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, 2002

                                   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
                                                      ------       ------



              Number of shares outstanding as of September 30, 2002


CAPITAL STOCK-COMMON                                            9,167,000
--------------------                                      --------------------
 (Title of Class)                                         (Outstanding Shares)







<PAGE>


                     COMMUNITY BANKS, INC. and SUBSIDIARIES

                                   INDEX 10-Q


PART I

Financial Information......................................................... 3

Consolidated Interim Balance Sheets........................................... 4

Consolidated Interim Statements of Income..................................... 5

Consolidated Interim Statements of Changes in Stockholders' Equity............ 6

Consolidated Interim Statements of Cash Flows................................. 7

Notes to Consolidated Interim Financial Statements......................... 8-13

Management's Discussion and Analysis of Financial
   Condition and Results of Operation..................................... 14-19

Quantitative and Qualitative Disclosures About Market Risk.................20-21

Controls and Procedures ..................................................... 22



PART II

Other Information and Signatures.......................................... 23-26

Exhibits.................................................................. 27-28








                                       2
<PAGE>





                         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, 2002 and 2001.

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






                                       3
<PAGE>
<TABLE>
<CAPTION>


COMMUNITY BANKS, INC. AND SUBSIDIARIES
Consolidated Interim Balance Sheets
(Unaudited)
(Dollars in thousands except per share data)

                                                                           September 30,               December 31,
                                                                               2001                       2002
                                                                               ----                       ----

ASSETS

<S>                                                                       <C>                         <C>
Cash and due from banks.....................................              $       41,241              $     44,764
Interest-bearing time deposits in other banks...............                       1,565                     1,372
Investment securities, available for sale...................                     620,680                   543,901
Total loans.................................................                     904,614                   857,278
   Less:  Allowance for loan losses.........................                     (12,769)                  (12,132)
                                                                          --------------              ------------
              Net loans.....................................                     891,845                   845,146
Premises and equipment, net.................................                      23,257                    22,640
Goodwill....................................................                       1,031                       151
Identifiable intangible assets..............................                         747                       817
Other real estate owned.....................................                         684                       631
Loans held for sale.........................................                       7,161                    10,479
Accrued interest receivable and other assets................                      38,617                    39,833
                                                                          --------------              ------------

     Total assets...........................................              $    1,626,828              $  1,509,734
                                                                          ==============              ============

LIABILITIES

Deposits:
   Demand (non-interest bearing)............................              $      165,649              $    160,387
   Savings..................................................                     332,153                   309,913
   Time.....................................................                     503,991                   453,533
   Time in denominations of $100,000 or more................                     113,602                    79,392
                                                                          --------------              ------------
   Total deposits..........................................                    1,115,395                 1,003,225
Short-term borrowings.......................................                      73,729                    60,002
Long-term debt..............................................                     295,771                   322,155
Accrued interest payable and other liabilities..............                      13,883                    13,103
                                                                          --------------              ------------

   Total liabilities........................................                   1,498,778                 1,398,485
                                                                          --------------              ------------

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; 9,411,000 and 9,412,000 shares
   issued in 2002 and 2001, respectively....................                      47,059                    44,839
Surplus.....................................................                      46,083                    35,906
Retained earnings...........................................                      33,005                    36,923
Accumulated other comprehensive income (loss),
   net of tax (benefit) of $4,135 and $(2,167),
     respectively...........................................                       7,680                    (4,024)
Less: Treasury stock of 244,000 and 125,000
   shares at cost, respectively.............................                      (5,777)                   (2,395)
                                                                          --------------              ------------
  Total stockholders' equity................................                     128,050                   111,249
                                                                          --------------              ------------

  Total liabilities and stockholders' equity................              $    1,626,828              $  1,509,734
                                                                          ==============              ============
</TABLE>

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 Income
(Unaudited)
(Dollars in thousands except per share data)

                                                                           Three Months Ended                 Nine Months Ended
                                                                              September 30,                     September 30,
                                                                              -------------                     -------------

                                                                         2002             2001                2002           2001
                                                                      ---------------------------         -------------------------
<S>                                                                   <C>            <C>                  <C>            <C>
Interest income:
   Interest and fees on loans.....................................    $   16,958      $   17,520          $   50,463     $   52,900
   Interest and dividends on investment securities:
      Taxable.....................................................         5,000           4,884              14,773         14,644
      Exempt from federal income tax..............................         2,414           1,862               7,284          5,060
   Federal funds interest.........................................            37             261                 192            771
   Other interest income..........................................             4              40                  23             91
                                                                      ----------      ----------          ----------      ----------
      Total interest income.......................................        24,413          24,567              72,735         73,466
                                                                      ----------      ----------          ----------    -----------

Interest expense:
   Interest on deposits:
      Savings.....................................................         1,012           1,786               3,257          5,501
      Time........................................................         5,213           6,204              15,824         19,173
      Time in denominations of $100,000 or more...................           911           1,057               2,848          3,109
   Interest on short-term borrowings and long-term debt...........         4,234           3,900              12,606         11,422
   Federal funds purchased and repo interest......................            95             201                 444            624
                                                                      ----------      ----------          ----------    -----------
      Total interest expense......................................        11,465          13,148              34,979         39,829
                                                                      ----------      ----------          ----------     ----------
      Net interest income.........................................        12,948          11,419              37,756         33,637
Provision for loan losses.........................................           500           1,306               2,750          3,750
                                                                      ----------      ----------          ----------     ----------
      Net interest income after provision for loan losses.........        12,448          10,113              35,006         29,887
                                                                      ----------      ----------          ----------     ----------
Other income:
   Investment management and trust services.......................           260             180                 765            480
   Service charges on deposit accounts............................           932             763               2,508          2,165
   Other service charges, commissions and fees....................           568             450               1,855          1,345
   Investment security gains (losses).............................            64           1,018                 600          1,256
   Insurance premium income and commissions.......................           331             349               1,513          1,051
   Gains on loan sales............................................           310             326                 796            867
   Other income...................................................           511             583               2,284          1,396
                                                                      ----------      ----------          ----------    -----------
      Total other income..........................................         2,976           3,669              10,321          8,560
                                                                      ----------      ----------          ----------    -----------
Other expenses:
   Salaries and employee benefits.................................         5,638           4,497              15,968         13,729
   Net occupancy expense..........................................         1,528           1,259               4,333          3,994
   Operating expense of insurance subsidiary......................           222             178                 574            515
   Merger and restructuring related expenses......................           ---            (115)                ---          1,683
   Other operating expense........................................         2,175           2,468               8,138          7,150
                                                                      ----------      ----------          ----------    -----------
      Total other expenses........................................         9,563           8,287              29,013         27,071
                                                                      ----------      ----------          ----------    -----------
      Income before income taxes..................................         5,861           5,495              16,314         11,376
Income taxes .....................................................         1,121           1,176               2,504          2,218
                                                                      ----------      ----------          ----------    -----------

      Net income..................................................    $    4,740      $    4,319          $   13,810     $    9,158
                                                                      ==========      ==========          ==========     ==========

Consolidated per share data:
   Basic earnings per share.......................................    $      .51      $      .47          $     1.49     $      .99
   Diluted earnings per share.....................................    $      .50      $      .46          $     1.46     $      .98
   Dividends declared.............................................    $      .18      $      .16          $      .52     $      .48
</TABLE>

Per share data has been restated to reflect stock dividends.
The accompanying notes are an integral part of the consolidated interim
financial statements.
Certain amounts reported in the periods ending September 30, 2001 have been
reclassified to conform with the 2002 presentation. These reclassifications did
not impact the Corporation's financial condition or results of operations.




                                       5
<PAGE>
<TABLE>
<CAPTION>


COMMUNITY BANKS, INC. AND SUBSIDIARIES
Consolidated Interim Statements of Changes in Stockholders' Equity
(Dollars in thousands except per share data)
                                                                           Nine Month Periods Ended
                                                                                September 30

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

<S>                                           <C>         <C>          <C>                <C>             <C>             <C>
Balance, January 1, 2001.................     $42,726     $29,155      $38,723            $  (694)        $ (5,932)       $103,978
   Comprehensive income:
      Net income.........................                                9,158                                               9,158
      Change in unrealized gain (loss)
      on securities, net of tax of $1,578
        and reclassification adjustment
         of $1,256 ......................                                                    2,930                           2,930
                                                                                                                          --------
     Total comprehensive income..........                                                                                   12,088
Cash dividends ($.47 per share)..........                               (4,376)                                             (4,376)
5% stock dividend (426,000 shares).......       2,130       6,773       (8,903)
Issuance of additional shares
   (2,000 shares of common stock
    canceled and 202,000 shares, net,
   of treasury stock reissued............         (11)        (22)        (730)                               4,091          3,328
                                              -------     -------      -------            --------         --------       --------

Balance, September 30, 2001..............     $44,845     $35,906      $33,872            $  2,236         $ (1,841)      $115,018
                                              =======     =======      =======            ========         ========       ========

Balance, January 1, 2002.................     $44,839     $35,906      $36,923            $ (4,024)        $ (2,395)      $111,249
   Comprehensive income:
     Net income..........................                               13,810                                              13,810
    Change in unrealized gain (loss)
    on securities, net of tax of $6,302
     and reclassification adjustment
      of $600............................                                                   11,704                          11,704
                                                                                                                          --------
     Total comprehensive income..........                                                                                   25,514
Cash dividends ($.52 per share)..........                               (4,824)                                             (4,824)
5% stock dividend (440,000 shares).......       2,241      10,177      (12,418)
Purchases of treasury stock
   (198,000 shares)......................                                                                    (5,142)       (5,142)
Issuance of additional shares
    ( 81,000 net shares of treasury
   stock reissued and 4,000 shares
    of common stock canceled)............         (21)                    (486)                               1,760          1,253
                                              -------     -------      -------            --------         --------       --------

Balance, September 30, 2002..............     $47,059     $46,083      $33,005            $  7,680         $ (5,777)      $128,050
                                              =======     =======      =======            ========         ========       ========

</TABLE>

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






                                       6
<PAGE>
<TABLE>
<CAPTION>


COMMUNITY BANKS, INC. AND SUBSIDIARIES
Consolidated Interim Statements of Cash Flows
(Unaudited)
(Dollars in thousands)
                                                                                                Nine Months Ended
                                                                                                   September 30,
                                                                                     ---------------------------------------
                                                                                          2002                       2001
                                                                                     ---------------------------------------
<S>                                                                                   <C>                       <C>
Operating Activities:
   Net income.....................................................                    $   13,810                $     9,158
Adjustments to reconcile net income to net cash
   provided by operating activities:
     Provision for loan losses....................................                         2,750                      3,750
     Depreciation and amortization................................                         2,040                      3,410
     Investment security gains....................................                          (600)                    (1,256)
     Loans originated for sale....................................                       (39,811)                   (54,665)
     Proceeds from sales of loans.................................                        43,925                     54,533
     Gains on loan sales..........................................                          (796)                      (867)
     Change in other assets, net..................................                        (2,408)                    (4,589)
     Increase (decrease) in accrued interest payable and
      other liabilities, net......................................                           780                      2,100
                                                                                      ----------                -----------
     Net cash provided by operating activities....................                        19,690                     11,574
                                                                                      ----------                -----------

Investing Activities:
   Net (increase) decrease in interest-bearing time
    deposits in other banks.......................................                          (193)                       440
   Proceeds from sales of investment securities...................                       117,267                     59,142
   Proceeds from maturities of investment securities..............                        57,081                     84,744
   Purchases of investment securities.............................                      (232,590)                  (232,918)
   Net increase in total loans....................................                       (52,165)                   (40,860)
   Net increase in premises and equipment.........................                        (2,533)                    (2,498)
                                                                                      ----------                -----------
   Cash paid for acquisitions.....................................                          (880)                      (165)
                                                                                      ----------                -----------
      Net cash used by investing activities.......................                      (114,013)                  (132,115)
                                                                                      ----------                -----------

Financing Activities:
   Net increase in total deposits.................................                       112,170                     93,790
   Net increase (decrease) in short-term borrowings...............                        13,727                    (27,790)
   Proceeds from issuance of long-term debt.......................                          ---                      57,831
   Repayment of long-term debt....................................                       (26,384)                      (694)
   Cash dividends.................................................                        (4,824)                    (4,376)
   Purchases of treasury stock....................................                        (5,142)                       ---
   Proceeds from issuance of common stock.........................                         1,253                      3,328
                                                                                      ----------                -----------
      Net cash provided by financing activities...................                        90,800                    122,089
                                                                                      ----------                -----------

     Increase (decrease) in cash and cash equivalents.............                        (3,523)                     1,548

   Cash and cash equivalents at beginning of period...............                        44,764                     48,446
                                                                                      ----------                -----------
   Cash and cash equivalents at end of period.....................                    $   41,241                $    49,994
                                                                                      ==========                ===========
</TABLE>

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






                                       7
<PAGE>


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


1.  Accounting Policies
    -------------------

     These   financial   statements   have  been  prepared  in  accordance  with
instructions  for Form 10-Q and therefore do not include certain  information or
footnotes  necessary for the  presentation  of financial  condition,  results of
operations,  stockholders'  equity, and cash flows in conformity with accounting
principles  generally accepted in the United States of America.  However, in the
opinion  of  management,  the  consolidated  financial  statements  reflect  all
adjustments  (which consist of normal recurring  accruals)  necessary for a fair
presentation of the results for the unaudited periods.

     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
pages 10, 11, and 12 of the 2001 Annual Report to shareholders.




                                       8
<PAGE>



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

     The amortized cost and fair values of investment securities at September
30, 2002 and December 31, 2001 were as follows:

<TABLE>
<CAPTION>

                                                                                               September 30, 2002
                                                                                               ------------------


                                                                                       Amortized                    Fair
                                                                                         Cost                       Value
                                                                                         ----                       -----
<S>                                                                                  <C>                        <C>
U.S. Treasury securities and obligations of
   U.S. government corporations and
   agencies..............................................................             $  129,189                $   132,166
Mortgage-backed U.S. government agencies.................................                163,486                    167,025
Obligations of states and political subdivisions.........................                171,884                    178,628
Corporate securities.....................................................                 95,520                     93,783
Equity securities........................................................                 47,368                     49,078
                                                                                      ----------                -----------

     Total...............................................................             $  607,447                $   620,680
                                                                                      ==========                ===========

</TABLE>
<TABLE>
<CAPTION>



                                                                                               December 30, 2001
                                                                                               -----------------

                                                                                         Amortized                 Fair
                                                                                           Cost                    Value
                                                                                           ----                    -----

<S>                                                                                   <C>                       <C>
U.S. Treasury securities and obligations of
   U.S. government corporations and
   agencies..............................................................             $  144,640                $   142,544
Mortgage-backed U.S. government agencies.................................                 74,403                     74,370
Obligations of states and political subdivisions.........................                172,223                    169,993
Corporate securities.....................................................                 99,561                     98,405
Equity securities........................................................                 57,846                     58,589
                                                                                      -----------               -----------

     Total...............................................................             $  548,673                $   543,901
                                                                                      ==========                ===========


</TABLE>



                                       9
<PAGE>



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

     Changes in the allowance for loan losses are as follows:
<TABLE>
<CAPTION>
                                                                  Nine Months Ended         Year Ended         Nine Months Ended
                                                                     September 30,          December 31,          September 30,
                                                                         2002                  2001                   2001
                                                                         ----                  ----                   ----

<S>                                                                  <C>                    <C>                     <C>
Balance, January 1...................................                $  12,132              $  10,328               $  10,328
Provision for loan losses............................                    2,750                  5,080                   3,750
Loan charge-offs.....................................                   (2,623)                (3,776)                 (2,664)
Recoveries...........................................                      510                    500                     375
                                                                     ---------              ---------               ---------
Balance, September 30, 2002, December 31,
 2001, and September 30, 2001........................                $  12,769              $  12,132               $  11,789
                                                                     =========              =========               =========
</TABLE>
<TABLE>
<CAPTION>

                                                           RISK ELEMENTS (a)


                                                                    September 30,           December 31,           September 30,
                                                                        2002                   2001                   2001
                                                                        ----                   ----                   ----

<S>                                                                  <C>                    <C>                     <C>
Loans on which accrual of interest has been
 discontinued:
     Commercial, financial and agricultural....................      $   3,636              $   3,783              $    3,347
     Mortgages.................................................          4,667                  6,952                   6,860
     Other.....................................................            337                    355                     463
                                                                     ---------              ---------               ---------
                                                                         8,640                 11,090                  10,670

Other real estate..............................................            684                    631                     534
                                                                     ---------              ---------              ----------

       Total non-performing assets.............................          9,324                 11,721                  11,204

Loans past due 90 days or more and still accruing interest:
     Commercial, financial and agricultural....................            278                  1,002                     563
     Mortgages................................................             381                    405                     113
     Personal installment......................................             12                    239                      29
     Other.....................................................             20                     13                       3
                                                                     ---------              ---------              ----------
                                                                           691                  1,659                     708
                                                                     ---------              ---------               ---------

       Total risk elements.....................................      $  10,015              $  13,380               $  11,912
                                                                     =========              =========               =========
</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 September  30, 2002 and December 31, 2001,  the recorded  investment  in
loans  for  which  impairment  has  been  recognized   totaled   $5,965,000  and
$8,558,000,  respectively.  The valuation  allowance for impaired  loans totaled
$1,278,000  and  $1,835,000  at  September  30,  2002  and  December  31,  2001,
respectively. For the nine months ended September 30, 2002, the average recorded
investment in impaired loans  approximated  $6,498,000.  The average balance for
the nine months ended  September  30, 2001,  approximated  $6,884,000.  Interest
recognized on impaired loans on the cash basis for the nine month periods ending
September 30, 2002 and 2001 was not significant.


                                       10
<PAGE>



4.  Statement of Cash Flows
    -----------------------

     Cash and cash equivalents include cash and due from banks and federal funds
sold.   The  company  made  cash  payments  of  $2,854,000  and  $1,697,000  and
$35,560,000  and $39,625,000  for income taxes and interest,  respectively,  for
each of the nine month periods ended September 30, 2002 and 2001.

     Excluded  from the  consolidated  statements  of cash flows for the periods
ended September 30, 2002 and 2001 was the effect of certain non-cash activities.
The company  acquired real estate through  foreclosure  totaling  $2,716,000 and
$396,000, respectively.

5.  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 September 30,
                                                           --------------------------------------------------------------------
                                                                          2002                                2001
                                                           --------------------------------------------------------------------
                                                                                 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................     $ 4,740      9,228     $ .51         $4,319      9,279      $.47
                                                            =======                =====         ======                 ====
Effect of Dilutive Securities: ........................
Incentive stock options outstanding....................                    213                                 176
                                                                         -----                               -----
Diluted EPS:
Income available to common stockholders &
   assumed conversion..................................     $ 4,740      9,441     $. 50         $4,319      9,455      $.46
                                                            =======                =====         ======                 ====
</TABLE>


<TABLE>
<CAPTION>

                                                                                Nine Months Ended September 30,
                                                           --------------------------------------------------------------------
                                                                         2002                                 2001
                                                           --------------------------------------------------------------------
                                                                                 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................     $13,810      9,249     $1.49         $9,158      9,212      $.99
                                                            =======                =====         ======                 ====
Effect of Dilutive Securities: .......................
Incentive stock options outstanding....................                    211                                 155
                                                                         -----                               -----
Diluted EPS:
Income available to common stockholders &
   assumed conversion.................................      $13,810      9,460     $1.46         $9,158      9,367      $.98
                                                            =======                =====         ======                 ====
</TABLE>
Per share and share data has been adjusted to reflect stock dividends.



                                       11
<PAGE>


6. Goodwill and Identifiable Intangible Assets
   -------------------------------------------

     In September 2001, the Financial Accounting Standards Board issued SFAS No.
141, "Business  Combinations",  and SFAS No. 142, "Goodwill and Other Intangible
Assets".  SFAS  No.  141  requires  companies  to use  the  purchase  method  of
accounting  for all  business  combinations  initiated  after June 30,  2001 and
addresses  the  initial  recognition  and  measurement  of  goodwill  and  other
intangible  assets acquired in a business  combination.  SFAS No. 142, which the
Corporation  adopted on January 1, 2002,  addresses the initial  recognition and
measurement of intangible assets acquired outside a business combination and the
recognition and measurement of goodwill and other intangible  assets  subsequent
to  acquisition.  Under the new standard,  goodwill is no longer  amortized but,
instead,  is tested at least annually for impairment.  Other  intangible  assets
continue to be amortized  over their useful lives.  During the second quarter of
2002, the  Corporation  assessed its goodwill and  determined  that there was no
impairment of the recorded amount, which is not considered material.

Goodwill
--------

     The costs of acquired  companies  in excess of the fair value of net assets
at acquisition date is recorded as goodwill.  As of September 30, 2002, goodwill
of $1,031,000 was included on the consolidated  interim balance sheets.  Through
December 31,  2001,  goodwill was  amortized  on a  straight-line  basis over 15
years. The following table sets forth reported net earnings and EPS, as adjusted
to exclude goodwill amortization expense:


                       Nine Months Ended September 30, 2001
                       ------------------------------------
                     (in thousands, except per share amounts)

       Net earnings, as reported                          $   9,158
       Net earnings, as adjusted............                  9,339
       EPS, as reported:
          Basic.............................              $     .99
          Diluted...........................                    .98
       EPS, as adjusted:
          Basic.............................              $    1.01
          Diluted.....................................         1.00

     Per share data has been  restated  to reflect  the 5% stock  dividend  paid
April 30, 2002.

Identifiable Intangible Assets
------------------------------

       The following table sets forth the gross carrying amount, accumulated
amortization and net carrying amount of identifiable intangible assets as of:
<TABLE>
<CAPTION>

                                                 September 30, 2002          December 31, 2001
                                                 ------------------          -----------------
                                                                (in thousands)

<S>                                                  <C>                          <C>
       Gross carrying amount................         $   1,101                    $  1,116
       Accumulated amortization.............              (354)                       (299)
                                                     ---------                    --------
       Net carrying amount..................         $     747                    $    817
                                                     =========                    ========
</TABLE>

     Identifiable intangible assets relate to acquisition of branch offices from
other banks and are amortized over their assumed useful lives.

     Amortization  expense  associated with  identifiable  intangible assets was
$18,000  for each of the  three  months  ended  September  30,  2002  and  2001.
Estimated  amortization expense for existing  identifiable  intangible assets is
$73,000 for each of the fiscal years ending  December 31, 2002 through  December
31, 2010 and thereafter decreasing through December 31, 2014.



                                       12
<PAGE>



7.  Recent Accounting Developments
    ------------------------------

     Statement  of  Financial  Accounting  Standards  No. 147,  "Acquisition  of
Certain Financial Institutions" (FASB "147") provides guidance on accounting for
the  acquisition  of certain  financial  institutions.  FASB 147  addresses  and
resolves inconsistencies bewtween FASB Statements No. 72 and 142. The provisions
of FASB  147 are  effective  after  September  30,  2002.  Management  does  not
anticipate the implementation of this statement to have a material impact on the
Corporation's   consolidated  financial  position  or  consolidated  results  of
operations.




                                       13
<PAGE>

COMMUNITY BANKS, INC. AND SUBSIDIARIES
Management's Discussion of Financial Condition and Results of Operations
------------------------------------------------------------------------



Overview

     Community  Banks,  Inc.  (Community) is a financial  holding  company whose
wholly-owned  subsidiaries include Community Banks,  Community Bank Investments,
Inc.  (CBII) and Community  Banks Life Insurance Co.  (CBLIC).  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.

     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 nine months of
2002 compared to the same period of 2001 unless otherwise indicated.

Forward-Looking Statements

     Periodically,  Community has made and will continue to make statements that
may  include   forward-looking   information.   The  Corporation  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  the
Corporation  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,  the  Corporation  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.


                                       14
<PAGE>


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

Summary of Financial Results

     Community  Banks,  Inc.,  the parent  company of  CommunityBanks,  reported
record profit  performance  for both the third quarter and the nine months ended
September  30, 2002.  Earnings  per share for the third  quarter  reached  $0.50
compared to $0.46 in same  period of 2001,  an increase of nearly 9%. Net income
grew almost 10% to $4.7 million versus $4.3 million in the year earlier  period.
This  performance  resulted in a return on average  assets  (ROA) of 1.17% and a
return on average  equity (ROE) of 15.09%,  nearly equal to the ROA of 1.21% and
ROE of 15.18% recorded in the third quarter of 2001.

     Net income  reached $13.8 million for the first three  quarters of 2002 and
ROA and ROE performance were 1.18% and 15.63%, respectively.  Earnings per share
for the first nine months of 2002 reached  $1.46  compared to $0.98 in 2001,  an
increase  of 49%.  Performance  in 2001 had been  affected  by  special  charges
associated with the acquisition of Glen Rock State Bank in March of 2001.

     Despite  the  sluggish  national  economy,  Community  was  able to  report
meaningful  improvements  in net interest  income,  the single largest source of
revenue for most financial institutions.  Interest rates, which are a key driver
of revenues from net interest  income,  continued to decline to levels that have
not been seen for decades. Community seeks to maximize net interest income under
a variety of interest rate environments, and reflected an increase of nearly 15%
between  the third  quarter of 2001 and the same period of 2002.  Community  was
also able to record a lower  provision for loan losses  between the two periods,
which is  consistent  with the  reduction in the level of problem  loans and the
steady  improvement in overall credit quality  metrics since the end of 2001. At
the same time,  operating expenses have remained constant with the overall level
of revenue, resulting in the increase in both earnings per share and net income.

     The economies  within the markets  served by Community  Banks have not been
measurably  influenced by national  recessionary  trends,  and some sectors have
been able to sustain  moderate  economic  growth.  These factors,  combined with
changes in the competitive  landscape,  have permitted  continued growth in loan
and deposit  volumes in the third quarter,  though at a pace slightly below that
of the first  half of 2002.  This  growth was  fueled by  continuing  demand for
middle market and small  business  lending,  combined with  sustained  growth in
consumer borrowing. Likewise, growth in deposit volumes has continued throughout
the year.  At the end of the quarter,  loans  exceeded $900 million and deposits
reached over $1.1 billion. Likewise, overall asset levels topped $1.6 billion as
of September 30, 2002.

     Despite  the  reported  improvement  in  net  interest  income,  management
recognizes that further  declines in interest rates could serve to constrain the
pace of 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.






                                       15
<PAGE>



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

Average Statement of Condition

The average balance sheets for the nine months ended September 30, 2002 and 2001
were as follows (in thousands):
<TABLE>
<CAPTION>

                                                                                                           Change
                                                            2002               2001                Volume             %
-------------------------------------------------------------------------------------------------------------------------
<S>                                                    <C>                 <C>                   <C>                   <C>
Cash and due from banks                                $    38,386         $    35,399           $   2,987             8%
Federal funds sold and other                                16,931              23,907              (6,976)         (29)%
Investments                                                565,898             425,556             140,342            33%
Loans                                                      882,621             829,016              53,605             6%
Allowance for loan losses                                   12,706              11,573               1,133            10%
-------------------------------------------------------------------------------------------------------------------------
Net loans                                                  869,915             817,443              52,472             6%
Goodwill and identifiable intangibles                        1,087                 988                  99            10%
Loans held for resale                                        6,509               3,314               3,195            96%
Other assets                                                64,068              62,660               1,408             2%
-------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS                                           $ 1,562,794         $ 1,369,267             193,527            14%
-------------------------------------------------------------------------------------------------------------------------


Noninterest-bearing deposits                           $   164,145         $   148,056           $  16,089            11%
Interest-bearing deposits                                  918,245             821,766              96,479            12%
Short-term borrowings                                       51,641               6,117              45,524           744%
Long-term debt                                             298,789             273,229              25,560             9%
Other liabilities                                           11,876              10,588               1,288            12%
-------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES                                        1,444,696           1,259,756             184,940            15%
-------------------------------------------------------------------------------------------------------------------------

STOCKHOLDERS' EQUITY                                       118,098             109,511               8,587             8%
-------------------------------------------------------------------------------------------------------------------------

  TOTAL LIABILITIES AND
     STOCKHOLDERS' EQUITY                              $ 1,562,794         $ 1,369,267           $ 193,527            14%
-------------------------------------------------------------------------------------------------------------------------
</TABLE>


     Balance  sheet trends for the first nine months of 2002  reflect  continued
growth in the deposit base  accompanied  by less robust  trends for loan growth.
Deposit growth,  which was particularly strong during the first quarter of 2002,
continued  at a more  sustainable  pace during the second and third  quarters as
Community successfully improved its deposit market share through its competitive
product mix. Growth was  particularly  evident in its "no penalty CD" product as
well as some  longer-term  certificate of deposit  categories.  The pace of loan
growth,  which  remained  steady  during the second and third  quarters,  slowed
somewhat as measured  against  the first  quarter  2002 and full year 2001 pace.
Community  also engaged in limited use of low cost  borrowings and increased its
investment holdings to increase net interest income during the period.

                                       16
<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 nine months ended
September 30, 2002 and 2001 (in thousands):
<TABLE>
<CAPTION>

                                                2002                          2001                   Increase  (Decrease)
                                         Amount     Yield/rate        Amount       Yield/rate         Amount   Yield/rate
-------------------------------------------------------------------------------------------------------------------------
<S>                                  <C>                 <C>      <C>                   <C>       <C>               <C>
Interest income                      $   77,076          7.02%    $   76,471            7.98%     $      605        (.96)
Interest expense                         34,979          3.69%        39,829            4.84%         (4,850)      (1.15)
-------------------------------------------------------------------------------------------------------------------------
Net interest income                  $   42,097                   $   36,642                      $    5,455
Interest spread                                          3.33%                          3.14%                        .19
Impact of noninterest funds                               .50%                           .68%                       (.18)
-------------------------------------------------------------------------------------------------------------------------
Net interest margin                                      3.83%                          3.82%                        .01
-------------------------------------------------------------------------------------------------------------------------
</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,  and is heavily  dependent on the volume
and  composition of earning assets and interest  bearing  liabilities as well as
the yield or rate earned or paid on these earning assets or funding sources.

     Net interest  income  increased  $5.4 million or 14.9% in 2002  compared to
2001. Both earning asset and  interest-bearing  liability levels increased and a
decline in funding costs  outpaced a decline in asset yields.  As such,  the net
interest spread increased 19 basis points.

     Interest  income  increased  $605,000  or less than 1% during  2002 and was
influenced by an increase in earning assets of approximately  $187 million while
the yield on loans and  investments  decreased in line with a general decline in
overall rates.

     Interest  expense  declined  $4.9  million or 12.2%,  as  interest  bearing
liabilities  increased  approximately  $168 million while the benefit of a lower
interest  rate  environment  resulted  in a  decrease  in the total rate paid on
funding sources of 115 basis points.

     Given the  reduction in interest  rates since last year,  the  contribution
from  noninterest  funding  sources  declined  from 68 basis  points to 50 basis
points and offset the improvement in interest spread.

     In isolating third quarter 2002 performance,  net interest margin exhibited
a decline  from the levels  achieved in the first  quarter of 2002 and  improved
slightly over the level of the second quarter. Third quarter net interest margin
reached  3.78%  compared  to 3.96% in the first  quarter and 3.76% in the second
quarter.  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 late
2002 and 2003.


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 2002 was
$2.8 million compared to $3.8 million in 2001. Net loan charge-offs in 2002 were
$2.1  million  compared  to $2.3  million  in 2001.  Net loan  charge-offs  as a
percentage of average net loans approximated .24% and .28% during 2002 and 2001,
respectively.  Total risk elements  decreased from $13.4 million at December 31,
2001, to $10.0 million at September 30, 2002.


                                       17
<PAGE>

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

Non-Interest Income

     The strategic  initiatives  Community has undertaken to meet customer needs
and provide access to expanded  financial  services  through their  distribution
network   continues  to  be  a  critical  driver  of  Community's   performance.
Non-interest  income exclusive of security gains increased $2.4 million or 33.1%
in 2002 compared to 2001.

     After the first quarter of 2001,  Community  acquired ownership interest in
two title insurance  companies that operate within the Corporation's  geographic
footprint.  Increases in insurance premium income and commissions of $462,000 or
44.0% for 2002 are a reflection of the increase in title insurance activities as
well as  additional  credit  life and  accident  and health  insurance  premiums
attributable to consumer loan demand.  Year to date increases for 2002 in credit
insurance  revenues were partially  offset by the  establishment of a reserve of
approximately  $300,000 for certain  refundable  credit  insurance fees that was
recorded during the third quarter.

     Community  derives  revenue from the origination and sale of mortgage loans
into the secondary market. Gains on loan sales decreased $71,000 or 8.1% in 2002
as a result of decreased demand for fixed-rate real estate loans.

     Other income  increased in 2002 by $888,000 or 63.6% compared to 2001. More
than half of this increase was attributed to the gains realized from the sale of
two office  locations  and the  effected  deposit  base.  This sale was executed
pursuant to  Community's  ongoing  analysis and  rationalization  of its current
office  structure.  Community is constantly  monitoring  the  performance of its
office locations and will continue to consider  expansion into markets with more
vibrant growth  characteristics.  Other income was also impacted by increases in
the cash surrender value of bank-owned life insurance policies.

     Investment  security gains of $600,000 were recognized during 2002 compared
to $1,256,000 in 2001. Such gains were realized pursuant to management's ongoing
effort to review investment holdings and portfolio strategy.


Non-Interest Expenses

     The increase in salaries and employee benefits of $2.2 million or 16.3% for
2002  compared to 2001 was affected by a number of factors  including the annual
merit   increase,   employees   added  through  the  expansion  of   Community's
distribution  network and by expenses  related to  employees  added in fee-based
activities such as title insurance and investment management services.

     Other operating expense increased $988 million or 13.8% in 2002 compared to
2001.   Affecting  these  changes  were  increases  in  banking  facilities  and
additional  marketing  and business  development  initiatives.  During the third
quarter of 2002, Community reversed approximately $350,000 of previously accrued
amounts for legal  expenses it had expected to incur in connection  with certain
unasserted  claims that had arisen in the ordinary  course of  business.  In the
opinion  of  management,   the  resolution  of  related   administrative   legal
proceedings  in this  matter  mitigates  the  potential  for such claims and the
probability of financial loss is deemed to be remote.


Income Taxes

     Income tax expense for 2002 was $2.5 million, resulting in an effective tax
rate of 15.3%.  The  Corporation  increased its level of  tax-exempt  investment
during calendar 2001 and these investments will continue to favorably  influence
the effective tax rate through their maturity dates.

                                       18
<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 primary source of capital for Community is through earnings  retention.
The  Corporation's  capital  management and planning  process is reviewed by its
Board of  Directors  and seeks to provide its  shareholders  with a  sustainable
level of dividends that is  considerate  of a variety of factors,  including the
prospects for sustainable core profit performance. Management of overall capital
levels  requires  the use of  various  techniques  designed  to  meet or  exceed
regulatory  guidelines,  to ensure  suitable levels of capital for a given asset
base, and to provide an appropriate  rate of return to  shareholders.  Community
uses a number of these techniques,  including share repurchase, issuance of cash
dividends and regular stock dividends, to manage the level of capital to optimum
levels.

     Community's regulatory capital measures,  which include the leverage ratio,
"Tier 1" capital, and "Total capital" ratios,  continued to be well in excess of
both regulatory  minimums and the thresholds  established for "well capitalized"
institutions.  The following  presentation of these ratios at September 30, 2002
and regulatory standards is provided:
<TABLE>
<CAPTION>

                                                  September 30,                  "Well                Regulatory
                                                      2002                   Capitalized"              Minimums
                                                      ----                   ------------              --------
<S>                                                   <C>                         <C>                    <C>
     Leverage ratio                                   7.34%                       5%                     4%
     Tier 1 capital ratio                             9.99%                       6%                     4%
     Total risk-based capital ratio                  11.14%                      10%                     8%
</TABLE>



     At September 30, 2002, total  stockholders'  equity  reflected  accumulated
other  comprehensive  income of $7.7 million  compared to the accumulated  other
comprehensive  loss of $4.0 million reflected in total  stockholder's  equity at
year-end  2001.  This  increase  can be  attributed  to the  change  in the  net
unrealized  gain (loss) on  investment  securities  available  for sale,  net of
taxes.  Much of this change was a function  of  declines  in interest  rates and
corresponding  increases in fair values of debt securities.  Community  reissued
approximately  81,000  shares  and  purchased  approximately  198,000  shares of
treasury  stock  during the first nine  months of 2002.  At  September  30, 2002
treasury  shares  totaled  244,000.  Community  currently has board  approval to
purchase an additional 53,000 shares.


                                       19
<PAGE>



COMMUNITY BANKS, INC. AND SUBSIDIARIES
Quantitative and Qualitative Disclosures About Market Risk
----------------------------------------------------------



Asset/Liability Management and Liquidity

     The  process by which  financial  institutions  manage  earning  assets and
funding   sources  under   different   interest  rate   environments  is  called
asset/liability management. The primary goal of asset/liability management is to
increase  net  interest  income  through  the  prudent  control of market  risk,
liquidity,   interest  rate  risk  and  capital.  Two  important  barometers  of
performance  are net interest  margin and liquidity.  Widening  interest  spread
while controlling  interest rate sensitivity  increases net interest margin. The
adequacy  of  liquidity  is  determined  by the  ability  to meet the cash  flow
requirements of both depositors and customers  requesting bank credit. The Board
of  Directors  governs and monitors  asset/liability  management  processes  and
delegates the  responsibility for management of these processes to the corporate
Asset/Liability Management Committee (ALCO).

     Liquidity  is  defined  as the  ability to meet  maturing  obligations  and
customers'  demand for funds on a  continuous  basis.  Liquidity is sustained by
stable core deposits, a diversified mix of liabilities, strong credit perception
and the presence of sufficient assets  convertible to cash without material loss
or disruption of normal operations.  Community actively manages liquidity within
a defined  range  and has  developed  reasonable  liquidity  contingency  plans,
ensuring   availability  of  alternate  funding  sources  to  maintain  adequate
liquidity under a variety of business  conditions.  The Corporation's  investing
and financing  activities  are conducted  within the overall  constraints of its
liquidity management policy and practices.


Inflation

     Community's  ability to cope with the impact of inflation is best  measured
by its ability to respond to  changing  interest  rates and manage  non-interest
income and expense.  Within its ALCO processes,  the Corporation manages the mix
of interest  rate-sensitive  assets and liabilities in order to limit the impact
of changing  interest rates on net interest income.  Inflation also has a direct
impact on non-interest income and expense such as service fee income, salary and
benefits expenses, and other overhead expenses.  Inflationary pressures over the
last  several  years  have been  modest  but this  trend is  subject  to change.
Management  will  continue to monitor the potential for inflation and its impact
on the pricing of products and services.



                                       20
<PAGE>



COMMUNITY BANKS, INC. AND SUBSIDIARIES
FINANCIAL CONDITION
-------------------

     Community's  financial  condition  can be examined  in terms of  developing
trends in its  sources  and uses of funds.  These  trends are the result of both
external environmental factors, such as changing economic conditions, regulatory
changes and competition, and internal environmental factors such as management's
evaluation as to the best use of funds under these changing conditions.
<TABLE>
<CAPTION>


                                                                                                       Increase (Decrease)
                                                                            Balance                          Since
                                                                      September 30, 2002                December 31, 2001
                                                                      ------------------                -----------------
                                                                                      (dollars in thousands)


                                                                                                     Amount                %
                                                                                                     ------                --
<S>                                                                      <C>                     <C>                     <C>
Funding Sources:

   Deposits and borrowed funds:

       Non-interest bearing....................................          $    165,649            $     5,262                3.3 %
       Interest-bearing........................................               949,746                106,908               12.7
                                                                         ------------            -----------             ------
           Total deposits......................................             1,115,395                112,170               11.2

   Borrowed funds..............................................               369,500                (12,657)              (3.3)
   Other liabilities...........................................                13,883                    780                6.0
   Shareholders' equity........................................               128,050                 16,801               15.1
                                                                         ------------            -----------             ------
           Total sources.......................................          $  1,626,828            $   117,094                7.8 %
                                                                         ============            ===========             ======

Funding uses:

   Interest-earning assets:

       Short-term investments..................................          $      1,565            $       193               14.1 %
       Investment securities...................................               620,680                 76,779               14.1
       Loans, net of unearned income...........................               907,324                 47,722                5.6
                                                                        -------------           ------------            -------

           Total interest-earning assets.......................             1,529,569                124,694                8.9

   Cash and due from banks.....................................                41,241                 (3,523)              (7.9)
   Other assets................................................                56,018                 (4,077)              (6.8)
                                                                        -------------           ------------            --------

           Total uses..........................................          $  1,626,828            $   117,094                7.8 %
                                                                         ============            ===========             ======

</TABLE>

                                       21
<PAGE>



COMMUNITY BANKS, INC. AND SUBSIDIARIES
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.


                                       22
<PAGE>



                     COMMUNITY BANKS, INC. and SUBSIDIARIES

                   PART II - OTHER INFORMATION AND SIGNATURES



Items 1,2,3,4 and 5 have been omitted since they are not applicable.


Item 6(a).  Exhibits
            --------

Exhibit #      Description
---------      -----------

99.1     Certification Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to
         Section 906 of the Sarbanes-Oxley Act of 2002 (Chief Executive Officer)

99.2     Certification Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to
         Section 906 of the Sarbanes-Oxley Act of 2002 (Chief Financial Officer)


Item 6(b).  Reports on Form 8-K
            -------------------

       Registrant filed the following report on Form 8-K during the quarter
       ending September 30, 2002:

       Report Dated July 18, 2002
       --------------------------
       Registrant announced its earnings for the period ended June 30, 2002.

       Report Dated September 24, 2002
       -------------------------------
       Registrant announced its intentions to open its first two Carroll County,
       Maryland banking offices, subject to regulatory approval.








                                       23
<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          November 14, 2002              /s/ Eddie L. Dunklebarger
----          -----------------              -------------------------
                                                 Eddie L. Dunklebarger
                                                 Chairman and President
                                               (Chief Executive Officer)

Date          November 14, 2002             /s/ Donald F. Holt
----          -----------------             ------------------
                                                Donald F. Holt
                                                Executive Vice President
                                               (Chief Financial Officer)






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                     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    November 14, 2002                       /s/ Eddie L. Dunklebarger
----    -----------------                       -------------------------
                                                    Eddie L. Dunklebarger
                                                    Chairman and President
                                                   (Chief Executive Officer)





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<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    November 14, 2002                          /s/ Donald F. Holt
----    -----------------                          ------------------
                                                       Donald F. Holt
                                                  Executive Vice President
                                                 (Chief Financial Officer)



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<PAGE>



                                                                   Exhibit 99.1


                              COMMUNITY BANKS, INC.


                            CERTIFICATION PURSUANT TO
                             18 U.S.C. SECTION 1350
                             AS ADOPTED PURSUANT TO
                  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002


     In  connection  with the  Quarterly  Report of Community  Banks,  Inc. (the
"Company") on Form 10-Q for the period  ending  September 30, 2002 as filed with
the Securities  and Exchange  Commission on the date hereof (the  "Report"),  I,
Eddie L. Dunklebarger,  Chief Executive Officer,  Chairman, and President of the
Company, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906
of the Sarbanes-Oxley Act of 2002, that:

(1)      The Report fully complies with the requirements of section 13(a) or
         15(d) of the Securities Exchange Act of 1934; and

(2)      The information contained in the Report fairly presents, in all
         material respects, the financial condition and results of operations
         of the Company.



/s/  Eddie L. Dunklebarger
--------------------------------------------------
Chief Executive Officer, Chairman, and President
November 14, 2002



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                                                            Exhibit 99.2

                              COMMUNITY BANKS, INC.


                            CERTIFICATION PURSUANT TO
                             18 U.S.C. SECTION 1350
                             AS ADOPTED PURSUANT TO
                  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002


     In  connection  with the  Quarterly  Report of Community  Banks,  Inc. (the
"Company") on Form 10-Q for the period  ending  September 30, 2002 as filed with
the Securities  and Exchange  Commission on the date hereof (the  "Report"),  I,
Donald F. Holt, Chief Financial Officer of the Company,  certify, pursuant to 18
U.S.C.  ss. 1350, as adopted  pursuant to ss. 906 of the  Sarbanes-Oxley  Act of
2002, that:

(1)      The Report fully complies with the requirements of section 13(a) or
         15(d) of the Securities Exchange Act of 1934; and

(2)      The information contained in the Report fairly presents, in all
         material respects, the financial condition and results of operations
         of the Company.



/s/  Donald F. Holt
--------------------------------------------------
Chief Financial Officer
November 14, 2002








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