CMTY Community Bks Millersbur (MM)

HARRISBURG, Pa., July 18 /PRNewswire-FirstCall/ -- Community Banks, Inc. ("Community") (NASDAQ:CMTY) today reported second quarter net income of $10.9 million, including per share earnings of $0.44, which was equal to the performance recorded in the same period one year earlier. Net income and earnings per share for the first six months of 2007, however, were hampered by the March 31, 2007, recognition of securities losses that were attributed to Community's portfolio restructuring initiative in the first quarter. The first quarter investment losses reduced year-to-date net income and earnings per share by $2.9 million and $0.12, respectively. Primarily as a result of the restructuring charge, year-to-date earnings per share performance for the first half of 2007 declined to $0.72 versus $0.88 for the first six months of 2006. The losses stemming from that initiative facilitated the reinvestment of investment sale proceeds into higher-yielding securities and contributed to the turnaround in second quarter earnings. On May 1, 2007, Community announced the signing of a definitive merger agreement with Susquehanna Bancshares, Inc., ("Susquehanna") pursuant to which Community will be merged with Susquehanna in a stock and cash transaction that was valued at approximately $860 million. Under the terms of the merger agreement, shareholders of Community will be entitled to elect to receive for each share of Community common stock they own, either $34.00 in cash or 1.48 shares of Susquehanna common stock. Community shareholders may elect to receive cash for some shares and stock for others, but all shareholder elections will be subject to allocation procedures that will result in the exchange of 90 percent of Community's common shares outstanding for shares of Susquehanna common stock and the remaining 10 percent of Community common shares outstanding for cash. The transaction will consolidate the companies' presence in southeastern Pennsylvania and the Mid-Atlantic region, particularly in the attractive York and Lancaster markets. The combined company will have over $12 billion in assets and approximately $2 billion in market capitalization, making it the 45th largest bank holding company in the United States. "We remain steadfast in our efforts to favorably position the Community franchise even as we continue to prepare for our upcoming affiliation with Susquehanna," commented Eddie L. Dunklebarger, President and Chief Executive Officer. "Our return to more customary earnings trends in the second quarter is a tangible barometer of the efforts of our employees leading up to our expected merger later this year. We are also seeing some signs of a return to a more normalized interest rate environment, which we believe will help with our efforts to improve earnings over the next several months." Community completed two mergers of its own effective April 1, 2007, and the results for the second quarter of 2007 reflect the combined results of both BUCS Financial Corp (BUCS) and East Prospect State Bank (East Prospect). BUCS' four branches, located primarily in central Maryland, and East Prospect's single banking office in York County, have provided an important market extension into the desirable, adjacent Maryland market and bolstered Community's position in the vibrant York County, Pennsylvania, market. With the completion of the two mergers, Community's operating footprint boasts assets of $3.8 billion and 81 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. Comparisons of operating performance in the second quarter are slightly distorted by the impact of the two mergers that occurred on April 1, 2007. However, a number of performance metrics serve to illustrate the more favorable operating results in the second quarter. Net interest margin, a primary driver of net interest income performance, remained stable at 3.72% despite the presence of a flat yield curve through most of the period. At the same time, non-interest income as a percent of total income improved to 26.8% compared to 24.9% in the first quarter of 2007 as Community continues its efforts to expand other sources of revenue. The efficiency ratio, which expresses non-interest expenses as a percent of total revenues, remained below 60%, at 58.2%, and served to illustrate Community's ongoing efforts to keep operating expenses in line with revenue performance. Loan, total asset and deposit growth were all in the 11% to 12% range, though approximately half of the growth was attributed to the additional loans, assets and deposits brought on in the mergers. Nonetheless core growth in each of these categories was in the 5% to 6% range. Community experienced increases in the level of non-accrual loans, which grew from $12.5 million at December 31, 2006 to $19.0 million at June 30, 2007. Nearly one-half of the increase related to two seasoned credits which have been monitored over the past year. These loans are deemed to be adequately secured by underlying real estate collateral. A portion of the remaining increase was related to the absorption of the merged banks into Community's stringent loan classification process. This press release contains "forward looking" information as defined by the Private Securities Litigation Reform Act of 1995, which is based on Community's current expectations, estimates and projections about future events and financial trends affecting the financial condition of its business. These statements are not historical facts or guarantees of future performance, events, or results. Such statements involve potential risks and uncertainties and, accordingly, actual performance results may differ materially. Community undertakes no obligation to publicly update or revise forward looking information, whether as a result of new, updated information, future events, or otherwise. COMMUNITY BANKS, INC. Selected Financial Information (Dollars in thousands, except per share data) (1) Three Months Ended Six Months Ended June 30, June 30, 2007 2006 2007 2006 Consolidated Summary of Operations: Interest income $56,703 $ 48,938 $108,942 $95,827 Interest expense 28,124 21,931 54,096 41,956 Net interest income 28,579 27,007 54,846 53,871 Provision for loan losses 700 650 2,000 1,150 Net interest income after provision for loan losses 27,879 26,357 52,846 52,721 Non-interest income: Investment management and trust services 1,603 1,088 3,048 2,101 Service charges on deposit accounts 4,677 2,855 7,673 5,386 Other service charges, commissions, and fees 2,257 1,903 4,285 3,603 Investment security gains (losses) --- 6 (4,388) 289 Trading activities losses (34) --- (34) --- Insurance premium income and commissions 1,063 1,117 2,239 2,045 Mortgage banking activities 694 580 1,242 1,048 Earnings on investment in life insurance 756 675 1,444 1,331 Other 232 319 823 1,124 Total non-interest income 11,248 8,543 16,332 16,927 Non-interest expenses: Salaries and employee benefits 13,069 11,251 25,078 22,669 Net occupancy and equipment expense 3,980 3,386 7,774 6,898 ATM user fees 774 556 1,387 839 Marketing expense 552 265 1,057 840 Telecommunications expense 612 566 1,137 1,117 Amortization of intangibles 811 702 1,472 1,356 Other 4,693 3,972 8,727 7,512 Total non-interest expenses 24,491 20,698 46,632 41,231 Income before income taxes 14,636 14,202 22,546 28,417 Income taxes 3,686 3,698 5,009 7,344 Net income $10,950 $10,504 $17,537 $21,073 Net loan charge-offs $1,389 $172 1,936 $327 Net interest margin (FTE) 3.72% 3.94% 3.73% 3.96% Efficiency ratio(2) 58.17% 56.18% 58.24% 56.07% Return on average assets 1.15% 1.24% 0.96% 1.25% Return on average stockholders' equity 8.41% 8.95% 7.01% 8.95% Net operating (tangible) income(3) $11,478 $10,960 $18,493 $21,954 Operating return on average tangible assets(3)(4) 1.31% 1.40% 1.09% 1.42% Operating return on average tangible equity(3)(4) 18.72% 20.59% 15.69% 20.35% Consolidated Per Share Data: Basic earnings per share $0.44 $0.44 $0.73 $0.88 Diluted earnings per share $0.44 $0.44 $0.72 $0.88 Book value at end of period $20.85 $19.86 $20.85 $19.86 Tangible book value at end of period(4) $9.66 $8.91 $9.66 $8.91 COMMUNITY BANKS, INC. Selected Financial Information (Dollars in thousands, except per share data) (1) Consolidated Balance Sheet Data: Three Months Ended Six Months Ended June 30, June 30, 2007 2006 2007 2006 Average total loans $2,574,074 $2,312,900 2,489,770 2,301,503 Average earning assets 3,324,514 2,944,353 3,211,794 2,941,569 Average assets 3,805,794 3,391,908 3,675,714 3,387,583 Average tangible assets(4) 3,526,844 3,132,905 3,406,643 3,128,736 Average deposits 2,660,111 2,381,141 2,561,673 2,341,738 Average stockholders' equity 522,409 470,695 504,767 474,580 Average tangible equity(4) 245,927 213,528 237,705 217,518 Average diluted shares outstanding 24,962,130 23,858,269 24,349,576 24,028,229 6/30/2007 vs. June 30, December 31, June 30, 6/30/2006 2007 2006 2006 %Change Assets $3,750,844 $3,496,370 $3,385,599 11% Total loans 2,567,638 2,370,889 2,344,677 10% Deposits 2,608,164 2,513,182 2,406,551 8% Stockholders' equity 517,193 486,161 465,760 11% Common shares outstanding 24,805,534 23,519,041 23,455,475 6% Non-accrual loans $19,032 $12,545 $11,492 66% Loans renegotiated with borrowers 665 --- 108 516% Foreclosed real estate 2,122 37 108 NM Total non-performing assets 21,819 12,582 11,708 86% Accruing loans 90 days past due 64 659 621 (90)% Total risk elements $21,883 $13,241 $12,329 77% Allowance for loan losses $25,010 $23,626 $23,788 5% Asset Quality Ratios: Allowance for loan losses to total loans 0.97% 1.00% 1.01% Allowance for loan losses to non-accrual loans 131% 188% 207% Non-accrual loans to total loans 0.74% 0.53% 0.49% Non-performing assets to total assets 0.58% 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 5. (4) The difference between total assets and total tangible assets, and stockholders' equity and tangible stockholders' equity, represents goodwill and core deposit and other intangibles net of applicable deferred tax balances. A reconciliation of these balances appears on page 5. COMMUNITY BANKS, INC. Selected Financial Information (Dollars in thousands, except per share data) Reconciliation of GAAP to Non-GAAP Measures (1): Three Months Ended Six Months Ended June 30, June 30, 2007 2006 2007 2006 Income statement data: Net income Net income $10,950 $10,504 $17,537 $21,073 Amortization of core deposit and other intangible assets(1) 528 456 956 881 Net operating (tangible) income $11,478 $10,960 $18,493 $21,954 Balance sheet data: Average assets Average assets $3,805,794 $3,391,908 $3,675,714 $3,387,583 Goodwill (263,694) (245,749) (255,095) (245,265) Core deposit and other intangible assets (15,256) (13,254) (13,976) (13,582) Average tangible assets $3,526,844 $3,132,905 $3,406,643 $3,128,736 Operating return on average tangible assets 1.31% 1.40% 1.09% 1.42% Average equity Average equity $522,409 $470,695 $504,767 $474,580 Goodwill (263,694) (245,749) (255,095) (245,265) Core deposit and other intangible assets (15,256) (13,254) (13,976) (13,582) Deferred taxes 2,468 1,836 2,009 1,785 Average tangible equity $245,927 $213,528 $237,705 $217,518 Operating return on average tangible equity 18.72% 20.59% 15.69% 20.35% At end of quarter: Total assets Total assets $3,750,844 $3,385,599 $3,750,844 $3,385,599 Goodwill (265,129) (245,056) (265,129) (245,056) Core deposit and other intangible assets (14,834) (13,550) (14,834) (13,550) Total tangible assets $3,470,881 $3,126,993 $3,470,881 $3,126,993 Total equity Total equity $517,193 $465,760 $517,193 $465,760 Goodwill (265,129) (245,056) (265,129) (245,056) Core deposit and other intangible assets (14,834) (13,550) (14,834) (13,550) Deferred taxes 2,403 1,800 2,403 1,800 Total tangible equity $239,633 $208,954 $239,633 $208,954 Tangible book value at end of period $9.66 $8.91 $9.66 $8.91 (1) Net of related tax effect COMMUNITY BANKS, INC. & SUBSIDIARIES Fiscal Insight - June 30, 2007 KEY RATIOS (1) 2007 2006 Second First Fourth Third Second Quarter Quarter Quarter Quarter Quarter Annual Diluted earnings per share $0.44 $0.28 $0.40 $0.45 $ 0.44 $1.72 Tangible operating earnings per share(1) $0.46 $0.30 $0.41 $ 0.46 $ 0.46 $1.79 Return on average assets 1.15% 0.75% 1.08% 1.24% 1.24% 1.21% Return on average equity 8.41% 5.49% 7.74% 8.88% 8.95% 8.63% Operating return on average tangible assets(2) 1.31% 0.87% 1.22% 1.39% 1.40% 1.36% Operating return on average tangible equity(2) 18.72% 12.40% 17.37% 20.31% 20.59% 19.57% Net interest margin 3.72% 3.73% 3.71% 3.90% 3.94% 3.88% Non-interest income/ revenues (FTE excluding security gains) 26.80% 24.93% 23.83% 23.40% 22.76% 22.99% Provision for loan losses/average loans (annualized) 0.11% 0.22% 0.11% 0.04% 0.11% 0.09% Efficiency ratio(4) 58.17% 58.32% 60.97% 56.25% 56.18% 57.33% Non-performing assets to period- end loans 0.85% 0.65% 0.53% 0.50% 0.50% 90 day past due loans to period- end loans 0.00% 0.00% 0.03% 0.03% 0.03% Total risk elements to period-end loans 0.85% 0.65% 0.56% 0.53% 0.53% Allowance for loan losses to loans 0.97% 1.00% 1.00% 1.02% 1.01% 1.00% Allowance for loan losses to non- accrual loans 131% 155% 188% 207% 207% 188% Net charge-offs/ average loans (annualized) 0.22% 0.09% 0.18% 0.00% 0.03% 0.06% Equity to assets 13.79% 13.52% 13.90% 13.98% 13.76% 13.90% Tangible equity to assets(3) 6.90% 6.92% 7.05% 6.99% 6.68% 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 - June 30, 2007 PER SHARE STATISTICS * Diluted Earnings (Loss) per Share Fourth Third Second First Quarter Quarter Quarter Quarter Total 2007 $0.44 $0.28 $0.72 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 24,962 23,683 24,350 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 $20.85 $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 $9.66 $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 - JUNE 30, 2007 QUARTER END INFORMATION (dollars in thousands) 2007 2006 Second First Fourth Third Second Quarter Quarter Quarter Quarter Quarter Total loans $2,567,638 $2,442,318 $2,370,889 $2,348,159 $2,344,677 Allowance for loan losses (25,010) (24,379) (23,626) (24,034) (23,788) Loans, net 2,542,628 2,417,939 2,347,263 2,324,125 2,320,889 Earning assets 3,249,928 3,153,614 3,033,585 2,971,391 2,922,356 Goodwill and other intangible assets 279,963 258,812 259,406 259,505 258,606 Total assets 3,750,844 3,627,739 3,496,370 3,431,208 3,385,599 Deposits 2,608,164 2,529,187 2,513,182 2,483,519 2,406,551 Long-term debt 455,104 438,196 315,079 336,954 363,816 Subordinated debt 75,260 72,167 51,548 51,548 51,548 Total shareholder's equity 517,193 490,564 486,161 479,584 465,760 Accumulated other comprehensive income (loss) (net of tax) (8,300) 650 (1,806) (2,670) (10,107) COMMUNITY BANKS, INC. & SUBSIDIARIES Fiscal Insight - JUNE 30, 2007 CONDENSED CONSOLIDATED QUARTERLY AVERAGE STATEMENTS OF CONDITION (dollars in thousands) 2007 2006 Second First Fourth Third Second Quarter Quarter Quarter Quarter Quarter Assets Earning Assets: Loans $2,574,074 $2,404,530 $2,353,774 $2,339,352 $2,312,900 Federal funds sold and other 79,230 10,701 37,059 29,324 53,872 Investment securities 671,210 682,592 610,312 566,772 577,581 Total earning assets 3,324,514 3,097,823 3,001,145 2,935,448 2,944,353 Cash and due from banks 60,873 55,542 62,318 62,636 59,461 Allowance for loan losses (25,985) (24,022) (24,102) (24,385) (23,882) Goodwill and other intangible assets 278,950 259,083 259,373 259,023 259,003 Premises, equipment and other assets 167,442 155,763 153,361 153,183 152,973 Total assets $3,805,794 $3,544,189 $3,452,095 $3,385,905 $3,391,908 Liabilities and equity Interest-bearing liabilities: Deposits Savings and NOW accounts $942,150 $858,469 $876,404 $873,670 $820,265 Time 1,030,564 994,824 1,010,249 984,415 981,371 Time deposits greater than $100,000 324,099 268,268 267,747 235,264 228,931 Short-term borrowings 65,019 124,985 77,910 60,680 57,903 Long-term debt 456,769 391,196 318,078 340,162 405,705 Subordinated debt 75,260 56,817 51,548 51,548 51,548 Total interest- bearing liabilities 2,893,861 2,694,559 2,601,936 2,545,739 2,545,723 Non-interest bearing deposits 363,298 340,580 342,766 344,708 350,574 Other liabilities 26,226 22,122 25,659 23,547 24,916 Total liabilities 3,283,385 3,057,261 2,970,361 2,913,994 2,921,213 Stockholders' equity 522,409 486,928 481,734 471,911 470,695 Total liabilities and stockholders' equity $3,805,794 $3,544,189 $3,452,095 $3,385,905 $3,391,908 CHANGE IN AVERAGE BALANCES* 2007 2006 Second First Fourth Third Second Quarter Quarter Quarter Quarter Quarter Loans 11.3% 5.0% 6.9% 9.3% 82.8% Total assets 12.2% 4.8% 4.2% 2.1% 66.1% Deposits 11.7% 7.0% 10.4% 8.4% 72.2% Stockholders' equity 11.0% 1.8% 1.3% (1.9)% 205.9% * Compares the current quarter to the comparable quarter of the prior year COMMUNITY BANKS, INC. & SUBSIDIARIES Fiscal Insight - JUNE 30, 2007 CONDENSED CONSOLIDATED STATEMENTS OF INCOME (dollars in thousands) 2007 2006 Second First Fourth Third Second Quarter Quarter Quarter Quarter Quarter Annual Interest income $56,703 $52,239 $51,364 $50,443 $48,938 $197,634 Tax equivalent adjustment 2,234 2,253 1,998 1,916 1,910 7,802 58,937 54,492 53,362 52,359 50,848 205,436 Interest expense 28,124 25,972 25,273 23,505 21,931 90,734 Net interest income 30,813 28,520 28,089 28,854 28,917 114,702 Provision for loan losses 700 1,300 650 250 650 2,050 Net interest income after provision 30,113 27,220 27,439 28,604 28,267 112,652 Non-interest income 10,554 8,924 8,194 8,279 7,957 32,063 Investment security gains (losses) --- (4,388) 415 28 6 732 Mortgage banking activities income 694 548 591 533 580 2,172 Non-interest expenses 24,491 22,141 22,482 21,172 20,698 84,885 Income before income taxes 16,870 10,163 14,157 16,272 16,112 62,734 Income taxes 3,686 1,323 2,759 3,798 3,698 13,901 Tax equivalent adjustment 2,234 2,253 1,998 1,916 1,910 7,802 NET INCOME $10,950 $6,587 $9,400 $ 10,558 $10,504 $41,031 Tax effect of security transactions $ --- $(1,536) $145 $10 $2 $256 COMMUNITY BANKS, INC. & SUBSIDIARIES Fiscal Insight - JUNE 30, 2007 ANALYSIS OF NON-INTEREST INCOME (dollars in thousands) 2007 2006 Second First Fourth Third Second Quarter Quarter Quarter Quarter Quarter Annual Investment management and trust services $1,603 $1,445 $1,325 $968 $1,088 $4,394 Service charges on deposit accounts 4,677 2,996 3,084 3,037 2,855 11,507 Other service charges, commissions and fees 2,257 2,028 1,852 1,817 1,903 7,272 Insurance premium income and commissions 1,063 1,176 1,022 1,053 1,117 4,120 Earnings on investment in life insurance 756 688 715 679 675 2,725 Trading activities loss (34) --- --- --- --- --- Other income 232 591 196 725 319 2,045 Total non- interest income $10,554 $8,924 $8,194 $8,279 $7,957 $32,063 ANALYSIS OF NON-INTEREST EXPENSES (dollars in thousands) 2007 2006 Second First Fourth Third Second Quarter Quarter Quarter Quarter Quarter Annual Salaries and employee benefits $13,069 $12,009 $12,154 $11,611 $11,251 $46,434 Net occupancy and equipment expense 3,980 3,794 3,767 3,452 3,386 14,117 ATM user fees 774 613 530 553 556 1,922 Marketing expense 552 505 558 354 265 1,752 Telecommunications expense 612 525 584 542 566 2,243 Amortization of intangibles 811 661 624 659 702 2,639 Other operating expenses 4,693 4,034 4,265 4,001 3,972 15,778 Total non- interest expenses $24,491 $22,141 $22,482 $21,172 $20,698 $84,885 COMMUNITY BANKS, INC. & SUBSIDIARIES Fiscal Insight - JUNE 30, 2007 RISK ELEMENTS ANALYSIS (dollars in thousands) 2007 2006 Second First Fourth Third Second Quarter Quarter Quarter Quarter Quarter Non-performing assets: Non-accrual loans $19,032 $15,715 $12,545 $11,626 $11,492 Loans renegotiated with borrowers 665 --- --- --- 108 Foreclosed real estate 2,122 61 37 52 108 Total non- performing assets 21,819 15,776 12,582 11,678 11,708 Accruing loans 90 days or more past due 64 101 659 685 621 Total risk elements $21,883 $15,877 $13,241 $12,363 $12,329 Non-performing assets to period-end loans 0.85% 0.65% 0.53% 0.50% 0.50% 90 day past due loans to period-end loans 0.00% 0.00% 0.03% 0.03% 0.03% Total risk elements to period-end loans 0.85% 0.65% 0.56% 0.53% 0.53% COMMUNITY BANKS, INC. & SUBSIDIARIES Fiscal Insight - JUNE 30, 2007 ALLOWANCE FOR LOAN LOSSES (dollars in thousands) 2007 2006 Second First Fourth Third Second Quarter Quarter Quarter Quarter Quarter Balance at beginning of period $24,379 $23,626 $24,034 $23,788 $23,310 Loans charged off (1,564) (660) (1,136) (499) (342) Recoveries 175 113 78 495 170 Net loans charged off (1,389) (547) (1,058) (4) (172) Provision for loan losses 700 1,300 650 250 650 Allowance established for acquired credit risk 1,320 --- --- --- --- Balance at end of period $25,010 $24,379 $23,626 $24,034 $23,788 Net loans charged-off to average loans* 0.22% 0.09% 0.18% 0.00% 0.03% Provision for loan losses to average loans* 0.11% 0.22% 0.11% 0.04% 0.11% Allowance for loan losses to loans 0.97% 1.00% 1.00% 1.02% 1.01% *Annualized COMMUNITY BANKS, INC. & SUBSIDIARIES Fiscal Insight - JUNE 30, 2007 OTHER RATIOS 2007 2006 Second First Fourth Third Second Quarter Quarter Quarter Quarter Quarter Investment portfolio- fair value to amortized cost 98.6% 100.6% 100.0% 99.9% 97.9% Dividend payout ratio 47.6% 75.1% 50.0% 44.4% 45.1% Net loans to deposits ratio, average 95.8% 96.7% 93.3% 95.0% 96.1% MARKET PRICE AND DIVIDENDS DECLARED * Closing Bid Price Range Dividends Year/Quarter High Low Declared 2007 First $28.11 $22.96 $0.2100 Second $34.39 $22.82 $0.2100 Third Fourth $0.4200 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 - JUNE 30, 2007 NET INTEREST MARGIN - YEAR-TO-DATE (dollars in thousands) June 30, 2007 June 30, 2006 FTE Average FTE Avg. 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 $45,155 $1,177 5.26% $44,431 $1,036 4.70% Investment securities 676,869 20,647 6.15% 595,635 17,523 5.93% Loans - commercial 933,845 36,759 7.94% 817,901 31,161 7.68% - commercial real estate 805,799 28,673 7.18% 808,350 27,931 6.97% - residential real estate 164,696 5,183 6.35% 151,960 4,569 6.06% - consumer 585,430 20,990 7.23% 523,292 17,495 6.74% Total earning assets $3,211,794 $113,429 7.12% $2,941,569 $99,715 6.84% Deposits - savings and NOW accounts $900,540 $10,486 2.35% $ 823,485 $7,394 1.81% - time 1,309,130 29,119 4.49% 1,156,211 21,811 3.80% Short-term borrowings 94,836 2,321 4.94% 63,184 1,341 4.28% Long-term debt 424,164 9,801 4.66% 436,188 9,675 4.47% Subordinated debt 66,090 2,369 7.23% 48,130 1,735 7.27% Total interest- bearing liabilities $2,794,760 $54,096 3.90% $2,527,198 $41,956 3.35% Interest income to earning assets 7.12% 6.84% Interest expense to paying liabilities 3.90% 3.35% Interest spread 3.22% 3.49% Impact of non- interest funds 0.51% 0.47% Net interest margin $59,333 3.73% $57,759 3.96% COMMUNITY BANKS, INC. & SUBSIDIARIES Fiscal Insight - JUNE 30, 2007 NET INTEREST MARGIN - QUARTER-TO-DATE (dollars in thousands) June 30, 2007 June 30, 2006 FTE Average FTE Avg. 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 $79,230 $1,042 5.28% $53,872 $643 4.79% Investment securities 671,210 10,438 6.24% 577,581 8,622 5.99% Loans - commercial 972,907 18,967 7.82% 827,586 16,016 7.76% - commercial real estate 800,711 14,499 7.26% 817,099 14,326 7.03% - residential real estate 177,820 2,786 6.28% 150,653 2,272 6.05% - consumer 622,636 11,205 7.22% 517,562 8,969 6.95% Total earning assets $3,324,514 $58,937 7.11% $2,944,353 $50,848 6.93% Deposits - savings and NOW accounts $942,150 $5,651 2.41% $820,265 $3,893 1.90% - time 1,354,663 15,068 4.46% 1,210,302 11,891 3.94% Short-term borrowings 65,019 757 4.67% 57,903 645 4.47% Long-term debt 456,769 5,301 4.65% 405,705 4,564 4.51% Subordinated debt 75,260 1,347 7.18% 51,548 938 7.30% Total interest- bearing liabilities $2,893,861 $28,124 3.90% $2,545,723 $21,931 3.46% Interest income to earning assets 7.11% 6.93% Interest expense to paying liabilities 3.90% 3.46% Interest spread 3.21% 3.47% Impact of non-interest funds 0.51% 0.47% Net interest margin $30,813 3.72% $28,917 3.94% COMMUNITY BANKS, INC. & SUBSIDIARIES Fiscal Insight - JUNE 30, 2007 NET INTEREST MARGIN - QUARTER-TO-DATE (dollars in thousands) June 30, 2007 June 30, 2006 FTE Average FTE Avg. 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 $79,230 $1,042 5.28% $10,701 $135 5.12% Investment securities 671,210 10,438 6.24% 682,592 10,209 6.07% Loans - commercial 972,907 18,967 7.82% 895,114 17,792 8.06% - commercial real estate 800,711 14,499 7.26% 810,424 14,174 7.09% - residential real estate 177,820 2,786 6.28% 151,141 2,397 6.43% - consumer 622,636 11,205 7.22% 547,851 9,785 7.24% Total earning assets $3,324,514 $58,937 7.11% $3,097,823 $54,492 7.13% Deposits - savings and NOW accounts $942,150 $5,651 2.41% $858,469 $4,835 2.28% - time 1,354,663 15,068 4.46% 1,263,092 14,051 4.51% Short-term borrowings 65,019 757 4.67% 124,985 1,564 5.07% Long-term debt 456,769 5,301 4.65% 391,196 4,500 4.67% Subordinated debt 75,260 1,347 7.18% 56,817 1,022 7.29% Total interest- bearing liabilities $2,893,861 $28,124 3.90% $2,694,559 $25,972 3.91% Interest income to earning assets 7.11% 7.13% Interest expense to paying liabilities 3.90% 3.91% Interest spread 3.21% 3.22% Impact of non- interest funds 0.51% 0.51% Net interest margin $30,813 3.72% $28,520 3.73% COMMUNITY BANKS, INC. & SUBSIDIARIES Fiscal Insight - JUNE 30, 2007 PERIOD-END LOAN PORTFOLIO ANALYSIS (dollars in thousands) 2007 2006 Second First Fourth Third Second Quarter Quarter Quarter Quarter Quarter Commercial: Commercial $860,868 $824,301 $763,800 $757,714 $763,637 Obligations of political subdivisions 100,338 101,090 101,555 79,028 76,408 Total commercial 961,206 925,391 865,355 836,742 840,045 Commercial real estate: Commercial mortgages $802,922 $804,652 $815,028 $820,619 $834,345 Residential real estate: Residential mortgages $169,890 $145,719 $141,826 $144,047 $144,590 Construction 7,648 6,730 7,290 6,918 5,770 Total residential real estate 177,538 152,449 149,116 150,965 150,360 Consumer: Home equity loans $358,949 $331,418 $322,712 $308,173 $282,777 Home equity lines of credit 104,586 90,675 92,163 96,608 103,216 Indirect consumer loans 74,687 69,097 65,699 66,126 67,786 Other consumer loans 87,750 68,636 60,816 68,926 66,148 Total consumer 625,972 559,826 541,390 539,833 519,927 Total loans $2,567,638 $2,442,318 $2,370,889 $2,348,159 $2,344,677 COMMUNITY BANKS, INC. & SUBSIDIARIES Fiscal Insight - JUNE 30, 2007 Reconciliation of GAAP to Non-GAAP Measures: (in thousands, except per share data) 2007 2006 Second First Fourth Third Second Quarter Quarter Quarter Quarter Quarter Annual Income state- ment data: Net income Net income $10,950 $6,587 $9,400 $10,558 $10,504 $41,031 Amorti- zation of core deposit and other intan- gible assets(1) 528 429 406 428 456 1,715 Net oper- ating (tang- ible) income $11,478 $7,016 $9,806 $10,986 $10,960 $42,746 Earnings per share Diluted earnings per common share $0.44 $0.28 $0.40 $0.45 $0.44 $1.72 Amorti- zation of core deposit and other intan- gible assets(1) 0.02 0.02 0.01 0.01 0.02 0.07 Diluted oper- ating (tan- gible) earnings per share $0.46 $0.30 $0.41 $0.46 $0.46 $1.79 Balance sheet data: Average assets Average assets $3,805,794 $3,544,189 $3,452,095 $3,385,905 $3,391,908 $3,403,421 Goodwill (263,694) (246,400) (246,287) (245,794) (245,749) (245,652) Core deposit and other intangible assets (15,256) (12,683) (13,086) (13,229) (13,254) (13,369) Average tang- ible as- sets $3,526,844 $3,285,106 $3,192,722 $3,126,882 $3,132,905 $3,144,400 Operating return on average tangible assets 1.31% 0.87% 1.22% 1.39% 1.40% 1.36% Average equity Average equity $522,409 $486,928 $481,734 $471,911 $470,695 $475,710 Goodwill (263,694) (246,400) (246,287) (245,794) (245,749) (245,652) Core deposit and other intangible assets (15,256) (12,683) (13,086) (13,229) (13,254) (13,368) Deferred taxes 2,468 1,547 1,652 1,755 1,836 1,744 Average tan- gible equ- ity $245,927 $229,392 $224,013 $214,643 $213,528 $218,434 Operating return on average tangible equity 18.72% 12.40% 17.37% 20.31% 20.59% 19.57% At end of quarter: Total assets Total assets $3,750,844 $3,627,739 $3,496,370 $3,431,208 $3,385,599 $3,496,370 Goodwill (265,129) (246,449) (246,383) (245,864) (245,056) (246,383) Core deposit and other intangible assets (14,834) (12,363) (13,023) (13,641) (13,550) (13,023) Total tan- gible as- sets $3,470,881 $3,368,927 $3,236,964 $3,171,703 $3,126,993 $3,236,964 Total equity Total equity $517,193 $490,564 $486,161 $479,584 $465,760 $486,161 Goodwill (265,129) (246,449) (246,383) (245,864) (245,056) (246,383) Core deposit and other intangible assets (14,834) (12,363) (13,023) (13,641) (13,550) (13,023) Deferred taxes 2,403 1,482 1,591 1,698 1,800 1,591 Total tangible equity $239,633 $233,234 $228,346 $221,777 $208,954 $228,346 Tangible book value at end of period $9.68 $9.91 $9.71 $9.45 $8.91 $9.71 Tangible equity to assets 6.90% 6.92% 7.05% 6.99% 6.68% 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 phone, +1-717-920-1683 fax

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