Community Banks 8K Regulation FD Disclosure | CMTY 2 Feb 06

Fulfilling Our Commitments

Emerald Groundhog Day Investment Forum

February 2, 2006

Representatives

Eddie L. Dunklebarger
Chairman, President and CEO

Donald F. Holt
EVP and CFO

Disclaimer

This presentation contains “forward looking” information, as
defined by the Private Securities Litigation Reform Act of
1995, that 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.

Fulfilling Our Commitments

CMTY Profile

The Blue Ball Merger – A Final Look

Performance Trends

Strategic Focus

Shareholder Focus

Fulfilling Our Commitments

CMTY Profile

The Blue Ball Merger – A Final Look

Performance Trends

Strategic Focus

Shareholder Focus

CMTY Profile

$3.3 Billion in Total Assets

9 Regions Operating with Centralized Support,

Regional Delivery

Over 70 Locations in Central Pennsylvania and

Stretching into Maryland

Largest Financial Services Company Headquartered

in Harrisburg, Pennsylvania's Capital

Approximately $650 Million in Market Cap

Enviable Footprint, Desirable Franchise

The CMTY Franchise

PENNSYLVANIA

MARYLAND

	6/30/2005
	# of Offices	Deposits (000’s)	Rank
Lancaster	11	$ 560	5
York / Hanover	18	528	4
Harrisburg / Carlisle	14	349	8
2/3 of Franchise in Lancaster, York, Harrisburg MSA	43	$ 1,437
Reading	6	261	7
Pottsville	6	190	4
Other	13	357
TOTAL	68	$ 2,245

CMTY Office Network

Fulfilling Our Commitments

Profile

The Blue Ball Merger – A Final Look

Pre-Merger Planning

Successful Execution

Performance Trends

Strategic Focus

Shareholder Focus

Overview of PennRock (Blue Ball)

Headquartered Between Lancaster and Reading, PA

Founded in 1906

Now Run as a Division of CommunityBanks

Strong Local Brand

19 Branches at Merger Date

Lancaster, Berks and Chester Counties

Average Size: $49M in Deposits

Total Assets of $1.2 Billion

Loans: $745 Million

Deposits: $831 Million

Solid Profitability

Return on Average Assets of 1.28%

Return on Average Equity of 14.35%

Blue Ball: Transaction Chronology

11/16/04: Merger Announcement

03/31/05: Employee Notification Completed

05/31/05: Convert Legacy CMTY to Silverlake

07/01/05: Legal Merger

08/31/05: Combine Silverlake Operating Platform

09/30/05: Final Staffing Changes

Record EPS in Fourth Quarter

Pre-Merger Objectives

Restructure and De-Leverage

Prepay High Cost FHLB Advances

Reduce Exposure to Interest Rate Increases on

Short-Term Borrowings

Liquidate Acquired Investment Portfolio

Fund Loan Growth

Improve Underperforming Portfolio

Merger-Related and Other Expenses:
2^nd Quarter

Conversion ($0.8 million)

Common Platform (Blue Ball’s Current Platform)

Minimized Execution Risk

Merger Expenses ($1.3 million)

CMTY Expenses—Operating Costs

PRFS Expenses—Component of Purchase Price

Restructuring ($6.1 million)

Coordination of Two Balance Sheets

Substantially Complete at June 30, 2005

Blue Ball: Accomplishments

Largest Transaction in CMTY History

Full Integration (People/Systems) in Less Than 1 Year

From Announcement

Accretive Results in Fourth Quarter

Increase Franchise Size by Over 60%

Franchise Now “Weighted” in Growing South-Central

Pennsylvania Market

Platform Will Accommodate Future Acquisitions

A “Proven” Acquirer

Fulfilling Our Commitments

Profile

The Blue Ball Merger – A Final Look

Performance Trends

Pre-Merger

Post-Merger Execution

Strategic Focus

Shareholder Focus

(in thousands, except EPS)	Q1 2005	Reported Q2 2005	Core Q2 2005
Net Interest Income	$ 14,690	$ 14,909	$ 14,909
Provision for Loan Loss	(550)	(750)	(750)
Non-Interest Income	5,210	5,598	5,598
Non-Interest Expenses	(12,659)	(13,189)	(13,189)
Special Charges	---	(7,957)	---
Income Taxes	(1,204)	250	(1,369)
Net Income	$ 5,487	$ (1,139)	$ 5,199
EPS	$.44	$(.09)	$.41

Pre-Merger CMTY

(in thousands, except EPS)	Q3 2005	Q4 2005
Net Interest Income	$ 26,397	$ 26,649
Provision for Loan Loss	(400)	(600)
Non-Interest Income	7,866	7,763
Non-Interest Expenses	(20,836)	(20,180)
Special Charges	(248)	---
Income Taxes	(2,447)	(2,671)
Net Income	$ 10,332	$ 10,961
EPS	$.44	$.47

Post-Merger CMTY

Four Components of Performance

Net Interest Income

Provision

Non-Interest Income

Non-Interest Expense

	Pre-Merger	Post-Merger		Annual
Net Interest Spread	3.13%	3.51%		3.36%
Net Interest Margin	3.50%	3.93%		3.76%
Change in NIM	+ 43 bp
Earning Assets	$1.9B		$2.9B	$2.4B

Net Interest Margin:
Revenue “Driver”

Activity for the Period:	Q4 2005	2005 YTD
Net Charge-Offs	$ 408	$ 824
Provision for Loan Losses	600	2,300
Net Charge-Offs to Average Loans	0.07%	0.05%

Problem Loan Trends:		12/31/2005
Accruing Loans Past 90 Days		$ 22
Non-Accrual Loans		9,060
Total Risk Elements		$ 10,529
Allowance to Loans		1.03%
Allowance to Non-Accrual Loans		253%

Credit Quality:Compatible Metrics / Common Culture

Net Charge-Offs to
Average Loans

Charge-Off History

Corporate Imperative: Credit Quality

Legal Lending Limit - $40 Million

Separate Lending Limits for Individual Lenders

Regional President / Senior Lender Lending

Authority - $1 Million

Directors Loan Committee Approval - $10 Million

12 Relationships > $10 Million = 7% of Total

Loans

(Excluding Security Gains)

Non-Interest Income

Up 26%; Blue Ball Influence

Formidable Blue Ball Trust Operation Increased

AUM to $300 Million vs. Pre-Merger $50 Million

Electronic Payment Fees (Debit Transactions)

Provided Lift; Awareness Programs

Cooling Mortgage Market Curbed Growth in

Mortgage Brokerage and Title Insurance Fees

Enhancements From Coordination and Fee

Standardization Still Viable

Q3 2005 – 57.86%

Q4 2005 – 55.56%

(The efficiency ratio does not include merger, conversion and
restructuring expenses.)

2005: Improved Efficiency from Merger


2004 Pre-Merger “Run Rate” for the Combined Entity	$80,000
4% Normal Increase	x 1.04
2005 Estimated “Run Rate”		$ 83,200
Q4 2005 Expenses, Less Intangible Amortization	$19,484
Annualized “Run Rate” x 4		77,936
Savings (Ignores Organic Expansion)		$ 5,264

Operating Expense: “Topside” Analysis

(in thousands)	12/31/04	12/31/05	% Change
Investments	$ 619,110	$ 628,585	2%
Loans, Net	1,201,530	2,211,532	84%
Intangibles	5,051	259,080	n/a

Deposits	1,305,537	2,294,367	76%
Borrowings	482,706	548,900	14%
Liabilities	14,215	12,490	(12)%
Equity	152,341	476,673	213%

Balance Sheets

Intangible Issue

Aggregate Intangibles of $255 Million Added

$13 Million in Core Deposit Intangible

Pre-Blue Ball – Modest Intangibles

Tangible Equity to Assets – 7.14 %

	2005		2004	“Well- Capped”
	$	%	%	“Well- Capped”
Regulatory
Tier 1	$ 250	8.17%	8.8%		6%
Total	$ 273	10.99%	12.6%		10%
Tangible Equity to Assets		7.14%	7.55%		n/a
Equity to Assets		14.30%	7.79%		n/a

(dollars in millions)

Capital Levels

Fulfilling Our Commitments

Profile

The Blue Ball Merger – A Final Look

Performance Trends

Strategic Focus

Shareholder Focus

Strategic Vision

Our Mission:

✓ The bank and financial services provider of choice in the

communities we serve,

✓ The employer of choice in the communities where we

operate, and

✓ The acquisition partner of choice for banks and financial

services providers in markets we desire.

Industry Consolidation:

Nearly 80 Financial Institutions with Under

$1 Billion in Assets Within 20 Miles of CMTY Branches

	Annualized Q4 2005
lMinimum Return on Tangible Equity of 15%	21%
lAnnual EPS Growth of 10%	7%
lAnnual Asset Growth of 10%	70%
lNon-Interest Income of 30%	23%
lEfficiency Ratio to 55%	55.6%

Performance Goals:Guideposts Under Purchase Accounting

		Q4 2005 Results
Traditional Metric	Corresponding Purchase Accounting Metric *	Traditional	Purchase Accounting *
Efficiency Ratio	Operating Efficiency Ratio	55.56%	53.64%
EPS	Operating EPS	$0.47	$0.49
ROA	ROTA	1.31%	1.50%
ROE	ROTE	9.14%	20.83%
Equity to Assets	Tangible Equity to Assets	14.30%	7.14%

* Non-GAAP Measures

Performance Metrics

Fulfilling Our Commitments

Profile

The Blue Ball Merger – A Final Look

Performance Trends

Strategic Focus

Shareholder Focus

	CMTY	SNL Bank	SNL $1-5B	SNL MidAtlantic
5 Year	+127	+31	+129	(1)
3 Year	+47	+51	+71	+49
2 Year	(5)	+8	+22	(1)
1 year	+10	+5	+9	+4

Total Return as of 1/30/2006

CMTY

Peer Group

NASDAQ
Banks

NASDAQ
Stock
Market

Five Year Cumulative Total Returns

$.20/share

Q4 2005

$.10/share

Q1 1999

Quarterly Dividend

Share Repurchase

500,000 Share Repurchase Program Announced in August,
2005 and Completed by October, 2005

Additional 750,000 Program Announced at October, 2005
Board of Directors Meeting. (685,000 Remaining)

Completion Will Result in the Equivalent Repurchase of
Over 10% of the Incremental Shares Issued in the Merger.

Internal Capital Generation Would Continue to Support
Incremental Share Repurchase.

2005/2006 Branch Expansion

2005

February—Willow Street (Lancaster County)

March — Spring Grove (York)

July–Lemoyne (Cumberland/Dauphin)

September—Carlisle (Cumberland)

November — Museum Road (Berks)

2006

Late Spring—Hershey (Dauphin)

Delco Plaza—(York)

Mount Joy—(Lancaster)

Over 70 Locations Throughout Central
Pennsylvania and Into Maryland

EPS Drives Stock
PERFORMANCE

Successful EXECUTION

Follow Through on Cultural Integration/ Leveraging Platform

CREDIT QUALITY

Keeping our “Eye on the Ball”

A Critical Cultural “Fit”

Interest Rate Environment

Managing With a “Flat” Yield Curve

Fortified Balance Sheet Position

Competitors

More Disruption in our Markets = Opportunity

The “Credit Union Factor”

Questions

Community Banks (CMTY) Inactive 8-KRegulation FD Disclosure