Community Banks (CMTY) 8-K Community Continues Positive Earnings Trend

FOR IMMEDIATE RELEASE

Date:July 18, 2006

Contact:Donald F. Holt, EVP/CFO

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

COMMUNITY CONTINUES POSITIVE EARNINGS TREND

Harrisburg, PA- Community Banks, Inc. (“Community”) (Listed on NASDAQ: CMTY) today reported second quarter net income of $10.5 million, including earnings per share of $0.44, and produced a dramatic improvement over the $(1.1) million loss recorded in the year-earlier period. Results in the second quarter of 2005 had been adversely affected by $8 million in pre-tax merger, conversion, and restructuring expenses that were recorded leading up to the consummation of the Blue Ball Bank merger on July 1 of that year.

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.

Quarter-to-quarter net income comparisons of 2006 to 2005 continued to be distorted 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. Under accounting rules, Blue Ball results were consolidated only from the July 1, 2005 merger date forward, and were excluded entirely from results for the first half of 2005, making comparison of 2006 results to those in 2005 far less meaningful. More relevant quarterly comparisons can be derived by using the combined results from the first quarter of 2006 as a baseline, and presenting annualized growth trends from that point forward.

The twelve months ended June 30, 2006 marked the completion of the first full year of blended operations since the combination of Blue Ball into the new Community franchise. In this most recent quarter, earnings improvements were constrained slightly by a series of interest rate hikes by the Federal Reserve Bank that has restricted revenue growth from traditional spread business. These rate hikes have contributed to a “flattening” of the yield curve and a compression in net interest margins and net interest income growth, the two key metrics for revenue expansion. These interest rate increases have presented earnings challenges throughout the banking industry as rising deposit funding costs have outpaced the improvement from increasing earning asset yields.

“The entire banking industry is feeling a temporary revenue pinch that is a natural outgrowth of a flat yield curve,” said Eddie L. Dunklebarger, President and CEO. “We intend to stay the course and continue to perform all of the basic blocking-and-tackling until interest rate conditions improve. In the meantime, we remain excited by the opportunities provided by our expanding franchise, the stability and vitality of our core markets, and the tireless efforts of our dedicated employees,” he added.

Despite the ongoing revenue challenges, results for the first half of 2006 reflected records for both net income and earnings per share performance, at $21.1 million and $0.88 per share, respectively. These results translated into an operating return on average tangible assets of 1.42% and an operating return on average tangible equity of 20.35%. 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. Operating return on tangible assets and tangible equity have become relevant measures of shareholder return for companies that have experienced substantial merger activity in periods after the mandatory application of purchase accounting. Community has provided an extensive reconcilement of “GAAP” to “non-GAAP” presentations to this release 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.

While quarterly revenue expansion from loan and deposit activity was constrained slightly, most other operating metrics in the second quarter and in the first six months of 2006 continued to demonstrate the success of Community’s merger implementation. Asset quality metrics continue to reflect historically low levels of non-performing assets. Non-interest revenues jumped 17% (annualized) as compared to the levels recorded in the first quarter of 2006, largely due to the continuing integration of non-interest products from the traditional Community and Blue Ball franchises. Operating expenses remained almost constant with the first quarter of 2006, while the efficiency ratio increased slightly to 56.18% and remained well within Community’s desired operating range.

Community experienced comparatively slower loan growth during the second quarter than in recent quarters, as average loans grew only 4% from the first quarter (annualized). At the same time, deposits rose at a more robust annualized pace of 14% over the same period. While the modest loan growth reflected the expected impact of rising rates on loan demand, a more significant component was related to competitive pricing pressures. Community has been reluctant to extend credit maturities without a rate premium that is commensurate with the incremental interest rate risk associated with maturity extension. Adherence to a strict pricing discipline has been critical in this rate environment and helped to produce a net interest margin of 3.94%, only slightly less than the 3.98% recorded in the first quarter. Throughout the first half of 2006, funding costs have risen as Community has reduced its reliance on more volatile wholesale funding sources in favor of increased deposit balances. Unfortunately, competitive pressures have also adversely impacted the cost of retail deposits as consumers seek higher returns in a rising rate environment.

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) (1)
	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2006			2005			2006			2005
Consolidated summary of operations:
Interest income	$	48,938		$	27,390		$	95,827		$	53,573
Interest expense		21,931			12,481			41,956			23,974
Net interest income		27,007			14,909			53,871			29,599
Provision for loan losses		650			750			1,150			1,300
Net interest income after provision for loan losses		26,357			14,159			52,721			28,299
Non-interest income:
Investment management and trust services		1,088			531			2,101			945
Service charges on deposit accounts		2,855			2,028			5,386			3,821
Other service charges, commissions, and fees		1,903			934			3,603			1,944
Investment security gains		6			167			289			218
Insurance premium income and commissions		1,117			880			2,045			1,782
Mortgage banking activities		580			548			1,048			1,063
Earnings on investment in life insurance		675			355			1,331			754
Other		319			155			1,124			281
Total non-interest income		8,543			5,598			16,927			10,808
Non-interest expenses:
Salaries and employee benefits		11,251			7,436			22,669			14,729
Net occupancy		3,386			2,199			6,898			4,424
Merger, conversion and restructuring expenses		---			7,957			---			7,957
Marketing expense		265			466			840			911
Telecommunications expense		566			257			1,117			561
Amortization of intangibles		702			43			1,356			87
Other		4,528			2,788			8,351			5,136
Total non-interest expenses		20,698			21,146			41,231			33,805
Income before income taxes		14,202			(1,389	)		28,417			5,302
Income taxes		3,698			(250	)		7,344			954
Net income	$	10,504		$	(1,139	)	$	21,073		$	4,348
Net loan charge-offs	$	172		$	121		$	327		$	338
Net interest margin (FTE)		3.94	%		3.46	%		3.96	%		3.51	%
Efficiency ratio (2)		56.18	%		58.42	%		56.07	%		58.69	%
Return on average assets		1.24	%		(0.22	)%		1.25	%		0.44	%
Return on average stockholders’ equity		8.95	%		(2.97	)%		8.95	%		5.73	%
Net operating (tangible) income (3)	$	10,960		$	4,068		$	21,954		$	9,591
Operating return on average tangible assets (3)(4)		1.40	%		0.80	%		1.42	%		0.97	%
Operating return on average tangible equity (3)(4)		20.59	%		10.96	%		20.35	%		13.07	%
Consolidated per share data:
Basic earnings per share	$	0.44		$	(0.09	)	$	0.88		$	0.34
Diluted earnings per share	$	0.44		$	(0.09	)	$	0.88		$	0.33
Book value at end of period	$	19.86		$	11.82		$	19.86		$	11.82
Tangible book value at end of period (4)	$	8.91		$	11.43		$	8.91		$	11.43

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COMMUNITY BANKS, INC.

Selected Financial Information

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

Consolidated balance sheet data:

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2006		2005		2006		2005
Average total loans	$	2,312,900	$	1,265,479	$	2,301,503	$	1,248,451
Average earning assets		2,944,353		1,928,834		2,941,569		1,899,498
Average assets		3,391,908		2,041,618		3,387,583		2,007,704
Average tangible assets (4)		3,132,905		2,036,630		3,128,736		2,002,695
Average deposits		2,381,141		1,382,503		2,341,738		1,351,503
Average stockholders’ equity		470,695		153,894		474,580		152,996
Average tangible equity (4)		213,528		148,906		217,518		147,987
Average diluted shares outstanding		23,858,000		13,240,000		24,028,000		13,216,000

										6/30/2006
										vs.
	June 30,			December 31,			June 30,			6/30/2005
	2006			2005			2005			% Change
Assets	$	3,385,599		$	3,332,430		$	1,982,732			71	%
Total loans		2,344,677			2,234,497			1,284,688			83	%
Deposits		2,406,551			2,294,367			1,382,866			74	%
Stockholders’ equity		465,760			476,673			153,582			203	%
Diluted shares outstanding		23,658,000			24,360,000			13,255,000			79	%
Non-accrual loans	$	11,492		$	9,060		$	6,896			67	%
Loans renegotiated with borrowers		108			---			---			---
Foreclosed real estate		108			1,447			2,444			(96	)%
Total non-performing assets		11,708			10,507			9,340			25	%
Accruing loans 90 days past due		621			22			---			---
Total risk elements	$	12,329		$	10,529		$	9,340			32	%
Allowance for loan losses	$	23,788		$	22,965		$	15,383			55	%
Asset quality ratios:
Allowance for loan losses to total loans		1.01	%		1.03	%		1.20	%
Allowance for loan losses to non-accrual loans		207	%		253	%		223	%
Non-accrual loans to total loans		0.49	%		0.41	%		0.54	%
Non-performing assets to total assets		0.35	%		0.32	%		0.47	%
(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.

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COMMUNITY BANKS, INC.

Selected Financial Information

(Dollars in thousands, except per share data)

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

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2006			2005			2006			2005
Income statement data:
Net income
Net income (loss)	$	10,504		$	(1,139	)	$	21,073		$	4,348
Amortization of core deposit and other intangible assets (1)		456			35			881			71
Merger, conversion and restructuring expenses (1)		---			5,172			---			5,172
Net operating (tangible) income	$	10,960		$	4,068		$	21,954		$	9,591
Balance sheet data:
Average assets
Average assets	$	3,391,908		$	2,041,618		$	3,387,583		$	2,007,704
Goodwill		(245,749	)		(3,570	)		(245,265	)		(3,570	)
Core deposit and other intangible assets		(13,254	)		(1,418	)		(13,582	)		(1,439	)
Deferred taxes		---			---			---			---
Average tangible assets	$	3,132,905		$	2,036,630		$	3,128,736		$	2,002,695
Operating return on average tangible assets		1.40	%		0.80	%		1.42	%		0.97	%
Average equity
Average equity	$	470,695		$	153,894		$	474,580		$	152,996
Goodwill		(245,749	)		(3,570	)		(245,265	)		(3,570	)
Core deposit and other intangible assets		(13,254	)		(1,418	)		(13,582	)		(1,439	)
Deferred taxes		1,836			---			1,785			---
Average tangible equity	$	213,528		$	148,906		$	217,518		$	147,987
Operating return on average tangible equity		20.59	%		10.96	%		20.35	%		13.07	%
At end of quarter:
Total assets
Total assets	$	3,385,599		$	1,982,732		$	3,385,599		$	1,982,732
Goodwill		(245,056	)		(3,570	)		(245,056	)		(3,570	)
Core deposit and other intangible assets		(13,550	)		(1,394	)		(13,550	)		(1,394	)
Deferred taxes		---			---			---			---
Total tangible assets	$	3,126,993		$	1,977,768		$	3,126,993		$	1,977,768
Total equity
Total equity	$	465,760		$	153,582		$	465,760		$	153,582
Goodwill		(245,056	)		(3,570	)		(245,056	)		(3,570	)
Core deposit and other intangible assets		(13,550	)		(1,394	)		(13,550	)		(1,394	)
Deferred taxes		1,800			---			1,800			---
Total tangible equity	$	208,954		$	148,618		$	208,954		$	148,618
Tangible book value at end of period	$	8.91		$	11.43		$	8.91		$	11.43
(1) Net of related tax effect

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COMMUNITY BANKS, INC. & SUBSIDIARIES
Fiscal Insight - JUNE 30, 2006
KEY RATIOS(1)
	2006						2005
	Second			First			Fourth			Third			Second
	Quarter			Quarter			Quarter			Quarter			Quarter			Annual
Diluted earnings (loss) per share	$	0.44		$	0.44		$	0.45		$	0.42		$	(0.09	)	$	1.35
Tangible operating earnings per share (2)	$	0.46		$	0.45		$	0.47		$	0.44		$	0.31		$	1.69
Return on average assets		1.24	%		1.27	%		1.31	%		1.24	%		(0.22	)%		0.96	%
Return on average equity		8.95	%		8.96	%		9.14	%		8.52	%		(2.97	)%		8.04	%
Operating return on average tangible assets (3)		1.40	%		1.43	%		1.50	%		1.43	%		0.80	%		1.27	%
Operating return on average tangible equity(3)		20.59	%		20.12	%		20.83	%		19.14	%		10.96	%		17.09	%
Net interest margin		3.94	%		3.98	%		3.96	%		3.89	%		3.46	%		3.76	%
Non-interest income/revenues (FTE excluding security gains)		22.76	%		21.93	%		21.34	%		21.74	%		24.60	%		22.57	%
Provision for loan losses/average loans (annualized)		0.11	%		0.09	%		0.11	%		0.07	%		0.24	%		0.13	%
Efficiency ratio (4)		56.18	%		55.96	%		55.56	%		57.86	%		58.42	%		57.51	%
Non-performing assets to period-end loans		0.50	%		0.52	%		0.47	%		0.60	%		0.73	%
90 day past due loans to period-end loans		0.03	%		0.00	%		0.00	%		0.00	%		0.00	%
Total risk elements to period-end loans		0.53	%		0.52	%		0.47	%		0.60	%		0.73	%
Allowance for loan losses to loans		1.01	%		1.02	%		1.03	%		1.05	%		1.20	%		1.03	%
Allowance for loan losses to
non-accrual loans		207	%		231	%		253	%		212	%		223	%		253	%
Net charge-offs/average loans (annualized)		0.03	%		0.03	%		0.07	%		0.01	%		0.04	%		0.05	%
Equity to assets		13.76	%		13.90	%		14.30	%		14.61	%		7.75	%		14.30	%
Tangible equity to assets (3)		6.68	%		6.93	%		7.14	%		7.41	%		7.51	%		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 19.
(3) The difference between total assets and total tangible assets, and stockholders’ equity and tangible stockholders’ equity, represents goodwill and core deposit and other intangibles net of applicable deferred tax balances. A reconciliation of these balances appears on page 19.
(4)The efficiency ratio does not include merger, conversion and restructuring expenses or net securities transactions.

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COMMUNITY BANKS, INC. & SUBSIDIARIES
Fiscal Insight - JUNE 30, 2006
PER SHARE STATISTICS *
Diluted Earnings (Loss) per Share
	Fourth		Third		Second			First
	Quarter		Quarter		Quarter			Quarter		Total
2006					$	0.44		$	0.44	$	0.88
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						23,858			24,212		24,028
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					$	19.86		$	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					$	8.91		$	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

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COMMUNITY BANKS, INC. & SUBSIDIARIES
Fiscal Insight - JUNE 30, 2006
QUARTER END INFORMATION
(dollars in thousands)	2006						2005
	Second			First			Fourth			Third		Second
	Quarter			Quarter			Quarter			Quarter		Quarter
Loans, net	$	2,320,889		$	2,260,304		$	2,211,532		$	2,142,657	$	1,269,305
Earning assets		2,922,356			2,960,648			2,869,978			2,842,809		1,863,027
Goodwill and other intangible assets		259,886			258,359			259,080			258,057		4,964
Total assets		3,385,599			3,421,562			3,332,430			3,291,232		1,982,732
Deposits		2,406,551			2,373,865			2,294,367			2,244,791		1,382,866
Long-term debt		363,816			443,275			430,719			457,728		356,210
Subordinated debt		51,548			51,548			30,928			30,928		30,928
Total shareholder's equity		465,760			475,587			476,673			480,960		153,582
Accumulated other comprehensive income (loss) (net of tax)		(10,107	)		(4,368	)		(3,779	)		1,381		1,559

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COMMUNITY BANKS, INC. & SUBSIDIARIES
Fiscal Insight - JUNE 30, 2006
CONDENSED CONSOLIDATED QUARTERLY AVERAGE STATEMENTS OF CONDITION
(dollars in thousands)	2006						2005
	Second			First			Fourth			Third			Second
	Quarter			Quarter			Quarter			Quarter			Quarter
Assets
Earning Assets:
Loans	$	2,312,900		$	2,289,871		$	2,199,834		$	2,138,081		$	1,265,479
Federal funds sold and other		53,872			34,885			35,447			102,295			80,109
Taxable investment securities		357,029			380,908			395,480			406,654			368,637
Tax-exempt investment securities		220,552			232,983			234,776			226,125			214,609
Total earning assets		2,944,353			2,938,647			2,865,537			2,873,155			1,928,834
Cash and due from banks		59,461			59,253			65,271			59,404			36,964
Allowance for loan losses		(23,882	)		(23,172	)		(22,976	)		(22,778	)		(15,189	)
Goodwill and other intangible assets		259,003			258,689			257,797			254,648			4,988
Premises, equipment and other assets		152,973			149,794			148,321			152,031			86,021
Total assets	$	3,391,908		$	3,383,211		$	3,313,950		$	3,316,460		$	2,041,618
Liabilities and equity
Interest-bearing liabilities:
Deposits
Savings and NOW accounts	$	820,265		$	826,742		$	848,320		$	850,801		$	526,821
Time		981,371			900,698			869,096			865,136			537,585
Time deposits greater than $100,000		228,931			200,821			186,514			175,634			128,052
Short-term borrowings		57,903			68,524			72,606			56,948			36,687
Long-term debt		405,705			467,010			447,532			476,602			424,105
Subordinated debt		51,548			44,674			30,928			30,928			30,928
Total interest-bearing liabilities		2,545,723			2,508,469			2,454,996			2,456,049			1,684,178
Noninterest-bearing deposits		350,574			373,637			358,822			356,733			190,045
Other liabilities		24,916			22,598			24,618			22,493			13,501
Total liabilities		2,921,213			2,904,704			2,838,436			2,835,275			1,887,724
Stockholders' equity		470,695			478,507			475,514			481,185			153,894
Total liabilities and stockholders’ equity	$	3,391,908		$	3,383,211		$	3,313,950		$	3,316,460		$	2,041,618
CHANGE IN AVERAGE BALANCES*
	2006						2005
		Second			First			Fourth			Third			Second
		Quarter			Quarter			Quarter			Quarter			Quarter
Loans		82.8	%		86.0	%		83.1	%		81.9	%		11.2	%
Total assets		66.1	%		70.6	%		69.3	%		69.4	%		4.1	%
Deposits		72.2	%		73.5	%		73.4	%		71.2	%		4.5	%
Stockholders' equity		205.9	%		206.0	%		213.8	%		239.3	%		8.1	%
* Compares the current quarter to the comparable quarter of the prior year

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COMMUNITY BANKS, INC. & SUBSIDIARIES
Fiscal Insight - JUNE 30, 2006
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(dollars in thousands)	2006				2005
	Second		First		Fourth		Third		Second
	Quarter		Quarter		Quarter		Quarter		Quarter			Annual
Interest income	$	48,938	$	46,889	$	45,242	$	43,478	$	27,390		$	142,293
Tax equivalent adjustment		1,910		1,978		1,922		1,811		1,741			7,163
		50,848		48,867		47,164		45,289		29,131			149,456
Interest expense		21,931		20,025		18,593		17,081		12,481			59,648
Net interest income		28,917		28,842		28,571		28,208		16,650			89,808
Provision for loan losses		650		500		600		400		750			2,300
Net interest income after provision		28,267		28,342		27,971		27,808		15,900			87,508
Non-interest income		7,957		7,633		7,120		7,177		4,883			23,824
Investment security gains income		6		283		12		29		167			259
Mortgage banking activities income		580		468		631		660		548			2,354
Non-interest expenses		20,698		20,533		20,180		20,836		13,189			66,864
Merger, conversion and restructuring expenses		---		---		---		248		7,957			8,205
Income before income taxes		16,112		16,193		15,554		14,590		352			38,876
Income taxes		3,698		3,646		2,671		2,447		(250	)		6,072
Tax equivalent adjustment		1,910		1,978		1,922		1,811		1,741			7,163
NET INCOME (LOSS)	$	10,504	$	10,569	$	10,961	$	10,332	$	(1,139	)	$	25,641
Tax effect of security transactions	$	2	$	99	$	4	$	10	$	58		$	91

10

COMMUNITY BANKS, INC. & SUBSIDIARIES
Fiscal Insight - JUNE 30, 2006
ANALYSIS OF NON-INTEREST INCOME
(dollars in thousands)	2006				2005
	Second		First		Fourth		Third		Second
	Quarter		Quarter		Quarter		Quarter		Quarter		Annual
Investment management and trust services	$	1,088	$	1,013	$	951	$	796	$	531	$	2,692
Service charges on deposit accounts		2,855		2,531		2,793		2,799		2,028		9,413
Other service charges, commissions and fees		1,903		1,700		1,689		1,819		934		5,452
Insurance premium income and commissions		1,117		928		743		825		880		3,350
Earnings on investment in life insurance		675		656		650		659		355		2,063
Other income		319		805		294		279		155		854
Total non-interest income	$	7,957	$	7,633	$	7,120	$	7,177	$	4,883	$	23,824
ANALYSIS OF NON-INTEREST EXPENSES
(dollars in thousands)	2006				2005
		Second		First		Fourth		Third		Second
		Quarter		Quarter		Quarter		Quarter		Quarter		Annual
Salaries and employee benefits	$	11,251	$	11,418	$	10,461	$	11,808	$	7,436	$	36,998
Net occupancy expense		3,386		3,512		3,567		3,364		2,199		11,355
Marketing expense		265		575		597		528		466		2,036
Telecommunications expense		566		551		489		309		257		1,359
Amortization of intangibles		702		654		696		641		43		1,424
Other operating expenses		4,528		3,823		4,370		4,186		2,788		13,692
Total non-interest expenses	$	20,698	$	20,533	$	20,180	$	20,836	$	13,189	$	66,864

11

COMMUNITY BANKS, INC. & SUBSIDIARIES
Fiscal Insight - JUNE 30, 2006
RISK ELEMENTS ANALYSIS
(dollars in thousands)	2006						2005
	Second			First			Fourth			Third			Second
	Quarter			Quarter			Quarter			Quarter			Quarter
Non-performing assets:
Non-accrual loans	$	11,492		$	10,102		$	9,060		$	10,736		$	6,896
Loans renegotiated with borrowers		108			110			---			---			---
Foreclosed real estate		108			1,728			1,447			2,273			2,444
Total non-performing assets		11,708			11,940			10,507			13,009			9,340
Accruing loans 90 days or more past due		621			29			22			7			---
Total risk elements	$	12,329		$	11,969		$	10,529		$	13,016		$	9,340
Non-performing assets to period-end loans		0.50	%		0.52	%		0.47	%		0.60	%		0.73	%
90 day past due loans to period-end loans		0.03	%		0.00	%		0.00	%		0.00	%		0.00	%
Total risk elements to period-end loans		0.53	%		0.52	%		0.47	%		0.60	%		0.73	%

12

COMMUNITY BANKS, INC. & SUBSIDIARIES
Fiscal Insight - JUNE 30, 2006
ALLOWANCE FOR LOAN LOSSES
(dollars in thousands)	2006						2005
	Second			First			Fourth			Third			Second
	Quarter			Quarter			Quarter			Quarter			Quarter
Balance at beginning of period	$	23,310		$	22,965		$	22,773		$	15,383		$	14,754
Loans charged off		(342	)		(313	)		(1,153	)		(271	)		(439	)
Recoveries		170			158			745			193			318
Net loans charged off		(172	)		(155	)		(408	)		(78	)		(121	)
Provision for loan losses		650			500			600			400			750
Allowance established for acquired credit risk		---			---			---			7,068			---
Balance at end of period	$	23,788		$	23,310		$	22,965		$	22,773		$	15,383
Net loans charged-off to average loans*		0.03	%		0.03	%		0.07	%		0.01	%		0.04	%
Provision for loan losses to average loans*		0.11	%		0.09	%		0.11	%		0.07	%		0.24	%
Allowance for loan losses to loans		1.01	%		1.02	%		1.03	%		1.05	%		1.20	%
*Annualized

13

COMMUNITY BANKS, INC. & SUBSIDIARIES
Fiscal Insight - JUNE 30, 2006
OTHER RATIOS
	2006						2005
	Second			First			Fourth			Third			Second
	Quarter			Quarter			Quarter			Quarter			Quarter
Investment portfolio - fair value to amortized cost		97.88	%		99.4	%		99.6	%		100.9	%		101.1	%
Dividend payout ratio		45.08	%		43.0	%		41.8	%		42.7	%		NR*
Net loans to deposits ratio, average		96.13	%		98.3	%		96.2	%		94.1	%		90.4	%

MARKET PRICE AND DIVIDENDS DECLARED **
	Closing Bid Price Range				Dividends
Year / Quarter	High		Low		Declared
2006
First	$	27.85	$	25.67	$	0.1905
Second	$	27.39	$	24.38	$	0.2000
Third
Fourth
					$	0.3905
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 - JUNE 30, 2006
NET INTEREST MARGIN - YEAR-TO-DATE
(dollars in thousands)	June 30, 2006						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	$	44,431	$	1,036	4.70	%	$	51,157	$	734	2.89	%
Investment securities		595,635		17,523	5.93	%		598,051		16,589	5.59	%
Loans - commercial		817,901		31,161	7.68	%		429,149		13,444	6.32	%
- commercial real estate		808,350		27,931	6.97	%		366,943		11,481	6.31	%
- residential real estate		151,960		4,569	6.06	%		90,247		2,971	6.64	%
- consumer		523,292		17,495	6.74	%		363,951		11,784	6.53	%
Total earning assets	$	2,941,569	$	99,715	6.84	%	$	1,899,498	$	57,003	6.05	%
Deposits - savings and NOW accounts	$	823,485	$	7,394	1.81	%	$	514,316	$	3,033	1.19	%
- time		1,156,211		21,811	3.80	%		653,761		9,928	3.06	%
Short-term borrowings		63,184		1,341	4.28	%		33,958		357	2.12	%
Long-term debt		436,188		9,675	4.47	%		455,570		9,702	4.29	%
Subordinated debt		48,130		1,735	7.27	%		30,928		954	6.22	%
Total interest-bearing liabilities	$	2,527,198	$	41,956	3.35	%	$	1,688,533	$	23,974	2.86	%
Interest income to earning assets					6.84	%					6.05	%
Interest expense to paying liabilities					3.35	%					2.86	%
Interest spread					3.49	%					3.19	%
Impact of noninterest funds					0.47	%					0.32	%
Net interest margin			$	57,759	3.96	%			$	33,029	3.51	%

15

COMMUNITY BANKS, INC. & SUBSIDIARIES
Fiscal Insight - JUNE 30, 2006
NET INTEREST MARGIN - QUARTER-TO-DATE
(dollars in thousands)	June 30, 2006							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	$	53,872	$	643		4.79	%	$	78,196	$	583		2.99	%
Investment securities		577,581		8,622		5.99	%		583,246		8,235		5.66	%
Loans - commercial		827,586		16,016		7.76	%		438,396		6,968		6.38	%
- commercial real estate		817,099		14,326		7.03	%		371,725		5,888		6.35	%
- residential real estate		150,653		2,272		6.05	%		89,164		1,470		6.61	%
- consumer		517,562		8,969		6.95	%		368,107		5,987		6.52	%
Total earning assets	$	2,944,353	$	50,848		6.93	%	$	1,928,834	$	29,131		6.06	%
Deposits - savings and NOW accounts	$	820,265	$	3,893		1.90	%	$	526,821	$	1,720		1.31	%
- time		1,210,302		11,891		3.94	%		665,637		5,181		3.12	%
Short-term borrowings		57,903		645		4.47	%		36,687		200		2.19	%
Long-term debt		405,705		4,564		4.51	%		424,105		4,885		4.62	%
Subordinated debt		51,548		938		7.30	%		30,928		495		6.42	%
Total interest-bearing liabilities	$	2,545,723	$	21,931		3.46	%	$	1,684,178	$	12,481		2.97	%
Interest income to earning assets						6.93	%						6.06	%
Interest expense to paying liabilities						3.46	%						2.97	%
Interest spread						3.47	%						3.09	%
Impact of noninterest funds						0.47	%						0.37	%
Net interest margin			$	28,917		3.94	%			$	16,650		3.46	%

16

COMMUNITY BANKS, INC. & SUBSIDIARIES
Fiscal Insight - JUNE 30, 2006
NET INTEREST MARGIN - QUARTER-TO-DATE
(dollars in thousands)	June 30, 2006							March 31, 2006
	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	$	53,872	$	643		4.79	%	$	34,885	$	393		4.57	%
Investment securities		577,581		8,622		5.99	%		613,891		8,901		5.88	%
Loans - commercial		827,586		16,016		7.76	%		808,108		15,145		7.60	%
- commercial real estate		817,099		14,326		7.03	%		799,505		13,605		6.90	%
- residential real estate		150,653		2,272		6.05	%		153,282		2,297		6.08	%
- consumer		517,562		8,969		6.95	%		528,976		8,526		6.54	%
Total earning assets	$	2,944,353	$	50,848		6.93	%	$	2,938,647	$	48,867		6.74	%
Deposits - savings and NOW accounts	$	820,265	$	3,893		1.90	%	$	826,742	$	3,501		1.72	%
- time		1,210,302		11,891		3.94	%		1,101,519		9,920		3.65	%
Short-term borrowings		57,903		645		4.47	%		68,524		696		4.12	%
Long-term debt		405,705		4,564		4.51	%		467,010		5,111		4.44	%
Subordinated debt		51,548		938		7.30	%		44,674		797		7.24	%
Total interest-bearing liabilities	$	2,545,723	$	21,931		3.46	%	$	2,508,469	$	20,025		3.24	%
Interest income to earning assets						6.93	%						6.74	%
Interest expense to paying liabilities						3.46	%						3.24	%
Interest spread						3.47	%						3.50	%
Impact of noninterest funds						0.47	%						0.48	%
Net interest margin			$	28,917		3.94	%			$	28,842		3.98	%

17

COMMUNITY BANKS, INC. & SUBSIDIARIES
Fiscal Insight - JUNE 30, 2006
PERIOD-END LOAN PORTFOLIO ANALYSIS
(dollars in thousands)	2006				2005
	Second		First		Fourth		Third		Second
	Quarter		Quarter		Quarter		Quarter		Quarter
Commercial:
Commercial	$	763,637	$	747,954	$	723,248	$	706,475	$	392,101
Obligations of political subdivisions		76,408		75,449		59,698		53,881		54,241
Total commercial		840,045		823,403		782,946		760,356		446,342
Commercial real estate:
Commercial mortgages	$	834,345	$	805,120	$	793,969	$	737,432	$	374,202
Residential real estate:
Residential mortgages	$	144,590	$	146,360	$	149,525	$	150,596	$	81,115
Construction		5,770		5,136		4,532		26,437		5,846
Total residential real estate		150,360		151,496		154,057		177,033		86,961
Consumer:
Home equity loans	$	282,777	$	262,835	$	252,080	$	236,363	$	229,946
Home equity lines of credit		103,216		105,933		113,133		120,080		56,603
Indirect consumer loans		67,786		66,344		63,644		62,471		57,931
Other consumer loans		66,148		68,483		74,668		71,695		32,703
Total consumer		519,927		503,595		503,525		490,609		377,183
Total loans	$	2,344,677	$	2,283,614	$	2,234,497	$	2,165,430	$	1,284,688

18

COMMUNITY BANKS, INC. & SUBSIDIARIES
Fiscal Insight - JUNE 30, 2006
Reconciliation of GAAP to Non-GAAP Measures (1):
(in thousands, except per share data)	2006						2005
	Second			First			Fourth			Third			Second
	Quarter			Quarter			Quarter			Quarter			Quarter			Annual
Income statement data:
Net income (loss)
Net income (loss)	$10,504			$10,569			$10,961			$10,332			$(1,139)			$25,641
Amortization of core deposit and other intangible assets (2)	456			425			564			519			35			1,153
Merger, conversion and restructuring expenses (2)	---			---			---			161			5,172			5,333
Net operating (tangible) income	$10,960			$10,994			$11,525			$11,012			$4,068			$32,127
Earnings (loss) per share
Diluted earnings (loss) per common share	$0.44			$0.44			$0.45			$0.42			$(0.09)			$1.35
Amortization of core deposit and other intangible assets (2)	0.02			0.01			0.02			0.02			---			0.06
Merger, conversion and restructuring expenses (2)	---			---			---			---			0.40			0.28
Diluted operating (tangible) earnings per share	$0.46			$0.45			$0.47			$0.44			$0.31			$1.69
Balance sheet data:
Average assets
Average assets	$3,391,908			$3,383,211			$3,313,950			$3,316,460			$2,041,618			$2,668,605
Goodwill	(245,749)			(244,775)			(243,203)			(239,395)			(3,570)			(123,412)
Core deposit and other intangible assets		(13,254	)		(13,914	)		(14,594	)		(15,252	)		(1,418	)		(8,236	)
Average tangible assets	$	3,132,905		$	3,124,522		$	3,056,153		$	3,061,813		$	2,036,630		$	2,536,957
Operating return on average tangible assets		1.40	%		1.43	%		1.50	%		1.43	%		0.80	%		1.27	%
Average equity
Average equity	$	470,695		$	478,507		$	475,514		$	481,185		$	153,894		$	318,768
Goodwill		(245,749	)		(244,775	)		(243,203	)		(239,395	)		(3,570	)		(123,412	)
Core deposit and other intangible assets		(13,254	)		(13,914	)		(14,594	)		(15,252	)		(1,418	)		(8,236	)
Deferred taxes		1,836			1,734			1,742			1,677			---			862
Average tangible equity	$	213,528		$	221,552		$	219,459		$	228,215		$	148,906		$	187,982
Operating return on average tangible equity		20.59	%		20.12	%		20.83	%		19.14	%		10.96	%		17.09	%
At end of quarter:
Total assets
Total assets	$	3,385,599		$	3,421,562		$	3,332,430		$	3,291,232		$	1,982,732		$	3,332,430
Goodwill		(245,056	)		(244,760	)		(244,827	)		(243,107	)		(3,570	)		(244,827	)
Core deposit and other intangible assets		(13,550	)		(13,599	)		(14,253	)		(14,951	)		(1,394	)		(14,253	)
Total tangible assets	$	3,126,993		$	3,163,203		$	3,073,350		$	3,033,174		$	1,977,768		$	3,073,350
Total equity
Total equity	$	465,760		$	475,587		$	476,673		$	480,960		$	153,582		$	476,673
Goodwill		(245,056	)		(244,760	)		(244,827	)		(243,107	)		(3,570	)		(244,827	)
Core deposit and other intangible assets		(13,550	)		(13,599	)		(14,253	)		(14,951	)		(1,394	)		(14,253	)
Deferred taxes		1,800			1,854			1,734			1,746			---			1,734
Total tangible equity	$	208,954		$	219,082		$	219,327		$	224,648		$	148,618		$	219,327
Tangible book value at end of period	$	8.91		$	9.19		$	9.12		$	9.26		$	11.43		$	9.12
Tangible equity to assets		6.68	%		6.93	%		7.14	%		7.41	%		7.51	%		7.14	%
(1) Per share data reflect stock splits and stock dividends
(2) Net of related tax effect

19