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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