COMMUNITY BANKS, INC. & SUBSIDIARIES
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Fiscal Insight - DECEMBER 31, 2004
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KEY RATIOS
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2004 2003
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Fourth Third Second First Fourth
Annual Quarter Quarter Quarter Quarter Annual Quarter
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Earnings per share - basic (1) $ 1.78 $ 0.45 $ 0.46 $ 0.45 $ 0.42 $ 1.68 $ 0.43
Earnings per share - diluted (1) $ 1.73 $ 0.44 $ 0.45 $ 0.43 $ 0.41 $ 1.63 $ 0.41
Return on average assets 1.12% 1.13% 1.15% 1.11% 1.10% 1.15% 1.13%
Return on average equity 14.96% 14.54% 15.84% 15.37% 14.13% 15.03% 14.75%
Return on average realized equity (2) 15.30% 14.99% 15.70% 15.54% 14.98% 15.81% 15.26%
Net interest margin 3.44% 3.51% 3.43% 3.44% 3.40% 3.50% 3.41%
Non-interest income/revenues (FTE excluding security gains) 24.74% 24.33% 27.07% 25.11% 22.17% 23.95% 27.01%
Provision for loan losses/average loans (annualized) 0.27% 0.25% 0.25% 0.27% 0.31% 0.25% 0.22%
Efficiency ratio $60.22% 58.96% 59.29% 61.55% 61.19% 60.47% 62.41%
Non-performing assets to period-end loans 0.62% 0.69% 0.69% 0.86% 1.21%
90 day past due loans to period-end loans 0.00% 0.00% 0.00% 0.01% 0.01%
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Total risk elements to period-end loans 0.62% 0.69% 0.69% 0.87% 1.22%
======================================== ========
Allowance for loan losses to loans 1.19% 1.19% 1.21% 1.23% 1.25% 1.22% 1.22%
Allowance for loan losses to
non-accrual loans 266% 266% 241% 229% 184% 162% 162%
Net charge-offs/average loans (annualized) 0.16% 0.25% 0.21% 0.11% 0.06% 0.32% 0.32%
Equity to assets 7.79% 7.79% 7.64% 6.94% 7.74% 7.71% 7.71%
(1) Per share data reflect stock splits and stock dividends
(2) Excludes accumulated other comprehensive income (loss) items
1
PER SHARE STATISTICS *
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Diluted Earnings per Share
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Fourth Third Second First
Quarter Quarter Quarter Quarter Total
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2004 $ 0.44 $ 0.45 $ 0.43 $ 0.41 $ 1.73
2003 $ 0.41 $ 0.41 $ 0.40 $ 0.41 $ 1.63
2002 $ 0.37 $ 0.38 $ 0.37 $ 0.36 $ 1.48
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Average Diluted Shares Outstanding
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(in thousands) Fourth Third Second First Average for
Quarter Quarter Quarter Quarter Year
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2004 12,553 12,508 12,587 12,653 12,575
2003 12,623 12,501 12,433 12,375 12,497
2002 12,407 12,491 12,539 12,529 12,491
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Book Value per Share
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Fourth Third Second First
Quarter Quarter Quarter Quarter
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2004 $ 12.45 $ 12.26 $ 11.15 $ 12.27
2003 $ 11.73 $ 11.25 $ 11.73 $ 10.83
2002 $ 10.67 $ 10.56 $ 9.97 $ 9.05
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Realized Book Value per Share (excludes accumulated other comprehensive income items)
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Fourth Third Second First
Quarter Quarter Quarter Quarter
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2004 $ 12.19 $ 11.85 $ 11.61 $ 11.40
2003 $ 11.19 $ 10.89 $ 10.60 $ 10.33
2002 $ 10.13 $ 9.92 $ 9.77 $ 9.53
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* Per share data reflect stock splits and stock dividends
2
QUARTER END INFORMATION
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(dollars in thousands) 2004 2003
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Fourth Third Second First Fourth
Quarter Quarter Quarter Quarter Quarter
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Loans, net $1,201,530 $1,173,844 $1,147,074 $1,098,695 $1,065,433
Earning assets 1,838,116 1,844,154 1,843,262 1,834,961 1,750,263
Goodwill and identifiable intangible assets 5,051 5,036 4,976 4,759 4,773
Total assets 1,954,799 1,955,811 1,961,061 1,944,555 1,861,063
Deposits 1,305,537 1,320,476 1,297,370 1,282,410 1,230,685
Long-term debt 404,662 406,370 373,066 399,750 411,422
Subordinated debt 30,928 30,928 30,928 30,928 30,928
Total shareholder's equity 152,341 149,419 136,135 150,504 143,406
Accumulated other comprehensive income (loss) (net of tax) 3,211 5,050 (5,607) 10,604 6,596
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3
CONDENSED CONSOLIDATED QUARTERLY AVERAGE STATEMENTS OF CONDITION
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(dollars in thousands) 2004 2003
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Fourth Third Second First Fourth
Quarter Quarter Quarter Quarter Quarter
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Assets
Earning Assets:
Loans $ 1,201,454 $ 1,175,562 $ 1,138,284 $ 1,100,432 $ 1,067,506
Federal funds sold and other 17,223 6,504 14,297 11,175 21,773
Taxable investment securities 415,262 453,905 493,150 463,804 423,723
Tax-exempt investment securities 210,736 209,248 208,754 207,942 207,841
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Total Earning Assets 1,844,675 1,845,219 1,854,485 1,783,353 1,720,843
Cash and due from banks 40,689 38,144 34,366 36,065 38,394
Allowance for loan losses (14,551) (14,418) (14,172) (13,484) (13,444)
Goodwill and other identifiable intangibles 5,015 4,975 4,844 4,756 4,634
Premises, equipment and other assets 81,412 84,015 82,351 86,091 73,265
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Total assets $ 1,957,240 $ 1,957,935 $ 1,961,874 $ 1,896,781 $ 1,823,692
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Liabilities and equity
Interest-bearing liabilities:
Deposits
Savings and NOW accounts $ 494,275 $ 515,917 $ 516,409 $ 457,269 $ 445,881
Time 514,560 513,241 510,783 501,571 492,401
Time deposits greater than $100,000 107,250 101,782 119,054 119,459 108,225
Short-term borrowings 48,926 59,464 83,333 52,020 45,278
Long-term debt and subordinated debt 436,543 430,013 398,685 441,076 408,018
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Total interest-bearing liabilities 1,601,554 1,620,417 1,628,264 1,571,395 1,499,803
Noninterest-bearing deposits 188,505 182,434 177,104 164,295 167,874
Other liabilities 15,624 13,276 14,179 13,783 16,789
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Total liabilities 1,805,683 1,816,127 1,819,547 1,749,473 1,684,466
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Shareholders' equity
151,557 141,808 142,327 147,308 139,226
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Total liabilities and
shareholders' equity $ 1,957,240 $ 1,957,935 $ 1,961,874 $ 1,896,781 $ 1,823,692
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Change in Average Balances *
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2004 2003
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Fourth Third Second First Fourth
Quarter Quarter Quarter Quarter Quarter
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Loans 12.5% 14.5% 16.2% 20.2% 17.8%
Total assets 7.3% 7.8% 10.2% 11.4% 11.6%
Deposits 7.4% 9.7% 13.1% 10.1% 8.4%
Shareholders' equity 8.9% 3.8% 4.3% 12.6% 9.4%
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* Compares the current quarter to the comparable quarter of the prior year.
4
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
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(dollars in thousands) 2004 2003
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Fourth Third Second First Fourth
Annual Quarter Quarter Quarter Quarter Annual Quarter
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Interest income $ 99,799 $ 25,710 $ 25,227 $ 24,882 $ 23,980 $ 94,865 $ 23,602
Tax equivalent adjustment 6,539 1,664 1,613 1,639 1,623 6,352 1,615
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106,338 27,374 26,840 26,521 25,603 101,217 25,217
Interest expense 43,242 11,089 10,934 10,678 10,541 42,351 10,428
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Net interest income 63,096 16,285 15,906 15,843 15,062 58,866 14,789
Provision for loan losses 3,100 750 750 750 850 2,500 600
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Net interest income after provision 59,996 15,535 15,156 15,093 14,212 56,366 14,189
Non-interest income 18,078 4,584 5,346 4,484 3,664 16,004 4,748
Investment security gains income 2,470 186 108 844 1,332 1,927 78
Mortgage banking activities income 2,665 652 558 828 627 2,532 725
Non-interest expenses 49,993 12,618 12,530 12,962 11,883 45,718 11,962
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Income before income taxes 33,216 8,339 8,638 8,287 7,952 31,111 7,778
Income taxes 4,879 1,135 1,379 1,211 1,154 4,359 987
Tax equivalent adjustment 6,539 1,664 1,613 1,639 1,623 6,352 1,615
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NET INCOME $ 21,798 $ 5,540 $ 5,646 $ 5,437 $ 5,175 $ 20,400 $ 5,176
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Tax effect of security transactions $ 865 $ 65 $ 38 $ 295 $ 466 $ 674 $ 27
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5
ANALYSIS OF NON-INTEREST INCOME
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(dollars in thousands) 2004 2003
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Fourth Third Second First Fourth
Annual Quarter Quarter Quarter Quarter Annual Quarter
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Investment management and trust services $ 1,510 $ 391 $ 443 $ 409 $ 267 $ 1,326 $ 384
Service charges on deposit accounts 7,120 2,012 1,996 1,707 1,405 5,128 1,442
Other service charges, commissions and fees 3,357 792 888 775 902 2,958 629
Insurance premium income and commissions 3,260 873 708 1,025 654 2,822 745
Earnings on investment in life insurance 1,593 383 433 412 365 1,455 311
Other income 1,238 133 878 156 71 2,315 1,237
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Total non-interest income $18,078 $ 4,584 $ 5,346 $ 4,484 $ 3,664 $16,004 $ 4,748
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ANALYSIS OF NON-INTEREST EXPENSES
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(dollars in thousands) 2004 2003
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Fourth Third Second First Fourth
Annual Quarter Quarter Quarter Quarter Annual Quarter
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Salaries and employee benefits $28,337 $ 7,486 $ 6,975 $ 7,041 $ 6,835 $25,397 $ 6,598
Net occupancy expense 7,980 1,990 1,962 1,995 2,033 7,200 1,836
Marketing expense 2,325 425 611 869 420 2,018 521
Telecommunications expense 1,285 306 318 344 317 1,302 350
Other operating expenses 10,066 2,411 2,664 2,713 2,278 9,801 2,657
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Total non-interest expenses $49,993 $12,618 $12,530 $12,962 $11,883 $45,718 $11,962
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6
RISK ELEMENTS ANALYSIS
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(dollars in thousands) 2004 2003
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Fourth Third Second First Fourth
Quarter Quarter Quarter Quarter Quarter
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Non-performing assets:
Non-accrual loans $ 5,428 $ 5,990 $ 6,244 $ 7,541 $ 8,151
Troubled debt restructurings - - - - -
Foreclosed real estate 2,094 2,203 1,788 2,057 4,865
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Total non-performing assets 7,522 8,193 8,032 9,598 13,016
Accruing loans 90 days or more past due - 16 32 98 90
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Total risk elements $ 7,522 $ 8,209 $ 8,064 $ 9,696 $ 13,106
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Non-performing assets to period-end loans 0.62% 0.69% 0.69% 0.86% 1.21%
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90 day past due loans to period-end loans 0.00% 0.00% 0.00% 0.01% 0.01%
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Total risk elements to period-end loans 0.62% 0.69% 0.69% 0.87% 1.22%
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7
ALLOWANCE FOR LOAN LOSSES
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(dollars in thousands) 2004 2003
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Fourth Third Second First Fourth
Quarter Quarter Quarter Quarter Quarter
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Balance at beginning of period $ 14,436 $ 14,294 $ 13,862 $ 13,178 $ 13,440
Loans charged off (922) (786) (752) (450) (1,479)
Recoveries 157 178 434 284 617
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Net loans charged off (765) (608) (318) (166) (862)
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Provision for loan losses 750 750 750 850 600
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Balance at end of period $ 14,421 $ 14,436 $ 14,294 $ 13,862 $ 13,178
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Net loans charged-off to average loans* 0.25% 0.21% 0.11% 0.06% 0.32%
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Provision for loan losses to average loans* 0.25% 0.25% 0.27% 0.31% 0.22%
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Allowance for loan losses to loans 1.19% 1.21% 1.23% 1.25% 1.22%
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*Annualized
8
OTHER RATIOS
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2004 2003
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Fourth Third Second First Fourth
Quarter Quarter Quarter Quarter Quarter
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Investment portfolio - market to amortized cost 101.4% 101.7% 99.2% 102.8% 102.1%
Dividend payout ratio 37.5% 36.7% 38.2% 38.4% 37.5%
Net loans to deposits ratio, average 91.0% 88.4% 84.9% 87.5% 86.8%
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MARKET PRICE AND DIVIDENDS DECLARED *
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Closing Bid Price Range Dividends
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Quarter High Low Declared
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2004
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I $34.52 $28.41 $0.1619
II $31.58 $27.02 $0.1700
III $29.73 $25.35 $0.1700
IV $31.47 $27.77 $0.1700
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$0.6719
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2003
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I $22.51 $20.79 $0.1512
II $23.81 $22.11 $0.1586
III $26.59 $23.69 $0.1586
IV $32.14 $26.67 $0.1586
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$0.6270
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2002
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I $20.98 $18.41 $0.1208
II $22.45 $19.31 $0.1361
III $20.93 $18.07 $0.1361
IV $21.92 $19.64 $0.1512
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$0.5442
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* Per share data reflect stock splits and stock dividends
9
Net Interest Margin - Year-to-Date
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(dollars in thousands) December 31, 2004 December 31, 2003
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Average FTE Interest Average Rate Average FTE Interest Average Rate
Balance Income/Expense Earned/Paid Balance Income/Expense Earned/Paid
- -------------------------------------------- ----------------------------------------- -----------------------------------------
Federal funds sold and interest-bearing
deposits in banks $ 10,126 $ 137 1.35% $ 5,175 $ 49 0.95%
Investment securities 665,648 35,480 5.33% 673,943 34,564 5.13%
Loans - commercial 404,653 23,176 5.73% 338,907 20,789 6.13%
- commercial real estate 310,769 18,743 6.03% 268,470 17,387 6.48%
- residential real estate 95,547 6,320 6.61% 102,545 7,619 7.43%
- consumer 345,138 22,482 6.51% 291,164 20,809 7.15%
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Total earning assets $1,831,881 $106,338 5.80% $1,680,204 $101,217 6.02%
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Deposits - savings and NOW accounts $ 495,968 $ 4,274 0.86% $ 401,805 $ 3,320 0.83%
- time 621,925 18,249 2.93% 608,236 19,777 3.25%
Short-term borrowings 59,303 739 1.25% 97,837 1,243 1.27%
Long-term debt 394,944 18,382 4.65% 339,564 17,256 5.08%
Subordinated debt 30,928 1,598 5.17% 16,148 755 4.68%
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Total interest-bearing liabilities $1,603,068 43,242 2.70% $1,463,590 42,351 2.89%
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Interest income to earning assets 5.80% 6.02%
Interest expense to paying liabilities 2.70% 2.89%
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Interest spread 3.10% 3.13%
Impact of noninterest funds 0.34% 0.37%
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Net interest margin $ 63,096 3.44% $ 58,866 3.50%
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10
Net Interest Margin - Quarter-to-Date
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(dollars in thousands) December 31, 2004 December 31, 2003
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Average FTE Interest Average Rate Average FTE Interest Average Rate
Balance Income/Expense Earned/Paid Balance Income/Expense Earned/Paid
- -------------------------------------------- ----------------------------------------- -----------------------------------------
Federal funds sold and interest-bearing
deposits in banks $ 16,133 $ 76 1.87% $ 17,350 $ 42 0.96%
Investment securities 625,998 8,658 5.50% 631,564 8,218 5.16%
Loans - commercial 402,008 6,046 5.98% 367,060 5,430 5.87%
- commercial real estate 348,740 5,293 6.04% 278,317 4,280 6.10%
- residential real estate 93,701 1,512 6.42% 99,018 1,747 7.00%
- consumer 358,095 5,789 6.43% 327,534 5,500 6.66%
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Total earning assets $1,844,675 $ 27,374 5.90% $1,720,843 $ 25,217 5.81%
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Deposits - savings and NOW accounts $ 494,275 $ 1,119 0.90% $ 445,881 $ 933 0.83%
- time 621,810 4,602 2.94% 600,626 4,609 3.04%
Short-term borrowings 48,926 215 1.75% 45,278 114 1.00%
Long-term debt 405,615 4,718 4.63% 389,934 4,559 4.64%
Subordinated debt 30,928 435 5.60% 18,199 213 4.64%
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Total interest-bearing liabilities $1,601,554 11,089 2.75% $1,499,918 10,428 2.76%
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Interest income to earning assets 5.90% 5.81%
Interest expense to paying liabilities 2.75% 2.76%
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Interest spread 3.15% 3.05%
Impact of noninterest funds 0.36% 0.36%
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Net interest margin $ 16,285 3.51% $ 14,789 3.41%
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11
Net Interest Margin - Quarter-to-Date
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(dollars in thousands) December 31, 2004 December 31, 2003
- -------------------------------------------- ----------------------------------------- -----------------------------------------
Average FTE Interest Average Rate Average FTE Interest Average Rate
Balance Income/Expense Earned/Paid Balance Income/Expense Earned/Paid
- -------------------------------------------- ----------------------------------------- -----------------------------------------
Federal funds sold and interest-bearing
deposits in banks $ 16,133 $ 76 1.87% $ 6,013 $ 22 1.46%
Investment securities 625,998 8,658 5.50% 663,153 8,854 5.31%
Loans - commercial 402,008 6,046 5.98% 420,252 6,034 5.71%
- commercial real estate 348,740 5,293 6.04% 308,927 4,667 6.01%
- residential real estate 93,701 1,512 6.42% 95,693 1,559 6.48%
- consumer 358,095 5,789 6.43% 351,181 5,704 6.46%
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Total earning assets $1,844,675 $ 27,374 5.90% $1,845,219 $ 26,840 5.79%
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Deposits - savings and NOW accounts $ 494,275 $ 1,119 0.90% $ 515,917 $ 1,139 0.88%
- time 621,810 4,602 2.94% 615,023 4,530 2.93%
Short-term borrowings 48,926 215 1.75% 59,464 202 1.35%
Long-term debt 405,615 4,718 4.63% 399,085 4,655 4.64%
Subordinated debt 30,928 435 5.60% 30,928 408 5.25%
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Total interest-bearing liabilities $1,601,554 11,089 2.75% $1,620,417 10,934 2.68%
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Interest income to earning assets 5.90% 5.79%
Interest expense to paying liabilities 2.75% 2.68%
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Interest spread 3.15% 3.11%
Impact of noninterest funds 0.36% 0.32%
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Net interest margin $ 16,285 3.51% $ 15,906 3.43%
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12
PERIOD-END LOAN PORTFOLIO ANALYSIS
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(dollars in thousands) 2004 2003
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Fourth Third Second First Fourth
Quarter Quarter Quarter Quarter Quarter
- ----------------------------------------------- ------------------------------------------------------------- -----------------
Commercial:
Commercial $ 359,112 $ 384,464 $ 378,588 $ 356,862 $ 330,591
Obligations of political subdivisions 49,993 40,226 37,801 37,142 36,853
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409,105 424,690 416,389 394,004 367,444
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Commercial real estate:
Commercial mortgages $ 356,871 $ 312,327 $ 303,031 $ 287,964 $ 283,661
- ----------------------------------------------- ------------------------------------------------------------- -----------------
Residential real estate:
Residential mortgages $ 83,979 $ 82,546 $ 84,260 $ 87,280 $ 91,485
Construction 8,703 13,378 10,929 8,505 7,338
- ----------------------------------------------- ------------------------------------------------------------- -----------------
92,682 95,924 95,189 95,785 98,823
- ----------------------------------------------- ------------------------------------------------------------- -----------------
Consumer:
Home equity loans $ 224,494 $ 225,319 $ 216,384 $ 209,868 $ 205,087
Home equity lines of credit 53,921 49,380 45,324 40,535 38,299
Indirect consumer loans 52,808 55,207 55,252 54,628 55,265
Other consumer loans 26,070 25,433 29,799 29,773 30,032
- ----------------------------------------------- ------------------------------------------------------------- -----------------
357,293 355,339 346,759 334,804 328,683
- ----------------------------------------------- ------------------------------------------------------------- -----------------
Total Loans $1,215,951 $1,188,280 $1,161,368 $1,112,557 $1,078,611
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13