CMTY Community Bks Millersbur (MM)

HARRISBURG, Pa., Oct. 18 /PRNewswire-FirstCall/ -- Community Banks, Inc. ("Community") (NASDAQ:CMTY) today reported third quarter net income of $10.6 million, which resulted in per share earnings of $0.45. Despite interest rate trends that have constrained top-line revenue growth, third quarter 2006 performance reflected a solid 7% improvement over the same period a year ago. Year-to-date earnings per share for 2006 grew to $1.32, a substantial 53% increase over the $0.86 recorded in 2005. Results in 2005 had been adversely affected by $8 million in pre-tax merger, conversion, and restructuring expenses that were recorded leading to the consummation of its mid-year merger with Blue Ball Bank. On July 1, 2005, Community completed its acquisition of its Blue Ball affiliate, the largest merger in its history, and post-merger results have consistently reflected the successful integration of that franchise. Moreover, the addition of Blue Ball has helped to facilitate Community's transformation into a more robust and strategic provider of financial services in its core mid-Atlantic market. During the third quarter of 2006, Community announced two additional, important banking partners when it revealed its plans to acquire East Prospect State Bank and BUCS Financial Corp. These two combinations are expected to be completed in early 2007 and will bolster Community's position in the vibrant York County, Pennsylvania, market and provide an important market extension into the desirable, adjacent Central Maryland region. Community's current operating footprint, which 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. With the addition of the two new partners announced in this most recent quarter, Community will reach $3.7 billion in pro-forma assets and a total of 78 offices after consummation. "We are realistic about the challenging conditions that are facing the banking industry, particularly the lingering presence of a flat yield curve throughout most of 2006. At the same time, we remain optimistic about our ability to navigate through these unusual times," commented Eddie L. Dunklebarger, President and CEO of Community. "We believe that we are building a company that has the ability to weather the influence of a flat yield curve and other short-term, external hurdles, and we remain encouraged that our new merger partners share our enthusiasm for the future of our franchise." Quarter-over-quarter comparisons of third quarter operating and growth performance from 2005 to 2006 have become more relevant in this most recent quarter because both current and year-ago periods were inclusive of operations of the Blue Ball affiliate. Relevant operating measures included the 7% increase in earnings per share, a 12% increase in non-interest income and an increase of less than 2% in operating expenses. Compression in net interest margin and flat net interest income performance can be attributed to the influences of both yield curve trends and less robust asset growth. Quarter-over-quarter loan and deposit growth were strong, reaching 9% and 8%, respectively, between the third quarters of 2006 and 2005. However, earning asset and loan growth trends in more recent quarters, including linked-quarter comparisons during 2006, reflected a modest slowdown in economic activity that suggests additional challenges for the rest of 2006 and into 2007. Throughout 2006, the pace of earnings improvement has been constrained by a series of interest rate hikes by the Federal Reserve Bank that has restricted top-line 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 top-line 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. Despite the ongoing revenue challenges, results for the first nine months of 2006 continue to reflect records for both net income and earnings per share performance, at $31.6 million and $1.32 per share, respectively. These results translated into an operating return on average tangible assets of 1.41% and an operating return on average tangible equity of 20.34%. 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 growth rates from loan and deposit activity was modestly curtailed, most other operating metrics continued to demonstrate the success of Community's operating philosophy. While recent loan growth trends reflected the expected impact of rising rates on loan demand, an additional 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 third quarter net interest margin of 3.90%, only slightly less than the 3.94% recorded in the second quarter. Throughout most 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. Fortunately, asset quality trends continued to reflect historically low non-performing assets, combined with stable problem credit coverage and loan loss reserve levels. 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 Nine Months Ended September 30, September 30, 2006 2005 2006 2005 Consolidated summary of operations: Interest income $50,443 $43,478 $146,270 $97,051 Interest expense 23,505 17,081 65,461 41,055 Net interest income 26,938 26,397 80,809 55,996 Provision for loan losses 250 400 1,400 1,700 Net interest income after provision for loan losses 26,688 25,997 79,409 54,296 Non-interest income: Investment management and trust services 968 796 3,069 1,741 Service charges on deposit accounts 3,037 2,799 8,423 6,620 Other service charges, commissions, and fees 1,817 1,819 5,420 3,763 Investment security gains 28 29 317 247 Insurance premium income and commissions 1,053 825 3,098 2,607 Mortgage banking activities 533 660 1,581 1,723 Earnings on investment in life insurance 679 659 2,010 1,413 Other 725 279 1,849 560 Total non-interest income 8,840 7,866 25,767 18,674 Non-interest expenses: Salaries and employee benefits 11,611 11,808 34,280 26,537 Net occupancy 3,452 3,364 10,350 7,788 Merger, conversion and restructuring expenses --- 248 --- 8,205 Marketing expense 354 528 1,194 1,439 Telecommunications expense 542 309 1,659 870 Amortization of intangibles 659 641 2,015 728 Other 4,554 4,186 12,905 9,322 Total non-interest expenses 21,172 21,084 62,403 54,889 Income before income taxes 14,356 12,779 42,773 18,081 Income taxes 3,798 2,447 11,142 3,401 Net income $10,558 $10,332 $31,631 $14,680 Net loan charge-offs $4 $78 $331 $416 Net interest margin (FTE) 3.90% 3.89% 3.94% 3.67% Efficiency ratio(2) 56.25% 57.86% 56.12% 58.31% Return on average assets 1.24% 1.24% 1.25% 0.80% Return on average stockholders' equity 8.88% 8.52% 8.93% 7.38% Net operating (tangible) income(3) $10,986 $11,012 $32,940 $20,603 Operating return on average tangible assets(3)(4) 1.39% 1.43% 1.41% 1.17% Operating return on average tangible equity(3)(4) 20.31% 19.14% 20.34% 15.53% Consolidated per share data: Basic earnings per share $0.45 $0.42 $1.34 $0.87 Diluted earnings per share $0.45 $0.42 $1.32 $0.86 Book value at end of period $20.43 $19.83 $20.43 $19.83 Tangible book value at end of period(4) $9.45 $9.26 $9.45 $9.26 COMMUNITY BANKS, INC. Selected Financial Information (Dollars in thousands, except per share data)(1) Consolidated balance sheet data: Three Months Ended Nine Months Ended September 30, September 30, 2006 2005 2006 2005 Average total loans $2,339,352 $2,140,930 $2,314,257 $1,550,630 Average earning assets 2,935,448 2,873,155 2,939,506 2,227,647 Average assets 3,385,905 3,316,460 3,387,018 2,451,131 Average tangible assets(4) 3,126,882 3,061,813 3,128,116 2,361,995 Average deposits 2,438,057 2,248,304 2,374,197 1,653,722 Average stockholders' equity 471,911 481,185 473,680 265,945 Average tangible equity(4) 214,643 228,215 216,553 177,374 Average diluted shares outstanding 23,662,529 23,571,820 23,925,653 16,338,236 9/30/2006 vs. September 30, December 31, September 30, 9/30/2005 2006 2005 2005 % Change Assets $3,431,208 $3,332,430 $3,291,232 4% Total loans 2,348,159 2,237,065 2,168,374 8% Deposits 2,483,519 2,294,367 2,244,791 11% Stockholders' equity 479,584 476,673 480,960 --- Diluted shares outstanding 23,682,673 24,359,519 24,575,398 (4)% Non-accrual loans $11,626 $9,060 $10,736 8% Foreclosed real estate 52 1,447 2,273 (98)% Total non-performing assets 11,678 10,507 13,009 (10)% Accruing loans 90 days past due 685 22 7 n/a Total risk elements $12,363 $10,529 $13,016 (5)% Allowance for loan losses $24,034 $22,965 $22,773 6% Asset quality ratios: Allowance for loan losses to total loans 1.02% 1.03% 1.05% Allowance for loan losses to non-accrual loans 207% 253% 212% Non-accrual loans to total loans 0.50% 0.41% 0.50% Non-performing assets to total assets 0.34% 0.32% 0.40% (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 Nine Months Ended September 30, September 30, 2006 2005 2006 2005 Income statement data: Net income Net income (loss) $10,558 $10,332 $31,631 $14,680 Amortization of core deposit and other intangible assets(1) 428 519 1,309 590 Merger, conversion and restructuring expenses(1) --- 161 --- 5,333 Net operating (tangible) income $10,986 $11,012 $32,940 $20,603 Balance sheet data: Average assets Average assets $3,385,905 $3,316,460 $3,387,018 $2,451,131 Goodwill (245,794) (239,395) (245,439) (83,043) Core deposit and other intangible assets (13,229) (15,252) (13,463) (6,093) Average tangible assets $3,126,882 $3,061,813 $3,128,116 $2,361,995 Operating return on average tangible assets 1.39% 1.43% 1.41% 1.17% Average equity Average equity $471,911 $481,185 $473,680 $265,945 Goodwill (245,794) (239,395) (245,439) (83,043) Core deposit and other intangible assets (13,229) (15,252) (13,463) (6,093) Deferred taxes 1,755 1,677 1,775 565 Average tangible equity $214,643 $228,215 $216,553 $177,374 Operating return on average tangible equity 20.31% 19.14% 20.34% 15.53% At end of quarter: Total assets Total assets $3,431,208 $3,291,232 $3,431,208 $3,291,232 Goodwill (245,864) (243,107) (245,864) (243,107) Core deposit and other intangible assets (13,641) (14,951) (13,641) (14,951) Total tangible assets $3,171,703 $3,033,174 $3,171,703 $3,033,174 Total equity Total equity $479,584 $480,960 $479,584 $480,960 Goodwill (245,864) (243,107) (245,864) (243,107) Core deposit and other intangible assets (13,641) (14,951) (13,641) (14,951) Deferred taxes 1,698 1,746 1,698 1,746 Total tangible equity $221,777 $224,648 $221,777 $224,648 Tangible book value at end of period $9.45 $9.26 $9.45 $9.26 (1) Net of related tax effect COMMUNITY BANKS, INC. & SUBSIDIARIES Fiscal Insight - SEPTEMBER 30, 2006 KEY RATIOS(1) 2006 2005 Third Second First Fourth Third Quarter Quarter Quarter Quarter Quarter Annual Diluted earnings (loss) per share $0.45 $0.44 $0.44 $0.45 $0.42 $1.35 Tangible operating earnings per share(2) $0.46 $0.46 $0.45 $0.47 $0.44 $1.69 Return on average assets 1.24% 1.24% 1.27% 1.31% 1.24% 0.96% Return on average equity 8.88% 8.95% 8.96% 9.14% 8.52% 8.04% Operating return on average tangible assets(3) 1.39% 1.40% 1.43% 1.50% 1.43% 1.27% Operating return on average tangible equity(3) 20.31% 20.59% 20.12% 20.83% 19.14% 17.09% Net interest margin 3.90% 3.94% 3.98% 3.96% 3.89% 3.76% Non-interest income/revenues (FTE excluding security gains) 23.40% 22.76% 21.93% 21.34% 21.74% 22.57% Provision for loan losses/average loans (annualized) 0.04% 0.11% 0.09% 0.11% 0.07% 0.13% Efficiency ratio(4) 56.25% 56.18% 55.96% 55.56% 57.86% 57.51% Non-performing assets to period-end loans 0.50% 0.50% 0.52% 0.47% 0.60% 90 day past due loans to period-end loans 0.03% 0.03% 0.00% 0.00% 0.00% Total risk elements to period-end loans 0.53% 0.53% 0.52% 0.47% 0.60% Allowance for loan losses to loans 1.02% 1.01% 1.02% 1.03% 1.05% 1.03% Allowance for loan losses to non-accrual loans 207% 207% 231% 253% 212% 253% Net charge-offs/ average loans (annualized) 0.00% 0.03% 0.03% 0.07% 0.01% 0.05% Equity to assets 13.98% 13.76% 13.90% 14.30% 14.61% 14.30% Tangible equity to assets(3) 6.99% 6.68% 6.93% 7.14% 7.41% 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 - SEPTEMBER 30, 2006 PER SHARE STATISTICS* Diluted Earnings (Loss) per Share Fourth Third Second First Quarter Quarter Quarter Quarter Total 2006 $0.45 $0.44 $0.44 $1.32 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 for Quarter Quarter Quarter Quarter Year 2006 23,663 23,858 24,212 23,926 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 $20.43 $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 $9.45 $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 - SEPTEMBER 30, 2006 QUARTER END INFORMATION (dollars in thousands) 2006 2005 Third Second First Fourth Third Quarter Quarter Quarter Quarter Quarter Total loans $2,348,159 $2,344,677 $2,286,820 $2,237,065 $2,168,374 Allowance for loan losses (24,034) (23,788) (23,310) (22,965) (22,773) Loans, net 2,324,125 2,320,889 2,263,510 2,214,100 2,145,601 Earning assets 2,971,391 2,922,356 2,960,648 2,869,978 2,842,809 Goodwill and other intangible assets 259,505 258,606 258,359 259,080 258,057 Total assets 3,431,208 3,385,599 3,421,562 3,332,430 3,291,232 Deposits 2,483,519 2,406,551 2,373,865 2,294,367 2,244,791 Long-term debt 336,954 363,816 443,275 430,719 457,728 Subordinated debt 51,548 51,548 51,548 30,928 30,928 Total shareholders' equity 479,584 465,760 475,587 476,673 480,960 Accumulated other comprehensive income (loss) (net of tax) (2,670) (10,107) (4,368) (3,779) 1,381 COMMUNITY BANKS, INC. & SUBSIDIARIES Fiscal Insight - SEPTEMBER 30, 2006 CONDENSED CONSOLIDATED QUARTERLY AVERAGE STATEMENTS OF CONDITION (dollars in thousands) 2006 2005 Third Second First Fourth Third Quarter Quarter Quarter Quarter Quarter Assets Earning Assets: Loans $2,339,352 $2,312,900 $2,289,979 $2,202,771 $2,140,930 Federal funds sold and other 29,324 53,872 34,777 32,510 99,446 Investment securities 566,772 577,581 613,891 630,256 632,779 Total earning assets 2,935,448 2,944,353 2,938,647 2,865,537 2,873,155 Cash and due from banks 62,636 59,461 59,253 65,271 59,404 Allowance for loan losses (24,385) (23,882) (23,172) (22,976) (22,778) Goodwill and other intangible assets 259,023 259,003 258,689 257,797 254,648 Premises, equipment and other assets 153,183 152,973 149,794 148,321 152,031 Total assets $3,385,905 $3,391,908 $3,383,211 $3,313,950 $3,316,460 Liabilities and equity Interest-bearing liabilities: Deposits Savings and NOW accounts $873,670 $820,265 $826,742 $848,320 $850,801 Time 984,415 981,371 900,698 869,096 865,136 Time deposits greater than $100,000 235,264 228,931 200,821 186,514 175,634 Short-term borrowings 60,680 57,903 68,524 72,606 56,948 Long-term debt 340,162 405,705 467,010 447,532 476,602 Subordinated debt 51,548 51,548 44,674 30,928 30,928 Total interest- bearing liabilities 2,545,739 2,545,723 2,508,469 2,454,996 2,456,049 Noninterest- bearing deposits 344,708 350,574 373,637 358,822 356,733 Other liabilities 23,547 24,916 22,598 24,618 22,493 Total liabilities 2,913,994 2,921,213 2,904,704 2,838,436 2,835,275 Stockholders' equity 471,911 470,695 478,507 475,514 481,185 Total liabilities and stockholders' equity $3,385,905 $3,391,908 $3,383,211 $3,313,950 $3,316,460 CHANGE IN AVERAGE BALANCES* 2006 2005 Third Second First Fourth Third Quarter Quarter Quarter Quarter Quarter Loans 9.3% 82.8% 86.0% 83.1% 81.9% Total assets 2.1% 66.1% 70.6% 69.3% 69.4% Deposits 8.4% 72.2% 73.5% 73.4% 71.2% Stockholders' equity (1.9)% 205.9% 206.0% 213.8% 239.3% * Compares the current quarter to the comparable quarter of the prior year COMMUNITY BANKS, INC. & SUBSIDIARIES Fiscal Insight - SEPTEMBER 30, 2006 CONDENSED CONSOLIDATED STATEMENTS OF INCOME (dollars in thousands) 2006 2005 Third Second First Fourth Third Quarter Quarter Quarter Quarter Quarter Annual Interest income $50,443 $48,938 $46,889 $45,242 $43,478 $142,293 Tax equivalent adjustment 1,916 1,910 1,978 1,922 1,811 7,163 52,359 50,848 48,867 47,164 45,289 149,456 Interest expense 23,505 21,931 20,025 18,593 17,081 59,648 Net interest income 28,854 28,917 28,842 28,571 28,208 89,808 Provision for loan losses 250 650 500 600 400 2,300 Net interest income after provision 28,604 28,267 28,342 27,971 27,808 87,508 Non-interest income 8,279 7,957 7,633 7,120 7,177 23,824 Investment security gains income 28 6 283 12 29 259 Mortgage banking activities income 533 580 468 631 660 2,354 Non-interest expenses 21,172 20,698 20,533 20,180 20,836 66,864 Merger, conversion and restructuring expenses --- --- --- --- 248 8,205 Income before income taxes 16,272 16,112 16,193 15,554 14,590 38,876 Income taxes 3,798 3,698 3,646 2,671 2,447 6,072 Tax equivalent adjustment 1,916 1,910 1,978 1,922 1,811 7,163 NET INCOME $10,558 $10,504 $10,569 $10,961 $10,332 $25,641 Tax effect of security transactions $10 $2 $99 $4 $10 $91 COMMUNITY BANKS, INC. & SUBSIDIARIES Fiscal Insight - SEPTEMBER 30, 2006 ANALYSIS OF NON-INTEREST INCOME (dollars in thousands) 2006 2005 Third Second First Fourth Third Quarter Quarter Quarter Quarter Quarter Annual Investment management and trust services $968 $1,088 $1,013 $951 $796 $2,692 Service charges on deposit accounts 3,037 2,855 2,531 2,793 2,799 9,413 Other service charges, commissions and fees 1,817 1,903 1,700 1,689 1,819 5,452 Insurance premium income and commissions 1,053 1,117 928 743 825 3,350 Earnings on investment in life insurance 679 675 656 650 659 2,063 Other income 725 319 805 294 279 854 Total non-interest income $8,279 $7,957 $7,633 $7,120 $7,177 $23,824 ANALYSIS OF NON-INTEREST EXPENSES (dollars in thousands) 2006 2005 Third Second First Fourth Third Quarter Quarter Quarter Quarter Quarter Annual Salaries and employee benefits $11,611 $11,251 $11,418 $10,461 $11,808 $36,998 Net occupancy expense 3,452 3,386 3,512 3,567 3,364 11,355 Marketing expense 354 265 575 597 528 2,036 Telecommunications expense 542 566 551 489 309 1,359 Amortization of intangibles 659 702 654 696 641 1,424 Other operating expenses 4,554 4,528 3,823 4,370 4,186 13,692 Total non-interest expenses $21,172 $20,698 $20,533 $20,180 $20,836 $66,864 COMMUNITY BANKS, INC. & SUBSIDIARIES Fiscal Insight - SEPTEMBER 30, 2006 RISK ELEMENTS ANALYSIS (dollars in thousands) 2006 2005 Third Second First Fourth Third Quarter Quarter Quarter Quarter Quarter Non-performing assets: Non-accrual loans $11,626 $11,492 $10,102 $9,060 $10,736 Loans renegotiated with borrowers --- 108 110 --- --- Foreclosed real estate 52 108 1,728 1,447 2,273 Total non- performing assets 11,678 11,708 11,940 10,507 13,009 Accruing loans 90 days or more past due 685 621 29 22 7 Total risk elements $12,363 $12,329 $11,969 $10,529 $13,016 Non-performing assets to period- end loans 0.50% 0.50% 0.52% 0.47% 0.60% 90 day past due loans to period- end loans 0.03% 0.03% 0.00% 0.00% 0.00% Total risk elements to period-end loans 0.53% 0.53% 0.52% 0.47% 0.60% COMMUNITY BANKS, INC. & SUBSIDIARIES Fiscal Insight - SEPTEMBER 30, 2006 ALLOWANCE FOR LOAN LOSSES (dollars in thousands) 2006 2005 Third Second First Fourth Third Quarter Quarter Quarter Quarter Quarter Balance at beginning of period $23,788 $23,310 $22,965 $22,773 $15,383 Loans charged off (499) (342) (313) (1,153) (271) Recoveries 495 170 158 745 193 Net loans charged off (4) (172) (155) (408) (78) Provision for loan losses 250 650 500 600 400 Allowance established for acquired credit risk --- --- --- --- 7,068 Balance at end of period $24,034 $23,788 $23,310 $22,965 $22,773 Net loans charged-off to average loans* 0.00% 0.03% 0.03% 0.07% 0.01% Provision for loan losses to average loans* 0.04% 0.11% 0.09% 0.11% 0.07% Allowance for loan losses to loans 1.02% 1.01% 1.02% 1.03% 1.05% *Annualized COMMUNITY BANKS, INC. & SUBSIDIARIES Fiscal Insight - SEPTEMBER 30, 2006 OTHER RATIOS (dollars in thousands) 2006 2005 Third Second First Fourth Third Quarter Quarter Quarter Quarter Quarter Investment portfolio - fair value to amortized cost 99.9% 97.9% 99.4% 99.6% 100.9% Dividend payout ratio 44.4% 45.1% 43.0% 41.8% 42.7% Net loans to deposits ratio, average 95.0% 96.1% 98.3% 96.2% 94.1% 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 $27.29 $24.58 $0.2000 Fourth $0.5905 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 * Per share data reflect stock splits and dividends COMMUNITY BANKS, INC. & SUBSIDIARIES Fiscal Insight - SEPTEMBER 30, 2006 NET INTEREST MARGIN - YEAR-TO-DATE (dollars in thousands) September 30, 2006 September 30, 2005 FTE Average FTE Average Average Interest Rate Average Interest Rate Balance Income/ Earned/ Balance Income/ Earned/ Expense Paid Expense Paid Federal funds sold and interest- bearing deposits in banks $39,340 $1,427 4.85% $67,706 $1,591 3.14% Investment securities 585,909 26,084 5.95% 609,754 25,349 5.56% Loans - commercial 825,241 47,844 7.75% 533,916 26,109 6.54% - commercial real estate 819,887 42,741 6.97% 489,780 23,616 6.45% - residential real estate 151,751 6,933 6.11% 119,234 5,702 6.39% - consumer 517,378 27,045 6.99% 407,257 19,925 6.53% Total earning assets $2,939,506 $152,074 6.92% $2,227,647 $102,292 6.14% Deposits - savings and NOW accounts $840,397 $12,363 1.97% $627,710 $6,081 1.30% - time 1,177,600 34,700 3.94% 784,181 17,873 3.05% Short-term borrowings 62,340 2,080 4.46% 41,706 809 2.59% Long-term debt 403,828 13,611 4.51% 442,153 14,811 4.48% Subordinated debt 49,282 2,707 7.34% 30,928 1,481 6.40% Total interest- bearing liabilities $2,533,447 $65,461 3.45% $1,926,678 $41,055 2.85% Interest income to earning assets 6.92% 6.14% Interest expense to paying liabilities 3.45% 2.85% Interest spread 3.47% 3.29% Impact of noninterest funds 0.47% 0.38% Net interest margin $86,613 3.94% $61,237 3.67% COMMUNITY BANKS, INC. & SUBSIDIARIES Fiscal Insight - SEPTEMBER 30, 2006 NET INTEREST MARGIN - QUARTER-TO-DATE (dollars in thousands) September 30, 2006 September 30, 2005 FTE Average FTE Average Average Interest Rate Average Interest Rate Balance Income/ Earned/ Balance Income/ Earned/ Expense Paid Expense Paid Federal funds sold and interest-bearing deposits in banks $29,324 $390 5.28% $100,263 $857 3.39% Investment securities 566,772 8,556 5.99% 632,779 8,760 5.49% Loans - commercial 831,950 16,687 7.96% 740,034 12,665 6.79% - commercial real estate 831,288 14,810 7.07% 731,449 12,135 6.58% - residential real estate 150,926 2,364 6.21% 176,263 2,731 6.15% - consumer 525,188 9,552 7.22% 492,367 8,141 6.56% Total earning assets $2,935,448 $52,359 7.08% $2,873,155 $45,289 6.25% Deposits - savings and NOW accounts $873,670 $4,969 2.26% $850,801 $3,048 1.42% - time 1,219,679 12,889 4.19% 1,040,770 7,945 3.03% Short-term borrowings 60,680 739 4.83% 56,948 452 3.15% Long-term debt 340,162 3,936 4.59% 476,602 5,109 4.25% Subordinated debt 51,548 972 7.48% 30,928 527 6.76% Total interest-bearing liabilities $2,545,739 $23,505 3.66% $2,456,049 $17,081 2.76% Interest income to earning assets 7.08% 6.25% Interest expense to paying liabilities 3.66% 2.76% Interest spread 3.42% 3.49% Impact of noninterest funds 0.48% 0.40% Net interest margin $28,854 3.90% $28,208 3.89% COMMUNITY BANKS, INC. & SUBSIDIARIES Fiscal Insight - SEPTEMBER 30, 2006 NET INTEREST MARGIN - QUARTER-TO-DATE (dollars in thousands) September 30, 2006 June 30, 2006 FTE FTE Interest Average Interest Average Average Income/ Rate Average Income/ Rate Balance Expense Earned/ Balance Expense Earned/ Paid Paid Federal funds sold and interest- bearing deposits in banks $29,324 $390 5.28% $53,872 $643 4.79% Investment securities 566,772 8,556 5.99% 577,581 8,622 5.99% Loans - commercial 831,950 16,687 7.96% 827,586 16,016 7.76% - commercial real estate 831,288 14,810 7.07% 817,099 14,326 7.03% - residential real estate 150,926 2,364 6.21% 150,653 2,272 6.05% - consumer 525,188 9,552 7.22% 517,562 8,969 6.95% Total earning assets $2,935,448 $52,359 7.08% $2,944,353 $50,848 6.93% Deposits - savings and NOW accounts $873,670 $4,969 2.26% $820,265 $3,893 1.90% - time 1,219,679 12,889 4.19% 1,210,302 11,891 3.94% Short-term borrowings 60,680 739 4.83% 57,903 645 4.47% Long-term debt 340,162 3,936 4.59% 405,705 4,564 4.51% Subordinated debt 51,548 972 7.48% 51,548 938 7.30% Total interest- bearing liabilities $2,545,739 $23,505 3.66% $2,545,723 $21,931 3.46% Interest income to earning assets 7.08% 6.93% Interest expense to paying liabilities 3.66% 3.46% Interest spread 3.42% 3.47% Impact of noninterest funds 0.48% 0.47% Net interest margin $28,854 3.90% $28,917 3.94% COMMUNITY BANKS, INC. & SUBSIDIARIES Fiscal Insight - SEPTEMBER 30, 2006 PERIOD-END LOAN PORTFOLIO ANALYSIS (dollars in thousands) 2006 2005 Third Second First Fourth Third Quarter Quarter Quarter Quarter Quarter Commercial: Commercial $757,714 $763,637 $747,954 $723,248 $706,475 Obligations of political subdivisions 79,028 76,408 75,449 59,698 53,881 Total commercial 836,742 840,045 823,403 782,946 760,356 Commercial real estate: Commercial mortgages $820,619 $834,345 $805,120 $793,969 $737,432 Residential real estate: Residential mortgages $144,047 $144,590 $146,360 $149,525 $150,596 Construction 6,918 5,770 5,136 4,532 26,437 Total residential real estate 150,965 150,360 151,496 154,057 177,033 Consumer: Home equity loans $308,173 $282,777 $262,835 $252,080 $236,363 Home equity lines of credit 96,608 103,216 105,933 113,133 120,080 Indirect consumer loans 66,126 67,786 66,344 63,644 62,471 Other consumer loans 68,926 66,148 71,689 77,236 74,639 Total consumer 539,833 519,927 506,801 506,093 493,553 Total loans $2,348,159 $2,344,677 $2,286,820 $2,237,065 $2,168,374 COMMUNITY BANKS, INC. & SUBSIDIARIES Fiscal Insight - SEPTEMBER 30, 2006 Reconciliation of GAAP to Non-GAAP Measures (1): (in thousands, except per share data) 2006 Third Second First Quarter Quarter Quarter Income statement data: Net income (loss) Net income (loss) $10,558 $10,504 $10,569 Amortization of core deposit and other intangible assets(2) 428 456 425 Merger, conversion and restructuring expenses(2) --- --- --- Net operating (tangible) income $10,986 $10,960 $10,994 Earnings (loss) per share Diluted earnings (loss) per common share $0.45 $0.44 $0.44 Amortization of core deposit and other intangible assets(2) 0.01 0.02 0.01 Merger, conversion and restructuring expenses(2) --- --- --- Diluted operating (tangible) earnings per share $0.46 $0.46 $0.45 Balance sheet data: Average assets Average assets $3,385,905 $3,391,908 $3,383,211 Goodwill (245,794) (245,749) (244,775) Core deposit and other intangible assets (13,229) (13,254) (13,914) Average tangible assets $3,126,882 $3,132,905 $3,124,522 Operating return on average tangible assets 1.39% 1.40% 1.43% Average equity Average equity $471,911 $470,695 $478,507 Goodwill (245,794) (245,749) (244,775) Core deposit and other intangible assets (13,229) (13,254) (13,914) Deferred taxes 1,755 1,836 1,734 Average tangible equity $214,643 $213,528 $221,552 Operating return on average tangible equity 20.31% 20.59% 20.12% At end of quarter: Total assets Total assets $3,431,208 $3,385,599 $3,421,562 Goodwill (245,864) (245,056) (244,760) Core deposit and other intangible assets (13,641) (13,550) (13,599) Total tangible assets $3,171,703 $3,126,993 $3,163,203 Total equity Total equity $479,584 $465,760 $475,587 Goodwill (245,864) (245,056) (244,760) Core deposit and other intangible assets (13,641) (13,550) (13,599) Deferred taxes 1,698 1,800 1,854 Total tangible equity $221,777 $208,954 $219,082 Tangible book value at end of period $9.45 $8.91 $9.19 Tangible equity to assets 6.99% 6.68% 6.93% 2005 Fourth Third Quarter Quarter Annual Income statement data: Net income (loss) Net income (loss) $10,961 $10,332 $25,641 Amortization of core deposit and other intangible assets(2) 564 519 1,153 Merger, conversion and restructuring expenses(2) --- 161 5,333 Net operating (tangible) income $11,525 $11,012 $32,127 Earnings (loss) per share Diluted earnings (loss) per common share $0.45 $0.42 $1.35 Amortization of core deposit and other intangible assets(2) 0.02 0.02 0.06 Merger, conversion and restructuring expenses(2) --- --- 0.28 Diluted operating (tangible) earnings per share $0.47 $0.44 $1.69 Balance sheet data: Average assets Average assets $3,313,950 $3,316,460 $2,668,605 Goodwill (243,203) (239,395) (123,412) Core deposit and other intangible assets (14,594) (15,252) (8,236) Average tangible assets $3,056,153 $3,061,813 $2,536,957 Operating return on average tangible assets 1.50% 1.43% 1.27% Average equity Average equity $475,514 $481,185 $318,768 Goodwill (243,203) (239,395) (123,412) Core deposit and other intangible assets (14,594) (15,252) (8,236) Deferred taxes 1,742 1,677 862 Average tangible equity $219,459 $228,215 $187,982 Operating return on average tangible equity 20.83% 19.14% 17.09% At end of quarter: Total assets Total assets $3,332,430 $3,291,232 $3,332,430 Goodwill (244,827) (243,107) (244,827) Core deposit and other intangible assets (14,253) (14,951) (14,253) Total tangible assets $3,073,350 $3,033,174 $3,073,350 Total equity Total equity $476,673 $480,960 $476,673 Goodwill (244,827) (243,107) (244,827) Core deposit and other intangible assets (14,253) (14,951) (14,253) Deferred taxes 1,734 1,746 1,734 Total tangible equity $219,327 $224,648 $219,327 Tangible book value at end of period $9.12 $9.26 $9.12 Tangible equity to assets 7.14% 7.41% 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, Inc., +1-717-920-5801, or Fax, +1-717-920-1683 Web site: http://www.communitybanks.com/

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