CMTY Community Bks Millersbur (MM)

HARRISBURG, Pa., April 18 /PRNewswire-FirstCall/ -- Community Banks, Inc. ("Community") (NASDAQ:CMTY) today reported improved operating results for the first quarter of 2007, reflecting net income of $9.6 million and earnings per share of $0.41. These results were slightly ahead of the net income of $9.4 million and earnings per share of $0.40 reported in the immediately preceding fourth quarter of 2006. First quarter 2007 performance produced more stable funding expenses than those experienced in the fourth quarter of 2006, which contributed to a modest improvement in Community's largest source of revenue, net interest income. "Since mid-year 2006, we have consistently commented on the lingering presence of a flat or inverted yield curve and its impact on our ability to achieve incrementally higher levels of revenue growth, particularly net interest income" explained Eddie L. Dunklebarger, President and CEO of Community. "We remain optimistic about our ability to moderate the effect of the yield curve on our earnings growth trends. We believe, however, that the banking industry is likely to face some headwinds that could temper the pace of profit improvement in the near term. We remain confident in our ability to weather these short-term trends and are convinced that we will continue to re- align our expense levels with our revenue stream as we did in this most recent quarter. Unfortunately, more substantial improvements in top-line banking revenues will remain challenging for most of the industry until these yield curve trends begin to reverse and normalize," he added. Despite the constraining influence of interest rate trends on both net interest income and profit growth, most other critical performance metrics at Community continued to reflect favorable operating conditions. These conditions included solid loan and deposit growth, stable asset quality, modest increases in operating expenses, and continued focus on the expansion of other sources of revenue. Notably, Community reported no loss exposure related to the sub-prime mortgage issues that have adversely influenced first quarter 2007 performance in certain other sectors of the financial services industry. Performance Overview Although operating results in the first quarter of 2007 were 7% under those reported in the first quarter of 2006, loan and deposit balances reflected solid increases of 5% and 7%, respectively. Net interest margin, a critical determinant of net interest income growth for financial institutions, declined from 3.98% to 3.76% between the two periods, largely attributed to the aforementioned interest rate conditions. Comparisons to the year ago first quarter reflected increasing consumer preference for shorter duration time deposits combined with some attrition in certain lower-cost core funding sources, particularly non-interest checking accounts. Rate offerings on short-term time deposits were sensitive to the series of Fed-influenced rate increases that produced sustained deposit pricing pressure since mid-year 2006, particularly on those time deposit categories with maturities of less than two years. This has produced an increased weighting of these deposits in Community's funding mix and contributed to the funding cost increase. "Fully-taxable equivalent net interest income reached $28.7 million in the first quarter of 2007, reversing the trend which produced a recent low point of $28.1 million in the fourth quarter of 2006. The fourth quarter of 2006 had produced disproportionate increases in the cost of funding sources attributed to Community's re-pricing of a substantial portion its time deposit base. Performance in the first quarter of 2007 suggests that incremental re- pricing of time deposits abated to some degree, resulting in stabilization of net interest income. During the first quarter of 2007, Community recorded a provision for loan losses that permitted the allowance for credit losses to keep pace with overall loan growth and sustained the ratio of the allowance to loans at 1.00%. Overall credit quality metrics remained relatively stable with no major changes in Community's asset quality profile since the end of 2006. The provision of $1.3 million was substantially in excess of first quarter net charge-offs of $547,000. Non-interest income grew nearly 15% from the first quarter of 2006, a considerable portion of which related to the purchases of an additional insurance agency in May, 2006, and a trust business in October, 2006. Accordingly, the first quarter of 2006 reflected no revenues from these acquired businesses and the increases related thereto produced more than half of the overall increases in total non-interest income. Deposit and service fees continued to experience organic growth, providing most of the remaining improvement in other income. At the end of 2006, Community announced its intention to accelerate expense saving initiatives related to both a reduction in operating regions from nine to six, and to the introduction of its more expansive office rationalization process. In connection with these efforts, Community identified initial salary and benefit savings in the first quarter, the majority of which were facilitated through early retirement, scheduled attrition, or selected staff reductions. Community incurred nearly $300,000 of one-time expenses in the opening quarter of 2007, but expects to recognize nearly $1.8 million of related annual savings for the remainder of the year. Additionally, Community is continuing its office rationalization process that has resulted in a more focused review and analysis of under-performing offices and produced strategic delays in previously-planned office openings. These efforts will continue throughout 2007, with additional efficiencies to be realized throughout the remainder of the year. The efficiency ratio, which compares the relative levels of expenses to revenues, declined to 58.1% and reflected improvement from the 61.0% performance in the fourth quarter of 2006. Community continued its emphasis on ensuring that operating expenses are appropriately aligned with its revenue stream. While first quarter 2007 expenses grew 7.8% from the first quarter of 2006, expenses exhibited no increase since the more recent fourth quarter. The comparative increase from the first quarter of 2006 was largely attributable to the increased expenses associated with the acquired insurance and trust businesses. After excluding these incremental expenses, which were not present in the first quarter of 2006, core expense growth approximated 5%. Mergers On April 1, 2007, Community completed its mergers with BUCS Financial Corp (BUCS) ($149 million in assets) and East Prospect State Bank (East Prospect) ($61 million in assets). BUCS' four branches, plus two banking offices already operated by CommunityBanks in Carroll County, Md., will be newly designated as CommunityBanks' Central Maryland region. East Prospect's single banking office has become a part of CommunityBanks' York region, giving the bank its 21st office in York County, Pennsylvania. These two mergers provide an important market extension into the desirable, adjacent Central Maryland region and bolster Community's position in the vibrant York County, Pennsylvania, market. Effective with the completion of the two mergers, Community's operating footprint will boast assets of nearly $3.8 billion and 80 banking offices that extend throughout the center of Pennsylvania from the Pocono region into suburban Baltimore, Maryland. 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. Adoption of Accounting Standards In February of 2007, the Financial Accounting Standards Board issued Statement of Financial Accounting Standard (SFAS) No. 159, which is entitled "The Fair Value Option for Financial Assets and Financial Liabilities". This new accounting pronouncement permits the measurement of selected eligible financial instruments at their fair value as of the effective date of adoption. This accounting standard, and its companion standard, SFAS No. 157 "Fair Value Measurements", are to be adopted no later than January 1, 2008. However, each of these standards permitted early adoption, subject to certain conditions. Effective January 1, 2007, Community elected to adopt SFAS No. 157 and SFAS No. 159, pursuant to the early adoption guidance. Upon adoption, Community selected the fair value option for certain investment securities with a basis of approximately $150 million, the majority of which had stated yields below 5%. As of the end of 2006, these investments had been included in its "available for sale" portfolio. Effective January 1, 2007, these securities were transferred to Community's "trading securities" account at their fair market value. Pursuant to the guidance in SFAS No. 159, this transfer resulted in a one-time cumulative effect charge of $3.1 million, net of tax, to opening shareholders' equity and had no impact on 2007 earnings. This one-time charge did not adversely affect shareholders' equity at January 1, 2007, because the fair value adjustment for these securities had been included as a component of the other comprehensive income adjustment under pre-existing accounting rules. Prior to the adoption of these standards, Community had intended to hold these securities until their scheduled maturity or until there was a recovery in the market prices associated with these specific investments. After March 31, 2007, Community decided to sell its portfolio of trading securities, which had been categorized as such upon the adoption of SFAS No. 159. Community believes that the adoption of SFAS No. 159, combined with its decision to sell and reinvest the proceeds of its trading securities portfolio, will have a beneficial impact on its earnings for the remainder of 2007 and beyond. This strategy presented Community with an opportunity to reduce its exposure to lower-yielding, shorter duration bonds. These bonds presented substantial prepayment risk in a period when cash flows would be reinvested in a potentially unfavorable interest rate environment. Community reinvested the sales proceeds to acquire investments that provided both longer duration and favorable call provisions more consistent with Community's desired balance sheet posture. Community reported a relatively modest pre-tax gain of $146,000 from trading activities in the first quarter of 2007. 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. 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 March 31, 2007 2006 Consolidated summary of operations: Interest income $52,409 $46,889 Interest expense 25,972 20,025 Net interest income 26,437 26,864 Provision for loan losses 1,300 500 Net interest income after provision for loan losses 25,137 26,364 Non-interest income: Investment management and trust services 1,445 1,013 Service charges on deposit accounts 2,996 2,531 Other service charges, commissions, and fees 2,028 1,700 Investment security gains 2 283 Trading activities gain 146 --- Insurance premium income and commissions 1,176 928 Mortgage banking activities 548 468 Earnings on investment in life insurance 688 656 Other 591 805 Total non-interest income 9,620 8,384 Non-interest expenses: Salaries and employee benefits 12,009 11,418 Net occupancy and equipment expense 3,794 3,512 Marketing expense 505 575 Telecommunications expense 525 551 Amortization of intangibles 661 654 Other 4,647 3,823 Total non-interest expenses 22,141 20,533 Income before income taxes 12,616 14,215 Income taxes 2,970 3,646 Net income $9,646 $10,569 Net loan charge-offs $547 $155 Net interest margin (FTE) 3.76% 3.98% Efficiency ratio (2) 58.06% 55.96% Return on average assets 1.10% 1.27% Return on average stockholders' equity 8.04% 8.96% Net operating (tangible) income (3) $10,075 $10,994 Operating return on average tangible assets (3)(4) 1.24% 1.43% Operating return on average tangible equity (3)(4) 17.82% 20.12% Consolidated per share data: Basic earnings per share $0.41 $0.44 Diluted earnings per share $0.41 $0.44 Book value at end of period $20.83 $19.96 Tangible book value at end of period (4) $9.91 $9.19 COMMUNITY BANKS, INC. Selected Financial Information (Dollars in thousands, except per share data) (1) Consolidated balance sheet data: Three Months Ended March 31, 2007 2006 Average total loans $2,404,530 $2,289,979 Average earning assets 3,097,626 2,938,647 Average assets 3,544,059 3,383,211 Average tangible assets (4) 3,284,976 3,124,522 Average deposits 2,462,141 2,301,898 Average stockholders' equity 486,798 478,507 Average tangible equity (4) 229,261 221,552 Average diluted shares outstanding 23,682,671 24,189,097 3/31/2007 vs. March 31, December 31, March 31, 3/31/2006 2007 2006 2006 % Change Assets $3,629,386 $3,496,370 3,421,562 6% Total loans 2,442,318 2,370,889 2,286,820 7% Deposits 2,529,187 2,513,182 2,373,865 7% Stockholders' equity 490,564 486,161 475,587 3% Common shares outstanding 23,545,448 23,519,041 23,831,307 (1)% Non-accrual loans $15,715 $12,545 $10,102 56% Loans renegotiated with borrowers --- --- 110 n/a Foreclosed real estate 61 37 1,728 (96)% Total non-performing assets 15,776 12,582 11,940 32% Accruing loans 90 days past due 101 659 29 248% Total risk elements $15,877 $13,241 $11,969 33% Allowance for loan losses $24,379 $23,626 $23,310 5% Asset quality ratios: Allowance for loan losses to total loans 1.00% 1.00% 1.02% Allowance for loan losses to non-accrual loans 155% 188% 231% Non-accrual loans to total loans 0.64% 0.53% 0.44% Non-performing assets to total assets 0.43% 0.36% 0.35% (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 6. (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 6. COMMUNITY BANKS, INC. Selected Financial Information (Dollars in thousands, except per share data) Reconciliation of GAAP to Non-GAAP Measures (1): Three Months Ended March 31, 2007 2006 Income statement data: Net income Net income $9,646 $10,569 Amortization of core deposit and other intangible assets (1) 429 425 Net operating (tangible) income $10,075 $10,994 Balance sheet data: Average assets Average assets $3,544,059 $3,383,211 Goodwill (246,400) (244,775) Core deposit and other intangible assets (12,683) (13,914) Average tangible assets $3,284,976 $3,124,52 Operating return on average tangible assets 1.24% 1.43% Average equity Average equity $486,798 $478,507 Goodwill (246,400) (244,775) Core deposit and other intangible assets (12,683) (13,914) Deferred taxes 1,546 1,734 Average tangible equity $229,261 $221,552 Operating return on average tangible equity 17.82% 20.12% At end of quarter: Total assets Total assets $3,629,386 $3,421,562 Goodwill (246,449) (244,760) Core deposit and other intangible assets (12,363) (13,599) Total tangible assets $3,370,574 $3,163,203 Total equity Total equity $490,564 $475,587 Goodwill (246,449) (244,760) Core deposit and other intangible assets (12,363) (13,599) Deferred taxes 1,482 1,854 Total tangible equity $233,234 $219,082 Tangible book value at end of period $9.91 $9.19 (1) Net of related tax effect COMMUNITY BANKS, INC. & SUBSIDIARIES Fiscal Insight - March 31, 2007 KEY RATIOS (1) 2007 2006 First Fourth Third Second First Quarter Quarter Quarter Quarter Quarter Annual Diluted earnings per share $0.41 $0.40 $0.45 $ 0.44 $0.44 $1.72 Tangible operating earnings per share (1) $0.43 $0.41 $0.46 $0.46 $0.45 $1.79 Return on average assets 1.10% 1.08% 1.24% 1.24% 1.27% 1.21% Return on average equity 8.04% 7.74% 8.88% 8.95% 8.96% 8.63% Operating return on average tangible assets (2) 1.24% 1.22% 1.39% 1.40% 1.43% 1.36% Operating return on average tangible equity(2) 17.82% 17.37% 20.31% 20.59% 20.12% 19.57% Net interest margin 3.76% 3.71% 3.90% 3.94% 3.98% 3.88% Non-interest income/revenues (FTE excluding security gains) 24.82% 23.83% 23.40% 22.76% 21.93% 22.99% Provision for loan losses/average loans (annualized) 0.22% 0.11% 0.04% 0.11% 0.09% 0.09% Efficiency ratio (4) 58.06% 60.97% 56.25% 56.18% 55.96% 57.33% Non-performing assets to period-end loans 0.65% 0.53% 0.50% 0.50% 0.52% 90 day past due loans to period-end loans 0.00% 0.03% 0.03% 0.03% 0.00% Total risk elements to period-end loans 0.65% 0.56% 0.53% 0.53% 0.52% Allowance for loan losses to loans 1.00% 1.00% 1.02% 1.01% 1.02% 1.00% Allowance for loan losses to non-accrual loans 155% 188% 207% 207% 231% 188% Net charge-offs/ average loans (annualized) 0.09% 0.18% 0.00% 0.03% 0.03% 0.06% Equity to assets 13.52% 13.90% 13.98% 13.76% 13.90% 13.90% Tangible equity to assets (3) 6.92% 7.05% 6.99% 6.68% 6.93% 7.05% (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 net securities transactions. COMMUNITY BANKS, INC. & SUBSIDIARIES Fiscal Insight - MARCH 31, 2007 PER SHARE STATISTICS* Diluted Earnings (Loss) per Share Fourth Third Second First Quarter Quarter Quarter Quarter Total 2007 $0.41 $0.41 2006 $0.40 $0.45 $0.44 $0.44 $1.72 2005 $0.45 $0.42 $(0.09) $0.42 $1.35 Average Diluted Shares Outstanding (in thousands) Fourth Third Second First Average for Quarter Quarter Quarter Quarter Year 2007 23,683 23,683 2006 23,728 23,663 23,858 24,189 23,918 2005 24,421 24,750 13,240 13,192 18,975 Book Value per Share Fourth Third Second First Quarter Quarter Quarter Quarter 2007 $20.83 2006 $20.67 $20.43 $19.86 $19.96 2005 $19.81 $19.83 $11.82 $11.74 Tangible Book Value per Share Fourth Third Second First Quarter Quarter Quarter Quarter 2007 $9.91 2006 $9.71 $9.45 $8.91 $9.19 2005 $9.12 $9.26 $11.43 $11.35 * Per share data reflect stock splits and stock dividends COMMUNITY BANKS, INC. & SUBSIDIARIES Fiscal Insight - MARCH 31, 2007 QUARTER END INFORMATION (dollars in thousands) 2007 2006 First Fourth Third Second First Quarter Quarter Quarter Quarter Quarter Total loans $2,442,318 $ 2,370,889 $2,348,159 $2,344,677 $2,286,820 Allowance for loan losses (24,379) (23,626) (24,034) (23,788) (23,310) Loans, net 2,417,939 2,347,263 2,324,125 2,320,889 2,263,510 Earning assets 3,153,614 3,033,585 2,971,391 2,922,356 2,960,648 Goodwill and other intangible assets 258,812 259,406 259,505 258,606 258,359 Total assets 3,629,386 3,496,370 3,431,208 3,385,599 3,421,562 Deposits 2,529,187 2,513,182 2,483,519 2,406,551 2,373,865 Long-term debt 438,196 315,079 336,954 363,816 443,275 Subordinated debt 72,167 51,548 51,548 51,548 51,548 Total shareholder's equity 490,564 486,161 479,584 465,760 475,587 Accumulated other comprehensive income (loss) (net of tax) 650 (1,806) (2,670) (10,107) (4,368) COMMUNITY BANKS, INC. & SUBSIDIARIES Fiscal Insight - MARCH 31, 2007 CONDENSED CONSOLIDATED QUARTERLY AVERAGE STATEMENTS OF CONDITION (dollars in thousands) 2007 2006 First Fourth Third Second First Quarter Quarter Quarter Quarter Quarter Assets Earning Assets: Loans $2,404,530 $2,353,774 $2,339,352 $2,312,900 $2,289,979 Federal funds sold and other 10,701 37,059 29,324 53,872 34,777 Investment securities 682,395 610,312 566,772 577,581 613,891 Total earning assets 3,097,626 3,001,145 2,935,448 2,944,353 2,938,647 Cash and due from banks 55,542 62,318 62,636 59,461 59,253 Allowance for loan losses (24,022) (24,102) (24,385) (23,882) (23,172) Goodwill and other intangible assets 259,083 259,373 259,023 259,003 258,689 Premises, equipment and other assets 155,830 153,361 153,183 152,973 149,794 Total assets $3,544,059 $3,452,095 $3,385,905 $3,391,908 $3,383,211 Liabilities and equity Interest-bearing liabilities: Deposits Savings and NOW accounts $858,469 $876,404 $873,670 $820,265 $826,742 Time 994,824 1,010,249 984,415 981,371 900,698 Time deposits greater than $100,000 268,268 267,747 235,264 228,931 200,821 Short-term borrowings 124,985 77,910 60,680 57,903 68,524 Long-term debt 391,196 318,078 340,162 405,705 467,010 Subordinated debt 56,817 51,548 51,548 51,548 44,674 Total interest- bearing liabilities 2,694,559 2,601,936 2,545,739 2,545,723 2,508,469 Noninterest- bearing deposits 340,580 342,766 344,708 350,574 373,637 Other liabilities 22,122 25,659 23,547 24,916 22,598 Total liabilities 3,057,261 2,970,361 2,913,994 2,921,213 2,904,704 Stockholders' equity 486,798 481,734 471,911 470,695 478,507 Total liabilities and stockholders' equity $3,544,059 $3,452,095 $3,385,905 $3,391,908 $3,383,211 CHANGE IN AVERAGE BALANCES* 2007 2006 First Fourth Third Second First Quarter Quarter Quarter Quarter Quarter Loans 5.0% 6.9% 9.3% 82.8% 86.0% Total assets 4.8% 4.2% 2.1% 66.1% 70.6% Deposits 7.0% 10.4% 8.4% 72.2% 73.5% Stockholders' equity 1.7% 1.3% (1.9)% 205.9% 206.0% * Compares the current quarter to the comparable quarter of the prior year COMMUNITY BANKS, INC. & SUBSIDIARIES Fiscal Insight - MARCH 31, 2007 CONDENSED CONSOLIDATED STATEMENTS OF INCOME (dollars in thousands) 2007 2006 First Fourth Third Quarter Quarter Quarter Interest income $52,409 $51,364 $50,443 Tax equivalent adjustment 2,253 1,998 1,916 54,662 53,362 52,359 Interest expense 25,972 25,273 23,505 Net interest income 28,690 28,089 28,854 Provision for loan losses 1,300 650 250 Net interest income after provision 27,390 27,439 28,604 Non-interest income 8,924 8,194 8,279 Investment security gains income 2 415 28 Trading activities gain (loss) 146 --- --- Mortgage banking activities income 548 591 533 Non-interest expenses 22,141 22,482 21,172 Income before income taxes 14,869 14,157 16,272 Income taxes 2,970 2,759 3,798 Tax equivalent adjustment 2,253 1,998 1,916 NET INCOME $9,646 $9,400 $ 10,558 Tax effect of security transactions $1 $145 $10 2006 Second First Quarter Quarter Annual Interest income $48,938 $46,889 $197,634 Tax equivalent adjustment 1,910 1,978 7,802 50,848 48,867 205,436 Interest expense 21,931 20,025 90,734 Net interest income 28,917 28,842 114,702 Provision for loan losses 650 500 2,050 Net interest income after provision 28,267 28,342 112,652 Non-interest income 7,957 7,633 32,063 Investment security gains income 6 283 732 Trading activities gain (loss) --- --- --- Mortgage banking activities income 580 468 2,172 Non-interest expenses 20,698 20,533 84,885 Income before income taxes 16,112 16,193 62,734 Income taxes 3,698 3,646 13,901 Tax equivalent adjustment 1,910 1,978 7,802 NET INCOME $10,504 $10,569 $41,031 Tax effect of security transactions $2 $99 $256 COMMUNITY BANKS, INC. & SUBSIDIARIES Fiscal Insight - MARCH 31, 2007 ANALYSIS OF NON-INTEREST INCOME (dollars in thousands) 2007 2006 First Fourth Third Quarter Quarter Quarter Investment management and trust services $1,445 $1,325 $968 Service charges on deposit accounts 2,996 3,084 3,037 Other service charges, commissions and fees 2,028 1,852 1,817 Insurance premium income and commissions 1,176 1,022 1,053 Earnings on investment in life insurance 688 715 679 Other income 591 196 725 Total non-interest income $8,924 $8,194 $8,279 (dollars in thousands) 2006 Second First Quarter Quarter Annual Investment management and trust services $1,088 $1,013 $4,394 Service charges on deposit accounts 2,855 2,531 11,507 Other service charges, commissions and fees 1,903 1,700 7,272 Insurance premium income and commissions 1,117 928 4,120 Earnings on investment in life insurance 675 656 2,725 Other income 319 805 2,045 Total non-interest income $7,957 $7,633 $32,063 ANALYSIS OF NON-INTEREST EXPENSES (dollars in thousands) 2007 2006 First Fourth Third Quarter Quarter Quarter Salaries and employee benefits $12,009 $12,154 $11,611 Net occupancy and equipment expense 3,794 3,767 3,452 Marketing expense 505 558 354 Telecommunications expense 525 584 542 Amortization of intangibles 661 624 659 Other operating expenses 4,647 4,795 4,554 Total non-interest expenses $22,141 $22,482 $21,172 2006 Second First Quarter Quarter Annual Salaries and employee benefits $11,251 $11,418 $46,434 Net occupancy and equipment expense 3,386 3,512 14,117 Marketing expense 265 575 1,752 Telecommunications expense 566 551 2,243 Amortization of intangibles 702 654 2,639 Other operating expenses 4,528 3,823 17,700 Total non-interest expenses $20,698 $20,533 $84,885 COMMUNITY BANKS, INC. & SUBSIDIARIES Fiscal Insight - MARCH 31, 2007 RISK ELEMENTS ANALYSIS (dollars in thousands) 2007 2006 First Fourth Third Second First Quarter Quarter Quarter Quarter Quarter Non-performing assets: Non-accrual loans $15,715 $12,545 $11,626 $11,492 $10,102 Loans renegotiated with borrowers --- --- --- 108 110 Foreclosed real estate 61 37 52 108 1,728 Total non-performing assets 15,776 12,582 11,678 11,708 11,940 Accruing loans 90 days or more past due 101 659 685 621 29 Total risk elements $15,877 $13,241 $12,363 $12,329 $11,969 Non-performing assets to period-end loans 0.65% 0.53% 0.50% 0.50% 0.52% 90 day past due loans to period-end loans 0.00% 0.03% 0.03% 0.03% 0.00% Total risk elements to period-end loans 0.65% 0.56% 0.53% 0.53% 0.52% COMMUNITY BANKS, INC. & SUBSIDIARIES Fiscal Insight - MARCH 31, 2007 ALLOWANCE FOR LOAN LOSSES (dollars in thousands) 2007 2006 First Fourth Third Second First Quarter Quarter Quarter Quarter Quarter Balance at beginning of period $23,626 $24,034 $23,788 $23,310 $22,965 Loans charged off (922) (1,136) (499) (342) (313) Recoveries 375 78 495 170 158 Net loans charged off (547) (1,058) (4) (172) (155) Provision for loan losses 1,300 650 250 650 500 Balance at end of period $24,379 $23,626 $24,034 $23,788 $23,310 Net loans charged-off to average loans* 0.09% 0.18% 0.00% 0.03% 0.03% Provision for loan losses to average loans* 0.22% 0.11% 0.04% 0.11% 0.09% Allowance for loan losses to loans 1.00% 1.00% 1.02% 1.01% 1.02% *Annualized COMMUNITY BANKS, INC. & SUBSIDIARIES Fiscal Insight - MARCH 31, 2007 OTHER RATIOS 2007 2006 First Fourth Third Second First Quarter Quarter Quarter Quarter Quarter Investment portfolio - fair value to amortized cost 100.6% 100.0% 99.9% 97.9% 99.4% Dividend payout ratio 51.3% 50.0% 44.4% 45.1% 43.0% Net loans to deposits ratio, average 96.7% 93.3% 95.0% 96.1% 98.3% MARKET PRICE AND DIVIDENDS DECLARED * Closing Bid Price Range Dividends Year / Quarter High Low Declared 2007 First $28.11 $22.96 $0.2100 Second Third Fourth $0.2100 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 * Per share data reflect stock splits and dividends COMMUNITY BANKS, INC. & SUBSIDIARIES Fiscal Insight - MARCH 31, 2007 NET INTEREST MARGIN - YEAR-TO-DATE (dollars in thousands) March 31, 2007 Average FTE Interest Average Rate Balance Income/Expense Earned/Paid Federal funds sold and interest-bearing deposits in banks $10,701 $135 5.12% Investment securities 682,395 10,379 6.17% Loans - commercial 895,114 17,792 8.06% - commercial real estate 810,424 14,174 7.09% - residential real estate 151,141 2,397 6.43% - consumer 547,851 9,785 7.24% Total earning assets $3,097,626 $54,662 7.16% Deposits - savings and NOW accounts $858,469 $4,835 2.28% - time 1,263,092 14,051 4.51% Short-term borrowings 124,985 1,564 5.07% Long-term debt 391,196 4,500 4.67% Subordinated debt 56,817 1,022 7.29% Total interest-bearing liabilities $2,694,559 $25,972 3.91% Interest income to earning assets 7.16% Interest expense to paying liabilities 3.91% Interest spread 3.25% Impact of noninterest funds 0.51% Net interest margin $28,690 3.76% (dollars in thousands) March 31, 2006 Average FTE Interest Average Rate Balance Income/Expense Earned/Paid Federal funds sold and interest-bearing deposits in banks $34,885 $393 4.57% Investment securities 613,891 8,901 5.88% Loans - commercial 808,108 15,145 7.60% - commercial real estate 799,505 13,605 6.90% - residential real estate 153,282 2,297 6.08% - consumer 528,976 8,526 6.54% Total earning assets $2,938,647 $48,867 6.74% Deposits - savings and NOW accounts $826,742 $3,501 1.72% -time 1,101,519 9,920 3.65% Short-term borrowings 68,524 696 4.12% Long-term debt 467,010 5,111 4.44% Subordinated debt 44,674 797 7.24% Total interest-bearing liabilities $2,508,469 $20,025 3.24% Interest income to earning assets 6.74% Interest expense to paying liabilities 3.24% Interest spread 3.50% Impact of noninterest funds 0.48% Net interest margin $28,842 3.98% COMMUNITY BANKS, INC. & SUBSIDIARIES Fiscal Insight - MARCH 31, 2007 NET INTEREST MARGIN - QUARTER-TO-DATE (dollars in thousands) March 31, 2007 Average FTE Interest Average Rate Balance Income/Expense Earned/Paid Federal funds sold and interest-bearing deposits in banks $10,701 $135 5.12% Investment securities 682,395 10,379 6.17% Loans - commercial 895,114 17,792 8.06% - commercial real estate 810,424 14,174 7.09% - residential real estate 151,141 2,397 6.43% - consumer 547,851 9,785 7.24% Total earning assets $3,097,626 $54,662 7.16% Deposits - savings and NOW accounts $858,469 $4,835 2.28% - time 1,263,092 14,051 4.51% Short-term borrowings 124,985 1,564 5.07% Long-term debt 391,196 4,500 4.67% Subordinated debt 56,817 1,022 7.29% Total interest-bearing liabilities $2,694,559 $25,972 3.91% Interest income to earning assets 7.16% Interest expense to paying liabilities 3.91% Interest spread 3.25% Impact of noninterest funds 0.51% Net interest margin $28,690 3.76% (dollars in thousands) December 31, 2006 Average FTE Interest Average Rate Balance Income/Expense Earned/Paid Federal funds sold and interest-bearing deposits in banks $37,059 $477 5.11% Investment securities 610,312 9,405 6.11% Loans - commercial 840,982 16,555 7.81% - commercial real estate 822,007 14,694 7.09% - residential real estate 150,132 2,355 6.22% - consumer 540,653 9,876 7.25% Total earning assets $3,001,145 $53,362 7.05% Deposits - savings and NOW accounts $876,404 $5,260 2.38% - time 1,277,996 14,326 4.45% Short-term borrowings 77,910 941 4.79% Long-term debt 318,078 3,769 4.70% Subordinated debt 51,548 977 7.52% Total interest-bearing liabilities $2,601,936 $25,273 3.85% Interest income to earning assets 7.05% Interest expense to paying liabilities 3.85% Interest spread 3.20% Impact of noninterest funds 0.51% Net interest margin $28,089 3.71% COMMUNITY BANKS, INC. & SUBSIDIARIES Fiscal Insight - MARCH 31, 2007 PERIOD-END LOAN PORTFOLIO ANALYSIS (dollars in 2007 2006 thousands) First Fourth Third Second First Quarter Quarter Quarter Quarter Quarter Commercial: Commercial $824,301 $763,800 $757,714 $763,637 $747,954 Obligations of political subdivisions 101,090 101,555 79,028 76,408 75,449 Total commercial 925,391 865,355 836,742 840,045 823,403 Commercial real estate: Commercial mortgages $804,652 $815,028 $820,619 $834,345 $805,120 Residential real estate: Residential mortgages $145,719 $141,826 $144,047 $144,590 $146,360 Construction 6,730 7,290 6,918 5,770 5,136 Total residential real estate 152,449 149,116 150,965 150,360 151,496 Consumer: Home equity loans $331,418 $322,712 $308,173 $282,777 $262,835 Home equity lines of credit 90,675 92,163 96,608 103,216 105,933 Indirect consumer loans 69,097 65,699 66,126 67,786 66,344 Other consumer loans 68,636 60,816 68,926 66,148 71,689 Total consumer 559,826 541,390 539,833 519,927 506,801 Total loans $2,442,318 $2,370,889 $2,348,159 $2,344,677 $2,286,820 COMMUNITY BANKS, INC. & SUBSIDIARIES Fiscal Insight - MARCH 31, 2007 Reconciliation of GAAP to Non-GAAP Measures: (in thousands, except 2007 2006 per share data) First Fourth Third Quarter Quarter Quarter Income statement data: Net income Net income $9,646 $9,400 $10,558 Amortization of core deposit and other intangible assets(1) 429 406 428 Net operating (tangible) income $10,075 $9,806 $10,986 Earnings per share Diluted earnings per common share $0.41 $0.40 $0.45 Amortization of core deposit and other intangible assets(1) 0.02 0.01 0.01 Diluted operating (tangible) earnings per share $0.43 $0.41 $0.46 Balance sheet data: Average assets Average assets $3,544,059 $3,452,095 $3,385,905 Goodwill (246,400) (246,287) (245,794) Core deposit and other intangible assets (12,683) (13,086) (13,229) Average tangible assets $3,284,976 $3,192,722 $3,126,882 Operating return on average tangible assets 1.24% 1.22% 1.39% Average equity Average equity $486,798 $481,734 $471,911 Goodwill (246,400) (246,287) (245,794) Core deposit and other intangible assets (12,683) (13,086) (13,229) Deferred taxes 1,546 1,652 1,755 Average tangible equity $229,261 $224,013 $214,643 Operating return on average tangible equity 17.82% 17.37% 20.31% At end of quarter: Total assets Total assets $3,629,386 $3,496,370 $3,431,208 Goodwill (246,449) (246,383) (245,864) Core deposit and other intangible assets (12,363) (13,023) (13,641) Total tangible assets $3,370,574 $3,236,964 $3,171,703 Total equity Total equity $490,564 $486,161 $479,584 Goodwill (246,449) (246,383) (245,864) Core deposit and other intangible assets (12,363) (13,023) (13,641) Deferred taxes 1,482 1,591 1,698 Total tangible equity $233,234 $228,346 $221,777 Tangible book value at end of period $9.91 $9.71 $9.45 Tangible equity to assets 6.92% 7.05% 6.99% (in thousands, except 2006 per share data) Second First Quarter Quarter Annual Income statement data: Net income Net income $10,504 $10,569 $41,031 Amortization of core deposit and other intangible assets(1) 456 425 1,715 Net operating (tangible) income $10,960 $10,994 $42,746 Earnings per share Diluted earnings per common share $0.44 $0.44 $1.72 Amortization of core deposit and other intangible assets(1) 0.02 0.01 0.07 Diluted operating (tangible) earnings per share $0.46 $0.45 $1.79 Balance sheet data: Average assets Average assets $3,391,908 $3,383,211 $3,403,421 Goodwill (245,749) (244,775) (245,652) Core deposit and other intangible assets (13,254) (13,914) (13,369) Average tangible assets $3,132,905 $3,124,522 $3,144,400 Operating return on average tangible assets 1.40% 1.43% 1.36% Average equity Average equity $470,695 $478,507 $475,710 Goodwill (245,749) (244,775) (245,652) Core deposit and other intangible assets (13,254) (13,914) (13,368) Deferred taxes 1,836 1,734 1,744 Average tangible equity $213,528 $221,552 $218,434 Operating return on average tangible equity 20.59% 20.12% 19.57% At end of quarter: Total assets Total assets $3,385,599 $3,421,562 $3,496,370 Goodwill (245,056) (244,760) (246,383) Core deposit and other intangible assets (13,550) (13,599) (13,023) Total tangible assets $3,126,993 $3,163,203 $3,236,964 Total equity Total equity $465,760 $475,587 $486,161 Goodwill (245,056) (244,760) (246,383) Core deposit and other intangible assets (13,550) (13,599) (13,023) Deferred taxes 1,800 1,854 1,591 Total tangible equity $208,954 $219,082 $228,346 Tangible book value at end of period $8.91 $9.19 $9.71 Tangible equity to assets 6.68% 6.93% 7.05% (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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