Community Banks (CMTY) 8-K COMMUNITY BANKS REPORTS RECORD 4th QUARTER

FOR IMMEDIATE RELEASE

Date:January 23, 2006

Contact:Donald F. Holt, EVP/CFO

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

COMMUNITY BANKS REPORTS RECORD 4^th QUARTER

Harrisburg, PA- Community Banks, Inc. (“Community”) (Listed on NASDAQ: CMTY) today reported record profit performance in its second full quarter of operations since its 2005 mid-year merger with Blue Ball Bank. Community reported record net income for the second consecutive quarter in the post-merger period as profits reached almost $11 million and earnings per share grew to an all-time high of $ 0.47. Net income nearly doubled from the fourth quarter of 2004 and earnings per share grew by almost 7%. Blue Ball now operates as a separate division of Community in the attractive Lancaster, Berks and Chester counties of south-central Pennsylvania. This merger was the largest and most significant in the history of the franchise. Community’s core franchise now boasts assets of $3.3 billion with over 70 community banking offices located in the heart of an enviable central Pennsylvania footprint.

Since the time of the original merger announcement, Community has undertaken a deliberate strategy to facilitate successful assimilation of both the operations and the financial position of the two banks. Community enters 2006 having successfully completed the merger and is now in a position to accommodate future expansion opportunities and profitability growth. Community is now the 8^th largest financial services holding company headquartered in Pennsylvania and the largest financial institution headquartered in its capital city of Harrisburg.

“We followed a very disciplined and methodical process in joining these two very successful companies, said Eddie L. Dunklebarger, President and Chief Executive Officer. “It is very gratifying to see tangible evidence of the success of our efforts in the form of increased earnings for our combined shareholder base. Most importantly, we achieved these results while minimizing any disruption in service to our existing customers,” he added.

During the pre-merger second quarter of 2005, Community had absorbed substantial merger, conversion and balance sheet restructuring expenses (“special charges”) that were incurred to facilitate the successful integration of the Blue Ball franchise beginning on July 1, 2005. These efforts included a  restructuring of the balance sheet that contributed to a substantial improvement in net interest margin in the last half of 2005. In the fourth quarter, net interest margin reached 3.96%, a substantial improvement over the 3.46% in the last quarter immediately preceding the merger. Community  reduced its dependence on volatile, high-cost, wholesale funding sources while simultaneously increasing its access to more stable core deposit relationships through the merger. Net interest margin is a critical measure of a bank’s ability to maximize revenues from a given earning asset base. 

The value of the merger also manifested itself in meaningful improvement in the efficiency of the combined operations. The efficiency ratio, which measures the portion of revenue dollars that are needed to absorb

            

operational expenses, decreased to 55.6% in the fourth quarter, a substantial improvement over the 60.4% experienced for all of 2004. In addition, Community has now established a combined capital base that will accommodate future growth of the franchise and allow for more proactive interest rate risk management in an increasingly uncertain interest rate environment. Asset quality metrics continued to reflect favorable overall credit conditions, including net charge-offs of 0.05% of loans for all of 2005.

Annual earnings for the full year 2005 were adversely affected by the impact of the merger, conversion and balance sheet restructuring expenses. These expenses reduced 2005 results by $5.3 million on an after tax basis, almost all of which was recorded in the second quarter of the year. These “special charges” reduced earnings per share by $0.29 for all of 2005. Excluding the $5.3 million of special charges, Community recorded “core” net income of nearly $31.0 million, an increase of $9.2 million over the net income of $21.8 million achieved in 2004. This was an increase of 42% in year-over-year earnings. Even after adjusting income to include the “special charges”, annual net income reached $25.6 million and reflected a 17% increase over 2004. The special charges reduced reported earnings per share from $1.71 to $1.42 for the full year, which compared to $1.73 in 2004.

“Core” net income was comprised of $10.7 million in the first half of 2005 and $20.3 million in the second half. Blue Ball’s operating activity was included only in the second half of the year and was the primary driver of the increase in net income between the first and second halves of 2005.

Important traditional measures of relative financial performance include return on average assets (ROA) and return on average equity (ROE), which declined to 0.96% and 8.04%, respectively, for 2005. Comparable measures in 2004 were 1.12% and 14.86%. The decline in these measures was dramatically influenced by the impact of the merger, conversion, and restructuring expenses, and by the impact of the application of purchase accounting in the merger of PennRock. Comparable “non-GAAP” measures include “return on tangible assets” (ROTA) and “return on tangible equity” (ROTE), which actually increased to 1.32% and 17.79%, respectively, compared to 1.13% and 15.55% a year ago. Community has attached an extensive reconcilement of “GAAP” to “non-GAAP” presentations to this release. Community is now providing certain “non-GAAP” information to assist investors in their understanding of the effect of acquisition activity on reported results. Such information is not presented as a substitute for traditional GAAP measurements, but is provided as a supplemental enhancement to improve comparability and investor understanding.

     Total loans grew 84% from one year ago, while total assets and deposits grew 70% and 76%, respectively, as growth rates were disproportionately influenced by the merger. Loans are now at $2.2 billion at the end of 2005, while deposits stand at almost $2.3 billion. Tangible equity capital, which excludes the intangible assets of $259 million, is at $219 million. Tangible equity stands at 7.18% of tangible assets. The fourth quarter performance resulted in a return on tangible equity of 20.83% versus 15.55% for all of 2004. 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. Return on “tangible” equity has become a 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.

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COMMUNITY BANKS, INC.
Selected Financial Information
(Dollars in thousands, except per share data)
	Three Months Ended						Year Ended
	December 31,						December 31,
		2005			2004			2005			2004
Consolidated summary of operations:
Interest income	$	45,242		$	25,710		$	142,293		$	99,799
Interest expense		18,593			11,089			59,648			43,242
Net interest income		26,649			14,621			82,645			56,557
Provision for loan losses		600			750			2,300			3,100
Net interest income after provision for loan losses		26,049			13,871			80,345			53,457
Non-interest income:
Investment management and trust services		951			391			2,692			1,510
Service charges on deposit accounts		2,793			2,012			9,413			7,120
Other service charges, commissions, and fees		1,689			792			5,452			3,357
Investment security gains		12			186			259			2,470
Insurance premium income and commissions		743			873			3,350			3,260
Mortgage banking activities		631			652			2,354			2,665
Earnings on investment in life insurance		650			383			2,063			1,593
Other		294			133			854			1,238
Total non-interest income		7,763			5,422			26,437			23,213
Non-interest expenses:
Salaries and employee benefits		10,461			7,486			36,998			28,337
Net occupancy		3,567			2,070			11,355			8,287
Merger, conversion and restructuring expenses		---			---			8,205			---
Marketing expense		597			425			2,036			2,325
Telecommunications expense		489			306			1,359			1,285
Amortization of intangibles		696			42			1,424			161
Other		4,370			2,289			13,692			9,598
Total non-interest expenses		20,180			12,618			75,069			49,993
Income before income taxes		13,632			6,675			31,713			26,677
Income taxes		2,671			1,135			6,072			4,879
Net income	$	10,961		$	5,540		$	25,641		$	21,798
Net loan charge-offs	$	408		$	765		$	824		$	1,857
Net interest margin (FTE)		3.96	%		3.51	%		3.76	%		3.44	%
Efficiency ratio (1)		55.56	%		59.16	%		57.51	%		60.42	%
Return on average assets		1.31	%		1.13	%		0.96	%		1.12	%
Return on average stockholders’ equity		9.14	%		14.54	%		8.04	%		14.96	%
Net operating (tangible) income (2)	$	11,525		$	5,567		$	32,127		$	21,903
Operating return on average tangible assets (2)(3)		1.50	%		1.13	%		1.27	%		1.13	%
Operating return on average tangible equity (2)(3)		20.83	%		15.11	%		17.09	%		15.55	%
Consolidated per share data:
Basic earnings per share	$	0.48		$	0.45		$	1.44		$	1.78
Diluted earnings per share	$	0.47		$	0.44		$	1.42		$	1.73
Book value at end of period	$	20.80		$	12.45		$	20.80		$	12.45
Tangible book value at end of period (3)	$	9.57		$	12.04		$	9.57		$	12.04

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COMMUNITY BANKS, INC.

Selected Financial Information

(Dollars in thousands, except per share data)

Consolidated balance sheet data:

	Three Months Ended				Year Ended
	December 31,				December 31,
	2005		2004		2005		2004
Average total loans	$	2,199,834	$	1,201,454	$	1,712,509	$	1,153,933
Average earning assets		2,865,537		1,844,675		2,388,431		1,831,881
Average assets		3,313,950		1,957,240		2,668,605		1,941,096
Average tangible assets (3)		3,056,153		1,952,225		2,536,957		1,936,199
Average deposits		2,262,752		1,304,590		1,807,231		1,295,977
Average stockholders’ equity		475,514		151,557		318,768		145,750
Average tangible equity (3)		219,459		146,542		187,982		140,853
Average diluted shares outstanding		23,259,000		12,553,000		18,072,000		12,575,000

							12/31/2005
							vs.
	December 31,			December 31,			12/31/2004
	2005			2004			% Change
Assets	$	3,332,430		$	1,954,799			70	%
Total loans		2,234,497			1,215,951			84	%
Deposits		2,294,367			1,305,537			76	%
Stockholders’ equity		476,673			152,341			213	%
Diluted shares outstanding		23,200,000			12,549,000			85	%
Non-accrual loans	$	9,060		$	5,428			67	%
Foreclosed real estate		1,447			2,094			(31	)%
Total non-performing assets		10,507			7,522			40	%
Accruing loans 90 days past due		22			---			---
Total risk elements	$	10,529		$	7,522			40	%
Allowance for loan losses	$	22,965		$	14,421			59	%
Asset quality ratios:
Allowance for loan losses to total loans		1.03	%		1.19	%
Allowance for loan losses to non-accrual loans		253	%		266	%
Non-accrual loans to total loans		0.41	%		0.45	%
Non-performing assets to total assets		0.32	%		0.38	%
(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.

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COMMUNITY BANKS, INC.

Selected Financial Information

(Dollars in thousands, except per share data)

Reconciliation of GAAP to Non-GAAP Measures:

	Three Months Ended						Year Ended
	December 31,						December 31,
	2005			2004			2005			2004
Income statement data:
Net income
Net income	$	10,961		$	5,540		$	25,641		$	21,798
Amortization of core deposit and other intangible assets (1)		564			27			1,153			105
Merger, conversion and restructuring expenses (1)		---			---			5,333			---
Net operating (tangible) income	$	11,525		$	5,567		$	32,127		$	21,903
Balance sheet data:
Average assets
Average assets	$	3,313,950		$	1,957,240		$	2,668,605		$	1,941,096
Goodwill		(243,203	)		(3,513	)		(123,412	)		(3,405	)
Core deposit and other intangible assets		(14,594	)		(1,502	)		(8,236	)		(1,492	)
Deferred taxes		---			---			---			---
Average tangible assets	$	3,056,153		$	1,952,225		$	2,536,957		$	1,936,199
Operating return on average tangible assets		1.50	%		1.13	%		1.27	%		1.13	%
Average equity
Average equity	$	475,514		$	151,557		$	318,768		$	145,750
Goodwill		(243,203	)		(3,513	)		(123,412	)		(3,405	)
Core deposit and other intangible assets		(14,594	)		(1,502	)		(8,236	)		(1,492	)
Deferred taxes		1,742			---			862			---
Average tangible equity	$	219,459		$	146,542		$	187,982		$	140,853
Operating return on average tangible equity		20.83	%		15.11	%		17.09	%		15.55	%
At end of quarter:
Total assets
Total assets	$	3,332,430		$	1,954,799		$	3,332,430		$	1,954,799
Goodwill		(244,827	)		(3,570	)		(244,827	)		(3,570	)
Core deposit and other intangible assets		(14,253	)		(1,481	)		(14,253	)		(1,481	)
Deferred taxes		---			---			---			---
Total tangible assets	$	3,073,350		$	1,949,748		$	3,073,350		$	1,949,748
Total equity
Total equity	$	476,673		$	152,341		$	476,673		$	152,341
Goodwill		(244,827	)		(3,570	)		(244,827	)		(3,570	)
Core deposit and other intangible assets		(14,253	)		(1,481	)		(14,253	)		(1,481	)
Deferred taxes		1,734			---			1,734			---
Total tangible equity	$	219,327		$	147,290		$	219,327		$	147,290
Tangible book value at end of period	$	9.57		$	12.04		$	9.57		$	12.04
(1) Net of related tax effect

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COMMUNITY BANKS, INC. & SUBSIDIARIES
Fiscal Insight - DECEMBER 31, 2005
KEY RATIOS
	2005															2004
				Fourth			Third			Second			First						Fourth
	Annual			Quarter			Quarter			Quarter			Quarter			Annual			Quarter
Diluted earnings (loss) per share	$	1.42		$	0.47		$	0.44		$	(0.09	)	$	0.44		$	1.73		$	0.44
Tangible operating earnings per share (1)	$	1.77		$	0.49		$	0.47		$	0.32		$	0.44		$	1.74		$	0.44
Return on average assets		0.96	%		1.31	%		1.24	%		(0.22	)%		1.12	%		1.12	%		1.13	%
Return on average equity		8.04	%		9.14	%		8.52	%		(2.97	)%		14.23	%		14.96	%		14.54	%
Operating return on average tangible assets (2)		1.27	%		1.50	%		1.43	%		0.79	%		1.13	%		1.13	%		1.13	%
Operating return on average tangible equity (2)		17.09	%		20.83	%		19.21	%		10.77	%		14.80	%		15.55	%		15.11	%
Net interest margin		3.76	%		3.96	%		3.89	%		3.46	%		3.55	%		3.44	%		3.51	%
Non-interest income/revenues (FTE excluding security gains)		22.57	%		21.34	%		21.74	%		24.60	%		23.95	%		24.74	%		24.33	%
Provision for loan losses/average loans (annualized)		0.13	%		0.11	%		0.07	%		0.24	%		0.18	%		0.27	%		0.25	%
Efficiency ratio (3)		57.51	%		55.56	%		57.86	%		58.42	%		58.97	%		60.42	%		59.16	%
Non-performing assets to period-end loans					0.47	%		0.60	%		0.73	%		0.62	%					0.62	%
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					0.47	%		0.60	%		0.73	%		0.62	%					0.62	%
																					��
Allowance for loan losses to loans		1.03	%		1.03	%		1.05	%		1.20	%		1.18	%		1.19	%		1.19	%
Allowance for loan losses to
non-accrual loans		253	%		253	%		212	%		223	%		254	%		266	%		266	%
Net charge-offs/average loans (annualized)		0.05	%		0.07	%		0.01	%		0.04	%		0.07	%		0.16	%		0.25	%
Equity to assets		14.30	%		14.30	%		14.61	%		7.75	%		7.54	%		7.79	%		7.79	%
Tangible equity to assets (2)		7.14	%		7.14	%		7.41	%		7.51	%		7.31	%		7.55	%		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 - DECEMBER 31, 2005
PER SHARE STATISTICS *
Diluted Earnings (Loss) per Share
	Fourth		Third		Second			First
	Quarter		Quarter		Quarter			Quarter		Total
2005	$	0.47	$	0.44	$	(0.09	)	$	0.44	$	1.42
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		23,259		23,572		12,609		12,564		18,072
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	$	20.80	$	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	$	9.57	$	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 - DECEMBER 31, 2005
QUARTER END INFORMATION
(dollars in thousands)	2005										2004
	Fourth			Third		Second		First			Fourth
	Quarter			Quarter		Quarter		Quarter			Quarter
Loans, net	$	2,211,532		$	2,142,657	$	1,269,305	$	1,231,150		$	1,201,530
Earning assets		2,869,978			2,842,809		1,863,027		1,895,648			1,838,116
Goodwill and identifiable intangible assets		259,080			258,057		4,964		5,008			5,051
Total assets		3,332,430			3,291,232		1,982,732		2,012,653			1,954,799
Deposits		2,294,367			2,244,791		1,382,866		1,348,250			1,305,537
Long-term debt		430,719			457,728		356,210		427,942			404,662
Subordinated debt		30,928			30,928		30,928		30,928			30,928
Total shareholder's equity		476,673			480,960		153,582		151,758			152,341
Accumulated other comprehensive income (loss) (net of tax)		(3,779	)		1,381		1,559		(2,350	)		3,211

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COMMUNITY BANKS, INC. & SUBSIDIARIES
Fiscal Insight - DECEMBER 31, 2005
CONDENSED CONSOLIDATED QUARTERLY AVERAGE STATEMENTS OF CONDITION
(dollars in thousands)	2005												2004
	Fourth			Third			Second			First			Fourth
	Quarter			Quarter			Quarter			Quarter			Quarter
Assets
Earning Assets:
Loans	$	2,199,834		$	2,138,081		$	1,265,479		$	1,231,192		$	1,201,454
Federal funds sold and other		35,447			102,295			80,109			25,788			17,223
Taxable investment securities		395,480			406,654			368,637			401,038			415,262
Tax-exempt investment securities		234,776			226,125			214,609			212,036			210,736
Total earning assets		2,865,537			2,873,155			1,928,834			1,870,054			1,844,675
Cash and due from banks		65,271			59,404			36,964			37,994			40,689
Allowance for loan losses		(22,976	)		(22,778	)		(15,189	)		(14,533	)		(14,551	)
Goodwill and other identifiable intangibles		257,797			254,648			4,988			5,029			5,015
Premises, equipment and other assets		148,321			152,031			86,021			84,575			81,412
Total assets	$	3,313,950		$	3,316,460		$	2,041,618		$	1,983,119		$	1,957,240
Liabilities and equity
Interest-bearing liabilities:
Deposits
Savings and NOW accounts	$	848,320		$	850,801		$	526,821		$	501,945		$	494,275
Time		869,096			865,136			537,585			528,686			514,560
Time deposits greater than $100,000		186,514			175,634			128,052			113,081			107,250
Short-term borrowings		72,606			56,948			36,687			31,106			48,926
Long-term debt		447,532			476,602			424,105			425,318			405,615
Subordinated debt		30,928			30,928			30,928			30,928			30,928
Total interest-bearing liabilities		2,454,996			2,456,049			1,684,178			1,631,064			1,601,554
Noninterest-bearing deposits		358,822			356,733			190,045			183,048			188,505
Other liabilities		24,618			22,493			13,501			12,612			15,624
Total liabilities		2,838,436			2,835,275			1,887,724			1,826,724			1,805,683
Stockholders' equity		475,514			481,185			153,894			156,395			151,557
Total liabilities and stockholders’ equity	$	3,313,950		$	3,316,460		$	2,041,618		$	1,983,119		$	1,957,240

CHANGE IN AVERAGE BALANCES*
	2005												2004
	Fourth			Third			Second			First			Fourth
	Quarter			Quarter			Quarter			Quarter			Quarter
Loans		83.1	%		81.9	%		11.2	%		11.9	%		12.5	%
Total assets		69.3	%		69.4	%		4.1	%		4.6	%		7.3	%
Deposits		73.4	%		71.2	%		4.5	%		6.8	%		7.4	%
Shareholders' equity		213.8	%		239.3	%		8.1	%		6.2	%		8.9	%
* Compares the current quarter to the comparable quarter of the prior year

9

COMMUNITY BANKS, INC. & SUBSIDIARIES
Fiscal Insight - DECEMBER 31, 2005
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(dollars in thousands)	2005											2004
			Fourth		Third		Second			First				Fourth
	Annual		Quarter		Quarter		Quarter			Quarter		Annual		Quarter
Interest income	$	142,293	$	45,242	$	43,478	$	27,390		$	26,183	$	99,799	$	25,710
Tax equivalent adjustment		7,163		1,922		1,811		1,741			1,689		6,539		1,664
		149,456		47,164		45,289		29,131			27,872		106,338		27,374
Interest expense		59,648		18,593		17,081		12,481			11,493		43,242		11,089
Net interest income		89,808		28,571		28,208		16,650			16,379		63,096		16,285
Provision for loan losses		2,300		600		400		750			550		3,100		750
Net interest income after provision		87,508		27,971		27,808		15,900			15,829		59,996		15,535
Non-interest income		23,824		7,120		7,177		4,883			4,644		18,078		4,584
Investment security gains income		259		12		29		167			51		2,470		186
Mortgage banking activities income		2,354		631		660		548			515		2,665		652
Non-interest expenses		66,864		20,180		20,836		13,189			12,659		49,993		12,618
Merger, conversion and restructuring expenses		8,205		---		248		7,957			---		---		---
Income before income taxes		38,876		15,554		14,590		352			8,380		33,216		8,339
Income taxes		6,072		2,671		2,447		(250	)		1,204		4,879		1,135
Tax equivalent adjustment		7,163		1,922		1,811		1,741			1,689		6,539		1,664
NET INCOME (LOSS)	$	25,641	$	10,961	$	10,332	$	(1,139	)	$	5,487	$	21,798	$	5,540
Tax effect of security transactions	$	91	$	4	$	10	$	58		$	18	$	865	$	65

10

COMMUNITY BANKS, INC. & SUBSIDIARIES
Fiscal Insight - DECEMBER 31, 2005
ANALYSIS OF NON-INTEREST INCOME
(dollars in thousands)	2005										2004
			Fourth		Third		Second		First				Fourth
	Annual		Quarter		Quarter		Quarter		Quarter		Annual		Quarter
Investment management and trust services	$	2,692	$	951	$	796	$	531	$	414	$	1,510	$	391
Service charges on deposit accounts		9,413		2,793		2,799		2,028		1,793		7,120		2,012
Other service charges, commissions and fees		5,452		1,689		1,819		934		1,010		3,357		792
Insurance premium income and commissions		3,350		743		825		880		902		3,260		873
Earnings on investment in life insurance		2,063		650		659		355		399		1,593		383
Other income		854		294		279		155		126		1,238		133
Total non-interest income	$	23,824	$	7,120	$	7,177	$	4,883	$	4,644	$	18,078	$	4,584

ANALYSIS OF NON-INTEREST EXPENSES
(dollars in thousands)	2005										2004
			Fourth		Third		Second		First				Fourth
	Annual		Quarter		Quarter		Quarter		Quarter		Annual		Quarter
Salaries and employee benefits	$	36,998	$	10,461	$	11,808	$	7,436	$	7,293	$	28,337	$	7,486
Net occupancy expense		11,355		3,567		3,364		2,199		2,225		8,287		2,070
Marketing expense		2,036		597		528		466		445		2,325		425
Telecommunications expense		1,359		489		309		257		304		1,285		306
Amortization of intangibles		1,424		696		641		43		44		161		42
Other operating expenses		13,692		4,370		4,186		2,788		2,348		9,598		2,289
Total non-interest expenses	$	66,864	$	20,180	$	20,836	$	13,189	$	12,659	$	49,993	$	12,618

 

11

COMMUNITY BANKS, INC. & SUBSIDIARIES
Fiscal Insight - DECEMBER 31, 2005
RISK ELEMENTS ANALYSIS
(dollars in thousands)	2005												2004
	Fourth			Third			Second			First			Fourth
	Quarter			Quarter			Quarter			Quarter			Quarter
Non-performing assets:
Non-accrual loans	$	9,060		$	10,736		$	6,896		$	5,807		$	5,428
Troubled debt restructurings		---			---			---			---			---
Foreclosed real estate		1,447			2,273			2,444			1,935			2,094
Total non-performing assets		10,507			13,009			9,340			7,742			7,522
Accruing loans 90 days or more past due		22			7			---			---			---
Total risk elements	$	10,529		$	13,016		$	9,340		$	7,742		$	7,522
Non-performing assets to period-end loans		0.47	%		0.60	%		0.73	%		0.62	%		0.62	%
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		0.47	%		0.60	%		0.73	%		0.62	%		0.62	%

12

COMMUNITY BANKS, INC. & SUBSIDIARIES
Fiscal Insight - DECEMBER 31, 2005
ALLOWANCE FOR LOAN LOSSES
(dollars in thousands)	2005												2004
	Fourth			Third			Second			First			Fourth
	Quarter			Quarter			Quarter			Quarter			Quarter
Balance at beginning of period	$	22,773		$	15,383		$	14,754		$	14,421		$	14,436
Loans charged off		(1,153	)		(271	)		(439	)		(460	)		(922	)
Recoveries		745			193			318			243			157
Net loans charged off		(408	)		(78	)		(121	)		(217	)		(765	)
Provision for loan losses		600			400			750			550			750
Allowance established for acquired credit risk		---			7,068			---			---			---
Balance at end of period	$	22,965		$	22,773		$	15,383		$	14,754		$	14,421
Net loans charged-off to average loans*		0.07	%		0.01	%		0.04	%		0.07	%		0.25	%
Provision for loan losses to average loans*		0.11	%		0.07	%		0.24	%		0.18	%		0.25	%
Allowance for loan losses to loans		1.03	%		1.05	%		1.20	%		1.18	%		1.19	%
*Annualized

 

13

COMMUNITY BANKS, INC. & SUBSIDIARIES
Fiscal Insight - DECEMBER 31, 2005
OTHER RATIOS
	2005												2004
	Fourth			Third			Second			First			Fourth
	Quarter			Quarter			Quarter			Quarter			Quarter
Investment portfolio - fair value to amortized cost		99.6	%		100.9	%		101.1	%		100.0	%		101.4	%
Dividend payout ratio		41.8	%		42.7	%		NR*			38.1	%		37.5	%
Net loans to deposits ratio, average		96.2	%		94.1	%		90.4	%		91.7	%		91.0	%

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	$	29.84	$	25.09	$	0.2000
					$	0.7500
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 - DECEMBER 31, 2005
NET INTEREST MARGIN - YEAR-TO-DATE
(dollars in thousands)	December 31, 2005							December 31, 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	$	58,973	$	1,898		3.22	%	$	10,126	$	137		1.35	%
Investment securities		614,922		34,418		5.60	%		665,648		35,480		5.33	%
Loans - commercial		592,556		39,872		6.73	%		404,653		23,176		5.73	%
- commercial real estate		562,852		36,914		6.56	%		310,769		18,743		6.03	%
- residential real estate		128,120		8,027		6.27	%		95,547		6,320		6.61	%
- consumer		431,008		28,327		6.57	%		345,138		22,482		6.51	%
Total earning assets	$	2,388,431	$	149,456		6.26	%	$	1,831,881	$	106,338		5.80	%
Deposits - savings and NOW accounts	$	683,316	$	9,504		1.39	%	$	495,968	$	4,274		0.86	%
- time		852,596		26,927		3.16	%		621,925		18,249		2.93	%
Short-term borrowings		49,494		1,479		2.99	%		59,303		739		1.25	%
Long-term debt		443,509		19,700		4.44	%		394,944		18,382		4.65	%
Subordinated debt		30,928		2,038		6.59	%		30,928		1,598		5.17	%
Total interest-bearing liabilities	$	2,059,843	$	59,648		2.90	%	$	1,603,068	$	43,242		2.70	%
Interest income to earning assets						6.26	%						5.80	%
Interest expense to paying liabilities						2.90	%						2.70	%
Interest spread						3.36	%						3.10	%
Impact of noninterest funds						0.40	%						0.34	%
Net interest margin			$	89,808		3.76	%			$	63,096		3.44	%

15

COMMUNITY BANKS, INC. & SUBSIDIARIES
Fiscal Insight - DECEMBER 31, 2005
NET INTEREST MARGIN - QUARTER-TO-DATE
(dollars in thousands)	December 31, 2005							December 31, 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	$	33,057	$	307		3.68	%	$	16,133	$	76		1.87	%
Investment securities		630,256		9,068		5.71	%		625,998		8,658		5.50	%
Loans - commercial		766,532		13,763		7.12	%		402,008		6,046		5.98	%
- commercial real estate		779,459		13,299		6.77	%		348,740		5,293		6.04	%
- residential real estate		154,716		2,325		5.96	%		93,701		1,512		6.42	%
- consumer		501,517		8,402		6.65	%		358,095		5,789		6.43	%
Total earning assets	$	2,865,537	$	47,164		6.53	%	$	1,844,675	$	27,374		5.90	%
Deposits - savings and NOW accounts	$	848,320	$	3,423		1.60	%	$	494,275	$	1,119		0.90	%
- time		1,055,610		9,054		3.40	%		621,810		4,602		2.94	%
Short-term borrowings		72,606		670		3.66	%		48,926		215		1.75	%
Long-term debt		447,532		4,889		4.33	%		405,615		4,718		4.63	%
Subordinated debt		30,928		557		7.15	%		30,928		435		5.60	%
Total interest-bearing liabilities	$	2,454,996	$	18,593		3.00	%	$	1,601,554	$	11,089		2.75	%
Interest income to earning assets						6.53	%						5.90	%
Interest expense to paying liabilities						3.00	%						2.75	%
Interest spread						3.53	%						3.15	%
Impact of noninterest funds						0.43	%						0.36	%
Net interest margin			$	28,571		3.96	%			$	16,285		3.51	%

16

COMMUNITY BANKS, INC. & SUBSIDIARIES
Fiscal Insight - DECEMBER 31, 2005
NET INTEREST MARGIN - QUARTER-TO-DATE
(dollars in thousands)	December 31, 2005							September 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	$	33,057	$	307		3.68	%	$	100,263	$	857		3.39	%
Investment securities		630,256		9,068		5.71	%		632,779		8,760		5.49	%
Loans - commercial		766,532		13,763		7.12	%		740,034		12,665		6.79	%
- commercial real estate		779,459		13,299		6.77	%		731,449		12,135		6.58	%
- residential real estate		154,716		2,325		5.96	%		176,263		2,731		6.15	%
- consumer		501,517		8,402		6.65	%		492,367		8,141		6.56	%
Total earning assets	$	2,865,537	$	47,164		6.53	%	$	2,873,155	$	45,289		6.25	%
Deposits - savings and NOW accounts	$	848,320	$	3,423		1.60	%	$	850,801	$	3,048		1.42	%
- time		1,055,610		9,054		3.40	%		1,040,770		7,945		3.03	%
Short-term borrowings		72,606		670		3.66	%		56,948		452		3.15	%
Long-term debt		447,532		4,889		4.33	%		476,602		5,109		4.25	%
Subordinated debt		30,928		557		7.15	%		30,928		527		6.76	%
Total interest-bearing liabilities	$	2,454,996	$	18,593		3.00	%	$	2,456,049	$	17,081		2.76	%
Interest income to earning assets						6.53	%						6.25	%
Interest expense to paying liabilities						3.00	%						2.76	%
Interest spread						3.53	%						3.49	%
Impact of noninterest funds						0.43	%						0.40	%
Net interest margin			$	28,571		3.96	%			$	28,208		3.89	%

17

COMMUNITY BANKS, INC. & SUBSIDIARIES
Fiscal Insight - DECEMBER 31, 2005
PERIOD-END LOAN PORTFOLIO ANALYSIS
(dollars in thousands)	2005								2004
	Fourth		Third		Second		First		Fourth
	Quarter		Quarter		Quarter		Quarter		Quarter
Commercial:
Commercial	$	723,248	$	706,475	$	392,101	$	378,986	$	359,112
Obligations of political subdivisions		59,698		53,881		54,241		54,327		49,993
Total commercial		782,946		760,356		446,342		433,313		409,105
Commercial real estate:
Commercial mortgages	$	793,969	$	737,432	$	374,202	$	363,246	$	356,871
Residential real estate:
Residential mortgages	$	149,525	$	150,596	$	81,115	$	84,469	$	83,979
Construction		4,532		26,437		5,846		6,190		8,703
Total residential real estate		154,057		177,033		86,961		90,659		92,682
Consumer:
Home equity loans	$	252,080	$	236,363	$	229,946	$	224,608	$	224,494
Home equity lines of credit		113,133		120,080		56,603		54,309		53,921
Indirect consumer loans		63,644		62,471		57,931		53,847		52,808
Other consumer loans		74,668		71,695		32,703		25,922		26,070
Total consumer		503,525		490,609		377,183		358,686		357,293
Total loans	$	2,234,497	$	2,165,430	$	1,284,688	$	1,245,904	$	1,215,951

18

COMMUNITY BANKS, INC. & SUBSIDIARIES
Fiscal Insight - DECEMBER 31, 2005
Reconciliation of GAAP to Non-GAAP Measures:
(in millions, except per share data)	2005															2004
				Fourth			Third			Second			First						Fourth
	Annual			Quarter			Quarter			Quarter			Quarter			Annual			Quarter
Income statement data:
Net income (loss)
Net income (loss)	$	25.6		$	10.9		$	10.3		$	(1.1	)	$	5.5		$	21.8		$	5.5
Amortization of core deposit and other intangible assets (1)		1.1			0.6			0.5			---			---			0.1			---
Merger, conversion and restructuring expenses (1)		5.3			---			0.2			5.1			---			---			---
Net operating (tangible) income (loss)	$	32.0		$	11.5		$	11.0		$	4.0		$	5.5		$	21.9		$	5.5
Earnings (loss) per share
Diluted earnings (loss) per common share	$	1.42		$	0.47		$	0.44		$	(0.09	)	$	0.44		$	1.73		$	0.44
Amortization of core deposit and other intangible assets (1)		0.06			0.02			0.02			---			---			0.01			---
Merger, conversion and restructuring expenses (1)		0.29			---			0.01			0.41			---			---			---
Diluted operating (tangible) earnings (loss) per share	$	1.77		$	0.49		$	0.47		$	0.32		$	0.44		$	1.74		$	0.44
Balance sheet data:
Average assets
Average assets	$	2,668.6		$	3,314.0		$	3,316.5		$	2,041.6		$	1,983.1		$	1,941.1		$	1,957.2
Goodwill		(123.4	)		(243.2	)		(239.4	)		(3.6	)		(3.6	)		(3.4	)		(3.5	)
Core deposit and other intangible assets		(8.2	)		(14.6	)		(15.3	)		(1.4	)		(1.4	)		(1.5	)		(1.5	)
Deferred taxes		---			---			---			---			---			---			---
Average tangible assets	$	2,537.0		$	3,056.2		$	3,061.8		$	2,036.6		$	1,978.1		$	1,936.2		$	1,952.2
Operating return on average tangible assets		1.27	%		1.50	%		1.43	%		0.79	%		1.13	%		1.13	%		1.13	%
Average equity
Average equity	$	318.8		$	475.5		$	481.2		$	153.9		$	156.4		$	145.8		$	151.5
Goodwill		(123.5	)		(243.2	)		(239.4	)		(3.6	)		(3.6	)		(3.4	)		(3.5	)
Core deposit and other intangible assets		(8.2	)		(14.6	)		(15.3	)		(1.4	)		(1.4	)		(1.5	)		(1.5	)
Deferred taxes		0.9			1.7			1.7			---			---			---			---
Average tangible equity	$	188.0		$	219.4		$	228.2		$	148.9		$	151.4		$	140.9		$	146.5
Operating return on average tangible equity		17.09	%		20.83	%		19.21	%		10.77	%		14.80	%		15.55	%		15.11	%
At end of quarter:
Total assets
Total assets	$	3,332.4		$	3,332.4		$	3,291.2		$	1,982.7		$	2,012.6		$	1,954.8		$	1,954.8
Goodwill		(244.8	)		(244.8	)		(243.1	)		(3.6	)		(3.6	)		(3.6	)		(3.6	)
Core deposit and other intangible assets		(14.2	)		(14.2	)		(14.9	)		(1.4	)		(1.4	)		(1.5	)		(1.5	)
Deferred taxes		---			---			---			---			----			---			---
Total tangible assets	$	3,073.4		$	3,073.4		$	3,033.2		$	1,977.7		$	2,007.6		$	1,949.7		$	1,949.7
Total equity
Total equity	$	476.6		$	476.6		$	480.9		$	153.6		$	151.8		$	152.3		$	152.3
Goodwill		(244.8	)		(244.8	)		(243.1	)		(3.6	)		(3.6	)		(3.6	)		(3.6	)
Core deposit and other intangible assets		(14.2	)		(14.2	)		(14.9	)		(1.4	)		(1.4	)		(1.4	)		(1.4	)
Deferred taxes		1.7			1.7			1.7			---			---			---			---
Total tangible equity	$	219.3		$	219.3		$	224.6		$	148.6		$	146.8		$	147.3		$	147.3
Tangible book value at end of period	$	9.57		$	9.57		$	9.73		$	12.01		$	11.92		$	12.04		$	12.04
Tangible equity to assets		7.14	%		7.14	%		7.41	%		7.51	%		7.31	%		7.55	%		7.55	%
(1) Net of related tax effect

19