<PAGE>
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
Community Banks, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
Community Banks, Inc.
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
----------------------------------------------------------------------------
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
----------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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Notes:
<PAGE>
COMMUNITY BANKS, INC.
150 MARKET SQUARE
P.O. BOX 350
MILLERSBURG, PA 17061
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 6, 1997
TO OUR SHAREHOLDERS:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of Community
Banks, Inc. ("CBI") will be held at 9:30 a.m. on May 6, 1997 at Harrisburg
North Golf Course Restaurant, Rt. 25, Millersburg, Pennsylvania, for the
purpose of considering and voting upon the following matters:
1. Election of Directors. To elect four (4) Class B Directors to serve
until the 2001 Annual Meeting of Shareholders, and one (1) Class D Director
to serve until the 1999 Annual Meeting.
2. Approval of Accountants. To approve the selection of Coopers &
Lybrand, LLP, Certified Public Accountants, Harrisburg, Pennsylvania, as
independent certified public accountants for CBI for the year ending
December 31, 1997.
3. Other Business. Such other business as may be properly brought before
the Annual Meeting of Shareholders or any adjournment or adjournments
thereof.
Information regarding the matters to be acted upon at the meeting is
contained in the Proxy Statement accompanying this notice.
IN ACCORDANCE with the statutes in such case made and PROVIDED only those
holders of record of Common Stock of CBI at the close of business on February
28, 1997 (the "Record Date"), are entitled to notice of and to vote at the
Annual Meeting of Shareholders and any adjournment or adjournments thereof.
The Stock Transfer Books of CBI will not be closed.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Patricia E. Hoch
PATRICIA E. HOCH
Secretary
Millersburg, Pennsylvania
March 20, 1997
WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, MANAGEMENT URGES THAT
YOU SIGN AND DATE THE ENCLOSED PROXY AND RETURN IT IN THE PREPAID ENVELOPE
PROVIDED. THIS PROXY WILL NOT BE USED IF YOU ARE PRESENT AND DESIRE TO VOTE IN
PERSON.
IF YOU PLAN TO ATTEND THE MEETING, PLEASE RETURN THE ENCLOSED POST CARD AT
YOUR EARLIEST CONVENIENCE.
<PAGE>
COMMUNITY BANKS, INC.
----------------
PROXY STATEMENT
MARCH 20, 1997
----------------
GENERAL INFORMATION
This proxy statement is furnished in connection with solicitation by the
Board of Directors of Community Banks, Inc. ("CBI"), a corporation organized
under the laws of the Commonwealth of Pennsylvania, of proxies to be voted at
the Annual Meeting of Shareholders of CBI to be held on May 6, 1997 at 9:30
a.m. prevailing time and at any and all adjournments or postponements thereof.
This Proxy Statement and the enclosed Form of Proxy (the "Proxy") are first
being sent to shareholders of CBI on or about March 20, 1997.
The costs of preparing, printing and mailing the Proxy and all materials
used in the solicitation thereof will be borne by CBI. In addition to the use
of the mail, proxies may be solicited by officers, directors and employees of
CBI personally, by telephone or by telegraph.
CBI's executive offices are located at 150 Market Square, Millersburg,
Pennsylvania, and its telephone number is (717) 692-4781. CBI's mailing
address is P.O. Box 350, Millersburg, Pennsylvania 17061.
DATE BY WHICH SECURITY HOLDER PROPOSALS MUST BE RECEIVED TO BE PRESENTED AT
NEXT ANNUAL MEETING OF SHAREHOLDERS.
Proposals of security holders of CBI intended to be presented at the next
annual meeting of shareholders of CBI must be received by CBI for inclusion in
CBI's proxy statement and the form of proxy relating to that meeting by
November 19, 1997.
If the date of the next annual meeting of shareholders of CBI is advanced or
delayed by more than 30 days from May 6, 1998, security holders will be timely
informed of the change of the annual meeting of shareholders and the date by
which proposals of security holders must be received.
VOTING; REVOCATION OF PROXIES
Each Proxy may be revoked at any time before its exercise by, among other
methods, giving written notice to the Secretary of CBI. A subsequently dated
Proxy will, if presented to the Secretary of CBI, revoke a prior dated Proxy.
Any shareholder of CBI may attend the meeting and vote in person whether or
not he has previously given a Proxy.
The enclosed Proxy confers discretionary authority to vote with respect to
any and all of the following matters that may come before the Annual Meeting
of Shareholders: (i) matters which the Board of Directors does not know, a
reasonable time before the proxy solicitation, are to be presented at the
meeting; (ii) approval of the minutes of a prior meeting of the shareholders,
if such approval does not amount to ratification of the action taken at that
meeting; and (iii) matters incident to the conduct of the meeting. In
connection with such matters, the persons named in the enclosed Proxy will
vote in accordance with their best judgment.
The Board of Directors of CBI is not presently aware of any matters (other
than procedural matters) which will be brought before the Annual Meeting of
Shareholders which are not referred to in the Notice of Annual Meeting of
Shareholders. If other business is properly brought before the Annual Meeting
of Shareholders, the persons named in the Proxies will act or vote in
accordance with their judgment.
<PAGE>
VOTE REQUIRED; SHARES ENTITLED TO VOTE
The presence in person or by proxy of the holders of a majority of the
outstanding shares of CBI's Common Stock will constitute a quorum for the
transaction of business at the Annual Meeting of Shareholders. At the close of
business on the Record Date, there were 2,885,322 shares of CBI Common Stock
outstanding. Each share of CBI's Common Stock outstanding on the Record Date
is entitled to one vote on all matters, including the election of directors,
to come before the Annual Meeting.
Management of CBI in the aggregate beneficially owned 550,464 shares of the
outstanding stock of CBI on the Record Date. The Trust Department of Community
Banks, N.A. ("CBNA"), held, as sole trustee, in the aggregate, 136,781 shares
of CBI Common Stock, which may not be voted in the election of directors of
CBI. To the knowledge of management, one person beneficially owned 5% or more
of the outstanding Common Stock of CBI on the Record Date. The number and
percentage of shares of Common Stock of CBI owned by this person is disclosed
below under "BENEFICIAL OWNERSHIP OF CERTAIN SHAREHOLDERS."
All matters which are expected to come before the shareholders, including
election of directors and approval of Coopers & Lybrand, LLP as independent
certified public accountants for CBI for the year ending December 31, 1997,
will require the affirmative vote of the holders of a majority of CBI's
outstanding Common Stock represented at the meeting, if a quorum is present.
At the Annual Meeting, the Judges of Election will manually tabulate all
votes which are cast in person or by proxy. Those Shareholders wishing to vote
in person will be provided ballots with which to vote.
Voting is an important right of Shareholders. If a Shareholder abstains or
otherwise fails to cast a vote on any matter brought before the Shareholders,
the Pennsylvania Business Corporation Law provides that notwithstanding any
intention to the contrary, the abstention or failure is not a vote and will
not be counted. This is true of broker non-votes as well as non-votes by other
Shareholders.
INCORPORATION OF DOCUMENTS BY REFERENCE
Certain documents previously filed by CBI with the Commission pursuant to
the Exchange Act are hereby incorporated by reference in this Proxy Statement
as follows:
(1) the Annual Report on Form 10-K for the year ended December 31, 1996.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Proxy Statement to the extent that a statement contained
herein, or in any other subsequently filed document that also is or is deemed
to be incorporated by reference herein, modifies or supersedes such statement.
Any such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Proxy Statement. All
information appearing in this Proxy Statement should be read in conjunction
with, and is qualified in its entirety by, the information and financial
statements (including notes thereto) appearing in the documents incorporated
herein by reference, except to the extent set forth in the immediately
preceding statement.
PURPOSES OF THE MEETING
The Annual Meeting of Shareholders will be held for the following purposes:
1. To elect four (4) Class B Directors to serve until the 2001 Annual
Meeting of Shareholders, and one Class D Director to serve until the 1999
Annual Meeting;
2
<PAGE>
2. To approve the selection of Coopers & Lybrand, LLP, Certified Public
Accountants, Harrisburg, Pennsylvania, as independent certified public
accountants for CBI for the year ending December 31, 1997; and
3. To transact such other business as may be properly brought before the
meeting or any adjournment thereof.
ELECTION OF DIRECTORS OF CBI
The Bylaws of CBI provide that the Board of Directors may, from time to
time, fix the number of directors. The number of directors that shall
constitute the whole Board of Directors shall be not less than 5 nor more than
25. The Bylaws of CBI also provide that the Board of Directors shall be
classified into four (4) classes as nearly equal in number as possible, each
class to be elected for a term of four (4) years. Each class shall be elected
in a separate election. At each annual meeting of shareholders, successors to
the class of directors whose term is expiring shall be elected to hold office
for a term of four (4) years so that the term of office of one class of
directors expires in each year. By resolution adopted on August 6, 1996, the
Board of Directors expanded from fourteen (14) to fifteen (15) members by the
appointment of Susan K. Nenstiel to the Board to serve until the 1997 Annual
Meeting of Shareholders. Ms. Nenstiel has been nominated to serve as a Class D
Director until the 1999 Annual Meeting of Shareholders.
Nomination for elections to the Board of Directors may be made by the Board
of Directors or by any holder of the Common Stock of CBI entitled to vote at
the election of directors. Nominations, other than those made by or in behalf
of the existing management of CBI, shall be made in writing and shall be
delivered or mailed to the Secretary of CBI not less than 45 days prior to the
date of any meeting of shareholders called for the election of directors. Such
notification shall contain the following information to the extent known by
the notifying shareholder: (a) the name and address of each proposed nominee;
(b) the age of each proposed nominee; (c) the principal occupation of each
proposed nominee; (d) the number of shares of CBI owned by each proposed
nominee; (e) total number of shares that, to the knowledge of the notifying
shareholder, will be voted for each proposed nominee; (f) the name and
residence address of the notifying shareholder; and (g) the number of shares
of CBI owned by the notifying shareholder. Any nomination for director not
made in accordance with the above procedure shall be disregarded by the
chairman of the meeting, and votes cast for each such nominee shall be
disregarded by the judges of election.
It is the intention of persons named in the Proxy to vote for the election
of the four individuals listed as Class B directors to serve as Class B
directors until the 2001 Annual Meeting of Shareholders, and the individual
nominated as a Class D Director to serve as a Class D Director until the 1999
Annual Meeting.
In absence of instructions to the contrary, proxies will be voted in favor
of the election of the management's nominees. In the event any nominee should
become unavailable, it is intended that the proxies will be voted for such
substitute nominee as may be nominated by management. Management has no
present knowledge that any of the nominees will be unavailable to serve.
Each nominee is currently a director of CBI. Thomas W. Long and Donald L.
Miller are also directors of CBNA, CBI's wholly-owned banking subsidiary.
The following table sets forth the name and age of all directors, including
nominees for director of CBI, as well as the director's business experience,
including principal occupation for the past five years, the period during
which he/she has served as a director of CBI or CBNA (formerly Upper Dauphin
National Bank), and the number and percentage of outstanding shares of Common
Stock of CBI beneficially owned by said director as of February 28, 1997.
3
<PAGE>
DIRECTORS OF CBI
<TABLE>
<CAPTION>
BUSINESS EXPERIENCE, AMOUNT AND PERCENTAGE
INCLUDING PRINCIPAL NATURE OF OF
OCCUPATION FOR THE DIRECTOR BENEFICIAL OUTSTANDING
NAME AND AGE PAST FIVE YEARS SINCE(1) OWNERSHIP(2) STOCK OWNED
- ------------ -------------------- -------- ------------ -----------
<S> <C> <C> <C> <C>
CLASS B DIRECTORS:
To be elected for a
four-year term
ending in 2001:
Ray N. Leidich.......... Dentist, Tremont, 1985 42,842(3) 1.49%
Age 68 PA
Thomas W. Long.......... Owner, Millersburg 1981 13,805(4) .48%
Age 67 Hardware Co.,
Millersburg, PA
Donald L. Miller........ President, Miller 1981 55,876 1.94%
Age 67 Bros. Dairy,
Millersburg, PA
Samuel E. Cooper........ Superintendent, 1992 1,261 .04%
Age 63 Warrior Run School
District
CLASS D DIRECTOR:
To be elected for the
remainder of a
four-year term ending
in 1999:
Susan K. Nenstiel....... Insurance Broker 1996 132 .005%
Age 45 Nenstiel and
Nenstiel
Hazleton, PA
CLASS A DIRECTORS:
To continue in office to
2000:
Thomas L. Miller........ Chairman and 1966 33,075(5) 1.15%
Age 64 C.E.O.,
CBI, and President
and C.E.O., CBNA
James A. Ulsh........... Attorney-at-Law, 1977 9.722 .34%
Age 50 Mette, Evans &
Woodside,
Harrisburg, PA
Ronald E. Boyer......... President, Alvord- 1981 13,097(6) .45%
Age 59 Polk
Tool Company
(manufacture of
cutting tools),
Millersburg, PA
Peter DeSoto............ President, Metal 1981 25,826 .90%
Age 57 Industries, Inc.
(manufacture of
metal products),
Elizabethville, PA
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
BUSINESS EXPERIENCE, AMOUNT AND PERCENTAGE
INCLUDING PRINCIPAL NATURE OF OF
OCCUPATION FOR THE DIRECTOR BENEFICIAL OUTSTANDING
NAME AND AGE PAST FIVE YEARS SINCE(1) OWNERSHIP(2) STOCK OWNED
- ------------ -------------------- -------- ------------ -----------
<S> <C> <C> <C> <C>
CLASS D DIRECTORS:
To continue in office to
1999:
Leon E. Kocher.......... Chairman of the 1963 17,275 .60%
Age 84 Board, Kocher
Enterprises
Robert W. Rissinger..... Secretary/Treasurer 1968 151,383(7) 5.25%
Age 70 Alvord Polk Inc
Engle Rissinger
Auto Group
William C. Troutman..... President, 1968 92,470(8) 3.21%
Age 81 The W.C. Troutman
Co. (auto
dealership)
Millersburg, PA
CLASS C DIRECTORS:
To continue in office to
1998:
Kenneth L. Deibler...... Self-Employed 1966 21,823(9) .76%
Age 74 Insurance Broker,
Elizabethville, PA
Allen Shaffer........... Attorney-at-Law, 1961 27,073(10) .94%
Age 71 Millersburg and
Harrisburg, PA
Ernest L. Lowe.......... President CBI 1990 19.307(11) .67%
Age 60
</TABLE>
- --------
(1) Includes service as a director of CBNA (formerly Upper Dauphin National
Bank), a wholly-owned subsidiary of CBI, prior to 1983 and service as a
director of CBI after 1983.
(2) The securities "beneficially owned" by an individual are determined in
accordance with the definition of "beneficial ownership" set forth in the
regulations of the Securities and Exchange Commission. Accordingly, they
may include securities owned by or for, among others, the wife and/or
minor children of the individual and any other relative who has the same
home as such individual, as well as other securities as to which the
individual has or shares voting or investment power or has the right to
acquire under outstanding stock options within 60 days after March 20,
1997. Beneficial ownership may be disclaimed as to certain of the
securities.
(3) Includes 21,421 shares owned by Dr. Leidich's wife, Dolores Leidich.
(4) Includes 8,157 shares owned by the Trust of Mr. Long's mother, Leah Long.
(5) Includes incentive stock options to acquire 24,225 shares.
(6) Includes 3,848 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
152 shares owned by Mr. Boyer's spouse, Judith Boyer, and her mother.
(7) Includes 3,848 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. Also
includes 8,574 shares owned by Engle Rissinger Auto Group, Inc., 27,512
shares owned by Mr. Rissinger's spouse, Shirley Rissinger, 4,728 shares
owned by Engle Rissinger Auto Group, Inc. Profit Sharing Plan (R.
Rissinger and H. Engle, Co-Trustees), and 58,008 shares held by Mr.
Rissinger's IRA.
(8) Includes 20,573 shares owned by Mr. Troutman's spouse, Dorothy Troutman,
and 5,824 shares owned by W. C. Troutman Co.
(9) Includes 1,709 shares owned by Mr. Deibler's grandchildren.
(10) Includes 4,617 shares owned by Mr. Shaffer's Retirement account.
(11) Includes 113 shares owned by Mr. Lowe's spouse, Barbara Lowe and 70
shares owned by Mr. Lowe's children, and also includes Incentive Stock
Options to acquire 17,641 shares.
5
<PAGE>
None of the directors or nominee directors are directors of other companies
with a class of securities registered pursuant to Section 12 of the Securities
Exchange Act of 1934.
The following is all shares owned beneficially by all directors and
executive officers of CBI as a group:
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
BENEFICIAL OWNERSHIP
----------------------
TITLE OF CLASS DIRECT INDIRECT PERCENT OF CLASS
-------------- ---------- ---------------------------
<S> <C> <C> <C>
Common.............................. 453,490 96,974 19.08%
</TABLE>
BENEFICIAL OWNERSHIP OF CERTAIN SHAREHOLDERS
The following table sets forth the name, address, amount and nature of
beneficial ownership, and percent of class of outstanding CBI Common Stock of
each person known to CBI to be the beneficial owner of more than 5% of CBI's
Common Stock. Share information is stated as of February 28, 1997.
<TABLE>
<CAPTION>
NAME AND ADDRESS OF AMOUNT AND NATURE OF PERCENT OF
BENEFICIAL OWNER BENEFICIAL OWNERSHIP(1) OUTSTANDING STOCK
------------------- ----------------------- -----------------
<S> <C> <C>
Robert W. Rissinger.............. 151,383(2) 5.25%
900 Manor Drive
Millersburg, PA 17061
</TABLE>
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(1) See footnote 2 on page 5.
(2)See footnote 7 on page 5.
MANAGEMENT OF CBI
EXECUTIVE OFFICERS
The following table sets forth the executive officers of CBI (as determined
in accordance with the rules and regulations of the Securities and Exchange
Commission), their ages, their positions with CBI and the beneficial ownership
of Common Stock of CBI by each of such persons. Share information is stated as
of February 28, 1997.
EXECUTIVE OFFICERS OF CBI
<TABLE>
<CAPTION>
AMOUNT AND PERCENTAGE
NATURE OF OF
BENEFICIAL OUTSTANDING
NAME AND AGE TITLE OWNERSHIP(1) STOCK
- ------------ ----- ------------ -----------
<S> <C> <C> <C>
Thomas L. Miller.............. Chairman and Chief 33,075 1.15%
Age 64 Executive Officer
Ernest L. Lowe................ President and Chief 19,307 .67%
Age 60 Operating Officer
Robert W. Lawley.............. Executive Vice- 5,930 .21%
Age 42 President and Chief
Lending Officer
Terry L. Burrows.............. Executive Vice- 11,817 .41%
Age 48 President and Chief
Financial Officer
David E. Hawley............... Executive Vice- 11,599 .40%
Age 58 President and Regional
Administrator/Corporate
Property Officer
</TABLE>
- --------
(1) Includes currently exercisable Incentive Stock Options to acquire shares
of CBI.
6
<PAGE>
BOARD EXECUTIVE COMMITTEE REPORT ON EXECUTIVE COMPENSATION
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
CBI does not have a Compensation Committee. The Board of Directors has
delegated to the Executive Committee initial review and recommendations for
executive compensation. Recommendations of the Executive Committee are
reviewed and ratified by the full Board of Directors.
Members of the Executive Committee are Robert W. Rissinger, William C.
Troutman, Peter DeSoto, Allen Shaffer, James A. Ulsh and Donald L. Miller.
None of these committee members have been officers or employees of CBI or any
of its subsidiaries at any time. Allen Shaffer is an attorney practicing in
Harrisburg and Millersburg, Pennsylvania, who has been retained in the last
fiscal year by CBI and who CBI proposes to retain in the current fiscal year.
James A. Ulsh is a shareholder/employee of the law firm of Mette, Evans &
Woodside, Harrisburg, Pennsylvania, which CBI has retained in the last fiscal
year and proposes to retain in the current fiscal year.
The CBI Executive Committee adopted an Executive Compensation Policy which
sets forth the following goals to be achieved in determining compensation of
the executive officers of CBI and CBNA: (i) integrate compensation with CBI
and CBNA annual and long-term performance goals; (ii) reward above average
performance; (iii) recognize individual initiative and achievements; (iv)
attract and retain qualified executives; (v) be consistent with compensation
packages offered by other similarly situated bank holding companies and banks;
and (vi) encourage stock ownership by executive officers.
In order to achieve the goals set forth in the Executive Compensation
Policy, a variety of criteria in evaluating and establishing compensation are
to be considered. The Executive Committee has identified the SNL Securities
Bank Performance Report and the SNL Executive Compensation Review for
Commercial Banks as appropriate sources of comparative information in
evaluating executive compensation.
The Executive Committee recognizes that compensation, particularly for the
Chief Executive Officer and other Executive Officers, can best be accomplished
through a combination of techniques, including salary, the CBI Bonus Plan, the
Long-Term Incentive Plan, and the provision of appropriate fringe benefits.
CBI BONUS PLAN
CBI has adopted the CBI Bonus Plan for the Chief Executive Officer and other
officers of CBI and CBNA. Pursuant to this plan, a certain percentage of net
income, before security gains and losses, of the amount in excess of one
percent of the return on average assets for the year, is placed in a bonus
pool. The percentage of 1995 net income placed in the bonus pool was 15%, and
bonuses based on 1995 net income were paid in 1996. From this pool, between
20% and 25% (25% in 1995) is allocated to bonuses for staff officers. The
remainder of the pool is distributed to the Chief Executive Officer and the
other executive officers of the bank. The percentage distributable to the CEO
and the other officers is reviewed on an annual basis and adjusted as deemed
appropriate. In 1996 the CEO received 26% of the 1995 Net Bonus Pool remaining
after staff officers' bonuses were deducted, and the President received
15.25%. The Executive Committee delegated to the CEO the distribution of the
staff officers' bonuses and the remainder of the Net Bonus Pool to executive
officers.
LONG-TERM INCENTIVE PLAN
In 1988, CBI adopted a Long-Term Incentive Plan which authorizes the
issuance of incentive stock options, stock appreciation rights, and non-
qualified stock options. The Executive Committee believes that stock ownership
by management is beneficial in aligning management's interests with the
interests of the shareholders in enhancing and increasing the value of CBI
common stock. The Executive Committee considers the same criteria in awarding
stock options that it considers in making other compensation decisions. These
criteria are outlined above.
7
<PAGE>
DEFERRED COMPENSATION PLAN
CBNA has entered into a Deferred Compensation Plan with Mr. Miller pursuant
to which the sum of $25,000 of the base salary otherwise payable to Thomas L.
Miller in 1997 will be credited to a book reserve (the "Deferred Compensation
Account") which together with interest at the rate of 6% per annum shall be
paid as deferred compensation to Mr. Miller or his designated beneficiary
under the terms and conditions set forth in the agreement. The agreement also
provides that up to the sum of $25,000 of Mr. Miller's 1998 bonus, if any,
payable in January 1998 based on 1997 performance, shall also be credited to
the Deferred Compensation Account to be paid in accordance with terms of the
agreement.
EMPLOYMENT AGREEMENTS
CBI and CBNA have entered into employment agreements with David E. Hawley,
Terry L. Burrows, Robert W. Lawley, and Lewis C. Bogle. The agreements
generally provide that if one of these employee's employment with CBI or CBNA
is terminated pursuant to a change in control or ownership, as defined in the
agreement, the employee shall receive severance compensation equal to two
times the employee's gross salary for the calendar year preceding the date of
the employee's termination of employment. This severance compensation shall be
paid in cash within thirty (30) days from the date on which the employee
ceases to be employed by the Company. The benefits provided under these
agreements are unfunded and will be paid out of the general assets of CBI or
CBNA at such times as the benefits become payable.
EXECUTIVE COMPENSATION
Base salaries of Executive Officers are targeted at competitive levels and
are adjusted by the Executive Committee to recognize varying levels of
responsibility, experience, knowledge, internal equity issues, as well as
external pay practices. Increases to base salaries are driven to a large
degree by individual performance. Individual performance is evaluated based on
the Executive Committee's judgment of sustained levels of contribution to CBI.
In 1996 the trading price performance of CBI Common Stock continued its
upward trend. The per share market value of CBI Common Stock increased from
$24.77 (adjusted for the May 31, 1996 stock dividend) at year-end 1995 to
$26.00 at year-end 1996. An increase in per share market value also occurred
in 1995.
Using 1995 data from a SNL Executive Compensation Review, the Committee
compared Mr. Miller's compensation to a group of 16 banks with assets between
$300 million and $600 million, headquartered in Pennsylvania. This report
showed that CBI was ranked 12th out of 16 in asset size. While Mr. Miller's
salary was ranked 7th out of 16, CBI's return on assets was ranked 3rd. The
SNL report also compared CBI's performance with other banks in the peer group
and showed that CBI had a 1.41% Return on Average Assets versus the peer
group's average of 1.31% and a 13.10% Return on Average Equity versus the
peers' 13.06%. CBI outperformed the peers' average performance in all indices
reported by the SNL Report.
In summary, the Committee concluded that Mr. Miller's compensation, when
compared to that of his peers and the performance of CBI in 1996, required
adjustment. For 1997 Mr. Miller's annual salary was increased to $215,000. He
is also a participant in the CBI Long Term Incentive Plan and CBI Bonus Plan.
Mr. Miller's 1996 Bonus, based on 1995 performance, was $38,367. His 1997
bonus, based on 1996 performance, was $50,967. In addition Mr. Miller was
awarded Incentive Stock Options to purchase 6,000 shares of CBI Common Stock
at an exercise price of $24.25 per share. This option, granted in 1996, was
based on 1996 performance.
The Executive Committee considered the same factors in evaluating the
compensation of its other Executive Officers and reached similar conclusions
about their compensation.
This report is given over the signatures of the Executive Committee,
consisting of Robert W. Rissinger, Peter DeSoto, Allen Shaffer, James A. Ulsh,
Donald L. Miller, and William C. Troutman.
8
<PAGE>
STOCK PERFORMANCE GRAPH
The following graph sets forth the yearly percentage change in CBI's
cumulative total shareholder return on its Common Stock from December 31, 1991
to December 31, 1996. This percentage change is measured by dividing (i) the
sum of (A) the cumulative amount of dividends for the period measured,
assuming dividend reinvestment and (B) the difference between CBI's share
price at December 31, 1996 and December 31, 1991 by (ii) the share price as of
December 31, 1991. This result, on the following performance graph, is
compared with cumulative total return of the AMEX Stock Market (US Companies)
and a self-determined peer group of the bank stocks listed below:
Comparison of Five Year-Cumulative Total Returns
Performance Graph for
Community Banks, Inc.
Prepared by the Center for Research in Security Prices
Produced on 02/03/97 including data to 12/31/96
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
12/31/91 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Community Banks, Inc. 100.0 173.1 273.6 216.3 256.1 277.7
AMEX Stock Market 100.0 105.0 123.5 115.3 148.5 151.5
Peer Group 100.0 138.8 178.2 195.1 243.5 282.3
</TABLE>
Companies in the Self-Determined Peer Group
BRYN MAWR BANK CORP COMM BANCORP INC
FIRST COLONIAL GROUP INC HARLEYSVILLE NATIONAL CORP PA
HERITAGE BANCORP INC JEFFBANKS INC
KEYSTONE HERITAGE GROUP INC OMEGA FINANCIAL CORP
SOUTHWEST NATIONAL CORP PA SUN BANCORP INC
Notes:
A. The lines represent monthly index levels derived from compounded daily
returns that include all dividends.
B. The indexes are reweighted daily, using the market capitalization on the
previous trading day.
C. If the monthly interval, based on the fiscal year-end, is not a trading
day, preceding trading day is used.
D. The index level for all series was set to $100.0 on 12/31/91.
9
<PAGE>
CASH COMPENSATION
The following Summary Compensation Table sets forth the executive officers
of CBI (as defined in applicable securities regulations), the annual salary
and bonus of those officers for the preceding three years, and certain
information concerning stock option awards to these officers pursuant to the
CBI Long-Term Incentive Plan:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
------------------------------ ------------------- ----------
OTHER
ANNUAL RESTRICTED ALL OTHER
COMPEN- STOCK OPTIONS/ LTIP COMPEN-
SATION(1) AWARDS(2) SARS(3) PAYOUTS(4) SATION
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) ($) ($) (#) ($) ($)
- --------------------------- ---- ---------- --------- --------- ---------- -------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Thomas L. Miller........ 1996 190,000 41,420 -- -- 6,000 -- 36,000(5)
Chairman & CEO 1995 176,000 33,079 -- -- 12,101 -- 35,264
1994 160,000 38,367 -- -- 4,620 -- 4,800
Ernest L. Lowe.......... 1996 134,000 24,295 -- -- 2,500 -- 2,400(6)
President & COO 1995 123,000 19,084 -- -- 4,950 -- 2,400
1994 114,500 22,135 -- -- 2,640 -- 2,400
Robert W. Lawley........ 1996 86,000 19,515 -- -- 1,500 -- --
Executive Vice- 1995 79,000 15,299 -- -- 3,080 -- --
President & CLO 1994 73,000 17,708 -- -- 1,716 -- --
Terry L. Burrows........ 1996 78,100 17,922 -- -- 1,500 -- --
Executive Vice- 1995 72,000 14,136 -- -- 3,080 -- --
President & CFO 1994 67,000 16,232 -- -- 1,716 -- --
David E. Hawley......... 1996 68,500 13,541 -- -- 1,300 -- --
Executive Vice- 1995 64,300 10,592 -- -- 2,860 -- --
President & CPO 1994 61,000 12,546 -- -- 1,716 -- --
& Regional Admin.
</TABLE>
- --------
(1) The aggregate of personal benefits provided by CBI and its subsidiaries
for any executive officer, individually or all executive officers as a
group did not exceed the lesser of (i) $50,000 or (ii) 10% of the salary
and bonus of the officer for any of the years referenced. This does not
include benefits that are available to all salaried officers, directors
and employees on a non-discriminatory basis.
(2) CBI has not issued any Restricted Stock Awards to any executive officer.
(3) In 1994, 1995, and 1996, Mr. Miller, Mr. Lowe, Mr. Lawley, Mr. Burrows and
Mr. Hawley each were awarded Stock Options to acquire the number of shares
disclosed in the Summary Compensation Table. These options, granted
pursuant to the CBI Long-Term Incentive Plan, are discussed in greater
detail below. See "Stock Options".
(4) CBI does not maintain any Long-Term Incentive Plan as defined in the
applicable Securities and Exchange Commission Regulations, and
consequently has made no payouts pursuant to any such plan.
(5) Includes $4,800 in fees for service as a director of CBNA and CBI in 1996,
$4,800 for service as a director of CBI and CBNA in 1995, and $4,800 for
service as a director of CBI and CBNA in 1994. Also includes the amount
accrued as an expense by CBI in 1995 and 1996 in connection with Mr.
Miller's Supplemental Pension Benefits. See "Supplemental Pension Benefits
Agreement/Thomas L. Miller."
(6) Includes $2,400 in fees for service as a director of CBI in 1996, $2,400
in fees for service as a director in 1995, and $2,400 in fees for service
as a director in 1994.
10
<PAGE>
STOCK OPTIONS
In 1988, the shareholders of CBI adopted the CBI Long-Term Incentive Plan.
This Plan authorizes the issuance of Awards to key officers of CBI. Awards may
be made in the form of Incentive Stock Options (ISOS), Nonqualified Stock
Options (NQSOs) and Stock Appreciation Rights (SARs).
INCENTIVE STOCK OPTIONS
The Internal Revenue Code requires all ISOs to be granted at a price not
less than 100% of the fair market value of CBI Common Stock on the date the
ISO is granted. ISOs are not transferable, except upon death by will or
descent and distribution, and may not have a term of exercise in excess of ten
years. In addition, no ISO may be exercised for a period of at least six
months after the ISO is granted.
All ISOs granted by CBI to date are subject to a vesting schedule, and may
only be exercised to the extent vested on the date of the exercise. If the
optionee is 55 years or older on the date the ISO is awarded, ISOs are 33.33%
vested after one year, 66.67% vested after two years, and 100% vested three
years from the date awarded. If the optionee is under 55 years on the date the
ISO is awarded, ISOs vest at the rate of 20% per year after year one, becoming
fully vested in the fifth year. In December, 1996 Thomas L. Miller was granted
2,285 ISOs.
The Plan requires adjustment of the option price for all ISOs as appropriate
to reflect changes in the number of outstanding shares caused, among other
events, by the declaration and payment of a stock dividend. Consequently, the
option price of all ISOs granted has been adjusted each time a stock dividend
has been declared and paid.
NONQUALIFIED STOCK OPTIONS
The Plan requires NQSOs to be granted at a price not less than 80% of the
fair market value of CBI Common Stock on the date the NQSO is granted. NQSOs
may or may not have a vesting schedule, depending on the terms of the grant as
determined by the Committee administering the Plan. Although tax treatment of
ISOs and NQSOs may differ, the Plan imposes the same general conditions and
restrictions on NQSOs as it does on ISOs. These are generally described above.
In December 1996 Mr. Miller was awarded 3,715 NQSOs.
To date, all NQSOs granted have carried an option price equal to the fair
market value of CBI Common Stock on the date the NQSO was granted.
11
<PAGE>
STOCK OPTION GRANTS
The following table sets forth, for each executive officer, the number of
ISOs and NQSOs (collectively "Options") granted in 1996, the percentage the
Options awarded to the executive officer bears to total Options granted to all
key employees during the years, the option price, the expiration of the
option, and the potential realizable value of the Options assuming certain
rates of stock appreciation:
STOCK OPTION GRANTS
IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
---------------------------------------
POTENTIAL REALIZABLE
NUMBER OF % OF TOTAL VALUE AT ASSUMED
SECURITIES OPTIONS/ ANNUAL ALTERNATIVE
UNDERLYING SARS RATES OF STOCK PRICE
OPTIONS/ GRANTED TO EXERCISE APPRECIATION
SARS EMPLOYEES OR BASE EXPIRA- FOR OPTION TERM
GRANTED IN FISCAL PRICE TION --------------------
NAME (#) YEAR ($/SH) 1 DATE 5% ($)(2) 10% ($)(2)
---- ---------- ---------- -------- -------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Thomas L. Miller.. 6,000 20.85% $24.25 12-16-06 $91,503 $231,889
Ernest L. Lowe.... 2,500 8.69% $24.25 12-16-06 $38,126 $ 96,620
Robert W. Lawley.. 1,500 5.21% $24.25 12-16-06 $22,875 $ 57,972
Terry L. Burrows.. 1,500 5.21% $24.25 12-16-06 $22,875 $ 57,972
David E. Hawley... 1,300 4.52% $24.25 12-16-06 $19,825 $ 50,242
</TABLE>
- --------
(1) ISOs and NQSOs were granted in December, 1996, each with an exercise
price of $24.25 per share. The option prices in all events reflected the
fair market value of CBI Common Stock on the date of the grant. The
Options granted in December 1996 were for calendar year 1996.
(2) Applicable Securities and Exchange Regulations require disclosure of the
potential appreciation in Options granted to executive officers, assuming
annualized rates of stock price appreciation of 5% and 10% over the term
of the Option, with appreciation to be determined as of the expiration
date of the Option. The figures disclosed above assume such rates of
appreciation on an annual basis, with annual compounding of the
appreciation rate, beginning with the original option price of $24.25 per
share.
STOCK OPTION EXERCISES
The following table sets forth all Options exercised by each executive
officer of CBI during 1996, the number of shares acquired on exercise, the
value realized by the executive officer upon exercise, the number of
exercisable and un-exercisable Options outstanding for each executive officer
as of December 31, 1996, and the value of those Options as of December 31,
1996:
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF
NUMBER OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS/SARS AT OPTIONS/SARS AT
FY-END (#) FY-END ($)
SHARES ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE (#) REALIZED ($) UNEXERCISABLE 1 UNEXERCISABLE 1,2
---- --------------- ------------ --------------- -----------------
<S> <C> <C> <C> <C>
Thomas L. Miller........ 8,301 111,213 20,852/15,608 172,587/34,056
Ernest L. Lowe.......... -0- -0- 16,660/6,681 177,533/13,914
Robert W. Lawley........ 468 6,533 5,897/6,030 62,201/20,546
Terry L. Burrows........ 1,012 8,784 3,061/6,030 29,081/20,546
David E. Hawley......... -0- -0- 9,852/4,816 107,113/18,759
</TABLE>
- --------
(1) All Options granted through December 31, 1996 are reported. Exercisable
Options are fully vested. Options to vest in the future are reported as
unexercisable.
(2) The dollar values set forth above were calculated by determining the
difference between the closing trading price of CBI Common Stock at
December 31, 1996, which was $26.00 per share, and the option price of
each Option as of December 31, 1996.
12
<PAGE>
PENSION PLAN
CBI and its subsidiaries maintain a pension plan for their employees. An
employee becomes a participant in the pension plan on January 1 or July 1
after completion of one year of service (12 continuous months) and attainment
of the age of 21 years. The cost of the pension is actuarially determined and
paid by the CBI subsidiary with whom the employee is employed. The amount of
monthly pension is equal to 1.15% of average monthly pay up to $650, plus .60%
of average monthly pay in excess of $650, multiplied by the number of years of
service completed by an employee. The years of service for the additional
portion are limited to a maximum of 37. Average monthly pay is based upon the
5 consecutive plan years of highest pay preceding retirement. The maximum
amount of annual compensation used in determining retirement benefits is
$150,000. A participant is eligible for early retirement after attainment of
the age of 60 years and the completion of five years of service. The early
retirement benefit is the actuarial equivalent of the pension accrued to the
date of early retirement. As of December 31, 1996, Thomas L. Miller has been
credited with 38 years of service. Additionally, the following officers have
been credited with the following years of service: Ernest L. Lowe--12 years of
service, Robert W. Lawley--20 years of service, Terry L. Burrows--23 years of
service, and David E. Hawley--30 years of service.
The amount shown on the following table assumes an annual retirement benefit
for an employee who chose a straight life annuity and who will retire at the
age of 65 years.
PENSION PLAN TABLE
<TABLE>
<CAPTION>
YEARS OF SERVICE
------------------------------------------------
REMUNERATION 15 20 25 30 35 40
- ------------ ------- ------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
35,000......................... $ 8,486 $11,314 $14,143 $16,971 $19,800 $ 22,138
55,000......................... $13,736 $18,314 $22,893 $27,471 $32,050 $ 35,778
75,000......................... $18,986 $25,314 $31,643 $37,971 $44,300 $ 49,418
95,000......................... $24,236 $32,314 $40,393 $48,471 $56,550 $ 63,058
115,000........................ $29,486 $39,314 $49,143 $58,971 $68,800 $ 76,698
135,000........................ $34,736 $46,314 $57,893 $69,471 $81,050 $ 90,338
150,000........................ $38,673 $51,564 $64,455 $77,346 $90,237 $100,568
175,000........................ $38,673 $51,564 $64,455 $77,346 $90,237 $100,568
200,000........................ $38,673 $51,564 $64,455 $77,346 $90,237 $100,568
225,000........................ $38,673 $51,564 $64,455 $77,346 $90,237 $100,568
</TABLE>
SUPPLEMENTAL PENSION BENEFITS AGREEMENT/THOMAS L. MILLER
On August 2, 1994, CBI and Thomas L. Miller entered into a Supplemental
Pension Benefits Agreement. The Agreement provides a benefit to Mr. Miller
upon termination of employment for any reason on or after his retirement date.
Mr. Miller's early and normal retirement dates are defined by the CBI Pension
Plan. At normal retirement, Mr. Miller will receive a supplemental pension
benefit equal to the lesser of (i) the portion of pension benefits which Mr.
Miller would normally have received pursuant to the CBI Pension Plan but which
will not accrue for his benefit due to the annual limitations on compensation
provided in Section 401(a)(17) of the Internal Revenue Code of 1986, as
amended and (ii) Twenty-four Thousand ($24,000) Dollars per year. This amount
would be adjusted for early or late retirement in the same manner as the CBI
Pension Plan. Section 401(a)(17) of the Internal Revenue Code precludes
compensation in excess of One Hundred Fifty Thousand ($150,000) Dollars per
annum from being used in computing benefits under the Pension Plan. As of
December 31, 1996, Mr. Miller's annual pension benefit would be reduced by
approximately Twenty-three Thousand ($23,000) Dollars per year because of the
limits imposed by the Internal Revenue Code. The impact of these rules is
expected to increase in future years. The Agreement is a non-qualified and
non-funded contractual obligation of CBI. CBI has recognized an appropriate
present value accrual through 1996.
13
<PAGE>
COMMUNITY BANKS, N.A. EXECUTIVE SURVIVOR INCOME AGREEMENTS
On June 1, 1994, Community Banks, N.A. entered into Survivor Income
Agreements with Thomas L. Miller, Robert W. Lawley, Ernest L. Lowe, Terry L.
Burrows, Lewis C. Bogle, and David E. Hawley. In these Agreements, CBNA
promised to pay to each executive employee's designated beneficiary a survivor
income benefit. The survivor's income benefit is payable only if the executive
employee dies before terminating employment with CBNA and only to the extent
that CBNA owns life insurance policies on the executive employee's life at the
time of his or her death. The base death benefit is equal to the lesser of (i)
three times the executive employee's base salary as established by the Board
of Directors for the calendar year in which the executive's death occurs, or
(ii) the amount of life insurance proceeds received by CBNA due to the
executive's death. The base death benefit, however, will be increased by an
amount equal to the death benefit multiplied by CBI's projected highest
marginal federal income tax rate for the year in which the executive's death
occurs. The survivor's income benefit will be paid in a lump sum within 60
days after the executive employee's death. These Agreements are funded by life
insurance policies on each executive employee's life. The life insurance
policies are owned by CBNA, and are in lieu of each executive employee's
participation in CBNA's group life insurance plan. A split dollar insurance
agreement goes into effect after the executive employee attains the age of 65
provided he has completed ten (10) years of service. Pursuant to the terms of
the split dollar agreement the executive employee has the right to designate
the beneficiary of the death proceeds of the policy to the extent the proceeds
exceed the cash surrender value of the policy on the date before the executive
employee's death.
DIRECTORS' COMPENSATION
In 1996, each director of CBI was paid a quarterly fee of $600, plus each
outside director received a fee of $200 for each Board meeting attended. Each
director who was not an executive officer also received $200 for each
Committee meeting attended.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
In 1996, to the knowledge of CBI, all Executive Officers and directors
timely filed all reports with the Securities Exchange Commission, except for
Thomas L. Miller, who filed one Form 4 report, regarding one transaction, in
an untimely manner.
TRANSACTIONS WITH OFFICERS AND DIRECTORS
During 1996, CBNA has had, and expects to have in the future, banking
transactions in the ordinary course of business with directors, officers and
principal shareholders of CBI and their associates on the same terms,
including interest rates and collateral on loans, as those prevailing at the
time for comparable transactions with other persons. Such loans do not
involve, in the opinion of management, more than the normal risk of
collectibility or other unfavorable features.
Allen Shaffer, a director of CBI, is an attorney practicing in Harrisburg
and Millersburg, Pennsylvania, who has been retained in the last fiscal year
by CBI and who CBI proposes to retain in the current fiscal year. James A.
Ulsh, a director of CBI, is a shareholder/employee of the law firm of Mette,
Evans & Woodside, Harrisburg, Pennsylvania, which CBI has retained in the last
fiscal year and proposes to retain in the current fiscal year. Thomas J.
Carlyon, a director of CBNA, is a partner in the law firm of Carlyon &
McNelis, Hazleton, Pennsylvania, which CBI has retained in the last fiscal
year and proposes to retain in the current fiscal year.
COMMITTEES OF THE BOARD OF DIRECTORS OF CBI
The Board of Directors of CBI has established three (3) committees of the
Board: the Executive Committee, the Dividend Reinvestment Committee, and the
Audit Committee. CBI does not have a nomination committee but provides for the
nomination of directors as described under "ELECTION OF DIRECTORS OF CBI."
14
<PAGE>
The total number of CBI's Board of Directors' meetings during 1996 was five
(5) and no director attended fewer than 75% of the aggregate of the total
number of meetings of the Board of Directors and the total number of meetings
held by all committees of the Board on which he served, except Ronald Boyer
who attended 71% of such meetings, and Leon Kocher who attended 71% of such
meetings.
AUDIT COMMITTEE
Members of the Audit Committee are Kenneth L. Deibler, Samuel E. Cooper,
Ronald Boyer, Ray N. Leidich, and Leon E. Kocher. The Committee met twice
during 1996. The Audit Committee supervises and recommends to the Board of
Directors all changes in audit procedures, recommends to the Board the hiring
of the outside auditors, reviews the complete audit of the books and financial
statements of CBI and its subsidiaries, and upon receipt and review of the
internal auditor's report and certified public accountants' audit report, the
Committee brings to the Board of Directors its recommendations concerning the
audit. The Committee also reviews the examination reports by the Comptroller
of the Currency and reviews all insurance of CBI and its subsidiaries on an
annual basis.
EXECUTIVE COMMITTEE
Members of the Executive Committee are Robert W. Rissinger, William C.
Troutman, Peter DeSoto, Allen Shaffer, James A. Ulsh and Donald L. Miller. The
Committee met four times during 1996. The Committee meets when called by the
Chairman and acts for the Board of Directors. It reviews salaries and
remuneration, policies, and other items that would come before the Board of
Directors of CBI.
RATIFICATION OF APPOINTMENT OF
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors has selected the firm of Coopers & Lybrand LLP,
Harrisburg, Pennsylvania, as independent certified public accountants to audit
the books, records and accounts of CBI and its subsidiaries for 1997. This
firm audited CBI for 1996, has no material relationship with CBI or its
subsidiaries and is considered to be well qualified. A representative of the
firm is expected to be at the Annual Meeting of Shareholders. If the
shareholders do not ratify the selection of this firm, the selection of
another firm of independent certified public accountants will be considered by
the Board of Directors.
OTHER BUSINESS
To transact any other matters connected with and incidental to the election
of directors that may properly come before the Annual Meeting of Shareholders.
Management, at present, knows of no other business except those items
explained herein that may require the vote of the shareholders to be presented
by or on behalf of CBI or its management at the meeting.
FORM 10-K ANNUAL REPORT
SECURITIES AND EXCHANGE COMMISSION FORM 10-K ANNUAL REPORT IS AVAILABLE FREE
OF CHARGE. IF YOU DESIRE A COPY OF THIS REPORT, FORWARD YOUR REQUEST TO:
TERRY L. BURROWS, EVP/CFO
COMMUNITY BANKS, INC.
P.O. BOX 350
MILLERSBURG, PENNSYLVANIA 17061
15
<PAGE>
RETURN OF PROXY
YOU ARE URGED TO SIGN, DATE AND RETURN THE ACCOMPANYING PROXY AS PROMPTLY AS
POSSIBLE WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING IN PERSON. IF YOU DO
ATTEND THE MEETING, YOU MAY THEN WITHDRAW YOUR PROXY.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Patricia E. Hoch
PATRICIA E. HOCH
Secretary
Millersburg, Pennsylvania
March 20, 1997
16
