FOR IMMEDIATE RELEASE
Date: January 18, 2005
Contact: Donald F. Holt, EVP/CFO
(717) 920-5801, Fax (717) 920-1683
COMMUNITY BANKS REPORTS EARNINGS INCREASE
Harrisburg, PA- Community Banks, Inc. ("Community") (Listed on NASDAQ:
CMTY) today announced earnings results for the year and the fourth quarter ended
December 31, 2004. Earnings per share for 2004 rose to a record $1.73 and
reflected annual net income of $ 21.8 million. This performance represented an
improvement of 6.1% over the earnings per share of $1.63 achieved in 2003, and a
7% increase in net income from the $20.4 million recorded in that same year. The
2004 performance resulted in a return on average assets of 1.12% and a return on
average equity of 14.96%, compared to 1.15% and 15.03%, respectively, in 2003.
Results for the fourth quarter of 2004 reflected similar performance as
earnings per share rose from $0.41 in the year earlier quarter to $0.44 in 2004,
an increase of 7.3%. Net income for the three months ended December 31, 2004 was
$5.5 million versus $5.2 million in the fourth quarter of 2003, an increase of
7.0%.
Community produced improved levels of profitability during 2004 by driving
higher loan and deposit volumes, increased fees, strong asset quality and more
modest growth in operating expenses. Across the broader financial services
spectrum, profit performance was directly and indirectly influenced by the
depressed level of interest rates and an unsettled national economy. The strain
on net interest income growth placed a premium on increasing market share,
maintaining pristine asset quality metrics, developing new and improved sources
of service fee income, and the achievement of operating efficiencies.
On November 16, 2004, Community and PennRock Financial Services Corp.,
parent company of Blue Ball National Bank, announced the signing of a definitive
agreement pursuant to which Community and PennRock Financial will combine under
Community's charter. Following consummation, Blue Ball will continue to operate
as a division of CommunityBanks. The joint banking and financial services
franchise will include 67 banking offices in 11 counties throughout the center
of Pennsylvania, extending from the Pocono region in the north to just south of
the Pennsylvania/Maryland border. The combination will dramatically increase the
combined company's presence in the south central Pennsylvania market, including
significant coverage of the vibrant Harrisburg, Lancaster and York regions, with
combined assets totaling over $3 billion. After the combination, Community
Banks, Inc. would become the 8th largest bank holding company headquartered in
the Commonwealth of Pennsylvania; it currently ranks as the 12th largest.
"We are especially pleased to be reporting continuing earnings momentum
while, at the same time, we begin the challenging process of combining and
integrating the Community and PennRock franchises, said Eddie L. Dunklebarger,
President and Chief Executive Officer. "Our optimism for the future is based on
both banks' strong financial condition, their historical trend of steady
earnings improvement and the opportunities to improve upon both of these as a
result of our new partnership". Terms of the transaction, which is expected to
be completed by mid-year 2005, were provided at the time of the announcement.
The merger remains subject to various regulatory approvals as well as the
approval of both Community and PennRock shareholders.
During 2004, average loans rose to just under $1.2 billion and grew 15.7%
over 2003 balances. Growth in average deposit balances also experienced robust
growth trends as deposits increased 10.1% to nearly $1.3 billion. Net interest
income rose 7.2 % when expressed on a fully-tax equivalent basis, despite the
challenges
presented by the low interest rate environment. Community continues to garner an
increasingly larger share of the South Central Pennsylvania banking market,
which influenced the growth in both core banking activities and net interest
income.
Other revenues, excluding the impact of gains from the sales of securities,
reflected an increase of nearly 12% over 2003. Other revenues actually increased
by nearly 19% over 2003 if 2003 results were further adjusted for the
nonrecurring sale of a branch location in the fourth quarter of 2003. This
growth was influenced by the increase in fees associated with both acquired
businesses and increases in new or existing banking products. The improvement in
this revenue stream was achieved despite the mitigating impact of the less
robust mortgage refinancing market during most of 2004. The pace of mortgage
refinancing activity slowed measurably from the record performances of the last
two years. Complementary fee-based activities, such as title and settlement
services, also receded by comparison to the outsized mortgage origination
activity in years prior to 2004.
Two highlights of 2004 performance related to asset quality and control
over non-interest expenses. Community has now experienced three consecutive
years of steadily improving metrics in loan quality, including net charge-offs
to loans of only .16% in 2004. Growth in the provision for loan losses was
reflective of the growth in the loan portfolio and the risk associated
therewith, as asset quality metrics continued to reflect little in the way of
adverse trends. Non-interest expenses, which grew by 9.3%, were inflated by the
first full year of expenses attributed to businesses acquired throughout 2003
and by the second consecutive year of increased marketing expenses. Community
has aggressively addressed elevating its profile in its core markets to take
advantage of market disruptions attributed to the fallout from out-of-state
acquisitions of local competitors.
Community currently has nearly $2 billion in assets and 48 banking offices,
and is headquartered in Harrisburg, Pennsylvania, which will remain the
corporate offices. PennRock, with its 19 banking offices and nearly $1.1 billion
in assets, operates 12 offices in Lancaster County; 5 in Berks County near
Reading, Pennsylvania; and 2 additional offices in nearby Chester County.
This press release contains "forward looking" information as defined by the
Private Securities Litigation Reform Act of 1995, which is based on Community's
current expectations, estimates and projections about future events and
financial trends affecting the financial condition of its business. These
statements are not historical facts or guarantees of future performance, events,
or results. Such statements involve potential risks and uncertainties and,
accordingly, actual performance results may differ materially. Community
undertakes no obligation to publicly update or revise forward looking
information, whether as a result of new, updated information, future events, or
otherwise.
2
Community Banks, Inc.
Selected Financial Information
(Dollars in thousands, except per share data)
Three Months Ended Year Ended
December 31, December 31,
2004 2003 2004 2003
---------------------------- ----------------------------
Consolidated summary of operations:
Interest income $ 25,710 $ 23,602 $ 99,799 $ 94,865
Interest expense 11,089 10,428 43,242 42,351
------------ ------------ ------------ ------------
Net interest income 14,621 13,174 56,557 52,514
Provision for loan losses 750 600 3,100 2,500
------------ ------------ ------------ ------------
Net interest income after provision for loan losses 13,871 12,574 53,457 50,014
------------ ------------ ------------ ------------
Non-interest income:
Investment management and trust services 391 384 1,510 1,326
Service charges on deposit accounts 2,012 1,442 7,120 5,128
Other service charges, commissions, and fees 792 629 3,357 2,958
Investment security gains 186 78 2,470 1,927
Insurance premium income and commissions 873 745 3,260 2,822
Mortgage banking activities 652 725 2,665 2,532
Earnings on investment in life insurance 383 311 1,593 1,455
Other 133 1,237 1,238 2,315
------------ ------------ ------------ ------------
Total non-interest income 5,422 5,551 23,213 20,463
------------ ------------ ------------ ------------
Non-interest expenses:
Salaries and employee benefits 7,486 6,598 28,337 25,397
Net occupancy 1,990 1,836 7,980 7,200
Marketing expense 425 521 2,325 2,018
Telecommunications expense 306 350 1,285 1,302
Other 2,411 2,657 10,066 9,801
------------ ------------ ------------ ------------
Total non-interest expenses 12,618 11,962 49,993 45,718
------------ ------------ ------------ ------------
Income before income taxes 6,675 6,163 26,677 24,759
Income taxes 1,135 987 4,879 4,359
------------ ------------ ------------ ------------
Net income $ 5,540 $ 5,176 $ 21,798 $ 20,400
============ ============ ============ ============
Net loan charge-offs $ 765 $ 862 $ 1,857 $ 1,665
Net interest margin (FTE) 3.51% 3.41% 3.44% 3.50%
Efficiency ratio 58.96% 62.41% 60.22% 60.47%
Return on average assets 1.13% 1.13% 1.12% 1.15%
Return on average stockholders' equity 14.54% 14.75% 14.96% 15.03%
Return on average realized equity 2] 14.99% 15.26% 15.30% 15.81%
Consolidated per share data: 1]
Basic earnings per share $ 0.45 $ 0.43 $ 1.78 $ 1.68
============ ============ ============ ============
Diluted earnings per share $ 0.44 $ 0.41 $ 1.73 $ 1.63
============ ============ ============ ============
Book value at end of period $ 12.45 $ 11.73 $ 12.45 $ 11.73
============ ============ ============ ============
Realized book value at end of period 2] $ 12.19 $ 11.19 $ 12.19 $ 11.19
============ ============ ============ ============
3
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,
2004 2003 2004 2003
-------------------------------------- -------------------------------------
Average total loans $ 1,201,454 $ 1,067,506 $ 1,153,933 $ 997,190
Average earning assets 1,844,675 1,720,843 1,831,881 1,680,204
Average assets 1,957,240 1,823,692 1,941,096 1,780,679
Average deposits 1,304,590 1,214,381 1,295,977 1,177,356
Average stockholders' equity 151,557 139,226 145,750 135,773
Average diluted shares outstanding 1] 12,553,000 12,623,000 12,575,000 12,497,000
12/31/2004
vs.
December 31, December 31, 12/31/2003
2004 2003 % Change
----------------- ------------------ -----------------
Assets $ 1,954,799 $ 1,861,063 5%
Total loans 1,215,951 1,078,611 13%
Deposits 1,305,537 1,230,685 6%
Stockholders' equity 2] 149,130 136,810 9%
Accumulated other comprehensive income 3,211 6,596 (51)%
Diluted shares outstanding 1] 12,549,000 12,666,000 (1)%
Non-accrual loans $ 5,428 $ 8,151 (33)%
Foreclosed real estate 2,094 4,865 (57)%
----------------- ------------------ -----------------
Total non-performing assets 7,522 13,016 (42)%
Accruing loans 90 days past due --- 90 (100)%
----------------- ------------------ -----------------
Total risk elements $ 7,522 $ 13,106 (43)%
================= ================== =================
Allowance for loan losses $ 14,421 $ 13,178 9%
Asset quality ratios:
Allowance for loan losses to total loans
outstanding 1.19% 1.22%
Allowance for loan losses to non-accrual loans 266% 162%
Non-accrual loans to total loans outstanding 0.45% 0.76%
Non-performing assets to total assets 0.38% 0.70%
1] Per share data reflects stock splits and stock dividends
2] Excludes accumulated other comprehensive income
4