CMTY Community Bks Millersbur (MM)

HARRISBURG, Pa., July 18 /PRNewswire-FirstCall/ -- Community Banks, Inc. ("Community") (NASDAQ:CMTY) today reported second quarter net income of $10.5 million, including per share earnings of $0.44, and produced a dramatic improvement over the $(1.1) million loss recorded in the year-earlier period. Results in the second quarter of 2005 had been adversely affected by $8 million in pre-tax merger, conversion, and restructuring expenses that were recorded leading up to the consummation of the Blue Ball Bank merger on July 1 of that year. Community's operating footprint, which now boasts assets of $3.4 billion and 73 banking offices, extends throughout the center of Pennsylvania from the Pocono region to just over the Maryland border. Blue Ball operates as a separate division in the attractive Lancaster, Berks and Chester county markets of south-central Pennsylvania. Community Banks, Inc. is the 8th largest financial services holding company headquartered in Pennsylvania and the largest financial institution headquartered in its capital city of Harrisburg. Quarter-to-quarter net income comparisons of 2006 to 2005 continued to be distorted by the mid-year 2005 merger of Blue Ball Bank. That merger was the largest and most significant in the history of the Community franchise. Under accounting rules, Blue Ball results were consolidated only from the July 1, 2005 merger date forward, and were excluded entirely from results for the first half of 2005, making comparison of 2006 results to those in 2005 far less meaningful. More relevant quarterly comparisons can be derived by using the combined results from the first quarter of 2006 as a baseline, and presenting annualized growth trends from that point forward. The twelve months ended June 30, 2006 marked the completion of the first full year of blended operations since the combination of Blue Ball into the new Community franchise. In this most recent quarter, earnings improvements were constrained slightly by a series of interest rate hikes by the Federal Reserve Bank that has restricted revenue growth from traditional spread business. These rate hikes have contributed to a "flattening" of the yield curve and a compression in net interest margins and net interest income growth, the two key metrics for revenue expansion. These interest rate increases have presented earnings challenges throughout the banking industry as rising deposit funding costs have outpaced the improvement from increasing earning asset yields. "The entire banking industry is feeling a temporary revenue pinch that is a natural outgrowth of a flat yield curve," said Eddie L. Dunklebarger, President and CEO. "We intend to stay the course and continue to perform all of the basic blocking-and-tackling until interest rate conditions improve. In the meantime, we remain excited by the opportunities provided by our expanding franchise, the stability and vitality of our core markets, and the tireless efforts of our dedicated employees," he added. Despite the ongoing revenue challenges, results for the first half of 2006 reflected records for both net income and earnings per share performance, at $21.1 million and $0.88 per share, respectively. These results translated into an operating return on average tangible assets of 1.42% and an operating return on average tangible equity of 20.35%. Because the merger with Blue Ball was accounted for under the purchase accounting method (now required under authoritative accounting guidance), many of the traditional metrics used to evaluate performance in a post-merger environment have undergone change. Operating return on tangible assets and tangible equity have become relevant measures of shareholder return for companies that have experienced substantial merger activity in periods after the mandatory application of purchase accounting. Community has provided an extensive reconcilement of "GAAP" to "non-GAAP" presentations to this release to assist investors in their understanding of the effect of acquisition activity on reported results. Such information is not presented as a substitute for traditional GAAP measurements, but is provided as a supplemental enhancement to improve comparability and investor understanding. While quarterly revenue expansion from loan and deposit activity was constrained slightly, most other operating metrics in the second quarter and in the first six months of 2006 continued to demonstrate the success of Community's merger implementation. Asset quality metrics continue to reflect historically low levels of non-performing assets. Non-interest revenues jumped 17% (annualized) as compared to the levels recorded in the first quarter of 2006, largely due to the continuing integration of non-interest products from the traditional Community and Blue Ball franchises. Operating expenses remained almost constant with the first quarter of 2006, while the efficiency ratio increased slightly to 56.18% and remained well within Community's desired operating range. Community experienced comparatively slower loan growth during the second quarter than in recent quarters, as average loans grew only 4% from the first quarter (annualized). At the same time, deposits rose at a more robust annualized pace of 14% over the same period. While the modest loan growth reflected the expected impact of rising rates on loan demand, a more significant component was related to competitive pricing pressures. Community has been reluctant to extend credit maturities without a rate premium that is commensurate with the incremental interest rate risk associated with maturity extension. Adherence to a strict pricing discipline has been critical in this rate environment and helped to produce a net interest margin of 3.94%, only slightly less than the 3.98% recorded in the first quarter. Throughout the first half of 2006, funding costs have risen as Community has reduced its reliance on more volatile wholesale funding sources in favor of increased deposit balances. Unfortunately, competitive pressures have also adversely impacted the cost of retail deposits as consumers seek higher returns in a rising rate environment. This press release contains "forward-looking" information as defined by the Private Securities Litigation Reform Act of 1995, which is based on Community's current expectations, estimates and projections about future events and financial trends affecting the financial condition of its business. These statements are not historical facts or guarantees of future performance, events, or results. Such statements involve potential risks and uncertainties and, accordingly, actual performance results may differ materially. Community undertakes no obligation to publicly update or revise forward looking information, whether as a result of new, updated information, future events, or otherwise. COMMUNITY BANKS, INC. Selected Financial Information (Dollars in thousands, except per share data) (1) Three Months Ended Six Months Ended June 30, June 30, 2006 2005 2006 2005 Consolidated summary of operations: Interest income $48,938 $27,390 $95,827 $53,573 Interest expense 21,931 12,481 41,956 23,974 Net interest income 27,007 14,909 53,871 29,599 Provision for loan losses 650 750 1,150 1,300 Net interest income after provision for loan losses 26,357 14,159 52,721 28,299 Non-interest income: Investment management and trust services 1,088 531 2,101 945 Service charges on deposit accounts 2,855 2,028 5,386 3,821 Other service charges, commissions, and fees 1,903 934 3,603 1,944 Investment security gains 6 167 289 218 Insurance premium income and commissions 1,117 880 2,045 1,782 Mortgage banking activities 580 548 1,048 1,063 Earnings on investment in life insurance 675 355 1,331 754 Other 319 155 1,124 281 Total non-interest income 8,543 5,598 16,927 10,808 Non-interest expenses: Salaries and employee benefits 11,251 7,436 22,669 14,729 Net occupancy 3,386 2,199 6,898 4,424 Merger, conversion and restructuring expenses --- 7,957 --- 7,957 Marketing expense 265 466 840 911 Telecommunications expense 566 257 1,117 561 Amortization of intangibles 702 43 1,356 87 Other 4,528 2,788 8,351 5,136 Total non-interest expenses 20,698 21,146 41,231 33,805 Income before income taxes 14,202 (1,389) 28,417 5,302 Income taxes 3,698 (250) 7,344 954 Net income $10,504 $(1,139) $21,073 $4,348 Net loan charge-offs $172 $121 $327 $338 Net interest margin (FTE) 3.94% 3.46% 3.96% 3.51% Efficiency ratio (2) 56.18% 58.42% 56.07% 58.69% Return on average assets 1.24% (0.22)% 1.25% 0.44% Return on average stockholders' equity 8.95% (2.97)% 8.95% 5.73% Net operating (tangible) income (3) $10,960 $4,068 $21,954 $9,591 Operating return on average tangible assets (3)(4) 1.40% 0.80% 1.42% 0.97% Operating return on average tangible equity (3)(4) 20.59% 10.96% 20.35% 13.07% Consolidated per share data: Basic earnings per share $0.44 $(0.09) $0.88 $0.34 Diluted earnings per share $0.44 $(0.09) $0.88 $0.33 Book value at end of period $19.86 $11.82 $19.86 $11.82 Tangible book value at end of period (4) $8.91 $11.43 $8.91 $11.43 COMMUNITY BANKS, INC. Selected Financial Information (Dollars in thousands, except per share data) (1) Consolidated balance sheet data: Three Months Ended Six Months Ended June 30, June 30, 2006 2005 2006 2005 Average total loans $2,312,900 $1,265,479 $2,301,503 $1,248,451 Average earning assets 2,944,353 1,928,834 2,941,569 1,899,498 Average assets 3,391,908 2,041,618 3,387,583 2,007,704 Average tangible assets (4) 3,132,905 2,036,630 3,128,736 2,002,695 Average deposits 2,381,141 1,382,503 2,341,738 1,351,503 Average stockholders' equity 470,695 153,894 474,580 152,996 Average tangible equity (4) 213,528 148,906 217,518 147,987 Average diluted shares outstanding 23,858,000 13,240,000 24,028,000 13,216,000 6/30/2006 vs. June 30, December 31, June 30, 6/30/2005 2006 2005 2005 % Change Assets $3,385,599 $3,332,430 $1,982,732 71% Total loans 2,344,677 2,234,497 1,284,688 83% Deposits 2,406,551 2,294,367 1,382,866 74% Stockholders' equity 465,760 476,673 153,582 203% Diluted shares outstanding 23,658,000 24,360,000 13,255,000 79% Non-accrual loans $11,492 $9,060 $6,896 67% Loans renegotiated with borrowers 108 --- --- --- Foreclosed real estate 108 1,447 2,444 (96)% Total non-performing assets 11,708 10,507 9,340 25% Accruing loans 90 days past due 621 22 --- --- Total risk elements $12,329 $10,529 $9,340 32% Allowance for loan losses $23,788 $22,965 $15,383 55% Asset quality ratios: Allowance for loan losses to total loans 1.01% 1.03% 1.20% Allowance for loan losses to non-accrual loans 207% 253% 223% Non-accrual loans to total loans 0.49% 0.41% 0.54% Non-performing assets to total assets 0.35% 0.32% 0.47% (1) Per share data reflect stock splits and stock dividends. (2) The efficiency ratio does not include net securities transactions. (3) Net operating (tangible) income excludes amortization of core deposit and other intangible assets, net of applicable income tax effects. A reconciliation of net income and net operating (tangible) income appears on page 5. (4) The difference between total assets and total tangible assets, and stockholders' equity and tangible stockholders' equity, represents goodwill and core deposit and other intangibles net of applicable deferred tax balances. A reconciliation of these balances appears on page 5. COMMUNITY BANKS, INC. Selected Financial Information (Dollars in thousands, except per share data) Reconciliation of GAAP to Non-GAAP Measures (1): Three Months Ended Six Months Ended June 30, June 30, 2006 2005 2006 2005 Income statement data: Net income Net income (loss) $10,504 $(1,139) $21,073 $4,348 Amortization of core deposit and other intangible assets (1) 456 35 881 71 Merger, conversion and restructuring expenses(1) --- 5,172 --- 5,172 Net operating (tangible) income $10,960 $4,068 $21,954 $9,591 Balance sheet data: Average assets Average assets $3,391,908 $2,041,618 $3,387,583 $2,007,704 Goodwill (245,749) (3,570) (245,265) (3,570) Core deposit and other intangible assets (13,254) (1,418) (13,582) (1,439) Deferred taxes --- --- --- --- Average tangible assets $3,132,905 $2,036,630 $3,128,736 $2,002,695 Operating return on average tangible assets 1.40% 0.80% 1.42% 0.97% Average equity Average equity $470,695 $153,894 $474,580 $152,996 Goodwill (245,749) (3,570) (245,265) (3,570) Core deposit and other intangible assets (13,254) (1,418) (13,582) (1,439) Deferred taxes 1,836 --- 1,785 --- Average tangible equity $213,528 $148,906 $217,518 $147,987 Operating return on average tangible equity 20.59% 10.96% 20.35% 13.07% At end of quarter: Total assets Total assets $3,385,599 $1,982,732 $3,385,599 $1,982,732 Goodwill (245,056) (3,570) (245,056) (3,570) Core deposit and other intangible assets (13,550) (1,394) (13,550) (1,394) Deferred taxes --- --- --- --- Total tangible assets $3,126,993 $1,977,768 $3,126,993 $1,977,768 Total equity Total equity $465,760 $153,582 $465,760 $153,582 Goodwill (245,056) (3,570) (245,056) (3,570) Core deposit and other intangible assets (13,550) (1,394) (13,550) (1,394) Deferred taxes 1,800 --- 1,800 --- Total tangible equity $208,954 $148,618 $208,954 $148,618 Tangible book value at end of period $8.91 $11.43 $8.91 $11.43 (1) Net of related tax effect COMMUNITY BANKS, INC. & SUBSIDIARIES Fiscal Insight - JUNE 30, 2006 KEY RATIOS (1) 2006 2005 Second First Fourth Third Second Quarter Quarter Quarter Quarter Quarter Annual Diluted earnings (loss) per share $0.44 $0.44 $0.45 $0.42 $(0.09) $1.35 Tangible operating earnings per share (2) $0.46 $0.45 $0.47 $0.44 $0.31 $1.69 Return on average assets 1.24% 1.27% 1.31% 1.24% (0.22)% 0.96% Return on average equity 8.95% 8.96% 9.14% 8.52% (2.97)% 8.04% Operating return on average tangible assets (3) 1.40% 1.43% 1.50% 1.43% 0.80% 1.27% Operating return on average tangible equity (3) 20.59% 20.12% 20.83% 19.14% 10.96% 17.09% Net interest margin 3.94% 3.98% 3.96% 3.89% 3.46% 3.76% Non-interest income/revenues (FTE excluding security gains) 22.76% 21.93% 21.34% 21.74% 24.60% 22.57% Provision for loan losses/ average loans (annualized) 0.11% 0.09% 0.11% 0.07% 0.24% 0.13% Efficiency ratio (4) 56.18% 55.96% 55.56% 57.86% 58.42% 57.51% Non-performing assets to period-end loans 0.50% 0.52% 0.47% 0.60% 0.73% 90 day past due loans to period-end loans 0.03% 0.00% 0.00% 0.00% 0.00% Total risk elements to period-end loans 0.53% 0.52% 0.47% 0.60% 0.73% Allowance for loan losses to loans 1.01% 1.02% 1.03% 1.05% 1.20% 1.03% Allowance for loan losses to non-accrual loans 207% 231% 253% 212% 223% 253% Net charge-offs/ average loans (annualized) 0.03% 0.03% 0.07% 0.01% 0.04% 0.05% Equity to assets 13.76% 13.90% 14.30% 14.61% 7.75% 14.30% Tangible equity to assets (3) 6.68% 6.93% 7.14% 7.41% 7.51% 7.14% (1) Per share data reflect stock splits and stock dividends. (2) Net tangible operating income excludes amortization of core deposit and other intangible assets, and merger, conversion and restructuring expenses, net of applicable income tax effects. A reconciliation of net income and net tangible operating income appears on page 19. (3) The difference between total assets and total tangible assets, and stockholders' equity and tangible stockholders' equity, represents goodwill and core deposit and other intangibles net of applicable deferred tax balances. A reconciliation of these balances appears on page 19. (4) The efficiency ratio does not include merger, conversion and restructuring expenses or net securities transactions. COMMUNITY BANKS, INC. & SUBSIDIARIES Fiscal Insight - JUNE 30, 2006 PER SHARE STATISTICS * Diluted Earnings (Loss) per Share Fourth Third Second First Quarter Quarter Quarter Quarter Total 2006 $0.44 $0.44 $0.88 2005 $0.45 $0.42 $(0.09) $0.42 $1.35 2004 $0.42 $0.43 $0.41 $0.39 $1.65 Average Diluted Shares Outstanding (in thousands) Fourth Third Second First Average Quarter Quarter Quarter Quarter for Year 2006 23,858 24,212 24,028 2005 24,421 24,750 13,240 13,192 18,975 2004 13,180 13,134 13,216 13,286 13,204 Book Value per Share Fourth Third Second First Quarter Quarter Quarter Quarter 2006 $19.86 $19.96 2005 $19.81 $19.83 $11.82 $11.74 2004 $11.86 $11.68 $10.62 $11.68 Tangible Book Value per Share Fourth Third Second First Quarter Quarter Quarter Quarter 2006 $8.91 $9.19 2005 $9.12 $9.26 $11.43 $11.35 2004 $11.46 $11.28 $10.23 $11.31 * Per share data reflect stock splits and stock dividends COMMUNITY BANKS, INC. & SUBSIDIARIES Fiscal Insight - JUNE 30, 2006 QUARTER END INFORMATION (dollars in thousands) 2006 2005 Second First Fourth Third Second Quarter Quarter Quarter Quarter Quarter Loans, net $2,320,889 $2,260,304 $2,211,532 $2,142,657 $1,269,305 Earning assets 2,922,356 2,960,648 2,869,978 2,842,809 1,863,027 Goodwill and other intangible assets 259,886 258,359 259,080 258,057 4,964 Total assets 3,385,599 3,421,562 3,332,430 3,291,232 1,982,732 Deposits 2,406,551 2,373,865 2,294,367 2,244,791 1,382,866 Long-term debt 363,816 443,275 430,719 457,728 356,210 Subordinated debt 51,548 51,548 30,928 30,928 30,928 Total shareholder's equity 465,760 475,587 476,673 480,960 153,582 Accumulated other comprehensive income (loss) (net of tax) (10,107) (4,368) (3,779) 1,381 1,559 COMMUNITY BANKS, INC. & SUBSIDIARIES Fiscal Insight - JUNE 30, 2006 CONDENSED CONSOLIDATED QUARTERLY AVERAGE STATEMENTS OF CONDITION (dollars in thousands) 2006 2005 Second First Fourth Third Second Quarter Quarter Quarter Quarter Quarter Assets Earning Assets: Loans $2,312,900 $2,289,871 $2,199,834 $2,138,081 $1,265,479 Federal funds sold and other 53,872 34,885 35,447 102,295 80,109 Taxable investment securities 357,029 380,908 395,480 406,654 368,637 Tax-exempt investment securities 220,552 232,983 234,776 226,125 214,609 Total earning assets 2,944,353 2,938,647 2,865,537 2,873,155 1,928,834 Cash and due from banks 59,461 59,253 65,271 59,404 36,964 Allowance for loan losses (23,882) (23,172) (22,976) (22,778) (15,189) Goodwill and other intangible assets 259,003 258,689 257,797 254,648 4,988 Premises, equipment and other assets 152,973 149,794 148,321 152,031 86,021 Total assets $3,391,908 $3,383,211 $3,313,950 $3,316,460 $2,041,618 Liabilities and equity Interest-bearing liabilities: Deposits Savings and NOW accounts $820,265 $826,742 $848,320 $850,801 $526,821 Time 981,371 900,698 869,096 865,136 537,585 Time deposits greater than $100,000 228,931 200,821 186,514 175,634 128,052 Short-term borrowings 57,903 68,524 72,606 56,948 36,687 Long-term debt 405,705 467,010 447,532 476,602 424,105 Subordinated debt 51,548 44,674 30,928 30,928 30,928 Total interest- bearing liabilities 2,545,723 2,508,469 2,454,996 2,456,049 1,684,178 Noninterest- bearing deposits 350,574 373,637 358,822 356,733 190,045 Other liabilities 24,916 22,598 24,618 22,493 13,501 Total liabilities 2,921,213 2,904,704 2,838,436 2,835,275 1,887,724 Stockholders' equity 470,695 478,507 475,514 481,185 153,894 Total liabilities and stockholders' equity $3,391,908 $3,383,211 $3,313,950 $3,316,460 $2,041,618 CHANGE IN AVERAGE BALANCES* 2006 2005 Second First Fourth Third Second Quarter Quarter Quarter Quarter Quarter Loans 82.8% 86.0% 83.1% 81.9% 11.2% Total assets 66.1% 70.6% 69.3% 69.4% 4.1% Deposits 72.2% 73.5% 73.4% 71.2% 4.5% Stockholders' equity 205.9% 206.0% 213.8% 239.3% 8.1% * Compares the current quarter to the comparable quarterof the prior year COMMUNITY BANKS, INC. & SUBSIDIARIES Fiscal Insight - JUNE 30, 2006 CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS) (dollars in thousands) 2006 2005 Second First Fourth Third Second Quarter Quarter Quarter Quarter Quarter Annual Interest income $48,938 $46,889 $45,242 $43,478 $27,390 $142,293 Tax equivalent adjustment 1,910 1,978 1,922 1,811 1,741 7,163 50,848 48,867 47,164 45,289 29,131 149,456 Interest expense 21,931 20,025 18,593 17,081 12,481 59,648 Net interest income 28,917 28,842 28,571 28,208 16,650 89,808 Provision for loan losses 650 500 600 400 750 2,300 Net interest income after provision 28,267 28,342 27,971 27,808 15,900 87,508 Non-interest income 7,957 7,633 7,120 7,177 4,883 23,824 Investment security gains income 6 283 12 29 167 259 Mortgage banking activities income 580 468 631 660 548 2,354 Non-interest expenses 20,698 20,533 20,180 20,836 13,189 66,864 Merger, conversion and restructuring expenses --- --- --- 248 7,957 8,205 Income before income taxes 16,112 16,193 15,554 14,590 352 38,876 Income taxes 3,698 3,646 2,671 2,447 (250) 6,072 Tax equivalent adjustment 1,910 1,978 1,922 1,811 1,741 7,163 NET INCOME (LOSS) $10,504 $10,569 $10,961 $10,332 $(1,139) $25,641 Tax effect of security transactions $2 $99 $4 $10 $58 $91 COMMUNITY BANKS, INC. & SUBSIDIARIES Fiscal Insight - JUNE 30, 2006 ANALYSIS OF NON-INTEREST INCOME (dollars in thousands) 2006 2005 Second First Fourth Third Second Quarter Quarter Quarter Quarter Quarter Annual Investment management and trust services $1,088 $1,013 $951 $796 $531 $2,692 Service charges on deposit accounts 2,855 2,531 2,793 2,799 2,028 9,413 Other service charges, commissions and fees 1,903 1,700 1,689 1,819 934 5,452 Insurance premium income and commissions 1,117 928 743 825 880 3,350 Earnings on investment in life insurance 675 656 650 659 355 2,063 Other income 319 805 294 279 155 854 Total non-interest income $7,957 $7,633 $7,120 $7,177 $4,883 $23,824 ANALYSIS OF NON-INTEREST EXPENSES (dollars in thousands) 2006 2005 Second First Fourth Third Second Quarter Quarter Quarter Quarter Quarter Annual Salaries and employee benefits $11,251 $11,418 $10,461 $11,808 $7,436 $36,998 Net occupancy expense 3,386 3,512 3,567 3,364 2,199 11,355 Marketing expense 265 575 597 528 466 2,036 Telecommuni- cations expense 566 551 489 309 257 1,359 Amortization of intangibles 702 654 696 641 43 1,424 Other operating expenses 4,528 3,823 4,370 4,186 2,788 13,692 Total non- interest expenses $20,698 $20,533 $20,180 $20,836 $13,189 $66,864 COMMUNITY BANKS, INC. & SUBSIDIARIES Fiscal Insight - JUNE 30, 2006 RISK ELEMENTS ANALYSIS (dollars in thousands) 2006 2005 Second First Fourth Third Second Quarter Quarter Quarter Quarter Quarter Non-performing assets: Non-accrual loans $11,492 $10,102 $9,060 $10,736 $6,896 Loans renegotiated with borrowers 108 110 --- --- --- Foreclosed real estate 108 1,728 1,447 2,273 2,444 Total non- performing assets 11,708 11,940 10,507 13,009 9,340 Accruing loans 90 days or more past due 621 29 22 7 --- Total risk elements $12,329 $11,969 $10,529 $13,016 $9,340 Non-performing assets to period- end loans 0.50% 0.52% 0.47% 0.60% 0.73% 90 day past due loans to period- end loans 0.03% 0.00% 0.00% 0.00% 0.00% Total risk elements to period- end loans 0.53% 0.52% 0.47% 0.60% 0.73% COMMUNITY BANKS, INC. & SUBSIDIARIES Fiscal Insight - JUNE 30, 2006 ALLOWANCE FOR LOAN LOSSES (dollars in thousands) 2006 2005 Second First Fourth Third Second Quarter Quarter Quarter Quarter Quarter Balance at beginning of period $23,310 $22,965 $22,773 $15,383 $14,754 Loans charged off (342) (313) (1,153) (271) (439) Recoveries 170 158 745 193 318 Net loans charged off (172) (155) (408) (78) (121) Provision for loan losses 650 500 600 400 750 Allowance established for acquired credit risk --- --- --- 7,068 --- Balance at end of period $23,788 $23,310 $22,965 $22,773 $15,383 Net loans charged- off to average loans* 0.03% 0.03% 0.07% 0.01% 0.04% Provision for loan losses to average loans* 0.11% 0.09% 0.11% 0.07% 0.24% Allowance for loan losses to loans 1.01% 1.02% 1.03% 1.05% 1.20% *Annualized COMMUNITY BANKS, INC. & SUBSIDIARIES Fiscal Insight - JUNE 30, 2006 OTHER RATIOS 2006 2005 Second First Fourth Third Second Quarter Quarter Quarter Quarter Quarter Investment portfolio - fair value to amortized cost 97.88% 99.4% 99.6% 100.9% 101.1% Dividend payout ratio 45.08% 43.0% 41.8% 42.7% NR* Net loans to deposits ratio, average 96.13% 98.3% 96.2% 94.1% 90.4% MARKET PRICE AND DIVIDENDS DECLARED ** Closing Bid Price Range Dividends Year / Quarter High Low Declared 2006 First $27.85 $25.67 $0.1905 Second $27.39 $24.38 $0.2000 Third Fourth $0.3905 2005 First $27.15 $22.57 $0.1619 Second $25.24 $21.94 $0.1810 Third $27.48 $25.39 $0.1810 Fourth $28.42 $23.90 $0.1905 $0.7144 2004 First $32.88 $27.06 $0.1542 Second $30.08 $25.73 $0.1619 Third $28.31 $24.14 $0.1619 Fourth $29.97 $27.40 $0.1619 $0.6399 * Not relevant ** Per share data reflect stock splits and dividends COMMUNITY BANKS, INC. & SUBSIDIARIES Fiscal Insight - JUNE 30, 2006 NET INTEREST MARGIN - YEAR-TO-DATE (dollars in thousands) June 30, 2006 June 30, 2005 FTE Average FTE Average Interest Rate Interest Rate Average Income/ Earned/ Average Income/ Earned/ Balance Expense Paid Balance Expense Paid Federal funds sold and interest- bearing deposits in banks $44,431 $1,036 4.70% $51,157 $734 2.89% Investment securities 595,635 17,523 5.93% 598,051 16,589 5.59% Loans - commercial 817,901 31,161 7.68% 429,149 13,444 6.32% - commercial real estate 808,350 27,931 6.97% 366,943 11,481 6.31% - residential real estate 151,960 4,569 6.06% 90,247 2,971 6.64% - consumer 523,292 17,495 6.74% 363,951 11,784 6.53% Total earning assets $2,941,569 $99,715 6.84% $1,899,498 $57,003 6.05% Deposits - savings and NOW accounts $823,485 $7,394 1.81% $514,316 $3,033 1.19% - time 1,156,211 21,811 3.80% 653,761 9,928 3.06% Short-term borrowings 63,184 1,341 4.28% 33,958 357 2.12% Long-term debt 436,188 9,675 4.47% 455,570 9,702 4.29% Subordinated debt 48,130 1,735 7.27% 30,928 954 6.22% Total interest- bearing liabilities $2,527,198 $41,956 3.35% $1,688,533 $23,974 2.86% Interest income to earning assets 6.84% 6.05% Interest expense to paying liabilities 3.35% 2.86% Interest spread 3.49% 3.19% Impact of noninterest funds 0.47% 0.32% Net interest margin $57,759 3.96% $33,029 3.51% COMMUNITY BANKS, INC. & SUBSIDIARIES Fiscal Insight - JUNE 30, 2006 NET INTEREST MARGIN - QUARTER-TO-DATE (dollars in thousands) June 30, 2006 June 30, 2005 FTE Average FTE Average Interest Rate Interest Rate Average Income/ Earned/ Average Income/ Earned/ Balance Expense Paid Balance Expense Paid Federal funds sold and interest- bearing deposits in banks $53,872 $643 4.79% $78,196 $583 2.99% Investment securities 577,581 8,622 5.99% 583,246 8,235 5.66% Loans - commercial 827,586 16,016 7.76% 438,396 6,968 6.38% - commercial real estate 817,099 14,326 7.03% 371,725 5,888 6.35% - residential real estate 150,653 2,272 6.05% 89,164 1,470 6.61% - consumer 517,562 8,969 6.95% 368,107 5,987 6.52% Total earning assets $2,944,353 $50,848 6.93% $1,928,834 $29,131 6.06% Deposits - savings and NOW accounts $820,265 $3,893 1.90% $526,821 $1,720 1.31% - time 1,210,302 11,891 3.94% 665,637 5,181 3.12% Short-term borrowings 57,903 645 4.47% 36,687 200 2.19% Long-term debt 405,705 4,564 4.51% 424,105 4,885 4.62% Subordinated debt 51,548 938 7.30% 30,928 495 6.42% Total interest- bearing liabilities $2,545,723 $21,931 3.46% $1,684,178 $12,481 2.97% Interest income to earning assets 6.93% 6.06% Interest expense to paying liabilities 3.46% 2.97% Interest spread 3.47% 3.09% Impact of noninterest funds 0.47% 0.37% Net interest margin $28,917 3.94% $16,650 3.46% COMMUNITY BANKS, INC. & SUBSIDIARIES Fiscal Insight - JUNE 30, 2006 NET INTEREST MARGIN - QUARTER-TO-DATE (dollars in thousands) June 30, 2006 March 31, 2006 FTE Average FTE Average Interest Rate Interest Rate Average Income/ Earned/ Average Income/ Earned/ Balance Expense Paid Balance Expense Paid Federal funds sold and interest- bearing deposits in banks $53,872 $643 4.79% $34,885 $393 4.57% Investment securities 577,581 8,622 5.99% 613,891 8,901 5.88% Loans - commercial 827,586 16,016 7.76% 808,108 15,145 7.60% - commercial real estate 817,099 14,326 7.03% 799,505 13,605 6.90% - residential real estate 150,653 2,272 6.05% 153,282 2,297 6.08% - consumer 517,562 8,969 6.95% 528,976 8,526 6.54% Total earning assets $2,944,353 $50,848 6.93% $2,938,647 $48,867 6.74% Deposits - savings and NOW accounts $820,265 $3,893 1.90% $826,742 $3,501 1.72% - time 1,210,302 11,891 3.94% 1,101,519 9,920 3.65% Short-term borrowings 57,903 645 4.47% 68,524 696 4.12% Long-term debt 405,705 4,564 4.51% 467,010 5,111 4.44% Subordinated debt 51,548 938 7.30% 44,674 797 7.24% Total interest- bearing liabilities $2,545,723 $21,931 3.46% $2,508,469 $20,025 3.24% Interest income to earning assets 6.93% 6.74% Interest expense to paying liabilities 3.46% 3.24% Interest spread 3.47% 3.50% Impact of noninterest funds 0.47% 0.48% Net interest margin $28,917 3.94% $28,842 3.98% COMMUNITY BANKS, INC. & SUBSIDIARIES Fiscal Insight - JUNE 30, 2006 PERIOD-END LOAN PORTFOLIO ANALYSIS (dollars in thousands) 2006 2005 Second First Fourth Third Second Quarter Quarter Quarter Quarter Quarter Commercial: Commercial $763,637 $747,954 $723,248 $706,475 $392,101 Obligations of political subdivisions 76,408 75,449 59,698 53,881 54,241 Total commercial 840,045 823,403 782,946 760,356 446,342 Commercial real estate: Commercial mortgages $834,345 $805,120 $793,969 $737,432 $374,202 Residential real estate: Residential mortgages $144,590 $146,360 $149,525 $150,596 $81,115 Construction 5,770 5,136 4,532 26,437 5,846 Total residential real estate 150,360 151,496 154,057 177,033 86,961 Consumer: Home equity loans $282,777 $262,835 $252,080 $236,363 $229,946 Home equity lines of credit 103,216 105,933 113,133 120,080 56,603 Indirect consumer loans 67,786 66,344 63,644 62,471 57,931 Other consumer loans 66,148 68,483 74,668 71,695 32,703 Total consumer 519,927 503,595 503,525 490,609 377,183 Total loans $2,344,677 $2,283,614 $2,234,497 $2,165,430 $1,284,688 COMMUNITY BANKS, INC. & SUBSIDIARIES Fiscal Insight - JUNE 30, 2006 Reconciliation of GAAP to Non-GAAP Measures (1): (in thousands, except per share data) 2006 Second First Quarter Quarter Income statement data: Net income (loss) Net income (loss) $10,504 $10,569 Amortization of core deposit and other intangible assets (2) 456 425 Merger, conversion and restructuring expenses (2) --- --- Net operating (tangible) income $10,960 $10,994 Earnings (loss) per share Diluted earnings (loss) per common share $0.44 $0.44 Amortization of core deposit and other intangible assets (2) 0.02 0.01 Merger, conversion and restructuring expenses (2) --- --- Diluted operating (tangible) earnings per share $0.46 $0.45 Balance sheet data: Average assets Average assets $3,391,908 $3,383,211 Goodwill (245,749) (244,775) Core deposit and other intangible assets (13,254) (13,914) Average tangible assets $3,132,905 $3,124,522 Operating return on average tangible assets 1.40% 1.43% Average equity Average equity $470,695 $478,507 Goodwill (245,749) (244,775) Core deposit and other intangible assets (13,254) (13,914) Deferred taxes 1,836 1,734 Average tangible equity $213,528 $221,552 Operating return on average tangible equity 20.59% 20.12% At end of quarter: Total assets Total assets $3,385,599 $3,421,562 Goodwill (245,056) (244,760) Core deposit and other intangible assets (13,550) (13,599) Total tangible assets $3,126,993 $3,163,203 Total equity Total equity $465,760 $475,587 Goodwill (245,056) (244,760) Core deposit and other intangible assets (13,550) (13,599) Deferred taxes 1,800 1,854 Total tangible equity $208,954 $219,082 Tangible book value at end of period $8.91 $9.19 Tangible equity to assets 6.68% 6.93% (1) Per share data reflect stock splits and stock dividends (2) Net of related tax effect 2005 Fourth Third Second Quarter Quarter Quarter Annual Income statement data: Net income (loss) Net income (loss) $10,961 $10,332 $(1,139) $25,641 Amortization of core deposit and other intangible assets (2) 564 519 35 1,153 Merger, conversion and restructuring expenses (2) --- 161 5,172 5,333 Net operating (tangible) income $11,525 $11,012 $4,068 $32,127 Earnings (loss) per share Diluted earnings (loss) per common share $0.45 $0.42 $(0.09) $1.35 Amortization of core deposit and other intangible assets (2) 0.02 0.02 --- 0.06 Merger, conversion and restructuring expenses (2) --- --- 0.40 0.28 Diluted operating (tangible) earnings per share $0.47 $0.44 $0.31 $1.69 Balance sheet data: Average assets Average assets $3,313,950 $3,316,460 $2,041,618 $2,668,605 Goodwill (243,203) (239,395) (3,570) (123,412) Core deposit and other intangible assets (14,594) (15,252) (1,418) (8,236) Average tangible assets $3,056,153 $3,061,813 $2,036,630 $2,536,957 Operating return on average tangible assets 1.50% 1.43% 0.80% 1.27% Average equity Average equity $475,514 $481,185 $153,894 $318,768 Goodwill (243,203) (239,395) (3,570) (123,412) Core deposit and other intangible assets (14,594) (15,252) (1,418) (8,236) Deferred taxes 1,742 1,677 --- 862 Average tangible equity $219,459 $228,215 $148,906 $187,982 Operating return on average tangible equity 20.83% 19.14% 10.96% 17.09% At end of quarter: Total assets Total assets $3,332,430 $3,291,232 $1,982,732 $3,332,430 Goodwill (244,827) (243,107) (3,570) (244,827) Core deposit and other intangible assets (14,253) (14,951) (1,394) (14,253) Total tangible assets $3,073,350 $3,033,174 $1,977,768 $3,073,350 Total equity Total equity $476,673 $480,960 $153,582 $476,673 Goodwill (244,827) (243,107) (3,570) (244,827) Core deposit and other intangible assets (14,253) (14,951) (1,394) (14,253) Deferred taxes 1,734 1,746 --- 1,734 Total tangible equity $219,327 $224,648 $148,618 $219,327 Tangible book value at end of period $9.12 $9.26 $11.43 $9.12 Tangible equity to assets 7.14% 7.41% 7.51% 7.14% (1) Per share data reflect stock splits and stock dividends (2) Net of related tax effect DATASOURCE: Community Banks, Inc. CONTACT: Donald F. Holt, EVP/CFO of Community Banks, +1-717-920-5801, or fax, +1-717-920-1683 Web site: http://www.communitybanks.com/

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