HARRISBURG, Pa., Oct. 18 /PRNewswire-FirstCall/ -- Community Banks, Inc. ("Community") (Listed on Nasdaq: CMTY) today reported third quarter earnings per share for 2007 of $0.42, which was $0.03 less than the $0.45 recorded in the same period of 2006. Net income reached $10.5 million, almost equal to the net income recorded in the prior year's quarter. Results for the third quarter of 2007 were inclusive of $754,000 of merger-related expenses incurred in connection with the upcoming merger with Susquehanna Bancshares, Inc. (Listed on Nasdaq: SUSQ), which reduced the current quarter's earnings by more than $0.02 per share. Net income and earnings per share for the first nine months of 2007 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 nine months of 2007 declined to $1.14 versus $1.32 for the same period of 2006. The losses stemming from that initiative facilitated the reinvestment of investment sale proceeds into higher-yielding securities. 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 have remained determined in our efforts to favorably position the Community franchise even as we finalize our preparation for the upcoming affiliation with Susquehanna," commented Eddie L. Dunklebarger, President and Chief Executive Officer. "The favorable earnings trends that have occurred since the time of our announcement, particularly in light of continuing unfavorable conditions for the banking industry, have reflected the tireless efforts of our employees. We know that this same dedication will carry over as we prepare to become a vital part of a much larger franchise." Community completed two mergers of its own effective April 1, 2007, and the results for the six months ended September 30, 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 third quarter are slightly distorted by the impact of the two mergers that occurred on April 1, 2007. A number of performance metrics serve to illustrate the continuing difficulties presented by the external operating environment. Despite these challenges, Community has continued to record results ahead of many of its competitors. Net interest margin, a primary driver of net interest income performance, declined only slightly from the second quarter, from 3.72% to 3.67%. At the same time, non-interest income as a percent of total income also declined, from 26.8% to 25.38%. The efficiency ratio, which expresses non-interest expenses as a percent of total revenues was a bright spot at 56.31% 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 8% to11% range, though a significant portion of the growth was attributed to the additional loans, assets and deposits brought on in the mergers. Like many banks of its size, Community has begun to experience increases in the level of non-accrual loans, which grew from $12.5 million at December 31, 2006, to $26.4 million at September 30, 2007. Community continues to maintain an allowance for loan losses that it believes is adequate to absorb losses, if any, by deterioration in these credit relationships. During the third quarter, Community added nearly $1.1 million to the allowance via its provision to loan losses. Such provision was in excess of the $0.5 million of net-charge offs which occurred for the three months ended September 30, 2007. This press release contains "forward looking" information as defined by the Private Securities Litigation Reform Act of 1995, which is based on Community's current expectations, estimates and projections about future events and financial trends affecting the financial condition of its business. These statements are not historical facts or guarantees of future performance, events, or results. Such statements involve potential risks and uncertainties and, accordingly, actual performance results may differ materially. Community undertakes no obligation to publicly update or revise forward looking information, whether as a result of new, updated information, future events, or otherwise. COMMUNITY BANKS, INC. Selected Financial Information (Dollars in thousands, except per share data) (1) Three Months Ended Nine Months Ended September 30, September 30, 2007 2006 2007 2006 Consolidated Summary of Operations: Interest income $56,668 $50,443 $165,610 $146,270 Interest expense 28,532 23,505 82,628 65,461 Net interest income 28,136 26,938 82,982 80,809 Provision for loan losses 1,050 250 3,050 1,400 Net interest income after provision for loan losses 27,086 26,688 79,932 79,409 Non-interest income: Investment management and trust services 1,211 968 4,259 3,069 Service charges on deposit accounts 4,278 3,037 11,951 8,423 Other service charges, commissions, and fees 2,209 1,817 6,494 5,420 Investment security gains (losses) --- 28 (4,388) 317 Trading activities gains 38 --- 4 --- Insurance premium income and commissions 1,079 1,053 3,318 3,098 Mortgage banking activities 459 533 1,701 1,581 Earnings on investment in life insurance 755 679 2,199 2,010 Other 345 725 1,168 1,849 Total non-interest income 10,374 8,840 26,706 25,767 Non-interest expenses: Salaries and employee benefits 12,419 11,611 37,497 34,280 Net occupancy and equipment expense 3,917 3,452 11,691 10,350 Payment card processing expense 848 553 2,235 1,391 Marketing expense 350 354 1,407 1,194 Telecommunications expense 718 542 1,855 1,659 Merger expenses 754 --- 754 --- Amortization of intangibles 750 659 2,222 2,015 Other 3,930 4,001 12,657 11,514 Total non-interest expenses 23,686 21,172 70,318 62,403 Income before income taxes 13,774 14,356 36,320 42,773 Income taxes 3,281 3,798 8,290 11,142 Net income $10,493 $10,558 $28,030 $31,631 Net loan charge-offs $480 $4 2,416 $331 Net interest margin (FTE) 3.67% 3.90% 3.71% 3.94% Efficiency ratio (2) 56.31% 56.25% 57.59% 56.12% Return on average assets 1.10% 1.24% 1.01% 1.25% Return on average stockholders' equity 7.99% 8.88% 7.34% 8.93% Net operating (tangible) income (3) $11,471 $10,986 $29,965 $32,940 Operating return on average tangible assets(3)(4) 1.30% 1.39% 1.17% 1.41% Operating return on average tangible equity(3)(4) 18.66% 20.31% 16.71% 20.34% Consolidated Per Share Data: Basic earnings per share $0.42 $ 0.45 $1.15 $1.34 Diluted earnings per share $0.42 $ 0.45 $1.14 $1.32 Book value at end of period $21.21 $20.43 $21.21 $20.43 Tangible book value at end of period (4) $10.05 $9.45 $10.05 $9.45 COMMUNITY BANKS, INC. Selected Financial Information (Dollars in thousands, except per share data) (1) Consolidated Balance Sheet Data: Three Months Ended Nine Months Ended September 30, September 30, 2007 2006 2007 2006 Average total loans $2,578,729 $2,339,352 $2,519,749 $2,314,257 Average earning assets 3,288,918 2,935,448 3,237,785 2,939,506 Average assets 3,778,338 3,385,905 3,710,298 3,387,018 Average tangible assets (4) 3,498,844 3,126,882 3,437,714 3,128,116 Average deposits 2,638,388 2,438,057 2,587,525 2,374,197 Average stockholders' equity 521,089 471,911 510,268 473,680 Average tangible equity (4) 243,944 214,643 239,808 216,553 Average diluted shares outstanding 24,988,695 23,662,529 24,601,460 23,925,653 9/30/2007 vs. September 30, December 31, September 30, 9/30/2006 2007 2006 2006 % Change Assets $3,789,634 $3,496,370 $3,431,208 10% Total loans 2,609,744 2,370,889 2,348,159 11% Deposits 2,626,788 2,513,182 2,483,519 6% Stockholders' equity 526,475 486,161 479,584 10% Common shares outstanding 24,824,773 23,519,041 23,682,673 5% Non-accrual loans $ 26,390 $12,545 $11,626 127% Loans renegotiated with borrowers 815 --- --- NM Foreclosed real estate 3,175 37 52 NM Total non-performing assets 30,380 12,582 11,678 160% Accruing loans 90 days past due 33 659 685 (95)% Total risk elements $30,413 $13,241 $12,363 146% Allowance for loan losses $25,580 $23,626 $24,034 6% Asset Quality Ratios: Allowance for loan losses to total loans 0.98% 1.00% 1.02% Allowance for loan losses to non-accrual loans 97% 188% 207% Non-accrual loans to total loans 1.01% 0.53% 0.50% Non-performing assets to total assets 0.80% 0.36% 0.34% (1) Per share data reflect stock splits and stock dividends. (2) The efficiency ratio does not include net securities transactions or merger expenses. (3) Net operating (tangible) income excludes amortization of core deposit and other intangible assets, net of applicable income tax effects. A reconciliation of net income and net operating (tangible) income appears on page 5. (4) The difference between total assets and total tangible assets, and stockholders' equity and tangible stockholders' equity, represents goodwill and core deposit and other intangibles net of applicable deferred tax balances. A reconciliation of these balances appears on page 5. COMMUNITY BANKS, INC. Selected Financial Information (Dollars in thousands, except per share data) Reconciliation of GAAP to Non-GAAP Measures (1): Three Months Ended Nine Months Ended September 30, September 30, 2007 2006 2007 2006 Income statement data: Net income Net income $10,493 $10,558 $28,030 $31,631 Amortization of core deposit and other intangible assets (1) 488 428 1,445 1,309 Merger expenses (1) 490 --- 490 --- Net operating (tangible) income $11,471 $10,986 $29,965 $32,940 Balance sheet data: Average assets Average assets $3,778,338 $3,385,905 $3,710,298 $3,387,018 Goodwill (265,048) (245,794) (258,449) (245,439) Core deposit and other intangible assets (14,446) (13,229) (14,135) (13,463) Average tangible assets $3,498,844 $3,126,882 $3,437,714 $3,128,116 Operating return on average tangible assets 1.30% 1.39% 1.17% 1.41% Average equity Average equity $521,089 $471,911 $510,268 $473,680 Goodwill (265,048) (245,794) (258,449) (245,439) Core deposit and other intangible assets (14,446) (13,229) (14,135) (13,463) Deferred taxes 2,349 1,755 2,124 1,775 Average tangible equity $243,944 $214,643 $239,808 $216,553 Operating return on average tangible equity 18.66% 20.31% 16.71% 20.34% At end of quarter: Total assets Total assets $3,789,634 $3,431,208 $3,789,634 $3,431,208 Goodwill (265,136) (245,864) (265,136) (245,864) Core deposit and other intangible assets (14,083) (13,641) (14,083) (13,641) Total tangible assets $3,510,415 $3,171,703 $3,510,415 $3,171,703 Total equity Total equity $526,475 $479,584 $526,475 $479,584 Goodwill (265,136) (245,864) (265,136) (245,864) Core deposit and other intangible assets (14,083) (13,641) (14,083) (13,641) Deferred taxes 2,277 1,698 2,277 1,698 Total tangible equity $249,533 $221,777 $249,533 $221,777 Tangible book value at end of period $ 10.05 $ 9.45 $ 10.05 $ 9.45 (1) Net of related tax effect COMMUNITY BANKS, INC. & SUBSIDIARIES Fiscal Insight - SEPTEMBER 30, 2007 KEY RATIOS (1) 2007 2006 Third Second First Fourth Third Quarter Quarter Quarter Quarter Quarter Annual Diluted earnings per share $0.42 $0.44 $0.28 $0.40 $0.45 $1.72 Tangible operating earnings per share (1) $0.46 $0.46 $0.30 $0.41 $0.46 $1.79 Return on average assets 1.10 % 1.15 % 0.75 % 1.08 % 1.24 % 1.21 % Return on average equity 7.99 % 8.41 % 5.49 % 7.74 % 8.88 % 8.63 % Operating return on average tangible assets(2) 1.30 % 1.31 % 0.87 % 1.22 % 1.39 % 1.36 % Operating return on average tangible equity(2)18.66 % 18.72 %12.40 % 17.37 % 20.31 % 19.57 % Net interest margin 3.67 % 3.72 % 3.73 % 3.71 % 3.90 % 3.88 % Non-interest income/revenues (FTE excluding security gains) 25.38 % 26.80 %24.93 % 23.83 % 23.40 % 22.99 % Provision for loan losses/average loans (annualized) 0.16 % 0.11 % 0.22 % 0.11 % 0.04 % 0.09 % Efficiency ratio (4) 56.31 % 58.17 %58.32 % 60.97 % 56.25 % 57.33 % Non-performing assets to period-end loans 1.16 % 0.85 % 0.65 % 0.53 % 0.50 % 90 day past due loans to period-end loans ---% ---% ---% 0.03 % 0.03 % Total risk elements to period-end loans 1.16 % 0.85 % 0.65 % 0.56 % 0.53 % Allowance for loan losses to loans 0.98 % 0.97 % 1.00 % 1.00 % 1.02 % 1.00 % Allowance for loan losses to non-accrual loans 97 % 131 % 155 % 188 % 207 % 188 % Net charge-offs/average loans (annualized) 0.07 % 0.22 % 0.09 % 0.18 % 0.00 % 0.06 % Equity to assets 13.89 % 13.79 %13.52 % 13.90 % 13.98 % 13.90 % Tangible equity to assets (3) 7.11 % 6.90 % 6.92 % 7.05 % 6.99 % 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 or merger expenses. COMMUNITY BANKS, INC. & SUBSIDIARIES Fiscal Insight - SEPTEMBER 30, 2007 PER SHARE STATISTICS * Diluted Earnings (Loss) per Share Fourth Third Second First Quarter Quarter Quarter Quarter Total 2007 $0.42 $0.44 $0.28 $1.14 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) Average Fourth Third Second First for Quarter Quarter Quarter Quarter Year 2007 24,989 24,962 23,683 24,601 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 $21.21 $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 $10.05 $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 - SEPTEMBER 30, 2007 QUARTER END INFORMATION (dollars in thousands) 2007 2006 Third Second First Fourth Third Quarter Quarter Quarter Quarter Quarter Total loans $2,609,744 $2,567,638 $2,442,318 $2,370,889 $2,348,159 Allowance for loan losses (25,580) (25,010) (24,379) (23,626) (24,034) Loans, net 2,584,164 2,542,628 2,417,939 2,347,263 2,324,125 Earning assets 3,298,191 3,249,928 3,153,614 3,033,585 2,971,391 Goodwill and other intangible assets 279,219 279,963 258,812 259,406 259,505 Total assets 3,789,634 3,750,844 3,627,739 3,496,370 3,431,208 Deposits 2,626,788 2,608,164 2,529,187 2,513,182 2,483,519 Long-term debt 413,483 455,104 438,196 315,079 336,954 Subordinated debt 75,260 75,260 72,167 51,548 51,548 Total shareholder's equity 526,475 517,193 490,564 486,161 479,584 Accumulated other comprehensive income (loss) (net of tax) (4,692) (8,300) 650 (1,806) (2,670) COMMUNITY BANKS, INC. & SUBSIDIARIES Fiscal Insight - SEPTEMBER 30, 2007 CONDENSED CONSOLIDATED QUARTERLY AVERAGE STATEMENTS OF CONDITION (dollars in thousands) 2007 Third Second First Quarter Quarter Quarter Assets Earning Assets: Loans $2,578,729 $2,574,074 $2,404,530 Federal funds sold and other 27,494 79,230 10,701 Investment securities 682,695 671,210 682,592 Total earning assets 3,288,918 3,324,514 3,097,823 Cash and due from banks 62,333 60,873 55,542 Allowance for loan losses (25,490) (25,985) (24,022) Goodwill and other intangible assets 279,494 278,950 259,083 Premises, equipment and other assets 173,083 167,442 155,763 Total assets $3,778,338 $3,805,794 $3,544,189 Liabilities and equity Interest-bearing liabilities: Deposits Savings and NOW accounts $937,362 $942,150 $858,469 Time 1,017,512 1,030,564 994,824 Time deposits greater than $100,000 327,450 324,099 268,268 Short-term borrowings 81,387 65,019 124,985 Long-term debt 435,014 456,769 391,196 Subordinated debt 75,260 75,260 56,817 Total interest-bearing liabilities 2,873,985 2,893,861 2,694,559 Non-interest bearing deposits 356,064 363,298 340,580 Other liabilities 27,200 26,226 22,122 Total liabilities 3,257,249 3,283,385 3,057,261 Stockholders' equity 521,089 522,409 486,928 Total liabilities and stockholders' equity $3,778,338 $3,805,794 $3,544,189 CHANGE IN AVERAGE BALANCES* 2007 Third Second First Quarter Quarter Quarter Loans 10.2 % 11.3 % 5.0 % Total assets 11.6 % 12.2 % 4.8 % Deposits 8.2 % 11.7 % 7.0 % Stockholders' equity 10.4 % 11.0 % 1.8 % (dollars in thousands) 2006 Fourth Third Quarter Quarter Assets Earning Assets: Loans $2,353,774 $2,339,352 Federal funds sold and other 37,059 29,324 Investment securities 610,312 566,772 Total earning assets 3,001,145 2,935,448 Cash and due from banks 62,318 62,636 Allowance for loan losses (24,102) (24,385) Goodwill and other intangible assets 259,373 259,023 Premises, equipment and other assets 153,361 153,183 Total assets $3,452,095 $3,385,905 Liabilities and equity Interest-bearing liabilities: Deposits Savings and NOW accounts $876,404 $873,670 Time 1,010,249 984,415 Time deposits greater than $100,000 267,747 235,264 Short-term borrowings 77,910 60,680 Long-term debt 318,078 340,162 Subordinated debt 51,548 51,548 Total interest-bearing liabilities 2,601,936 2,545,739 Non-interest bearing deposits 342,766 344,708 Other liabilities 25,659 23,547 Total liabilities 2,970,361 2,913,994 Stockholders' equity 481,734 471,911 Total liabilities and stockholders' equity $3,452,095 $3,385,905 CHANGE IN AVERAGE BALANCES* 2006 Fourth Third Quarter Quarter Loans 6.9 % 9.3 % Total assets 4.2 % 2.1 % Deposits 10.4 % 8.4 % Stockholders' equity 1.3 % (1.9)% * Compares the current quarter to the comparable quarter of the prior year COMMUNITY BANKS, INC. & SUBSIDIARIES Fiscal Insight - SEPTEMBER 30, 2007 CONDENSED CONSOLIDATED STATEMENTS OF INCOME (dollars in thousands) 2007 Third Second First Quarter Quarter Quarter Interest income $56,668 $56,703 $52,239 Tax equivalent adjustment 2,260 2,234 2,253 58,928 58,937 54,492 Interest expense 28,532 28,124 25,972 Net interest income 30,396 30,813 28,520 Provision for loan losses 1,050 700 1,300 Net interest income after provision 29,346 30,113 27,220 Non-interest income 9,915 10,554 8,924 Investment security gains (losses) --- --- (4,388) Mortgage banking activities income 459 694 548 Non-interest expenses 22,932 24,491 22,141 Merger expenses 754 --- --- Income before income taxes 16,034 16,870 10,163 Income taxes 3,281 3,686 1,323 Tax equivalent adjustment 2,260 2,234 2,253 NET INCOME $10,493 $10,950 $6,587 Tax effect of security transactions $ --- $ --- ($1,536) 2006 Fourth Third Quarter Quarter Annual Interest income $51,364 $50,443 $197,634 Tax equivalent adjustment 1,998 1,916 7,802 53,362 52,359 205,436 Interest expense 25,273 23,505 90,734 Net interest income 28,089 28,854 114,702 Provision for loan losses 650 250 2,050 Net interest income after provision 27,439 28,604 112,652 Non-interest income 8,194 8,279 32,063 Investment security gains (losses) 415 28 732 Mortgage banking activities income 591 533 2,172 Non-interest expenses 22,482 21,172 84,885 Merger expenses --- --- --- Income before income taxes 14,157 16,272 62,734 Income taxes 2,759 3,798 13,901 Tax equivalent adjustment 1,998 1,916 7,802 NET INCOME $9,400 $10,558 $41,031 Tax effect of security transactions $145 $10 $256 COMMUNITY BANKS, INC. & SUBSIDIARIES Fiscal Insight -- SEPTEMBER 30, 2007 ANALYSIS OF NON-INTEREST INCOME (dollars in thousands) 2007 2006 Third Second First Fourth Third Quarter Quarter Quarter Quarter Quarter Annual Investment management and trust services $1,211 $1,603 $1,445 $1,325 $968 $ 4,394 Service charges on deposit accounts 4,278 4,677 2,996 3,084 3,037 11,507 Other service charges, commissions and fees 2,209 2,257 2,028 1,852 1,817 7,272 Insurance premium income and commissions 1,079 1,063 1,176 1,022 1,053 4,120 Earnings on investment in life insurance 755 756 688 715 679 2,725 Trading activities loss 38 (34) --- --- --- --- Other income 345 232 591 196 725 2,045 Total non-interest income $9,915 $10,554 $8,924 $8,194 $8,279 $32,063 ANALYSIS OF NON-INTEREST EXPENSES (dollars in thousands) 2007 2006 Third Second First Fourth Third Quarter Quarter Quarter Quarter Quarter Annual Salaries and employee $12,419 $13,069 $12,009 $12,154 $11,611 $46,434 benefits Net occupancy and equipment expense 3,917 3,980 3,794 3,767 3,452 14,117 Payment card processing expense 848 774 613 530 553 1,922 Marketing expense 350 552 505 558 354 1,752 Telecommunications expense 718 612 525 584 542 2,243 Amortization of intangibles 750 811 661 624 659 2,639 Other operating expenses 3,930 4,693 4,034 4,265 4,001 15,778 Total non-interest expenses $22,932 $24,491 $22,141 $22,482 $21,172 $84,885 COMMUNITY BANKS, INC. & SUBSIDIARIES Fiscal Insight - SEPTEMBER 30, 2007 RISK ELEMENTS ANALYSIS (dollars in thousands) 2007 2006 Third Second First Fourth Third Quarter Quarter Quarter Quarter Quarter Non-performing assets: Non-accrual loans $26,390 $19,032 $15,715 $12,545 $11,626 Loans renegotiated with borrowers 815 665 --- --- --- Foreclosed real estate 3,175 2,122 61 37 52 Total non-performing assets 30,380 21,819 15,776 12,582 11,678 Accruing loans 90 days or more past due 33 64 101 659 685 Total risk elements $30,413 $21,883 $15,877 $13,241 $12,363 Non-performing assets to period-end loans 1.16% 0.85% 0.65% 0.53% 0.50% 90 day past due loans to period-end loans ---% ---% ---% 0.03% 0.03% Total risk elements to period-end loans 1.16% 0.85% 0.65% 0.56% 0.53% COMMUNITY BANKS, INC. & SUBSIDIARIES Fiscal Insight - SEPTEMBER 30, 2007 ALLOWANCE FOR LOAN LOSSES (dollars in thousands) 2007 2006 Third Second First Fourth Third Quarter Quarter Quarter Quarter Quarter Balance at beginning of period $25,010 $24,379 $23,626 $24,034 $23,788 Loans charged off (618) (1,564) (660) (1,136) (499) Recoveries 138 175 113 78 495 Net loans charged off (480) (1,389) (547) (1,058) (4) Provision for loan losses 1,050 700 1,300 650 250 Allowance established for acquired credit risk --- 1,320 --- --- --- Balance at end of period $25,580 $25,010 $24,379 $23,626 $24,034 Net loans charged-off to average loans* 0.07% 0.22% 0.09% 0.18% 0.00% Provision for loan losses to average loans* 0.16% 0.11% 0.22% 0.11% 0.04% Allowance for loan losses to loans 0.98% 0.97% 1.00% 1.00% 1.02% *Annualized COMMUNITY BANKS, INC. & SUBSIDIARIES Fiscal Insight - SEPTEMBER 30, 2007 OTHER RATIOS 2007 2006 Third Second First Fourth Third Quarter Quarter Quarter Quarter Quarter Investment portfolio - fair value to amortized cost 99.4% 98.6% 100.6% 100.0% 99.9% Dividend payout ratio 49.7% 47.6% 75.1% 50.0% 44.4% Net loans to deposits ratio, average 96.8% 95.8% 96.7% 93.3% 95.0% 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 $33.13 $24.89 $0.2100 Fourth $0.6300 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 - SEPTEMBER 30, 2007 NET INTEREST MARGIN - YEAR-TO-DATE (dollars in thousands) September 30, 2007 September 30, 2006 Average FTE Average Average FTE Average Balance Interest Rate Balance Interest Rate Income/ Earned/ Income/ Earned/ Expense Paid Expense Paid Federal funds sold and interest-bearing deposits in banks $39,203 $1,524 5.20% $39,340 $1,427 4.85% Investment securities 678,833 31,311 6.17% 585,909 26,084 5.95% Loans - commercial 942,456 55,779 7.91% 825,241 47,844 7.75% - commercial real estate 806,338 43,304 7.18% 819,887 42,741 6.97% - residential real estate 169,051 7,892 6.24% 151,751 6,933 6.11% - consumer 601,904 32,547 7.23% 517,378 27,045 6.99% Total earning assets $3,237,785 $172,357 7.12% $2,939,506 $152,074 6.92% Deposits - savings and NOW accounts $912,949 $16,144 2.36% $840,397 $12,363 1.97% - time 1,321,206 44,516 4.50% 1,177,600 34,700 3.94% Short-term borrowings 90,304 3,240 4.80% 62,340 2,080 4.46% Long-term debt 427,820 15,008 4.69% 403,828 13,611 4.51% Subordinated debt 69,180 3,720 7.19% 49,282 2,707 7.34% Total interest-bearing liabilities $2,821,459 $82,628 3.92% $2,533,447 $65,461 3.45% Interest income to earning assets 7.12% 6.92% Interest expense to paying liabilities 3.92% 3.45% Interest spread 3.20% 3.47% Impact of non-interest funds 0.51% 0.47% Net interest margin $89,729 3.71% $86,613 3.94% COMMUNITY BANKS, INC. & SUBSIDIARIES Fiscal Insight - SEPTEMBER 30, 2007 NET INTEREST MARGIN - QUARTER-TO-DATE (dollars in thousands) September 30, 2007 September 30, 2006 Average FTE Average Average FTE Average Balance Interest Rate Balance Interest Rate Income/ Earned/ Income/ Earned/ Expense Paid Expense Paid Federal funds sold and interest-bearing deposits in banks $27,494 $346 4.99% $29,324 $390 5.28% Investment securities 682,695 10,664 6.20% 566,772 8,556 5.99% Loans - commercial 958,605 19,019 7.87% 831,950 16,687 7.96% - commercial real estate 807,618 14,631 7.19% 831,288 14,810 7.07% - residential real estate 178,487 2,709 6.02% 150,926 2,364 6.21% - consumer 634,019 11,559 7.23% 525,188 9,552 7.22% Total earning assets $3,288,918 $58,928 7.11% $2,935,448 $52,359 7.08% Deposits - savings and NOW accounts $937,362 $5,659 2.40% $873,670 $4,969 2.26% - time 1,344,962 15,397 4.54% 1,219,679 12,889 4.19% Short-term borrowings 81,387 918 4.47% 60,680 739 4.83% Long-term debt 435,014 5,207 4.75% 340,162 3,936 4.59% Subordinated debt 75,260 1,351 7.12% 51,548 972 7.48% Total interest-bearing liabilities $2,873,985 $28,532 3.94% $2,545,739 $23,505 3.66% Interest income to earning assets 7.11% 7.08% Interest expense to paying liabilities 3.94% 3.66% Interest spread 3.17% 3.42% Impact of non-interest funds 0.50% 0.48% Net interest margin $30,396 3.67% $28,854 3.90% COMMUNITY BANKS, INC. & SUBSIDIARIES Fiscal Insight - SEPTEMBER 30, 2007 NET INTEREST MARGIN - QUARTER-TO-DATE (dollars in thousands) September 30, 2007 September 30, 2006 Average FTE Average Average FTE Average Balance Interest Rate Balance Interest Rate Income/ Earned/ Income/ Earned/ Expense Paid Expense Paid Federal funds sold and interest-bearing deposits in banks $27,494 $346 4.99% $79,230 $1,042 5.28% Investment securities 682,695 10,664 6.20% 671,210 10,438 6.24% Loans - commercial 958,605 19,019 7.87% 972,907 18,967 7.82% - commercial real estate 807,618 14,631 7.19% 800,711 14,499 7.26% - residential real estate 178,487 2,709 6.02% 177,820 2,786 6.28% - consumer 634,019 11,559 7.23% 622,636 11,205 7.22% Total earning assets $3,288,918 $58,928 7.11% $3,324,514 $58,937 7.11% Deposits - savings and NOW accounts $937,362 $5,659 2.40% $942,150 $5,651 2.41% - time 1,344,962 15,397 4.54% 1,354,663 15,068 4.46% Short-term borrowings 81,387 918 4.47% 65,019 757 4.67% Long-term debt 435,014 5,207 4.75% 456,769 5,301 4.65% Subordinated debt 75,260 1,351 7.12% 75,260 1,347 7.18% Total interest-bearing liabilities $2,873,985 $28,532 3.94% $2,893,861 $28,124 3.90% Interest income to earning assets 7.11% 7.11% Interest expense to paying liabilities 3.94% 3.90% Interest spread 3.17% 3.21% Impact of non-interest funds 0.50% 0.51% Net interest margin $30,396 3.67% $30,813 3.72% COMMUNITY BANKS, INC. & SUBSIDIARIES Fiscal Insight - SEPTEMBER 30, 2007 PERIOD-END LOAN PORTFOLIO ANALYSIS (dollars in thousands) 2007 2006 Third Second First Fourth Third Quarter Quarter Quarter Quarter Quarter Commercial: Commercial $882,338 $860,868 $824,301 $763,800 $757,714 Obligations of political subdivisions 95,143 100,338 101,090 101,555 79,028 Total commercial 977,481 961,206 925,391 865,355 836,742 Commercial real estate: Commercial mortgages $813,877 $802,922 $804,652 $815,028 $820,619 Residential real estate: Residential mortgages $168,534 $169,890 $145,719 $141,826 $144,047 Construction 9,855 7,648 6,730 7,290 6,918 Total residential real estate 178,389 177,538 152,449 149,116 150,965 Consumer: Home equity loans $369,264 $358,949 $331,418 $322,712 $308,173 Home equity lines of credit 103,625 104,586 90,675 92,163 96,608 Indirect consumer loans 76,472 74,687 69,097 65,699 66,126 Other consumer loans 90,636 87,750 68,636 60,816 68,926 Total consumer 639,997 625,972 559,826 541,390 539,833 Total loans $2,609,744 $2,567,638 $2,442,318 $2,370,889 $2,348,159 COMMUNITY BANKS, INC. & SUBSIDIARIES Fiscal Insight - SEPTEMBER 30, 2007 Reconciliation of GAAP to Non-GAAP Measures: (in thousands, except per share data) 2007 Third Second First Quarter Quarter Quarter Income statement data: Net income Net income $10,493 $10,950 $6,587 Amortization of core deposit and other intangible assets (1) 488 528 429 Merger expenses (1) 490 --- --- Net operating (tangible) income $11,471 $11,478 $7,016 Earnings per share Diluted earnings per common share $0.42 $0.44 $0.28 Amortization of core deposit and other intangible assets (1) 0.02 0.02 0.02 Merger expenses (1) 0.02 --- --- Diluted operating (tangible) earnings per share $0.46 $0.46 $0.30 Balance sheet data: Average assets Average assets $3,778,338 $3,805,794 $3,544,189 Goodwill (265,048) (263,694) (246,400) Core deposit and other intangible assets (14,446) (13,229) (13,369) Average tangible assets $3,498,844 $3,526,844 $3,285,106 Operating return on average tangible assets 1.30% 1.31% 0.87% Average equity Average equity $521,089 $522,409 $486,928 Goodwill (265,048) (263,694) (246,400) Core deposit and other intangible assets (14,446) (15,256) (12,683) Deferred taxes 2,349 2,468 1,547 Average tangible equity $243,944 $245,927 $229,392 Operating return on average tangible equity 18.66% 18.72% 12.40% At end of quarter: Total assets Total assets $3,789,634 $3,750,844 $3,627,739 Goodwill (265,136) (265,129) (246,449) Core deposit and other intangible assets (14,083) (14,834) (12,363) Total tangible assets $3,510,415 $3,470,881 $3,368,927 Total equity Total equity $526,475 $517,193 $490,564 Goodwill (265,136) (265,129) (246,449) Core deposit and other intangible assets (14,083) (14,834) (12,363) Deferred taxes 2,277 2,403 1,482 Total tangible equity $249,533 $239,633 $233,234 Tangible book value at end of period $10.05 $9.68 $9.91 Tangible equity to assets 7.11% 6.90% 6.92% (1)Net of related tax effect Reconciliation of GAAP to Non-GAAP Measures: (in thousands, except per share data) 2006 Fourth Third Quarter Quarter Annual Income statement data: Net income Net income $9,400 $10,558 $41,031 Amortization of core deposit and other intangible assets (1) 406 428 1,715 Merger expenses (1) --- --- --- Net operating (tangible) income $9,806 $10,986 $42,746 Earnings per share Diluted earnings per common share $0.40 $0.45 $1.72 Amortization of core deposit and other intangible assets (1) 0.01 0.01 0.07 Merger expenses (1) --- --- --- Diluted operating (tangible) earnings per share $0.41 $0.46 $1.79 Balance sheet data: Average assets Average assets $3,452,095 $3,385,905 $3,403,421 Goodwill (246,287) (245,794) (245,652) Core deposit and other intangible assets (13,086) (13,229) (13,369) Average tangible assets $3,192,722 $3,126,882 $3,144,400 Operating return on average tangible assets 1.22% 1.39% 1.36% Average equity Average equity $481,734 $471,911 $475,710 Goodwill (246,287) (245,794) (245,652) Core deposit and other intangible assets (13,086) (13,229) (13,368) Deferred taxes 1,652 1,755 1,744 Average tangible equity $224,013 $214,643 $218,434 Operating return on average tangible equity 17.37% 20.31% 19.57% At end of quarter: Total assets Total assets $3,496,370 $3,431,208 $3,496,370 Goodwill (246,383) (245,864) (246,383) Core deposit and other intangible assets (13,023) (13,641) (13,023) Total tangible assets $3,236,964 $3,171,703 $3,236,964 Total equity Total equity $486,161 $479,584 $486,161 Goodwill (246,383) (245,864) (246,383) Core deposit and other intangible assets (13,023) (13,641) (13,023) Deferred taxes 1,591 1,698 1,591 Total tangible equity $228,346 $221,777 $228,346 Tangible book value at end of period $9.71 $9.45 $9.71 Tangible equity to assets 7.05% 6.99% 7.05% (1)Net of related tax effect DATASOURCE: Community Banks, Inc. CONTACT: Donald F. Holt, EVP/CFO Community Banks, Inc., +1-717-920-5801, Fax, +1-717-920-1683 Web site: http://www.communitybanks.com/

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