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 Quarter Ended March 31, 2003

                                   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)

750 East Park Dr., Harrisburg, PA                                17111
----------------------------------------                      -----------
(Address of Principal Executive Offices)                       (Zip Code)

                                 (717) 920-1698
                        -------------------------------
                        (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
                                       -----     -----

Indicate  by check mark  whether  the  registrant  is an  accelerated  filer (as
defined in Rule 12b-2 of the Exchange Act). YES  X     NO
                                               -----     -----

                Number of shares outstanding as of March 31, 2003

CAPITAL STOCK-COMMON                                            9,590,000
--------------------                                      ---------------------
 (Title of Class)                                          (Outstanding Shares)







<PAGE>


                     COMMUNITY BANKS, INC. and SUBSIDIARIES

                                   INDEX 10-Q


PART I - Financial Information

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................... 7-10

Item 2.     Management's Discussion and Analysis of Financial
            Condition and Results of Operation.............................11-16

Item 3.     Quantitative and Qualitative Disclosures About Market Risk.....   17

Item 4.     Controls and Procedures .......................................   17


PART II - Other Information

Item 1.     Legal Proceedings..............................................   18

Item 2.     Changes in Securities and Use of Proceeds......................   18

Item 3.     Defaults Upon Senior Securities................................   18

Item 4.     Submission of Matters to a Vote of Security Holders............   18

Item 5.     Other Information..............................................   18

Item 6.     Exhibits and Reports on Form 8-K...............................18-20


SIGNATURES.................................................................21-23







                                       2
<PAGE>
COMMUNITY BANKS, INC. AND SUBSIDIARIES

                         PART I - FINANCIAL INFORMATION


Item 1.  Financial Statements
-----------------------------
<TABLE>
<CAPTION>

Consolidated Interim Balance Sheets
(Unaudited)
(Dollars in thousands except per share data)

                                                                             March 31,                December 31,
                                                                               2003                       2002
                                                                          --------------             -------------

ASSETS

<S>                                                                       <C>                        <C>
Cash and due from banks.....................................              $       41,740             $      36,137
Interest-bearing time deposits in other banks...............                       1,106                       951
Investment securities, available for sale...................                     716,696                   667,801
Loans.......................................................                     940,730                   904,568
   Less:  Allowance for loan losses.........................                     (12,653)                  (12,343)
                                                                          --------------              ------------
              Net loans.....................................                     928,077                   892,225
Premises and equipment, net.................................                      24,012                    24,209
Goodwill....................................................                       1,031                     1,031
Identifiable intangible assets..............................                         710                       729
Other real estate owned.....................................                         729                     1,183
Loans held for sale.........................................                       8,292                    11,483
Accrued interest receivable and other assets................                      45,551                    44,149
                                                                          --------------             -------------

     Total assets...........................................              $    1,767,944             $   1,679,898
                                                                          ==============             =============

LIABILITIES

Deposits:
   Demand (non-interest bearing)............................              $      166,028             $     168,277
   Savings..................................................                     371,859                   345,598
   Time.....................................................                     501,018                   506,991
   Time in denominations of $100,000 or more................                     107,238                   112,047
                                                                          --------------             -------------
   Total deposits..........................................                    1,146,143                 1,132,913
Short-term borrowings.......................................                     141,892                    69,125
Long-term debt..............................................                     319,823                   320,533
Subordinated debentures.....................................                      15,000                    15,000
Accrued interest payable and other liabilities..............                      14,248                    13,165
                                                                          --------------             -------------

   Total liabilities........................................                   1,637,106                 1,550,736
                                                                          --------------             -------------

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; 9,880,000 and 9,881,000 shares
   issued in 2003 and 2002, respectively....................                      49,338                    47,053
Surplus.....................................................                      57,209                    46,418
Retained earnings...........................................                      25,204                    35,344
Accumulated other comprehensive income, net of
   tax of $3,216 and $3,520, respectively...................                       5,972                     6,538
Less: Treasury stock of 290,000 and 271,000
   shares at cost, respectively.............................                      (6,885)                   (6,191)
                                                                          --------------             -------------
  Total stockholders' equity................................                     130,838                   129,162
                                                                          --------------             -------------

  Total liabilities and stockholders' equity................              $    1,767,944             $   1,679,898
                                                                          ==============             =============

</TABLE>

Issued and treasury shares have been restated to reflect the stock dividend
payable April 30, 2003. The accompanying notes are an integral part of the
consolidated interim financial statements.


                                       3
<PAGE>

<TABLE>
<CAPTION>

COMMUNITY BANKS, INC. AND SUBSIDIARIES
Consolidated Interim Statements of Income
(Unaudited)
(Dollars in thousands except per share data)

                                                                          Three Months Ended
                                                                               March 31,
                                                                      --------------------------
                                                                          2003            2002
                                                                      --------------------------
INTEREST INCOME:
<S>                                                                   <C>             <C>
   Interest and fees on loans.....................................    $   16,066      $   16,608
   Interest and dividends on investment securities:
      Taxable.....................................................         5,111           4,955
      Exempt from federal income tax..............................         2,592           2,507
   Federal funds interest.........................................           ---              26
   Other interest income..........................................             2              11
                                                                      ----------      ----------
      Total interest income.......................................        23,771          24,107
                                                                      ----------      ----------

INTEREST EXPENSE:
   Interest on deposits:
      Savings.....................................................           755           1,124
      Time........................................................         4,378           5,199
      Time in denominations of $100,000 or more...................           885             967
   Interest on short-term borrowings and long-term debt...........         4,441           4,180
   Interest on subordinated debentures............................           179             ---
   Federal funds purchased and repo interest......................            60             168
                                                                      ----------      ----------
      Total interest expense......................................        10,698          11,638
                                                                      ----------      ----------
      Net interest income.........................................        13,073          12,469
Provision for loan losses.........................................           400           1,600
                                                                      ----------      ----------
      Net interest income after provision for loan losses.........        12,673          10,869
                                                                      ----------      ----------

NON-INTEREST INCOME:
   Investment management and trust services.......................           317             201
   Service charges on deposit accounts............................         1,041             760
   Other service charges, commissions and fees....................           754             651
   Investment security gains .....................................         1,047             518
   Insurance premium income and commissions.......................           410             530
   Gains on loan sales............................................           426             385
   Other income...................................................           394             637
                                                                      ----------      ----------
      Total non-interest income...................................         4,389           3,682
                                                                      ----------      ----------

NON-INTEREST EXPENSES:
   Salaries and employee benefits.................................         5,900           5,152
   Net occupancy expense..........................................         1,766           1,196
   Other operating expense........................................         3,123           3,075
                                                                      ----------      ----------
      Total non-interest expenses.................................        10,789           9,423
                                                                      ----------      ----------
      Income before income taxes..................................         6,273           5,128
Income taxes .....................................................         1,172             677
                                                                      ----------      ----------

      Net income..................................................    $    5,101      $    4,451
                                                                      ==========      ==========

Consolidated per share data:
   Basic earnings per share.......................................    $      .53      $      .46
   Diluted earnings per share.....................................    $      .52      $      .45
   Dividends declared.............................................    $      .19      $      .15

</TABLE>

Per share data has been restated to reflect the stock dividend payable April 30,
2003. The accompanying notes are an integral part of the consolidated interim
financial statements.




                                       4
<PAGE>

<TABLE>
<CAPTION>


COMMUNITY BANKS, INC. AND SUBSIDIARIES
Consolidated Interim Statements of Changes in Stockholders' Equity
(Unaudited)
(Dollars in thousands except per share data)

                                                                   Three Month Periods Ended March 31

                                                                                       Accumulated
                                                                                          Other
                                               Common                 Retained        Comprehensive        Treasury         Total
                                               Stock      Surplus     Earnings            Income             Stock         Equity
                                              ------------------------------------------------------------------------------------

<S>                                           <C>         <C>          <C>              <C>                <C>            <C>
Balance, January 1, 2002.................     $44,839     $35,906      $36,923          $ (4,024)          $ (2,395)      $111,249
   Comprehensive income:
      Net income.........................                                4,451                                               4,451
      Change in unrealized gain (loss)
      on securities, net of tax of $(1,035)
        and reclassification adjustment
         of $518 ........................                                                 (1,923)                           (1,923)
                                                                                                                          --------
     Total comprehensive income..........                                                                                    2,528
Cash dividends ($.15 per share)..........                               (1,498)                                             (1,498)
5% stock dividend (448,000 shares).......       2,241      10,177      (12,418)
Purchases of treasury stock
   (70,000 shares).......................                                                                    (1,763)        (1,763)
Issuance of additional shares
   (32,000 net shares of treasury
    stock reissued)......................          (2)                    (231)                                 668            435
                                              -------     -------      -------          --------           --------       --------

Balance, March 31, 2002..................     $47,078     $46,083      $27,227          $ (5,947)          $ (3,490)      $110,951
                                              =======     =======      =======          ========           ========       ========


Balance, January 1, 2003.................     $47,053     $46,418      $35,344          $  6,538           $ (6,191)      $129,162
   Comprehensive income:
     Net income..........................                                5,101                                               5,101
    Change in unrealized gain (loss)
    on securities, net of tax of $(305)
     and reclassification adjustment
      of $1,047..........................                                                   (566)                             (566)
                                                                                                                          --------
     Total comprehensive income..........                                                                                    4,535
Cash dividends ($.19 per share)..........                               (1,830)                                             (1,830)
5% stock dividend (470,000 shares).......       2,290      10,668      (12,958)
Purchases of treasury stock
....(69,000 shares).......................                                                                    (1,939)        (1,939)
Issuance of additional shares
    (51,000 net shares of treasury
....stock reissued and 1,000 shares
    of common stock canceled)............          (5)        123         (453)                               1,245            910
                                              -------     -------      -------          --------           --------       --------

Balance, March 31, 2003..................     $49,338     $57,209      $25,204          $  5,972           $ (6,885)      $130,838
                                              =======     =======      =======          ========           ========       ========

</TABLE>

Per share data has been restated to reflect the stock dividend payable April 30,
2003. The accompanying notes are an integral part of the consolidated interim
financial statements.


                                       5
<PAGE>

<TABLE>
<CAPTION>

COMMUNITY BANKS, INC. AND SUBSIDIARIES
Consolidated Interim Statements of Cash Flows
(Unaudited)
(Dollars in thousands)
                                                                                              Three Months Ended
                                                                                                   March 31,
                                                                                     --------------------------------------
                                                                                        2003                       2002
                                                                                     --------------------------------------
Operating Activities:
<S>                                                                                  <C>                        <C>
   Net income.....................................................                   $     5,101                $     4,451
Adjustments to reconcile net income to net cash
   provided by operating activities:
     Provision for loan losses....................................                           400                      1,600
     Depreciation and amortization................................                         1,416                        593
     Investment security gains....................................                        (1,047)                      (518)
     Loans originated for sale....................................                       (20,197)                   (17,077)
     Proceeds from sales of loans.................................                        23,814                     21,759
     Gains on loan sales..........................................                          (426)                      (385)
     Change in other assets, net..................................                          (658)                    (3,566)
     Change in accrued interest payable and
      other liabilities, net......................................                         1,083                       (157)
                                                                                     -----------                -----------
     Net cash provided by operating activities....................                         9,486                      6,700
                                                                                     -----------                -----------

Investing Activities:
   Net (increase) in interest-bearing time
    deposits in other banks.......................................                          (155)                      (900)
   Proceeds from sales of investment securities...................                        59,688                     45,404
   Proceeds from maturities of investment securities..............                        36,661                      3,020
   Purchases of investment securities.............................                      (145,734)                   (84,693)
   Net increase in total loans....................................                       (36,259)                   (24,908)
   Net increase in premises and equipment.........................                          (512)                      (786)
                                                                                     -----------                -----------
   Net cash used by investing activities..........................                       (86,311)                   (62,863)
                                                                                     -----------                -----------

Financing Activities:
   Net increase in total deposits.................................                        13,230                     92,782
   Net increase (decrease) in short-term borrowings...............                        72,767                    (17,422)
   Proceeds from issuance of long-term debt.......................                           ---                        ---
   Repayment of long-term debt....................................                          (710)                   (21,373)
   Cash dividends.................................................                        (1,830)                    (1,498)
   Purchases of treasury stock....................................                        (1,939)                    (1,763)
   Proceeds from issuance of common stock.........................                           910                        435
                                                                                     -----------                -----------
      Net cash provided by financing activities...................                        82,428                     51,161
                                                                                     -----------                -----------

     Increase (decrease) in cash and cash equivalents.............                         5,603                     (5,002)

   Cash and cash equivalents at beginning of period...............                        36,137                     44,764
                                                                                     -----------                -----------
   Cash and cash equivalents at end of period.....................                   $    41,740                $    39,762
                                                                                     ===========                ===========
</TABLE>


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



                                       6
<PAGE>
COMMUNITY BANKS, INC. AND SUBSIDIARIES
Notes to Consolidated Interim Financial Statements
 (Unaudited)


1.  Summary of Significant Accounting Policies
    ------------------------------------------

     Basis of Presentation - The accompanying  unaudited  consolidated financial
statements of Community Banks , Inc. and  Subsidiaries  ("Community")  have been
prepared in accordance  with  accounting  principles  generally  accepted in the
United States for interim  financial  information and  instructions to Form 10-Q
and Article 10 of Regulation  S-X.  Accordingly,  they do not include all of the
information and footnotes required by accounting  principles  generally accepted
in the United  States  for  complete  financial  statements.  In the  opinion of
management, all adjustments, consisting of normal recurring accruals, considered
necessary for a fair presentation have been included.

     Operating  results  for the three  months  ended  March 31,  2003,  are not
necessarily  indicative  of the results  that may be expected for the year ended
December 31, 2003.

     For  further  information,  refer  to the  audited  consolidated  financial
statements,  and footnotes  thereto,  included in the Annual Report on Form 10K,
for the year ended December 31, 2002.

     Community  Banks,  Inc.  (Community) is a financial  holding  company whose
wholly-owned  subsidiaries include Community Banks,  Community Bank Investments,
Inc.  (CBII),  Community Banks Life Insurance Co. (CBLIC) and CMTY Capital Trust
I.  Community  Banks  provides a wide range of  services  through its network of
offices in Adams,  Cumberland,  Dauphin,  Luzerne,  Northumberland,  Schuylkill,
Snyder, and York Counties in Pennsylvania and Carroll County in Maryland.

     Statement  of Cash Flows - Cash and cash  equivalents  include cash and due
from banks and federal funds sold. The company made cash payments of $10,000 and
$50,000  and   $10,624,000  and  $11,668,000  for  income  taxes  and  interest,
respectively, for each of the three month periods ended March 31, 2003 and 2002.
Excluded  from the  consolidated  statements of cash flows for the periods ended
March 31,  2003 and 2002 was the  effect of  certain  non-cash  activities.  The
company acquired real estate through foreclosure totaling $7,000 and $2,218,000,
respectively.

     Stock-based  Compensation - Community has a stock-based  compensation  plan
and accounts for this plan under the recognition  and  measurement  principle of
APB  No.  25,   "Accounting   for  Stock  Issued  to  Employees",   and  related
Interpretations. No stock-based compensation cost is reflected in net income, as
all options  granted  under this plan had an exercise  price equal to the market
value of the underlying  common stock on the date of grant.  The following table
illustrates  the effect on net income and earnings  per share if  Community  had
applied the fair value recognition  provisions of FASB No. 123,  "Accounting for
Stock-Based Compensation", to stock-based compensation.
<TABLE>
<CAPTION>

                                                                      Three Months Ended March 31,
                                                                  (In Thousands, Except Per Share Data)
                                                                  -------------------------------------
                                                                           2003             2002
                                                                       ----------------------------
<S>                                                                       <C>              <C>
        Net income, as reported                                           $5,101           $4,451
        Deduct:  Total stock-based
           compensation expense determined under fair
           value based method for all awards, net of
           related tax effects                                              (127)             (99)
                                                                          ------           ------

        Pro forma net income                                              $4,974           $4,352
                                                                          ======           ======

        Earnings per share:
           Basic-as reported                                                $.53             $.46
                                                                            ====             ====
           Basic-pro forma                                                  $.52             $.45
                                                                            ====             ====

           Diluted-as reported                                              $.52             $.45
                                                                            ====             ====
           Diluted-pro forma                                                $.51             $.44
                                                                            ====             ====
</TABLE>
                                       7
<PAGE>


COMMUNITY BANKS, INC. AND SUBSIDIARIES
Notes to Consolidated Interim Financial Statements, Continued
(Unaudited)


     Recent Accounting  Developments - SFAS No. 149, "Amendment of Statement 133
on Derivative  Instruments  and Hedging  Activities,"  was issued in April 2003.
SFAS 149 amends and clarifies financial accounting and reporting for derivatives
instruments,   including  certain  derivative   instruments  embedded  in  other
contracts  (collectively  referred to as derivatives) and for hedging activities
under SFAS 133, "Accounting for Derivative  Instruments and Hedging Activities."
SFAS 149 is effective  for  contracts  entered  into or modified  after June 30,
2003. The adoption of this standard is not expected to have a material impact on
results of operations, financial position, or liquidity.



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

     The amortized cost and fair values of investment securities at March 31,
2003 and December 31, 2002 were as follows:

<TABLE>
<CAPTION>


                                                                                                  March 31, 2003
                                                                                                  --------------
                                                                                       Amortized                   Fair
                                                                                          Cost                     Value
                                                                                      -----------               -----------

<S>                                                                                   <C>                       <C>
U.S. Treasury and federal agencies ......................................             $   143,230               $   146,083
Mortgage-backed U.S. government agencies.................................                 214,923                   218,199
Obligations of states and political subdivisions.........................                 185,359                   190,220
Corporate securities.....................................................                  97,139                    95,268
Equity securities........................................................                  64,534                    66,926
                                                                                      -----------               -----------

     Total...............................................................             $   705,185               $   716,696
                                                                                      ===========               ===========
</TABLE>

<TABLE>
<CAPTION>


                                                                                                December 31, 2002
                                                                                                -----------------
                                                                                       Amortized                    Fair
                                                                                          Cost                      Value
                                                                                      -----------               -----------

<S>                                                                                   <C>                       <C>
U.S. Treasury and federal agencies ......................................             $   130,947               $   134,334
Mortgage-backed U.S. government agencies.................................                 206,450                   210,825
Obligations of states and political subdivisions.........................                 172,391                   177,135
Corporate securities.....................................................                  95,022                    93,094
Equity securities........................................................                  50,610                    52,413
                                                                                      -----------               -----------

     Total...............................................................             $   655,420               $   667,801
                                                                                      ===========               ===========

</TABLE>



                                       8
<PAGE>
COMMUNITY BANKS, INC. AND SUBSIDIARIES
Notes to Consolidated Interim Financial Statements, Continued
 (Unaudited)

3. Allowance for loan losses
   -------------------------

     Changes in the allowance for loan losses are as follows:
<TABLE>
<CAPTION>

                                                                  Three Months Ended        Year Ended         Three Months Ended
                                                                       March 31,            December 31,            March 31,
                                                                         2003                   2002                   2002
                                                                  ------------------        -----------        ------------------

<S>                                                                  <C>                    <C>                     <C>
Balance, January 1...................................                $  12,343              $  12,132               $  12,132
Provision for loan losses............................                      400                  3,350                   1,600
Loan charge-offs.....................................                     (292)                (4,180)                 (1,462)
Recoveries...........................................                      202                  1,041                     192
                                                                     ---------              ---------               ---------
Balance, March 31, 2003, December 31,
 2002, and March 31, 2002............................                $  12,653              $  12,343               $  12,462
                                                                     =========              =========               =========
</TABLE>
<TABLE>
<CAPTION>

                                RISK ELEMENTS (a)


                                                                     March 31,             December 31,             March 31,
                                                                        2003                   2002                   2002
                                                                     ---------              ---------               ---------
<S>                                                                  <C>                    <C>                     <C>
Loans on which accrual of interest has been
 discontinued:
     Commercial................................................      $   2,784              $     757               $   5,892
     Residential and commercial mortgages......................          6,832                  8,250                   2,737
     Other.....................................................            647                    386                     510
                                                                     ---------              ---------               ---------
                                                                        10,263                  9,393                   9,139
                                                                     ---------              ---------               ---------

Other real estate..............................................            729                  1,183                   2,085
                                                                     ---------              ---------               ---------

       Total non-performing assets.............................         10,992                 10,576                  11,224

Loans past due 90 days or more and still accruing interest:
     Commercial................................................             45                    817                     605
     Residential and commercial mortgages......................             38                     49                     475
     Consumer..................................................             22                     95                      87
                                                                     ---------              ---------               ---------
                                                                           105                    961                   1,167
                                                                     ---------              ---------               ---------

       Total risk elements.....................................      $  11,097              $  11,537               $  12,391
                                                                     =========              =========               =========

</TABLE>

(a) The determination to discontinue the accrual of interest on non-performing
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 March 31, 2003 and December 31, 2002, the recorded investment in loans
for which impairment has been recognized totaled $7,391,000 and $6,994,000,
respectively. The valuation allowance for impaired loans totaled $381,000 and
$326,000 at March 31, 2003 and December 31, 2002, respectively. For the three
months ended March 31, 2003, and 2002 the average recorded investment in
impaired loans approximated $7,192,000 and $7,563,000, respectively. Interest
recognized on impaired loans on the cash basis for the three month periods
ending March 31, 2003 and 2002 was not significant.

                                       9
<PAGE>


COMMUNITY BANKS, INC. AND SUBSIDIARIES
Notes to Consolidated Interim Financial Statements, Continued
 (Unaudited)


4. Earnings Per Share:
   -------------------

          The following table sets forth the calculations of Basic and Diluted
Earnings Per Share for the periods indicated:
<TABLE>
<CAPTION>
                                                                                     Three Months Ended March 31,
                                                                   ----------------------------------------------------------------
                                                                                2003                                 2002
                                                                   ----------------------------------------------------------------
                                                                                        Per-Share                         Per-Share
                                                                    Income     Shares    Amount         Income     Shares    Amount
                                                                   ----------------------------------------------------------------

<S>                                                                 <C>         <C>       <C>           <C>         <C>       <C>
(In thousands except per share data) Basic EPS:
Income available to common stockholders.......................      $5,101      9,597     $ .53         $4,451      9,733     $ .46
                                                                    ======                =====         ======                =====
Effect of Dilutive Securities: ...............................
Incentive stock options outstanding...........................                    225                                 211
                                                                                -----                               -----
Diluted EPS:
Income available to common stockholders &
   assumed conversion.........................................      $5,101      9,822     $ .52         $4,451      9,944     $ .45
                                                                    ======                =====         ======                =====
</TABLE>

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



5.   Letters of Credit
     ------------------

     Outstanding letters of credit written are conditional commitments issued by
the bank subsidiary to guarantee the performance of a customer to a third party.
Community's  exposure to credit loss in the event of nonperformance by the other
party to the financial  instrument for standby  letters of credit is represented
by the contractual amount of those  instruments.  Community had $22.2 million of
standby  letters of credit as of March 31, 2003.  The  subsidiary  bank uses the
same credit policies in making conditional obligations as it does for on-balance
sheet instruments.

     The  majority of these  standby  letters of credit  expire  within the next
twelve  months.  The  credit  risk  involved  in  issuing  letters  of credit is
essentially the same as that involved in extending other loan  commitments.  The
subsidiary bank requires  collateral and personal  guarantees  supporting  these
letters of credit as deemed  necessary.  Management  believes  that the proceeds
obtained  through  a  liquidation  of such  collateral  and the  enforcement  of
personal guarantees would be sufficient to cover the maximum potential amount of
future payments required under the corresponding guarantees.  The current amount
of the liability as of March 31, 2003 for  guarantees  under standby  letters of
credit issued after December 31, 2002 is not material.



                                       10
<PAGE>

COMMUNITY BANKS, INC. AND SUBSIDIARIES


Item 2.     Management's Discussion and Analysis of Financial Condition and
            ---------------------------------------------------------------
            Results of Operations
            ---------------------



Overview

     The purpose of this review is to provide additional  information  necessary
to  fully  understand  the  consolidated  financial  condition  and  results  of
operations of Community.  Throughout  this review,  net interest  income and the
yield on  earning  assets  are  stated on a fully  taxable-equivalent  basis and
balances  represent  average  daily  balances  unless  otherwise  indicated.  In
addition,  income  statement  comparisons are based on the first three months of
2003 compared to the same period of 2002 unless otherwise indicated.

Forward-Looking Statements

     Periodically,  Community has made and will continue to make statements that
may include forward-looking information. Community cautions that forward-looking
information disseminated through financial presentations should not be construed
as guarantees of future performance. Furthermore, actual results may differ from
expectations  contained  in such  forward-looking  information  as a  result  of
factors  that  are  not  predictable.  Examples  of  factors  that  may  not  be
predictable  or may be  out of  management's  control  include:  the  effect  of
prevailing  economic  conditions;  unforeseen or dramatic changes in the general
interest rate environment; actions or changes in policies of the Federal Reserve
Board and other  government  agencies;  and business  risk  associated  with the
management of the credit extension  function and fiduciary  activities.  Each of
these factors could affect estimates,  assumptions,  uncertainties and risk used
to develop forward-looking information, and could cause actual results to differ
materially from management's expectations regarding future performance.

Critical Accounting Policies

     The  following is a summary of those  accounting  policies  that  Community
considers to be most  important to the portrayal of its financial  condition and
results of operations as they require management's most difficult judgments as a
result of the need to make  estimates  about the  effects  of  matters  that are
inherently uncertain.

     Provision  and Allowance for Loan Losses - The allowance for loan losses is
evaluated  on a  regular  basis by  management  and is based  upon  management's
periodic  review  of the  collectibility  of the  loans in  light of  historical
experience, the nature and volume of the loan portfolio, adverse situations that
may affect the borrower's  ability to repay,  estimated  value of any underlying
collateral and prevailing  economic  conditions.  This  evaluation is inherently
subjective as it requires estimates that are susceptible to significant revision
as additional information becomes available.

     Impairment  is  measured  on a  loan  by  loan  basis  for  commercial  and
construction  loans over $250,000 by either the present value of expected future
cash  flows  discounted  at the  loan's  effective  interest  rate,  the  loan's
obtainable  market  price,  or the fair value of the  collateral  if the loan is
collateral dependent.

     Large  groups  of  smaller  balance   homogeneous  loans  are  collectively
evaluated for impairment.  Accordingly,  Community does not separately  identify
individual consumer and residential loans for impairment disclosures.

     Loans  continue to be classified as impaired  unless they are brought fully
current and the  collection  of scheduled  interest and  principal is considered
probable.  When an impaired loan or portion of an impaired loan is determined to
be  uncollectible,  the  portion  deemed  uncollectible  is charged  against the
related valuation allowance, and subsequent recoveries,  if any, are credited to
the valuation allowance.


                                       11
<PAGE>
Management's Discussion, Continued
----------------------------------

Summary of Financial Results

     Community,  the parent  company of  Community  Banks,  continued a trend of
improved  earnings  performance  in the first  quarter of 2003,  and reported an
increase  in  earnings  per share to  $0.52,  a 16%  improvement  over the $0.45
recorded  in the year  earlier  period.  Earnings  per share  amounts  have been
restated to reflect the impact of the  previously  announced  5% stock  dividend
that was paid  April 30,  2003 to  shareholders  of  record  on April 16,  2003.
Similarly,  net income  reflected a 15%  increase as first  quarter 2003 results
reached  $5.1  million  versus  $4.5  million  in  the  same  quarter  of  2002.
Performance  in the  first  quarter  included  increased  levels  of gains  from
investment  transactions,  continued  improvement  in the core  revenue  stream,
resilient  asset  quality  measurements  and the  offsetting  impact  of  higher
marketing expenses and the costs associated with new office openings.  Return on
average assets and return on average  equity,  two common  measures of financial
institution performance,  reached 1.21% and 15.82%, respectively,  for the three
months ended March 31, 2003.

     Despite  the rather  "soft"  economy  and the  disquieting  impact of world
events,  Community  was able to report  improvements  in a number  of  important
performance  areas.  The gains from sales of  investments  included in the first
quarter results were attributed to discrete  opportunities to realize gains from
both the sales of  callable  portfolio  investments  and  specific  bank  equity
securities.  Such gains  served to lift net income and earnings per share during
the quarter by almost $700,000, or $0.07 per share,  respectively.  On the other
hand,  results were adversely  affected by higher than normal marketing expenses
that were part of a plan to broaden  customer  awareness of Community  Banks and
the services it provides.  The timing of these  expenditures  corresponded  with
market  expansion   opportunities   within  several  of  the  markets  currently
experiencing disruption from merger activity in the financial services industry.
Community  intends to continue to selectively  expand marketing  expenditures to
promote brand  awareness  during 2003.  These  marketing  expenditures,  and the
expenses associated with new office openings,  reflect Community's commitment to
continue  to  build  market  share  in  existing  markets,   and  to  invest  in
opportunities to enter vital new markets.

     Other areas of performance  improvement included growth in core lending and
deposit-taking activities. Loan balances at the end of the first quarter of 2003
reached  $928 million and grew 7.1% from the year  earlier  period.  At the same
time,  deposits  reached $1.15 billion,  an increase of 4.6% from the end of the
first  quarter of 2002.  While  balance sheet growth rates were less robust than
those  experienced in the early half of 2002, the increases  served to fuel a 5%
increase in net interest income, the single largest source of revenue for banks,
from the first quarter of 2002. This improvement occurred despite compression in
net interest  margin to 3.68%,  substantially  below the year earlier  margin of
3.96%.  Falling  interest rates continued to exert pressure on margin during the
quarter.  Management  recognizes  that further  declines in interest rates could
serve to  constrain  growth in revenue  from net  interest  income.  Community's
balance sheet posture has been  restructured  in  anticipation  of higher future
interest  rates.  Prospects  for  more  significant  margin  improvement  may be
hampered  if rates were to decline  substantially  from  their  current  levels.
However,  management  is confident  that  extended  periods of  additional  rate
declines are  unlikely,  and  believes  that it is properly  positioned  to take
advantage of a gradual increase in the overall level of interest rates.

     Revenue expansion also occurred in non-interest  sources of income,  net of
investment  security gains,  which grew in excess of 5% and included  continuing
expansion from fees on deposit services,  gains from the sale of mortgage loans,
and higher fees from asset management services.

     In the first  quarter of 2003,  Community  continued to report  outstanding
credit quality metrics.  For example, net charge-offs for the quarter aggregated
only  $90,000,  or 0.04% of loans on an  annualized  basis.  This  compares very
favorably with the ratio of 0.36% for all of 2002. As a result,  the Company was
able to reduce its  provision  for loan losses to $400,000,  well below the $1.6
million  charge  taken in the  first  quarter  of 2002.  At the same  time,  the
allowance  for loan  losses,  which is used to  offset  credit  risk in the loan
portfolio, rose to $12.7 million or 1.35% of loans. Community also experienced a
decline in the level of problem  assets,  an  additional  indicator of favorable
loan quality trends.

     After  the end of the  quarter,  Community  completed  its  acquisition  of
Abstracting  Company of York, a title insurance and abstracting  agency.  Before
the end of the second  quarter,  Community  expects to complete  the  previously
announced mergers of Shultz Insurance Agency in Hanover,  Pennsylvania,  and the
Erie Financial Group, Inc., a York, Pennsylvania-based mortgage banking company.

                                       12
<PAGE>
Management's Discussion, Continued
----------------------------------

Average Statement of Condition

The average balance sheets for the three months ended March 31, 2003 and 2002
were as follows (in thousands):

<TABLE>
<CAPTION>

                                                                                                           Change
                                                           2003               2002                 Volume             %
-------------------------------------------------------------------------------------------------------------------------
<S>                                                    <C>                 <C>                   <C>                 <C>
Cash and due from banks                                $    32,430         $    34,470           $  (2,040)          (6)%
Federal funds sold and other                                 1,159               8,138              (6,979)         (86)%
Investments                                                686,204             557,794             128,410            23%
Loans                                                      915,652             859,175              56,477             7%
Allowance for loan losses                                   12,641              12,399                 242             2%
-------------------------------------------------------------------------------------------------------------------------
Net loans                                                  903,011             846,776              56,235             7%
Goodwill and identifiable intangibles                        1,753                 956                 797            83%
Loans held for resale                                        8,890               7,098               1,792            25%
Other assets                                                69,437              64,528               4,909             8%
-------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS                                           $ 1,702,884         $ 1,519,760           $ 183,124            12%
-------------------------------------------------------------------------------------------------------------------------


Noninterest-bearing deposits                           $   158,128         $   157,220           $     908             1%
Interest-bearing deposits                                  969,999             880,916              89,083            10%
Short-term borrowings                                       96,119              56,594              39,525            70%
Long-term debt                                             320,263             297,500              22,763             8%
Subordinated debentures                                     15,000                 ---              15,000            n/a
Other liabilities                                           12,575               9,571               3,004            31%
-------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES                                        1,572,084           1,401,801             170,283            12%
-------------------------------------------------------------------------------------------------------------------------

STOCKHOLDERS' EQUITY                                       130,800             117,959              12,841            11%
-------------------------------------------------------------------------------------------------------------------------

  TOTAL LIABILITIES AND
    STOCKHOLDERS' EQUITY                               $ 1,702,884         $ 1,519,760           $ 183,124            12%
-------------------------------------------------------------------------------------------------------------------------
</TABLE>


     Loan growth  trends have been fairly steady  throughout  2002 and into 2003
and continue to be  influenced by external  factors  present in 2002 within both
the commercial and consumer sectors. Commercial loan growth continues to be more
concentrated  in the  commercial  real estate  market.  Residential  real estate
lending, composed primarily of loans to single-family creditors, has experienced
a steady decline as a result of refinancing  activity and the  accessibility  of
secondary  market  liquidity,  with most new credits being sold in the secondary
market.  This strategy  reduces the interest rate risk  associated with consumer
preferences for long term, fixed rate lending,  and provides valuable  liquidity
for other forms of relationship  lending.  Consumer demand for credit facilities
continues to be a significant contributing factor to sustaining lending during a
period when  commercial  borrowing has declined from more robust earlier trends.
In the latter  part of the first  quarter of 2003,  Community  began  offering a
longer-term  equity loan with bi-weekly  payments as an alternative to consumers
seeking low cost financing.

     Deposit  balances  remain  the  primary  source of  funding  for  financial
institutions  and  Community   recognized   growth  of  11%  in  this  important
core-funding  source.  Throughout  2002,  deposit growth occurred evenly between
core accounts and time deposits.  In the first quarter of 2003, deposit products
such as Community's  higher interest PowerNOW Plus accounts  contributed to more
growth within the interest  bearing deposit  accounts than in demand deposits or
time deposits.

     Community has made strategic use of relatively  inexpensive funding sources
to augment its funding  needs.  Throughout  the first quarter of 2003,  advances
from the Federal Home Loan Bank were increased.  In December of 2002, management
executed a pooled trust  preferred  issuance of $15 million in order to increase
the amount of regulatory capital.  The use of these alternative funding vehicles
continues  to provide  the excess  liquidity  necessary  to fund  earning  asset
growth.

                                       13
<PAGE>

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

Net Interest Income

     The  following  table  summarizes,  on a fully  taxable  equivalent  basis,
changes in net  interest  income and net  interest  margin for the three  months
ended March 31, 2003 and 2002 (in thousands):
<TABLE>
<CAPTION>


                                                2003                          2002                  Increase   (Decrease)
                                        Amount        Yield/rate     Amount          Yield/rate      Amount    Yield/rate
-------------------------------------------------------------------------------------------------------------------------
<S>                                  <C>                 <C>      <C>                   <C>         <C>             <C>
Interest income                      $   25,289          6.38%    $   25,584            7.26%       $   (295)       (.88)
Interest expense                         10,698          3.10%        11,638            3.82%           (940)       (.72)
-------------------------------------------------------------------------------------------------------------------------
Net interest income                  $   14,591                   $   13,946                        $    645
Interest spread                                          3.28%                          3.44%                       (.16)
Impact of non-interest funds                              .40%                           .52%                       (.12)
-------------------------------------------------------------------------------------------------------------------------
Net interest margin                                      3.68%                          3.96%                       (.28)
-------------------------------------------------------------------------------------------------------------------------
</TABLE>

     Community's  major  source  of  revenue  is  derived  from   intermediation
activities  and is  reflected  as  net  interest  income.  Net  interest  income
represents the difference between interest income on earning assets and interest
expense on  deposits  and  borrowed  funds.  Net  interest  margin is a relative
measure of a financial institution's ability to efficiently deliver net interest
income from a given level of earnings  assets.  Both net interest income and net
interest  margin are  influenced  by the frequency and velocity of interest rate
changes  and by the  composition  and  absolute  volumes of  earning  assets and
funding sources.

     Net interest  income  increased  $645,000 or 4.6% in 2003 compared to 2002.
Both earning asset and interest-bearing liability levels increased and a decline
in asset yields outpaced the decline in funding costs. As such, the net interest
spread decreased 16 basis points.

     Interest income decreased  $295,000 or 1% during the first quarter of 2003.
An  increase in earning  assets of  approximately  $178  million was offset by a
decrease in the yield on loans and  investments,  which decreased in line with a
general decline in overall rates.  Interest expense declined more substantially,
by  $940,000  or  8.1%.   Although   interest  bearing   liabilities   increased
approximately  $166 million,  the benefit of a lower  interest rate  environment
resulted  in a decrease  in the total  rate paid on funding  sources of 72 basis
points.  Given the reduction in interest rates since last year, the contribution
from  non-interest  funding  sources  declined  from 52 basis points to 40 basis
points and added to the decrease in net interest margin.

     Though  Community has experienced  significant  compression in net interest
margin  since the first  quarter  of 2002,  the first  quarter  margin  for 2003
exhibited  modest  improvement  from the most recent  quarter ended December 31,
2002.

     Within the scope of its  asset/liability  management policy,  Community has
repositioned  its balance  sheet  posture in  anticipation  of a gradual rise in
interest  rates.  Expectations  are such that  further  substantial  declines in
overall  interest rates are considered to be unlikely and that Community is well
positioned to benefit from a measured  increase in the rate  environment in 2003
and 2004.


Provision for Loan Losses

     Community remains attuned to the influence of unfolding economic conditions
and their potential impact on credit  conditions and the adequacy of the reserve
for loan losses.  The  provision  for loan losses  charged to income in 2003 was
$400,000  compared to $1.6 million in 2002.  Net loan  charge-offs  in 2003 were
$90,000,  or .01% of average  net loans,  compared to $1.3  million,  or .15% of
average net loans,  in the first  quarter of 2002.  Although  non-accrual  loans
increased to $10.3 million at March 31, 2003,  from $9.1 million a year earlier,
Community  continues to note  improvement in the metrics commonly used to assess
the overall credit quality of the loan portfolio.  Total  non-performing  assets
decreased  to $11.0  million at March 31,  2003 from $11.2  million at March 31,
2002, while loans 90 days past due but still accruing interest showed a dramatic
decline to $105,000 at March 31, 2003,  from $1.2 million a year earlier.  Total
risk elements  decreased  from $12.4 million at March 31, 2002, to $11.1 million
at March 31, 2003.


                                       14
<PAGE>

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


Non-Interest Income

     Non-interest  income  continued  to  improve  on  a  year-over-year  basis,
reflecting  Community's  continuing  emphasis on the  expansion  of products and
services.  Non-interest income,  exclusive of security gains, increased $178,000
or 5.6% in the first quarter of 2003 compared to the first quarter of 2002.

     Service  charges on deposit  accounts  increased  $281,000,  or 37%, in the
first quarter of 2003 compared to 2002.  Service  charges  include the impact of
fees associated with insufficient funds, deposit service fees, and other similar
products of fee-based income.

     Insurance  premium income and commissions  decreased  $120,000,  or 23%, in
2003 from 2002 and reflect an increase in title  insurance  activity offset by a
decrease in fees earned through Community's  captive insurance business.  During
the latter part of 2002, changes in federal regulations  required that all banks
convert from a single premium to a monthly  premium on credit  insurance,  which
will require income  recognition over the life of the related loan.  Previously,
such fees could be recognized upon remittance of the single premium.  Over time,
this change in income  recognition is not expected to adversely affect fees from
this service.

     Community  derives  revenue from the origination and sale of mortgage loans
into the secondary  market.  Gains on loan sales  increased  $41,000 or 10.6% in
2003 as a result of continued demand for fixed-rate real estate loans.

     Investment  security  gains of  $1,047,000  million were  recognized in the
first  quarter of 2003  compared to $518,000 in 2002.  Such gains were  realized
pursuant  to  management's  ongoing  effort to review  investment  holdings  and
portfolio strategy. During the quarter,  Community recognized gains arising from
discrete sales of certain callable  investments,  which were likely to be called
in the near term.  Other gains  resulted  from the sale of equity  securities of
other financial institutions that had been recently acquired.


Non-Interest Expenses

     The  increase in salaries  and  employee  benefits of $748,000 or 14.5% for
2003  compared to 2002 was affected by a number of factors  including the annual
merit  increase and employees  added  through the expansion of both  Community's
distribution network and its fee-based activities

     The increase in occupancy expense of $570,000,  or 47%, includes the effect
of branch expansion and the opening of the Southern  Operations  Center in 2002,
as well as increased costs of facilities  maintenance  associated with the harsh
winter weather experienced throughout Community's geographic region in 2003.

     Other operating  expense  increased $48,000 or 1.6% in the first quarter of
2003. Marketing costs increased  approximately  $200,000 in the first quarter of
2003 and will continue to increase  throughout 2003 as part of a plan to broaden
customer awareness of Community Banks and the services it provides.  In addition
to  increased  marketing  exposure  through  radio,  billboard,  and direct mail
advertising,  Community has developed two television  commercials to promote its
name and services.  The timing of these  expenditures  is intended to correspond
with market  expansion  opportunities  within  several of the markets  currently
experiencing disruption from merger activity.


Income Taxes

     Income  tax  expense  for the  first  quarter  of 2003  was  $1.2  million,
resulting in an effective  tax rate of 18.7%.  The relative  level of tax-exempt
income influences effective income tax rates and was largely responsible for the
difference between the effective tax rate and the statutory federal tax rate for
corporations.



                                       15
<PAGE>


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

 Stockholders' Equity

     Capital  strength has always been a critical metric with which to judge the
overall  stability of a financial  institution.  A strong capital base is also a
prerequisite for sustaining franchise growth through both internal expansion and
strategic acquisition  opportunities.  Regulatory authorities impose constraints
and  restrictions  on bank  capital  levels that are designed to help ensure the
vitality of the nation's banking system.

     The most fundamental source of capital is earnings and earnings  retention.
This  cornerstone  of capital  adequacy  can be augmented by a number of capital
management  strategies,  many of which were used in 2002 and which will continue
in 2003. As it has for a number of years,  the Board  approved the issuance of a
5% dividend in the first quarter of 2003.  Community's strong earnings supported
an increase in the return of capital to existing  shareholders in the form of an
increase in the  traditional  cash  dividend.  Community  also continues to make
strategic  use of share  repurchase  as  another  efficient  means of  returning
capital to  shareholders.  These  strategies and techniques  allow management to
maintain  capital at levels that  represent  an efficient  use of this  valuable
resource.

     Regulators have established standards for the monitoring and maintenance of
appropriate levels of capital for financial institutions. All regulatory capital
guidelines  are now based upon a risk-based  supervisory  approach that has been
designed  to ensure  effective  management  of  capital  levels  and  associated
business  risk.  The following  table provides  Community's  risk-based  capital
position at March 31, 2003,  along with a comparison  to the various  regulatory
capital requirements.
<TABLE>
<CAPTION>

                                                     March 31,                   "Well                Regulatory
                                                       2003                   Capitalized"             Minimums
                                                       ----                   ------------             --------
<S>                                                    <C>                        <C>                     <C>
     Leverage ratio                                     8.0%                       5%                     4%
     Tier 1 capital ratio                              10.8%                       6%                     4%
     Total risk-based capital ratio                    11.9%                      10%                     8%

</TABLE>

     At March 31, 2003, total stockholders'  equity reflected  accumulated other
comprehensive   income  of  $6.0  million  compared  to  the  accumulated  other
comprehensive  income of $6.5 million reflected in total stockholder's equity at
year-end  2002.  This  decrease  can be  attributed  to the  change  in the  net
unrealized  gain (loss) on  investment  securities  available  for sale,  net of
taxes.   Community   reissued   approximately   51,000   shares  and   purchased
approximately  69,000 shares of treasury  stock during the first three months of
2003.  Community  currently has board approval to purchase an additional 199,000
shares through it share repurchase plan.



                                       16
<PAGE>




COMMUNITY BANKS, INC. AND SUBSIDIARIES


Item 3.     Quantitative and Qualitative Disclosures About Market Risk
----------------------------------------------------------------------

     Community  Banks,   Inc.  has  virtually  no  involvement  with  derivative
financial  instruments  and  does  not  use  them  for  trading  purposes.   Any
derivatives  are  embedded  in their host  contract  and are not  required to be
bifurcated.  The business of Community and the  composition of its balance sheet
consists  of   investments  in   interest-earning   assets   (primarily   loans,
mortgage-backed  securities  and  investment  securities),  which are  primarily
funded by interest-bearing liabilities (deposits and borrowings). Such financial
instruments  have varying levels of  sensitivity  to changes in market  interest
rates resulting in market risk. Other than loans,  which are originated and held
for sale,  all of the  financial  instruments  of  Community  are for other than
trading purposes.

     Interest rate sensitivity  results when the maturity or repricing intervals
of interest-earning assets,  interest-bearing liabilities, and off-balance sheet
financial  instruments are different,  creating a risk that changes in the level
of market  interest rates will result in  disproportionate  changes in the value
of, and the net earnings generated from,  Community's  interest-earning  assets,
interest-bearing  liabilities,  and  off-balance  sheet  financial  instruments.
Community's  exposure to interest rate sensitivity is managed  primarily through
Community's strategy of selecting the types and terms of interest-earning assets
and  interest-bearing  liabilities  which  generate  favorable  earnings,  while
limiting the potential  negative  effects of changes in market  interest  rates.
Since the Community's primary source of interest-bearing liabilities is customer
deposits,  its  ability  to manage the types and terms of such  deposits  may be
somewhat  limited  by  customer  preferences  in the  market  areas  in which it
operates.  Borrowings,  which include Federal Home Loan Bank (FHLB) advances and
short-term  loans,  subordinated  notes,  and  other  short-term  and  long-term
borrowings are generally  structured  with specific terms which in  management's
judgement,  when aggregated with the terms for outstanding  deposits and matched
with  interest-earning  assets,  mitigate  Community's exposure to interest rate
sensitivity.

     The rates, terms and interest rate indices of Community's  interest-earning
assets result  primarily  from its strategy of investing in loans and securities
(a  substantial  portion  of which  have  adjustable-rate  terms)  which  permit
Community  to limit its exposure to interest  rate  sensitivity,  together  with
credit risk,  while at the same time  achieving a positive  interest rate spread
compared to the cost of interest-bearing liabilities.

     At March 31,  2003,  there have been no  material  changes  to  information
regarding  Quantitative  and  Qualitative   Disclosures  about  Market  Risk  as
presented in the 2002 Annual Report on Form 10K.


Item 4.  Controls and Procedures
--------------------------------

     Under  the  supervision  and  with  the   participation  of  the  Company's
management,  including its Chief Executive Officer and Chief Financial  Officer,
the Company has evaluated the  effectiveness  of the design and operation of its
disclosure  controls and  procedures  within 90 days prior to the filing date of
this quarterly report.  Based upon this evaluation,  the Chief Executive Officer
and  Chief  Financial  Officer  have  concluded  that the  Company's  disclosure
controls  and  procedures  are adequate  and  effective to ensure that  material
information  relating to the Company and its  consolidated  subsidiaries is made
known to them by others within those entities, particularly during the period in
which this quarterly report was prepared.  There were no significant  changes in
the Company's  internal  controls or in other  factors that could  significantly
affect these controls subsequent to the date of their evaluation.


                                       17
<PAGE>



     COMMUNITY BANKS, INC. and SUBSIDIARIES

                           PART II - OTHER INFORMATION



Item 1 - Legal Proceedings

         There are no material  pending legal  actions,  other than  litigation
         incidental to the business of Community, to which Community is a party.


Item 2 - Changes in Securities and Use of Proceeds

          Not applicable.

Item 3 - Defaults Upon Senior Securities

          Not applicable.

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

          Not applicable.

Item 5 - Other Information

          Not applicable.

Item 6 - Exhibits and Reports on Form 8-K

 (a)      Exhibits

          3(i)      Amended Articles of Incorporation (Incorporated by reference
                    to Exhibit 3.1,  attached to  Registrant's  registration  on
                    Form 8-A, filed on May 13, 2002)
          3(ii)     Amended By-Laws
          4         Instruments  defining  the  rights of the  holders  of trust
                    capital  securities  and sold by Community in December  2002
                    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.
          10.1      2000 Directors' Stock Option Plan, incorporated by reference
                    to Exhibit 4 to Community's  registration on Form S-8, filed
                    on May 17, 2000  (Incorporated  by reference to Exhibit 10.1
                    to Community's Annual Report on Form 10-K for the year ended
                    December 31, 2002,  filed with the  Commission  on March 28,
                    2003)
          10.2      1998 Long-Term Incentive Plan,  incorporated by reference to
                    Exhibit 4 to Community's  registration on Form S-8, filed on
                    June 18,  1998(Incorporated  by reference to Exhibit 10.2 to
                    Community's  Annual  Report on Form 10-K for the year  ended
                    December 31, 2002,  filed with the  Commission  on March 28,
                    2003)


                                       18
<PAGE>

          10.3      Form of Stock Option Agreement - Directors Stock Option Plan
                    (Incorporated  by reference  to Exhibit 10.3 to  Community's
                    Annual  Report on Form 10-K for the year ended  December 31,
                    2002, filed with the Commission on March 28, 2003)
          10.4      Form of Stock Option  Agreement - Long-Term  Incentive  Plan
                    (Incorporated  by reference  to Exhibit 10.4 to  Community's
                    Annual  Report on Form 10-K for the year ended  December 31,
                    2002, filed with the Commission on March 28, 2003)
          10.5      Employment Agreement of Eddie L. Dunklebarger  (Incorporated
                    by reference to Exhibit 10.5 to Community's Annual Report on
                    Form 10-K for the year ended  December 31, 2002,  filed with
                    the Commission on March 28, 2003)
          10.6      Employment  Agreement  of Donald F.  Holt  (Incorporated  by
                    reference to Exhibit 10.6 to  Community's  Annual  Report on
                    Form 10-K for the year ended  December 31, 2002,  filed with
                    the Commission on March 28, 2003)
          10.7      Employment  Agreement,  and amendment thereto,  of Robert W.
                    Lawley   (Incorporated  by  reference  to  Exhibit  10.7  to
                    Community's  Annual  Report on Form 10-K for the year  ended
                    December 31, 2002,  filed with the  Commission  on March 28,
                    2003)
          10.8      Employment  Agreement,  and amendment thereto, of Anthony N.
                    Leo   (Incorporated   by   reference   to  Exhibit  10.8  to
                    Community's  Annual  Report on Form 10-K for the year  ended
                    December 31, 2002,  filed with the  Commission  on March 28,
                    2003)
          10.9      Employment  Agreement,  and amendment thereto, of Jeffrey M.
                    Seibert  (Incorporated  by  reference  to  Exhibit  10.9  to
                    Community's  Annual  Report on Form 10-K for the year  ended
                    December 31, 2002,  filed with the  Commission  on March 28,
                    2003)
          10.10     Salary  Continuation  Agreement,  and amendment thereto,  of
                    Eddie L. Dunklebarger  (Incorporated by reference to Exhibit
                    10.10 to Community's Annual Report on Form 10-K for the year
                    ended December 31, 2002,  filed with the Commission on March
                    28, 2003)
          10.11     Salary  Continuation  Agreement,  and amendment thereto,  of
                    Robert W. Lawley (Incorporated by reference to Exhibit 10.11
                    to Community's Annual Report on Form 10-K for the year ended
                    December 31, 2002,  filed with the  Commission  on March 28,
                    2003)
          10.12     Salary  Continuation  Agreement,  and amendment thereto,  of
                    Anthony N. Leo  (Incorporated  by reference to Exhibit 10.12
                    to Community's Annual Report on Form 10-K for the year ended
                    December 31, 2002,  filed with the  Commission  on March 28,
                    2003)
          10.13     Salary  Continuation  Agreement,  and amendment thereto,  of
                    Jeffrey M.  Seibert  (Incorporated  by  reference to Exhibit
                    10.13 to Community's Annual Report on Form 10-K for the year
                    ended December 31, 2002,  filed with the Commission on March
                    28, 2003)
          10.14     Rights Agreement between Community Banks, Inc. and Community
                    Banks, dated February 28, 2002, incorporated by reference to
                    Exhibit 1 to Community's  registration on Form 8-A, filed on
                    February 27, 2002
          10.15     Community Banks, Inc. 401(k) Plan (Incorporated by reference
                    to Exhibit 10.15 to  Community's  Annual Report on Form 10-K
                    for the  year  ended  December  31,  2002,  filed  with  the
                    Commission on March 28, 2003)
          99.1      Certification of Chief Executive Officer pursuant to Section
                    906 of the Sarbanes-Oxley Act of 2002.
          99.2      Certification of Chief Financial Officer pursuant to Section
                    906 of the Sarbanes-Oxley Act of 2002.


(b) Reports on Form 8-K

     Registrant  filed the  following  reports on Form 8-K  during  the  quarter
ending March 31, 2003:

                                       19
<PAGE>



     Report Dated January 14, 2003
     -----------------------------
     Registrant  announced  the  appointment  of Scott J. Newkam to the Board of
     Directors.

     Report Dated January 21, 2003
     -----------------------------
     Registrant announced its earnings for the period ended December 31, 2002.

     Report Dated February 13, 2003
     ------------------------------
     Registrant announced the declaration of a first quarter dividend and a 5%
     stock dividend.





                                       20
<PAGE>



                                   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 hereunto duly authorized.

                              COMMUNITY BANKS, INC.
                                  (Registrant)

Date          May 15, 2003                             /s/ Eddie L. Dunklebarger
    --------------------------------                   -------------------------
                                                           Eddie L. Dunklebarger
                                                          Chairman and President
                                                       (Chief Executive Officer)

Date          May 15, 2003                             /s/ Donald F. Holt
    --------------------------------                   -------------------------
                                                           Donald F. Holt
                                                        Executive Vice President
                                                       (Chief Financial Officer)






                                       21
<PAGE>



                     COMMUNITY BANKS, INC. and SUBSIDIARIES
                           CERTIFICATION OF DISCLOSURE

I, Eddie L. Dunklebarger, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Community Banks, Inc.;

2. Based on my  knowledge,  this  quarterly  report  does not contain any untrue
statement of a material fact or omit to state a material fact  necessary to make
the statements made, in light of the  circumstances  under which such statements
were made, not  misleading  with respect to the period covered by this quarterly
report;

3.  Based  on my  knowledge,  the  financial  statements,  and  other  financial
information  included in this quarterly  report,  fairly present in all material
respects the financial  condition,  results of operations  and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;

4.  The  registrant's  other  certifying  officers  and  I are  responsible  for
establishing and maintaining  disclosure  controls and procedures (as defined in
Exchange  Act Rules  13a-14  and  15d-14)  for the  registrant  and we have:

     a) designed such disclosure controls and procedures to ensure that material
     information   relating  to  the  registrant,   including  its  consolidated
     subsidiaries,  is  made  known  to  us by  others  within  those  entities,
     particularly  during  the period in which  this  quarterly  report is being
     prepared;

     b) evaluated the effectiveness of the registrant's  disclosure controls and
     procedures  as of a date  within 90 days prior to the  filing  date of this
     quarterly report (the "Evaluation Date"); and

     c)  presented  in  this  quarterly   report  our   conclusions   about  the
     effectiveness  of the  disclosure  controls  and  procedures  based  on our
     evaluation as of the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation,  to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):

     a) all  significant  deficiencies  in the design or  operation  of internal
     controls which could adversely affect the  registrant's  ability to record,
     process,  summarize and report  financial data and have  identified for the
     registrant's auditors any material weaknesses in internal controls; and

     b) any fraud,  whether or not material,  that involves  management or other
     employees  who  have  a  significant  role  in  the  registrant's  internal
     controls; and

6. The  registrant's  other  certifying  officers  and I have  indicated in this
quarterly  report  whether or not there  were  significant  changes in  internal
controls or in other factors that could  significantly  affect internal controls
subsequent to the date of our most recent  evaluation,  including any corrective
actions with regard to significant deficiencies and material weaknesses.

Date          May 15, 2003                             /s/ Eddie L. Dunklebarger
    ---------------------------------                  -------------------------
                                                           Eddie L. Dunklebarger
                                                          Chairman and President
                                                       (Chief Executive Officer)







                                       22
<PAGE>



                     COMMUNITY BANKS, INC. and SUBSIDIARIES
                           CERTIFICATION OF DISCLOSURE

I, Donald F. Holt, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Community Banks, Inc.;

2. Based on my  knowledge,  this  quarterly  report  does not contain any untrue
statement of a material fact or omit to state a material fact  necessary to make
the statements made, in light of the  circumstances  under which such statements
were made, not  misleading  with respect to the period covered by this quarterly
report;

3.  Based  on my  knowledge,  the  financial  statements,  and  other  financial
information  included in this quarterly  report,  fairly present in all material
respects the financial  condition,  results of operations  and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;

4.  The  registrant's  other  certifying  officers  and  I are  responsible  for
establishing and maintaining  disclosure  controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

     a) designed such disclosure controls and procedures to ensure that material
     information   relating  to  the  registrant,   including  its  consolidated
     subsidiaries,  is  made  known  to  us by  others  within  those  entities,
     particularly  during  the period in which  this  quarterly  report is being
     prepared;

     b) evaluated the effectiveness of the registrant's  disclosure controls and
     procedures  as of a date  within 90 days prior to the  filing  date of this
     quarterly report (the "Evaluation Date"); and

     c)  presented  in  this  quarterly   report  our   conclusions   about  the
     effectiveness  of the  disclosure  controls  and  procedures  based  on our
     evaluation as of the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation,  to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):

     a) all  significant  deficiencies  in the design or  operation  of internal
     controls which could adversely affect the  registrant's  ability to record,
     process,  summarize and report  financial data and have  identified for the
     registrant's auditors any material weaknesses in internal controls; and

     b) any fraud,  whether or not material,  that involves  management or other
     employees  who  have  a  significant  role  in  the  registrant's  internal
     controls; and

6. The  registrant's  other  certifying  officers  and I have  indicated in this
quarterly  report  whether or not there  were  significant  changes in  internal
controls or in other factors that could  significantly  affect internal controls
subsequent to the date of our most recent  evaluation,  including any corrective
actions with regard to significant deficiencies and material weaknesses.

Date          May 15, 2003                              /s/ Donald F. Holt
    --------------------------------                   -------------------------
                                                            Donald F. Holt
                                                        Executive Vice President
                                                       (Chief Financial Officer)



                                       23