorded to
stockholders' equity at June 30, 1996 was $48,000, net of applicable
income taxes. 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.
Liquidity
Liquidity is the ratio of net liquid assets to net liabilities. 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.
There was an adequate relationship of liquid assets to short-term
liabilities at June 30, 1996.
Forward Outlook
Management is unaware of any regulatory recommendations which, if
implemented, would have a material effect on the liquidity, capital
resources, or operations of CBI. Marginal loan demand is anticipated for
the remainder of 1996 and management will continue to carefully evaluate
this demand based on the creditworthiness of the borrower and the
relative strength of the economy in the Corporation's market.
The Corporation is anticipating the maintenance of a favorable net
interest margin throughout the remainder of 1996.
Other Events
On April 22, 1996, the Corporation announced plans to repurchase up
to 130,500 shares or 5% of its outstanding common stock. The repurchases
will be made from time to time in open market transactions. The
repurchased shares will become Treasury shares and will be used for
general corporate purposes, including grants under its Employee Stock
Option Plans.
The Corporation declared a 10% stock dividend payable May 30, 1996,
to shareholders of record on May 15, 1996.
-12-
COMMUNITY BANKS, INC. and SUBSIDIARIES
PART II - OTHER INFORMATION AND SIGNATURES
Item 4. Submission of Matters to Vote of Security Holders
The annual meeting of shareholders of Community Banks, Inc. was held
April 16, 1996 for the purpose of considering and voting upon the following
matters:
1. To elect four (4) Directors: Thomas L. Miller, James A. Ulsh,
Ronald E. Boyer, and Peter DeSoto to serve until the 2000 Annual Meeting of
Shareholders. Each director received affirmative votes representing at
least 76.3% of the shares outstanding.
2. To ratify the merger of The Citizens' National Bank of Ashland
into Community Banks, N.A., effective January 12, 1996. The number of
positive and negative votes cast for this matter was 1,927,205 (73.9%)
and 17,019 (0.6%), respectively.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits - none
(b) Registrant filed the following report on Form 8-K
during the quarter ending June 30, 1996:
Report Dated April 18, 1996
Registrant reported that its common stock began trading on
the American Stock Exchange. The stock had previously traded
on the NASDAQ Small-Cap Market System.
SIGNATURES
Pursuant to the requirements 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.
(Registrant)
Date August 9, 1996 /S/ Thomas L. Miller
Thomas L. Miller
Chairman
(Chief Executive Officer)
Date August 9, 1996 /S/ Terry L. Burrows
Terry L. Burrows
Executive Vice-President
(Chief Financial Officer)
-13-
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