Community Banks (CMTY) 8-K Community Banks Reports Combined Results, Record Earnings

FOR IMMEDIATE RELEASE

Date:October 17, 2005

Contact:Donald F. Holt, EVP/CFO

(717) 920-5801, Fax (717) 920-1683

COMMUNITY BANKS REPORTS COMBINED RESULTS, RECORD EARNINGS

Harrisburg, PA- Community Banks, Inc. (“Community”) (Listed on NASDAQ: CMTY) today reported the initial quarter of combined operating results following its July 1, 2005 merger with Blue Ball Bank. Community reported record net income of $10.3 million in the 3^rd quarter of 2005, an increase of 83% over the same year-ago period. During the quarter, Community completed its planned integration of the former Blue Ball franchise, which now operates as a separate division of Community in the Lancaster, Berks and Chester counties of south-central Pennsylvania. This merger was the largest and most strategic in the history of the franchise. Since the time of the original merger announcement, Community has undertaken a deliberate strategy to ensure successful assimilation of both the operations and the financial position of the two banks, which culminated during the 3^rd quarter of 2005. As a result, Community is now positioned to achieve its targeted level of earnings growth through both the natural expansion of its core franchise and through the full realization of scheduled cost savings that were facilitated by the 3^rd quarter transition efforts. Its core franchise now boasts assets of $3.3 billion with over 70 community banking offices located in the heart of an enviable footprint.

“We are energized by the fact that, through the diligence of our dedicated staff, we have successfully combined these two fine companies to form the 8^th largest bank holding company headquartered in Pennsylvania. During this most recent quarter, we have positioned our new franchise to maximize operating efficiencies in the 4^th quarter of 2005 and into 2006”, said Eddie L. Dunklebarger, President and Chief Executive Officer. “We have met all of the transitional goals that we had set for the 3^rd quarter, and are confident that we are now well-positioned to more fully realize the growth and profit expansion we talked about at the time of our original announcement,” he added.

Because the merger was accounted for under the purchase accounting method (now required under authoritative accounting guidance), many of the traditional metrics used to evaluate performance in a post-merger environment have undergone change. One consistent metric is earnings per share, which reached $ 0.44 per share for the quarter after absorbing the 3^rd quarter carryover of certain merger-related expenses and the non-cash amortization of intangibles arising from the merger. This performance was virtually equal to the earnings per share performance of the former Community franchise in the year-ago period. This recent quarterly performance served to demonstrate that the intrinsic dilution associated with the acquisition of the Blue Ball franchise was largely overcome in the 3^rd quarter of 2005, paving the way for additional earnings per share accretion in future periods.

“Our primary focus during the pivotal third quarter was to minimize disruption to customers of both Community and Blue Ball, and we were willing to temporarily delay some scheduled expense savings in order to ensure a smooth transition. With our transitional goals behind us, we have completed our platform for growth and can concentrate on leveraging the unique franchise we have created”, said Mr. Dunklebarger in added comments.

By the end of the 3^rd quarter, Community successfully completed a two-stage technology conversion that focused on eliminating the potential for customer confusion in the critical timeframe immediately following the merger. Community now operates on a fully-converted, fully integrated operating platform throughout its banking network.

During the pre-merger 2^nd quarter of 2005, Community had absorbed substantial merger, conversion and balance sheet restructuring charges that were incurred to facilitate the successful integration of the Blue Ball franchise beginning on July 1, 2005. These efforts included a wholesale restructuring of the balance sheet that contributed to a substantial 3^rd quarter improvement in net interest margin, which rose to 3.89%. Community dramatically reduced its dependence on volatile, high-cost, wholesale funding sources while simultaneously increasing its access to more stable core deposit relationships thru the merger. Net interest margin is a critical measure of a bank’s ability to maximize revenues from a given earning asset base and Community’s improvement exceeded 40 basis points after the merger. At the same time, the efficiency ratio, which measures the portion of revenue dollars that are needed to absorb operational expenses, decreased to 57.9%, a substantial improvement over the 60.4% experienced for all of 2004. The improvement in each of these measures was a direct consequence of the overall plan to combine the two franchises. In addition, Community has now established a combined capital base that will accommodate additional future growth of the franchise and allow for more proactive interest rate risk management in an increasingly uncertain interest rate environment.

Primarily as a result of the merger, total loans grew 82%, while total assets and deposits grew 68% and 70%, respectively. Loans are now at $2.2 billion at September 30, 2005, while deposits stand at over $2.2 billion. Asset quality metrics continued to improve as net charge-offs for the combined banks were below pre-merger levels at Community. Tangible equity capital, which excludes the intangible assets of $258 million, is at $225 million. Tangible equity stands at a healthy 7.41% of tangible assets. The 3rd quarter performance resulted in a return on tangible equity of 19.21%. Return on “tangible” equity has become the more relevant measure of shareholder return for companies that have experienced substantial merger activity in periods after the mandatory application of the purchase method of accounting for business combinations.

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.

2

COMMUNITY BANKS, INC.
Selected Financial Information
(Dollars in thousands, except per share data)
	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2005			2004			2005			2004
Consolidated summary of operations:
Interest income	$	43,478		$	25,227		$	97,051		$	74,089
Interest expense		17,081			10,934			41,055			32,153
Net interest income		26,397			14,293			55,996			41,936
Provision for loan losses		400			750			1,700			2,350
Net interest income after provision for loan losses		25,997			13,543			54,296			39,586
Non-interest income:
Investment management and trust services		796			443			1,741			1,119
Service charges on deposit accounts		2,799			1,996			6,620			5,108
Other service charges, commissions, and fees		1,819			888			3,763			2,565
Investment security gains		29			108			247			2,284
Insurance premium income and commissions		825			708			2,607			2,387
Mortgage banking activities		660			558			1,723			2,013
Earnings on investment in life insurance		659			433			1,413			1,210
Other		279			878			560			1,105
Total non-interest income		7,866			6,012			18,674			17,791
Non-interest expenses:
Salaries and employee benefits		11,808			6,975			26,537			20,851
Net occupancy		3,364			2,039			7,788			6,217
Merger, conversion and restructuring expenses		248			---			8,205			---
Marketing expense		528			611			1,439			1,900
Telecommunications expense		309			318			870			979
Amortization of intangibles		641			40			728			119
Other		4,186			2,547			9,322			7,309
Total non-interest expenses		21,084			12,530			54,889			37,375
Income before income taxes		12,779			7,025			18,081			20,002
Income taxes		2,447			1,379			3,401			3,744
Net income	$	10,332		$	5,646		$	14,680		$	16,258
Net loan charge-offs	$	78		$	608		$	416		$	1,092
Net interest margin (FTE)		3.89	%		3.43	%		3.67	%		3.42	%
Efficiency ratio (1)		57.86	%		59.48	%		58.31	%		60.86	%
Return on average assets		1.24	%		1.15	%		0.80	%		1.12	%
Return on average stockholders’ equity		8.52	%		15.84	%		7.38	%		15.10	%
Net operating (tangible) income (2)	$	11,052		$	5,672		$	21,916		$	16,335
Operating return on average tangible assets (2)(3)		1.43	%		1.16	%		1.24	%		1.13	%
Operating return on average tangible equity (2)(3)		19.21	%		16.49	%		16.52	%		15.70	%
Consolidated per share data:
Basic earnings per share	$	0.44		$	0.46		$	0.92		$	1.33
Diluted earnings per share	$	0.44		$	0.45		$	0.90		$	1.29
Book value at end of period	$	20.82		$	12.26		$	20.82		$	12.26
Tangible book value at end of period (3)	$	9.73		$	11.85		$	9.73		$	11.85

3

COMMUNITY BANKS, INC.

Selected Financial Information

(Dollars in thousands, except per share data)

Consolidated balance sheet data:

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2005		2004		2005		2004
Average total loans	$	2,138,081	$	1,175,562	$	1,548,283	$	1,138,093
Average earning assets		2,873,155		1,845,219		2,227,647		1,827,616
Average assets		3,316,460		1,957,935		2,451,131		1,935,715
Average tangible assets (3)		3,061,813		1,952,960		2,361,995		1,930,857
Average deposits		2,248,304		1,313,373		1,653,722		1,293,105
Average stockholders’ equity		481,185		141,808		265,945		143,815
Average tangible equity (3)		228,215		136,833		177,374		138,957
Average diluted shares outstanding		23,571,820		12,508,000		16,338,236		12,582,000

										9/30/2005
										vs.
	September 30,			December 31,			September 30,			9/30/2004
	2005			2004			2004			% Change
Assets	$	3,291,232		$	1,954,799		$	1,955,811			68	%
Total loans		2,165,430			1,215,951			1,188,280			82	%
Deposits		2,244,791			1,305,537			1,320,476			70	%
Stockholders’ equity		480,960			152,341			149,419			222	%
Diluted shares outstanding		23,405,000			12,549,000			12,516,000			87	%
Non-accrual loans	$	10,736		$	5,428		$	5,990			79	%
Foreclosed real estate		2,273			2,094			2,203			3	%
Total non-performing assets		13,009			7,522			8,193			59	%
Accruing loans 90 days past due		7			---			16			(56	)%
Total risk elements	$	13,016		$	7,522		$	8,209			59	%
Allowance for loan losses	$	22,773		$	14,421		$	14,436			58	%
Asset quality ratios:
Allowance for loan losses to total loans		1.05	%		1.19	%		1.21	%
Allowance for loan losses to non-accrual loans		212	%		266	%		241	%
Non-accrual loans to total loans		0.50	%		0.45	%		0.50	%
Non-performing assets to total assets		0.40	%		0.38	%		0.42	%
(1)The efficiency ratio does not include merger, conversion and restructuring expenses or net securities transactions.
(2)Net operating (tangible) 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 operating (tangible) income appears on page 5.
(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 5.

4

COMMUNITY BANKS, INC.

Selected Financial Information

(Dollars in thousands, except per share data)

Reconciliation of GAAP to Non-GAAP Measures:

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2005			2004			2005			2004
Income statement data:
Net income
Net income	$	10,332		$	5,646		$	14,680		$	16,258
Amortization of core deposit and other intangible assets (1)		519			26			590			77
Merger, conversion and restructuring expenses (1)		201			---			6,646			---
Net operating (tangible) income	$	11,052		$	5,672		$	21,916		$	16,335
Balance sheet data:
Average assets
Average assets	$	3,316,460		$	1,957,935		$	2,451,131		$	1,935,715
Goodwill		(239,395	)		(3,513	)		(83,043	)		(3,369	)
Core deposit and other intangible assets		(15,252	)		(1,462	)		(6,093	)		(1,489	)
Deferred taxes		---			---			---			---
Average tangible assets	$	3,061,813		$	1,952,960		$	2,361,995		$	1,930,857
Operating return on average tangible assets		1.43	%		1.16	%		1.24	%		1.13	%
Average equity
Average equity	$	481,185		$	141,808		$	265,945		$	143,815
Goodwill		(239,395	)		(3,513	)		(83,043	)		(3,369	)
Core deposit and other intangible assets		(15,252	)		(1,462	)		(6,093	)		(1,489	)
Deferred taxes		1,677			---			565			---
Average tangible equity	$	228,215		$	136,833		$	177,374		$	138,957
Operating return on average tangible equity		19.21	%		16.49	%		16.52	%		15.70	%
At end of quarter:
Total assets
Total assets	$	3,291,232		$	1,955,811		$	3,291,232		$	1,955,811
Goodwill		(243,107	)		(3,513	)		(243,107	)		(3,513	)
Core deposit and other intangible assets		(14,951	)		(1,523	)		(14,951	)		(1,523	)
Deferred taxes		---			---			---			---
Total tangible assets	$	3,033,174		$	1,950,775		$	3,033,174		$	1,950,775
Total equity
Total equity	$	480,960		$	149,419		$	480,960		$	149,419
Goodwill		(243,107	)		(3,513	)		(243,107	)		(3,513	)
Core deposit and other intangible assets		(14,951	)		(1,523	)		(14,951	)		(1,523	)
Deferred taxes		1,746			---			1,746			---
Total tangible equity	$	224,648		$	144,383		$	224,648		$	144,383
Tangible book value at end of period	$	9.73		$	11.85		$	9.73		$	11.85
(1) Net of related tax effect

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COMMUNITY BANKS, INC. & SUBSIDIARIES
Fiscal Insight - SEPTEMBER 30, 2005
KEY RATIOS
	2005									2004
	Third			Second			First			Fourth			Third
	Quarter			Quarter			Quarter			Quarter			Quarter			Annual
Diluted earnings (loss) per share	$	0.44		$	(0.09	)	$	0.44		$	0.44		$	0.45		$	1.73
Tangible operating earnings per share (1)	$	0.47		$	0.42		$	0.44		$	0.44		$	0.45		$	1.74
Return on average assets		1.24	%		(0.22	)%		1.12	%		1.13	%		1.15	%		1.12	%
Return on average equity		8.52	%		(2.97	)%		14.23	%		14.54	%		15.84	%		14.96	%
Operating return on average tangible assets (2)		1.43	%		1.05	%		1.13	%		1.13	%		1.16	%		1.13	%
Operating return on average tangible equity (2)		19.21	%		14.39	%		14.80	%		15.11	%		16.49	%		15.55	%
Net interest margin		3.89	%		3.46	%		3.55	%		3.51	%		3.43	%		3.44	%
Non-interest income/revenues (FTE excluding security gains)		21.74	%		24.60	%		23.95	%		24.33	%		27.07	%		24.74	%
Provision for loan losses/average loans (annualized)		0.07	%		0.24	%		0.18	%		0.25	%		0.25	%		0.27	%
Efficiency ratio (3)		57.86	%		58.42	%		58.97	%		59.16	%		59.48	%		60.42	%
Non-performing assets to period-end loans		0.60	%		0.73	%		0.62	%		0.62	%		0.69	%
90 day past due loans to period-end loans		0.00	%		0.00	%		0.00	%		0.00	%		0.00	%
Total risk elements to period-end loans		0.60	%		0.73	%		0.62	%		0.62	%		0.69	%
Allowance for loan losses to loans		1.05	%		1.20	%		1.18	%		1.19	%		1.21	%		1.19	%
Allowance for loan losses to
non-accrual loans		212	%		223	%		254	%		266	%		241	%		266	%
Net charge-offs/average loans (annualized)		0.01	%		0.04	%		0.07	%		0.25	%		0.21	%		0.16	%
Equity to assets		14.61	%		7.75	%		7.54	%		7.79	%		7.64	%		7.79	%
Tangible equity to assets (2)		7.41	%		7.51	%		7.31	%		7.55	%		7.40	%		7.55	%
(1)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.
(2) 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.
(3)The efficiency ratio does not include merger, conversion and restructuring expenses or net securities transactions.
Note: Certain amounts reported in prior quarters have been reclassified to conform with the current presentation. These reclassifications did not impact Community’s financial condition or results of operations.

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COMMUNITY BANKS, INC. & SUBSIDIARIES
Fiscal Insight - SEPTEMBER 30, 2005
PER SHARE STATISTICS *
Diluted Earnings (Loss) per Share
	Fourth		Third		Second			First
	Quarter		Quarter		Quarter			Quarter		Total
2005			$	0.44	$	(0.09	)	$	0.44	$	0.90
2004	$	0.44	$	0.45	$	0.43		$	0.41	$	1.73
2003	$	0.41	$	0.41	$	0.40		$	0.41	$	1.63
Average Diluted Shares Outstanding
(in thousands)		Fourth		Third		Second			First		Average for
		Quarter		Quarter		Quarter			Quarter		Year
2005				23,572		12,609			12,564		16,338
2004		12,553		12,508		12,587			12,653		12,575
2003		12,623		12,501		12,433			12,375		12,497
Book Value per Share
		Fourth		Third		Second			First
		Quarter		Quarter		Quarter			Quarter
2005			$	20.82	$	12.41		$	12.33
2004	$	12.45	$	12.26	$	11.15		$	12.27
2003	$	11.73	$	11.25	$	11.73		$	10.83
Tangible Book Value per Share
		Fourth		Third		Second			First
		Quarter		Quarter		Quarter			Quarter
2005			$	9.73	$	12.01		$	11.92
2004	$	12.04	$	11.85	$	10.74		$	11.88
* Per share data reflect stock splits and stock dividends

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COMMUNITY BANKS, INC. & SUBSIDIARIES
Fiscal Insight - SEPTEMBER 30, 2005
QUARTER END INFORMATION
(dollars in thousands)	2005							2004
	Third		Second		First			Fourth		Third
	Quarter		Quarter		Quarter			Quarter		Quarter
Loans, net	$	2,142,657	$	1,269,305	$	1,231,150		$	1,201,530	$	1,173,844
Earning assets		2,842,809		1,863,027		1,895,648			1,838,116		1,844,154
Goodwill and identifiable intangible assets		258,057		4,964		5,008			5,051		5,036
Total assets		3,291,232		1,982,732		2,012,653			1,954,799		1,955,811
Deposits		2,244,791		1,382,866		1,348,250			1,305,537		1,320,476
Long-term debt		457,728		356,210		427,942			404,662		406,370
Subordinated debt		30,928		30,928		30,928			30,928		30,928
Total shareholder's equity		480,960		153,582		151,758			152,341		149,419
Accumulated other comprehensive income (loss) (net of tax)		1,381		1,559		(2,350	)		3,211		5,050

8

COMMUNITY BANKS, INC. & SUBSIDIARIES
Fiscal Insight - SEPTEMBER 30, 2005
CONDENSED CONSOLIDATED QUARTERLY AVERAGE STATEMENTS OF CONDITION
(dollars in thousands)		2005									2004
		Third			Second			First			Fourth			Third
	��	Quarter			Quarter			Quarter			Quarter			Quarter
Assets
Earning Assets:
Loans		$	2,138,081		$	1,265,479		$	1,231,192		$	1,201,454		$	1,175,562
Federal funds sold and other			102,295			80,109			25,788			17,223			6,504
Taxable investment securities			406,654			368,637			401,038			415,262			453,905
Tax-exempt investment securities			226,125			214,609			212,036			210,736			209,248
Total earning assets			2,873,155			1,928,834			1,870,054			1,844,675			1,845,219
Cash and due from banks			59,404			36,964			37,994			40,689			38,144
Allowance for loan losses			(22,778	)		(15,189	)		(14,533	)		(14,551	)		(14,418	)
Goodwill and other identifiable intangibles			254,648			4,988			5,029			5,015			4,975
Premises, equipment and other assets			152,031			86,021			84,575			81,412			84,015
Total assets		$	3,316,460		$	2,041,618		$	1,983,119		$	1,957,240		$	1,957,935
Liabilities and equity
Interest-bearing liabilities:
Deposits
Savings and NOW accounts		$	850,801		$	526,821		$	501,945		$	494,275		$	515,917
Time			865,136			537,585			528,686			514,560			513,241
Time deposits greater than $100,000			175,634			128,052			113,081			107,250			101,782
Short-term borrowings			56,948			36,687			31,106			48,926			59,464
Long-term debt			476,602			424,105			425,318			405,615			399,085
Subordinated debt			30,928			30,928			30,928			30,928			30,928
Total interest-bearing liabilities			2,456,049			1,684,178			1,631,064			1,601,554			1,620,417
Noninterest-bearing deposits			356,733			190,045			183,048			188,505			182,434
Other liabilities			22,493			13,501			12,612			15,624			13,276
Total liabilities			2,835,275			1,887,724			1,826,724			1,805,683			1,816,127
Stockholders' equity			481,185			153,894			156,395			151,557			141,808
Total liabilities and stockholders’ equity		$	3,316,460		$	2,041,618		$	1,983,119		$	1,957,240		$	1,957,935

CHANGE IN AVERAGE BALANCES*
	2005									2004
	Third			Second			First			Fourth			Third
	Quarter			Quarter			Quarter			Quarter			Quarter
Loans		81.9	%		11.2	%		11.9	%		12.5	%		14.5	%
Total assets		69.4	%		4.1	%		4.6	%		7.3	%		7.8	%
Deposits		71.2	%		4.5	%		6.8	%		7.4	%		9.7	%
Shareholders' equity		239.3	%		8.1	%		6.2	%		8.9	%		3.8	%
* Compares the current quarter to the comparable quarter of the prior year

9

COMMUNITY BANKS, INC. & SUBSIDIARIES
Fiscal Insight - SEPTEMBER 30, 2005
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(dollars in thousands)	2005							2004
	Third		Second			First		Fourth		Third
	Quarter		Quarter			Quarter		Quarter		Quarter		Annual
Interest income	$	43,478	$	27,390		$	26,183	$	25,710	$	25,227	$	99,799
Tax equivalent adjustment		1,811		1,741			1,689		1,664		1,613		6,539
		45,289		29,131			27,872		27,374		26,840		106,338
Interest expense		17,081		12,481			11,493		11,089		10,934		43,242
Net interest income		28,208		16,650			16,379		16,285		15,906		63,096
Provision for loan losses		400		750			550		750		750		3,100
Net interest income after provision		27,808		15,900			15,829		15,535		15,156		59,996
Non-interest income		7,177		4,883			4,644		4,584		5,346		18,078
Investment security gains income		29		167			51		186		108		2,470
Mortgage banking activities income		660		548			515		652		558		2,665
Non-interest expenses		20,836		13,189			12,659		12,618		12,530		49,993
Merger, conversion and restructuring expenses		248		7,957			---		---		---		---
Income before income taxes		14,590		352			8,380		8,339		8,638		33,216
Income taxes		2,447		(250	)		1,204		1,135		1,379		4,879
Tax equivalent adjustment		1,811		1,741			1,689		1,664		1,613		6,539
NET INCOME (LOSS)	$	10,332	$	(1,139	)	$	5,487	$	5,540	$	5,646	$	21,798
Tax effect of security transactions	$	10	$	58		$	18	$	65	$	38	$	865

10

COMMUNITY BANKS, INC. & SUBSIDIARIES
Fiscal Insight - SEPTEMBER 30, 2005
ANALYSIS OF NON-INTEREST INCOME
(dollars in thousands)	2005						2004
	Third		Second		First		Fourth		Third
	Quarter		Quarter		Quarter		Quarter		Quarter		Annual
Investment management and trust services	$	796	$	531	$	414	$	391	$	443	$	1,510
Service charges on deposit accounts		2,799		2,028		1,793		2,012		1,996		7,120
Other service charges, commissions and fees		1,819		934		1,010		792		888		3,357
Insurance premium income and commissions		825		880		902		873		708		3,260
Earnings on investment in life insurance		659		355		399		383		433		1,593
Other income		279		155		126		133		878		1,238
Total non-interest income	$	7,177	$	4,883	$	4,644	$	4,584	$	5,346	$	18,078

ANALYSIS OF NON-INTEREST EXPENSES
(dollars in thousands)	2005						2004
	Third		Second		First		Fourth			Third
	Quarter		Quarter		Quarter		Quarter			Quarter		Annual
Salaries and employee benefits	$	11,808	$	7,436	$	7,293	$	7,486		$	6,975	$	28,337
Net occupancy expense		3,364		2,199		2,225		2,070			2,039		8,287
Marketing expense		528		466		445		425			611		2,325
Telecommunications expense		309		257		304		306			318		1,285
Amortization of intangibles		641		43		44		42			40		161
Other operating expenses		4,186		2,788		2,348		2,289			2,547		9,598
Total non-interest expenses	$	20,836	$	13,189	$	12,659	$	12,618	��	$	12,530	$	49,993

11

COMMUNITY BANKS, INC. & SUBSIDIARIES
Fiscal Insight - SEPTEMBER 30, 2005
RISK ELEMENTS ANALYSIS
(dollars in thousands)	2005									2004
	Third			Second			First			Fourth			Third
	Quarter			Quarter			Quarter			Quarter			Quarter
Non-performing assets:
Non-accrual loans	$	10,736		$	6,896		$	5,807		$	5,428		$	5,990
Troubled debt restructurings		---			---			---			---			---
Foreclosed real estate		2,273			2,444			1,935			2,094			2,203
Total non-performing assets		13,009			9,340			7,742			7,522			8,193
Accruing loans 90 days or more past due		7			---			---			---			16
Total risk elements	$	13,016		$	9,340		$	7,742		$	7,522		$	8,209
Non-performing assets to period-end loans		0.60	%		0.73	%		0.62	%		0.62	%		0.69	%
90 day past due loans to period-end loans		0.00	%		0.00	%		0.00	%		0.00	%		0.00	%
Total risk elements to period-end loans		0.60	%		0.73	%		0.62	%		0.62	%		0.69	%

12

COMMUNITY BANKS, INC. & SUBSIDIARIES
Fiscal Insight - SEPTEMBER 30, 2005
ALLOWANCE FOR LOAN LOSSES
(dollars in thousands)	2005									2004
	Third			Second			First			Fourth			Third
	Quarter			Quarter			Quarter			Quarter			Quarter
Balance at beginning of period	$	15,383		$	14,754		$	14,421		$	14,436		$	14,294
Loans charged off		(271	)		(439	)		(460	)		(922	)		(786	)
Recoveries		193			318			243			157			178
Net loans charged off		(78	)		(121	)		(217	)		(765	)		(608	)
Provision for loan losses		400			750			550			750			750
Allowance established for acquired credit risk		7,068			---			---			---			---
Balance at end of period	$	22,773		$	15,383		$	14,754		$	14,421		$	14,436
Net loans charged-off to average loans*		0.01	%		0.04	%		0.07	%		0.25	%		0.21	%
Provision for loan losses to average loans*		0.07	%		0.24	%		0.18	%		0.25	%		0.25	%
Allowance for loan losses to loans		1.05	%		1.20	%		1.18	%		1.19	%		1.21	%
*Annualized

13

COMMUNITY BANKS, INC. & SUBSIDIARIES
Fiscal Insight - SEPTEMBER 30, 2005
OTHER RATIOS
	2005									2004
	Third			Second			First			Fourth			Third
	Quarter			Quarter			Quarter			Quarter			Quarter
Investment portfolio - fair value to amortized cost		100.9	%		101.1	%		100.0	%		101.4	%		101.7	%
Dividend payout ratio		42.7	%		NR*			38.1	%		37.5	%		36.7	%
Net loans to deposits ratio, average		94.1	%		90.4	%		91.7	%		91.0	%		88.4	%

MARKET PRICE AND DIVIDENDS DECLARED **
	Closing Bid Price Range				Dividends
Year / Quarter	High		Low		Declared
2005
First	$	28.51	$	23.70	$	0.1700
Second	$	26.50	$	23.04	$	0.1900
Third	$	28.85	$	26.66	$	0.1900
Fourth						---
					$	0.5500
2004
First	$	34.52	$	28.41	$	0.1619
Second	$	31.58	$	27.02	$	0.1700
Third	$	29.73	$	25.35	$	0.1700
Fourth	$	31.47	$	28.77	$	0.1700
					$	0.6719
2003
First	$	22.51	$	20.79	$	0.1512
Second	$	23.81	$	22.11	$	0.1586
Third	$	26.59	$	23.69	$	0.1586
Fourth	$	32.14	$	26.67	$	0.1586
					$	0.6270
* Not relevant
** Per share data reflect stock splits and dividends

14

COMMUNITY BANKS, INC. & SUBSIDIARIES
Fiscal Insight - SEPTEMBER 30, 2005
NET INTEREST MARGIN - YEAR-TO-DATE
(dollars in thousands)	September 30, 2005							September 30, 2004
	Average Balance		FTE Interest Income/ Expense		Average Rate Earned/Paid			Average Balance		FTE Interest Income/ Expense		Average Rate Earned/Paid
Federal funds sold and interest-bearing deposits in banks	$	67,706	$	1,591		3.14	%	$	8,124	$	61		1.00	%
Investment securities		609,754		25,349		5.56	%		678,865		26,820		5.28	%
Loans - commercial		533,916		26,109		6.54	%		405,534		17,132		5.64	%
- commercial real estate		489,780		23,616		6.45	%		298,111		13,450		6.03	%
- residential real estate		119,234		5,702		6.39	%		96,162		4,808		6.68	%
- consumer		407,257		19,925		6.53	%		340,820		16,693		6.54	%
Total earning assets	$	2,227,647	$	102,292		6.14	%	$	1,827,616	$	78,964		5.77	%
Deposits - savings and NOW accounts	$	627,710	$	6,081		1.30	%	$	496,532	$	3,155		0.85	%
- time		784,181		17,873		3.05	%		621,963		13,647		2.93	%
Short-term borrowings		41,706		809		2.59	%		62,763		524		1.12	%
Long-term debt		442,153		14,811		4.48	%		391,387		13,664		4.66	%
Subordinated debt		30,928		1,481		6.40	%		30,928		1,163		5.02	%
Total interest-bearing liabilities	$	1,926,678	$	41,055		2.85	%	$	1,603,573	$	32,153		2.68	%
Interest income to earning assets						6.14	%						5.77	%
Interest expense to paying liabilities						2.85	%						2.68	%
Interest spread						3.29	%						3.09	%
Impact of noninterest funds						0.38	%						0.33	%
Net interest margin			$	61,237		3.67	%			$	46,811		3.42	%

15

COMMUNITY BANKS, INC. & SUBSIDIARIES
Fiscal Insight - SEPTEMBER 30, 2005
NET INTEREST MARGIN - QUARTER-TO-DATE
(dollars in thousands)	September 30, 2005							September 30, 2004
	Average Balance		FTE Interest Income/ Expense		Average Rate Earned/Paid			Average Balance		FTE Interest Income/ Expense		Average Rate Earned/Paid
Federal funds sold and interest-bearing deposits in banks	$	100,263	$	857		3.39	%	$	6,013	$	22		1.46	%
Investment securities		632,779		8,760		5.49	%		663,153		8,854		5.31	%
Loans - commercial		740,034		12,665		6.79	%		420,252		6,034		5.71	%
- commercial real estate		731,449		12,135		6.58	%		308,927		4,667		6.01	%
- residential real estate		176,263		2,731		6.15	%		95,693		1,559		6.48	%
- consumer		492,367		8,141		6.56	%		351,181		5,704		6.46	%
Total earning assets	$	2,873,155	$	45,289		6.25	%	$	1,845,219	$	26,840		5.79	%
Deposits - savings and NOW accounts	$	850,801	$	3,048		1.42	%	$	515,917	$	1,139		0.88	%
- time		1,040,770		7,945		3.03	%		615,023		4,530		2.93	%
Short-term borrowings		56,948		452		3.15	%		59,464		202		1.35	%
Long-term debt		476,602		5,109		4.25	%		399,085		4,655		4.64	%
Subordinated debt		30,928		527		6.76	%		30,928		408		5.25	%
Total interest-bearing liabilities	$	2,456,049	$	17,081		2.76	%	$	1,620,417	$	10,934		2.68	%
Interest income to earning assets						6.25	%						5.79	%
Interest expense to paying liabilities						2.76	%						2.68	%
Interest spread						3.49	%						3.11	%
Impact of noninterest funds						0.40	%						0.32	%
Net interest margin			$	28,208		3.89	%			$	15,906		3.43	%

16

COMMUNITY BANKS, INC. & SUBSIDIARIES
Fiscal Insight - SEPTEMBER 30, 2005
NET INTEREST MARGIN - QUARTER-TO-DATE
(dollars in thousands)	September 30, 2005							June 30, 2005
	Average Balance		FTE Interest Income/ Expense		Average Rate Earned/Paid			Average Balance		FTE Interest Income/ Expense		Average Rate Earned/Paid
Federal funds sold and interest-bearing deposits in banks	$	100,263	$	857		3.39	%	$	78,196	$	583		2.99	%
Investment securities		632,779		8,760		5.49	%		583,246		8,235		5.66	%
Loans - commercial		740,034		12,665		6.79	%		438,396		6,968		6.38	%
- commercial real estate		731,449		12,135		6.58	%		371,725		5,888		6.35	%
- residential real estate		176,263		2,731		6.15	%		89,164		1,470		6.61	%
- consumer		492,367		8,141		6.56	%		368,107		5,987		6.52	%
Total earning assets	$	2,873,155	$	45,289		6.25	%	$	1,928,834	$	29,131		6.06	%
Deposits - savings and NOW accounts	$	850,801	$	3,048		1.42	%	$	526,821	$	1,720		1.31	%
- time		1,040,770		7,945		3.03	%		665,637		5,181		3.12	%
Short-term borrowings		56,948		452		3.15	%		36,687		200		2.19	%
Long-term debt		476,602		5,109		4.25	%		424,105		4,885		4.62	%
Subordinated debt		30,928		527		6.76	%		30,928		495		6.42	%
Total interest-bearing liabilities	$	2,456,049	$	17,081		2.76	%	$	1,684,178	$	12,481		2.97	%
Interest income to earning assets						6.25	%						6.06	%
Interest expense to paying liabilities						2.76	%						2.97	%
Interest spread						3.49	%						3.09	%
Impact of noninterest funds						0.40	%						0.37	%
Net interest margin			$	28,208		3.89	%			$	16,650		3.46	%

17

COMMUNITY BANKS, INC. & SUBSIDIARIES
Fiscal Insight - SEPTEMBER 30, 2005
PERIOD-END LOAN PORTFOLIO ANALYSIS
(dollars in thousands)	2005						2004
	Third		Second		First		Fourth		Third
	Quarter		Quarter		Quarter		Quarter		Quarter
Commercial:
Commercial	$	706,475	$	392,101	$	378,986	$	359,112	$	384,464
Obligations of political subdivisions		53,881		54,241		54,327		49,993		40,226
Total commercial		760,356		446,342		433,313		409,105		424,690
Commercial real estate:
Commercial mortgages	$	737,432	$	374,202	$	363,246	$	356,871	$	312,327
Residential real estate:
Residential mortgages	$	150,596	$	81,115	$	84,469	$	83,979	$	82,546
Construction		26,437		5,846		6,190		8,703		13,378
Total residential real estate		177,033		86,961		90,659		92,682		95,924
Consumer:
Home equity loans	$	236,363	$	229,946	$	224,608	$	224,494	$	225,319
Home equity lines of credit		120,080		56,603		54,309		53,921		49,380
Indirect consumer loans		62,471		57,931		53,847		52,808		55,207
Other consumer loans		71,695		32,703		25,922		26,070		25,433
Total consumer		490,609		377,183		358,686		357,293		355,339
Total loans	$	2,165,430	$	1,284,688	$	1,245,904	$	1,215,951	$	1,188,280

18

COMMUNITY BANKS, INC. & SUBSIDIARIES
Fiscal Insight - SEPTEMBER 30, 2005
Reconciliation of GAAP to Non-GAAP Measures:
	2005									2004
	Third			Second			First			Fourth			Third
	Quarter			Quarter			Quarter			Quarter			Quarter			Annual
Income statement data:
Net income (loss)
Net income (loss)	$	10,332		$	(1,139	)	$	5,487		$	5,540		$	5,646		$	21,798
Amortization of core deposit and other intangible assets (1)		519			35			36			27			26			105
Merger, conversion and restructuring expenses (1)		201			6,445			---			---			---			---
Net operating (tangible) income (loss)	$	11,052		$	5,341		$	5,523		$	5,567		$	5,672		$	21,903
Earnings (loss) per share
Diluted earnings (loss) per common share	$	0.44		$	(0.09	)	$	0.44		$	0.44		$	0.45		$	1.73
Amortization of core deposit and other intangible assets (1)		0.02			---			---			---			---			0.01
Merger, conversion and restructuring expenses (1)		0.01			0.51			---			---			---			---
Diluted operating (tangible) earnings (loss) per share	$	0.47		$	0.42		$	0.44		$	0.44		$	0.45		$	1.74
Balance sheet data:
Average assets
Average assets	$	3,316,460		$	2,041,618		$	1,983,119		$	1,957,240		$	1,957,935		$	1,941,096
Goodwill		(239,395	)		(3,570	)		(3,570	)		(3,513	)		(3,513	)		(3,405	)
Core deposit and other intangible assets		(15,252	)		(1,418	)		(1,459	)		(1,502	)		(1,462	)		(1,492	)
Deferred taxes		---			---			----			---			---			---
Average tangible assets	$	3,061,813		$	2,036,630		$	1,978,090		$	1,952,225		$	1,952,960		$	1,936,199
Operating return on average tangible assets		1.43	%		1.05	%		1.13	%		1.13	%		1.16	%		1.13	%
Average equity
Average equity	$	481,185		$	153,894		$	156,395		$	151,557		$	141,808		$	145,750
Goodwill		(239,395	)		(3,570	)		(3,570	)		(3,513	)		(3,513	)		(3,405	)
Core deposit and other intangible assets		(15,252	)		(1,418	)		(1,459	)		(1,502	)		(1,462	)		(1,492	)
Deferred taxes		1,677			---			---			---			---			---
Average tangible equity	$	228,215		$	148,906		$	151,366		$	146,542		$	136,833		$	140,853
Operating return on average tangible equity		19.21	%		14.39	%		14.80	%		15.11	%		16.49	%		15.55	%
At end of quarter:
Total assets
Total assets	$	3,291,232		$	1,982,732		$	2,012,653		$	1,954,799		$	1,955,811		$	1,954,799
Goodwill		(243,107	)		(3,570	)		(3,570	)		(3,570	)		(3,513	)		(3,570	)
Core deposit and other intangible assets		(14,951	)		(1,394	)		(1,438	)		(1,481	)		(1,523	)		(1,481	)
Deferred taxes		---			---			----			---			---			---
Total tangible assets	$	3,033,174		$	1,977,768		$	2,007,645		$	1,949,748		$	1,950,775		$	1,949,748
Total equity
Total equity	$	480,960		$	153,582		$	151,758		$	152,341		$	149,419		$	152,341
Goodwill		(243,107	)		(3,570	)		(3,570	)		(3,570	)		(3,513	)		(3,570	)
Core deposit and other intangible assets		(14,951	)		(1,394	)		(1,438	)		(1,481	)		(1,523	)		(1,481	)
Deferred taxes		1,746			---			---			---			---			---
Total tangible equity	$	224,648		$	148,618		$	146,750		$	147,290		$	144,383		$	147,290
Tangible book value at end of period	$	9.73		$	12.01		$	11.92		$	12.04		$	11.85		$	12.04
Tangible equity to assets		7.41	%		7.51	%		7.31	%		7.55	%		7.40	%		7.55	%
(1) Net of related tax effect

19