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, 1996    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, 1997, the aggregate market value (based on recent selling
prices) of the voting stock of the registrant held by its nonaffiliates
(2,193,647 shares) was $74,583,998
     
Indicate the number of shares outstanding of each registrant's classes of 
common stock, as of the latest practical date.
     
     2,885,322 shares of common stock outstanding on March 1, 1997
     
                        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 18. This document contains 20 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 
twenty-one offices. There are 57 offices of commercial banks and savings and
loan associations within its market area with which the Bank competes. 
Deposits of the Bank represent approximately 14% of the total deposits in the
market area. The Bank has seven offices in Dauphin County, two offices in 
Northumberland County, nine offices in Schuylkill County, and three offices 
in Luzerne County. On January 12, 1996, Community Banks, Inc. completed its 
merger of the Citizens National Bank of Ashland (Citizens). Citizens had three
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 $453,000 for the year 
ended December 31, 1996.  During 1985 the Bank formed CBII to make investments
primarily in equity securities of other banks. Total assets of CBII at
December 31, 1996 were $2,920,000.

     The Bank has approximately 253 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, 1996, was 8 percent. The Bank's December 31, 1996 ratio 
approximated 17%. 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, 1996, approximated
10%.  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, 1996      December 31, 1996     
     
     Risk-based capital       $48,426     17.5%       $22,138     8.0%      
     Leverage ratio                     
     (tier 1 capital)          46,331     10.7%        17,320     4.0%        
     
                                   -2-     
                                             
     Statistical Data:
                 
         Pages 19 through 21 of the Community Banks, Inc. Annual report to 
     stockholders dated December 31, 1996 contain information concerning:
     
         Financial Highlights
          
         Average Balances, Effective Interest Differential, and Interest Yields
             for the three years ended December 31, 1996.
     
         Rate/Volume Analysis for the two years ended December 31, 1996.
     
         Appendix A attached to Part I contains information concerning:  
     
         Return on Equity and Assets for the five years ended December 31, 1996.
                                   
         Amortized cost and Estimated Market Values of Investment Securities as
             of December 31, 1996, 1995, and 1994. 
     
         Maturity Distribution of Securities as of December 31, 1996 
             (Market Value).      
     
         Loan Account Composition as of December 31, 1996, 1995, 1994, 1993, and
             1992.
     
         Maturities and Sensitivity to Changes in Interest Rates for Commercial,
             Financial, and Agricultural Loans as of December 31, 1996.
     
         Nonperforming Loans as of December 31, 1996, 1995, 1994, 1993, and
             1992.
         
         Loan Loss Experience for the five years ended December 31, 1996.
     
         Loans Charged Off and Recovered for the five years ended 
             December 31, 1996.
     
         Allowance for Loan Losses as of December 31, 1996, 1995, 1994, 1993,
             and 1992.
     
         Maturity Distribution of Time Deposits over $100,000 as of 
             December 31, 1996.     
     
         Interest Rate Sensitivity as of December 31, 1996.
     
                                  -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; 4 West Broad 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; and 436 Main Street, Lavelle, Schuylkill 
County, Pennsylvania. Real property located at 911 N. Centre Street, 
Pottsville, Schuylkill County, Pennsylvania and 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 1996.
     
                                                  
                                                 
                                                             APPENDIX A         


                                       -4-
<TABLE>
<CAPTION>
  
                                      RETURN ON EQUITY AND ASSETS
                    FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, 1994, 1993, and 1992      
                                       1996         1995         1994        1993         1992                  
   
<S>                                  <C>          <C>          <C>          <C>          <C>       
Return on average equity              12.08%       11.27%       12.61%       12.54%       12.48%                             
                                        
Return on average assets               1.40%        1.28%        1.39%        1.40%        1.36%                          

Average equity to average assets      11.63%       11.36%       10.99%       11.18%       10.92%                              

Dividend payout ratio                 40.13%       42.23%       36.74%       35.00%       33.85%                                

</TABLE>

                                                 -5-
                                                                   APPENDIX A
                                                                   Continued
<TABLE>
<CAPTION>
     
     
                                                    AMORTIZED COST AND ESTIMATED VALUES OF INVESTMENT
                                                                       SECURITIES
                                                                 (dollars in thousands)
                                                          AT DECEMBER 31, 1996, 1995, and 1994
     
                                                     1996                     1995                     1994          
                                                         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   $ 69,837    $ 68,528      $ 45,888    $ 46,153     $ 43,926    $ 41,900           
U.S. Treasury and U.S. Government agencies   40,267      40,432        27,719      28,031       39,929      38,318         
Obligations of states and political sub-
   divisions                                 30,496      30,958        34,067      34,941       42,428      41,926
Other securities                              4,450       5,528         7,232       8,301        7,082       7,466         
   Total                                   $145,050    $145,446      $114,906    $117,426     $133,365    $129,610         
                                           ========    ========      ========    ========     ========    ========           
                                                              
</TABLE>
                           
<TABLE>
<CAPTION>
     
                                  COMMUNITY BANKS, INC. and SUBSIDIARIES
                            MATURITY DISTRIBUTION OF SECURITIES (Market Value)
                                          (dollars in thousands)
                                         as of December 31, 1996
                                                     
     
                
                                                    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         $27,367     $40,932       $23,446      $17,215    $108,960    6 yr. 11 mos. 6.69%    
Obligations of states and political
   subdivisions                        3,379      13,226        13,564          789      30,958    4 yr. 10 mos. 6.59%    
Other                                  4,405       1,034            89          ---       5,528           4 mos. 3.64% 
                                             
     Total                           $35,151     $55,192       $37,099      $18,004    $145,446    6 yr.  2 mos. 6.55%
                                     =======     =======       =======      =======    ========
     
Percentage of total                    24.2%       37.9%         25.5%        12.4%       100.0%  
                                       =====       =====         =====        =====       ======             
     
Weighted average yield <F1>            5.73%       6.39%         7.11%        7.49%        6.55%  
                                       =====       =====         =====        =====        =====
     
          
<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

                                                                                                                             
                                          1996                 1995            1994                 1993              1992 
                                       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 $ 44,129   16.8%  $ 38,251   15.7%  $ 32,243    14.8% $ 28,087   14.5% $ 21,829   11.7%     
Real estate-construction                  1,816    0.7      3,283    1.4      3,354     1.6     1,573    0.8     1,796    1.0      
Real estate-mortgage                    151,299   57.8    133,389   54.8    124,320    57.0   108,112   55.6   101,866   54.6      
Personal-installment                     59,142   22.6     62,373   25.6     51,953    23.8    49,777   25.6    53,061   28.5      
Other                                     5,590    2.1      6,012    2.5      6,142     2.8     6,705    3.5     7,879    4.2      
                                        261,976  100.0%   243,308  100.0%   218,012   100.0%  194,254  100.0%  186,431  100.0%     
Less:                                            =====             =====              =====            =====            =====      
   Unearned discount                    (11,965)          (11,671)           (9,141)           (8,122)          (8,692)            
   Reserve for loan losses               (2,798)           (2,574)           (2,346)           (2,120)          (1,891)            
                                       $247,213          $229,063          $206,525          $184,012         $175,848             
                                       ========           ========          ========          ========         ========            
</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. Increased loan demand in 1996 resulted in increases 
in commercial, financial, and agricultural and real estate loan balances of 
15%, and 12%, respectively. Commercial, financial and agricultural loans 
represented 16.8% of total loans at December 31, 1996 and consist principally
of commercial lending secured by financial assets of businesses including 
account receivables, inventories and equipment, and, in most cases, include 
liens on 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 22.6% of 
total loans at December 31, 1996 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, 1996   
 
                                                             Maturity Distribution

                                               One Year       One to      Over Five
                                                Or Less      Five Years     Years     Total
<S>                                           <C>            <C>           <C>      <C>                                        
        Commercial, Financial and 
          agricultural                         $24,697        $14,676       $4,756   $44,129 
        Real estate-construction                 1,816            ---          ---     1,816       
                                               $26,513        $14,676       $4,756   $45,945  
                                               =======        =======       ======   =======               
</TABLE>

<TABLE>
<CAPTION>
                                                        Interest Sensitivity
  
                                               Variable         Fixed        Total  
<S>                                           <C>             <C>          <C>        
           Due in one year or less             $24,385         $2,128       $26,513      
           Due after one year                   19,276            156        19,432        
                                               $43,661         $2,284       $45,945
                                               =======         ======       ======= 
</TABLE>

                                                            
                                                                -7-
                                                            
                                                               APPENDIX A
                                                               Continued        
<TABLE>
<CAPTION>
                                                               
                                                     NONPERFORMING LOANS <F1>  
                                                     (dollars in thousands)       
                                                       as of December 31 
                                                                                                                        
                                                                                                         
                                                     1996          1995          1994         1993         1992     
<S>                                               <C>           <C>           <C>          <C>          <C>         
     Loans past due 90 days or more:                    
        Commercial, financial and agricultural     $   20        $  120        $  152       $    9       $  196        
        Mortgages                                     547           558           440          485        1,017 
                             
        Personal installment                          189           236           226          219          596
        Other                                          11           ---             1            9           10   
                                                      767           914           819          722        1,819
                                                       
     Loans renegotiated with the borrowers            NONE         NONE          NONE        NONE           NONE 
     
     Loans on which accrual of interest has
      been discontinued:
        Commercial, financial and agricultural        723            415           327          50           64     
        Mortages                                    1,904          1,245           888       1,244          931     
        Other                                         283             99            30          59           77       
                                                    2,910          1,759         1,245       1,353        1,072       
     
     Other real estate owned                          351            302           338         381          167 
       
           Total                                   $4,028         $2,975        $2,402      $2,456       $3,058        
                                                   ======         ======        ======      ======       ======      
<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 1996 was $217,000. Interest income from 
these loans would have approximated $141,000 in 1995. 
          
     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, 1996, 1995, 1994, 1993, and 1992
                                                                                              
                                                              1996        1995         1994        1993        1992                
<S>                                                       <C>          <C>          <C>         <C>        <C>           
          Loans at year-end, net of unearned income        $250,011     $231,637     $208,871    $186,132   $177,739               
                                                           ========     ========     ========    ========   ========             
          Average loans balance <F1>                       $243,840     $222,624     $196,751    $187,513   $181,226             
                                                           ========     ========     ========    ========   ========             
          Balance, allowance for loan losses,
                 January 1                                 $  2,574     $  2,347     $  2,120    $  1,891   $  1,735             
          
          Net charge-offs <F2>                                 (818)        (501)        (286)       (703)      (702)               
          
          Provision for loan losses                           1,042          728          513         932        858              

          

          Balance, allowance for loan losses,
               December 31 <F2>                             $  2,798    $  2,574     $  2,347    $  2,120   $  1,891               
                                                            ========    ========     ========    ========   ========             
          Net charge-offs to loans at year end                  .33%        .22%         .14%        .38%       .39%                

          Net charge-offs to average loans <F1>                 .34         .23          .15         .37        .39                
 
          Balance of allowance for loan losses        
               to loans at year end                            1.12        1.11         1.12        1.14       1.06                

<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 $1,042,000 for the year ended 
December 31, 1996 compared to $728,000, $513,000, $932,000, and $858,000 for 
the years ended December 31, 1995, 1994, 1993, and 1992, respectively. The 
relationship of the allowance for loan losses to loans at year end approximated
1.12% compared to ratios of 1.06% 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 .93%, .78%, .65%, .71%, and .91% at year-end 1996, 
1995, 1994, 1993, and 1992, respectively.  

                                                     -9-     
                                                            APPENDIX A
                                                            Continued     
<TABLE>
<CAPTION>

                                                            LOANS CHARGED OFF AND RECOVERED
                                                                (dollars in thousands)
                                           for the years ended December 31, 1996, 1995, 1994, 1993, and 1992
                                                                           
                                                                           
                                                                           
  
                                                    1996          1995          1994         1993         1992                     
<S>                                              <C>             <C>           <C>          <C>        <C>         
Loans charged off:
   Commercial, financial and agricultural         $   17           ---           ---          ---       $   63                     
   Real estate-mortgage                              133          $115          $151       $  156          210                     
   Personal installment                            1,053           647           493          828          681                     
   Other                                              93            78           119           66           59                  
Total                                              1,296           840           763        1,050        1,013                  

Loans recovered:                                                     
   Commercial, financial and agricultural              6           ---           ---          ---            6                     
   Real estate-mortgage                               27            29            83           79            4                     
   Personal installment                              415           295           361          254          291                     
   Other                                              30            15            33           14           10                     
      Total                                          478           339           477          347          311                     
         Net charge-offs                          $  818          $501          $286       $  703       $  702                     
                                                  ======          ====          ====       ======       ======                     
</TABLE>
                                        
<TABLE>
<CAPTION>

                                                                     ALLOCATION OF
                                                              ALLOWANCE FOR LOAN LOSSES<F1>
                                                              (dollars in thousands)
                                                                   as of December 31

                                                       1996         1995          1994          1993           1992                
<S>                                                 <C>           <C>           <C>          <C>            <C>           
Loans:
   Commercial, financial and agricultural            $  631        $  355        $  452       $   577        $  715
   Real estate-construction                               2            --             1           ---            19
   Real estate-mortgage                                 684           690           353           260           568
   Installment                                          823           639           598           564           482
   Unallocated                                          658           890           943           719           107
Balance                                              $2,798        $2,574        $2,347        $2,120        $1,891
                                                     ======        ======        ======        ======        ======
<FN>
<F1>See Schedule "Loan Account Composition" for the percent of loan 
    classification to total loans.
</FN>
</TABLE>
                                                 MATURITY DISTRIBUTION OF TIME
                                                 DEPOSITS OF $100,000 OR MORE
                                                    (dollars in thousands)
                                                    as of December 31, 1996
Remaining to Maturity:
   Less than three months                                            $ 3,596
   Three months to six months                                          2,135
   Six months to twelve months                                         2,968
   More than twelve months                                             4,228
                                                                     $12,927   
                                                                     ======= 

                                                       -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 1.0% of total assets at December 31, 1996.
     
          Significant maturity/repricing assumptions 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, 1996.
<TABLE>
<CAPTION>
     
     Interest Rate Sensitivity                                                          
     At December 31, 1996            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                       $ 1,297     $  100         ---         ---   $  1,397
Investment securities                15,213      7,206     $12,732    $110,295    145,446  
Federal funds sold                      ---        ---         ---         ---        ---   
Loans, net of unearned income<F1>    76,730     99,891      18,576      54,814    250,011    
Loans held for sale                   4,622        ---         ---         ---      4,622
Total                               $97,862   $107,197     $31,308    $165,109   $401,476
     
Liabilities
Savings                             $29,519    $29,518     $59,036     $32,296   $150,369   
Time                                 34,784     33,359      28,476      55,996    152,615
Time in denominations of
 $100,000 or more                     3,596      2,135       2,968       4,228     12,927
Short-term borrowings                13,217        ---         ---         ---     13,217
Long-term debt                          ---        ---       4,000      21,000     25,000 
Total                               $81,116    $65,012     $94,480    $113,520   $354,128
                                     
Interest Sensitivity Gap
Periodic                            $16,746    $42,185     $(63,172)   $51,589  
Cumulative                                      58,931       (4,241)    47,348
<FN>
<F1>Does not include nonaccrual loans.
</FN>
</TABLE>
     
                                                 -11-
     
     
                                            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, 1996 (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, 1997, are incorporated
by reference to pages 6 through 19 of the Annual Report.
     
Item 9.  Disagreements on Accounting and Financial Disclosures:
   
         None.
     
                                              -12-         
     
                                         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, 1996.
            
                                                                   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      33,008 (12)   1.15%
   Age 64
     
Kenneth L. Deibler   Self-Employed           1966      21,785 (3)     .76%
   Age 74              Insurance Broker
                       Elizabethville, PA
     
Leon E. Kocher       Chairman of the Board,  1963      17,275         .60%
   Age 84              Kocher Enterprise, Inc.
                       Millersburg, PA
     
Ernest L. Lowe       President of Bank       1990      19,553 (11)    .68%
   Age 60 
     
Robert W. Rissinger  Sec./Treasurer          1968     151,254 (4)    5.27%
   Age 70              Alvord Polk Tool Co.                   (5)              
                       (cutting tools)                                  
                       Engle Rissinger Auto Group
                       Millersburg, PA                         
     
Allen Shaffer        Attorney-at-Law         1961      27,073 (9)     .94%
   Age 71              Millersburg and
                       Harrisburg, PA
     
William C. Troutman  President,              1968      92,470 (6)    3.22%
   Age 81              The W. C. Troutman Co.
                       (automobile dealership)
                        Millersburg, PA         
     
James A. Ulsh        Attorney-at-Law         1977       9,722         .34%
   Age 50              Mette, Evans &
                       Woodside
                       Harrisburg, PA
     
Samuel E. Cooper     Superintendent,         1992       1,252         .04%
   Age 63              Warrior Run
                       School District 
                       Turbotville, PA
                              
Susan K. Nenstiel    Insurance Broker        1996         132          --
   Age 45              Nenstiel and Nenstiel
                       Hazleton, PA                   
     
     
                                               -13-   
                                      

                                                                      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    
               
Ronald E. Boyer        President,              1981      12,999 (7)     .45%
   Age 59                Alvord-Polk Tool Co.
                         (manufacturing of 
                         cutting tools)
                         Millersburg, PA

Peter DeSoto           President,              1981      25,826         .90%
   Age 57                Metal Industries, Inc.
                         (manufacturing of metal
                         products)
                         Elizabethville, PA    
                                 
Thomas W. Long         President,              1981      13,799 (8)     .48%
   Age 67                Millersburg Hardware 
                         Millersburg, PA

Donald L. Miller       President, Miller Bros. 1981      55,876        1.95%
   Age 67                Dairy
                         Millersburg, PA
                         
Ray N. Leidich         Dentist                 1985      42,842 (10)    1.49%
   Age 68                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, 1996. Beneficial ownership may
be disclaimed as to certain of the securities.

   (3)  Includes 1,697 shares owned by Mr. Deibler's grandchildren.

   (4)  Includes 3,819 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 8,509 shares owned by Engle Ford, Inc., 27,512 shares owned by
Mr. Rissinger's spouse, Shirley Rissinger, and 4,693 shares owned by Engle 
Ford, Inc. Profit Sharing Plan in which Mr. Rissinger is Co-Trustee.

   (6)  Includes 20,573 shares owned by Mr. Troutman's spouse, Dorothy Troutman
and 5,824 shares owned by W.C. Troutman Co.

   (7)  Includes 3,819 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 151
shares owned by Mr. Boyer's wife, Judith Boyer.

   (8)  Includes 8,157 shares owned by the Trust of Mr. Long's mother, 
Leah Long.

   (9)  Includes 4,617 shares owned by Mr. Shaffer's Pension plan. 

                                       -14-                                   
      
                     
  (10)  Includes 21,421 shares owned by Dr. Leidich's wife, Dolores Leidich.

  (11)  Includes 112 shares owned by Mr. Lowe's wife, Barbara and 70 shares
owned by Mr. Lowe's children and incentive stock options to acquire 18,273 
shares.

  (12)  Includes incentive stock options to acquire 24,225 shares.

  (13)  Includes incentive stock options to acquire 11,595 shares.

  (14)  Includes incentive stock options to acquire 7,220 shares and 115 shares
        registered to Mr. Lawley for his minor children.

  (15)  Includes incentive stock options to acquire 4,384 shares.   


Section 16(a) Beneficial Ownership Reporting Compliance

          In 1996, to the knowledge of CBI, all  Executive Officers and 
directors timely filed all reports with the Securities Exchange Commission, 
except for Thomas L. Miller, who filed one Form 4 report, regarding one 
transaction, in an untimely manner. 
   
          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, 1996.



                                                       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        33,008 (12)  1.15%
   Age 64           Officer

Ernest L. Lowe    President,                  1985        19,553 (11)   .68%
   Age 60           Chief Operating Officer

Terry L. Burrows  Executive Vice President,   1977        11,761 (15)   .41%
   Age 48           Chief Financial Officer 

David E. Hawley   Executive Vice President,   1975        11,733 (13)   .41%
   Age 58           Corporate Property Officer  

Robert W. Lawley  Executive Vice President,   1980         7,369 (14)   .26%
   Age 42           Chief Lending Officer





(1)  Initial year employed in this capacity.

                                                  -15-  


          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          378,943    172,967       19.24%
     
     
     
     
Item 11.  Executive Compensation:
          
          Information regarding executive compensation is omitted from this 
report as the holding company has filed a definitive proxy statement for its
annual meeting of shareholders to be held May 6, 1997; 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 
     
     
                                              -16-
     
     
monthly pay is based upon the 5 consecutive plan years of highest pay preceeding
retirement. The maximum amount of annual compensation used in determining 
retirement benefits is $150,000. 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 38 and 12 years of service, respectively,
under the pension plan as of December 31, 1996.

          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>
     
                                         Remuneration
<S>           <C>      <C>      <C>      <C>       <C>       <C>        <C>        <C>        <C>        <C>        
     Years of
     Service   $35,000  $55,000  $75,000  $95,000   $115,000  $135,000   $150,000   $175,000   $200,000   $225,000             
     
      15       $ 8,486  $13,736  $18,986  $24,236    $29,486    $34,736   $38,673    $38,673    $38,673    $38,673 
      20       $11,314  $18,314  $25,314  $32,314    $39,314    $46,316   $51,564    $51,564    $51,564    $51,564
      25       $14,143  $22,893  $31,643  $40,393    $49,143    $57,893   $64,455    $64,455    $64,455    $64,455
      30       $16,971  $27,471  $37,971  $48,471    $58,971    $69,471   $77,346    $77,346    $77,346    $77,346
      35       $19,800  $32,050  $44,300  $56,550    $68,800    $81,050   $90,237    $90,237    $90,237    $90,237
      40       $22,138  $35,778  $49,418  $63,058    $76,698    $90,338  $100,568   $100,568   $100,568   $100,568
</TABLE>
 
                                             
     Directors' Compensation:
     
          Each director of CBI is paid a quarterly fee of $600.00. In addition,
each outside director receives a fee of $200.00 for attendance at the regular
quarterly meetings of the Board of Directors of CBI. Each director who is not
an executive officer also receives $200 for attendance at each committee 
meeting of CBI.
     
     
     
Item 12.  Security Ownership of Certain Beneficial
          Owners and Management:
     
          Refer to Item 10 on pages 13 through 16.
     
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.
     
     
                                                  -17-       

     
     
     

                                                  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, 1996
             and 1995                                        --           6  

          Statements of Income for each of the three years
             ended December 31, 1996                         --           7  

          Statements of Changes in Stockholders'
             Equity for each of the three years ended
             December 31, 1996                               --           8 

          Statements of Cash Flows for each of the three
             years ended December 31, 1996                   --           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 did not file on Form 8-K during the Fourth quarter of the 
Fiscal year ended December 31, 1996.




                                              -18-
     
     
     
                              CONSENT OF INDEPENDENT ACCOUNTANTS
          
          
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, 1997 on our audits of the consolidated financial
statements of Community Banks, Inc. as of December 31, 1996 and 1995, and for
the years ended December 31, 1996, 1995, and 1994, 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, 1997 

                                             -19-
          
                                  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/  Thomas L. Miller
                                     (Thomas L. Miller)  
                                      Chairman
                               Chief Executive Officer
                                    and Director
     
     Date:  March 6, 1997
     
               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         3/6/97
         (Terry L. Burrows)     Principal Financial Officer
     
     /S/  Ronald E. Boyer       Director                       3/6/97
         (Ronald E. Boyer)
     
     /S/  Kenneth L. Deibler    Director                       3/6/97
         (Kenneth L. Deibler)
     
     /S/    Peter Desoto        Director                       3/6/97
           (Peter DeSoto)
     
     /S/   Leon E. Kocher       Director                       3/6/97
          (Leon E. Kocher)
     
     /S/   Ray N. Leidich       Director                       3/6/97
          (Ray N. Leidich)
     
     /S/   Thomas W. Long       Director                       3/6/97
          (Thomas W. Long)
      
     /S/  Ernest L. Lowe        Director                       3/6/97
         (Ernest L. Lowe)
     
     /S/  Donald L. Miller      Director                       3/6/97
         (Donald L. Miller)
     
     /S/ Robert W. Rissinger    Director                       3/6/97
        (Robert W. Rissinger)
        
     /S/  Allen Shaffer         Director                       3/6/97
         (Allen Shaffer)
     
     /S/  William C. Troutman   Director                       3/6/97
         (William C. Troutman)
     
     /S/  James A. Ulsh         Director                       3/6/97
         (James A. Ulsh)
                                                                  
     
     
                                        -20-