SECURITIES AND EXCHANGE COMMISSION
                           Washington, D.C.  20549 
                                 Form 10-K
              ANNUAL REPORT PURSUANT TO SECTION 13 or 15 (d) OF
                      THE SECURITIES EXCHANGE Act OF 1934
                                                    
For the fiscal year ended December 31, 1997    Commission file number 0-15786  
     
                 
                             COMMUNITY BANKS, INC.                            
            (Exact name of registrant as specified in its charter)
                                                                               
              Pennsylvania                             23-2251762             
   (State or other jurisdiction of                   (I.R.S. Employer
    incorporation or organization)                   Identification No.)     
                                                                                
     150 Market Street, Millersburg, PA                     17061             
   (Address of principal executive offices)              (Zip Code)
     
     
     
Registrant's telephone number, including area code        (717) 692-4781       
     
Securities registered pursuant to Section 12(b) of the Act:          
     
                                                Name of each exchange
            Title of each class                 on which registered  
     
Common Stock, par value $5 per share            American Stock Exchange
     
     
Securities registered pursuant to Section 12(g) of the Act:      NONE
             
                                                    
Indicate by check mark whether the registrant (1) has filed all reports 
required to be filed by section 13 or 15 (d) of the Securities Exchange Act 
of 1934 during the preceding 12 months (or for such shorter period that the 
registrant was required to file such reports), and (2) has been subject to 
such filing requirements for the past 90 days.
                                                     Yes  X         No      
     
As of March 1, 1998, the aggregate market value (based on recent selling 
prices) of the voting stock of the registrant held by its nonaffiliates 
(2,359,439 shares) was $96,736,999 

Indicate the number of shares outstanding of each registrant's classes of 
common stock, as of the latest practical date.
     
        3,039,592 shares of common stock outstanding on March 1, 1998
     
                      DOCUMENTS INCORPORATED BY REFERENCE
                                                    
Exhibit 13 contains portions of the Annual Report to Stockholders incorporated 
by reference into Parts I, II, and III.
         
Exhibit index is located on page 21. This document contains 23 pages.
     
     
Indicate by check mark if disclosure of delinquent filers pursuant to item 405 
of Regulation S-K is not contained herein, and will not be contained, to the 
best of registrant's knowledge, in definitive proxy or information statements 
incorporated by reference in part III of this Form 10-K or any amendment to 
this Form 10-K.  [  ]
                                             
                                                
                                        PART I

Item 1.  Business:

     Community Banks, Inc. (Bank) is a bank holding company whose banking 
subsidiary is Community Banks, N.A. (CBNA) and whose non-banking subsidiaries 
are Community Banks Investments, Inc. (CBII) and Community Banks Life 
Insurance Company, Inc. (CBLIC).

     The Bank conducts a full service commercial banking business and provides 
trust services in northern Dauphin County, Northumberland County, western 
Schuylkill County, and southern Luzerene County. The Bank currently has 22 
offices. There are 52 offices of commercial banks and savings and loan 
associations within its market area with which the Bank competes. Deposits of 
the Bank represent approximately 13% of the total deposits in the market area. 
The Bank has 7 offices in Dauphin County, 2 offices in Northumberland County, 
10 offices in Schuylkill County, and 3 offices in Luzerne County. On January 
12, 1996, Community Banks, Inc. completed its merger of the Citizens National 
Bank of Ashland (Citizens). Citizens had 3 banking offices which are located 
in Ashland, Gordon, and Lavelle, Pennsylvania. This transaction was accounted 
for as a pooling-of-interests.

     Like other depository institutions, the Bank has been subjected to 
competition from brokerage firms, money market funds, consumer finance and 
credit card companies and other companies providing financial services and 
credit to consumers. As a result of federal legislation, regulatory 
restrictions previously imposed on the Bank with respect to establishing money 
market fund accounts have been eliminated and the Bank is now better able to 
compete with other financial institutions in its service area with respect to 
interest rates paid on time and savings deposits, service charges on deposit 
accounts and interest rates charged on loans.

     During 1986 the Bank formed CBLIC to provide credit life insurance to its 
consumer credit borrowers. Total premiums earned were $399,000 for the year 
ended December 31, 1997.  During 1985 the Bank formed CBII to make investments 
primarily in equity securities of other banks. Total assets of CBII at 
December 31, 1997 were $5,121,000.

     The Bank has approximately 262 full and part-time employees and considers 
its employee relations to be satisfactory.

     Community Banks, Inc. is registered as a bank holding company with the 
Board of Governors of the Federal Reserve System in accordance with the 
requirements of the Bank Holding Company Act of 1956. It is subject to 
regulation by the Federal Reserve Board and the Comptroller of the Currency.

     In 1989, the Federal Reserve Board issued final risk-based capital 
guidelines for bank holding companies which were phased in through 
December 31, 1992. The intent of regulatory capital guidelines is to measure 
capital adequacy based upon the credit risk of various assets and off-balance 
sheet items. Risk categories, weighted at 0%, 20%, 50% and 100%, are 
specifically identified. The sum of the results of each such category is then 
related to the adjusted capital account of the Company. A minimum required 
capital ratio at December 31, 1997, was 8 percent. The Bank's December 
31, 1997 ratio approximated 18%. Subsequently, in August 1990 the board 
announced approval of capital to total assets (leverage) guidelines. This 
minimum leverage ratio was set at 4% and would apply only to those banking 
organizations receiving a regulatory composite 1 rating. Most banking 
organizations will be required to maintain a leverage ratio ranging from 1 to 
2 percentage points above the minimum standard. The Bank's leverage ratio at 
December 31, 1997, approximated 11%. Risk-based capital requirements replace 
previous capital guidelines which established minimum primary and total 
capital requirements.

                                
       The following summarizes the Bank's capital adequacy position:
     
                                                         Required             
                                  Bank               Regulatory Capital      
     (in thousands)           December 31, 1997      December 31, 1997     
     
     Risk-based capital       $52,041     17.9%       $23,258     8.0%      
     Leverage ratio                     
     (tier 1 capital)          49,120     10.8%        18,193     4.0%        
                      
                                                 -2-                 
     
                            
Statistical Data:
                 
     Pages 19 through 21 of the Community Banks, Inc. Annual report to 
stockholders dated December 31, 1997 contain information concerning:
     
     Financial Highlights
        
     Average Balances, Effective Interest Differential, and Interest Yields 
          for the three years ended December 31, 1997.
     
     Rate/Volume Analysis for the two years ended December 31, 1997.
     
     Appendix A attached to Part I contains information concerning:  
     
     Return on Equity and Assets for the five years ended December 31, 1997.
                                   
     Amortized cost and Estimated Market Values of Investment Securities as
          of December 31, 1997, 1996, and 1995. 
     
     Maturity Distribution of Securities as of December 31, 1997 (Market Value).
     
     Loan Account Composition as of December 31, 1997, 1996, 1995, 1994, and
          1993.
     
     Maturities and Sensitivity to Changes in Interest Rates for Commercial,
          Financial, and Agricultural Loans as of December 31, 1997.
     
     Nonperforming Loans as of December 31, 1997, 1996, 1995, 1994, and
          1993.
         
     Loan Loss Experience for the five years ended December 31, 1997.
     
     Loans Charged Off and Recovered for the five years ended December 31, 1997.
     
     Allowance for Loan Losses as of December 31, 1997, 1996, 1995, 1994, and
          1993.
     
     Maturity Distribution of Time Deposits over $100,000 as of 
          December 31, 1997.     
     
     Interest Rate Sensitivity as of December 31, 1997.
     
                                            
                                                      -3-
     
Item 2.  Properties:
     
         The Bank owns no real property except through its subsidiary bank, CBNA
which owns the following buildings:  150 Market Street, Millersburg, 
Pennsylvania (its corporate headquarters); 13-23 South Market Street, 
Elizabethville, Pennsylvania; 3679 Peters Mountain Road, Halifax, Pennsylvania;
906 N. River Road, Halifax, Pennsylvania; 800 Peters Mountain Road, Dauphin, 
Pennsylvania; Main and Market Streets, Lykens, Pennsylvania; Route 209, Porter
Township, Schuylkill County, Pennsylvania; 29 E. Main Street, Tremont, 
Schuylkill County, Pennsylvania; Second and Carroll Streets, St. Clair, 
Schuylkill County, Pennsylvania; R.D. 3, Mill Creek Manor, Pottsville,
Schuylkill County, Pennsylvania; 300 East Independence Street, Shamokin, 
Northumberland County, Pennsylvania; Route 61, R.D. 1, Orwigsburg, Schuylkill
County, Pennsylvania; One South Arch Street, Milton, Northumberland County, 
Pennsylvania; 22 S. Church Street, Hazleton, Luzerne County, Pennsylvania;
702 West Main Street, Valley View, Schuylkill County, Pennsylvania; 735 Center
Street, Ashland, Schuylkill County, Pennsylvania; P.O. Box 44, Gordon, 
Schuylkill County, Pennsylvania; 436 Main Street, Lavelle, Schuylkill County,
Pennsylvania; and 9-11 N. Centre Street, Pottsville, Schuylkill County, 
Pennsylvania. Real property located at One Westside Drive, Shamokin Dam, 
Snyder County, Pennsylvania is owned in contemplation of future expansion. In
addition thereto, CBNA leases an office at Main Street, Pillow, Pennsylvania,
pursuant to a lease which, with renewal options, will extend to the year 2008.
Also, the Bank leases offices at Route 93, Conyngham, Luzerne County, 
Pennsylvania; 77 Airport Road, Hazleton, Luzerne County, Pennsylvania; and 
6700 Derry Street, Rutherford, Dauphin County, Pennsylvania. From time to time,
the subsidiary bank also acquires real estate by virtue of foreclosure
proceedings, which real estate is disposed of in the usual and ordinary course
of business as expeditiously as is prudently possible.
     
     All the buildings used by the Bank are free-standing and are used 
exclusively for banking purposes with the exception of offices and retail 
space rented at the St. Clair and Milton locations.
     
Item 3.  Legal Proceedings:
     
     There are no material pending legal actions, other than routine litigation
incidental to the business of the Bank, to which the Bank is a party.
     
Item 4.  Submission of Matters to a Vote of Security Holders:
      
     No matters were submitted to a vote of security holders during the fourth
quarter of 1997.
     
                                                       -4-
     
                                                         
                                                                APPENDIX A 


<TABLE>
<CAPTION>
  
                                      RETURN ON EQUITY AND ASSETS
                    FOR THE YEARS ENDED DECEMBER 31, 1997, 1996, 1995, 1994, and 1993      
                                       1997         1996         1995        1994         1993                  
   
<S>                                  <C>          <C>          <C>          <C>          <C>               
Return on average equity              11.89%       12.08%       11.27%       12.61%       12.54%                                    
                                        
Return on average assets               1.34%        1.40%        1.28%        1.39%        1.40%                                 

Average equity to average assets      11.29%       11.63%       11.36%       10.99%       11.18% 

Dividend payout ratio                 42.38%       40.13%       42.23%       36.74%       35.00% 
    

</TABLE>
                                                 -5-
                                                                 APPENDIX A
                                                                  Continued
                                                                           
<TABLE>
<CAPTION>     
     
                                                         AMORTIZED COST AND ESTIMATED VALUES OF INVESTMENT
                                                                            SECURITIES
                                                                      (dollars in thousands)
                                                               AT DECEMBER 31, 1997, 1996, and 1995
     
                                                          1997                     1996                     1995          
                                                              Estimated                Estimated                Estimated
                                                  Amortized     Market     Amortized     Market     Amortized     Market 
                                                    Cost        Value         Cost       Value         Cost       Value  
     
     <S>                                         <C>         <C>          <C>         <C>           <C>        <C>     
     Mortgage backed U.S. Government agencies     $ 82,723    $ 83,348     $ 69,837    $ 68,528      $ 45,888   $ 46,153
     U.S. Treasury and U.S. Government agencies     39,814      40,074       40,267      40,432        27,719     28,031
     Obligations of states and political sub-
        divisions                                   29,337      30,019       30,496      30,958        34,067     34,941
     Other securities                                5,470       7,960        4,450       5,528         7,232      8,301    
        Total                                     $157,344    $161,401     $145,050    $145,446      $114,906   $117,426     
                                                  ========    ========     ========    ========      ========   ========
                                                              
</TABLE>
                           
                                                                               
<TABLE>
<CAPTION>
     
                                  COMMUNITY BANKS, INC. and SUBSIDIARIES
                            MATURITY DISTRIBUTION OF SECURITIES (Market Value)
                                          (dollars in thousands)
                                         as of December 31, 1997
                                                     
     
                                                   One           Five                                          Weighted   
                                      Within     Through        Through        After                 Average    Average   
                                     One Year   Five Years     Ten Years    Ten Years     Total      Maturity   Yield <F1>   
<S>                                  <C>         <C>           <C>          <C>        <C>         <C>             <C>       
U.S. Government and agencies          $ 9,469     $15,215       $20,144      $78,594    $123,422    8 yr.  2 mos.   6.98%    
Obligations of states and political
  subdivisions                            401      18,052         9,402        2,164      30,019    5 yr.  3 mos.   6.84%    
Other                                   6,923       1,037           ---          ---       7,960           6 mos.   3.36% 
                                             
     Total                            $16,793     $34,304       $29,546      $80,758    $161,401    7 yr.  3 mos.   6.78%
                                      =======     =======       =======      =======    ========
     
Percentage of total                     10.4%       21.3%         18.3%        50.0%       100.0%  
                                        =====       =====         =====        =====       ======             
     
Weighted average yield <F1>             5.32%       6.04%         7.16%        7.26%        6.78%  
                                        =====       =====         =====        =====        =====
     
          
<FN>     
<F1> Weighted average yields were computed on a tax equivalent basis using a
     federal income tax rate of 34%.
</FN>
</TABLE>
     
     
The Bank monitors investment performance and valuation on an ongoing basis to
evaluate investment quality. An investment which has experienced a decline in
market value considered to be other than temporary is written down to its net
realizable value and the amount of the write down is accounted for as a 
realized loss.
     
     
     
                                                                    -6-        
                                                
                                                                  APPENDIX A
                                                                   Continued 

<TABLE>
<CAPTION>
                                                                            
                                                           LOAN ACCOUNT COMPOSITION           
                                                             (dollars in thousands)
                                                               as of December 31

                                                                                                                             
                                              1997              1996                 1995               1994            1993 
                                         Amount   Percent  Amount    Percent   Amount    Percent  Amount    Percent Amount  Percent
<S>                                    <C>       <C>     <C>        <C>     <C>        <C>     <C>        <C>     <C>        <C>  
Commercial, financial and agricultural  $ 39,559   14.5%  $ 44,129    16.8%  $ 38,251    15.7%  $ 32,243    14.8%  $ 28,087    14.5%
Real estate-construction                   1,276    0.5      1,816     0.7      3,283     1.4      3,354     1.6      1,573     0.8
Real estate-mortgage                     170,582   62.5    151,299    57.8    133,389    54.8    124,320    57.0    108,112    55.6
Personal-installment                      53,599   19.6     59,142    22.6     62,373    25.6     51,953    23.8     49,777    25.6
Other                                      7,933    2.9      5,590     2.1      6,012     2.5      6,142     2.8      6,705     3.5
                                         272,949  100.0%   261,976   100.0%   243,308   100.0%   218,012   100.0%   194,254   100.0%
Less:                                             =====              =====              =====              =====              =====
   Unearned discount                     (11,799)          (11,965)           (11,671)            (9,141)            (8,122)
   Reserve for loan losses                (2,921)           (2,798)            (2,574)            (2,346)            (2,120)
                                        $258,229          $247,213           $229,063           $206,525            $184,012
                                        ========          ========           ========           ========            ======== 

</TABLE>
                                                                    
     The Corporation's loan activity is principally with customers located 
within the local market area. The Corporation continues to maintain a 
diversified loan portfolio and has no significant loan concentration in any 
economic sector.  Changes in loan demand in 1997 resulted in decreases
in commercial, financial, and agricultural loans and personal-installment loans
of 10.4% and 9.4%, respectively. Real estate loans increased 12.2% 
during this same period. Commercial, financial, and  agricultural loans 
represented 14.5% of total loans at December 31, 1997 and consist principally
of commercial lending secured by financial assets of businesses including 
account receivables, inventories and equipment, and, in most cases, include 
liens or real estate. Real estate construction and mortgage loans are primarily
1 to 4 family residential loans secured by residential properties within
the bank's market area. Personal-installment loans comprised 19.6% of total 
loans at December 31, 1997 and consist principally of secured loans for items
such as automobiles, property improvement, household and other consumer goods. 
The Corporation continues to sell fixed rate mortgages in the secondary
market to avoid associated interest rate risk. Historically, relative credit 
risk of commercial, financial and agricultural loans has generally been 
greater than that of other types of loans.

<TABLE>
<CAPTION>
              
                            MATURITIES AND SENSITIVITY TO CHANGES IN INTEREST
          RATES FOR COMMERCIAL, FINANCIAL AND AGRICULTURAL AND REAL ESTATE - CONSTRUCTION LOANS
                                          (dollars in thousands)
                                          as of December 31, 1997   
 
                                                             Maturity Distribution

                                               One Year       One to      Over Five
                                                Or Less      Five Years     Years     Total
<S>                                           <C>            <C>           <C>      <C> 
        Commercial, Financial and 
          agricultural                         $23,598        $12,320       $3,641   $39,559 
        Real estate-construction                 1,276            ---          ---     1,276       
                                               $24,874        $12,320       $3,641   $40,835  
                                               =======        =======       ======   =======               

</TABLE>
<TABLE>
<CAPTION>
                                                        Interest Sensitivity
  
                                               Variable         Fixed        Total  
<S>                                           <C>             <C>          <C>      
           Due in one year or less             $23,010         $2,387       $25,397      
           Due after one year                   15,361             77        15,438        
                                               $38,371         $2,464       $40,835
                                               =======         ======       ======= 
                
</TABLE>
                                                                      -7-
                                                            
                                                                  APPENDIX A
                                                                   Continued   
<TABLE>
<CAPTION>
                                                               
                                                               
                                                     NONPERFORMING LOANS <F1>  
                                                     (dollars in thousands)     
                                                       as of December 31 
                                                                               
                                                     1997          1996          1995         1994         1993     
<S>                                               <C>           <C>           <C>           <C>          <C>                        
     Loans past due 90 days or more:                    
        Commercial, financial and agricultural     $   53        $   20        $  120        $  152       $    9    
        Mortgages                                     405           547           558           440          485        
        Personal installment                           72           189           236           226          219       
        Other                                          21            11           ---             1            9    
                                                      551           767           914           819          722       
                                                       
     Loans renegotiated with the borrowers            NONE         NONE         NONE          NONE        NONE         
     
     Loans on which accrual of interest has
      been discontinued:
        Commercial, financial and agricultural        762            723           415         327            50
        Mortgages                                   1,716          1,904          1,245        888         1,244
        Other                                         300            283             99         30            59
                                                    2,778          2,910          1,759      1,245         1,353
       
     Other real estate owned                          481            351            302        338           381       
           Total                                
                                                   $3,810         $4,028         $2,975     $2,402        $2,456
                                                   ======         ======         ======     ======        ======
     
<FN>
<F1> The determination to discontinue the accrual of interest on nonperforming
loans is made on the individual case basis. Such factors as the character and
size of the loan, quality of the collateral and the historical creditworthiness
of the borrower and/or guarantors are considered by management in assessing 
the collectibility of such amounts.
     
     The approximate amount that would have been accrued on those loans for 
which interest was discontinued in 1997 was $265,000. Interest income from 
these loans would have approximated $217,000 in 1996. 
          
     The change in nonperforming loans is primarily a result of the impact of 
economic conditions upon the loan portfolio. The economic outlook remains 
uncertain. If the economy in the Bank's trading area improves this could have
a positive impact on delinquency trends and collectibility of loans. However,
the commercial real estate market in the Bank's trading area remains stagnant.
The ability of borrowers to liquidate collateral is dependent upon the demand
for commercial real estate projects and a buyer's ability to finance 
commercial real estate projects.    
</FN>
</TABLE>

                                                    -8-                        
                     
     
                                                                 APPENDIX A
                                                                  Continued

<TABLE>
<CAPTION>
                                    
                                                          LOAN LOSS EXPERIENCE
                                                                                                    
                                                         (dollars in thousands)
                                                                                                    
                                   For the years ended December 31, 1997, 1996, 1995, 1994, and 1993
                                                                                              
                                                              1997        1996         1995        1994        1993
<S>                                                       <C>          <C>          <C>         <C>        <C>               
          Loans at year-end, net of unearned income        $261,150     $250,011     $231,637    $208,871   $186,132
                                                           ========     ========     ========    ========   ========             
          Average loans balance <F1>                       $253,600     $243,840     $222,624    $196,751   $187,513                
                                                           ========     ========     ========    ========   ========             
          Balance, allowance for loan losses,
                 January 1                                 $  2,798     $  2,574     $  2,347    $  2,120   $  1,891                
          
          Net charge-offs <F2>                                 (594)        (818)        (501)       (286)      (703)
          
          Provision for loan losses                             717        1,042          728         513        932                

          
          Balance, allowance for loan losses,
               December 31                                 $  2,921     $  2,798     $  2,574    $  2,347   $  2,120
                                                           ========     ========     ========    ========   ========             
          Net charge-offs to loans at year end                 .23%         .33%         .22%        .14%       .38% 

          Net charge-offs to average loans <F1>                .23          .34          .23         .15        .37
 
          Balance of allowance for loan losses        
               to loans at year end                           1.12         1.12         1.11        1.12       1.14

<FN>
<F1> Averages are a combination of monthly and daily averages.
<F2> For detail, see Schedule of Loans Charged Off and Recovered.
</FN>
</TABLE>
     
     The allowance for loans losses is based upon management's continuing 
evaluation of the loan portfolio.  A review as to loan quality, current macro-
economic conditions and delinquency status is performed at least on a 
quarterly basis. The provision for loan losses is adjusted quarterly based 
upon current review. The table on page 10 presents an allocation by loan 
categories of the allowance for loan losses at December 31 for the last five
years. In retrospect, the specific allocation in any particular category
may prove excessive or inadequate and consequently may be reallocated in the 
future to reflect the then current condition. Accordingly, the entire 
allowance is available to absorb losses in any category.
     
     As discussed in the Corporation's Annual Report, the Corporation adopted 
SFAS 114, as amended by SFAS 118, on January 1, 1995. The adoption of SFAS 
114 did not result in any additional provision for loan losses.
     
     The provision for loan losses totalled $717,000 for the year ended December
31, 1997 compared to $1,042,000, $728,000, $513,000, and $932,000 for the years
ended December 31, 1996, 1995, 1994, and 1993, respectively. The relationship
of the allowance for loan losses to loans at year end approximated 1.12% 
compared to ratios of 1.11% to 1.14% for the previous four years. In reviewing
the adequacy of the allowance for loan losses, management considered the
relationship of nonaccrual loans, other real estate owned, and accruing loans 
contractually past due 90 days or more to total assets. This relationship 
approximated .82%, .93%, .78%, .65%, and .71% at year-end 1997, 1996, 1995, 
1994, and 1993, respectively.  
                                                     
                                                     
                                                     -9-     
                                                           APPENDIX A
                                                            Continued

     
<TABLE>
<CAPTION>
                                                            LOANS CHARGED OFF AND RECOVERED
                                                                (dollars in thousands)
                                           for the years ended December 31, 1997, 1996, 1995, 1994, and 1993
                                                                           
                                                                           
                                                                           
  
                                                    1997          1996          1995         1994        1993
<S>                                              <C>           <C>             <C>           <C>       <C> 
Loans charged off:
   Commercial, financial and agricultural         $   21        $   17           ---           ---         ---    
 Real estate-mortgage                                 82           133          $115          $151        $156
   Personal installment                              731         1,053           647           493         828
   Other                                              96            93            78           119          66
Total                                                930         1,296           840           763       1,050

Loans recovered:                                                     
   Commercial, financial and agricultural              3             6           ---           ---         ---
   Real estate-mortgage                               11            27            29            83          79 
   Personal installment                              298           415           295           361         254
   Other                                              24            30            15            33          14
      Total                                          336           478           339           477         347
         Net charge-offs                          $  594        $  818          $501          $286      $  703
                                                  ======        ======          ====          ====      ======
</TABLE>
                                        
<TABLE>
<CAPTION>
                                                                     ALLOCATION OF
                                                              ALLOWANCE FOR LOAN LOSSES<F1>
                                                                (dollars in thousands)
                                                                   as of December 31

                                                       
                                                       1997         1996          1995          1994           1993
<S>                                                 <C>           <C>           <C>           <C>          <C>
Loans:
   Commercial, financial and agricultural            $  686        $  631        $  355        $  452       $   577
   Real estate-construction                             ---             2            --             1           ---
   Real estate-mortgage                                 761           684           690           353           260
   Installment                                          892           823           639           598           564
   Unallocated                                          582           658           890           943           719
Balance                                              $2,921        $2,798        $2,574        $2,347        $2,120
                                                     ======        ======        ======        ======        ======
<FN>
<F1>See Schedule "Loan Account Composition" for the percent of loan 
    classification to total loans.
</TABLE>

                                                 MATURITY DISTRIBUTION OF TIME
                                                  DEPOSITS OF $100,000 OR MORE
                                                       (dollars in thousands)
                                                       as of December 31, 1997
Remaining to Maturity:
   Less than three months                                               $ 7,065
   Three months to six months                                             2,322
   Six months to twelve months                                            1,835
   More than twelve months                                                4,471
                                                                        $15,693
                                                                        ======= 

                                                       -10-

                                                                  APPENDIX A
                                                                   Continued
                                           
   
                           INTEREST RATE SENSITIVITY

     
     The excess of interest-earning assets over interest-bearing liabilities 
which are expected to mature or reprice within a given period is commonly 
referred to as the "GAP" for that period. For an institution with a negative 
GAP, the amount of income earned on its assets fluctuates less than the cost
of its liabilities in response to changes in the prevailing rates of interest
during the period. Accordingly, in a period of decreasing interest rates, 
institutions with a negative GAP will experience a smaller decrease in the
yield on their assets than in the cost of their liabilities. Conversely, in a 
period of rising interest rates, institutions with a negative GAP face a 
smaller increase in the yield on their assets than in the cost of their 
liabilities. A decreasing interest rate environment is favorable to 
institutions with a negative GAP because more of their liabilities than their
assets adjust during the period and, accordingly, the decrease in the cost of
their liabilities is greater than the decrease in the yield on their assets.
     
     The negative GAP between the Bank's interest-earning assets and interest-
bearing liabilities maturing or repricing within one year approximated 4% of 
total assets at December 31, 1997.
     
     Significant maturity/repricing assumptions (based on internal analysis) 
include the presentation of all savings and NOW accounts as being 75% interest 
rate sensitive. Equity securities are reflected in the shortest time interval. 
Assumed paydowns on mortgage-backed securities and loans have also been 
included in all time intervals.
     
     The following table sets forth the scheduled repricing or maturity of the 
Bank's interest-earning assets and interest-bearing liabilities at December 
31, 1997.
     
<TABLE>
<CAPTION>
     
     Interest Rate Sensitivity                                                          
     At December 31, 1997                1-90       90-180      180-365     1 year     Total
     Dollars in thousands                days        days         days     or more          
<S>                                   <C>         <C>         <C>        <C>        <C>              
     Assets
     Interest-bearing deposits in 
      other banks                      $  1,934     $  100         ---         ---   $  2,034
     Investment securities               18,813      8,632     $11,326    $122,630    161,401  
     Federal funds sold                   2,100        ---         ---         ---      2,100   
     Loans, net of unearned income<F1>   79,111     89,583      20,012      72,444    261,150    
     Loans held for sale                  2,641        ---         ---         ---      2,641
     Total                             $104,599    $98,315     $31,338    $195,074   $429,326
     
     Liabilities
     Savings                           $ 46,541    $25,982     $51,964     $34,117   $158,604   
     Time                                35,230     30,195      30,919      56,860    153,204
     Time in denominations of
      $100,000 or more                    7,065      2,322       1,835       4,471     15,693
     Short-term borrowings                  752        ---         ---         ---        752
     Long-term debt                      18,000        ---         ---      28,000     46,000 
     Total                             $107,588    $58,499     $84,718    $123,448   $374,253
                                     
     Interest Sensitivity Gap
     Periodic                           $(2,989)   $39,816    $(53,380)     $71,626  
     Cumulative                                     36,827     (16,553)      55,073
     
<FN>
<F1>Does not include nonaccrual loans.
</FN>
</TABLE>
     
                                                 -11-
     




       Forward-Looking Statements:
      
           Certain statements in this document may be considered to be
      "forward-looking statements" as that term is defined in the U.S.
      Private Securities Litigation Reform Act of 1995, such as
      statements that include the words "expect", "estimate",
      "project", "anticipate", "should", "intend", "probability",
      "risk", "target", "objective", and similar expressions or
      variations on such expressions. In particular, this document
      includes forward-looking statements relating, but not limited to,
      Community's potential exposures to various types of market risks
      such as interest rate risk and credit risk. Such statements are
      subject to certain risks and uncertainties. For example, certain
      of the market risk disclosures are dependent on choices about key
      model characteristics and assumptions and are subject to various
      limitations. By their nature, certain of the market risk
      disclosures are only estimates and could be materially different
      from what actually occurs in the future. As a result, actual
      income gains and losses could materially differ from those that
      have been estimated. Other factors that could cause actual
      results to differ materially from those estimated by the
      forward-looking statements contained in this document include,
      but are not limited to: general economic conditions in market
      areas which Community has significant business activities or
      investments; the monetary and interest rate policies of the Board
      of Governors of the Federal Reserve System; inflation; deflation;
      unanticipated turbulence in interest rates; changes in laws,
      regulations and taxes; changes in competition and pricing
      environments; natural disasters; the inability to hedge certain
      risks economically; the adequacy of loan reserves; acquisitions
      or restructurings' technological changes; in consumer spending
      and saving habits; and the success of Community in managing the
      risks involved in the foregoing.
      
      Quantitative and Qualitative Disclosures About Market Risk.
      
           Community has only a limited involvement with derivative
      financial instruments and does not use them for trading purposes.
      The business of Community and the compositions of its balance
      sheet consists of investments in interest-earning assets
      (primarily loans, mortgage-backed securities, and investment
      securities) which are primarily funded by interest-bearing
      liabilities (deposits and borrowings). Such financial instruments
      have varying levels of sensitivity to changes in market interest
      rates resulting in market risk. Other than loans which are
      originated and held for sale, all of the financial instruments of
      Community are for other than trading purposes.
      
           Interest rate sensitivity results when the maturity or
      repricing intervals and interest rate indices of the
      interest-earning assets, interest -bearing liabilities, and
      off-balance sheet financial instruments are different, creating a
      risk that changes in the level of market interest rates will
      result in disproportionate changes in the value of, and the net
      earnings generated from, Community's interest-earning assets,
      interest-bearing liabilities, and off-balance sheet financial
      instruments. Community's exposure to interest rate sensitivity is
      managed primarily through Community's strategy of selecting the
      types and terms of interest-earnings assets and interest-bearing
      liabilities which generate favorable earnings, while limiting the
      potential negative effects of changes in market interest rates.
      Since Community's primary source of interest-bearing liabilities
      is customer deposits, Community's ability to manage the types and
      terms of such deposits may be somewhat limited by customer 
      
                                         -12-
      
      preferences in the market areas in which Community operates.
      Borrowings, which include Federal Home Loan Bank (FHLB) advances
      and short-term loans, subordinated notes, and other short-term
      and long-term borrowings are generally structured with specific
      terms which in management's judgement, when aggregated with the
      terms for outstanding deposits and matched with interest-earning
      assets, mitigate Community's exposure to interest rate
      sensitivity.
      
           The rates, terms and interest rate indices of Community's
      interest-earning assets result primarily from Community's
      strategy of investing in loans and securities (a substantial
      portion of which have adjustable-rate terms) which permit
      Community to limit its exposure to interest rate sensitivity,
      together with credit risk, while at the same time achieving a
      positive interest rate spread from the difference between the
      income earned on interest-earning assets and the cost of
      interest-bearing liabilities.
      
      Significant Assumptions Utilized in Managing Interest Rate
      Sensitivity
      
           Managing Community's exposure to interest rate sensitivity
      involves significant assumptions about the exercise of imbedded
      options and the relationship of various interest rate indices of
      certain financial instruments.
      
      Imbedded Options.
      
           A substantial portion of Community's loans and
      mortgage-backed securities and residential mortgage loans
      containing significant imbedded options which permit the borrower
      to prepay the principal balance of the loan prior to maturity
      ("prepayments") without penalty. A loan's propensity for
      prepayment is dependent upon a number of factors, including the
      current interest rate and interest rate index, (if any) of the
      loan, the financial ability of the borrower to refinance, the
      economic benefit to be obtained from refinancing, availability of
      refinancing at attractive terms, as well as economic and other
      factors in specific geographic areas which affect the sales and
      price levels of residential property. In a changing interest
      rate  environment, prepayments may increase or decrease on fixed
      and adjustable-rate loans depending on the current relative
      levels and expectations of future short and long-term interest
      rates. Since a significant portion of Community's loans are
      variable rate loans, prepayments on such loans generally increase
      when long-term interest rates fall or are at historically low
      levels relative to short-term interest rates making fixed-rate
      loans more desirable.
      
           Investment securities, other than those with early call
      provisions, generally do not have significant imbedded options
      and repay pursuant to specific terms until maturity. While
      savings and checking deposits generally may be withdrawn upon the
      customer's request without prior notice, a continuing
      relationship with customers resulting in future deposits and
      withdrawals is generally predictable resulting in a dependable
      and uninterrupted source of funds. Time deposits generally have
      early withdrawal penalties, while term FHLB borrowings and
      subordinated notes have prepayment penalties, which discourage
      customer withdrawal of time deposits and prepayment of FHLB
      borrowings and subordinated notes prior to maturity.
      
                                       -13-
       
           Interest Rate indices. Community's loans and mortgage-backed
      securities are primarily indexed to the national interest indices. When
      such loans and mortgage-backed securities are funded by interest-bearing
      liabilities which are determined by other indices, primarily deposits and
      FHLB borrowings, a changing interest rate environment may result in
      different levels of changes in the different indices leading to
      disproportionate changes in the value of, and net earnings generated from,
      the Company's financial instruments. Each index is unique and is
      influenced by different external factors, therefore, the historical
      relationships in various indices may not be indicative of the actual
      change which may result in a changing interest rate environment.
      
      Interest Rate Sensitivity Measurement
      
           In addition to periodic gap reports comparing the sensitivity of
      interest-earning assets and interest-bearing liabilities to changes in
      interest-rates, management also utilizes a quarterly report which measures
      Community's exposure to interest rate risk. The model calculates the
      present value of assets, liabilities and equity at current interest rates,
      and at hypothetical higher and lower interest rates at one percent
      intervals. The present value of each major category of financial
      instrument is calculated by the model using estimated cash flows based on
      prepayments, early withdrawals, weighted average contractual rates and
      terms, and discount rates for similar financial instruments. The resulting
      present value of longer term fixed-rate financial instruments are more
      sensitive to change in a higher or lower interest rate scenario, while
      adjustable-rate financial instruments largely reflect only a change in
      present value representing the difference between the contractual and
      discounted rates until the next interest rate repricing date.
      
           The following table reflects the estimated present value of assets,
      liabilities and equity financial instruments using the model for Community
      as of December 31, 1997, consolidated with the estimated present values of
      other financial instruments of Community, at current interest rates and
      hypothetical higher and lower interest rates of one and two percent.

<TABLE>
<CAPTION>                                          
                                                                      Base
                                               -2%        -1%      Present Value    +1%       +2%
                                                              (dollars in thousands)
                                                  
                   Assets
<S>                                         <C>         <C>        <C>          <C>       <C>             
      Cash, interest-bearing time deposits,
         and federal funds sold............. $ 22,853    $ 22,853   $ 22,853     $ 22,853  $ 22,853
      Investment securities.................  167,325     164,254    161,401      157,844   153,241
      Loans, net of unearned income.........  260,775     258,260    255,660      252,227   248,537
      Loans held for sale...................    2,694       2,668      2,641        2,606     2,567
      Other assets..........................   17,926      17,926     17,926       17,926    17,926
      
           Total assets..................... $471,573    $465,961   $460,481     $453,456  $445,124
                                             ========    ========   ========     ========  ========
                 Liabilities
      
      Deposits.............................. $361,904    $360,000   $358,148     $356,346  $354,591
      Short-term borrowings.................      752         752        752          752       752
      Long-term debt........................   47,558      46,793     46,059       45,354    44,677 
      Other liabilities.....................    5,366       5,366      5,366        5,366     5,366
      
           Total liabilities................  415,580     412,911    410,325      407,818   405,386
         
           Total stockholders' equity.......   55,993      53,050     50,156       45,638    39,738
           
           Total liab. and stockholders'
              equity........................ $471,573    $465,961   $460,481     $453,456  $445,124 
                                             ========    ========   ========     ========  ======== 
</TABLE>
      
                                                                 -14-

     
                                            PART II
     
Item 5.  Market for Registrant's Common Stock and
         Related Stockholder Matters:
     
         Incorporated by reference is the information appearing under the 
heading "Market for the Holding Company's Common Stock and Related Securities 
Holder Matters" on page 3 of the Annual Report to Stockholders for the year 
ended December 31, 1997 (hereafter referred to as the "Annual Report").
     
Item 6.  Selected Financial Data:
     
          Incorporated by reference is the information appearing under the 
heading "Financial Highlights" on page 19 of the Annual Report.
     
Item 7.  Management's Discussion and Analysis of Financial Condition and
         Results of Operations:
     
          Incorporated by reference is the information appearing under the 
headings "Rate/Volume Analysis"; "Average Balances, Effective Interest 
Differential and  Interest Yields"; and "Management's Discussion of Financial
Condition and Results of Operations" on pages 20 through 24 of the Annual 
Report.
     
Item 8.  Financial Statements and Supplementary Data:
     
          The consolidated financial statements, together with the report 
thereon of Coopers & Lybrand L.L.P. dated January 13, 1998, are incorporated 
by reference to pages 6 through 19 of the Annual Report.
     
Item 9.  Disagreements on Accounting and Financial Disclosures:
     
         None.
                                          -15-

     

                                         PART III
     
Item 10.  Directors and Executive Officers of the Registrant:
     
          The following table sets forth the name and age of each director of
Community Banks, Inc. as well as the director's business experience, including
occupation for the past 5 years, the period during which he has served as a 
director of the Bank, or its wholly-owned subsidiary, Community Banks, N.A. 
(Formerly Upper Dauphin National Bank), and the number and percentage of 
outstanding shares of Common Stock of the Bank beneficially owned by said 
directors as of December 31, 1997.
            
                                                                   Percentage
                     Business Experience              Amount and      of
                     Including Principal              Nature of    Outstanding 
                     Occupation for the    Director   Beneficial   Common Stock 
Name and Age          Past Five Years      Since (1)  Ownership(2)     Owned    
     
Thomas L. Miller       Chairman of Bank        1966      32,291 (11)   1.06%
   Age 65
     
Kenneth L. Deibler     Self-Employed           1966      23,009 (3)     .76%
   Age 75                Insurance Broker
                         Elizabethville, PA
     
Leon E. Kocher         Chairman of the Board,  1963      18,138         .60%
   Age 85                Kocher Enterprise, Inc.
                         Millersburg, PA
     
Ernest L. Lowe         President of Bank       1990      22,847 (10)    .75%
   Age 61 
     
Robert W. Rissinger    Sec./Treasurer          1968     159,245 (4)    5.24%
   Age 71                Alvord Polk Tool Co.                   (5)            
                         (cutting tools)                                  
                         Engle Rissinger Auto Group
                         Millersburg, PA                         
     
Allen Shaffer          Attorney-at-Law         1961      28,425 (8)     .94%
   Age 72                Millersburg and
                         Harrisburg, PA
     
William C. Troutman    President,              1968      97,091 (6)    3.20%
   Age 82                The W. C. Troutman Co.
                         (automobile dealership)
                         Millersburg, PA         
     
James A. Ulsh          Attorney-at-Law         1977      10,208         .34%
   Age 51                Mette, Evans &
                         Woodside
                         Harrisburg, PA
     
Samuel E. Cooper       Superintendent,         1992       1,348         .04%
   Age 64                Warrior Run
                         School District 
                         Turbotville, PA
                              
Susan K. Nenstiel      Insurance Broker        1996         138          --
   Age 46                Nenstiel and Nenstiel
                         Hazleton, PA                   
     
     
                                               -16-   
                                      

                                                                Percentage
                 Business Experience               Amount and       of
                 Including Principal               Nature of    Outstanding
                 Occupation for the    Director    Beneficial   Common Stock
Name and A          Past Five Years     Since (1)   Ownership(2)    Owned    
               
Ronald E. Boyer        President,              1981      13,994 (7)     .46%
   Age 60                Alvord-Polk Tool Co.
                         (manufacturing of 
                         cutting tools)
                         Millersburg, PA

Peter DeSoto           President,              1981      27,116         .89%
   Age 58                Metal Industries, Inc.
                         (manufacturing of metal
                         products)
                         Elizabethville, PA    
                                 
Thomas W. Long         President,              1981       7,982         .26%
   Age 68                Millersburg Hardware 
                         Millersburg, PA

Donald L. Miller       President, Miller Bros. 1981      58,669        1.93%
   Age 68                Dairy
                         Millersburg, PA
                         
Ray N. Leidich         Dentist                 1985      44,984 (9)    1.48%
   Age 69                Tremont, PA



    (1)  Includes service as a director of CBNA (formerly Upper Dauphin National
Bank), a wholly-owned subsidiary of the bank, prior to 1983 and service as a 
director of the bank after 1983.

   (2)  The securities "beneficially owned" by an individual are determined in 
accordance with the definition of "beneficial ownership" set forth in the 
regulations of the Securities and Exchange Commission. Accordingly, they may 
include securities owned by or for, among others, the wife and/or children of
the individual and any other relative who has the same home as such 
individual, as well as other securities as to which the individual has or 
shares voting or investment power or has the right to acquire under
outstanding stock options within 60 days after December 31, 1997. Beneficial 
ownership may be disclaimed as to certain of the securities.

   (3)  Includes 1,826 shares owned by Mr. Deibler's grandchildren.

   (4)  Includes 4,112 shares owned by Alvord-Polk Tool Co., Inc. the stock of
which is held 50% by Robert Rissinger and 50% by Ronald E. Boyer.

   (5)  Includes 9,163 shares owned by Engle Ford, Inc., 28,887 shares owned by
Mr. Rissinger's spouse, Shirley Rissinger, and 5,027 shares owned by Engle 
Ford, Inc. Profit Sharing Plan in which Mr. Rissinger is Co-Trustee.

   (6)  Includes 21,601 shares owned by Mr. Troutman's spouse, Dorothy Troutman
and 6,115 shares owned by W.C. Troutman Co.

   (7)  Includes 4,112 shares owned by Alvord-Polk Tool Co., Inc., the stock of 
which is held 50% by Robert W. Rissinger and 50% by Ronald E. Boyer, and 162
shares owned by Mr. Boyer's wife, Judith Boyer.

   (8)  Includes 4,847 shares owned by Mr. Shaffer's Pension plan. 
                                                              
   (9)  Includes 22,492 shares owned by Dr. Leidich's wife, Dolores Leidich.

                              
                                          -17-

  (10)  Includes 119 shares owned by Mr. Lowe's wife, Barbara and 14 shares 
owned by Mr. Lowe's child and incentive stock options to acquire 21,132 shares.

  (11)  Includes incentive stock options to acquire 9,733 shares.

  (12)  Includes incentive stock options to acquire 13,639 shares.

  (13)  Includes incentive stock options to acquire 7,750 shares and 93 shares
registered to Mr. Lawley for his minor children.

  (14)  Includes incentive stock options to acquire 1,683 shares.   


Section 16(a) Beneficial Ownership Reporting Compliance

          In 1997, to the knowledge of CBI, all  Executive Officers and 
directors timely filed all reports with the Securities Exchange Commission. 
   
          None of the directors or nominee directors are directors of other 
companies with a class of securities registered pursuant to Section 12 of the
Securities Exchange Act of 1934.
 


Executive Officers:

          The following table sets forth the executive officers of Community 
Banks, Inc., their ages, their positions with Community Banks, Inc. and the 
beneficial ownership (as determined in accordance with the rules and 
regulations of the Securities and Exchange Commission) of Common Stock of the
Bank by each of such persons as of December 31, 1997.



                                                        Amount and   Percentage 
                      Principal Occupation               Nature of       of
                       for the Past Five                Beneficial   Outstanding
Name and Age                Years           Term (1)    Ownership(2)Common Stock

Thomas L. Miller  Chairman & Chief Executive    1966        32,291  (11)  1.06%
   Age 65           Officer

Ernest L. Lowe    President,                    1985        22,847  (10)   .75%
   Age 61           Chief Operating Officer

Terry L. Burrows  Executive Vice President,     1977        13,201  (14)   .43%
   Age 49           Chief Financial Officer 

David E. Hawley   Executive Vice President,     1975        13,995  (12)   .46%
   Age 59          Corporate Property Officer  

Robert W. Lawley  Executive Vice President,     1980         7,879  (13)   .26%
   Age 43           Chief Lending Officer



(1)  Initial year employed in this capacity.


                                                -18-  


          The following is all shares beneficially owned by all directors and 
executive officers of the Bank as a group:
      
                                                  
                                          Amount and Nature
                                            of Beneficial 
                                              Ownership
     
                                                                  Percent
                       Title of Class     Direct     Indirect     of Class
     
                          Common          418,053    158,395       18.99%
     
     
     
Item 11.  Executive Compensation:
          
               Information regarding executive compensation is omitted from this
report as the holding company will file a definitive proxy statement for its 
annual meeting of shareholders to be held May 26, 1998; and the information 
included therein with respect to this item is incorporated herein by reference.
     
     
     Pension Plan:
     
               The Bank maintains a pension plan for its employees. An employee
becomes a participant in the pension plan on January 1 or July 1 after 
completion of one year of service (12 continuous months) and attainment of the
age 21 years. The cost of the pension is actuarially determined and paid by 
the Bank. The amount of monthly pension is equal to 1.15% of average monthly 
pay up to $650, plus .60% of average monthly pay in excess of $650, multiplied
by the number of years of service completed by an employee. Average 
     
     
                                              -19-
     
     
monthly pay is based upon the 5 consecutive plan years of highest pay preceding
retirement. The maximum amount of annual compensation used in determining 
retirement benefits is $160,000. A participant is eligible for early 
retirement after attainment of the age of 60 years and the completion of 5 
years of service. The early retirement benefit is the actuarial equivalent of
the pension accrued to the date of early retirement. Thomas L. Miller and 
Ernest L. Lowe have been credited with 39 and 13 years of service,
respectively, under the pension plan as of December 31, 1997.

               The amounts shown on the following table assume an annual 
retirement benefit for an employee who chose a straight-line annuity and who 
is presently 50 years old and who will retire at the age of 65 years.

<TABLE>
<CAPTION>
     
                                                   PENSION PLAN TABLE
                                                           Years of Service                             
     Remuneration              15         20         25          30            35            40          
<S>                       <C>         <C>        <C>         <C>           <C>          <C>                  
     $35,000........       $ 8,486     $11,314    $14,143     $16,971       $19,800      $ 22,138  
     $55,000........       $13,736     $18,314    $22,893     $27,471       $32,050      $ 35,778
     $75,000........       $18,986     $25,314    $31,643     $37,971       $44,300      $ 49,418
     $95,000........       $24,236     $32,314    $40,393     $48,471       $56,550      $ 63,058
     $115,000.......       $29,486     $39,314    $49,143     $58,971       $68,800      $ 76,698
     $135,000.......       $34,736     $46,314    $57,893     $69,471       $81,050      $ 90,338
     $150,000.......       $38,673     $51,564    $64,455     $77,346       $90,237      $100,568
     $175,000.......       $41,298     $55,064    $68,830     $82,596       $96,362      $107,388
     $200,000.......       $41,298     $55,064    $68,830     $82,596       $96,362      $107,388
     $225,000.......       $41,298     $55,064    $68,830     $82,596       $96,362      $107,388
     $250,000.......       $41,298     $55,064    $68,830     $82,596       $96,362      $107,388
     $275,000.......       $41,298     $55,064    $68,830     $82,596       $96,362      $107,388 
</TABLE>
                                   
          Directors' Compensation:
     
               Each director of CBI is paid a quarterly fee of $750.00. In 
addition, each outside director receives a fee of $250.00 for attendance at 
the regular quarterly meetings of the Board of Directors of CBI. Each director
who is not an executive officer also receives $250.00 for attendance at each 
committee meeting of CBI.
     
     
     
Item 12.  Security Ownership of Certain Beneficial
          Owners and Management:
     
          Refer to Item 10 on pages 16 through 19.
     
Item 13.  Certain Relationships and Related Transactions:
     
          (a)  Transactions with Management and Others
     
               Incorporated by reference is the information appearing in Note 12
(Related Parties) of Notes to Consolidated Financial Statements on page 15 of 
the Annual Report.
     
          (b)  Certain Business Relationships
     
               Allen Shaffer, a director of the Bank, is an attorney practicing
 in Harrisburg and Millersburg, Pennsylvania, who has been retained in the 
last two fiscal years by the Bank and who the Bank proposes to retain in the 
current fiscal year. James A. Ulsh, a director of the Bank, is a shareholder/
employee of the law firm of Mette, Evans & Woodside, Harrisburg, Pennsylvania
which the Bank has retained in the last two fiscal years and proposes to 
retain in the current fiscal year. Thomas J. Carlyon, a director of CBNA, is a 
partner in the law firm of Carlyon & McNelis, Hazleton, Pennsylvania, which 
CBI has retained in the last two fiscal years and proposes to retain in the 
current fiscal year.
     
               All loans to directors and their business affiliates, executive 
officers and their immediate families were made by the subsidiary bank in the
ordinary course of business, at the subsidiary bank's normal credit terms, 
including interest rates and collateralization prevailing at the time for 
comparable transactions with other non-related persons, and do not represent 
more than a normal risk of collection.
     
     
                                                      -20-        
       
                                                  PART IV
       
Item 14.  Exhibits, Financial Statements Schedules and
          Reports on Form 8-K:
                                                             Reference (page) 
                                                                      Annual
                                                            Form     Report to
                                                            10-K    Shareholders
(a) (1)   Consolidated Financial Statements
          Report of Independent Public
             Accountants                                     --          19     

          Balance Sheets as of December 31, 1997
             and 1996                                        --           6  

          Statements of Income for each of the three years
             ended December 31, 1997                         --           7  

          Statements of Changes in Stockholders'
             Equity for each of the three years ended
             December 31, 1997                               --           8 

          Statements of Cash Flows for each of the three
             years ended December 31, 1997                   --           8    

          
          Notes to Financial Statements                      --         9-18  

    
          All other schedules are omitted since the required information is 
not applicable or is not present in amounts sufficient to require submission of
the schedule.

     (3)   Exhibits

           (3)  Articles of Incorporation and By-Laws. Incorporated Registration
by reference to the Proxy Statements dated April 14, 1987 and April 12, 1988 and
Amendment 2 to Form S-2 dated May 13, 1987. 

          (13) Portions of the Annual Report to Security Holders incorporated by
reference within this document is filed as part of this report.

          (21) Subsidiaries of the Registrant (see Item 1, pages 2 and 3).

(b)  The registrant filed Form 8-K, October 28, 1997, subsequent to entering 
into an Agreement and Plan of Reorganization with The Peoples Bank of East 
Berlin  


                                               -21-

                CONSENT OF INDEPENDENT ACCOUNTS

We consent to the incorporation by reference in the registration
statements of Community Banks, Inc. on Form S-8 (File No. 0-15786
and File No. 33-24908) of our report, dated January 13, 1998 on
our audits of the consolidated financial statements of Community
Banks, Inc. as of December 31, 1997 and 1996, and for the years
ended December 31, 1997, 1996, and 1995, which report is
incorporated by reference in this Annual Report on Form 10-K.

                               Coopers & Lybrand, L.L.P.

One South Market Square
Harrisburg, Pennsylvania
March 20, 1998   




                              -22-
     
     
                                  Signatures
     
               Pursuant to the requirements of Section 13 or 15 (d) of the
     Securities Exchange Act of 1934, the Registrant has duly caused this report
     to be signed on its behalf by the undersigned, thereunto duly authorized.
                              
                                Community Banks, Inc.
                                                                                
                           By: /S/ Ernest L. Lowe _____
                                  (Ernest L. Lowe)  
                                      Chairman
                               Chief Executive Officer
                                    and Director
     
     Date:  March 6, 1998
     
               Pursuant to the requirements of the Securities Exchange Act of
     1934, this report has been signed below by the following persons on behalf
     of the registrant and in the capacities and on the dates indicated.
     
            Signature                Title                      Date
       
      /S/ Terry L. Burrows      Ex. Vice President and         3/6/98
         (Terry L. Burrows)     Principal Financial Officer
     
      /S/ Ronald E. Boyer       Director                       3/6/98
         (Ronald E. Boyer)
     
      /S/ Samuel E. Cooepr      Director                       3/6/98
         (Samuel E. Cooper)
     
      /S/ Kenneth L. Deibler    Director                       3/6/98
         (Kenneth L. Deibler)
     
      /S/  Peter DeSoto         Director                       3/6/98
          (Peter DeSoto)
     
      /S/  Leon E. Kocher       Director                       3/6/98
          (Leon E. Kocher)
     
      /S/  Ray N. Leidich       Director                       3/6/98
          (Ray N. Leidich)
     
      /S/  Thomas W. Long       Director                       3/6/98
          (Thomas W. Long)
      
      /S/ Donald L. Miller      Director                       3/6/98
         (Donald L. Miller)
     
      /S/ Thomas L. Miller      Director                       3/6/98
         (Thomas L. Miller)
     
      /S/ Susan K. Nenstiel     Director                       3/6/98
         (Susan K. Nenstiel) 
     
      /S/ Robert W. Rissinger   Director                       3/6/98
         (Robert W. Rissinger)
        
      /S/ Willaim C. Troutman   Director                       3/6/98
         (William C. Troutman)
     
      /S/ James A. Ulsh      _  Director                       3/6/98
         (James A. Ulsh)
     
                                        -23-