EXHIBIT 10.8

                              EMPLOYMENT AGREEMENT



     AGREEMENT  made this 29th day of October,  1997,  by and between  COMMUNITY
BANKS, INC., a Pennsylvania corporation,  ("Community"), THE PEOPLES STATE BANK,
a Pennsylvania  state chartered banking  institution  ("Peoples") and ANTHONY N.
LEO, an adult individual (hereinafter referred to as "Executive").

                              W I T N E S S E T H:

     WHEREAS,  Executive is  currently  employed by Peoples,  as Peoples'  Chief
General Counsel,  pursuant to a certain Employment Agreement between Peoples and
Executive, dated May 3, 1994; and

     WHEREAS,  Community  and Peoples have entered into a certain  Agreement and
Plan of  Reorganization  of even date (the "Merger  Agreement")  whereby Peoples
will be merged with and into PSB Interim Bank, a  Pennsylvania  state  chartered
banking institution, as of the Effective Date of the Merger (as defined therein)
and,  upon the Effective  Date of the Merger,  PSB Interim Bank shall change its
name to The Peoples State Bank; and

     WHEREAS,  as of  the  Effective  Date  of the  Merger,  Peoples  will  be a
wholly-owned subsidiary of Community; and

     WHEREAS, for purposes of the Agreement,  Community and Peoples are referred
to collectively as the "Company."

     WHEREAS,  the Company wishes to employ Executive and Executive wishes to be
employed by Company, as an Executive Vice President and the Chief Administrative
Officer of Peoples,  upon the terms set forth below, as of the Effective Date of
the Merger; and

     NOW, THEREFORE,  in consideration of the agreements  hereinafter contained,
and intending to be legally bound hereby, the parties agree as follows:

          1. Length of  Employment.  Company  agrees to employ  Executive  for a
rolling term of two (2) years commencing on the Effective Date of the Merger. On
each  anniversary  date of the  Effective  Date of the Merger,  the term of this
Agreement  shall  automatically  renew and extend for an additional one (1) year
period unless either party shall have provided notice of its intent not to renew
within  sixty (60) days  prior to such  anniversary  date.  Upon the date of any
Change in Control (as defined in  Paragraph  8) should  occur,  the term of this
Agreement shall  automatically renew and be extended for two (2) years from such
date.

          2. Position and Responsibilities. During the course of his employment,
Executive shall (i) perform the duties and responsibilities of an Executive Vice
President of Company and Chief Administrative  Officer of Peoples,  (ii) perform
such  other  senior  management  duties  and  responsibilities  as the  Board of
Directors  and CEO may  direct,  and  (iii)  shall be  afforded  the  title  and
privileges  associated  with being at least an Executive  Vice  President of the
Company.

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          3. Performance of Responsibilities, Loyalty.

          a.  Executive  shall  devote his full time to the  performance  of his
     responsibilities  hereunder.  Executive  shall  at  all  times  faithfully,
     industriously and to the best of his abilities perform all duties necessary
     to carry out his responsibilities.

          b.  Throughout  the term  hereof,  Executive  shall not at any time or
     place,  either directly or indirectly engage in any business or activity in
     competition with or adverse to the interests of Company.

          4. Compensation.

          a. During the  initial  calendar  year of the term of this  Agreement,
     Company  shall pay to Executive a base salary of not less than  $90,000.00.
     During  successive  calendar  years,  the Company  may, in its  discretion,
     adjust the base salary; provided that it shall at no point be reduced below
     the  initial   base   salary.   This  salary  shall  be  paid  in  regular,
     substantially  equal  installments  in accordance  with the regular payroll
     practices of the Company, less any and all applicable deductions for taxes,
     medical benefits, etc.

          b. In  addition  to base  salary,  during the term of this  Agreement,
     Company shall provide  Executive with an automobile,  including all related
     maintenance,  repairs,  insurance  and other  costs.  In lieu of  providing
     Executive  with  an  automobile,  Company  may  provide  Executive  with  a
     reasonable  allowance  on a monthly  basis,  which  allowance  shall  cover
     Executive's   costs  associated  with  an  automobile,   including  without
     limitation, lease or installment payments, maintenance,  repairs, insurance
     and other costs.

          5. Benefits.

          a.  Executive  shall  receive  employee  benefits from Company no less
     favorable than the employee  benefits he received as an employee of Peoples
     and, in addition,  shall be eligible to participate in all employee benefit
     plans  generally  available  to  executive  officers of Company,  including
     without limitation, health and dental insurance plans, group life insurance
     plans,   retirement  plans,  incentive  compensation  plans,   supplemental
     executive  retirement plans and stock option,  grant or appreciation rights
     plans.  The  participation  of Executive in each benefit plan  described in
     this paragraph  shall be subject to the terms of the applicable plan and to
     procedures  generally  applicable to Company officers;  provided,  however,
     that  Executive  shall receive credit for years of service with Peoples for
     vesting purposes only. Nothing in this paragraph shall obligate the Company
     to offer any such plans.

          b. Executive shall be provided holiday pay, personal days, sick leave,
     short-term  disability and long-term  disability in accordance with Company
     policy  for  officers  of  similar  position   performing  similar  duties.
     Executive  shall be entitled to at least four (4) weeks paid  vacation each
     calendar year.

          c. The Company shall pay the reasonable  costs of Executive  attending
     continuing education seminars and banking conventions and meetings.

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<PAGE>

          6.  Relocation.  Company  shall  not,  without  the prior  consent  of
Executive,  transfer or relocate the office in which Executive performs the bulk
of his duties to any  location  more than  thirty  (30) miles from East  Berlin,
Pennsylvania without an increase in duties and responsibilities and commensurate
compensation.  In the event  Executive is so transferred  or relocated,  Company
shall  pay all  reasonable  out-of-pocket  expenses  incurred  by  Executive  in
connection  with such  relocation.  Company shall not require  Executive to move
from his residence.

          7. Termination of Employment.  This Agreement may be terminated during
the term hereof as follows:

          a. (1) At any time by mutual agreement of Executive and Company.

             (2) If this Agreement is terminated pursuant to subparagraph (a)(1)
     of  this  Paragraph  7, neither  party  shall have  further   obligation or
     liability to the other hereunder,  except that Executive shall be entitled
     to accrued and unpaid salary.

          b. (1) By  Company,  at any  time for  Cause.  "Cause"  shall  include
     Executive's  personal dishonesty,  willful misconduct,  breach of fiduciary
     duty  involving  personal  profit,  incompetence,  intentional  failure  to
     perform  stated  duties,  willful  violation of any law, rule or regulation
     (other than traffic  violations or offenses not involving moral turpitude),
     final cease and desist order of any government  agency having  jurisdiction
     over Company,  or material  breach of this Agreement,  following  Company's
     notice  thereof to Executive  and  Executive's  failure to cure same within
     thirty (30) days of such notice.

             (2) If this Agreement is terminated pursuant to subparagraph (b)(1)
     of this Paragraph 7, Company shall have no further  obligation or liability
     to Executive hereunder, except that Executive shall be entitled to accrued
     and unpaid salary.

          c. (1)  Automatically,  if  Executive  is removed  and/or  permanently
     prohibited  from  participating  in the conduct of Company's  affairs by an
     order issued by an appropriate  regulatory agency under Section 8(e) of the
     Federal Deposit Insurance Act, as amended,  or any similar state or federal
     law.

             (2) If this Agreement is terminated pursuant to subparagraph (c)(1)
     of this Paragraph 7, Company shall have no further obligation  or liability
     hereunder,  except that  Executive  shall be entitled to accrued and unpaid
     salary.

          d. (1) By Company at any time, if in its sole judgment and  discretion
     the  continued  employment  of Executive  would no longer be  beneficial or
     desirable.

             (2) In the event that Executive's employment is terminated pursuant
     to this subparagraph (d)(1) of this  Paragraph  7,  Executive  shall not be
     obligated to perform any services on behalf of Company and Company shall be
     obligated to continue  Executive's  salary and those  benefits set forth in
     Paragraph 5(a) hereof for the remaining term of this  Agreement;  provided,
     however, that in no event shall this provision obligate Company to make any
     further increase to Executive's salary above his salary on the date of such
     termination,   or  continue  Executive's  participation  in  any  incentive
     compensation plan, or stock option,  grant or appreciation  rights plan, or
     any similar incentive based compensation plan.

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<PAGE>

             (3) Notwithstanding the provisions of  subparagraph  (d)(2) of this
     Paragraph,  in the event that Executive's employment is terminated pursuant
     to  subparagraph  (d)(1)  of this  Paragraph  7  subsequent  to a Change in
     Control,  or the  Company  shall  breach any  provision  of this  Agreement
     subsequent to a Change in Control,  Executive may elect, which election may
     be made in Executive's  sole  discretion,  to receive from Company a single
     payment upon such  termination  amounting to any salary to which  Executive
     would be entitled  pursuant to  subparagraph  (d)(2),  such single  payment
     being in lieu of the pay  ments  and  benefits  set  forth in  subparagraph
     (d)(2).  As used in this  paragraph,  "Change  in  Control"  shall have the
     meaning defined in Paragraph 8 hereof.

          e. (1) By Executive upon a Change in Control.

             (2) In the event that Executive  terminates his employment pursuant
     to subparagraph (e)(i)  of this  Paragraph 7,  Executive  may  elect, which
     election  may be made in  Executive's  sole  discretion,  to  receive  from
     Company a single payment upon such  termination  amounting to any salary to
     which Executive would be entitled  pursuant to subparagraph  (d)(2) of this
     Paragraph 7, such single payment being in lieu of the payments and benefits
     set forth in subparagraph (d)(2) of this Paragraph 7.

          f. By  Executive  at any time,  upon thirty (30) days prior  notice to
     Company;  provided,  however,  that if this  Agreement  shall be terminated
     pursuant to this subparagraph (f) of this Paragraph 7, Company shall not be
     further ob ligated or liable under this  Agreement,  except for the payment
     of accrued and unpaid salary.

          8.  Definition of Change of Control.  For purposes of this  Agreement,
the term "Change of Control" shall mean:

          a. An  acquisition  by any  "person"  or "group"  (as those  terms are
     defined or used in Section  13(d) of the  Exchange  Act,  as enacted and in
     force on the date hereof) of "beneficial  ownership" (within the meaning of
     Rule 13d-3  under the  Exchange  Act,  as enacted  and in force on the date
     hereof)  of  securities  of  Company  representing  24.99%  or  more of the
     combined voting power of Company's securities then outstanding;

          b. A merger,  consolidation or other reorganization of Company, except
     where the  resulting  entity is  controlled,  directly  or  indirectly,  by
     Company;

          c. A merger,  consolidation or other reorganization of Company, except
     where shareholders of Company immediately prior to consummation of any such
     transaction continue to hold as least a majority of the voting power of the
     outstanding  voting  securities  of the  legal  entity  resulting  from  or
     existing after any  transaction  and a majority of the members of the Board
     of  Directors  of the  legal  entity  resulting  from or  existing  after a
     transaction are former members of Com pany's Board of Directors;

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<PAGE>

          d. A sale,  exchange,  transfer or other  disposition of substantially
     all of the  assets  of  Company  to  another  entity,  except  to an entity
     controlled,  directly or  indirectly,  by Company or a  corporate  division
     involving Company;

          e. A contested  proxy  solicitation  of  Company's  shareholders  that
     results in the contesting  party obtaining the ability to cast  twenty-five
     percent  (25%) or more of the votes  entitled  to be cast in an election of
     directors of Company.

          f. During any period of two (2)  consecutive  years during the term of
     this Agreement and any renewal hereof,  individuals who at the beginning of
     such period  constitute  the Board of  Directors  of Company  cease for any
     reason (other than for health,  disability  or other medical  incapacity or
     voluntary re tirement) to constitute at least a majority thereof.

          g. The  termination  of employment of the Chief  Executive  Officer of
     Company,  other  than for  Cause  pursuant  to  Section  6(c) or  voluntary
     termination  under Section 6(e) of a certain  Employment  Agreement between
     Eddie L.  Dunklebarger  and  Company  of even  date,  during the period com
     mencing  on the  Effective  Date of the  Merger  and  ending  two (2) years
     thereafter.

          9. Suspension. If Executive is suspended and/or temporarily prohibited
from participating in the conduct of the Company's affairs by a notice served in
accordance  with  law  by  an  appropriate   regulatory  agency,  the  Company's
obligations  under this Agreement  shall be suspended as of the date of service,
unless  stayed by  appropriate  proceedings.  If the  charges  in the notice are
dismissed,  Company  shall (i) pay Executive  all of the  compensation  withheld
while its contract  obligations  were  suspended  and (ii)  reinstate any of its
obligations which were suspended.

          10.  Death or  Disability.  In the event that  Executive  is  rendered
unable  to  complete  the  terms of this  Agreement  due to death or  disability
continuing in excess of ninety (90) days, this Agreement shall be terminated and
Company  shall  have  no  further  liability,  obligations  or  responsibilities
hereunder except as set forth in Paragraph 5(b) hereof.

          11.  Covenant Not to Compete.  In the event  Executive  terminates his
employment with Company pursuant to Paragraph 7(f), he agrees that, for a period
of one (1) year following such termination, he shall not (i) solicit any Company
employees or officers to leave Company to accept  employment by Executive or his
new employer; and (ii) solicit or encourage any Company customers to cease doing
business  with the  Company  and/or  to  transfer  any or all of their  business
relationships to any institution which Executive may found or to Executive's new
employer.

          12. Entire  Agreement.  As of the Effective  Date of the Merger,  this
Agree ment and a certain Salary  Continuation  Agreement  between  Executive and
Peoples shall constitute the entire  agreement  between the parties and no prior
promises,  agreements or  warranties,  verbal or written,  shall be of any force
unless embodied herein.  No modification of this Agreement shall be of any force
or effect  unless  reduced to  writing  and  signed by both  parties.  As of the
Effective Date of the Merger, the existing Employment  Agreement between Peoples
and  Executive  shall be  terminated,  with no  further  rights  or  obligations
thereunder due to or from either party, and this Agreement shall supersede same.

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<PAGE>

          13. Miscellaneous.

          a. This  Agreement  shall be binding  upon and inure to the benefit of
     the parties hereto, their respective heirs, successors and assigns. b. This
     Agreement  shall not be  modified or changed in any way except by a written
     agreement signed by the parties hereto. c. No waiver by any party hereto of
     any provision of this Agreement  shall be deemed a waiver of said provision
     or any other  provisions  of this  Agreement.  d. This  Agreement  shall be
     interpreted,  construed  and  governed in  accordance  with the laws of the
     Commonwealth of  Pennsylvania.  The invalidity or  unenforceability  of any
     provision of this Agreement shall not affect the validity or enforceability
     of any other provision of this Agreement,  which shall remain in full force
     and effect.

          IN WITNESS WHEREOF, the parties have set their hands and seals.

ATTEST:                                              COMMUNITY BANKS, INC.

/S/ Patricia E. Hoch                              By:/S/ Thomas L. Miller
-------------------------------------                ---------------------------

                                                      THE PEOPLES STATE BANK


/S/ Carole L. Parr                                By:/S/ Eddie L. Dunklebarger
-------------------------------------                ---------------------------

WITNESS:                                              EXECUTIVE:


/S/ Carole L. Parr                                   /S/ Anthony N. Leo
-------------------------------------                ---------------------------
                                                         Anthony N. Leo



                                       6
<PAGE>

                    AGREEMENT TO MODIFY EMPLOYMENT AGREEMENT

     THIS  AGREEMENT  TO  MODIFY  EMPLOYMENT  AGREEMENT  ("Employment  Agreement
Modification")  is entered into on this 11th day of January,  2002, by COMMUNITY
BANKS, INC., a Pennsylvania corporation  ("Community"),  COMMUNITY BANKS, a bank
and trust company  organized and existing under the laws of the  Commonwealth of
Pennsylvania,  formerly known as The Peoples State Bank ("Bank"), and ANTHONY N.
LEO (the "Executive"). BACKGROUND

_____A.  Community,  Bank and  Executive  entered into an  Employment  Agreement
 ("Agreement") on or about October 29, 1997.

     B. The parties wish to modify the  identification  of Executive's job title
in the
Agreement.

     NOW, THEREFORE, in consideration of the foregoing premises and intending to
be legally bound, the parties hereby agree as follows:

     1.  Modification of Job Title.  Effective  March 30, 2001,  Executive's job
title  shall be  "Managing  Director -  Financial  Services  and  Administrative
Division",  in addition to his title of Executive Vice President of the Bank and
the Corporation.

     2. No Other Changes.  Except as specifically modified herein, all terms and
conditions of the Agreement shall remain in full force and effect.

     IN WITNESS WHEREOF, the Executive and duly authorized officers of Community
and Bank have signed this Employment Agreement Modification.

EXECUTIVE:

  /S/ Anthony N. Leo
-----------------------------------------------
      Anthony N. Leo

WITNESS/ATTEST:                                         COMMUNITY BANKS

  /S/ Patricia E. Hoch                         By  /S/ Eddie L. Dunklebarger
  ----------------------------------               -----------------------------
                                               Title   President & CEO
                                                    ----------------------------


WITNESS/ATTEST:                                       COMMUNITY BANKS, INC.


  /S/ Patricia E. Hoch                          By /S/ Eddie L. Dunklebarger
-----------------------------------                -----------------------------


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