SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

                                    FORM 10-Q

   QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT

                                     OF 1934


                    For the Quarter Ended September 30, 2000

                                   No. 0-15786
                                   -----------
                            (Commission File Number)

                              COMMUNITY BANKS, INC.
                              --------------------
             (Exact Name of Registrant as Specified in its Charter)


   PENNSYLVANIA                                                  23-2251762
------------------                                        ---------------------
(State of Incorporation)                                (IRS Employer ID Number)

    150 Market Street, Millersburg, PA                             17061
-------------------------------------------                      ---------
 (Address of Principal Executive Offices)                        (Zip Code)

                                 (717) 692-4781
                                 ---------------
                         (Registrant's Telephone Number)


Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Sections 12, 13, or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter  period that the  registrant
was  required  to file such  reports)  and (2) has been  subject to such  filing
requirements for the past 90 days.

                                                 YES     X        NO
                                                    ------------    ------------

              Number of shares outstanding as of September 30, 2000


CAPITAL STOCK-COMMON                                             7,036,943
--------------------                                        --------------------
  (Title of Class)                                          (Outstanding Shares)




<PAGE>



                     COMMUNITY BANKS, INC. and SUBSIDIARIES

                                   INDEX 10-Q


PART I

Financial Information.........................................................1

Consolidated Balance Sheets...................................................2

Consolidated Statements of Income.............................................3

Consolidated Statements of Changes in Stockholders' Equity....................4

Consolidated Statements of Cash Flows.........................................5

Notes to Consolidated Financial Statements..................................6-9

Management's Discussion and Analysis of Financial
   Condition and Results of Operation.....................................10-14



PART II

Other Information and Signatures.............................................15




















<PAGE>



                         PART I - FINANCIAL INFORMATION

                     COMMUNITY BANKS, INC. and SUBSIDIARIES


The  following  financial  information  sets forth the  operations  of Community
Banks,  Inc. and  Subsidiaries  (CTY) for the three month and nine month periods
ending September 30, 2000 and 1999.

In the opinion of  management,  the following  Consolidated  Balance  Sheets and
related Consolidated  Statements of Income, Changes in Stockholders' Equity, and
Cash Flows  reflect all  adjustments  (consisting  of normal  recurring  accrual
adjustments)  necessary to present fairly the financial  position and results of
operations for such periods.
































                                       -1-


<PAGE>



CONSOLIDATED BALANCE SHEETS
(Unaudited)
(dollars in thousands except per share data)

<TABLE>
<S>                                                         <C>                    <C>
                                                            September 30,           December 31,
                                                                2000                    1999
                                                            -------------           ------------

ASSETS

Cash and due from banks                                       $ 33,532                $29,094
Interest-bearing time deposits in other banks                    1,081                  1,789
Investment securities, available for sale
  (market value)                                               346,944                312,075
Fed funds sold                                                     342                  2,050
Loans                                                          688,786                596,301
Less: Unearned income                                           (3,775)                (6,986)
     Allowance for loan losses                                  (8,254)                (7,456)
                                                            -------------           ------------
     Net loans                                                 676,757                581,859
Premises and equipment, net                                     17,475                 15,385
Goodwill                                                           243                    424
Other real estate owned                                            555                    405
Loans held for sale                                              4,197                  4,004
Accrued interest receivable and other assets                    27,897                 24,739
                                                            -------------           ------------
   Total assets                                             $1,109,023               $971,824
                                                            =============           ============
LIABILITIES

Deposits:
  Demand (non-interest bearing)                               $ 70,118               $ 55,330
  Savings                                                      286,106                266,464
  Time                                                         359,883                329,221
  Time in denominations of $100,000 or more                     75,722                 42,421
                                                            -------------           ------------
  Total deposits                                               791,829                693,436
Short-term borrowings                                           13,261                  3,338
Long-term debt                                                 218,725                197,000
Accrued interest payable and other liabilities                   7,981                  6,696
  Total liabilities                                          1,031,796                900,743
                                                            -------------           ------------

STOCKHOLDERS' EQUITY

Preferred stock, no par value; 500,000 shares
 authorized; no shares issued and outstanding                    ---                    ---
Common stock-$5.00 par value; 20,000,000
 shares authorized; 7,339,000 and 6,976,000
 shares issued in 2000 and 1999, respectively                   36,695                 34,878
Surplus                                                         29,107                 24,259
Retained earnings                                               26,037                 26,379
Accumulated other comprehensive income (loss)
 net of tax (benefit) of $(4,658) and $(5,841),
  respectively                                                  (8,650)               (10,847)
Less: Treasury stock of 302,000 and 175,000
 shares at cost                                                 (5,962)                (3,588)
                                                            -------------           ------------
Total stockholders' equity                                      77,227                 71,081
                                                            -------------           ------------
Total liabilities and stockholders' equity                  $1,109,023               $971,824
                                                            =============           ============
</TABLE>
[FN]
The accompanying notes are an integral part of the consolidated
financial statements.
</FN>



                                       -2-

<PAGE>


Community Banks, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(dollars in thousands except per share data)
<TABLE>
<S>                                                     <C>        <C>                <C>        <C>
                                                        Three Months Ended            Nine Months Ended
                                                           September 30,                September 30,
                                                      -----------------------      -----------------------
                                                         2000        1999              2000        1999
                                                      -----------------------      -----------------------
Interest income:
Interest and fees on loans                            $14,846     $11,747           $41,324     $33,837
Interest and dividends on investment securities:
  Taxable                                               4,687       3,843            13,476      10,811
  Exempt from federal income tax                        1,088       1,123             3,153       3,550
Fed funds interest                                         19          29               269         179
Other interest income                                       9          22                39          54
                                                      -------     -------           -------     -------
     Total interest income                             20,649      16,764            58,261      48,431
                                                      -------     -------           -------     -------
Interest expense:
Interest on deposits:
  Savings                                               1,076       1,400             3,983       4,064
  Time                                                  5,596       3,976            14,935      11,355
  Time in denominations of $100,000 or more             1,035         475             2,361       1,394
Interest on short-term borrowings and long-term debt    3,081       1,884             8,106       5,592
Fed funds purchased and repo interest                     326         381               895       1,073
                                                      -------     -------           -------     -------
  Total interest expense                               11,114       8,116            30,280      23,478
                                                      -------     -------           -------     -------
  Net interest income                                   9,535       8,648            27,981      24,953
Provision for loan losses                                 613         220             1,429         787
                                                      -------     -------           -------     -------
  Net interest income after provision for loan losses   8,922       8,428            26,552      24,166
                                                      -------     -------           -------     -------
Other income:
  Trust department income                                 144         162               444         349
  Service charges on deposit accounts                     648         566             1,858       1,461
  Other service charges, commissions and fees             489         298             1,250         758
  Investment security gains (losses)                      140           3               358         127
  Income on insurance premiums                            351         157               894         559
  Gains on loan sales                                      90          94               248         508
  Other income                                            169         153               503         467
                                                      -------     -------           -------     -------
    Total other income                                  2,031       1,433             5,555       4,229
                                                      -------     -------           -------     -------
Other expenses:
  Salaries and employee benefits                        3,536       3,155            10,342       9,903
  Net occupancy expense                                 1,028         836             2,990       2,470
  Operating expense of insurance subsidiary               155         135               413         406
  Other operating expense                               1,883       1,759             5,640       5,050
                                                      -------     -------           -------     -------
   Total other expense                                  6,602       5,885            19,385      17,019
                                                      -------     -------           -------     -------
   Income before income taxes                           4,351       3,976            12,722      11,376
Provision for income taxes                              1,108         869             3,206       2,668
                                                      -------     -------           -------     -------
   Net income                                         $ 3,243     $ 3,107           $ 9,516     $ 8,708
                                                      =======     =======           =======     =======
Earnings per share:
  Basic                                               $   .46     $   .43           $  1.34     $  1.21
  Diluted                                             $   .45     $   .43           $  1.32     $  1.19
  Dividends paid per share                            $   .16     $   .15           $   .47     $   .45
</TABLE>

Per share data has been adjusted to reflect stock dividends and
splits.
The accompanying notes are an integral part of the consolidated
financial statements.



                                       -3-


<PAGE>


Community Banks, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(Dollars in thousands except per share data)
<TABLE>

                                                                    Nine Month Periods Ended September 30

<S>                                       <C>            <C>          <C>            <C>                   <C>           <C>
                                                                                       Accumulated
                                                                                          Other
                                             Common                   Retained        Comprehensive        Treasury       Total
                                             Stock       Surplus      Earnings           Income              Stock        Equity
                                          ------------------------------------------------------------------------------------------

Balance, January 1, 1999                    $33,157      $17,989      $27,023           $ 2,789            $(2,082)       $78,876
 Comprehensive income:
   Net income                                                           8,708                                               8,708
   Change in unrealized gain (loss)
   on securities, net of tax of $(4,961)
    and reclassification adjustment
    of $127                                                                              (9,214)                           (9,214)
                                                                                                                          --------
 Total comprehensive income                                                                                                  (506)
Cash dividends ($.45 per share)                                        (3,254)                                             (3,254)
5% stock dividend (332,000 shares)            1,660        6,062       (7,722)
Net increase in treasury stock
 (64,000 shares)                                                                                            (1,484)        (1,484)
Issuance of additional shares
 (21,000 shares)                                 61          208         (382)                                 379            266
                                            -------      -------      -------           -------            -------        -------

Balance, September 30, 1999                 $34,878      $24,259      $24,373          $ (6,425)           $(3,187)       $71,081
                                            =======      =======      =======           =======            =======        =======
Balance, January 1, 2000                    $34,878      $24,259      $26,379          $(10,847)           $(3,588)       $71,081
  Comprehensive income:
   Net income                                                           9,516                                               9,516
   Change in unrealized gain (loss)
   on securities, net of tax of $1,183
    and reclassification adjustment
    of $358                                                                               2,197                             2,197
                                                                                                                          -------
  Total comprehensive income                                                                                               11,713
Cash dividends ($.47 per share)                                        (3,383)                                             (3,383)
5% stock dividend (348,000 shares)            1,740        4,612       (6,352)
Net increase in treasury stock
  (127,000 shares)                                                                                          (2,374)        (2,374)
Issuance of additional shares
  (15,000 shares)                                77          236         (123)                                                190
                                            -------      -------      -------           -------            -------        -------
Balance, September 30, 2000                 $36,695      $29,107      $26,037           $(8,650)           $(5,962)       $77,227
                                            =======      =======      =======           =======            =======        =======

</TABLE>

Per share data for all periods has been restated to reflect stoc
dividends and splits.
The accompanying notes are an integral part of the consolidated
financial statements.


                                      -4-



<PAGE>



Community Banks, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(dollars in thousands)
<TABLE>
                                                                                Nine Months Ended
                                                                                  September 30,
<S>                                                                        <C>               <C>
                                                                           --------------------------
                                                                             2000              1999
                                                                           --------------------------
Operating Activities:
 Net income                                                                $ 9,516            $ 8,708
Adjustments to reconcile net income to net cash
 provided by operating activities:
  Provision for loan losses                                                  1,429                787
  Provision for depreciation and amortization                                2,352              1,227
  Amortization of goodwill                                                     181                180
  Investment security gains                                                   (358)              (127)
  Loans originated for sale                                                (14,912)           (25,913)
  Proceeds from sale of loans                                               14,967             26,355
  Gains on mortgage sales                                                     (248)              (508)
  Change in other assets, net                                               (4,026)            (2,955)
  Increase in accrued interest payable and other
   liabilities, net                                                          1,012                749
                                                                          ---------          ---------
  Net cash provided by operating activities                                  9,913              8,503
                                                                          ---------          ---------

Investing Activities:
  Net (increase) decrease in interest-bearing time
   deposits in other banks                                                     708             (1,734)
  Proceeds from sales of investment securities                               7,512             37,513
  Proceeds from maturities of investment securities                          4,751             24,070
  Purchases of investment securities                                       (44,417)           (99,244)
  Net increase in total loans                                              (96,792)           (67,224)
  Purchases of premises and equipment                                       (3,419)            (2,361)
                                                                          ---------          ---------
   Net cash used by investing activities                                  (131,657)          (108,980)
                                                                          ---------          ---------

Financing Activities:
  Net increase in total deposits                                            98,393             97,124
  Net increase (decrease) in short-term borrowings                           9,923              5,249
  Proceeds from issuance of long-term debt                                 130,725               ---
  Repayment of long-term debt                                             (109,000)              ---
  Cash dividends                                                            (3,383)            (3,254)
  Net increase in treasury stock                                            (2,374)            (1,484)
  Proceeds from issuance of common stock                                       190                266
                                                                          ---------          ---------
   Net cash provided by financing activities                               124,474             97,901
                                                                          ---------          ---------
   Increase in cash and cash equivalents                                     2,730             (2,576)

  Cash and cash equivalents at beginning of period                          31,144             27,244
                                                                          ---------          ---------
  Cash and cash equivalents at end of period                               $33,874            $24,668
                                                                          =========          =========

</TABLE>


The accompanying notes are an integral part of the consolidated
financial statements.



                                      -5-




<PAGE>



Community Banks, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(dollars in thousands)


1. Accounting Policies

     The  information  contained  in this report is  unaudited  and i subject to
future  adjustments.  However,  in the opinion of  management,  the  information
reflects all adjustments necessary for a fair statement of results for the three
month and nine month periods ended  September 30, 2000 and 1999.

     The  accountingpolicies  of  Community  Banks,  Inc. and  subsidiaries,  as
applied in the consolidated  interim financial  statements presented herein, are
substantially  the same as those  followed on an annual  basis as  presented  on
pages 10 and 11 of the 1999 Annual Report to shareholders.


































                                       -6-




<PAGE>



2. Investment Securities
   ---------------------

     The amortized cost and estimated  market values of investmen  securities at
September 30, 2000 and December 31, 1999 were as follows:
<TABLE>

                                                                           September 30,
                                                                                2000
                                                                           -------------
<S>                                                              <C>                      <C>
                                                                                          Estimated
                                                                  Amortized                  Fair
                                                                     Cost                    Value
                                                                  ---------               ---------
U.S. Treasury securities and obligations of
 U.S. government corporations and
 agencies                                                          $138,401               $129,606
Mortgage-backed U.S. government agencies                             66,344                 64,603
Obligations of states and political subdivisions                     94,755                 92,422
Corporate securities                                                 39,655                 38,884
Equity securities                                                    21,097                 21,429
                                                                   --------               --------
Total                                                              $360,252               $346,944
                                                                   ========               ========


                                                                            December 31,
                                                                                1999
                                                                           -------------

                                                                                          Estimated
                                                                  Amortized                  Fair
                                                                     Cost                    Value
                                                                  ---------               ---------
U.S. Treasury securities and obligations of
 U.S. government corporations and
 agencies                                                          $132,661               $123,919
Mortgage-backed U.S. government agencies                             61,788                 58,961
Obligations of states and political subdivisions                     84,778                 78,853
Corporate securities                                                 31,739                 31,876
Equity securities                                                    17,797                 18,466
                                                                   --------               --------
Total                                                              $328,763               $312,075
                                                                   ========               ========
</TABLE>




                                       -7-




<PAGE>



3. Allowance for loan losses
   -------------------------
   Changes in the allowance for loan losses are as follows:

<TABLE>
<S>                                                    <C>                    <C>                  <C>
                                                       Nine Months Ended       Year Ended           Nine Months Ended
                                                         September 30,        December 31,            September 30,
                                                             2000                 1999                    1999
                                                       -----------------    -----------------       -----------------

Balance, January 1                                          $7,456              $6,954                   $6,954
Provision for loan losses                                    1,429               1,298                      787
Loan charge-offs                                              (945)             (1,232)                    (742)
Recoveries                                                     314                 436                      366
                                                            ------              ------                   ------
Balance, September 30, 2000, December 31,
 1999, and September 30, 1999                               $8,254              $7,456                   $7,365
                                                            ======              ======                   ======

                NONPERFORMING LOANS (a) AND OTHER REAL ESTATE

                                                         September 30,        December 31,            September 30,
                                                             2000                 1999                    1999
                                                       -----------------    -----------------       -----------------

Loans past due 90 days or more and still
 accruing interest:
  Commercial, financial and agricultural                    $  328              $  146                   $   10
  Mortgages                                                    241                 147                      565
  Personal installment                                         250                  73                      163
  Other                                                        ---                  12                       25
                                                            ------              ------                   ------
                                                               819                 378                      763
                                                            ------              ------                   ------

Loans renegotiated with borrowers                              207                 254                      253
                                                            ------              ------                   ------
Loans on which accrual of interest has been
 discontinued:
  Commercial, financial and agricultural                     1,485                 435                      464
  Mortgages                                                  3,552               3,079                    2,525
  Other                                                        358                 222                      280
                                                            ------              ------                   ------
                                                             5,395               3,736                    3,269
                                                            ------              ------                   ------

Other real estate                                              555                 405                      336
                                                            ------              ------                   ------
Total                                                       $6,976              $4,773                   $4,621
                                                            ======              ======                   ======
</TABLE>


     (a)  The   determination   to  discontinue   the  accrual  of  interest  on
nonperforming  loans is made on the individual  case basis.  Such factors as the
character and size of the loan,  quality of the  collateral  and the  historical
creditworthiness  of the borrower and/or guarantors are considered by management
in assessing the collectibility of such amounts.

Impaired Loans
--------------

     At September  30, 2000 and December 31, 1999,  the recorded  investment  in
loans  for which  impairment  has been  recognized  in  accordance  with FAS 114
totalled $5,602,000and $3,990,000,  respectively, none of which related to loans
requiring a valuation  allowance.  For the nine months ended September 30, 2000,
the average recorded investment in impaired loans approximated  $4,725,000.  The
average  balance  for  1999  approximated  $3,736,000.  Interest  recognized  on
impaired loans on the cash basis for the nine month periods ending September 30,
2000 and 1999 was not significant.

                                      -8-


<PAGE>

4. Statement of Cash Flows

     Cash and cash equivalents include cash and due from banks and federal funds
sold.   The  company  made  cash  payments  of  $3,325,000  and  $3,075,000  and
$29,714,000  and $23,325,000  for income taxes and interest,  respectively,  for
each of the nine month periods ended September 30, 2000 and 1999.

     Excluded  from the  consolidated  statements  of cash flows for the periods
ended September 30, 2000 and 1999 was the effect of certain non-cash activities.
The company  acquired  real estate  through  foreclosure  totaling  $465,000 and
$490,000,  respectively.  The company  also  recorded a decrease in deferred tax
assets of  $1,183,000  in 2000. An increase in deferred tax assets of $3,460,000
and a decrease in deferred tax  liabilities  of  $1,437,000  were  recognized in
1999. These variations  related to the effects of changes in net unrealized gain
(loss) on investment securities available for sale.

5. Earnings Per Share:
-------------------

     The  following  table  sets  forth the  calculations  of Basic and  Diluted
Earnings Per Share for the periods indicated:

<TABLE>
<S>                                                      <C>                                 <C>
                                                                 Three Months Ended September 30,
                                                -------------------------------------------------------------
                                                            2000                             1999
                                                -------------------------------------------------------------
                                                <C>       <C>       <C>          <C>       <C>      <C>
                                                                    Per-Share                       Per-Share
                                                Income    Shares      Amount     Income    Shares     Amount
                                                -------------------------------------------------------------
                                                             (In thousands except per share data)
Basic EPS:
Income available to common stockholders         $3,243     7,056      $.46       $3,107    7,175       $.43
Effect of Dilutive Securities:                  ======               ======      ======               ======
Incentive stock options outstanding                          117                             122
                                                           -----                           -----
Diluted EPS:
Income available to common stockholders &
 assumed conversion                             $3,243     7,173      $.45       $3,107    7,297       $.43
                                                ======               ======      ======               ======


                                                                 Three Months Ended September 30,
                                                -------------------------------------------------------------
                                                            2000                             1999
                                                -------------------------------------------------------------

                                                                    Per-Share                       Per-Share
                                                Income    Shares      Amount     Income    Shares     Amount
                                                -------------------------------------------------------------
                                                             (In thousands except per share data)
Basic EPS:
Income available to common stockholders         $9,516     7,089     $1.34       $8,708    7,182      $1.21
Effect of Dilutive Securities:                  ======               ======      ======               ======
Incentive stock options outstanding                          106                             132
                                                           -----                           -----
Diluted EPS:
Income available to common stockholders &
 assumed conversion                             $9,516     7,195     $1.32       $8,708    7,314      $1.19
                                                ======               ======      ======               ======
</TABLE>

Per share data has been adjusted to reflect stock dividends and
splits.



                                                                 -9-


<PAGE>



                     Community Banks, Inc. and Subsidiaries
         Management's Discussion of Financial Condition and Results of
                                   Operations

     Average Balances, Effective Interest Differential and Interest Yields

    Income and Rates on a Tax Equivalent Basis (b) for the Three Months Ended
                       September 30, 2000, 1999, and 1998
                             (dollars in thousands)
<TABLE>
<S>                                   <C>                             <C>                           <C>
                                        September 30,                 September 30,                  September 30,
                                  -------------------------------------------------------------------------------------------
                                            2000                          1999                            1998
                                  -------------------------------------------------------------------------------------------
                                  <C>        <C>       <C>       <C>        <C>        <C>      <C>        <C>        <C>
                                             Average                         Average                        Average
                                             Interest   Rates               Interest    Rates              Interest   Rates
                                   Average    Income/  Earned/   Average     Income/   Earned/  Average    Income/    Earned/
                                  Balance(c) Expense(a) Paid (a) Balance(c) Expense(a) Paid (a) Balance(c) Expense(a) Paid(a)
Assets:
Cash and due from banks           $ 27,370                       $ 23,181                       $ 20,730
                                  --------                       --------                       --------
Earning Assets:
 Interest-bearing deposits
  in other banks                       748   $    9      4.79%      2,011   $   22      4.34%      1,117   $   14      4.97%
                                  --------                       --------                       --------
Investment securities:
   Taxable                         262,957    4,687      7.09     229,883    3,843      6.63     179,426    2,900      6.41
   Tax-exempt (b)                   82,220    1,674      8.10      84,116    1,728      8.15      76,079    1,536      8.01
  Total investment
   securities                      345,177                        313,999                        255,505
                                  --------                       --------                       --------
  Federal funds sold                 1,174       19      6.44       2,304       29      4.99      11,780      161      5.42
                                  --------                       --------                       --------
  Loans, net of unearned
   income (b)                      656,982   14,910      9.03     555,152   11,898      8.50     471,553   10,517      8.85
                                  -------- --------  --------    -------- --------  --------    -------- --------  --------
   Total earning assets          1,004,081  $21,299      8.44     873,466  $17,520      7.96     739,955  $15,129      8.11
                                  -------- --------  --------    -------- --------  --------    -------- --------  --------
  Allowance for loans losses        (7,987)                        (7,375)                        (6,562)
  Premises, equipment, and
   other assets                     60,563                         38,557                         27,780
                                ----------                       --------                       --------
   Total assets                 $1,084,027                       $927,829                       $781,903
                                ==========                       ========                       ========
Liabilities:
Demand deposits                     61,742                         54,932                         44,071
                                  --------                       --------                       --------
Interest-bearing liabilities:
  Savings deposits                 282,412    1,076      1.52%    249,995    1,400      2.22%    249,737    1,417      2.25%
                                  -------- --------  --------    -------- --------  --------    -------- --------  --------
  Time deposits:
   $100,000 or greater              70,810                         36,622                         28,601
   Other                           362,142                        334,514                        248,632
                                  --------                       --------                       --------
  Total time deposits              432,952    6,631      6.09     371,136    4,451      4.76     277,233    3,744      5.36
                                  --------                       --------                       --------
  Total time and savings
   deposits                        715,364                        621,131                        526,970
  Short-term borrowings             10,333      171      6.58       7,965       85      4.23       3,671       47      5.08
  Long-term debt                   212,111    3,236      6.07     161,000    2,180      5.37     121,816    1,709      5.57
                                  -------- --------  --------    -------- --------  --------    -------- --------  --------
   Total interest-bearing
    liabilities                    937,808  $11,114      4.71     790,096   $8,116      4.08     652,457   $6,917      4.21
                                  -------- --------  --------    -------- --------  --------    -------- --------  --------
  Accrued interest, taxes and
   other liabilities                 7,995                          7,995                          7,373
                                  --------                       --------                       --------
   Total liabilities             1,007,545                        853,023                        703,901
  Stockholders' equity              76,482                         74,806                         78,002
                                  --------                       --------                       --------
   Total liabilities and
    stockholders' equity        $1,084,027                       $927,829                       $781,903
                                ==========                       ========                       ========
Interest income to earning
 assets                                                  8.44                           7.96                           8.11
Interest expense to earning
 assets                                                  4.40                           3.69                           3.71
                                                     --------                       --------                       --------
   Effective interest
    differential                            $10,185      4.04%               9,404      4.27%              $8,212      4.40%
                                           ========  ========             ========  ========             ========  ========
</TABLE>

     (a)  Amortization  of net deferred fees included in interest incom and rate
calculations.  (b) Interest  income on all tax-exempt  securities and loans have
been  adjusted to tax  equivalent  basis  utilizing a Federal tax rate of 35% in
2000 and 1999,  and 34% in 1998.  (c)Averages  are a combination  of monthly and
daily averages.

                                      -10-


<PAGE>


Management's Discussion, Continued
----------------------------------
Results of Operations
---------------------

     The most significant component of operating revenue is net interest income.
Net interest income is the interest  income  generated by earning assets reduced
by the interest expense applicable to interest-bearing liabilities.  Appropriate
management  of  this   relationship  in  varying   interest  rate  and  economic
environments is critical to the Corporation.

     Net  interest  income  after  provision  for loan losses for the first nine
months of 2000 was $2,386,000 or 9.9% greater than 1999.  Total interest  income
for the first nine months  increased  $9,830,000  or 20.3% while total  interest
expense  increased  $6,802,000 or 29.0% over the comparable  period of 1999. The
amount of net interest  income and total  interest  income are dependent on many
factors including the volume of earning assets and interest-bearing liabilities,
the level of and changes in interest rates and levels of non-performing  assets.
The  cost of  interest-bearing  liabilities  changes  with the  amount  of funds
necessary  to support  earning  assets,  the rates paid to attract and  maintain
deposits,  rates paid on borrowed  funds and the level of  non-interest  bearing
demand  deposits and equity  capital.  The increases in net interest  income and
total interest  income were impacted by an increase in average earning assets of
approximately  $119,890,000 or 14.1% while average interest-bearing  liabilities
increased  $130,581,000  or 17.1%  for the  first  nine  months of 2000 over the
comparable  period of 1999.  Impacting the increase in average earning assets in
2000 was an increase in average  investment  securities of  $25,413,000 or 8.2%.
Also  affecting  earning  assets  were  increases  in average  loan  balances of
$94,572,000  or  18.0%.  Affecting  the  increase  in  average  interest-bearing
liabilities  were increases in average savings  deposits of $10,317,000 or 3.9%,
increases in average time  deposits of  $77,236,000  or 18.9%,  and increases in
average long- term debt of $41,989,000 or 26.1%.  The average yields realized on
earning assets for the first nine months  approximated 8.3% and 8.0% in 2000 and
1999,   respectively.   The  average  costs  on   interest-bearing   liabilities
approximated 4.5% and 4.1% in 2000 and 1999, respectively. Net interest margins,
on a tax equivalent basis for the first nine months  approximated  4.1% and 4.2%
in 2000 and 1999, respectively.  The provision for loan losses charged to income
increased  $642,000  or 81.6% in 2000.  Total  loans  past due 90 days and still
accruing  interest,  non-performing  loans,  and other real estate  approximated
$6,976,000 and  $4,621,000,  respectively,  as of September 30, 2000 and 1999. A
significant  portion of this  increase is deemed to be temporary in nature.  The
balance of the allowance for loan losses  increased from $7,365,000 at September
30, 1999 to $8,254,000 at September 30, 2000.

     Total  other  income for the first nine  months of 2000 was  $1,326,000  or
31.4% more than total other income for the first nine months of 1999.  Affecting
this change were  increases in trust  department  income of $95,000 or 27.2% and
increases  in service  charges on deposit  accounts and other  service  charges,
commissions,  and fees of $889,000 or 40.1%. These changes reflect  management's
continuing emphasis on sources of non-interest income. Investment security gains
increased  $231,000 or 181.9% in 2000 while gains on  mortgage  sales  decreased
$260,000 or 51.2%.  Insurance  premium income increased  $335,000 or 59.9% while
all other income  increased  $36,000 or 7.7%.  Loans held for sale are comprised
for the most  part of  fixed-rate  real  estate  and  education  loans  extended
specifically  for resale.  Demand for these products has been lower in 2000 than
1999.  Loans held for sale as of  September  30, 2000  totaled  $4,197,000.  The
market value of these loans approximated book value at that time.

     Total other expenses for the first nine months of 2000 increased $2,366,000
or 13.9%. Contributing factors were increases of $1,249,000 or 13.7% in salaries
and employee benefits,  $520,000 or 21.1% in net occupancy expense, and $590,000
or 11.7% in other  operating  expense.  These  increases  were  affected  by the
opening of new banking  offices and the  employment  of  additional  lending and
trust personnel.

     The  provision for income taxes  increased  $538,000 or 20.2% for the first
nine months of 2000 in  comparison  to the first nine months of 1999.  Affecting
this change was a decrease in the amount of tax-free income  recognized in 2000.
The effective tax rates approximated 25.2% and 23.5% for the respective periods.

     The previously  described factors contributed to a net increase of $808,000
or 9.3% in net income for the nine month period ended September 30, 2000.

     The significant  changes and related causes which occurred during the three
month period ending  September  30, 2000 were  generally  consistent  with those
described for the nine month period ending  September 30, 2000.  Net  investment
security gains of $140,000 were  recognized in the third quarter of 2000,  while
net investment  security gains of $3,000 were recognized in 1999.  Gains on loan
sales were $90,000 and $94,000, respectively, for the three month periods ending
September 30, 2000 and 1999.

                                      -11-


<PAGE>

Management's Discussion, Continued
----------------------------------
Financial Condition
-------------------

     The  Corporation's   financial  condition  can  be  examined  in  terms  of
developing trends in its sources and uses of funds.  These trends are the result
of both external  environmental  factors,  such as changing economic conditions,
regulatory changes and competition,  and internal  environmental factors such as
management's  evaluation  as to the  best  use of  funds  under  these  changing
conditions.
<TABLE>
<S>                                     <C>                      <C>
                                                                 Increase (Decrease)
                                             Balance                   Since
                                        September 30, 2000        December 31, 1999
                                        ------------------       -------------------
                                                   (dollars in thousands)
<S>                                     <C>                   <C>               <C>
                                                                Amount             %
                                                                ------             -
Funding Sources:

Deposits and borrowed funds:

Non-interest bearing                        $ 70,118          $ 14,788          26.7%
Interest-bearing                             721,711            83,605          13.1
                                            --------          --------          -----
  Total deposits                             791,829            98,393          14.2

Borrowed funds                               231,986            31,648          15.8
Other liabilities                              7,981             1,012          14.5
Shareholders' equity                          77,227             6,146           8.6
                                          ----------          --------          -----
  Total sources                           $1,109,023          $137,199          14.1%
                                          ==========          ========          =====


Funding uses:

Interest earning assets:

Short-term investments                      $  1,423           $(2,416)        (62.9)%
Investment securities                        346,944            34,869          11.2
Loans, net of unearned income                689,208            95,889          16.2
                                            --------          --------          -----

  Total interest earning assets            1,037,575           128,342          14.1

Cash and due from banks                       33,532             4,438          15.3
Other assets                                  37,916             4,419          13.2
                                          ==========          ========          =====

Total uses                                $1,109,023          $137,199          14.1%
                                          ==========          ========          =====
</TABLE>


                                      -12-


<PAGE>

Management's Discussion, Continued
----------------------------------

     As of September  30, 2000 cash and due from banks was  $4,438,000  or 15.3%
greater  than it was at December  31, 1999.  Interest-bearing  time  deposits in
other banks and investment  securities increased  $34,161,000 or 10.9% while fed
funds sold decreased $1,708,000. The approximate market value of debt securities
was $12,976,000  less than amortized cost at September 30, 2000. The approximate
market value of debt  securities  was  $17,357,000  less than  amortized cost at
December 31, 1999.  Securities to be held for indefinite periods of time and not
intended  to be held to  maturity  or on a  long-term  basis are  classified  as
available for sale and carried at market value.  Securities  held for indefinite
periods of time include securities that management intends to use as part of its
asset/liability  management strategy and that may be sold in response to changes
in  interest  rates,  resultant  prepayment  risk and other  factors  related to
interest rate and resultant  prepayment risk changes.  At September 30, 2000 and
December 31, 1999,  management  classified  investment securities with amortized
costs and market values of $360,252,000  and  $346,944,000  and $328,763,000 and
$312,075,000,   respectively,   as  available  for  sale.  Net  loans  increased
$94,898,000  or 16.3% from  December 31, 1999 to September  30, 2000.  Affecting
this change were  increases  in real estate  loans of  $62,844,000  or 16.6% and
commercial  loans of  $27,497,000  or  26.6%.  The  allowance  for  loan  losses
approximated 1.20% and 1.27% of net loans at September 30, 2000 and December 31,
1999,  respectively.  The  increase  of  $2,090,000  or  13.6% in  premises  and
equipment was affected by the  establishment  of new banking  offices.  Goodwill
continues to be  amortized at an  annualized  rate of  $240,000.  As  previously
noted,  Community  Banks,  Inc. sells only  fixed-rate real estate and education
loans  specifically  designated  for  resale  on  the  secondary  market  and at
September  30, 2000 and December  31, 1999 these loans  totaled  $4,197,000  and
$4,004,000,  respectively.  Affecting  the  increase  of  $3,158,000  in accrued
interest receivable and other assets were increases in bank owned life insurance
of $5,181,000 and a decrease in deferred tax assets  associated  with unrealized
securities  losses of  $1,183,000.  These factors  contributed to an increase of
$137,199,000  or 14.1% in total assets from  December 31, 1999 to September  30,
2000.

     Total  deposits  increased  $98,393,000  or 14.2% from December 31, 1999 to
September 30, 2000.  Contributing to this increase were increases of $14,788,000
or 26.7%  in  demand  deposits,  $19,642,000  or 7.4% in  savings  deposits  and
$63,963,000 or 17.2% in total time deposits. New certificate of deposit products
affected the significant increase in time deposits.

     At  September  30,  2000  long-term  debt  totaling  $218,725,000  included
borrowings  from the Federal Home Loan Bank of  Pittsburgh of  $208,000,000  and
repurchase  agreements totaling  $10,000,000 at a weighted average interest rate
of 5.92%.

     Based on a one year interval,  the relationship of rate sensitive assets to
rate sensitive liabilities approximated 95% as of September 30, 2000.

     As of September 30, 2000 the Corporation  had risk-based  capital in excess
of the fully implemented regulatory requirements, and tier 1 plus tier 2 capital
approximated 11.2% of risk-weighted assets.

Liquidity
---------

     Liquidity is the ratio of net liquid assets to net liabilities. The primary
functions of asset/liability  management are the assurance of adequate liquidity
and  maintenance of an appropriate  balance between  interest-sensitive  earning
assets and  interest-bearing  liabilities.  Liquidity  management  refers to the
ability to meet the cash flow requirements of depositors and borrowers.


                                      -13-


<PAGE>


Management's Discussion, Continued
----------------------------------

     A continuous review of net liquid assets is conducted to assure appropriate
cash  flow to meet  needs  and  obligations  in a timely  manner.  There  was an
adequate  relationship  of liquid assets to short-term  liabilities at September
30, 2000.

Forward Outlook
---------------

     Management  is  unaware  of  any  regulatory   recommendations   which,  if
implemented,  would have a material effect on the liquidity,  capital resources,
or operations of Community Banks,  Inc.  Adequate loan demand is anticipated for
the remainder of 2000 and  management  will continue to carefully  evaluate this
demand based on the  creditworthiness  of the borrower and relative  strength of
the economy in the Corporation's market.































                                      -14-


<PAGE>



                     COMMUNITY BANKS, INC. and SUBSIDIARIES
                   PART II - OTHER INFORMATION AND SIGNATURES

Item 6. Exhibits and Reports on Form 8-K/A1
        -----------------------------------

      (a) Exhibits - none

      (b) Registrant was not required to file any reports on
          Form 8-K during the quarter ending September 30, 2000.


                                   SIGNATURES

     Pursuant to the  requirements  of the Securities  Exchange Act of 1934, the
Registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned thereunto duly authorized.

                             COMMUNITY BANKS, INC.
                                  (Registrant)




Date November 8, 2000                                /S/ Eddie L. Dunklebarger
     ------------------                              -------------------------
                                                       Eddie L. Dunklebarger
                                                              President
                                                     (Chief Executive Officer)


Date November 8, 2000                                /S/ Terry L. Burrows
     ------------------                              -------------------------
                                                          Terry L. Burrows
                                                     Executive Vice-President
                                                     (Chief Financial Officer)
















                                      -15-


<PAGE>