SECURITIES AND EXCHANGE COMMISSION
                                         
                             Washington, D.C.  20549
                                         
                                    FORM 10-Q
                                         
    QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT
                                         
                                     OF 1934
                                         
                                         
                     For the Quarter Ended September 30, 1995
                                         
                                         
                                   No. 0-15786             
                             (Commission File Number)
                                         
                                         
                              COMMUNITY BANKS, INC.                       
              (Exact Name of Registrant as Specified in its Charter)
                                         
   
          PENNSYLVANIA                                       23-2251762       
    (State of Incorporation)                          (IRS Employer ID Number)
   
          
          150 Market Street, Millersburg, PA                 17061         
      (Address of Principal Executive Offices)              (Zip Code)
                                         
                                         
                                  (717) 692-4781           
                         (Registrant's Telephone Number)
                                         
                                         
   
   
   Indicate by check mark whether the registrant (1) has filed all reports 
   required to be filed by Section 13 or 15 (d) of the Securities Exchange Act
   of 1934 during the preceding 12 months (or for such shorter period that the
   registrant was required to file such reports) and (2) has been subject to
   such filing requirements for the past 90 days.
   
   
                                                   Yes  X     No     
   
              Number of Shares Outstanding as of September 30, 1995.
                                         
      CAPITAL STOCK-COMMON                                    2,029,367      
       (Title of Class)                                 (Outstanding Shares)
   
   
   
   
   
   
     
                     COMMUNITY BANKS, INC. and SUBSIDIARIES
                                        
                                   Index 10-Q
                                        
     
     Part I
     
     Financial Information.............................................1
     
     Consolidated Balance Sheets.......................................2
     
     Consolidated Statements of Income.................................3
     
     Consolidated Statements of Cash Flows.............................4
     
     Notes to Consolidated Financial Statements........................5-7
     
     Management's Discussion and Analysis of Financial
        Condition and Results of Operation.............................8-10
     
     
     
     Part II
     
     Other information and Signatures..................................11
     
     
     
     
     
     
     
     
     
     
     
                         PART I - FINANCIAL INFORMATION
                                        
                     COMMUNITY BANKS, INC. and SUBSIDIARIES
                                        
                                        
     The following financial information sets forth the operations of
     Community Banks, Inc. and Subsidiaries for the three month and nine
     month periods ending September 30, 1995 and 1994.
     
     
     In the opinion of management, the following Consolidated Balance
     Sheets and related Consolidated Statements of Income and Cash Flows
     reflect all adjustments (consisting of normal recurring accrual
     adjustments) necessary to present fairly the financial position and
     results of operations for such periods.
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
                                             
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
                                       -1-
     
     




   Community Banks, Inc. and Subsidiaries
   CONSOLIDATED BALANCE SHEETS
   (unaudited)
   (dollars in thousands except per share data)
   
                                              
                                               September 30,      December 31,
                                                   1995               1994    
                                               
                                   
   ASSETS                     
   
   Cash and due from banks...................     $ 11,660         $ 12,152
   Interest-bearing time deposits in other 
      banks..................................          575              645
   Investment securities, available for sale
      (market value of $88,543 and $99,249
      as of September 30, 1995, and December 
      31, 1994, respectively)................       88,543           99,249 
   Loans.....................................      211,034          190,792
   Less:  Unearned income....................      (11,132)          (8,522)
          Allowance for loan losses..........       (2,206)          (2,069)
          Net loans..........................      197,696          180,201 
   Premises and equipment, net...............        6,895            6,589
   Goodwill..................................        1,448            1,629
   Other real estate owned...................          375              338
   Loans held for sale.......................        2,342               35
   Accrued interest receivable and other         
      assets.................................        5,575            6,283
    
      Total assets...........................     $315,109         $307,121 
                                                  ========         ========
   
   LIABILITIES
   
   Deposits:
      Demand.................................     $ 21,350         $ 24,343
      Savings................................      110,813          115,104
      Time...................................      124,414          108,593
      Time in denominations of $100,000 or
       more..................................        9,924            8,072  
      Total deposits.........................      266,501          256,112
   Short-term borrowings.....................        3,926           11,709 
   Long-term debt............................        7,000            7,000
   Accrued interest payable and other 
      liabilities............................        2,501            1,933
   Subordinated capital notes................         ---                15
   
      Total liabilities......................      279,928          276,769
   
   
   STOCKHOLDERS' EQUITY
   
   Preferred stock, no par value; 500,000
      shares authorized; no shares issued
      and outstanding........................        ---              ---
   Common stock-$5.00 par value; 5,000,000
      shares authorized; 2,032,018 and
      2,027,918 shares issued in 1995 and
      1994, respectively.....................       10,160           10,140
   Surplus...................................        9,877            9,839
   Retained earnings.........................       14,506           12,443
   Net unrealized gain (loss) on investment 
    securities available for sale, net of tax          691           (2,017)  
   Less:  Treasury stock of 2,651 shares at
      cost...................................          (53)             (53) 
      Total stockholders' equity.............       35,181           30,352 
      Total liabilities and stockholders'
       equity................................     $315,109         $307,121
                                                  ========         ========
   
   The accompanying notes are an integral part of the consolidated financial
   statements.
                                      -2-
   
<TABLE>

   Community Banks, Inc. and Subsidiaries
   CONSOLIDATED STATEMENTS OF INCOME
   (unaudited)
   (dollars in thousands except per share data)
<CAPTION>   
   
                                                        Three Months Ended        Nine Months Ended
                                                          September 30,             September 30      
                                                          1995      1994            1995          1994
   <S>                                             <C>          <C>            <C>          <C>  
   Interest income:
   Interest and fees on loans.................      $    4,749   $    3,812     $  13,606    $   10,893
   Interest and dividends on investment 
    securities:
        Taxable...............................           1,033        1,160         3,248         3,357
        Exempt from federal income tax........             370          468         1,212         1,402
   Other interest income......................              23           14            55            58
        Total interest income.................           6,175        5,454        18,121        15,710
   
   Interest expense:
   Interest on deposits:  
        Savings...............................             616          660         1,908         1,874
        Time..................................           1,730        1,232         4,713         3,744
        Time in denominations of $100,000 or
         more.................................             137          100           388           293
   Interest on short-term borrowings and
    long-term debt............................             165          121           545           368
   Interest on subordinated capital notes.....              --          --            --              1
       Total interest expense.................           2,648        2,113         7,554         6,280
        Net interest income...................           3,527        3,341        10,567         9,430
   Provision for loan losses..................             170          159           460           393
   Net interest income after provision 
         for loan losses......................           3,357        3,182        10,107         9,037
   
   Other income:
        Trust department income...............              59           46           157           136  
        Service charges on deposit accounts...             211          188           586           501
        Other service charges, commissions
         and fees.............................              49           61           168           184
        Investment security gains ............              63           59           137           380
        Income on insurance premiums..........             168          101           431           296
        Gains on mortgage sales...............              60           31           126           182
        Other income..........................              63           51           132           126
             Total other income...............             673          537         1,737         1,805
   Other expenses:
        Salaries and employee benefits........           1,209        1,075         3,543         3,131    
        Net occupancy expense.................             375          315         1,045           985
        Operating expense of insurance
          subsidiary..........................              43           75           247           217
        Other operating expense...............             874          865         2,662         2,515
             Total other expense..............           2,501        2,330         7,497         6,848
             Income before income taxes.......           1,529        1,389         4,347         3,994
   Provision for income taxes.................             363          326         1,063           926
             Net income.......................      $    1,166   $    1,063    $    3,284    $    3,068
                                                    ==========   ==========    ==========    ==========
   Average number of fully diluted shares         
    outstanding...............................       2,054,762    2,060,795     2,053,428     2,060,759
   <FN>                                             ==========    =========     =========     =========  
   Earnings per share: 
      Primary.................................      $      .57   $      .52    $     1.62     $    1.52
      Fully diluted...........................      $      .57   $      .52    $     1.60     $    1.49 
   Dividends paid per share...................      $     .200   $     .167    $      .60     $    .500  
   </FN>
   Earnings per share have been restated to reflect stock dividends.
   
   The accompanying notes are an integral part of the consolidated financial 
   statements.
                                       -3-      
   </TABLE>
   
   
   Community Banks, Inc. and Subsidiaries
   CONSOLIDATED STATEMENTS OF CASH FLOWS
   (unaudited)
   (dollars in thousands)
   
                                                           Nine Months Ended
                                                            September 30,   
                                                            1995       1994   
   
   
   Operating Activities:
      Net income......................................   $ 3,284      $ 3,068 
      Adjustments to reconcile net income to net
       cash provided by operating activities:
         Provision for loan losses....................       460          393
         Provision for depreciation and amortization..       569          542
         Amortization of goodwill.....................       181          181
         Investment security gains....................      (137)        (380)
         Loans originated for sale....................    (8,784)      (5,112)
         Proceeds from sales of loans.................     6,603        9,144
         Gains on mortgage sales......................      (126)        (182)
         Decrease (increase) in other assets..........      (368)      (6,421)
         Increase in accrued interest payable  
          and other liabilities.......................       212          242  
           Net cash provided by operating activities..    (4,709)      (7,669)  
   
   Investing Activities:
      Net decrease (increase) in interest-bearing time                    
       deposits in other banks........................        70         (325)
      Proceeds from sales of investment           
       securities.....................................       347          847
      Proceeds from maturities of investment 
       securities.....................................    15,272       15,391
      Purchases of investment securities..............      (673)     (19,130)
      Net increase in total loans.....................   (17,955)     (14,632)
      Purchases of premises and equipment.............      (875)      (1,251)
           Net cash used by investing activities......     2,789       (9,956)
   Financing Activities:
      Net increase in total deposits..................    10,389       16,774  
      Net increase (decrease) in short-term borrowings    (7,783)       4,794
      Net increase (decrease) in long-term debt.......      ---        (2,000)
      Repayment of subordinated capital notes.........       (15)         (16)
      Cash dividends..................................    (1,218)      (1,013)
      Proceeds from issuance of common stock..........        55          129
           Net cash provided by financing activities..     1,428       18,668 
       
           Increase (decrease) in cash and cash
            equivalents...............................      (492)       1,043
            
            
   Cash and cash equivalents at beginning of period...    12,152        9,626
   Cash and cash equivalents at end of period.........   $11,660      $10,669 
                                                         =======      =======
   
   
   
   
   The accompanying notes are an integral part of the consolidated financial
   statements.
   
                                      -4-      
   
   
   
   
   
                                           
   Community Banks, Inc. and Subsidiaries
   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
   (unaudited)
   (dollars in thousands)
                                          
   
   1.  Accounting Policies
             The information contained in this report is unaudited and is
   subject to future adjustments. However, in the opinion of management, the
   information reflects all adjustments necessary for a fair statement of
   results for the three month and nine month periods ended September 30, 1995
   and 1994.
   
             The accounting policies of Community Banks, Inc. and subsidiaries,
   as applied in the consolidated interim financial statements presented herein,
   are substantially the same as those followed on an annual basis as presented
   on page 9 of the 1994 Annual Report to shareholders, except for the adoption
   of Statements of Financial Accounting Standards No. 114 and 118 effective
   January 1, 1995, which had no impact on the provision for loan losses or the
   allowance for loan losses.    
   
   
   2.  Investment Securities
            The amortized cost and estimated market values of investment
   securities at September 30, 1995 and December 31, 1994, were as follows:
   
   
                                                           1995
                                                           
                                                                                
                                                                  Estimated
                                                Amortized           Market
                                                  Cost              Value  
   
   U.S. Treasury securities and obligations
    of U.S. government corporations and
     agencies...............................     $14,662           $14,643
   Mortgage-backed U.S. government 
    agencies................................      39,210            39,024
   Obligations of states and political
    subdivisions............................      26,956            27,424
   Corporate securities.....................       3,516             3,624  
   Equity securities........................       3,151             3,828 
         Total..............................     $87,495           $88,543 
                                                 =======           ======= 
   
   
                                                           1994
                                                                          
   U.S. Treasury securities and obligations 
    of U.S. government corporations and
     agencies...............................    $ 18,807          $ 17,832
   Mortgage-backed U.S. government 
    agencies................................      43,926            41,900
   Obligations of states and political
    subdivisions............................      33,185            32,733
   Corporate securities.....................       3,518             3,499   
   Equity securities........................       2,869             3,285
         Total..............................    $102,305          $ 99,249
                                                ========          ======== 
                                       
                                       -5-           
   
                                       





                                      

   
   
   
   
   3.  Allowance for loan losses
            Changes in the allowance for loan losses are as follows:
   
                                          Nine months ended     Year Ended
                                            September 30,       December 31,
                                                1995               1994     
   
   Balance, January 1..................       $2,069               $1,837
   Provision for loan losses...........          460                  462
   Loan charge-offs....................         (487)                (577)
   Recoveries..........................          164                  347
   
   Balance, September 30, 1995 and 
    December 31, 1994..................       $2,206               $2,069
                                              ======               ======
   
   
                   NONPERFORMING LOANS (a) AND OTHER REAL ESTATE
   
   
                                            September 30,         December 31,
                                                1995                 1994     
   
   Loans past due 90 days or more
    and still accruing interest:
      Commercial, financial and 
       agricultural...................         $   67               $  152
      Mortgages.......................            392                  114
      Personal installment............            206                   59
      Other...........................              7                    1
                                                  672                  326
   
   Loans renegotiated with the borrowers         NONE                 NONE
   
   Loans on which accrual of interest
    has been discontinued:
      Commercial, financial and
       agricultural....................           401                  327 
      Mortgages........................           711                  475 
      Other............................            93                   30
                                                1,205                  832
    
   Other real estate...................           375                  338
      Total............................        $2,252               $1,496  
                                               ======               ======     
   
   (a)  The determination to discontinue the accrual of interest on
   nonperforming loans is made on the individual case basis. Such factors as
   the character and size of the loan, quality of the collateral and the
   historical creditworthiness of the borrower and/or guarantors are considered
   by management in assessing the collectibility of such amounts.  
   
   Impaired Loans
        The Corporation adopted FAS 114 "Accounting by Creditors for Impairment
   of a Loan", as amended by FAS 118, on January 1, 1995. Under the new
   standard, a loan is considered impaired, based on current information and
   events, if it is probable that the Corporation will be unable to collect the
   scheduled payments of principal or interest when due according to the
   contractual terms of the loan agreement. For purposes of applying FAS 114,
   larger groups of smaller-balance loans such as residential mortgage and
   installment loans are collectively evaluated for impairment. Management has
   established a smaller-dollar-value threshold of $200,000 for all loans.
   Loans exceeding this threshold are evaluated in accordance with FAS 114. An
   insignificant delay or shortfall in the amount of payments, when considered 
   
                                       6
   
   
   
   independent of other factors, would not cause a loan to be rendered
   impaired. Insignificant delays or shortfalls may include, depending on
   specific facts and circumstances, those that are associated with temporary
   operational downturns or seasonal business delays.
   
        Management performs periodic reviews of its loans to identify impaired
   loans. The measurement of impaired loans is based on the present value of
   expected future cash flows discounted at the historical effective interest
   rate, except that all collateral-dependent loans are measured for impairment
   based on the fair value of the collateral. The adoption of FAS 114 did not
   result in an additional provision for credit losses at January 1, 1995.
   
        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 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. The company does not accrue
   interest on impaired loans. While a loan is considered impaired, cash
   payments received are applied to principal or interest depending upon
   management's assessment of the ultimate collectibility of principal and
   interest.
   
        At September 30, 1995, the Corporation recorded no investment in
   impaired loans recognized in accordance with FAS 114 with no related FAS 114
   valuation allowance. For the nine month period ended September 30, 1995, the
   average balance of impaired loans was negligible. The application of FASB
   114 has not had any effect on the comparability of the non-performing loan
   table in footnote 3 between the periods presented. The company recognized no
   interest on impaired loans on the cash basis.  
                                         
   
   4.  Statement of Cash Flows
            Cash and cash equivalents include cash and due from banks and
   federal funds sold. The company made cash payments of $1,000,000 and
   $870,000, and $7,441,000 and $6,409,000 for income taxes and interest,
   respectively, for each of the nine month periods ended September 30, 1995
   and 1994.
   
            Excluded from the consolidated statements of cash flows for the
   periods ended September 30, 1995 and 1994 was the effect of certain non-cash
   activities. The company acquired real estate through foreclosure totalling
   $225,000 and $165,000, respectively. The company also recorded an increase
   (decrease) to deferred tax assets totalling $(1,396,000) and $480,000,
   respectively, relating to the effects of changes in the net unrealized gain
   (loss) on investment securities available for sale.
   
   
   5.  Merger
            On July 5, 1995, the Company and the Citizens National Bank of
   Ashland (Citizens) announced an agreement to merge the two companies. The
   agreement, which requires the approval of certain regulatory agencies and
   the stockholders of Citizens, provides that, upon consummation of the
   merger, stockholders of Citizens will receive between 27.673 and 31.206
   shares of the Company's common stock for each share issued and outstanding  
   Citizens common stock. The merger is expected to be accounted for as a
   pooling of interests.
            
         
   
                                    -7-
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      



                                       



   
   
   
   
   
                    Community Banks, Inc. and Subsidiaries
                     Management's Discussion and Analysis
               of Financial Condition and Results of Operations
                                       
   Results of Operations
                                       
        Net interest income after provision for loan losses for the first
   nine months of 1995 was $1,070,000 or 11.8% greater than net interest
   income after provision for loan losses for the first nine months of
   1994. Total interest income increased $2,411,000 or 15.3% during the
   period while total interest expense increased $1,274,000 or 20.3%.
   Average earning assets were approximately 5.2% greater during the first
   nine months of 1995 than the first nine months of 1994. Average loan
   balances increased 14.6% while average investment securities decreased
   approximately 8.4% in 1995. Average interest-bearing liabilities
   increased approximately 5.4%. Management chose to reduce CBI's
   borrowings in 1995 and fund a significant portion of the increase in
   loan balances with proceeds from maturities of investment securities.
   The average yields realized on earning assets approximated 8.3% and 7.8%
   during the first nine months of 1995 and 1994, respectively. The average
   costs of interest-bearing liabilities approximated 4.0% and 3.5%,
   respectively, for the same periods. Net interest margins on a tax
   equivalent basis approximated 5.2% and 4.9% for the first nine months of
   1995 and 1994, respectively. The provision for loan losses charged to
   income increased 17.0% in 1995. Total loans past due 90 days and still
   accruing interest, non-performing loans, and other real estate
   approximated $2,252,000 and $1,496,000, respectively, as of September
   30, 1995 and December 31, 1994. A portion of this increase has been
   attributed to increased loan volume, and to personnel changes related to
   the loan collection function which are being addressed by management. 
   
        Total other income for the first nine months of 1995 was $68,000 or
   3.8% less than total other income for the first nine months of 1994.
   Affecting this change were security gains of $137,000 and $380,000 
   recognized in 1995 and 1994, respectively. Income on insurance premiums
   increased $135,000 or 45.6% while gains on mortgage sales were $56,000
   less in 1995. Loans held for sale are comprised for the most part of
   fixed-rate real estate and education loans extended specifically for
   resale. While demand for these products has been lower in 1995 than
   1994, a recent modest resurgence has occurred. Typically, the
   relationship of the volume of loans sold to gains recognized during a
   period is relatively constant and a larger volume results in increased
   gains. Loans held for sale as of September 30, 1995 totalled $2,342,000.
   The market value of these loans approximated book value at that time.
   Total other expenses for the first nine months of 1995 increased 649,000
   or 9.5%. Contributing factors were increases of $412,000 or 13.2% in
   salaries and employee benefits, $60,000 in net occupancy expense, and
   $147,000 in other operating expenses. Affecting these increases were two
   new banking offices located in Hazleton and Rutherford, Pennsylvania.  
   
        The provision for income taxes increased $137,000 for the first
   nine months of 1995 in comparison to the first nine months of 1994. The
   effective tax rates approximated 24.5% and 23.2% for the respective
   periods. A decline in the relationship of tax-free income to taxable
   income contributed to the 1995 increase. 
   
        The previously described factors contributed to a net increase of
   $216,000 or 7.0% in net income for the nine month period ended September
   30, 1995.
   
   
                                  -8-
   
   
   Management's Discussion, Continued
   
   
        The significant changes and related causes which occurred during
   the three month period ending September 30, 1995 were generally
   consistent with those described for the nine month period ending
   September 30, 1995. Net interest income after provision for loan losses
   for the third quarter of 1995 was $3,357,000 and essentiall unchanged
   from the $3,361,000 realized in the second quarter of 1995. Net interest
   income after provision for loan losses for the third quarter of 1995 was
   $175,000 or 5.5% greater than the third quarter of 1994. Net interest
   income margins on a tax equivalent basis approximated 5.1%, 5.2%, and
   5.0%, respectively, for the quarters ended September 30, 1995, June 30,
   1995, and September 30, 1994. Investment security gains and gains on
   mortgage sales increased modestly in the third quarter of 1995 compared
   to the second quarter of 1995 and the third quarter of 1994. Gains on
   mortgage sales were $60,000, $48,000 and $31,000, respectively, for the
   three month periods ending September 30, 1995, June 30, 1995, and
   September 30, 1994. Investment security gains were $63,000, $38,000, and
   $59,000 for the three month periods ending September 30, 1995, June 30,
   1995, and September 30 1994, respectively.       
   
   Financial Condition
   
        As of September 30, 1995 cash and due from banks was $492,000 or
   4.1% less than it was at December 31, 1994. Affecting this decline was
   management's continuing effort to better control non-earning assets. As
   a result of increased loan demand, interest-bearing time deposits in
   other banks and investment securities decreased $10,776,000 or 10.8%
   during this same period. The approximate market value of debt securities
   was $371,000 greater than amortized cost at September 30, 1995. The
   approximate market value of debt securities was $3,472,000 less than
   amortized cost at December 31, 1994. Securities to be held for
   indefinite periods of time and not intended to be held to maturity or on
   a long-term basis are classified as available for sale and carried at
   market value. Securities held for indefinite periods of time include
   securities that management intends to use as part of its asset/liability
   management strategy and that may be sold in response to changes in
   interest rates, resultant prepayment risk and other factors related to
   interest rate and resultant prepayment risk changes. At September 30,
   1995 and December 31, 1994, management classified investment securities
   with amortized costs and market values of $87,495,000 and $88,543,000,
   and $102,305,000 and $99,249,000, respectively, as available for sale.
   Gross unrealized gains and losses relating to debt securities
   approximated $1,280,000 and $909,000, respectively, at September 30,
   1995. Net loans increased $17,495,000 or 9.7% from December 31, 1994 to
   September 30, 1995. Variable rate real estate loans represented
   approximately $11,000,000 or sixty percent of this increase while most
   of the remaining increase occurred in consumer loans. The allowance for
   loan losses approximated 1.10% and 1.14%  of net loans at September 30,
   1995 and December 31, 1994, respectively. Much of the increase in net
   premises and equipment of $306,000 related to the new banking offices.
   Goodwill continues to be amortized at an annualized rate of $240,000. As
   previously noted, Community Banks, Inc. sells only fixed-rate real
   estate and education loans specifically designated for resale on the
   secondary market and at September 30, 1995 and December 31, 1994 these
   loans totalled $2,342,000 and $35,000, respectively. Affecting the
   decrease of $708,000 in accrued interest receivable and other assets was
   a decline in deferred taxes. These factors contributed to an increase of
   $7,988,000 or 2.6% in total assets from December 31, 1994 to September
   30, 1995. 
   
                                   -9-
   
   
   
   
   
   
   Management's Discussion, Continued
   
      
        Total deposits increased $10,389,000 or 4.1% from December 31, 1994
   to September 30, 1995. All of the increase can be attributed to
   increases in time deposits. During the first nine months of 1995, the
   Corporation experienced some movement of funds from savings to time
   deposits. It is management's philosophy to generally maintain
   competitive but not overly-aggressive interest rates relative to
   interest-bearing liabilities. Management reduced short-term borrowings
   in 1995 in an attempt to better balance rate sensitive assets and
   liabilities. At September 30, 1995 long-term debt totalling $7,000,000
   was comprised entirely of borrowings from the Federal Home Loan Bank of
   Pittsburgh at a weighted average interest rate of 6.15%. 
   
        Based on a one year interval, rate sensitive assets to rate
   sensitive liabilities approximated 96% as of September 30, 1995.
   
        As of September 30, 1995 the Corporation had risk-based capital in
   excess of the fully implemented regulatory requirements. Tier 1 plus
   tier 2 capital exceeded 17% of risk-weighted assets as of September 30,
   1995. Effective January 1, 1994, the Corporation adopted the provisions
   of Statement of Financial Accounting Standards No. 115, "Accounting for
   Certain Investments in Debt and Equity Securities", which requires the
   Corporation to reflect securities available and held for sale at fair
   value on the balance sheet. Upon adoption, the Corporation classified
   all investment securities as available for sale and recorded the
   increase to fair value of $2,246,000, net of applicable income taxes, 
   as a separate component of equity. The increase recorded to
   stockholders' equity at September 30, 1995 was $691,000, net of
   applicable income taxes. Management believes that this action is
   necessary to provide for proper administration of the investment
   portfolio and can be accommodated by the capitalization of the
   Corporation.  
   
   Liquidity 
        
        Liquidity is the ratio of net liquid assets to net liabilities. The
   primary functions of asset/liability management are the assurance of
   adequate liquidity and maintenance of an appropriate balance between
   interest-sensitive earning assets and interest-bearing liabilities.
   Liquidity management refers to the ability to meet the cash flow
   requirements of depositors and borrowers.
        
        A continuous review of net liquid assets is conducted to assure
   appropriate cash flow to meet needs and obligations in a timely manner.
   There was an adequate relationship of liquid assets to short-term
   liabilities at September 30, 1995.
   
   
   Forward Outlook
        
        Management is unaware of any regulatory recommendations which, if
   implemented, would have a material effect on the liquidity, capital
   resources, or operations of CBI. Strong loan demand is anticipated for
   the remainder of 1995 and management will continue to carefully evaluate
   this demand based on the creditworthiness of the borrower and the
   relative strength of the economy in the Corporation's market.     
   
        The Corporation is anticipating the maintenance of a favorable net
   interest margin throughout the remainder of 1995.
   
                                      
                                    -10-
    
   
   
   
   
   
            

    
    
    
    
    
    
    
                      COMMUNITY BANKS, INC. and SUBSIDIARIES
                                          
                     PART II - OTHER INFORMATION AND SIGNATURES
    
    Item 6.  Exhibits and Reports on Form 8-K
    
             (a)  Exhibits - none
    
             (b)  Registrant was not required to file any reports on Form 8-K
                  during the quarter for which this report is filed.
    
                                     SIGNATURES
    
    Pursuant to the requirements of the Securities Exchange Act of 1934, the
    Registrant has duly caused this report to be signed on its behalf by the
    undersigned thereunto duly authorized.
    
                                                COMMUNITY BANKS, INC.
                                                (Registrant)
    
    
    Date      November 10, 1995                  /S/ Thomas L. Miller   
                                                    Thomas L. Miller
                                                         Chairman     
                                               (Chief Executive Officer)
                                              
    
    
    Date      November 10, 1995                  /S/ Terry L. Burrows   
                                                    Terry L. Burrows
                                                 Executive Vice-President
                                                 (Chief Financial Officer)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
                                       -11-