**UNITED      STATES**

**SECURITIES      AND EXCHANGE COMMISSION**

**Washington,      D.C. 20549**

**FORM      10-Q**

**QUARTERLY      REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES **

**EXCHANGE      ACT OF 1934**

**For      the quarterly period ended June 30, 2006**

**001-11663**
** **

**(Commission      File Number)**

**COMMUNITY      BANKS, INC**
**.      **

**(Exact      name of registrant as specified in its charter)**

| **PENNSYLVANIA**                            | **23-2251762**                                                            |
|---------------------------------------------|---------------------------------------------------------------------------|
| **(State                of incorporation)** | **(I.R.S.                Employer Identification                Number)** |

| **777                East Park Dr., Harrisburg, PA**        | **17111**                     |
|-------------------------------------------------------------|-------------------------------|
| **(Address                of principal executive offices)** | **(Zip                Code)** |

**(717)      920-5800**

**(Registrant’s      telephone number, including area code)**

| Yes | X |   | No |   |   |
|-----|---|--------|----|--------|--------|

| Large                accelerated filer |   |   | Accelerated                filer | X |   | Non-accelerated                filer |   |
|----------------------------------------|--------|--------|----------------------------------|---|--------|--------------------------------------|--------|

| Yes |   |   | No | X |   |
|-----|--------|--------|----|---|--------|

**Number      of shares outstanding as of July 31, 2006**

| **CAPITAL                STOCK-COMMON** | **23,453,000**                          |
|-----------------------------------------|-----------------------------------------|
| **(Title                of Class)**     | **(Outstanding                Shares)** |

----

**COMMUNITY      BANKS, INC. AND SUBSIDIARIES**

**FORM      10-Q**

**INDEX      **

| **PART                I - Financial Information** | **Page**                                                                                |
|---------------------------------------------------|-----------------------------------------------------------------------------------------|
|                                              |                                                                                    |   |
| Item                1.                            | Financial                Statements                                                     |   |
|                                              |                                                                                    |   |
|                                              | Consolidated                Interim Balance Sheets                                      | 3 |
|                                              | Consolidated                Interim Statements of Income                                | 4 |
|                                              | Consolidated                Interim Statements of Changes in Stockholders’ Equity | 5 |
|                                              | Consolidated                Interim Statements of Cash Flows                            | 6 |
|                                              | Notes                to Consolidated Interim Financial Statements                       | 7-12 |
|                                              |                                                                                    |   |
| Item                2.                            | Management’s                Discussion and Analysis of Financial Condition and    |   |
|                                              | Results                of Operations                                                    | 13-24 |
|                                              |                                                                                    |   |
| Item                3.                            | Quantitative                and Qualitative Disclosures About Market Risk               | 25 |
|                                              |                                                                                    |   |
| Item                4.                            | Controls                and Procedures                                                  | 26 |
|                                              |                                                                                    |   |
|                                              |                                                                                    |   |
| **PART                II - Other Information**    |                                                                                    |
|                                              |                                                                                    |   |
| Item                1.                            | Legal                Proceedings                                                        | 27 |
|                                              |                                                                                    |   |
| Item                1A.                           | Risk                Factors                                                             | 27 |
|                                              |                                                                                    |   |
| Item                2.                            | Unregistered                Sales of Equity Securities and Use of Proceeds              | 27 |
|                                              |                                                                                    |   |
| Item                3.                            | Defaults                Upon Senior Securities                                          | 27 |
|                                              |                                                                                    |   |
| Item                4.                            | Submission                of Matters to a Vote of Security Holders                      | 28 |
|                                              |                                                                                    |   |
| Item                5.                            | Other                Information                                                        | 28 |
|                                              |                                                                                    |   |
| Item                6.                            | Exhibits                                                                                | 29 |
|                                              |                                                                                    |   |
|                                              |                                                                                    |   |
| **SIGNATURES**                                    | 30                                                                                      |
|                                              |                                                                                    |   |

----

**PART      I - FINANCIAL INFORMATION**

**Item      1. Financial Statements**

**Community      Banks, Inc. and Subsidiaries**

**CONSOLIDATED      INTERIM BALANCE SHEETS**

**(Dollars      in thousands except per share data)**

|                                                                                                                        |   | **June                30,** |      | **December                31,** |   |
|-----------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------|-----------|---------------------------------|--------|
|                                                                                                                        |   | **2006**                    |      | **2005**                        |   |
| **ASSETS**                                                                                                                  |   | **(Unaudited)**             |      |                            |   |
|                                                                                                                        |   |                        |      |                            |   |   |   |
| Cash                and due from banks                                                                                      |   | $                           | 72,971    |                            | $      | 76,820 |   |
| Interest-bearing                deposits in other banks                                                                     |   |                        | 3,412     |                            |   | 4,423 |   |
| Investment                securities, available for sale                                                                    |   |                        | 551,218   |                            |   | 605,555 |   |
| Investment                securities, held to maturity (fair value approximates                $22,170 and $22,563)         |   |                        | 23,049    |                            |   | 23,030 |   |
| Loans,                net of allowance for loan losses of $23,788 and $22,965                                               |   |                        | 2,320,889 |                            |   | 2,214,100 |   |
| Premises                and equipment, net                                                                                  |   |                        | 43,538    |                            |   | 43,283 |   |
| Goodwill                and other intangible assets                                                                         |   |                        | 258,606   |                            |   | 259,080 |   |
| Accrued                interest receivable and other assets                                                                 |   |                        | 111,916   |                            |   | 106,139 |   |
| Total                assets                                                                                                 |   | $                           | 3,385,599 |                            | $      | 3,332,430 |   |
|                                                                                                                        |   |                        |      |                            |   |   |   |
| **LIABILITIES**                                                                                                             |   |                        |      |                            |   |   |   |
|                                                                                                                        |   |                        |      |                            |   |   |   |
| Deposits                                                                                                                    |   |                        |      |                            |   |   |   |
| Non-interest                bearing                                                                                         |   | $                           | 365,305   |                            | $      | 375,835 |   |
| Interest                bearing                                                                                             |   |                        | 2,041,246 |                            |   | 1,918,532 |   |
| Total                deposits                                                                                               |   |                        | 2,406,551 |                            |   | 2,294,367 |   |
| Short-term                borrowings                                                                                        |   |                        | 77,286    |                            |   | 87,253 |   |
| Long-term                debt                                                                                               |   |                        | 363,816   |                            |   | 430,719 |   |
| Subordinated                debt                                                                                            |   |                        | 51,548    |                            |   | 30,928 |   |
| Accrued                interest payable and other liabilities                                                               |   |                        | 20,638    |                            |   | 12,490 |   |
| Total                liabilities                                                                                            |   |                        | 2,919,839 |                            |   | 2,855,757 |   |
|                                                                                                                        |   |                        |      |                            |   |   |   |
| **STOCKHOLDERS’                EQUITY**                                                                               |   |                        |      |                            |   |   |   |
|                                                                                                                        |   |                        |      |                            |   |   |   |
| Preferred                stock, no par value; 500,000 shares                                                                |   |                        |      |                            |   |   |   |
| authorized;                no shares issued and outstanding                                                                 |   |                        | ---       |                            |   | --- |   |
| Common                stock, $5.00 par value; 50,000,000 shares                                                             |   |                        |      |                            |   |   |   |
| authorized;                24,478,000 and 23,314,000 shares issued                                                          |   |                        | 122,392   |                            |   | 116,572 |   |
| Surplus                                                                                                                     |   |                        | 372,408   |                            |   | 347,827 |   |
| Retained                Earnings                                                                                            |   |                        | 7,936     |                            |   | 27,031 |   |
| Accumulated                other comprehensive loss, net of tax                                                             |   |                        | (10,107   | )                               |   | (3,779 | ) |
| Treasury                stock; 1,023,000 and 399,000 shares, at cost                                                        |   |                        | (26,869   | )                               |   | (10,978 | ) |
| Total                stockholders’ equity                                                                             |   |                        | 465,760   |                            |   | 476,673 |   |
| Total                liabilities and stockholders’ equity                                                             |   | $                           | 3,385,599 |                            | $      | 3,332,430 |   |
|                                                                                                                        |   |                        |      |                            |   |   |   |
| The                accompanying notes are an integral part of the consolidated interim                financial statements. |

----

**Community      Banks, Inc. and Subsidiaries**

**CONSOLIDATED      INTERIM STATEMENTS OF INCOME**

**(Unaudited)**

**(Dollars      in thousands except per share data)**
** **

|                                                                                                                        |   | **Three                Months Ended** |   | **Six                Months Ended** |   |
|-----------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------|--------|-------------------------------------|--------|
|                                                                                                                        |   | **June                30,**           |   | **June                30,**         |   |
|                                                                                                                        |   | **2006**                              |   | **2005**                            |   | **2006** |   | **2005** |   |
| **INTEREST                INCOME:**                                                                                         |   |                                  |   |                                |   |   |   |   |   |   |   |   |   |
| Loans,                including fees                                                                                        |   | $                                     | 41,093 |                                | $      | 19,987 |   | $ | 80,194 |   | $ | 39,045 |   |
| Investment                securities:                                                                                       |   |                                  |   |                                |   |   |   |   |   |   |   |   |   |
| Taxable                                                                                                                     |   |                                  | 4,381  |                                |   | 4,011 |   |   | 8,794 |   |   | 8,260 |   |
| Tax                exempt                                                                                                   |   |                                  | 2,205  |                                |   | 2,204 |   |   | 4,573 |   |   | 4,388 |   |
| Dividends                                                                                                                   |   |                                  | 616    |                                |   | 605 |   |   | 1,230 |   |   | 1,146 |   |
| Other                                                                                                                       |   |                                  | 643    |                                |   | 583 |   |   | 1,036 |   |   | 734 |   |
| Total                interest income                                                                                        |   |                                  | 48,938 |                                |   | 27,390 |   |   | 95,827 |   |   | 53,573 |   |
|                                                                                                                        |   |                                  |   |                                |   |   |   |   |   |   |   |   |   |
| **INTEREST                EXPENSE:**                                                                                        |   |                                  |   |                                |   |   |   |   |   |   |   |   |   |
| Deposits                                                                                                                    |   |                                  | 15,784 |                                |   | 6,901 |   |   | 29,205 |   |   | 12,961 |   |
| Short-term                borrowings                                                                                        |   |                                  | 645    |                                |   | 200 |   |   | 1,341 |   |   | 357 |   |
| Long-term                debt                                                                                               |   |                                  | 4,564  |                                |   | 4,885 |   |   | 9,675 |   |   | 9,702 |   |
| Subordinated                debt                                                                                            |   |                                  | 938    |                                |   | 495 |   |   | 1,735 |   |   | 954 |   |
| Total                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 |   |
| 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 |   |
| Investment                security gains                                                                                    |   |                                  | 6      |                                |   | 167 |   |   | 289 |   |   | 218 |   |
| 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                (loss) before income taxes                                                                            |   |                                  | 14,202 |                                |   | (1,389 | ) |   | 28,417 |   |   | 5,302 |   |
| Income                taxes                                                                                                 |   |                                  | 3,698  |                                |   | (250 | ) |   | 7,344 |   |   | 954 |   |
| Net                income (loss)                                                                                            |   | $                                     | 10,504 |                                | $      | (1,139 | ) | $ | 21,073 |   | $ | 4,348 |   |
|                                                                                                                        |   |                                  |   |                                |   |   |   |   |   |   |   |   |   |
| **CONSOLIDATED                PER SHARE DATA**                                                                              |   |                                  |   |                                |   |   |   |   |   |   |   |   |   |
| Basic                earnings (loss) per share                                                                              |   | $                                     | 0.44   |                                | $      | (0.09 | ) | $ | 0.88 |   | $ | 0.34 |   |
| Diluted                earnings (loss) per share                                                                            |   | $                                     | 0.44   |                                | $      | (0.09 | ) | $ | 0.88 |   | $ | 0.33 |   |
| Dividends                declared                                                                                           |   | $                                     | 0.20   |                                | $      | 0.18 |   | $ | 0.39 |   | $ | 0.34 |   |
|                                                                                                                        |   |                                  |   |                                |   |   |   |   |   |   |   |   |   |
| The                accompanying notes are an integral part of the consolidated interim                financial statements. |   |                                  |   |

----

**Community      Banks, Inc. and Subsidiaries**

**CONSOLIDATED      INTERIM STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY**

**For      the Six Months Ended June 30, 2006 and 2005**

**(Unaudited:      Dollars in Thousands)**

|                                                                                                                        |   | **Outstanding** |   | **Common** |   |        |   | **Retained** |    | **Accumulated****Other****Comprehensive** |   | **Treasury** |   | **Total**  |    |
|-----------------------------------------------------------------------------------------------------------------------------|--------|-----------------|--------|------------|--------|-------------|--------|--------------|---------|-------------------------------------------|--------|--------------|--------|------------|---------|
|                                                                                                                        |   | **Shares**      |   | **Stock**  |   | **Surplus** |   | **Earnings** |    | **Income                (Loss)**          |   | **Stock**    |   | **Equity** |    |
| **Balance,                January 1, 2005**                                                                                 |   |            | 12,236 |       | $      | 62,107      |   | $            | 73,304  |                                      | $      | 18,134       |   | $          | 3,211   |   | $ | (4,415 | ) | $ | 152,341 |   |
| Comprehensive                income:                                                                                        |   |            |   |       |   |        |   |         |    |                                      |   |         |   |       |    |   |   |   |   |   |   |   |
| Net                income                                                                                                   |   |            |   |       |   |        |   |         |    |                                      |   | 4,348        |   |       |    |   |   |   |   |   | 4,348 |   |
| Unrealized                loss on securities, net of reclassification adjustment and tax                effect              |   |            |   |       |   |        |   |         |    |                                      |   |         |   |       | (1,562  | ) |   |   |   |   | (1,562 | ) |
| Change                in unfunded pension liability, net of tax                                                             |   |            |   |       |   |        |   |         |    |                                      |   |         |   |       | (90     | ) |   |   |   |   | (90 | ) |
| Total                comprehensive income                                                                                   |   |            |   |       |   |        |   |         |    |                                      |   |         |   |       |    |   |   |   |   |   | 2,696 |   |
| Cash                dividends ($0.34 per share)                                                                             |   |            |   |       |   |        |   |         |    |                                      |   | (4,444       | )      |       |    |   |   |   |   |   | (4,444 | ) |
| Exercise                of common stock options and issuances under stock purchase                plan                      |   |            | 143    |       |   | (4          | )      |         |    |                                      |   | (533         | )      |       |    |   |   | 3,422 |   |   | 2,885 |   |
| Tax                benefits from employee stock transactions                                                                |   |            |   |       |   |        |   |         | 104     |                                      |   |         |   |       |    |   |   |   |   |   | 104 |   |
|                                                                                                                        |   |            |   |       |   |        |   |         |    |                                      |   |         |   |       |    |   |   |   |   |   |   |   |
| **Balance,                June 30, 2005**                                                                                   |   |            | 12,379 |       | $      | 62,103      |   | $            | 73,408  |                                      | $      | 17,505       |   | $          | 1,559   |   | $ | (993 | ) | $ | 153,582 |   |
|                                                                                                                        |   |            |   |       |   |        |   |         |    |                                      |   |         |   |       |    |   |   |   |   |   |   |   |
| **Balance,                January 1, 2006**                                                                                 |   |            | 22,915 |       | $      | 116,572     |   | $            | 347,827 |                                      | $      | 27,031       |   | $          | (3,779  | ) | $ | (10,978 | ) | $ | 476,673 |   |
| Comprehensive                income:                                                                                        |   |            |   |       |   |        |   |         |    |                                      |   |         |   |       |    |   |   |   |   |   |   |   |
| Net                income                                                                                                   |   |            |   |       |   |        |   |         |    |                                      |   | 21,073       |   |       |    |   |   |   |   |   | 21,073 |   |
| Unrealized                loss on securities, net of reclassification adjustment and tax                effect              |   |            |   |       |   |        |   |         |    |                                      |   |         |   |       | (6,328  | ) |   |   |   |   | (6,328 | ) |
| Total                comprehensive income                                                                                   |   |            |   |       |   |        |   |         |    |                                      |   |         |   |       |    |   |   |   |   |   | 14,745 |   |
| Cash                dividends ($0.39 per share)                                                                             |   |            |   |       |   |        |   |         |    |                                      |   | (9,281       | )      |       |    |   |   |   |   |   | (9,281 | ) |
| 5%                stock dividend                                                                                            |   |            | 1,133  |       |   | 5,820       |   |         | 24,162  |                                      |   | (29,982      | )      |       |    |   |   |   |   |   | --- |   |
| Purchases                of treasury stock                                                                                  |   |            | (656   | )          |   |        |   |         |    |                                      |   |         |   |       |    |   |   | (17,626 | ) |   | (17,626 | ) |
| Exercise                of common stock options and issuances under stock purchase                plan                      |   |            | 63     |       |   |        |   |         |    |                                      |   | (905         | )      |       |    |   |   | 1,735 |   |   | 830 |   |
| Compensation                and tax benefits from employee stock transactions                                               |   |            |   |       |   |        |   |         | 419     |                                      |   |         |   |       |    |   |   |   |   |   | 419 |   |
|                                                                                                                        |   |            |   |       |   |        |   |         |    |                                      |   |         |   |       |    |   |   |   |   |   |   |   |
| **Balance,                June 30, 2006**                                                                                   |   |            | 23,455 |       | $      | 122,392     |   | $            | 372,408 |                                      | $      | 7,936        |   | $          | (10,107 | ) | $ | (26,869 | ) | $ | 465,760 |   |
|                                                                                                                        |   |            |   |       |   |        |   |         |    |                                      |   |         |   |       |    |   |   |   |   |   |   |   |
|                                                                                                                        |   |            |   |       |   |        |   |         |    |                                      |   |         |   |       |    |   |   |   |   |   |   |   |
| The                accompanying notes are an integral part of the consolidated interim                financial statements. |

----

**Community      Banks, Inc. and Subsidiaries**

**CONSOLIDATED      INTERIM STATEMENTS OF CASH FLOWS**

**(Unaudited)**

**(Dollars      in thousands)**

|                                                                                                                        |   | **Six                Months Ended** |     |
|-----------------------------------------------------------------------------------------------------------------------------|--------|-------------------------------------|----------|
|                                                                                                                        |   | **June                30,**         |     |
|                                                                                                                        |   | **2006**                            |     | **2005** |   |
|                                                                                                                        |   |                                |     |   |   |
| **Operating                Activities:**                                                                                    |   |                                |     |   |   |   |   |
| Net                income                                                                                                   |   | $                                   | 21,073   |   | $ | 4,348 |   |
| Adjustments                to reconcile net income to net cash                                                              |   |                                |     |   |   |   |   |
| provided                by operating activities:                                                                            |   |                                |     |   |   |   |   |
| Provision                for loan losses                                                                                    |   |                                | 1,150    |   |   | 1,300 |   |
| Depreciation                and amortization                                                                                |   |                                | 3,690    |   |   | 1,696 |   |
| Stock                option expense                                                                                         |   |                                | 303      |   |   | --- |   |
| Net                amortization of securities                                                                               |   |                                | 253      |   |   | 549 |   |
| Realized                gains on sales of available-for-sale securities, net                                                |   |                                | (289     | ) |   | (218 | ) |
| Loans                originated for sale                                                                                    |   |                                | (3,917   | ) |   | (3,620 | ) |
| Proceeds                from sales of loans held for sale                                                                   |   |                                | 2,626    |   |   | 3,713 |   |
| Gains                on loan sales                                                                                          |   |                                | (47      | ) |   | (106 | ) |
| Earnings                on investment in life insurance                                                                     |   |                                | (1,331   | ) |   | (754 | ) |
| Net                change in other assets                                                                                   |   |                                | (372     | ) |   | (2,473 | ) |
| Net                change in accrued interest payable and other liabilities                                                 |   |                                | 8,148    |   |   | 4,218 |   |
| Tax                benefits from employee stock transactions                                                                |   |                                | ---      |   |   | 104 |   |
| Net                cash provided by operating activities                                                                    |   |                                | 31,287   |   |   | 8,757 |   |
|                                                                                                                        |   |                                |     |   |   |   |   |
| **Investing                Activities:**                                                                                    |   |                                |     |   |   |   |   |
| Net                change in interest-bearing deposits in other banks                                                       |   |                                | 1,011    |   |   | (11,315 | ) |
| Activity                in available-for-sale securities:                                                                   |   |                                |     |   |   |   |   |
| Sales                                                                                                                       |   |                                | 46,627   |   |   | 39,178 |   |
| Maturities,                prepayments and calls                                                                            |   |                                | 27,017   |   |   | 32,769 |   |
| Purchases                                                                                                                   |   |                                | (29,134  | ) |   | (18,928 | ) |
| Maturities,                prepayments and calls in investment securities held to                maturity                   |   |                                | (17      | ) |   | --- |   |
| Net                increase in total loans                                                                                  |   |                                | (107,140 | ) |   | (70,055 | ) |
| Additions                to premises and equipment                                                                          |   |                                | (2,590   | ) |   | (3,468 | ) |
| Other                                                                                                                       |   |                                | (882     | ) |   | --- |   |
| Net                cash used in investing activities                                                                        |   |                                | (65,108  | ) |   | (31,819 | ) |
|                                                                                                                        |   |                                |     |   |   |   |   |
| **Financing                Activities:**                                                                                    |   |                                |     |   |   |   |   |
| Net                increase in deposits                                                                                     |   |                                | 112,184  |   |   | 77,329 |   |
| Net                change in short-term borrowings                                                                          |   |                                | (9,968   | ) |   | (6,540 | ) |
| Proceeds                from issuance of long-term debt                                                                     |   |                                | 75,620   |   |   | 25,000 |   |
| Repayment                of long-term debt                                                                                  |   |                                | (121,903 | ) |   | (73,452 | ) |
| Cash                dividends and cash paid in lieu of fractional shares                                                    |   |                                | (9,281   | ) |   | (4,444 | ) |
| Purchases                of treasury stock                                                                                  |   |                                | (17,626  | ) |   | --- |   |
| Tax                benefits from employee stock transactions                                                                |   |                                | 116      |   |   | --- |   |
| Proceeds                from issuance of common stock                                                                       |   |                                | 830      |   |   | 2,885 |   |
| Net                cash provided by financing activities                                                                    |   |                                | 29,972   |   |   | 20,778 |   |
|                                                                                                                        |   |                                |     |   |   |   |   |
| Net                change in cash and cash equivalents                                                                      |   |                                | (3,849   | ) |   | (2,284 | ) |
|                                                                                                                        |   |                                |     |   |   |   |   |
| Cash                and cash equivalents at beginning of period                                                             |   |                                | 76,820   |   |   | 43,486 |   |
| Cash                and cash equivalents at end of period                                                                   |   | $                                   | 72,971   |   | $ | 41,202 |   |
|                                                                                                                        |   |                                |     |   |   |   |   |
| The                accompanying notes are an integral part of the consolidated interim                financial statements. |

----

**Community      Banks, Inc. and Subsidiaries**

**NOTES      TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS**

**(Unaudited)**

**1.      **
**Summary      of Significant Accounting Policies**

***Basis      of Presentation***

***Stock-Based      Compensation***
** **

***Earnings      Per Share -***

----

**Community      Banks, Inc. and Subsidiaries**

**NOTES      TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS, (continued)**

**(Unaudited)**

|                                                         |   | **Three                Months Ended****June                30,** |   | **Six                Months Ended****June                30,** |   |
|--------------------------------------------------------------|--------|------------------------------------------------------------------|--------|----------------------------------------------------------------|--------|
|                                                         |   | **2006**                                                         |   | **2005**                                                       |   | **2006** |   | **2005** |   |
|                                                         |   |                                                             |   |                                                           |   |   |   |   |   |   |   |   |   |
| Net                income (loss)                             |   | $                                                                | 10,504 |                                                           | $      | (1,139 | ) | $ | 21,073 |   | $ | 4,348 |   |
|                                                         |   |                                                             |   |                                                           |   |   |   |   |   |   |   |   |   |
| Weighted                average shares outstanding (basic)   |   |                                                             | 23,653 |                                                           |   | 12,989 |   |   | 23,812 |   |   | 12,948 |   |
| Effect                of dilutive stock options              |   |                                                             | 205    |                                                           |   | 251 |   |   | 216 |   |   | 268 |   |
|                                                         |   |                                                             |   |                                                           |   |   |   |   |   |   |   |   |   |
| Weighted                average shares outstanding (diluted) |   |                                                             | 23,858 |                                                           |   | 13,240 |   |   | 24,028 |   |   | 13,216 |   |
|                                                         |   |                                                             |   |                                                           |   |   |   |   |   |   |   |   |   |
| Per                share information:                        |   |                                                             |   |                                                           |   |   |   |   |   |   |   |   |   |
| Basic                earnings (loss) per share               |   | $                                                                | 0.44   |                                                           | $      | (0.09 | ) | $ | 0.88 |   | $ | 0.34 |   |
| Diluted                earnings (loss) per share             |   |                                                             | 0.44   |                                                           |   | (0.09 | ) |   | 0.88 |   |   | 0.33 |   |

***Comprehensive      Income(Loss)***

|                                            |   | **Three                Months Ended****June                30,** |   | **Six                Months Ended****June                30,** |   |
|-------------------------------------------------|--------|------------------------------------------------------------------|--------|----------------------------------------------------------------|--------|
|                                            |   | **2006**                                                         |   | **2005**                                                       |   | **2006** |   | **2005** |   |
| Unrealized                holding losses        |   |                                                             |   |                                                           |   |   |   |   |   |   |   |   |   |
| on                available-for-sale securities |   | $                                                                | (8,823 | )                                                              | $      | 6,181 |   | $ | (9,446 | ) | $ | (2,185 | ) |
| Reclassification                adjustments for |   |                                                             |   |                                                           |   |   |   |   |   |   |   |   |   |
| gains                included in net income     |   |                                                             | (6     | )                                                              |   | (167 | ) |   | (289 | ) |   | (218 | ) |
| Net                unrealized losses            |   |                                                             | (8,829 | )                                                              |   | 6,014 |   |   | (9,735 | ) |   | (2,403 | ) |
| Tax                effect                       |   |                                                             | 3,090  |                                                           |   | (2,105 | ) |   | 3,407 |   |   | 841 |   |
|                                            |   |                                                             |   |                                                           |   |   |   |   |   |   |   |   |   |
| Net-of-tax                amount                |   |                                                             | (5,739 | )                                                              |   | 3,909 |   |   | (6,328 | ) |   | (1,562 | ) |
|                                            |   |                                                             |   |                                                           |   |   |   |   |   |   |   |   |   |
| Unfunded                pension liability       |   |                                                             | ---    |                                                           |   | --- |   |   | --- |   |   | (138 | ) |
| Tax                effect                       |   |                                                             | ---    |                                                           |   | --- |   |   | --- |   |   | 48 |   |
|                                            |   |                                                             |   |                                                           |   |   |   |   |   |   |   |   |   |
| Net-of-tax                amount                |   |                                                             | ---    |                                                           |   | --- |   |   | --- |   |   | (90 | ) |
|                                            |   | $                                                                | (5,739 | )                                                              | $      | 3,909 |   | $ | (6,328 | ) | $ | (1,652 | ) |

|                                                                |   | **June                30,****2006** |    | **December                31,****2005** |   |
|---------------------------------------------------------------------|--------|-------------------------------------|---------|-----------------------------------------|--------|
| Net                unrealized loss on available-for-sale securities |   | $                                   | (12,055 | )                                       | $      | (2,320 | ) |
| Tax                effect                                           |   |                                | 4,219   |                                    |   | 812 |   |
| Net-of-tax                amount                                    |   |                                | (7,836  | )                                       |   | (1,508 | ) |
|                                                                |   |                                |    |                                    |   |   |   |
| Unfunded                pension liability                           |   |                                | (3,494  | )                                       |   | (3,494 | ) |
| Tax                effect                                           |   |                                | 1,223   |                                    |   | 1,223 |   |
| Net-of-tax                amount                                    |   |                                | (2,271  | )                                       |   | (2,271 | ) |
|                                                                |   |                                |    |                                    |   |   |   |
| Accumulated                other comprehensive loss                 |   | $                                   | (10,107 | )                                       | $      | (3,779 | ) |

----

**Community      Banks, Inc. and Subsidiaries**

**NOTES      TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS, (continued)**

**(Unaudited)**

***Recent      Accounting Pronouncements***

***FASB      Interpretation No. 48***

***Reclassifications***

**2.      **
**Acquisition:**
** **

| (in                thousands, except per share data) |   | **Three                Months Ended March 31, 2005** |   | **Six                Months Ended June 30, 2005** |   |
|------------------------------------------------------|--------|------------------------------------------------------|--------|---------------------------------------------------|--------|
|                                                 |   |                                                 |   |                                              |   |   |   |
| Net                interest income                   |   | $                                                    | 25,475 |                                              | $      | 50,269 |   |
| Other                income                          |   |                                                 | 8,041  |                                              |   | 16,215 |   |
| Net                income                            |   |                                                 | (5,585 | )                                                 |   | 3,625 |   |
| Diluted                earnings per common share     |   | $                                                    | (0.23  | )                                                 | $      | 0.15 |   |

----

**Community      Banks, Inc. and Subsidiaries**

**NOTES      TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS, (continued)**

**(Unaudited)**

**3.      **
**Allowance      for loan losses:**

|                                                          |   | **Six                Months Ended June 30,****2006** |   | **Year                Ended December 31, 2005** |   | **Six                Months Ended****June                30,****2005** |   |
|---------------------------------------------------------------|--------|------------------------------------------------------|--------|-------------------------------------------------|--------|------------------------------------------------------------------------|--------|
|                                                          |   |                                                 |   |                                            |   |                                                                   |   |   |   |   |
| Balance,                January 1                             |   | $                                                    | 22,965 |                                            | $      | 14,421                                                                 |   | $ | 14,421 |   |
| Provision                for loan losses                      |   |                                                 | 1,150  |                                            |   | 2,300                                                                  |   |   | 1,300 |   |
| Loan                charge-offs                               |   |                                                 | (655   | )                                               |   | (2,323                                                                 | )      |   | (899 | ) |
| Recoveries                                                    |   |                                                 | 328    |                                            |   | 1,499                                                                  |   |   | 561 |   |
| Allowance                established for acquired credit risk |   |                                                 | ---    |                                            |   | 7,068                                                                  |   |   | --- |   |
| Balance,                end of period                         |   | $                                                    | 23,788 |                                            | $      | 22,965                                                                 |   | $ | 15,383 |   |

|                                             |   | **June                30,****2006** |   | **December                31,****2005** |   | **June                30,****2005** |   |
|--------------------------------------------------|--------|-------------------------------------|--------|-----------------------------------------|--------|-------------------------------------|--------|
|                                             |   |                                |   |                                    |   |                                |   |   |   |   |
| Non-accrual                loans                 |   | $                                   | 11,492 |                                    | $      | 9,060                               |   | $ | 6,896 |   |
| Loans                renegotiated with borrowers |   |                                | 108    |                                    |   | ---                                 |   |   | --- |   |
| Foreclosed                real estate            |   |                                | 108    |                                    |   | 1,447                               |   |   | 2,444 |   |
| Total                non-performing assets       |   |                                | 11,708 |                                    |   | 10,507                              |   |   | 9,340 |   |
| Accruing                loans 90 days past due   |   |                                | 621    |                                    |   | 22                                  |   |   | --- |   |
| Total                risk elements               |   | $                                   | 12,329 |                                    | $      | 10,529                              |   | $ | 9,340 |   |

**4.      **
**Guarantees:**

----

**Community      Banks, Inc. and Subsidiaries**

**NOTES      TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS, (continued)**

**(Unaudited)**

**5.      **
**Stock-Based      Plans:**

*Accounting      for Stock Issued to Employees”*
*Accounting      for Stock Based Compensation.” *

|                                                            |   | **Three                Months Ended June 30, 2005** |   | **Six                Months Ended June 30, ****2005** |   |
|-----------------------------------------------------------------|--------|-----------------------------------------------------|--------|------------------------------------------------------------|--------|
|                                                            |   |                                                |   |                                                       |   |   |   |
| Net                income, as reported                          |   | $                                                   | (1,139 | )                                                          | $      | 4,348 |   |
| Deduct:                Total stock-based compensation           |   |                                                |   |                                                       |   |   |   |
| expense                determined under fair value based        |   |                                                |   |                                                       |   |   |   |
| method                for all awards, net of related tax effect |   |                                                | 714    |                                                       |   | 1,490 |   |
| Pro                forma net income                             |   | $                                                   | (1,853 | )                                                          | $      | 2,858 |   |
|                                                            |   |                                                |   |                                                       |   |   |   |
| Earnings                per share:                              |   |                                                |   |                                                       |   |   |   |
| Basic                - as reported                              |   | $                                                   | (0.09  | )                                                          | $      | 0.34 |   |
| Basic                - pro forma                                |   | $                                                   | (0.14  | )                                                          | $      | 0.22 |   |
|                                                            |   |                                                |   |                                                       |   |   |   |
| Diluted                - as reported                            |   | $                                                   | (0.09  | )                                                          | $      | 0.33 |   |
| Diluted                - pro forma                              |   | $                                                   | (0.14  | )                                                          | $      | 0.22 |   |

----

**Community      Banks, Inc. and Subsidiaries**

**NOTES      TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS, (continued)**

**(Unaudited)**

|                                                  |   |  Shares                UnderOption                (000’s) |   | WeightedAverageExercise                Price |   |  Weighted-Average                Remaining Contractual Life |   |
|-------------------------------------------------------|--------|----------------------------------------------------------------------|--------|----------------------------------------------|--------|------------------------------------------------------------------|--------|
| Outstanding                options, December 31, 2005 |   |                                                                 | 1,110  |                                         | $      | 20.03                                                            |   |   |   |   |
| Granted                                               |   |                                                                 | 255    |                                         |   | 27.41                                                            |   |   |   |   |
| Exercised                                             |   |                                                                 | (62    | )                                            |   | 12.68                                                            |   |   |   |   |
| Canceled                                              |   |                                                                 | (1     | )                                            |   | 25.57                                                            |   |   |   |   |
| Outstanding                options, June 30, 2006     |   |                                                                 | 1,302  |                                         | $      | 21.82                                                            |   |   | 5.8                Years |   |
| Exercisable                options, June 30, 2006     |   |                                                                 | 977    |                                         | $      | 20.54                                                            |   |   | 5.6                Years |   |

----

**COMMUNITY      BANKS, INC. AND SUBSIDIARIES**

**Part      1 - Item 2. Management’s Discussion and Analysis of Financial Condition and      Results of**
**      Operations**

**OVERVIEW**

**PREAMBLE**

**Forward-Looking      Statements**

----

**COMMUNITY      BANKS, INC. AND SUBSIDIARIES**

**PART      I - Item 2. Management’s Discussion and Analysis of Financial Condition and      Results of Operations (continued)**

**Critical      Accounting Policies**

| o   | Allowance                for Loan Losses: Adequacy of Allowance |
|---------------|-----------------------------------------------------------------|

| o   | Purchase                Accounting for Business                Combinations |
|---------------|-----------------------------------------------------------------------------|

| o   | “Other                than Temporary” Impairment of Investment                Securities |
|---------------|------------------------------------------------------------------------------------------------------|

| ·   | *Adequacy                of Allowance* |
|--------------------|----------------------------------------|

| *·  * | *Purchase                Accounting for Business                Combinations* |
|----------------------|-------------------------------------------------------------------------------|

----

**COMMUNITY      BANKS, INC. AND SUBSIDIARIES**

**PART      I - Item 2. Management’s Discussion and Analysis of Financial Condition and      Results of Operations (continued)**

| ·   | *“Other                than Temporary” Impairment of Investment                Securities* |
|--------------------|--------------------------------------------------------------------------------------------------------|

**GAAP      versus Non-GAAP**

**SUMMARY      OF FINANCIAL AND OPERATING RESULTS**

----

**COMMUNITY      BANKS, INC. AND SUBSIDIARIES**

**PART      I - Item 2. Management’s Discussion and Analysis of Financial Condition and      Results of Operations (continued)**

|                                                         |   |                              |      |
|--------------------------------------------------------------|--------|-----------------------------------|-----------|
|                                                         |   | Three                Months Ended |      |
| (Dollars                in thousands, except per share data) |   | June                30, 2006      |      | March                31, 2006 |   | June                30, 2005 |   |
|                                                         |   |                              |      |   |   |   |   |
| Net                operating (tangible) income               |   | $                                 | 10,960    |   | $ | 10,994 |   | $ | 4,068 |   |
| Average                tangible assets                       |   | $                                 | 3,132,905 |   | $ | 3,124,522 |   | $ | 2,036,630 |   |
| Average                tangible equity                       |   | $                                 | 213,528   |   | $ | 221,552 |   | $ | 148,906 |   |
| Operating                return on average tangible assets   |   |                              | 1.40      | % |   | 1.43 | % |   | 0.80 | % |
| Operating                return on average tangible equity   |   |                              | 20.59     | % |   | 20.12 | % |   | 10.96 | % |
| Tangible                book value at end of period          |   | $                                 | 8.91      |   | $ | 9.19 |   | $ | 11.43 |   |

----

**COMMUNITY      BANKS, INC. AND SUBSIDIARIES**

**PART      I - Item 2. Management’s Discussion and Analysis of Financial Condition and      Results of Operations (continued)**

**STATEMENT      OF CONDITION**

|                                                            |   | **June** **30,** |      | **Change** |   |
|-----------------------------------------------------------------|--------|-----------------------|-----------|------------|--------|
|                                                            |   | **2006**              |      | **2005**   |   | Volume% |   |   |   |
| Cash                and due from banks                          |   | $                     | 59,461    |       | $      | 39,96435,187 |   | $ | 19,497 |   |   | 49 | % |
| Federal                funds sold and interest-bearing deposits |   |                  | 53,872    |       |   | 78,196 |   |   | (24,324 | ) |   | (31 | )% |
| Investments                                                     |   |                  | 577,581   |       |   | 583,246 |   |   | (5,665 | ) |   | (1 | )% |
| Loans                                                           |   |                  | 2,312,900 |       |   | 1,267,706 |   |   | 1,045,194 |   |   | 82 | % |
| Allowance                for loan losses                        |   |                  | 23,883    |       |   | 15,189 |   |   | 8,694 |   |   | 57 | % |
| Net                loans                                        |   |                  | 2,289,017 |       |   | 1,252,517 |   |   | 1,036,500 |   |   | 83 | % |
| Goodwill                and identifiable intangible assets      |   |                  | 258,989   |       |   | 4,988 |   |   | 254,001 |   |   | NM* |   |
| Other                assets                                     |   |                  | 152,988   |       |   | 82,707 |   |   | 70,281 |   |   | 85 | % |
|                                                            |   |                  |      |       |   |   |   |   |   |   |   |   |   |
| Total                assets                                     |   | $                     | 3,391,908 |       | $      | 2,041,618 |   | $ | 1,350,290 |   |   | 66 | % |
|                                                            |   |                  |      |       |   |   |   |   |   |   |   |   |   |
| Noninterest-bearing                deposits                     |   | $                     | 350,574   |       | $      | 190,045 |   | $ | 160,529 |   |   | 84 | % |
| Interest-bearing                deposits                        |   |                  | 2,030,567 |       |   | 1,192,458 |   |   | 838,109 |   |   | 70 | % |
| Short-term                borrowings                            |   |                  | 57,903    |       |   | 36,687 |   |   | 21,216 |   |   | 58 | % |
| Long-term                debt                                   |   |                  | 405,705   |       |   | 424,105 |   |   | (18,400 | ) |   | (4 | )% |
| Subordinated                debt                                |   |                  | 51,548    |       |   | 30,928 |   |   | 20,620 |   |   | 67 | % |
| Other                liabilities                                |   |                  | 24,916    |       |   | 13,501 |   |   | 11,415 |   |   | 85 | % |
|                                                            |   |                  |      |       |   |   |   |   |   |   |   |   |   |
| Total                liabilities                                |   |                  | 2,921,213 |       |   | 1,887,724 |   |   | 1,033,489 |   |   | 55 | % |
|                                                            |   |                  |      |       |   |   |   |   |   |   |   |   |   |
| Stockholders’                equity                       |   |                  | 470,695   |       |   | 153,894 |   |   | 316,801 |   |   | 206 | % |
|                                                            |   |                  |      |       |   |   |   |   |   |   |   |   |   |
| Total                liabilities and stockholders’ equity |   | $                     | 3,391,908 |       | $      | 2,041,618 |   | $ | 1,350,290 |   |   | 66 | % |
|                                                            |   |                  |      |       |   |   |   |   |   |   |   |   |   |
| *Not                meaningful                                  |   |                  |      |       |   |   |   |   |   |   |   |   |   |

----

**COMMUNITY      BANKS, INC. AND SUBSIDIARIES**

**PART      I - Item 2. Management’s Discussion and Analysis of Financial Condition and      Results of Operations (continued)**

|                                   |   |                                      |      |                                     |   | **Change** |   |
|----------------------------------------|--------|-------------------------------------------|-----------|------------------------------------------|--------|------------|--------|
| (in                thousands)          |   | **Second                Quarter****2006** |      | **First                Quarter****2006** |   | **Amount** |   | **Annualized****%** |   |
| Commercial                             |   | $                                         | 827,586   |                                     | $      | 808,108    |   | $ | 19,478 |   |   | 10 | % |
| Commercial                real estate  |   |                                      | 817,099   |                                     |   | 799,505    |   |   | 17,594 |   |   | 9 | % |
| Residential                real estate |   |                                      | 150,653   |                                     |   | 153,282    |   |   | (2,629 | ) |   | (7 | )% |
| Consumer                               |   |                                      | 517,562   |                                     |   | 529,084    |   |   | (11,522 | ) |   | (9 | )% |
| Total                                  |   | $                                         | 2,312,900 |                                     | $      | 2,289,979  |   | $ | 22,921 |   |   | 4 | % |

|                                      |   |                                      |      |                                     |   | **Change** |   |
|-------------------------------------------|--------|-------------------------------------------|-----------|------------------------------------------|--------|------------|--------|
| (in                thousands)             |   | **Second                Quarter****2006** |      | **First                Quarter****2006** |   | **Amount** |   | **Annualized****%** |   |
| Demand                                    |   | $                                         | 350,574   |                                     | $      | 373,637    |   | $ | (23,063 | ) |   | (25 | )% |
| Savings                & NOW accounts |   |                                      | 820,265   |                                     |   | 826,742    |   |   | (6,477 | ) |   | (3 | )% |
| Time                                      |   |                                      | 981,371   |                                     |   | 900,698    |   |   | 80,673 |   |   | 36 | % |
| Time                $100,000 or more      |   |                                      | 228,931   |                                     |   | 200,821    |   |   | 28,110 |   |   | 56 | % |
|                                      |   | $                                         | 2,381,141 |                                     | $      | 2,301,898  |   | $ | 79,243 |   |   | 14 | % |

----

**COMMUNITY      BANKS, INC. AND SUBSIDIARIES**

**PART      I - Item 2. Management’s Discussion and Analysis of Financial Condition and      Results of Operations (continued)**

**RESULTS      OF OPERATIONS**

**Net      Interest Income**

|                                                                                    |   | **Net                Interest Margin - Quarter Ended** |      |                                        |   |
|-----------------------------------------------------------------------------------------|--------|--------------------------------------------------------|-----------|---------------------------------------------|--------|
|                                                                                    |   |                                                   |      |                                        |   |
| (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 non-interest funds                                             |   |                                                   |      |                                        |   |   |   |   | 0.47 | % |   |   |   |   |   |   |   | 0.37 | % |
| Net                interest margin                                                      |   |                                                   |      |                                        | $      | 28,917 |   |   | 3.94 | % |   |   |   | $ | 16,650 |   |   | 3.46 | % |

----

**COMMUNITY      BANKS, INC. AND SUBSIDIARIES**

**PART      I - Item 2. Management’s Discussion and Analysis of Financial Condition and      Results of Operations (continued)**

|                                                                                    |   | **Net                Interest Margin - Quarter Ended** |      |                                        |   |
|-----------------------------------------------------------------------------------------|--------|--------------------------------------------------------|-----------|---------------------------------------------|--------|
|                                                                                    |   |                                                   |      |                                        |   |
| (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 non-interest funds                                             |   |                                                   |      |                                        |   |   |   |   | 0.47 | % |   |   |   |   |   |   |   | 0.48 | % |
| Net                interest margin                                                      |   |                                                   |      |                                        | $      | 28,917 |   |   | 3.94 | % |   |   |   | $ | 28,842 |   |   | 3.98 | % |

**Provision      for Loan Losses**

----

**COMMUNITY      BANKS, INC. AND SUBSIDIARIES**

**PART      I - Item 2. Management’s Discussion and Analysis of Financial Condition and      Results of Operations (continued)**

**Non-Interest      Income**

|                                                                          |   | **Second                Quarter****2006** |   | **First                Quarter****2006** |   | **Change** |   |
|-------------------------------------------------------------------------------|--------|-------------------------------------------|--------|------------------------------------------|--------|------------|--------|
| (in                thousands)                                                 |   |
| Investment                management and trust services                       |   | $                                         | 1,088  |                                     | $      | 1,013      |   | $ | 75 |   |
| Service                charges on deposit accounts                            |   |                                      | 2,855  |                                     |   | 2,531      |   |   | 324 |   |
| Other                service charges, commissions and fees                    |   |                                      | 1,903  |                                     |   | 1,700      |   |   | 203 |   |
| Insurance                premium income and commissions                       |   |                                      | 1,117  |                                     |   | 928        |   |   | 189 |   |
| Mortgage                banking activities                                    |   |                                      | 580    |                                     |   | 468        |   |   | 112 |   |
| Earnings                on investment in life insurance                       |   |                                      | 675    |                                     |   | 656        |   |   | 19 |   |
| Other                                                                         |   |                                      | 319    |                                     |   | 805        |   |   | (486 | ) |
| Total                non-interest income, excluding investment security gains |   | $                                         | 8,537  |                                     | $      | 8,101      |   | $ | 436 |   |

**Non-Interest      Expenses**

----

**COMMUNITY      BANKS, INC. AND SUBSIDIARIES**

**PART      I - Item 2. Management’s Discussion and Analysis of Financial Condition and      Results of Operations (continued)**

|                                          |   | **Second                Quarter****2006** |   | **First****Quarter****2006** |   | **Change** |   |
|-----------------------------------------------|--------|-------------------------------------------|--------|------------------------------|--------|------------|--------|
| (in                thousands)                 |   |
| Salaries                and employee benefits |   | $                                         | 11,251 |                         | $      | 11,418     |   | $ | (167 | ) |
| Net                occupancy                  |   |                                      | 3,386  |                         |   | 3,512      |   |   | (126 | ) |
| Marketing                expense              |   |                                      | 265    |                         |   | 575        |   |   | (310 | ) |
| Telecommunications                expense     |   |                                      | 566    |                         |   | 551        |   |   | 15 |   |
| Amortization                of intangibles    |   |                                      | 702    |                         |   | 654        |   |   | 48 |   |
| Other                                         |   |                                      | 4,528  |                         |   | 3,823      |   |   | 705 |   |
| Total                non-interest expenses    |   | $                                         | 20,698 |                         | $      | 20,533     |   | $ | 165 |   |

**Income      Taxes**

----

**COMMUNITY      BANKS, INC. AND SUBSIDIARIES**

**PART      I - Item 2. Management’s Discussion and Analysis of Financial Condition and      Results of Operations (continued)**

|                                          |   | **June                30,****2006** |   | **Regulatory****Minimum** |   | **“Well****Capitalized”** |   |
|-----------------------------------------------|--------|-------------------------------------|--------|---------------------------|--------|---------------------------------------|--------|
| Leverage                ratio                 |   |                                |   |                      |   |                                  |   |   |   |   |
| Community                Banks, Inc.          |   |                                | 8.4    | %                         |   | 4                                     | %      |   | 5 | % |
| CommunityBanks                                |   |                                | 8.2    | %                         |   | 4                                     | %      |   | 5 | % |
|                                          |   |                                |   |                      |   |                                  |   |   |   |   |
| Tier                1 capital ratio           |   |                                |   |                      |   |                                  |   |   |   |   |
| Community                Banks, Inc.          |   |                                | 10.3   | %                         |   | 4                                     | %      |   | 6 | % |
| CommunityBanks                                |   |                                | 10.0   | %                         |   | 4                                     | %      |   | 6 | % |
|                                          |   |                                |   |                      |   |                                  |   |   |   |   |
| Total                risk-based capital ratio |   |                                |   |                      |   |                                  |   |   |   |   |
| Community                Banks, Inc.          |   |                                | 11.2   | %                         |   | 8                                     | %      |   | 10 | % |
| CommunityBanks                                |   |                                | 11.0   | %                         |   | 8                                     | %      |   | 10 | % |

----

**COMMUNITY      BANKS, INC. AND SUBSIDIARIES**

**PART      I - Item 2. Management’s Discussion and Analysis of Financial Condition and      Results of Operations (continued)**

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

|                                                                        |   | **June                30,****2006** |      | **March                31,****2006** |   | **June                30,****2005** |   |
|-----------------------------------------------------------------------------|--------|-------------------------------------|-----------|--------------------------------------|--------|-------------------------------------|--------|
| **Quarterly                income statement data:**                         |   |                                |      |                                 |   |                                |   |   |   |   |
|                                                                        |   |                                |      |                                 |   |                                |   |   |   |   |
| **Net                income**                                               |   |                                |      |                                 |   |                                |   |   |   |   |
| Net                income                                                   |   | $                                   | 10,504    |                                 | $      | 10,569                              |   | $ | (1,139 | ) |
| Amortization                of core deposit and other intangible assets (2) |   |                                | 456       |                                 |   | 425                                 |   |   | 35 |   |
| Merger,                conversion and restructuring expenses (1)            |   |                                | ---       |                                 |   | ---                                 |   |   | 5,172 |   |
| Net                operating (tangible) income                              |   | $                                   | 10,960    |                                 | $      | 10,994                              |   | $ | 4,068 |   |
|                                                                        |   |                                |      |                                 |   |                                |   |   |   |   |
| **Quarterly                balance sheet data:**                            |   |                                |      |                                 |   |                                |   |   |   |   |
|                                                                        |   |                                |      |                                 |   |                                |   |   |   |   |
| **Average                assets**                                           |   |                                |      |                                 |   |                                |   |   |   |   |
| Average                assets                                               |   | $                                   | 3,391,908 |                                 | $      | 3,383,211                           |   | $ | 2,041,618 |   |
| Goodwill                                                                    |   |                                | (245,749  | )                                    |   | (244,775                            | )      |   | (3,570 | ) |
| Core                deposit and other intangible assets                     |   |                                | (13,254   | )                                    |   | (13,914                             | )      |   | (1,418 | ) |
| Average                tangible assets                                      |   | $                                   | 3,132,905 |                                 | $      | 3,124,522                           |   | $ | 2,036,630 |   |
|                                                                        |   |                                |      |                                 |   |                                |   |   |   |   |
| **Operating                return on average tangible assets**              |   |                                | 1.40      | %                                    |   | 1.43                                | %      |   | 0.80 | % |
|                                                                        |   |                                |      |                                 |   |                                |   |   |   |   |
| **Average                equity**                                           |   |                                |      |                                 |   |                                |   |   |   |   |
| Average                equity                                               |   | $                                   | 470,695   |                                 | $      | 478,507                             |   | $ | 153,894 |   |
| Goodwill                                                                    |   |                                | (245,749  | )                                    |   | (244,775                            | )      |   | (3,570 | ) |
| Core                deposit and other intangible assets                     |   |                                | (13,254   | )                                    |   | (13,914                             | )      |   | (1,418 | ) |
| Deferred                taxes                                               |   |                                | 1,836     |                                 |   | 1,734                               |   |   | --- |   |
| Average                tangible equity                                      |   | $                                   | 213,528   |                                 | $      | 221,552                             |   | $ | 148,906 |   |
|                                                                        |   |                                |      |                                 |   |                                |   |   |   |   |
| **Operating                return on average tangible equity**              |   |                                | 20.59     | %                                    |   | 20.12                               | %      |   | 10.96 | % |
|                                                                        |   |                                |      |                                 |   |                                |   |   |   |   |
| **At                end of quarter:**                                       |   |                                |      |                                 |   |                                |   |   |   |   |
| **Total                assets**                                             |   |                                |      |                                 |   |                                |   |   |   |   |
| Total                assets                                                 |   | $                                   | 3,385,599 |                                 | $      | 3,421,562                           |   | $ | 1,982,732 |   |
| Goodwill                                                                    |   |                                | (245,056  | )                                    |   | (244,760                            | )      |   | (3,570 | ) |
| Core                deposit and other intangible assets                     |   |                                | (13,550   | )                                    |   | (13,599                             | )      |   | (1,394 | ) |
| Total                tangible assets                                        |   | $                                   | 3,126,993 |                                 | $      | 3,163,203                           |   | $ | 1,977,768 |   |
|                                                                        |   |                                |      |                                 |   |                                |   |   |   |   |
| **Total                equity**                                             |   |                                |      |                                 |   |                                |   |   |   |   |
| Total                equity                                                 |   | $                                   | 465,760   |                                 | $      | 475,587                             |   | $ | 153,582 |   |
| Goodwill                                                                    |   |                                | (245,056  | )                                    |   | (244,760                            | )      |   | (3,570 | ) |
| Core                deposit and other intangible assets                     |   |                                | (13,550   | )                                    |   | (13,599                             | )      |   | (1,394 | ) |
| Deferred                taxes                                               |   |                                | 1,800     |                                 |   | 1,854                               |   |   | --- |   |
| Total                tangible equity                                        |   | $                                   | 208,954   |                                 | $      | 219,082                             |   | $ | 148,618 |   |
|                                                                        |   |                                |      |                                 |   |                                |   |   |   |   |
| **Tangible                book value at end of period**                     |   | $                                   | 8.91      |                                 | $      | 9.19                                |   | $ | 11.43 |   |
|                                                                        |   |                                |      |                                 |   |                                |   |   |   |   |
** **

** **

----

**COMMUNITY      BANKS, INC. AND SUBSIDIARIES**

**PART      I - Item 3. Quantitative and Qualitative Disclosures About Market      Risk**

| **Interest                Rate Sensitivity**             |   |   |             |   |   |               |   |   |                |   |   |
|----------------------------------------------------------|--------|--------|------------------|--------|--------|--------------------|--------|--------|---------------------|--------|--------|
|  **Dollars                in thousands**            |   |   | **1-90****days** |   |   | **90-180****days** |   |   | **180-365****days** |   |   | **1                year or****more** |   |   | **Total** |   |
|                                                     |   |   |             |   |   |               |   |   |                |   |   |   |   |   |   |   |
| **Assets**                                               |   |   |             |   |   |               |   |   |                |   |   |   |   |   |   |   |
| Interest-bearing                deposits in other banks  |   | $      | 3,412            |   |   | ---                |   |   | ---                 |   |   | --- |   | $ | 3,412 |   |
| Investment                securities                     |   |   | 58,982           |   |   | 14,872             |   |   | 40,637              |   |   | 459,776 |   |   | 574,267 |   |
| Loans(1)                                                 |   |   | 814,891          |   |   | 105,002            |   |   | 194,839             |   |   | 1,229,945 |   |   | 2,344,677 |   |
| Earning                assets                            |   |   | 877,285          |   |   | 119,874            |   |   | 235,476             |   |   | 1,689,721 |   |   | 2,922,356 |   |
| Non-earning                assets                        |   |   | 597              |   |   | 596                |   |   | 1,195               |   |   | 460,855 |   |   | 463,243 |   |
| Total                assets                              |   | $      | 877,882          |   | $      | 120,470            |   | $      | 236,671             |   | $      | 2,150,576 |   | $ | 3,385,599 |   |
| **Liabilities**                                          |   |   |             |   |   |               |   |   |                |   |   |   |   |   |   |   |
| Savings                                                  |   | $      | 230,472          |   | $      | 36,034             |   | $      | 72,061              |   | $      | 493,271 |   | $ | 831,838 |   |
| Time                                                     |   |   | 190,894          |   |   | 161,120            |   |   | 265,800             |   |   | 362,067 |   |   | 979,881 |   |
| Time                in denominations of $100,000 or more |   |   | 62,223           |   |   | 36,832             |   |   | 59,751              |   |   | 70,721 |   |   | 229,527 |   |
| Short-term                borrowings                     |   |   | 77,286           |   |   | ---                |   |   | ---                 |   |   | --- |   |   | 77,286 |   |
| Long-term                debt                            |   |   | 36,863           |   |   | 21,875             |   |   | 14,759              |   |   | 290,321 |   |   | 363,818 |   |
| Subordinated                debt                         |   |   | 23,196           |   |   | ---                |   |   | ---                 |   |   | 28,352 |   |   | 51,548 |   |
| Interest                bearing liabilities              |   |   | 620,934          |   |   | 255,861            |   |   | 412,371             |   |   | 1,244,732 |   |   | 2,533,898 |   |
| Other                liabilities and equity              |   |   | 10,959           |   |   | 10,959             |   |   | 21,916              |   |   | 807,867 |   |   | 851,701 |   |
| Total                liabilities and equity              |   | $      | 631,893          |   | $      | 266,820            |   | $      | 434,287             |   | $      | 2,052,599 |   | $ | 3,385,599 |   |

| **Interest                Sensitivity GAP**                                 |   |             |    |               |   |                |   |
|-----------------------------------------------------------------------------|--------|------------------|---------|--------------------|--------|---------------------|--------|
| **Dollars                in thousands**                                     |   | **1-90****days** |    | **90-180****Days** |   | **180-365****days** |   |
|                                                                        |   |             |    |               |   |                |   |   |   |   |
| Periodic                                                                    |   | $                | 245,989 |               | $      | (146,350            | )      | $ | (197,616 | ) |
| Cumulative                                                                  |   |             |    |               |   | 99,639              |   |   | (97,977 | ) |
| Cumulative                GAP as a percentageof                total assets |   |             | 7.3     | %                  |   | 2.9                 | %      |   | (2.9 | )% |

----

**COMMUNITY      BANKS, INC. AND SUBSIDIARIES**

**PART      I - Item 4. Controls and Procedures**

*Evaluation        of Disclosure Controls and Procedures. *

*Changes        in Internal Controls over Financial Reporting*

----

**COMMUNITY      BANKS, INC. AND SUBSIDIARIES**

**PART      II - OTHER INFORMATION **

**Item      1 - Legal Proceedings**
** **

**Item      1A - Risk Factors**

**Item      2 - Unregistered Sales of Equity Securities and Use of Proceeds**

|             |   | **Shares****Purchased** |    | **Average                Price****Paid****Per                Share** |   | **Shares                Purchased****as                part of****Repurchase                Program** |   | **Capacity                to****Purchase****More                Shares** |    |
|------------------|--------|-------------------------|---------|----------------------------------------------------------------------|--------|-------------------------------------------------------------------------------------------------------|--------|--------------------------------------------------------------------------|---------|
|             |   |                    |    |                                                                 |   |                                                                                                  |   |                                                                     |    |   |   |   |   |
| 04/1/06-04/30/06 |   |                    | ---     |                                                                 |   | ---                                                                                                   |   |                                                                     | ---     |   |   | 458,500 |   |
| 05/1/06-05/31/06 |   |                    | 305,500 |                                                                 |   | 26.54                                                                                                 |   |                                                                     | 305,500 |   |   | 153,000 |   |
| 06/1/06-06/30/06 |   |                    | 87,100  |                                                                 |   | 24.90                                                                                                 |   |                                                                     | 87,100  |   |   | 65,900 |   |
|             |   |                    |    |                                                                 |   |                                                                                                  |   |                                                                     |    |   |   |   |   |
|             |   |                    |    |                                                                 |   |                                                                                                  |

**Item      3 - Defaults Upon Senior Securities**

----

**PART      II - Other Information (continued)**

**Item      4 - Submission of Matters to a Vote of Security Holders**

| o   | To                elect four (4) Class C directors to serve until the 2010 annual meeting                of                shareholders; and |
|---------------|----------------------------------------------------------------------------------------------------------------------------------------------|

| o   | To                amend Article 11 of the Articles of Incorporation in order to simplify                the                vote requirements for shareholder approval of matters. |
|---------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| **Name**                       | **For**    | **Withhold                Authority** |
|--------------------------------|------------|---------------------------------------|
| Aaron                S. Kurtz  | 18,325,838 | 1,105,970                             |
| Earl                L. Mummert | 17,150,455 | 2,281,353                             |
| Allen                Shaffer   | 17,141,104 | 2,290,704                             |
| Glenn                H. Weaver | 17,144,337 | 2,287,471                             |

| **For**    | **Against** | **Abstentions** | **Broker                Non-Votes** |
|------------|-------------|-----------------|-------------------------------------|
| 15,782,786 | 497,715     | 407,331         | 2,743,975                           |

**Item      5 - Other Information**

----

**COMMUNITY      BANKS, INC. AND SUBSIDIARIES**

**PART      II - OTHER INFORMATION**

**(continued)**

**Item      6 - Exhibits**

| 3.1  | Amended                and Restated Articles of Incorporation (Incorporated by reference                to                Appendix A to Community’s 2006 Proxy Statement filed with the Commission                on March 31, 2006)                                                                                                                                                                                                                                                            |
|------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 3.2  | Amended                By-Laws (Incorporated by reference to Exhibit 3(ii), attached to                Community’s Current Report on Form 8-K filed with the Commission on March                9, 2006)                                                                                                                                                                                                                                                                                        |
| 4    | Instruments                defining the rights of the holders of trust capital securities sold                by                Community in January, 2006, are not attached, as the amount of such                securities is less than 10% of the consolidated assets of Community                and                its subsidiaries, and the securities have not been registered. Community                agrees to provide copies of such instruments to the SEC upon                request. |
| 31.1 | Rule                13a-14(a)/15d-14(a) Certification (Chief Executive                Officer)                                                                                                                                                                                                                                                                                                                                                                                                        |
| 31.2 | Rule                13a-14(a)/15d-14(a) Certification (Chief Financial                Officer)                                                                                                                                                                                                                                                                                                                                                                                                        |
| 32.1 | Section                1350 Certification (Chief Executive Officer)                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| 32.2 | Section                1350 Certification (Chief Financial                Officer)                                                                                                                                                                                                                                                                                                                                                                                                                    |

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**SIGNATURES**

| Date   | August                9, 2006 |   | /s/    | Eddie                L. Dunklebarger     |
|--------|-------------------------------|--------|--------|------------------------------------------|
|   |                          |   |   | Eddie                L. Dunklebarger     |
|   |                          |   |   | Chairman                and President    |
|   |                          |   |   | (Chief                Executive Officer) |
|   |                          |   |   |                                     |
| Date   | August                9, 2006 |   | /s/    | Donald                F. Holt            |
|   |                          |   |   | Donald                F. Holt            |
|   |                          |   |   | Executive                Vice President  |
|   |                          |   |   | (Chief                Financial Officer) |

**EXHIBIT      INDEX**

| 3.1  | Amended                and Restated Articles of Incorporation (Incorporated by reference                to                Appendix A to Community’s 2006 Proxy Statement filed with the Commission                on March 31, 2006)                                                                                                                                                                                                                                                            |
|------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 3.2  | Amended                By-Laws (Incorporated by reference to Exhibit 3(ii), attached to                Community’s Current Report on Form 8-K filed with the Commission on March                9, 2006)                                                                                                                                                                                                                                                                                        |
| 4    | Instruments                defining the rights of the holders of trust capital securities sold                by                Community in January, 2006, are not attached, as the amount of such                securities is less than 10% of the consolidated assets of Community                and                its subsidiaries, and the securities have not been registered. Community                agrees to provide copies of such instruments to the SEC upon                request. |
| 31.1 | Rule                13a-14(a)/15d-14(a) Certification (Chief Executive                Officer)                                                                                                                                                                                                                                                                                                                                                                                                        |
| 31.2 | Rule                13a-14(a)/15d-14(a) Certification (Chief Financial                Officer)                                                                                                                                                                                                                                                                                                                                                                                                        |
| 32.1 | Section                1350 Certification (Chief Executive Officer)                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| 32.2 | Section                1350 Certification (Chief Financial                Officer)                                                                                                                                                                                                                                                                                                                                                                                                                    |

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