CMTY Community Bks Millersbur (MM)

HARRISBURG, Pa., Jan. 18 /PRNewswire-FirstCall/ -- Community Banks, Inc. ("Community") (NASDAQ:CMTY) today reported annual operating results for 2006, including net income of $41 million and earnings per share of $1.72. Results for the year improved dramatically from 2005 when net income and earnings per share were approximately $26 million and $1.35, respectively. Performance in 2005 had been adversely affected by $8.2 million in pre-tax merger, conversion, and restructuring expenses that had been recorded prior to the consummation of its 2005 mid-year merger with Blue Ball Bank. On July 1, 2005, Community completed the acquisition of its Blue Ball affiliate, the largest merger in its history. Results for year ended December 31, 2006 reflected the first full year of operations of the combined banks, as Blue Ball's operating activities from the first six months of 2005 were excluded from combined results in that year. The addition of Blue Ball has helped to facilitate Community's transformation to a strategically important franchise in the Mid-Atlantic region. During the third quarter of 2006, Community announced two pending mergers with future banking partners when it revealed its plans to acquire BUCS Financial Corp. and East Prospect State Bank. These two combinations are expected to be completed in the second quarter of 2007 and will provide an important market extension into the desirable, adjacent Central Maryland region and will bolster Community's position in the vibrant York County, Pennsylvania, market. At the end of 2006, Community's operating footprint boasted assets of $3.5 billion and 74 banking offices that extend 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. The pending mergers will add 5 offices and $250 million in assets upon completion. Net income and earnings per share for the 4th quarter of 2006 were $9.4 million and $0.40, respectively, and reflected an 11% decline in earnings per share from the comparable quarter of 2005. Just a month ago, Community communicated concern over the prolonged period of flat interest rates and the challenges it continues to present for the banking industry. For the last six months, interest rates were characterized by an even more abnormal "inverted" position, wherein benchmark two-year rates were higher than ten-year rates. During the 4th quarter of 2006, the bank announced plans that call for a reorganization of Community's internal management structure and a "fine- tuning" of its office delivery network, each of which was designed to help offset the adverse impact of these peculiar interest rate trends. Financial benefits of these changes are expected to occur throughout 2007 and will offset some of the negative trends associated with the interest rate anomalies. "Although we are proud of our financial results in 2006, the lingering presence of a flat or inverted yield curve constrained the level of revenue growth that we had hoped to achieve in the fourth quarter. At the same time, our operating expenses came in higher than we would have liked," commented Eddie L. Dunklebarger, President and CEO of Community. "We believe that these short-term trends are manageable and remain confident that we can align our expense structure with our revenue levels during 2007. Unfortunately, substantial increases in top line banking revenues remain problematic for our industry until these yield curve trends begin to reverse." Expenses in the fourth quarter included approximately $500,000 of expenses attributed to fourth quarter marketing initiatives and normal year-end accrual adjustments. These adjustments calibrated annual performance incentives and annual contributions for employee benefit plans to final year-end operating results. A significant portion of these expenses were discretionary in nature and can be expected to be normalized as a part of the "fine-tuning" of the expense structure in 2007. Fourth quarter comparisons of both non-interest income, which grew 13% (exclusive of security gains), and operating expenses, which grew 11%, were influenced by the second quarter acquisition of an additional insurance agency and the third quarter merger of acquired trust activities. Both loans and deposits reflected quarterly increases from the year ago period, at 7% and 10%, respectively. Unfortunately, the yields on loans and other earning assets increased at a much slower pace than the cost of funding. Funding costs were influenced by both a lack of growth in lower-cost core funding (checking, NOW, Money Market, and Savings accounts) and consumer preferences for short-term certificates of deposits. Rate offerings on short- term certificates of deposit were far more sensitive to Fed-induced increases in interest rates for deposits with maturities of less than two years, increasing both consumer preference and Community's reliance on this funding source. Fourth quarter net charge-offs of problem loans of over $1 million exceeded the fourth quarter loan loss provision of $650,000. On an annual basis, however, the provision of $2.1 million was well ahead of the $1.4 million in net charge-offs for the entire year. Non-performing assets to total assets remained nearly constant at 0.31% and other asset quality metrics remained stable. Many of the traditional metrics used to evaluate a company's performance in a post-merger environment have undergone change due to the usage of the purchase accounting method now required under authoritative accounting guidance. Operating return on tangible assets and tangible equity have become relevant measures of shareholder return for companies that have experienced substantial merger activity. 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. 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 Year Ended December 31, December 31, 2006 2005 2006 2005 Consolidated summary of operations: Interest income $51,364 $45,242 $197,634 $142,293 Interest expense 25,273 18,593 90,734 59,648 Net interest income 26,091 26,649 106,900 82,645 Provision for loan losses 650 600 2,050 2,300 Net interest income after provision for loan losses 25,441 26,049 104,850 80,345 Non-interest income: Investment management and trust services 1,325 951 4,394 2,692 Service charges on deposit accounts 3,084 2,793 11,507 9,413 Other service charges, commissions, and fees 1,852 1,689 7,272 5,452 Investment security gains 415 12 732 259 Insurance premium income and commissions 1,022 743 4,120 3,350 Mortgage banking activities 591 631 2,172 2,354 Earnings on investment in life insurance 715 650 2,725 2,063 Other 196 294 2,045 854 Total non-interest income 9,200 7,763 34,967 26,437 Non-interest expenses: Salaries and employee benefits 12,154 10,461 46,434 36,998 Net occupancy and equipment 3,767 3,567 14,117 11,355 Merger, conversion and restructuring expenses --- --- --- 8,205 Marketing expense 558 597 1,752 2,036 Telecommunications expense 584 489 2,243 1,359 Amortization of intangibles 624 696 2,639 1,424 Other 4,795 4,370 17,700 13,692 Total non-interest expenses 22,482 20,180 84,885 75,069 Income before income taxes 12,159 13,632 54,932 31,713 Income taxes 2,759 2,671 13,901 6,072 Net income $9,400 $10,961 $41,031 $25,641 Net loan charge-offs $1,058 $408 $1,389 $824 Net interest margin (FTE) 3.71% 3.96% 3.88% 3.76% Efficiency ratio (2) 60.97% 55.56% 57.33% 57.51% Return on average assets 1.08% 1.31% 1.21% 0.96% Return on average stockholders' equity 7.74% 9.14% 8.63% 8.04% Net operating (tangible) income (3) $9,806 $11,525 $42,746 $32,127 Operating return on average tangible assets (3)(4) 1.22% 1.50% 1.36% 1.27% Operating return on average tangible equity (3)(4) 17.37% 20.83% 19.57% 17.09% Consolidated per share data: Basic earnings per share $0.40 $0.45 $1.74 $1.38 Diluted earnings per share $0.40 $0.45 $1.72 $1.35 Book value at end of period $20.67 $19.81 $20.67 $19.81 Tangible book value at end of period (4) $9.71 $9.12 $9.71 $9.12 COMMUNITY BANKS, INC. Selected Financial Information (Dollars in thousands, except per share data) (1) Consolidated balance sheet data: Three Months Ended Year Ended December 31, December 31, 2006 2005 2006 2005 Average total loans $2,353,774 $2,202,771 $2,324,218 $1,715,005 Average earning assets 3,001,145 2,865,537 2,955,043 2,388,431 Average assets 3,452,095 3,313,950 3,403,421 2,668,605 Average tangible assets (4) 3,192,722 3,056,153 3,144,400 2,536,957 Average deposits 2,497,166 2,262,752 2,405,192 1,807,231 Average stockholders' equity 481,734 475,514 475,710 318,768 Average tangible equity (4) 224,013 219,459 218,434 187,982 Average diluted shares outstanding 23,727,769 24,421,499 23,918,486 18,975,425 12/31/2006 vs. December 31, December 31, 12/31/2005 2006 2005 % Change Assets $3,496,370 $3,332,430 5% Total loans 2,370,889 2,237,065 6% Deposits 2,513,182 2,294,367 10% Stockholders' equity 486,161 476,673 2% Common shares outstanding 23,519,041 24,060,530 (2)% Non-accrual loans $10,662 $9,060 18% Foreclosed real estate 37 1,447 (97)% Total non-performing assets 10,699 10,507 2% Accruing loans 90 days past due 659 22 n/a Total risk elements $11,358 $10,529 8% Allowance for loan losses $23,626 $22,965 3% Asset quality ratios: Allowance for loan losses to total loans 1.00% 1.03% Allowance for loan losses to non-accrual loans 222% 253% Non-accrual loans to total loans 0.45% 0.41% Non-performing assets to total assets 0.31% 0.32% (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 Year Ended December 31, December 31, 2006 2005 2006 2005 Income statement data: Net income Net income (loss) $9,400 $10,961 $41,031 $25,641 Amortization of core deposit and other intangible assets (1) 406 564 1,715 1,153 Merger, conversion and restructuring expenses (1) --- --- --- 5,333 Net operating (tangible) income $9,806 $11,525 $42,746 $32,127 Balance sheet data: Average assets Average assets $3,452,095 $3,313,950 $3,403,421 $2,668,605 Goodwill (246,287) (243,203) (245,652) (123,412) Core deposit and other intangible assets (13,086) (14,594) (13,369) (8,236) Average tangible assets $3,192,722 $3,056,153 $3,144,400 $2,536,957 Operating return on average tangible assets 1.22% 1.50% 1.36% 1.27% Average equity Average equity $481,734 $475,514 $475,710 $318,768 Goodwill (246,287) (243,203) (245,652) (123,412) Core deposit and other intangible assets (13,086) (14,594) (13,368) (8,236) Deferred taxes 1,652 1,742 1,744 862 Average tangible equity $224,013 $219,459 $218,434 $187,982 Operating return on average tangible equity 17.37% 20.83% 19.57% 17.09% At end of quarter: Total assets Total assets $3,496,370 $3,332,430 $3,496,370 $3,332,430 Goodwill (246,383) (244,827) (246,383) (244,827) Core deposit and other intangible assets (13,023) (14,253) (13,023) (14,253) Total tangible assets $3,236,964 $3,073,350 $3,236,964 $3,073,350 Total equity Total equity $486,161 $476,673 $486,161 $476,673 Goodwill (246,383) (244,827) (246,383) (244,827) Core deposit and other intangible assets (13,023) (14,253) (13,023) (14,253) Deferred taxes 1,591 1,734 1,591 1,734 Total tangible equity $228,346 $219,327 $228,346 $219,327 Tangible book value at end of period $9.71 $9.12 $9.71 $9.12 (1) Net of related tax effect COMMUNITY BANKS, INC. & SUBSIDIARIES Fiscal Insight - DECEMBER 31, 2006 KEY RATIOS (1) 2006 Fourth Third Second Annual Quarter Quarter Quarter Diluted earnings per share $1.72 $0.40 $0.45 $0.44 Tangible operating earnings per share (1) $1.79 $0.41 $0.46 $0.46 Return on average assets 1.21% 1.08% 1.24% 1.24% Return on average equity 8.63% 7.74% 8.88% 8.95% Operating return on average tangible assets (2) 1.36% 1.22% 1.39% 1.40% Operating return on average tangible equity (2) 19.57% 17.37% 20.31% 20.59% Net interest margin 3.88% 3.71% 3.90% 3.94% Non-interest income/revenues (FTE excluding security gains) 22.99% 23.83% 23.40% 22.76% Provision for loan losses/ average loans (annualized) 0.09% 0.11% 0.04% 0.11% Efficiency ratio (4) 57.33% 60.97% 56.25% 56.18% Non-performing assets to period-end loans 0.45% 0.50% 0.50% 90 day past due loans to period-end loans 0.03% 0.03% 0.03% Total risk elements to period-end loans 0.48% 0.53% 0.53% Allowance for loan losses to loans 1.00% 1.00% 1.02% 1.01% Allowance for loan losses to non-accrual loans 222% 222% 207% 207% Net charge-offs/average loans (annualized) 0.06% 0.18% 0.00% 0.03% Equity to assets 13.90% 13.90% 13.98% 13.76% Tangible equity to assets (3) 7.05% 7.05% 6.99% 6.68% 2006 2005 First Fourth Quarter Annual Quarter Diluted earnings per share $0.44 $1.35 $0.45 Tangible operating earnings per share (1) $0.45 $1.69 $0.47 Return on average assets 1.27% 0.96% 1.31% Return on average equity 8.96% 8.04% 9.14% Operating return on average tangible assets (2) 1.43% 1.27% 1.50% Operating return on average tangible equity (2) 20.12% 17.09% 20.83% Net interest margin 3.98% 3.76% 3.96% Non-interest income/revenues (FTE excluding security gains) 21.93% 22.57% 21.34% Provision for loan losses/average loans (annualized) 0.09% 0.13% 0.11% Efficiency ratio (4) 55.96% 57.51% 55.56% Non-performing assets to period-end loans 0.52% 0.47% 90 day past due loans to period-end loans 0.00% 0.00% Total risk elements to period-end loans 0.52% 0.47% Allowance for loan losses to loans 1.02% 1.03% 1.03% Allowance for loan losses to non-accrual loans 231% 253% 253% Net charge-offs/average loans (annualized) 0.03% 0.05% 0.07% Equity to assets 13.90% 14.30% 14.30% Tangible equity to assets (3) 6.93% 7.14% 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 - DECEMBER 31, 2006 PER SHARE STATISTICS* Diluted Earnings (Loss) per Share Fourth Third Second First Quarter Quarter Quarter Quarter Total 2006 $0.40 $0.45 $0.44 $0.44 $1.72 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 23,728 23,663 23,858 24,212 23,918 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 $20.67 $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 $9.71 $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 - DECEMBER 31, 2006 QUARTER END INFORMATION (dollars in thousands) 2006 2005 Fourth Third Second First Fourth Quarter Quarter Quarter Quarter Quarter Total loans $2,370,889 $2,348,159 $2,344,677 $2,286,820 $2,237,065 Allowance for loan losses (23,626) (24,034) (23,788) (23,310) (22,965) Loans, net 2,347,263 2,324,125 2,320,889 2,263,510 2,214,100 Earning assets 3,033,585 2,971,391 2,922,356 2,960,648 2,869,978 Goodwill and other intangible assets 259,406 259,505 258,606 258,359 259,080 Total assets 3,496,370 3,431,208 3,385,599 3,421,562 3,332,430 Deposits 2,513,182 2,483,519 2,406,551 2,373,865 2,294,367 Long-term debt 315,079 336,954 363,816 443,275 430,719 Subordinated debt 51,548 51,548 51,548 51,548 30,928 Total shareholder's equity 486,161 479,584 465,760 475,587 476,673 Accumulated other comprehensive income (loss) (net of tax) (1,806) (2,670) (10,107) (4,368) (3,779) COMMUNITY BANKS, INC. & SUBSIDIARIES Fiscal Insight - DECEMBER 31, 2006 CONDENSED CONSOLIDATED QUARTERLY AVERAGE STATEMENTS OF CONDITION (dollars in thousands) 2006 2005 Fourth Third Second First Fourth Quarter Quarter Quarter Quarter Quarter Assets Earning Assets: Loans $2,353,774 $2,339,352 $2,312,900 $2,289,979 $2,202,771 Federal funds sold and other 37,059 29,324 53,872 34,777 32,510 Investment securities 610,312 566,772 577,581 613,891 630,256 Total earning assets 3,001,145 2,935,448 2,944,353 2,938,647 2,865,537 Cash and due from banks 62,318 62,636 59,461 59,253 65,271 Allowance for loan losses (24,102) (24,385) (23,882) (23,172) (22,976) Goodwill and other intangible assets 259,373 259,023 259,003 258,689 257,797 Premises, equipment and other assets 153,361 153,183 152,973 149,794 148,321 Total assets $3,452,095 $3,385,905 $3,391,908 $3,383,211 $3,313,950 Liabilities and equity Interest-bearing liabilities: Deposits Savings and NOW accounts $876,404 $873,670 $820,265 $826,742 $848,320 Time 1,010,249 984,415 981,371 900,698 869,096 Time deposits greater than $100,000 267,747 235,264 228,931 200,821 186,514 Short-term borrowings 77,910 60,680 57,903 68,524 72,606 Long-term debt 318,078 340,162 405,705 467,010 447,532 Subordinated debt 51,548 51,548 51,548 44,674 30,928 Total interest- bearing liabilities 2,601,936 2,545,739 2,545,723 2,508,469 2,454,996 Noninterest- bearing deposits 342,766 344,708 350,574 373,637 358,822 Other liabilities 25,659 23,547 24,916 22,598 24,618 Total liabilities 2,970,361 2,913,994 2,921,213 2,904,704 2,838,436 Stockholders' equity 481,734 471,911 470,695 478,507 475,514 Total liabilities and stockholders' equity $3,452,095 $3,385,905 $3,391,908 $3,383,211 $3,313,950 CHANGE IN AVERAGE BALANCES* 2006 2005 Fourth Third Second First Fourth Quarter Quarter Quarter Quarter Quarter Loans 6.9% 9.3% 82.8% 86.0% 83.1% Total assets 4.2% 2.1% 66.1% 70.6% 69.3% Deposits 10.4% 8.4% 72.2% 73.5% 73.4% Stockholders' equity 1.3% (1.9)% 205.9% 206.0% 213.8% * Compares the current quarter to the comparable quarter of the prior year COMMUNITY BANKS, INC. & SUBSIDIARIES Fiscal Insight - DECEMBER 31, 2006 CONDENSED CONSOLIDATED STATEMENTS OF INCOME (dollars in thousands) 2006 Fourth Third Second First Annual Quarter Quarter Quarter Quarter Interest income $197,634 $51,364 $50,443 $48,938 $46,889 Tax equivalent adjustment 7,802 1,998 1,916 1,910 1,978 205,436 53,362 52,359 50,848 48,867 Interest expense 90,734 25,273 23,505 21,931 20,025 Net interest income 114,702 28,089 28,854 28,917 28,842 Provision for loan losses 2,050 650 250 650 500 Net interest income after provision 112,652 27,439 28,604 28,267 28,342 Non-interest income 32,063 8,194 8,279 7,957 7,633 Investment security gains income 732 415 28 6 283 Mortgage banking activities income 2,172 591 533 580 468 Non-interest expenses 84,885 22,482 21,172 20,698 20,533 Merger, conversion and restructuring expenses --- --- --- --- --- Income before income taxes 62,734 14,157 16,272 16,112 16,193 Income taxes 13,901 2,759 3,798 3,698 3,646 Tax equivalent adjustment 7,802 1,998 1,916 1,910 1,978 NET INCOME $41,031 $9,400 $10,558 $10,504 $10,569 Tax effect of security transactions $256 $145 $10 $2 $99 (dollars in thousands) 2005 Fourth Annual Quarter Interest income $142,293 $45,242 Tax equivalent adjustment 7,163 1,922 149,456 47,164 Interest expense 59,648 18,593 Net interest income 89,808 28,571 Provision for loan losses 2,300 600 Net interest income after provision 87,508 27,971 Non-interest income 23,824 7,120 Investment security gains income 259 12 Mortgage banking activities income 2,354 631 Non-interest expenses 66,864 20,180 Merger, conversion and restructuring expenses 8,205 --- Income before income taxes 38,876 15,554 Income taxes 6,072 2,671 Tax equivalent adjustment 7,163 1,922 NET INCOME $25,641 $10,961 Tax effect of security transactions $91 $4 COMMUNITY BANKS, INC. & SUBSIDIARIES Fiscal Insight - DECEMBER 31, 2006 ANALYSIS OF NON-INTEREST INCOME (dollars in thousands) 2006 Fourth Third Second First Annual Quarter Quarter Quarter Quarter Investment management and trust services $4,394 $1,325 $968 $1,088 $1,013 Service charges on deposit accounts 11,507 3,084 3,037 2,855 2,531 Other service charges, commissions and fees 7,272 1,852 1,817 1,903 1,700 Insurance premium income and commissions 4,120 1,022 1,053 1,117 928 Earnings on investment in life insurance 2,725 715 679 675 656 Other income 2,045 196 725 319 805 Total non-interest income $32,063 $8,194 $8,279 $7,957 $7,633 (dollars in thousands) 2005 Fourth Annual Quarter Investment management and trust services $2,692 $951 Service charges on deposit accounts 9,413 2,793 Other service charges, commissions and fees 5,452 1,689 Insurance premium income and commissions 3,350 743 Earnings on investment in life insurance 2,063 650 Other income 854 294 Total non-interest income $23,824 $7,120 ANALYSIS OF NON-INTEREST EXPENSES (dollars in thousands) 2006 Fourth Third Second First Annual Quarter Quarter Quarter Quarter Salaries and employee benefits $46,434 $12,154 $11,611 $11,251 $11,418 Net occupancy and equipment expense 14,117 3,767 3,452 3,386 3,512 Marketing expense 1,752 558 354 265 575 Telecommunications expense 2,243 584 542 566 551 Amortization of intangibles 2,639 624 659 702 654 Other operating expenses 17,700 4,795 4,554 4,528 3,823 Total non-interest expenses $84,885 $22,482 $21,172 $20,698 $20,533 (dollars in thousands) 2005 Fourth Annual Quarter Salaries and employee benefits $36,998 $10,461 Net occupancy and equipment expense 11,355 3,567 Marketing expense 2,036 597 Telecommunications expense 1,359 489 Amortization of intangibles 1,424 696 Other operating expenses 13,692 4,370 Total non-interest expenses $66,864 $20,180 COMMUNITY BANKS, INC. & SUBSIDIARIES Fiscal Insight - DECEMBER 31, 2006 RISK ELEMENTS ANALYSIS (dollars in thousands) 2006 2005 Fourth Third Second First Fourth Quarter Quarter Quarter Quarter Quarter Non-performing assets: Non-accrual loans $10,662 $11,626 $11,492 $10,102 $9,060 Loans renegotiated with borrowers --- --- 108 110 --- Foreclosed real estate 37 52 108 1,728 1,447 Total non-performing assets 10,699 11,678 11,708 11,940 10,507 Accruing loans 90 days or more past due 659 685 621 29 22 Total risk elements $11,358 $12,363 $12,329 $11,969 $10,529 Non-performing assets to period- end loans 0.45% 0.50% 0.50% 0.52% 0.47% 90 day past due loans to period- end loans 0.03% 0.03% 0.03% 0.00% 0.00% Total risk elements to period-end loans 0.48% 0.53% 0.53% 0.52% 0.47% COMMUNITY BANKS, INC. & SUBSIDIARIES Fiscal Insight - DECEMBER 31, 2006 ALLOWANCE FOR LOAN LOSSES (dollars in thousands) 2006 2005 Fourth Third Second First Fourth Quarter Quarter Quarter Quarter Quarter Balance at beginning of period $24,034 $23,788 $23,310 $22,965 $22,773 Loans charged off (1,136) (499) (342) (313) (1,153) Recoveries 78 495 170 158 745 Net loans charged off (1,058) (4) (172) (155) (408) Provision for loan losses 650 250 650 500 600 Balance at end of period $23,626 $24,034 $23,788 $23,310 $22,965 Net loans charged- off to average loans* 0.18% 0.00% 0.03% 0.03% 0.07% Provision for loan losses to average loans* 0.11% 0.04% 0.11% 0.09% 0.11% Allowance for loan losses to loans 1.00% 1.02% 1.01% 1.02% 1.03% *Annualized COMMUNITY BANKS, INC. & SUBSIDIARIES Fiscal Insight - DECEMBER 31, 2006 OTHER RATIOS 2006 2005 Fourth Third Second First Fourth Quarter Quarter Quarter Quarter Quarter Investment portfolio - fair value to amortized cost 100.0% 99.9% 97.9% 99.4% 99.6% Dividend payout ratio 50.0% 44.4% 45.1% 43.0% 41.8% Net loans to deposits ratio, average 93.3% 95.0% 96.1% 98.3% 96.2% 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 $28.48 $25.74 $0.2000 $0.7905 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 - DECEMBER 31, 2006 NET INTEREST MARGIN - YEAR-TO-DATE (dollars in thousands) December 31, 2006 December 31, 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 $38,765 $1,904 4.91% $58,973 $1,898 3.22% Investment securities 592,060 35,483 5.99% 614,922 34,418 5.60% Loans - commercial 830,141 64,405 7.76% 592,556 39,872 6.73% - commercial real estate 820,181 57,435 7.00% 562,852 36,914 6.56% - residential real estate 151,329 9,288 6.14% 128,120 8,027 6.27% - consumer 522,567 36,921 7.07% 431,008 28,327 6.57% Total earning assets $2,955,043 $205,436 6.95% $2,388,431 $149,456 6.26% Deposits - savings and NOW accounts $849,473 $17,624 2.07% $683,316 $9,504 1.39% - time 1,202,905 49,026 4.08% 852,596 26,927 3.16% Short-term borrowings 66,264 3,021 4.56% 49,494 1,479 2.99% Long-term debt 382,214 17,380 4.55% 443,509 19,700 4.44% Subordinated debt 49,853 3,683 7.39% 30,928 2,038 6.59% Total interest- bearing liabilities $2,550,709 $90,734 3.56% $2,059,843 $59,648 2.90% Interest income to earning assets 6.95% 6.26% Interest expense to paying liabilities 3.56% 2.90% Interest spread 3.39% 3.36% Impact of noninterest funds 0.49% 0.40% Net interest margin $114,702 3.88% $89,808 3.76% COMMUNITY BANKS, INC. & SUBSIDIARIES Fiscal Insight - DECEMBER 31, 2006 NET INTEREST MARGIN - QUARTER-TO-DATE (dollars in thousands) December 31, 2006 December 31, 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 $37,059 $477 5.11% $33,057 $307 3.68% Investment securities 610,312 9,405 6.11% 630,256 9,068 5.71% Loans - commercial 840,982 16,555 7.81% 766,532 13,763 7.12% - commercial real estate 822,007 14,694 7.09% 779,459 13,299 6.77% - residential real estate 150,132 2,355 6.22% 154,716 2,325 5.96% - consumer 540,653 9,876 7.25% 501,517 8,402 6.65% Total earning assets $3,001,145 $53,362 7.05% $2,865,537 $47,164 6.53% Deposits - savings and NOW accounts $876,404 $5,260 2.38% $848,320 $3,423 1.60% - time 1,277,996 14,326 4.45% 1,055,610 9,054 3.40% Short-term borrowings 77,910 941 4.79% 72,606 670 3.66% Long-term debt 318,078 3,769 4.70% 447,532 4,889 4.33% Subordinated debt 51,548 977 7.52% 30,928 557 7.15% Total interest- bearing liabilities $2,601,936 $25,273 3.85% $2,454,996 $18,593 3.00% Interest income to earning assets 7.05% 6.53% Interest expense to paying liabilities 3.85% 3.00% Interest spread 3.20% 3.53% Impact of noninterest funds 0.51% 0.43% Net interest margin $28,089 3.71% $28,571 3.96% COMMUNITY BANKS, INC. & SUBSIDIARIES Fiscal Insight - DECEMBER 31, 2006 NET INTEREST MARGIN - QUARTER-TO-DATE (dollars in thousands) December 31, 2006 September 30, 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 $37,059 $477 5.11% $29,324 $390 5.28% Investment securities 610,312 9,405 6.11% 566,772 8,556 5.99% Loans - commercial 840,982 16,555 7.81% 831,950 16,687 7.96% - commercial real estate 822,007 14,694 7.09% 831,288 14,810 7.07% - residential real estate 150,132 2,355 6.22% 150,926 2,364 6.21% - consumer 540,653 9,876 7.25% 525,188 9,552 7.22% Total earning assets $3,001,145 $53,362 7.05% $2,935,448 $52,359 7.08% Deposits - savings and NOW accounts $876,404 $5,260 2.38% $873,670 $4,969 2.26% - time 1,277,996 14,326 4.45% 1,219,679 12,889 4.19% Short-term borrowings 77,910 941 4.79% 60,680 739 4.83% Long-term debt 318,078 3,769 4.70% 340,162 3,936 4.59% Subordinated debt 51,548 977 7.52% 51,548 972 7.48% Total interest- bearing liabilities $2,601,936 $25,273 3.85% $2,545,739 $23,505 3.66% Interest income to earning assets 7.05% 7.08% Interest expense to paying liabilities 3.85% 3.66% Interest spread 3.20% 3.42% Impact of noninterest funds 0.51% 0.48% Net interest margin $28,089 3.71% $28,854 3.90% COMMUNITY BANKS, INC. & SUBSIDIARIES Fiscal Insight - DECEMBER 31, 2006 PERIOD-END LOAN PORTFOLIO ANALYSIS (dollars in thousands) 2006 2005 Fourth Third Second First Fourth Quarter Quarter Quarter Quarter Quarter Commercial: Commercial $763,800 $757,714 $763,637 $747,954 $723,248 Obligations of political subdivisions 101,555 79,028 76,408 75,449 59,698 Total commercial 865,355 836,742 840,045 823,403 782,946 Commercial real estate: Commercial mortgages $815,028 $820,619 $834,345 $805,120 $793,969 Residential real estate: Residential mortgages $141,826 $144,047 $144,590 $146,360 $149,525 Construction 7,290 6,918 5,770 5,136 4,532 Total residential real estate 149,116 150,965 150,360 151,496 154,057 Consumer: Home equity loans $322,712 $308,173 $282,777 $262,835 $252,080 Home equity lines of credit 92,163 96,608 103,216 105,933 113,133 Indirect consumer loans 65,699 66,126 67,786 66,344 63,644 Other consumer loans 60,816 68,926 66,148 71,689 77,236 Total consumer 541,390 539,833 519,927 506,801 506,093 Total loans $2,370,889 $2,348,159 $2,344,677 $2,286,820 $2,237,065 COMMUNITY BANKS, INC. & SUBSIDIARIES Fiscal Insight - DECEMBER 31, 2006 Reconciliation of GAAP to Non-GAAP Measures: (in millions, except per share data) 2006 Fourth Third Second First Annual Quarter Quarter Quarter Quarter Income statement data: Net income Net income $41.0 $9.4 $10.5 $10.5 $10.6 Amortization of core deposit and other intangible assets (1) 1.7 0.4 0.4 0.5 0.4 Merger, conversion and restructuring expenses (1) --- --- --- --- --- Net operating (tangible) income $42.7 $9.8 $10.9 $11.0 $11.0 Earnings per share Diluted earnings per common share $1.72 $0.40 $0.45 $0.44 $0.44 Amortization of core deposit and other intangible assets (1) 0.07 0.01 0.01 0.02 0.01 Merger, conversion and restructuring expenses (1) --- --- --- --- --- Diluted operating (tangible) earnings per share $1.79 $0.41 $0.46 $0.46 $0.45 Balance sheet data: Average assets Average assets $3,403 $3,452 $3,386 $3,392 $3,383 Goodwill (246) (246) (246) (246) (244) Core deposit and other intangible assets (13) (13) (13) (13) (14) Average tangible assets $3,144 $3,193 $3,127 $3,133 $3,125 Operating return on average tangible assets 1.36% 1.22% 1.39% 1.40% 1.43% Average equity Average equity $476 $482 $472 $471 $479 Goodwill (246) (246) (246) (246) (245) Core deposit and other intangible assets (13) (13) (13) (13) (14) Deferred taxes 1 1 2 2 2 Average tangible equity $218 $224 $215 $214 $222 Operating return on average tangible equity 19.57% 17.37% 20.31% 20.59% 20.12% At end of quarter: Total assets Total assets $3,496 $3,496 $3,431 $3,386 $3,422 Goodwill (246) (246) (246) (245) (245) Core deposit and other intangible assets (13) (13) (13) (14) (14) Total tangible assets $3,237 $3,237 $3,172 $3,127 $3,163 Total equity Total equity $486 $486 $480 $466 $476 Goodwill (246) (246) (246) (245) (245) Core deposit and other intangible assets (13) (13) (14) (14) (14) Deferred taxes 1 1 2 2 2 Total tangible equity $228 $228 $222 $209 $219 Tangible book value at end of period $9.71 $9.71 $9.45 $8.91 $9.19 Tangible equity to assets 7.05% 7.05% 6.99% 6.68% 6.93% (1) Net of related tax effect 2005 Fourth Annual Quarter Income statement data: Net income $25.6 $10.9 Amortization of core deposit and other intangible assets (1) 1.2 0.6 Merger, conversion and restructuring expenses (1) 5.3 --- Net operating (tangible) income $32.1 $11.5 Earnings per share Diluted earnings per common share $1.35 $0.45 Amortization of core deposit and other intangible assets (1) 0.06 0.02 Merger, conversion and restructuring expenses (1) 0.28 --- Diluted operating (tangible) earnings per share $1.69 $0.47 Balance sheet data: Average assets Average assets $2,669 $3,314 Goodwill (124) (243) Core deposit and other intangible assets (8) (15) Average tangible assets $2,537 $3,056 Operating return on average tangible assets 1.27% 1.50% Average equity Average equity $319 $476 Goodwill (124) (243) Core deposit and other intangible assets (8) (15) Deferred taxes 1 1 Average tangible equity $188 $219 Operating return on average tangible equity 17.09% 20.83% At end of quarter: Total assets Total assets $3,332 $3,332 Goodwill (245) (245) Core deposit and other intangible assets (14) (14) Total tangible assets $3,073 $3,073 Total equity Total equity $477 $477 Goodwill (245) (245) Core deposit and other intangible assets (14) (14) Deferred taxes 1 1 Total tangible equity $219 $219 Tangible book value at end of period $9.12 $9.12 Tangible equity to assets 7.14% 7.14% (1) 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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