Community Banks (CMTY) 8-K Community Banks Reports 5% Eps Increase

FOR IMMEDIATE RELEASE

Date:April 18, 2006

Contact:Donald F. Holt, EVP/CFO

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

COMMUNITY BANKS REPORTS 5% EPS INCREASE

Harrisburg, PA- Community Banks, Inc. (“Community”) (Listed on NASDAQ: CMTY) today reported a 5% increase in first quarter earnings per share, to $0.44 a share, compared to $0.42 a share in the year earlier period. Earnings per share have been adjusted to reflect the impact of the 5% stock dividend that will be paid April 28 to shareholders of record as of April 14, 2006.

Net income for the first quarter of 2006 almost doubled and reached $10.5 million compared to $5.5 million in first quarter of 2005. Quarter-to-quarter net income comparisons continued to be magnified by the mid-year 2005 merger of Blue Ball Bank. That merger was the largest and most significant in the history of the Community franchise. Community’s operating footprint, which now boasts assets of $3.4 billion and 73 banking offices, extends throughout the center of Pennsylvania from the Pocono region to just over the Maryland border. Blue Ball operates as a separate division in the attractive Lancaster, Berks and Chester county markets of south-central Pennsylvania. Community Banks, Inc. is the 8^th largest financial services holding company headquartered in Pennsylvania and the largest financial institution headquartered in its capital city of Harrisburg.

As a consequence of the impact of the mid-year merger of Blue Ball, comparisons of performance between the first quarter of 2006 and the same quarter of 2005 are less predictive of future trends. This is primarily due to the fact that, under accounting rules, Blue Ball results were consolidated only from the July 1, 2005 merger date and were excluded entirely from results for the first half of 2005. More relevant quarterly comparisons can be derived by using the post-merger fourth quarter of 2005 as a baseline and presenting annualized growth trends from that point forward.

Interest rate conditions in late 2005 and in the first quarter of 2006 presented substantial challenges to most financial institutions, due primarily to the impact of a flat, and sometimes inverted, yield curve. Yield curve dynamics and competitive pressures have combined to raise the costs incurred to sustain or increase deposit volumes, while certain loan and investment yields improved more modestly. The prolonged presence of a “flat” or “inverted” yield curve could be expected to lower industry-wide expectations for revenue expansion from net interest margin. In the first quarter, however, growth trends and economic activity within Community’s operating markets remained vigorous and helped generate an expansion in net interest income from the fourth quarter of 2005, despite unfavorable rate conditions.

“While the current interest rate environment presented a near-term impediment to a more robust revenue expansion from our intermediation business, we are confident that we are well-positioned to maximize our margin performance as interest rate conditions normalize”, said Eddie L. Dunklebarger, President and Chief Executive Officer. “Despite these challenges, we continue to show meaningful progress in virtually all aspects of performance and continue to record improvements in overall earnings trends,” he added.

Net interest margin is a critical measure of a bank’s ability to maximize revenues from a given earning asset base and is strongly influenced by interest rate conditions. Despite the challenges presented in the first quarter, net interest margin reached 3.98%, a slight increase from the 3.96% reported in the fourth quarter of 2005. Comparisons to the first quarter of 2005, when net interest margin was a much lower 3.55%, reflect the benefits of the merger-related balance sheet restructuring that was implemented in the second quarter of 2005, and the benefits of combining the two banks. At the same time, growth in loans and earning assets remained healthy. Average earning assets in the first quarter of 2006 grew at an annualized rate of over 10% from the fourth quarter of 2005, including 17% growth in average loans. Annualized average deposit growth in the same period exceeded 7%. Net interest income, or the difference between interest earned from earning assets and interest expense on funding sources, grew to $28.8 million on a fully tax-equivalent basis, producing a 4% annualized growth from the fourth quarter of 2005. The pace of growth in net interest income, which was favorably affected by growth, was moderated by the interest rate conditions.

Other important barometers of profit performance include asset quality trends, revenue from fees and other non-interest sources, and overall expense control. Asset quality metrics continued to reflect favorable overall credit conditions, including net charge-offs of only 0.03% of loans in the first quarter of 2006. Asset quality has been a hallmark of performance for both Community and Blue Ball and current trends continue to reflect favorable underlying credit conditions. Non-interest income continued to reflect growth in trust and retail investment sales while service charge income moderated due to seasonal trends that normally occur in the first quarter. While salary expenses in the first quarter of 2006 reflected annual increases that go into effect at the beginning of each calendar year, the overall efficiency ratio remained at 56% and remained in line with fourth quarter 2005 trends.

Important traditional measures of relative financial performance include return on average assets (ROA) and return on average equity (ROE), which were 1.27% and 8.96%, respectively, for the first three months of 2006. Comparable measures in the fourth quarter of 2005 were 1.31% and 9.14%. Comparable “non-GAAP” measures include “return on tangible assets” (ROTA) and “return on tangible equity” (ROTE), which reached 1.43% and 20.12%, respectively, compared to 1.50% and 20.83% for the three months ended December 31, 2005.

Because the merger with Blue Ball 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. Community has provided an extensive reconcilement of “GAAP” to “non-GAAP” presentations to this release. Community is now presenting 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.

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) (1)
	Three Months Ended
	March 31,
	2006			2005
Consolidated summary of operations:
Interest income	$	46,889		$	26,183
Interest expense		20,025			11,493
Net interest income		26,864			14,690
Provision for loan losses		500			550
Net interest income after provision for loan losses		26,364			14,140
Non-interest income:
Investment management and trust services		1,013			414
Service charges on deposit accounts		2,531			1,793
Other service charges, commissions, and fees		1,700			1,010
Investment security gains		283			51
Insurance premium income and commissions		928			902
Mortgage banking activities		468			515
Earnings on investment in life insurance		656			399
Other		805			126
Total non-interest income		8,384			5,210
Non-interest expenses:
Salaries and employee benefits		11,418			7,293
Net occupancy		3,512			2,148
Marketing expense		575			445
Telecommunications expense		551			304
Amortization of intangibles		654			44
Other		3,823			2,425
Total non-interest expenses		20,533			12,659
Income before income taxes		14,215			6,691
Income taxes		3,646			1,204
Net income	$	10,569		$	5,487
Net loan charge-offs	$	155		$	217
Net interest margin (FTE)		3.98	%		3.55	%
Efficiency ratio (2)		55.96	%		58.97	%
Return on average assets		1.27	%		1.12	%
Return on average stockholders’ equity		8.96	%		14.23	%
Net operating (tangible) income (3)	$	10,994		$	5,523
Operating return on average tangible assets (3)(4)		1.43	%		1.13	%
Operating return on average tangible equity (3)(4)		20.12	%		14.80	%
Consolidated per share data:
Basic earnings per share	$	0.44		$	0.43
Diluted earnings per share	$	0.44		$	0.42
Book value at end of period	$	19.96		$	11.74
Tangible book value at end of period (4)	$	9.19		$	11.35

3

COMMUNITY BANKS, INC.

Selected Financial Information

(Dollars in thousands, except per share data) ⁽¹⁾

Consolidated balance sheet data:

	Three Months Ended
	March 31,
	2006		2005
Average total loans	$	2,286,938	$	1,231,192
Average earning assets		2,938,647		1,870,054
Average assets		3,383,211		1,983,119
Average tangible assets (4)		3,124,522		1,978,090
Average deposits		2,301,898		1,326,760
Average stockholders’ equity		478,507		156,395
Average tangible equity (4)		221,552		151,366
Average diluted shares outstanding		24,212,000		13,192,000

										3/31/2006
										vs.
	March 31,			December 31,			March 31,			3/31/2005
	2006			2005			2005			% Change
Assets	$	3,421,562		$	3,332,430		$	2,012,653			70	%
Total loans		2,283,614			2,234,497			1,245,904			83	%
Deposits		2,373,865			2,294,367			1,348,250			76	%
Stockholders’ equity		475,587			476,673			151,758			213	%
Diluted shares outstanding		24,059,000			24,360,000			13,182,000			83	%
Non-accrual loans	$	10,102		$	9,060		$	5,807			74	%
Loans renegotiated with borrowers		110			---			---			---
Foreclosed real estate		1,728			1,447			1,935			(11	)%
Total non-performing assets		11,940			10,507			7,742			54	%
Accruing loans 90 days past due		29			22			---			---
Total risk elements	$	11,969		$	10,529		$	7,742			55	%
Allowance for loan losses	$	23,310		$	22,965		$	14,754			58	%
Asset quality ratios:
Allowance for loan losses to total loans		1.02	%		1.03	%		1.18	%
Allowance for loan losses to non-accrual loans		231	%		253	%		254	%
Non-accrual loans to total loans		0.44	%		0.41	%		0.47	%
Non-performing assets to total assets		0.35	%		0.32	%		0.38	%
(1)Per share data reflect stock splits and stock dividends.
(2)The efficiency ratio does not include net securities transactions.
(3)Net operating (tangible) income excludes amortization of core deposit and other intangible assets, net of applicable income tax effects. A reconciliation of net income and net operating (tangible) income appears on page 5.
(4) The difference between total assets and total tangible assets, and stockholders’ equity and tangible stockholders’ equity, represents goodwill and core deposit and other intangibles net of applicable deferred tax balances. A reconciliation of these balances appears on page 5.

4

COMMUNITY BANKS, INC.

Selected Financial Information

(Dollars in thousands, except per share data)

Reconciliation of GAAP to Non-GAAP Measures ⁽¹⁾:

	Three Months Ended
	March 31,
	2006			2005
Income statement data:
Net income
Net income	$	10,569		$	5,487
Amortization of core deposit and other intangible assets (2)		425			36
Net operating (tangible) income	$	10,994		$	5,523
Balance sheet data:
Average assets
Average assets	$	3,383,211		$	1,983,119
Goodwill		(244,775	)		(3,570	)
Core deposit and other intangible assets		(13,914	)		(1,459	)
Average tangible assets	$	3,124,522		$	1,978,090
Operating return on average tangible assets		1.43	%		1.13	%
Average equity
Average equity	$	478,507		$	156,395
Goodwill		(244,775	)		(3,570	)
Core deposit and other intangible assets		(13,914	)		(1,459	)
Deferred taxes		1,734			---
Average tangible equity	$	221,552		$	151,366
Operating return on average tangible equity		20.12	%		14.80	%
At end of quarter:
Total assets
Total assets	$	3,421,562		$	2,012,653
Goodwill		(244,760	)		(3,570	)
Core deposit and other intangible assets		(13,599	)		(1,438	)
Total tangible assets	$	3,163,203		$	2,007,645
Total equity
Total equity	$	475,587		$	151,758
Goodwill		(244,760	)		(3,570	)
Core deposit and other intangible assets		(13,599	)		(1,438	)
Deferred taxes		1,854			---
Total tangible equity	$	219,082		$	146,750
Tangible book value at end of period	$	9.19		$	11.35
(1) Per share data reflect stock splits and stock dividends
(2) Net of related tax effect

5

COMMUNITY BANKS, INC. & SUBSIDIARIES
Fiscal Insight - March 31, 2006
KEY RATIOS(1)
	2006			2005
	First			Fourth			Third			Second			First
	Quarter			Quarter			Quarter			Quarter			Quarter			Annual
Diluted earnings (loss) per share	$	0.44		$	0.45		$	0.42		$	(0.09	)	$	0.42		$	1.35
Tangible operating earnings per share (2)	$	0.45		$	0.47		$	0.45		$	0.40		$	0.42		$	1.69
Return on average assets		1.27	%		1.31	%		1.24	%		(0.22	)%		1.12	%		0.96	%
Return on average equity		8.96	%		9.14	%		8.52	%		(2.97	)%		14.23	%		8.04	%
Operating return on average tangible assets (3)		1.43	%		1.50	%		1.43	%		0.79	%		1.13	%		1.27	%
Operating return on average tangible equity(3)		20.12	%		20.83	%		19.21	%		10.77	%		14.80	%		17.09	%
Net interest margin		3.98	%		3.96	%		3.89	%		3.46	%		3.55	%		3.76	%
Non-interest income/revenues (FTE excluding security gains)		21.93	%		21.34	%		21.74	%		24.60	%		23.95	%		22.57	%
Provision for loan losses/average loans (annualized)		0.09	%		0.11	%		0.07	%		0.24	%		0.18	%		0.13	%
Efficiency ratio (4)		55.96	%		55.56	%		57.86	%		58.42	%		58.97	%		57.51	%
Non-performing assets to period-end loans		0.52	%		0.47	%		0.60	%		0.73	%		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		0.52	%		0.47	%		0.60	%		0.73	%		0.62	%
Allowance for loan losses to loans		1.02	%		1.03	%		1.05	%		1.20	%		1.18	%		1.03	%
Allowance for loan losses to
non-accrual loans		231	%		253	%		212	%		223	%		254	%		253	%
Net charge-offs/average loans (annualized)		0.03	%		0.07	%		0.01	%		0.04	%		0.07	%		0.05	%
Equity to assets		13.90	%		14.30	%		14.61	%		7.75	%		7.54	%		14.30	%
Tangible equity to assets (3)		6.93	%		7.14	%		7.41	%		7.51	%		7.31	%		7.14	%
(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 18.
(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 18.
(4)The efficiency ratio does not include merger, conversion and restructuring expenses or net securities transactions.

6

COMMUNITY BANKS, INC. & SUBSIDIARIES
Fiscal Insight - March 31, 2006
PER SHARE STATISTICS *
Diluted Earnings (Loss) per Share
	Fourth		Third		Second			First
	Quarter		Quarter		Quarter			Quarter		Total
2006								$	0.44	$	0.44
2005	$	0.45	$	0.42	$	(0.09	)	$	0.42	$	1.35
2004	$	0.42	$	0.43	$	0.41		$	0.39	$	1.65
Average Diluted Shares Outstanding
(in thousands)		Fourth		Third		Second			First		Average for
		Quarter		Quarter		Quarter			Quarter		Year
2006									24,212		24,212
2005		24,421		24,750		13,240			13,192		18,975
2004		13,180		13,134		13,216			13,286		13,204
Book Value per Share
		Fourth		Third		Second			First
		Quarter		Quarter		Quarter			Quarter
2006								$	19.96
2005	$	19.81	$	19.83	$	11.82		$	11.74
2004	$	11.86	$	11.68	$	10.62		$	11.68
Tangible Book Value per Share
		Fourth		Third		Second			First
		Quarter		Quarter		Quarter			Quarter
2006								$	9.19
2005	$	9.12	$	9.26	$	11.43		$	11.35
2004	$	11.46	$	11.28	$	10.23		$	11.31
* Per share data reflect stock splits and stock dividends

7

COMMUNITY BANKS, INC. & SUBSIDIARIES
Fiscal Insight - MARCH 31, 2006
QUARTER END INFORMATION
(dollars in thousands)	2006			2005
	First			Fourth			Third		Second		First
	Quarter			Quarter			Quarter		Quarter		Quarter
Loans, net	$	2,260,304		$	2,211,532		$	2,142,657	$	1,269,305	$	1,231,150
Earning assets		2,960,648			2,869,978			2,842,809		1,863,027		1,895,648
Goodwill and identifiable intangible assets		258,359			259,080			258,057		4,964		5,008
Total assets		3,421,562			3,332,430			3,291,232		1,982,732		2,012,653
Deposits		2,373,865			2,294,367			2,244,791		1,382,866		1,348,250
Long-term debt		443,275			430,719			457,728		356,210		427,942
Subordinated debt		51,548			30,928			30,928		30,928		30,928
Total shareholder's equity		475,587			476,673			480,960		153,582		151,758
Accumulated other comprehensive income (loss) (net of tax)		(4,368	)		(3,779	)		1,381		1,559		(2,350	)

8

COMMUNITY BANKS, INC. & SUBSIDIARIES
Fiscal Insight - MARCH 31, 2006
CONDENSED CONSOLIDATED QUARTERLY AVERAGE STATEMENTS OF CONDITION
(dollars in thousands)	2006			2005
	First			Fourth			Third			Second			First
	Quarter			Quarter			Quarter			Quarter			Quarter
Assets
Earning Assets:
Loans	$	2,289,871		$	2,199,834		$	2,138,081		$	1,265,479		$	1,231,192
Federal funds sold and other		34,885			35,447			102,295			80,109			25,788
Taxable investment securities		380,908			395,480			406,654			368,637			401,038
Tax-exempt investment securities		232,983			234,776			226,125			214,609			212,036
Total earning assets		2,938,647			2,865,537			2,873,155			1,928,834			1,870,054
Cash and due from banks		59,253			65,271			59,404			36,964			37,994
Allowance for loan losses		(23,172	)		(22,976	)		(22,778	)		(15,189	)		(14,533	)
Goodwill and other identifiable intangibles		258,689			257,797			254,648			4,988			5,029
Premises, equipment and other assets		149,794			148,321			152,031			86,021			84,575
Total assets	$	3,383,211		$	3,313,950		$	3,316,460		$	2,041,618		$	1,983,119
Liabilities and equity
Interest-bearing liabilities:
Deposits
Savings and NOW accounts	$	826,742		$	848,320		$	850,801		$	526,821		$	501,945
Time		900,698			869,096			865,136			537,585			528,686
Time deposits greater than $100,000		200,821			186,514			175,634			128,052			113,081
Short-term borrowings		68,524			72,606			56,948			36,687			31,106
Long-term debt		467,010			447,532			476,602			424,105			425,318
Subordinated debt		44,674			30,928			30,928			30,928			30,928
Total interest-bearing liabilities		2,508,469			2,454,996			2,456,049			1,684,178			1,631,064
Noninterest-bearing deposits		373,637			358,822			356,733			190,045			183,048
Other liabilities		22,598			24,618			22,493			13,501			12,612
Total liabilities		2,904,704			2,838,436			2,835,275			1,887,724			1,826,724
Stockholders' equity		478,507			475,514			481,185			153,894			156,395
Total liabilities and stockholders’ equity	$	3,383,211		$	3,313,950		$	3,316,460		$	2,041,618		$	1,983,119
CHANGE IN AVERAGE BALANCES*
		2006		2005
		First			Fourth			Third			Second			First
		Quarter			Quarter			Quarter			Quarter			Quarter
Loans		86.0	%		83.1	%		81.9	%		11.2	%		11.9	%
Total assets		70.6	%		69.3	%		69.4	%		4.1	%		4.6	%
Deposits		73.5	%		73.4	%		71.2	%		4.5	%		6.8	%
Shareholders' equity		206.0	%		213.8	%		239.3	%		8.1	%		6.2	%
* Compares the current quarter to the comparable quarter of the prior year

9

COMMUNITY BANKS, INC. & SUBSIDIARIES
Fiscal Insight - MARCH 31, 2006
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(dollars in thousands)	2006		2005
	First		Fourth		Third		Second			First
	Quarter		Quarter		Quarter		Quarter			Quarter		Annual
Interest income	$	46,889	$	45,242	$	43,478	$	27,390		$	26,183	$	142,293
Tax equivalent adjustment		1,978		1,922		1,811		1,741			1,689		7,163
		48,867		47,164		45,289		29,131			27,872		149,456
Interest expense		20,025		18,593		17,081		12,481			11,493		59,648
Net interest income		28,842		28,571		28,208		16,650			16,379		89,808
Provision for loan losses		500		600		400		750			550		2,300
Net interest income after provision		28,342		27,971		27,808		15,900			15,829		87,508
Non-interest income		7,633		7,120		7,177		4,883			4,644		23,824
Investment security gains income		283		12		29		167			51		259
Mortgage banking activities income		468		631		660		548			515		2,354
Non-interest expenses		20,533		20,180		20,836		13,189			12,659		66,864
Merger, conversion and restructuring expenses		---		---		248		7,957			---		8,205
Income before income taxes		16,193		15,554		14,590		352			8,380		38,876
Income taxes		3,646		2,671		2,447		(250	)		1,204		6,072
Tax equivalent adjustment		1,978		1,922		1,811		1,741			1,689		7,163
NET INCOME (LOSS)	$	10,569	$	10,961	$	10,332	$	(1,139	)	$	5,487	$	25,641
Tax effect of security transactions	$	99	$	4	$	10	$	58		$	18	$	91

10

COMMUNITY BANKS, INC. & SUBSIDIARIES
Fiscal Insight - MARCH 31, 2006
ANALYSIS OF NON-INTEREST INCOME
(dollars in thousands)	2006		2005
	First		Fourth		Third		Second		First
	Quarter		Quarter		Quarter		Quarter		Quarter		Annual
Investment management and trust services	$	1,013	$	951	$	796	$	531	$	414	$	2,692
Service charges on deposit accounts		2,531		2,793		2,799		2,028		1,793		9,413
Other service charges, commissions and fees		1,700		1,689		1,819		934		1,010		5,452
Insurance premium income and commissions		928		743		825		880		902		3,350
Earnings on investment in life insurance		656		650		659		355		399		2,063
Other income		805		294		279		155		126		854
Total non-interest income	$	7,633	$	7,120	$	7,177	$	4,883	$	4,644	$	23,824
ANALYSIS OF NON-INTEREST EXPENSES
(dollars in thousands)		2006	2005
		First		Fourth		Third		Second		First
		Quarter		Quarter		Quarter		Quarter		Quarter		Annual
Salaries and employee benefits	$	11,418	$	10,461	$	11,808	$	7,436	$	7,293	$	36,998
Net occupancy expense		3,512		3,567		3,364		2,199		2,225		11,355
Marketing expense		575		597		528		466		445		2,036
Telecommunications expense		551		489		309		257		304		1,359
Amortization of intangibles		654		696		641		43		44		1,424
Other operating expenses		3,823		4,370		4,186		2,788		2,348		13,692
Total non-interest expenses	$	20,533	$	20,180	$	20,836	$	13,189	$	12,659	$	66,864

11

COMMUNITY BANKS, INC. & SUBSIDIARIES
Fiscal Insight - MARCH 31, 2006
RISK ELEMENTS ANALYSIS
(dollars in thousands)	2006			2005
	First			Fourth			Third			Second			First
	Quarter			Quarter			Quarter			Quarter			Quarter
Non-performing assets:
Non-accrual loans	$	10,102		$	9,060		$	10,736		$	6,896		$	5,807
Loans renegotiated with borrowers		110			---			---			---			---
Foreclosed real estate		1,728			1,447			2,273			2,444			1,935
Total non-performing assets		11,940			10,507			13,009			9,340			7,742
Accruing loans 90 days or more past due		29			22			7			---			---
Total risk elements	$	11,969		$	10,529		$	13,016		$	9,340		$	7,742
Non-performing assets to period-end loans		0.52	%		0.47	%		0.60	%		0.73	%		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		0.52	%		0.47	%		0.60	%		0.73	%		0.62	%

12

COMMUNITY BANKS, INC. & SUBSIDIARIES
Fiscal Insight - MARCH 31, 2006
ALLOWANCE FOR LOAN LOSSES
(dollars in thousands)	2006			2005
	First			Fourth			Third			Second			First
	Quarter			Quarter			Quarter			Quarter			Quarter
Balance at beginning of period	$	22,965		$	22,773		$	15,383		$	14,754		$	14,421
Loans charged off		(557	)		(1,153	)		(271	)		(439	)		(460	)
Recoveries		402			745			193			318			243
Net loans charged off		(155	)		(408	)		(78	)		(121	)		(217	)
Provision for loan losses		500			600			400			750			550
Allowance established for acquired credit risk		---			---			7,068			---			---
Balance at end of period	$	23,310		$	22,965		$	22,773		$	15,383		$	14,754
Net loans charged-off to average loans*		0.03	%		0.07	%		0.01	%		0.04	%		0.07	%
Provision for loan losses to average loans*		0.09	%		0.11	%		0.07	%		0.24	%		0.18	%
Allowance for loan losses to loans		1.02	%		1.03	%		1.05	%		1.20	%		1.18	%
*Annualized

13

COMMUNITY BANKS, INC. & SUBSIDIARIES
Fiscal Insight - MARCH 31, 2006
OTHER RATIOS
	2006			2005
	First			Fourth			Third			Second			First
	Quarter			Quarter			Quarter			Quarter			Quarter
Investment portfolio - fair value to amortized cost		99.4	%		99.6	%		100.9	%		101.1	%		100.0	%
Dividend payout ratio		43.0	%		41.8	%		42.7	%		NR*			38.1	%
Net loans to deposits ratio, average		98.3	%		96.2	%		94.1	%		90.4	%		91.7	%

MARKET PRICE AND DIVIDENDS DECLARED **
	Closing Bid Price Range				Dividends
Year / Quarter	High		Low		Declared
2006
First	$	27.85	$	25.67	$	0.1905
Second
Third
Fourth
					$	0.1905
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
2004
First	$	32.88	$	27.06	$	0.1542
Second	$	30.08	$	25.73	$	0.1619
Third	$	28.31	$	24.14	$	0.1619
Fourth	$	29.97	$	27.40	$	0.1619
					$	0.6399
* Not relevant
** Per share data reflect stock splits and dividends

14

COMMUNITY BANKS, INC. & SUBSIDIARIES
Fiscal Insight - MARCH 31, 2006
NET INTEREST MARGIN - YEAR-TO-DATE
(dollars in thousands)	March 31, 2006							March 31, 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	$	34,885	$	393		4.57	%	$	24,022	$	151		2.55	%
Investment securities		613,891		8,901		5.88	%		613,074		8,354		5.53	%
Loans - commercial		808,108		15,145		7.60	%		419,713		6,476		6.26	%
- commercial real estate		799,505		13,605		6.90	%		362,149		5,593		6.26	%
- residential real estate		153,282		2,297		6.08	%		91,326		1,501		6.67	%
- consumer		528,976		8,526		6.54	%		359,770		5,797		6.53	%
Total earning assets	$	2,938,647	$	48,867		6.74	%	$	1,870,054	$	27,872		6.04	%
Deposits - savings and NOW accounts	$	826,742	$	3,501		1.72	%	$	501,945	$	1,313		1.06	%
- time		1,101,519		9,920		3.65	%		641,767		4,747		3.00	%
Short-term borrowings		68,524		696		4.12	%		31,106		157		2.05	%
Long-term debt		467,010		5,111		4.44	%		425,318		4,817		4.59	%
Subordinated debt		44,674		797		7.24	%		30,928		459		6.02	%
Total interest-bearing liabilities	$	2,508,469	$	20,025		3.24	%	$	1,631,064		11,493		2.86	%
Interest income to earning assets						6.74	%						6.04	%
Interest expense to paying liabilities						3.24	%						2.86	%
Interest spread						3.50	%						3.18	%
Impact of noninterest funds						0.48	%						0.37	%
Net interest margin			$	28,842		3.98	%			$	16,379		3.55	%

15

COMMUNITY BANKS, INC. & SUBSIDIARIES
Fiscal Insight - MARCH 31, 2006
NET INTEREST MARGIN - QUARTER-TO-DATE
(dollars in thousands)	March 31, 2006							December 31, 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	$	34,885	$	393		4.57	%	$	33,057	$	307		3.68	%
Investment securities		613,891		8,901		5.88	%		630,256		9,068		5.71	%
Loans - commercial		808,108		15,145		7.60	%		766,532		13,763		7.12	%
- commercial real estate		799,505		13,605		6.90	%		779,459		13,299		6.77	%
- residential real estate		153,282		2,297		6.08	%		154,716		2,325		5.96	%
- consumer		528,976		8,526		6.54	%		501,517		8,402		6.65	%
Total earning assets	$	2,938,647	$	48,867		6.74	%	$	2,865,537	$	47,164		6.53	%
Deposits - savings and NOW accounts	$	826,742	$	3,501		1.72	%	$	848,320	$	3,423		1.60	%
- time		1,101,519		9,920		3.65	%		1,055,610		9,054		3.40	%
Short-term borrowings		68,524		696		4.12	%		72,606		670		3.66	%
Long-term debt		467,010		5,111		4.44	%		447,532		4,889		4.33	%
Subordinated debt		44,674		797		7.24	%		30,928		557		7.15	%
Total interest-bearing liabilities	$	2,508,469	$	20,025		3.24	%	$	2,454,996	$	18,593		3.00	%
Interest income to earning assets						6.74	%						6.53	%
Interest expense to paying liabilities						3.24	%						3.00	%
Interest spread						3.50	%						3.53	%
Impact of noninterest funds						0.48	%						0.43	%
Net interest margin			$	28,842		3.98	%			$	28,571		3.96	%

16

COMMUNITY BANKS, INC. & SUBSIDIARIES
Fiscal Insight - MARCH 31, 2006
PERIOD-END LOAN PORTFOLIO ANALYSIS
(dollars in thousands)	2006		2005
	First		Fourth		Third		Second		First
	Quarter		Quarter		Quarter		Quarter		Quarter
Commercial:
Commercial	$	747,954	$	723,248	$	706,475	$	392,101	$	378,986
Obligations of political subdivisions		75,449		59,698		53,881		54,241		54,327
Total commercial		823,403		782,946		760,356		446,342		433,313
Commercial real estate:
Commercial mortgages	$	805,120	$	793,969	$	737,432	$	374,202	$	363,246
Residential real estate:
Residential mortgages	$	146,360	$	149,525	$	150,596	$	81,115	$	84,469
Construction		5,136		4,532		26,437		5,846		6,190
Total residential real estate		151,496		154,057		177,033		86,961		90,659
Consumer:
Home equity loans	$	262,835	$	252,080	$	236,363	$	229,946	$	224,608
Home equity lines of credit		105,933		113,133		120,080		56,603		54,309
Indirect consumer loans		66,344		63,644		62,471		57,931		53,847
Other consumer loans		68,483		74,668		71,695		32,703		25,922
Total consumer		503,595		503,525		490,609		377,183		358,686
Total loans	$	2,283,614	$	2,234,497	$	2,165,430	$	1,284,688	$	1,245,904

17

COMMUNITY BANKS, INC. & SUBSIDIARIES
Fiscal Insight - MARCH 31, 2006
Reconciliation of GAAP to Non-GAAP Measures (1):
(in thousands, except per share data)	2006			2005
	First			Fourth			Third			Second			First
	Quarter			Quarter			Quarter			Quarter			Quarter			Annual
Income statement data:
Net income (loss)
Net income (loss)	$	10,569		$	10,961		$	10,332		$	(1,139	)	$	5,487		$	25,641
Amortization of core deposit and other intangible assets (2)		425			564			519			35			36			1,153
Merger, conversion and restructuring expenses (2)		---			---			201			6,445			---			5,333
Net operating (tangible) income	$	10,994		$	11,525		$	11,052		$	5,341		$	5,523		$	32,127
Earnings (loss) per share
Diluted earnings (loss) per common share	$	0.44		$	0.45		$	0.42		$	(0.09	)	$	0.42		$	1.35
Amortization of core deposit and other intangible assets (2)		0.01			0.02			0.02			---			---			0.06
Merger, conversion and restructuring expenses (2)		---			---			0.01			0.49			---			0.28
Diluted operating (tangible) earnings per share	$	0.45		$	0.47		$	0.45		$	0.40		$	0.42		$	1.69
Balance sheet data:
Average assets
Average assets	$	3,383,211		$	3,313,950		$	3,316,460		$	2,041,618		$	1,983,119		$	2,668,605
Goodwill		(244,775	)		(243,203	)		(239,395	)		(3,570	)		(3,570	)		(123,412	)
Core deposit and other intangible assets		(13,914	)		(14,594	)		(15,252	)		(1,418	)		(1,459	)		(8,236	)
Average tangible assets	$	3,124,522		$	3,056,153		$	3,061,813		$	2,036,630		$	1,978,090		$	2,536,957
Operating return on average tangible assets		1.43	%		1.50	%		1.43	%		1.05	%		1.13	%		1.27	%
Average equity
Average equity	$	478,507		$	475,514		$	481,185		$	153,894		$	156,395		$	318,768
Goodwill		(244,775	)		(243,203	)		(239,395	)		(3,570	)		(3,570	)		(123,412	)
Core deposit and other intangible assets		(13,914	)		(14,594	)		(15,252	)		(1,418	)		(1,459	)		(8,236	)
Deferred taxes		1,734			1,742			1,677			---			---			862
Average tangible equity	$	221,552		$	219,459		$	228,215		$	148,906		$	151,366		$	187,982
Operating return on average tangible equity		20.12	%		20.83	%		19.21	%		14.39	%		14.80	%		17.09	%
At end of quarter:
Total assets
Total assets	$	3,421,562		$	3,332,430		$	3,291,232		$	1,982,732		$	2,012,653		$	3,332,430
Goodwill		(244,760	)		(244,827	)		(243,107	)		(3,570	)		(3,570	)		(244,827	)
Core deposit and other intangible assets		(13,599	)		(14,253	)		(14,951	)		(1,394	)		(1,438	)		(14,253	)
Total tangible assets	$	3,163,203		$	3,073,350		$	3,033,174		$	1,977,768		$	2,007,645		$	3,073,350
Total equity
Total equity	$	475,587		$	476,673		$	480,960		$	153,582		$	151,758		$	476,673
Goodwill		(244,760	)		(244,827	)		(243,107	)		(3,570	)		(3,570	)		(244,827	)
Core deposit and other intangible assets		(13,599	)		(14,253	)		(14,951	)		(1,394	)		(1,438	)		(14,253	)
Deferred taxes		1,854			1,734			1,746			---			---			1,734
Total tangible equity	$	219,082		$	219,327		$	224,648		$	148,618		$	146,750		$	219,327
Tangible book value at end of period	$	9.19		$	9.12		$	9.26		$	11.43		$	11.35		$	9.12
Tangible equity to assets		6.93	%		7.14	%		7.41	%		7.51	%		7.31	%		7.14	%
(1) Per share data reflect stock splits and stock dividends
(2) Net of related tax effect

18