Community Banks, Inc. and Subsidiaries
MARKET FOR THE HOLDING COMPANY'S COMMON STOCK AND RELATED SECURITIES
			  HOLDER MATTERS


The shares of Community Banks, Inc. are traded on the NASDAQ Small-Cap Market
and are transferred through local and regional brokerage houses.  The Holding
Company has approximately 1,404 shareholders as of February 14, 1996.  The 
following table sets forth the high and low prices within the knowledge of 
management of Community Banks, Inc. at which the Capital Stock has been 
transferred during the periods indicated.  The table is based solely upon 
transactions known to management of the Holding Company and represents a portion
of the actual transfers of Capital Stock during the periods in question.




			 Price Per Share                         Price Per Share              
1995                      Low     High     1994                   Low     High 
					       
First Quarter.............$23.75  $26.00   First Quarter..........$35.25  $37.25
Second Quarter............ 25.25   26.75   Second Quarter......... 34.38   37.00
Third Quarter............. 25.25   26.75   Third Quarter.......... 32.00   35.75
Fourth Quarter............ 25.44   27.25   Fourth Quarter......... 22.75   33.50


Holders of the Capital Stock of the Holding Company are entitled to such 
dividends as may be declared from time to time by the Board of Directors out of 
funds legally available therefore.  Community Banks, Inc. has paid cash 
dividends per share of Common Stock during the last five years as follows: 
1991-$0.44, 1992-$0.54, 1993-$0.62, 1994-$0.70, and 1995-$0.80.  The market 
prices listed above are based on historical market quotations and have not been 
restated for the issuance of stock dividends.  The Corporation declared a 20%
stock dividend during the fourth quarter of 1994.


<TABLE>
<CAPTION>
Community Banks, Inc. and Subsidiaries                                         
CONSOLIDATED BALANCE SHEETS
At December 31, 1995 and 1994
(dollars in thousands except per share data)
 .                                             						  1995               1994

ASSETS                                                                     
<S>                                                    <C>               <C>   
Cash and due from banks..........................       $ 12,985          $ 12,152 
Interest-bearing time deposits in other banks....            434               645
Investment securities, available for sale (market                              
  value).........................................         87,539            99,249 
Loans............................................        216,052           190,792 
Less:  Unearned income...........................        (11,067)           (8,522)
       Allowance for loan losses.................         (2,280)           (2,069)
       Net loans.................................        202,705           180,201
Premises and equipment, net......................          7,333             6,589
Goodwill.........................................          1,388             1,629
Other real estate owned..........................            302               338
Loans held for sale..............................          2,206                35
Accrued interest receivable and other assets.....          5,489             6,283
  Total assets...................................       $320,381          $307,121
					   
LIABILITIES
Deposits:                                                                         
  Demand.........................................       $ 23,958          $ 24,343
  Savings........................................        111,818           115,104
  Time...........................................        126,577           108,593
  Time in denominations of $100,000 or more......         10,488             8,072
  Total deposits.................................        272,841           256,112
Short-term borrowings............................          1,016            11,709
Long-term debt...................................          7,000             7,000
Accrued interest payable and other liabilities...          2,931             1,933
Subordinated capital notes.......................           ---                 15
  Total liabilities..............................        283,788           276,769 
																       
STOCKHOLDERS' EQUITY

Preferred stock, no par value;
  500,000 shares authorized;  
  no shares issued and outstanding...............           ---               --- 
Common Stock, $5.00 par value; 5,000,000 shares
  authorized; 2,032,072 and 2,027,918 shares                                       
  issued in 1995 and 1994, respectively..........         10,160            10,140
Surplus..........................................          9,878             9,839
Retained earnings................................         15,241            12,443
Net unrealized gain (loss) on investment
  securities available for sale, net of tax......          1,367            (2,017)
Less:  Treasury stock of 2,651                                                   
  shares at cost.................................            (53)              (53)
  Total stockholders' equity.....................         36,593            30,352 
  Total liabilities and stockholders' equity.....       $320,381          $307,121 

The accompanying notes are an integral part of the consolidated financial 
statements.
</TABLE>

<TABLE>
<CAPTION>

Community Banks, Inc. and Subsidiaries                                                             
CONSOLIDATED STATEMENTS OF INCOME                                                                  
For the Years Ended December 31, 1995, 1994, and 1993                                              
(dollars in thousands except per share data)                                                       
													    
 .                                               															   1995              1994              1993
<S>                                                             <C>               <C>               <C>             
Interest Income:                                                                                   
  Interest and fees on loans.......................              $18,489           $14,975           $14,177
  Interest and dividends on investment securities:                                                 
     Taxable.......................................                4,251             4,490             4,613
     Exempt from federal income tax................                1,556             1,867             1,792
  Other interest income............................                   83                67               102
     Total interest income.........................               24,379            21,399            20,684


Interest expense:                                                                                  
  Interest on deposits:                                                                            
     Savings.......................................                2,517             2,537             2,621
     Time..........................................                6,484             5,028             5,486
     Time in denominations of $100,000 or more.....                  528               397               409
  Interest on short-term borrowings and                                                            
   long-term debt..................................                  669               525               489
  Interest on subordinated capital notes...........                 ---                  2                 4
     Total interest expense........................               10,198             8,489             9,009
     Net interest income...........................               14,181            12,910            11,675
Provision for loan losses..........................                  712               462               702
     Net interest income after provision for                                                                
       loan losses.................................               13,469            12,448            10,973


Other income:                                                                                      
  Trust department income..........................                  217               180               207
  Service charges on deposit accounts..............                  792               687               597
  Other service charges, commissions and fees......                  207               237               209
  Investment security gains........................                  137               395               154         
  Income on insurance premiums.....................                  583               396               414
  Gains on mortgage sales..........................                  346               210               933
  Other income.....................................                  228               177               174
     Total other income............................                2,510             2,282             2,688


Other expenses:                                                                                    
  Salaries and employee benefits..................                 4,850             4,267             3,858
  Net occupancy expense...........................                 1,423             1,301             1,102
  Operating expenses of insurance subsidiary......                   353               282               357
  Other operating expense.........................                 3,450             3,430             3,139
     Total other expenses.........................                10,076             9,280             8,456
     Income before income taxes...................                 5,903             5,450             5,205
Provision for income taxes........................                 1,478             1,288             1,289
     Net income...................................               $ 4,425           $ 4,162           $ 3,916         

Fully diluted earnings per share (based on average                                                 
  shares outstanding).........................<F1>               $  2.15           $  2.03           $  1.92

<FN>
<F1> Earnings per share have been restated to include a 20% stock dividend
 effective November 29, 1994.      
</FN>
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>


<TABLE>
<CAPTION>
Community Banks, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CHANGES 
IN STOCKHOLDERS' EQUITY
For the Years Ended December 31, 1995, 1994, and 1993
(dollars in thousands except per share data)

 .                                                                                                    Total
 .                                    											 Common           Retained   Valuation  Treasury  Stockholders'
 .                                    											 Stock    Surplus Earnings   Allowance    Stock      Equity
<S>                                             <C>      <C>      <C>          <C>       <C>        <C>             
Balance, December 31, 1992.....................  $ 8,630  $ 9,624  $ 8,772                $(53)      $26,703
Net Income for 1993............................                      3,916                             3,916
Cash dividends ($0.62 per share)...............                     (1,257)                           (1,257)
Issuance of additional 10,187 shares...........       51      116      (26)                              141
Balance, December 31, 1993.....................    8,411    9,740   11,405                 (53)       29,503
Valuation allowance on investment securities                                            
    available for sale, January 1, 1994........                                 $2,246                $2,246
Net income for 1994............................                      4,162                             4,162
Cash dividends ($0.70 per share)...............                     (1,425)                           (1,425)
20% stock dividend (additional 337,248 shares).    1,686            (1,686)
Issuance of additional 8,435 shares............       43       99      (13)                              129
Change in valuation allowance on investment
    securities, available for sale.............                                 (4,263)               (4,263)
Balance, December 31, 1994.....................   10,140    9,839   12,443      (2,017)    (53)       30,352
Net income for 1995............................                      4,425                             4,425
Cash dividends ($0.80 per share)...............                     (1,623)                           (1,623)
Issuance of additional 4,154 shares............       20       39       (4)                               55
Change in valuation allowance on investment
    securities, available for sale.............                                                        3,384
Balance, December 31, 1995.....................  $10,160   $9,878  $15,241     $ 1,367    $(53)      $36,593

Per share data for all periods has been restated to reflect stock dividends.

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

</TABLE>

<TABLE>
<CAPTION>
Community Banks, Inc. and Subsidiaries                                        
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1995, 1994, and 1993
(in thousands)  
																	
 .                                                															  1995              1994             1993 
<S>                                                             <C>               <C>               <C>  
Operating Activities:                                                      
  Net income..............................................       $ 4,425           $ 4,162           $ 3,916 
  Adjustments to reconcile net income to net                              
   cash provided by operating activities: 
     Provision for loan losses............................           712               462               702
     Provision for depreciation and amortization..........           788               716               625 
     Amortization of goodwill.............................           241               242               241
     Investment security gains............................          (137)             (395)             (154) 
     Loans originated for sale............................       (17,590)           (6,704)          (27,083)
     Proceeds from sales of loans.........................        15,765            10,975            25,092 
     Gains on mortgage sales..............................          (346)             (210)             (933)
     Decrease (increase) in other assets..................           468           (2,450)             (471)
     Increase (decrease) in accrued interest payable                      
      and other liabilities...............................           294               241              (384)
	       Net cash provided by operating activities.........         4,620             7,039             1,551 

Investing Activities:  
  Net decrease (increase) in interest-bearing time
   deposits in other banks................................           211               (69)             (201)
  Proceeds from sales of investment
   securities.............................................           347               892               298
  Proceeds from maturities of investment securities.......        17,392            17,513            22,580
  Purchases of investment securities......................          (765)          (18,939)          (23,866)
  Net increase in total loans.............................       (23,893)          (22,468)           (9,845)
  Purchases of premises and equipment.....................        (1,532)           (1,454)           (1,235)                 
 .      	Net cash used in investing activities.............       ( 8,240)          (24,525)          (12,269)                  

Financing Activities: 
  Net increase in total deposits..........................        16,729            12,820             7,695 
  Net increase (decrease) in short-term borrowings........       (10,693)           10,504               330
  Proceeds from issuance of long-term debt................         5,000              ---              2,000
  Repayment of long-term debt.............................        (5,000)           (2,000)             ---  
  Repayment of subordinated capital notes.................           (15)              (16)              (15) 
  Cash dividends..........................................        (1,623)           (1,425)           (1,257)
  Proceeds from issuance of common stock..................            55               129               140
 .      	Net cash provided by financing activities.........         4,453            20,012             8,893 
 .      	Increase (decrease) in cash and cash equivalents..           833             2,526            (1,825)

Cash and cash equivalents at beginning of year............        12,152             9,626            11,451
Cash and cash equivalents at end of year..................       $12,985           $12,152           $ 9,626

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

</TABLE>
				

     Community Banks, Inc. and Subsidiaries
     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
     
     1.  Organization and Basis of Presentation:
     
     Community Banks, Inc. (Corporation) is a bank holding company whose
     wholly-owned subsidiaries include Community Banks, N.A. (CBNA), Community
     Banks Investments, Inc. (CBI) and Community Banks Life Insurance Company
     (CBLIC). All significant intercompany transactions have been eliminated. 
     The Corporation operates through its main office in Millersburg and through
     18 branch banking offices located in Dauphin, Northumberland, Schuylkill
     and Luzerne Counties in Pennsylvania. Community Bank's, Inc. primary source
     of revenue is derived from loans to customers, who are predominantly
     middle-income individuals.
     
     2.  Summary of Significant Accounting Policies:
     
     The more significant accounting policies of the Corporation are: 
     
     Investment Securities:
     At January 1, 1994, the Corporation adopted Statement of Financial
     Accounting Standards No. 115, "Accounting for Certain Investments in Debt
     and Equity Securities" ("SFAS 115").  This statement requires enterprises
     to classify debt and equity securities as either "held-to-maturity,"
     "available-for-sale," or "trading."  Investments for which management has
     the intent, and the corporation has the ability, to hold to maturity are
     carried at the lower of cost or market adjusted for amortization of premium
     and accretion of discount.  Amortization and accretion are calculated
     principally on the interest method.  Securities bought and held primarily
     for the purpose of selling them in the near term are classified as
     "trading" and reported at fair value.  Changes in unrealized gains and
     losses on "trading" securities are recognized in the Consolidated
     Statements of Income.  At December 31, 1995, there were no securities
     identified as "held-to-maturity" or "trading."  All other securities are
     classified as "available-for-sale" and reported at fair value.  Changes in
     unrealized gains and losses for "available-for-sale" securities, net of
     applicable taxes, are recorded as a component of shareholder's equity.
     
     Securities classified as "available-for-sale" include investments
     management intends to use as part of its asset/liability management
     strategy, and that may be sold in response to changes in interest rates,
     resultant prepayment risk and other factors.  Realized gains and losses on
     the sale of securities are recognized using the specific identification
     method and are included in Other Income in the Consolidated Statements of
     Income.
     
     Allowance for Loan Losses:
     The Corporation maintains an allowance for loan losses at an amount which,
     in management's judgement, should be adequate to absorb losses on existing
     loans that may become uncollectible. Management's judgement in determining
     the adequacy of the allowance is based on evaluations of the collectibility
     of loans. The evaluations take into consideration such factors as changes
     in the nature and volume of the loan portfolio, current economic conditions
     that may affect the borrowers' ability to pay, overall portfolio quality
     and review of specific problem loans.   
     
     Premises and Equipment:
     Premises and equipment are stated at cost, less accumulated depreciation.
     Depreciation is calculated using accelerated and straight-line methods over
     the estimated useful lives of the assets. Maintenance and repairs are
     expensed as incurred, while major additions and improvements are
     capitalized. Gain or loss on retirement or disposal of individual assets is
     recorded as income or expense in the period of retirement or disposal.
     
     Goodwill:
     Goodwill which represents the excess of purchase price, including
     acquisition costs over the fair market value of net assets acquired under
     the purchase method of accounting is amortized on a straight line basis
     over 15 years.

     Pension Plan:
     The Corporation has a noncontributory defined benefit pension plan covering
     substantially all employees. Pension costs are funded currently subject to
     the full funding limitation imposed under federal income tax regulations.
     
     Income Taxes:
     In accordance with Financial Accounting Standards Board Statement No. 109,
     "Accounting for Income Taxes", deferred income taxes are accounted for by
     the liability method, wherein deferred tax assets and liabilities are
     calculated on the differences between the bases of assets and liabilities
     for financial statement purposes versus tax purposes (temporary
     differences) using enacted tax rates in effect for the year in which the
     differences are expected to reverse. Tax expense in the statements of
     income is equal to the sum of taxes currently payable, including the effect
     of the alternative minimum tax, if any, plus an amount necessary to adjust
     deferred tax assets and liabilities to an amount equal to period-end
     temporary differences at prevailing tax rates. (See Note 10). 
     
     Interest Income on Loans:
     Interest income on commercial, consumer, and mortgage loans is recorded on
     the interest method. Nonaccrual loans are those on which the accrual of
     interest has ceased and where all previously accrued and unpaid interest is
     reversed. Loans, other than consumer loans, are placed on nonaccrual status
     when principal or interest is past due 90 days or more and the collateral
     may be inadequate to recover principal and interest, or immediately, if in
     the opinion of management, full collection is doubtful. Generally, the
     uncollateralized portions of consumer loans past due 90 days or more are
     charged-off. Interest accrued but not collected as of the date of placement
     on nonaccrual status is reversed and charged against current income.
     Subsequent cash payments received either are applied to the outstanding
     principal balance or recorded as interest income, depending upon
     management's assessment of the ultimate collectibility of principal and
     interest. (See also Note 5).  Loan origination fees and certain direct
     origination costs are capitalized and recognized as an adjustment of
     the yield on the related loan.
     
     Other Real Estate owned:
     Real estate acquired through foreclosure is carried at the lower of the
     recorded amount of the loan for which the foreclosed property previously
     served as collateral or the current appraised value of the property. Prior
     to foreclosure, the recorded amount of the loan is written down, if
     necessary, to the appraised value of the real estate to be acquired by
     charging the allowance for loan losses. During 1995, 1994, and 1993
     non-cash transactions related to real estate acquired through foreclosure
     totalled $677,000, $322,000, and $646,000, respectively.
     
     Subsequent to foreclosure, gains or losses on the sale of and losses on the
     periodic revaluation of real estate acquired through foreclosure are
     credited or charged to noninterest expense. Costs of maintaining and
     operating foreclosed property are expensed as incurred. Expenditures to
     improve foreclosed properties are capitalized only if expected to be
     recovered; otherwise, they are expensed.  
     
     Statement of Cash Flows:
     Cash and cash equivalents included cash and due from banks and federal
     funds sold. The Corporation made cash payments of $1,495,000, $1,276,000,
     and $1,268,000, and $10,017,000, $8,545,000, and $9,085,000 for income
     taxes and interest, respectively, in 1995, 1994, and 1993. Certain prior
     year amounts have been reclassified to conform with the current year's
     presentation.   
     
     Earnings Per Common Share:
     Net income per share is computed based upon the weighted average shares of
     common stock outstanding which amounted to 2,054,822, 2,053,475, and
     2,040,911 shares for the years ended December 31, 1995, 1994, and 1993,
     respectively.
     
     Use of Estimates in the Preparation of Financial Statements:
     The preparation of financial statements in accordance with
     generally accepted accounting principles requires management to
     make estimates and assumptions that affect the reported amounts
     of assets and liabilities and disclosure of contingent assets and
     liabilities at the date of the financial statements and reported
     amounts of revenues and expenses during the reporting period.
     Actual results could differ from those estimates. 


3. Investment Securities:
<TABLE>
<CAPTION>

	 The amortized cost and market value of investment securities at 
December 31, 1995 and 1994 are as follows:
 .											                                                                            December 31                
 .																                                                             1995                  1994        
 .														                                                       Amortized    Market  Amortized    Market
 .						 									                                                       	Cost       Value     Cost       Value 
 .                                                                       													(in thousands)
<S>                                                                   <C>         <C>       <C>         <C>    
U.S. Treasury securities and obligations of U.S.
   government corporations and agencies.........................       $14,732     $14,842   $ 18,807    $17,832   
Mortgage-backed U.S. government agencies........................        37,601      37,825     43,926     41,900
Obligations of states and political subdivisions................        26,379      27,048     33,185     32,733
Corporate securities............................................         3,516       3,646      3,518      3,499
Equity securities...............................................         3,241       4,178      2,869      3,285
     Total......................................................       $85,469     $87,539   $102,305    $99,249
</TABLE>

<TABLE>
<CAPTION>
     The amortized cost and market value of all investment securities at 
December 31, 1995 and 1994 are as follows:
						
		    
																		     
 .									                                                    1995                                           1994                   
 .								                                                 Gross      Gross                        Gross     Gross
 .					                                        Amortized Unrealized Unrealized Market Amortized Unrealized Unrealized   Market
 .							                                          Cost     Gains     Losses     Value   Cost       Gains    Losses     Value
 .																					                                                        (in thousands)
<S>                                              <C>      <C>      <C>      <C>       <C>        <C>    <C>        <C> 
U.S. government corporations and agencies........ $14,732  $  156   $ (46)   $14,842   $ 18,807   $  3  $  (978)   $17,832
Mortgage-backed U.S. government agencies.........  37,601     510    (286)    37,825     43,926     86   (2,112)    41,900
Obligations of states and political subdivisions.  26,379     712     (43)    27,048     33,185    263     (715)    32,733
Corporate securities.............................   3,516     130      ---     3,646      3,518     54      (73)     3,499
Equity securities................................   3,241     959     (22)     4,178      2,869    416      ---      3,285
	 Total...................................        $85,469  $2,467   $(397)   $87,539   $102,305   $822  $(3,878)   $99,249
</TABLE>

     The amortized cost and market value of all investment securities at 
December 31, 1995, by contractual maturity, are shown below.  Expected 
maturities will differ from contractual maturities because borrowers may have 
the right to call or prepay obligations with or without call or prepayment 
penalties.


												
 .                            									     Amortized      Market
 .										                                   Cost         Value
 .											                                   (in thousands)

Due in one year or less..................    $ 4,457       $ 4,562
Due after one year through five years....     20,751        21,164
Due after five years through ten years...     18,919        19,303
Due after ten years......................       500           507
 .                              									      44,627        45,536
Mortgage-backed securities...............     37,601        37,825
Equity securities........................      3,241         4,178
 .                                  										$85,469       $87,539
					    
     No sales of investments in debt securities occurred in 1995.

     At December 31, 1995 and 1994, investment securities with carrying amounts 
of approximately $21,619,000 and $25,548,000 respectively, are pledged to 
collateralize public deposits and for other purposes as provided by law.

     Effective January 1, 1994, the Corporation adopted the provisions of 
Statement of Financial Accounting Standards No. 115, "Accounting for Certain 
Investments in Debt and Equity Securities", which requires the Corporation to 
reflect securities available and held for sale at fair value on the balance 
sheet.  Upon adoption, the Corporation classified all investments held at
January 1, 1994, as available for sale and recorded the increase to fair value 
as a separate component of equity.  The increase recorded to stockholders' 
equity at January 1, 1994 was $2,246,000, net of applicable income taxes.


4. Loans:

     The composition of loans outstanding by lending classification is as 
     follows:

 .												                                                   December 31 
 .													                                               1995       1994  
 .                                             														(in thousands)

Commercial, financial and agricultural...................   $ 37,774  $ 31,227
Real-estate-construction.................................      3,283     3,354
Real-estate-mortgage.....................................    112,190   103,851
Personal installment.....................................     56,793    46,342
Other....................................................      6,012     6,018
 .                                          													    $216,052  $190,792

     Loans held for resale amounted to $2,206,000 and $35,000 at December 31, 
     1995 and 1994, respectively.

     
5. Allowance for Loan Losses:

     Changes in the allowance for loan losses are as follows:

 .                                         												  December 31           
 .												                                        1995            1994
 .													                                          (in thousands)

Balance, January 1................................    $2,069        $1,837 
Provision for loan losses.........................       712           462
Loan charge-offs..................................      (744)         (577)
Recoveries........................................       243           347
Balance, December 31..............................    $2,280        $2,069




NONPERFORMING LOANS (a)
AND OTHER REAL ESTATE  

 .													                                            December 31      
 .                                                    1995            1994
 .                                         													 (in thousands)

	      
Loans past due 90 days or more
 and still accruing interest:
   Commercial, financial and agricultural.......      $  120        $  152
   Mortgages....................................         197           114
   Personal installment.........................         145            59    
   Other........................................        ---              1
 .                                                							 462           326

Loans on which accrual of interest has been
 discontinued:
   Commercial, financial and agricultural.......         415           327
   Mortgages....................................         934           475
   Other........................................          99            30 
 .                                         						       1,448           832

Other real estate...............................         302           338 
   Total........................................      $2,212        $1,496 


(a) The determination to discontinue the accrual of interest on nonperforming 
loans is made on the individual case basis. Such factors as the character and 
size of the loan, quality of the collateral and the historical creditworthiness 
of the borrower and/or guarantors are considered by management in assessing 
the collectibility of such amounts.

Impaired Loans
     The Corporation adopted FAS 114 "Accounting by Creditors for Impairment of 
a Loan", as amended by FAS 118, on January 1, 1995. Under the new standard, a 
loan is considered impaired, based on current information and events, if it is 
probable that the Corporation will be unable to collect the scheduled payments 
of principal or interest when due according to the contractual terms of the 
loan agreement. For purposes of applying FAS 114, larger groups of smaller- 
balance loans such as residential mortgage and installment loans are 
collectively evaluated for impairment. Management has established a smaller- 
dollar-value threshold of $200,000 for all loans. Loans exceeding this 
threshold are evaluated in accordance with FAS 114. An insignificant delay or 
shortfall in the amount of payments, when considered independent of other 
factors, would not cause a loan to be rendered impaired. Insignificant delays 
or shortfalls may include, depending on specific facts and circumstances, 
those that are associated with temporary operational downturns or seasonal 
business delays.  

     Management performs periodic reviews of its loans to identify impaired 
loans. The measurement of impaired loans is based on the present value of 
expected future cash flows discounted at the historical effective interest 
rate, except that all collateral-dependent loans are measured for impairment 
based on the fair value of the collateral. The adoption of FAS 114 did not 
result in an additional provision for credit losses at January 1, 1995.

     Loans continue to be classified as impaired unless they are brought fully 
current and the collection of scheduled interest and principal is considered 
probable. When an impaired loan or portion of impaired loan is determined to 
be uncollectible, the portion deemed uncollectible is charged against the 
related valuation allowance and subsequent recoveries, if any, are credited 
to the valuation allowance. The company does not accrue interest on impaired 
loans. While a loan is considered impaired, cash payments received are applied 
to principal or interest depending upon management's assessment of the
ultimate collectibility of principal and interest.

     At December 31, 1995, the Corporation recorded no investment in impaired 
loans recognized in accordance with FAS 114 with no related FAS 114 valuation 
allowance. For the twelve month period ended December 31, 1995, the average 
balance of impaired loans was negligible. The application of FAS 114 has not 
had any effect on the comparability of the non-performing loan table in 
footnote 5 between the periods presented. The company recognized no interest 
on impaired loans on the cash basis. 


6. Premises and Equipment:

Premises and equipment are comprised of the following:

 .                                         													 December 31   
 .													                                         1995       1994
 .												                                          (in thousands)

Banking premises.................................     $ 7,866    $7,547     
Furniture and fixtures...........................       6,545     5,633    
Leasehold improvements...........................         343        72   
 .                                    											       14,754    13,252   
Less accumulated depreciation and amortization         (7,421)   (6,663)  
 .                                         												$ 7,333    $6,589   

     Depreciation expense charged to operations amounted to approximately 
$788,000, $716,000, and $619,000 in 1995, 1994, and 1993, respectively.


7. Short-Term Borrowings and Long-Term Debt:

Short-term borrowings consist of the following:
 .                                           													   December 31    
 .                                         													   1995        1994
 .                                       													     (in thousands)

Federal funds purchased, 5.69% and 6.61% in 1995
and 1994 respectively..............................     $  550     $11,025   
Treasury tax and loan note option account,
5.15% and 3.54% in 1995 and 1994, respectively.....        466         684   
 .                                          													$1,016     $11,709 

     Interest incurred on short-term borrowings amounted to $225,000 , 
$115,000, and $29,000 for the years ended December 31, 1995, 1994, and 1993, 
respectively.

     At December 31, 1995, long-term debt consists of long-term advances from 
the FHLB of Pittsburgh of $7,000,000.  The long-term advance is for a period 
of five years and is due to mature in June, 2000.  Monthly payments of interest 
are required at a fixed rate, presently 6.15%, with principal due at maturity.  
Interest on long-term debt amounted to $444,000, $410,000, and $460,000 for the 
years ended December 31, 1995, 1994, and 1993, respectively.

     Maturities on long term debt at December 31, 1995 are as follows:

     1998............................      $3,000,000
     2000............................      $4,000,000


8. Subordinated Capital Notes:

     Subordinated capital notes at December 31, 1994 bore interest at 11% and 
matured annually at $15,000 through February 4, 1995.  

9. Pension Plan:
<TABLE>
<CAPTION>

     The following table sets forth the pension plan's funded status at and 
for the years ended December 31, 1995, 1994, and 1993.
															       
                                                                										          1995       1994       1993
											                                                                               (in thousands)
<S>                                                                                <C>       <C>        <C> 
Actuarial present value of benefit obligations: 
     Accumulated benefit obligations, including vested
    	benefits of $2,371, $1,903, and $1,652, respectively..................         $2,389    $1,915     $1,661     
Projected benefit obligation for service rendered to date.........................  $3,420    $2,780     $2,516     
Plan assets at fair value, primarily listed stocks, corporate, and U.S. bonds.....   3,114     2,550      2,403     
Plan assets in excess of projected benefit obligations............................    (306)     (230)      (113)    
Unrecognized net loss from past experience different from that assumed 
     and effects of changes in assumptions........................................     949       791        528        
Unrecognized net asset being recognized over 17 years.............................     (55)      (63)       (71) 
Prepaid pension costs.............................................................  $  588    $  498     $  344  
Net pension cost for 1995, 1994, and 1993 included the following components:        ======    ======     ======        
Service cost......................................................................  $  153    $  159     $  128  
Interest cost.....................................................................     207       175        147  
Actual return on plan assets......................................................    (374)      (29)      (116) 
Net amortization and deferral.....................................................     154      (181)       (86) 
Net pension cost..................................................................  $  140    $  124     $   73  
</TABLE>

     The weighted average discount rate used in determining the actuarial 
present value of the projected benefit obligation was 7.25% for 1995, 1994 and 
1993.  The increase in future compensation levels used in determining the 
actuarial present value of the benefit obligation was 5.00% in 1995, 1994, and 
1993.  The expected long-term rate of return on assets was 9.00% in 1995, 
1994, and 1993.


10. Income Taxes:

The provision for income taxes consists of the following:          

						                                       1995       1994        1993 
						                                               (in thousands)
       
Current..................................    $1,498      $1,365     $1,334    
Deferred.................................       (20)        (77)       (45)   
                                        						$1,478      $1,288     $1,289    
						

     As discussed in Note 2, the Corporation adopted the provisions of SFAS 
No. 109 effective January 1, 1992.  

     The components of the net deferred tax asset (liability) as of December 
31, 1995, 1994, and 1993 were as follows:

                                        						     1995     1994       1993
							                                                 (in thousands)

Deferred tax assets: 
     Loan loss provision.........................   $  552   $  514    $466 
     Non-accrual loan interest income............      121      104      62
     Loan origination fees.......................       18       25      21
     Net unrealized loss on marketable securities.     ---    1,039      --
     Miscellaneous...............................      110       84      49
 . 	 Total deferred tax assets...............           801    1,766       598
							   
Deferred tax liabilities:
     Depreciation.................... ...........      479      482     476
     Accretion of discount.......................      123      104      81
     Pension expense.............................      182      145     116
     Unrealized gain on marketable equity securities.  704      ---     ---
     Miscellaneous...................................    2        1       7
	 Total deferred tax liability................       1,490      732       680
	 Net deferred asset (liability)..............      $ (689)  $1,034     $(82)
    
						      

     The significant components of the deferred tax benefit in 1995, 1994, and 
     1993 were as follows:
											    
 .                                 						  1995         1994       1993 
 .                                         							 (in thousands)

	Loan origination fees.................   $  7          $  4       $ (4)      
	Accretion of discount.................     19            23         26       
	Loan loss provision...................    (38)          (48)       (84)      
	Non-Accrual loan interest income......    (17)          (42)       (14)      
	Depreciation expense..................     (3)           (6)        (8)      
	Pension expense.......................     37            29         45       
	Lease financing.......................     (1)           (7)        (7)      
	Miscellaneous.........................    (24)          (30)         1       
	Total deferred taxes..................   $(20)         $(77)      $(45)      

     Income tax provisions (benefits) related to securities gains and losses 
were $47,000, $134,000, and $52,000 for the years ended December 31, 1995, 
1994, and 1993, respectively.

     The provision for income taxes differs from the amounts derived from 
applying the statutory federal tax rate of 34%.


											    
                                       						      1995       1994     1993 
							                                                (in thousands)

Computed "expected" tax provision................   $2,007    $1,853    $1,769
Effect of tax-exempt municipal bond and loan.....
  interest, net of interest expense disallowance.     (543)     (634)     (591)
Goodwill amortization............................       82        82        82
Other, net.......................................      (68)      (13)       29
Total provision for income taxes.................   $1,478    $1,288    $1,289


11. Stock Options, Preferred Stock, and Common Stock:

    The Corporation has adopted a Long Term Incentive Plan.  Under the plan, 
awards in the form of Incentive Stock Options, Nonqualified Stock Options or 
Stock Appreciation Rights may be granted to certain Executive Officers and 
other key employees selected by a committee of the Board of Directors.  The 
price at which common stock can be purchased pursuant to the exercise of
options cannot be less than 100% in the case of Incentive Stock Options and 
80% in the case of Nonqualified Stock Options, of the fair market value of 
the common stock on the date of the grant of the option.  Options are 
exercisable starting one year from the date of grant to the extent of 20.0% 
to 33.3% a year on a cumulative basis and expire no later than ten years after 
the date of grant.  Incentive stock options issued under the plan totalled 
50,900, 22,800, 21,350, 18,250, 17,750, and 18,000 in 1995, 1994, 1993, 1992, 
1991, and 1990, respectively.


     The following is a summary of transactions under the plan:

					                                      Shares      Shares       Option 
					                                      Under     Available    Price Per
	                                  				    Option    For Option      Share
    
Balance, December 31, 1992.............    65,117      133,900

Options granted........................    21,350      (21,350)     $20.00
Options exercised......................   (11,921)         ---      $15.56
Options cancelled or expired...........      (250)         250
Balance, December 31, 1993..............    74,296      112,800

Options granted.........................    22,800      (22,800)     $29.77
Options exercised.......................    (9,098)         ---      $16.82
Options cancelled or expired............    (1,550)       1,550

Balance, December 31, 1994..............    86,448       91,550  
							      
Options granted.........................    24,525      (24,525)     $23.61   
					    26,375      (26,375)     $26.88 
Options exercised.......................    (4,278)       ---        $13.55
Options cancelled or expired.............      ---         ---  
							       
Balance December 31, 1995...............   133,070       40,650  $11.65-$29.77
     
     During October 1995, the FASB issued Statement No. 123, "Accounting for 
Stock-Based Compensation". SFAS 123 encourages employers to adopt its 
prescribed fair value-based method of accounting to recognize compensation
expense for employee stock compensation plans, however, it does allow the 
Corporation to continue to account for its plans using its current method. 
The Corporation intends to adopt the provisions of FASB 123 effective January 
1, 1996 under its disclosure-only alternative.

     The Corporation has authorized 500,000 shares of no par preferred stock.  
No such shares were issued or outstanding at December 31, 1995 and 1994.


12. Related Parties:

     Certain directors and their business affiliates (defined as the 
beneficial ownership of at least a 10 percent interest), executive officers 
and their families are indebted to Community Banks, N.A.  At December 31, 1995, 
1994, and 1993, loans to these persons and their business affiliates amounted 
to $3,371,000, $3,890,000, and $4,292,000, respectively.  

     In the opinion of management, such loans are consistent with sound banking 
practices and are within applicable regulatory lending limitations.



											    
                                    					       1995         1994       1993 
						                                                 (in thousands)

Balance beginning of period.................   $3,890     $4,292       $4,853
Additions...................................      467        624           83
Amounts collected...........................     (986)    (1,026)        (644)
Amounts written off.........................      ---        ---          --- 
Balance end of period.......................   $3,371     $3,890       $4,292 



13. Condensed Financial Information of Community Banks, Inc. (Parent only):
										
                                           							   1995        1994 
							                                               (in thousands)
Condensed Balance Sheets:                                     
	 Cash and investments..........................   $   402    $   347    
	 Investment in Community Banks, N.A. ..........    33,161     27,592    
	 Investment in nonbank subsidiaries............     3,030      2,413    
	 Total assets..................................   $36,593    $30,352    
	 Stockholders' equity..........................    36,593     30,352    
	 Total liabilities and stockholders' equity....   $36,593    $30,352    

<TABLE>
<CAPTION>
											  
 .                                                							       1995       1994       1993 
Condensed Statements of Income:                                      (in thousands)
<S>                                                          <C>        <C>        <C> 
    Dividends from:
	 Community Banks, N.A. ............................          $1,623     $1,425     $1,257     
	 Nonbank subsidiaries..............................             ---        ---        ---      
Income before equity in undistributed earnings of 
    subsidiaries...........................................    1,623      1,425      1,257     
Equity in undistributed earnings of:
    Community Banks, N.A. .................................    2,553      2,275      2,537     
    Nonbank subsidiaries...................................      249        462        122     
 .                                                							       2,802      2,737      2,659     
Net income.................................................   $4,425     $4,162     $3,916     
</TABLE>

<TABLE>
<CAPTION>
									  
Condensed Statements of Cash Flows:    

<S>                                                          <C>        <C>        <C>               
    Operating activities:
    Net income.............................................   $4,425     $4,162     $3,916     
	Adjustments to reconcile net cash provided by
	  operating activities:
      Undistributed earnings of:
       	Community Banks, N.A. .............................   (2,553)    (2,275)    (2,537)    
	       Nonbank subsidiaries...............................     (249)      (462)      (122)    
      Other liabilities....................................     ---        ---        ---     
       	Net cash provided by operating activities..........    1,623      1,425      1,257     
    Investing activities:
      Additional investment in nonbank subsidiaries........     ---        ---        ---      
      Net cash used in investment activities...............     ---        ---        ---     

Financing Activities:
    Proceeds from issuance of common stock.................       55        129        141      
      Dividends paid.......................................   (1,623)    (1,425)    (1,257)   
       	Net cash used by financing activities..............   (1,568)    (1,296)    (1,116)   
	       Net change in  cash and cash equivalents...........       55        129        141    
	         Cash and cash equivalents at beginning of year...      347        218         77    
	         Cash and cash equivalents at end of year.........   $  402     $  347     $  218    

</TABLE>


14. Dividend Restrictions:


     CBNA is subject to legal limitations as to the amount of dividends that 
can be paid to its shareholder (the Corporation).  The approval of certain 
banking regulatory authorities is required if the total of all dividends 
declared by the bank exceeds limits as defined by the regulatory authorities.  
CBNA could declare dividends in 1996 without regulatory approval of $5,521,000 
plus an additional amount equal to the banks' retained net profits in 1996 up 
to the date of any dividend declaration.


15. Financial Instruments with Off-Balance Sheet Risk:

     The Corporation is party to financial instruments with off-balance sheet 
risk in the normal course of business to meet the financing needs of its 
customers and to reduce its own exposure to fluctuations in interest rates.  
These financial instruments include commitments to originate loans and standby 
letters of credit.  The instruments involve, to varying degrees, elements of 
credit and interest rate risk in excess of the amount recognized in the 
consolidated statement of condition.  The contract or notional amounts of 
those instruments reflect the extent of involvement the Corporation has in 
particular classes of financial instruments.

     The Corporation's exposure to credit loss in the event of nonperformance 
by the other party to the financial instruments for loan commitments and 
standby letters of credit is represented by the contractual amount of these 
instruments.  The Corporation uses the same credit policies as it does for on- 
balance sheet instruments.

     Financial instruments with off-balance sheet risk at December 31, 1995, 
are as follows:


                                          						   Contract or Notional Amount
					                                                   			(in thousands)

Financial instruments whose contract amounts represent credit risk:
	Commitments to originate loans..........................      $14,119        
	Unused lines of credit..................................      $11,124    
	Standby letters of credit...............................      $   832
	Unadvanced portions of construction loans...............      $ 1,026

     Commitments to originate loans are agreements to lend to a customer 
provided there is no violation of any condition established in the contract.  
Commitments generally have fixed expiration dates or other termination clauses 
and may require payment of a fee.  Since many of the commitments are expected 
to expire without being drawn upon, the total commitment amount does not 
necessarily represent future cash requirements.  Lines of credit are similar 
to commitments as they have fixed expiration dates and are driven by certain 
criteria contained within the loan agreement.  Lines of credit normally do not
extend beyond a period of one year.  The Corporation evaluates each customer's 
credit worthiness on a case-by-case basis.  The amount of collateral obtained, 
if deemed necessary by the Corporation upon extension of credit, is based on 
management's credit evaluation of the borrower.

     Standby letters of credit are conditional commitments issued by the 
Corporation to guarantee the performance by a customer to a third party.  The 
credit risk involved in issuing letters of credit is essentially the same as 
that involved in extending loan facilities to customers.


16. Quarterly Results of Operations (Unaudited):  
<TABLE>
<CAPTION>

The following is a summary of the quarterly results of operations for the 
years ended December 31, 1995 and 1994:

							                                                   Three Months Ended                                     
						                                         1995                               1994                     
			                            Mar. 31    June 30    Sept. 30   Dec. 31    Mar. 31    June 30    Sept. 30   Dec. 31
					                                    (dollars in thousands except per share data)
<S>                           <C>        <C>        <C>        <C>        <C>        <C>        <C>        <C>   
Interest income..............  $5,855     $6,091     $6,175     $6,258     $5,034     $5,222     $5,454     $5,689     
Interest expense.............   2,344      2,562      2,648      2,644      2,073      2,094      2,113      2,209     
Net interest income..........   3,511      3,529      3,527      3,614      2,961      3,128      3,341      3,480     
Provision for loan losses....     122        168        170        252         75        159        159         69     
Net interest income after
 provision for loan losses:..   3,389      3,361      3,357      3,362      2,886      2,969      3,182      3,411     
Other income.................     433        491        550        553        368        428        447        434     
Investment security   
  gains......................      36         38         63         --        161        160         59         15     
Gains on mortgage sales......      18         48         60        220        149          2         31         28     
Other expenses...............   2,462      2,534      2,501      2,579      2,241      2,277      2,330      2,432     
Income before income taxes...   1,414      1,404      1,529      1,556      1,323      1,282      1,389      1,456     
Income taxes.................     348        352        363        415        298        302        326        362     
Net income...................  $1,066     $1,052     $1,166     $1,141     $1,025     $  980     $1,063     $1,094     

Fully diluted earnings
  per share..................   $. 52      $ .51      $ .57      $ .55      $ .50      $ .48      $ .52      $ .53
Dividends per share..........   $.200      $.200      $.200      $.200      $.167      $.167      $.167      $.200

Per share data has been restated to include a 20% stock dividend effective 
November 29, 1994.

</TABLE>

17. Fair Values of Financial Instruments:

	
     In December 1991, the Financial Accounting Standards Board released SFAS 
No. 107, Disclosures about Fair Value of Financial Instruments, which requires 
disclosure of the fair value of all financial instruments.  The FASB previously 
released SFAS No. 105, Disclosure of Information about Financial Instruments 
with Off-Balance-Sheet Risk and Financial Instruments with Concentrations 
of Credit Risk, which required similar disclosures relating to off-balance- 
sheet financing.

     The following methodologies and assumptions were used by the Corporation 
to estimate its fair value disclosures:

Cash, interest-bearing time deposits, and federal funds sold:  
   The carrying values for cash, interest-bearing time deposits, and federal 
funds sold equal those assets' fair values.

Investment securities:
   Fair values for investment securities are based on quoted market prices, 
where available.  If quoted market prices are not available, fair values are 
based on quoted market prices of comparable instruments.

Loans:
    For variable-rate loans that reprice frequently with no significant change 
in credit risk, fair value equals carrying value.  The fair values for fixed- 
rate residential mortgage loans, consumer loans, commercial, and commercial 
real estate loans are estimated by discounting the future cash flows using 
comparable current rates at which similar loans would be made to borrowers at 
similar credit risk.  The carrying value of accrued interest adjusted for 
credit risk equals its fair value.  The fair value of loans held for sale is 
based on quoted market prices for similar loans sold in securitization 
transactions.

Deposit liabilities:
    The fair values of demand and savings deposits equal their carrying values.
Statement 107 prohibits adjusting such fair value for any value from retaining 
those deposit relationships in the future.  That component, known as a deposit 
intangible, is not considered in the value disclosed nor is it recorded in the 
balance sheet.  The carrying values for variable rate money market accounts 
approximate their fair values at the reporting date.  Fair values for fixed- 
rate certificates of deposit are estimated using rates currently offered for 
similar deposits.

Short-term borrowings:
    The fair values of short-term borrowings approximate their carrying values.

Long-term borrowings:
    The fair values of the Corporation's long-term borrowings are estimated 
using discounted cash flow analyses, based on rates available to the 
Corporation for similar types of borrowings.

Off-balance-sheet instruments:
    Fair values for the Corporation's unused commitments to originate loans 
and unused lines of credit are deemed to be the same as their carrying values.
<TABLE>
<CAPTION>

     The following table summarizes the carrying values and fair values of 
     financial instruments at December 31, 1995 and 1994:




							                                                       December 31,                   
						                                               1995                      1994         
					                                        Carrying       Fair        Carrying        Fair
					                                          Value        Value         Value         Value
                                                  							       (in thousands)
<S>                                         <C>          <C>           <C>          <C>  
Financial assets:
Cash, interest-bearing time deposits, 
  and federal funds sold...................  $ 13,419     $ 13,419      $ 12,797     $ 12,797     
Investment securities......................    87,539       87,539        99,249       99,249     
Loans, net of unearned income..............   204,985      200,900       182,270      178,797     
Less: Allowance for loan losses............    (2,280)          --        (2,069)          --     
      Net Loans............................   202,705      200,900       180,201      178,797     
Loans held for sale........................     2,206        2,206            35           35     
      Total................................  $305,869     $304,064      $292,282     $290,878     
Financial liabilities:
Deposits...................................  $272,841     $274,038      $256,112     $254,914     
Short-term borrowings......................     1,016        1,016        11,709       11,709        
Long-term debt.............................     7,000        7,061         7,000        6,668        
Subordinated capital notes.................        --           --            15           15    
      Total                                  $280,857     $282,115      $274,836     $273,306    
</TABLE>
  
 
     
18. Subsequent Event - Acquisition:

     On January 12, 1996, Community Banks, Inc. completed its merger of 
Citizens National Bank of Ashland (Citizens). Citizens has three banking 
offices which are located in Ashland, Gordon, and Lavelle, Pennsylvania. 
Community issued 578,081 shares of common stock for all of the outstanding 
common stock of Citizens. This transaction will be accounted for as a pooling 
of interests.

     Assuming the acquisition had occurred on January 1, 1993, proforma 
unaudited financial statement data is as follows:


										      
                           				 1995               1994                1993
				                          (dollars in thousands except per share data)
Results of Operations
     
Total interest income......     $28,621            $25,630           $25,159
Net interest income........      16,588             15,551            14,390 
Net income.................     $ 4,814            $ 4,994           $ 4,763
     
Earnings per share.........     $  1.83            $  1.90           $  1.82
     
     
	  Contributing to the decline of 1995 proforma net income were costs 
associated with the acquisition. 
     

     
     REPORT OF INDEPENDENT ACCOUNTANTS
     
     
     
     Board of Directors and Shareholders
     Community Banks, Inc.
     Millersburg, Pennsylvania
     
     

	     We have audited the accompanying consolidated balance sheets of
     Community Banks, Inc. and subsidiaries (Corporation) as of
     December 31, 1995 and 1994 and the related consolidated statements of
     income, changes in stockholders' equity and cash flows for each 
     of the three years in the period ended December 31, 1995.  These financial
     statements are the responsibility of the Corporation's management.  
     Our responsibility is to express an opinion on these financial statements
     based on our audits.
     
	     We conducted our audits in accordance with generally accepted
     auditing standards.  These standards require that we plan and perform 
     the audit to obtain reasonable assurance about whether the financial
     statements are free of material misstatement.  An audit includes examining,
     on a test basis, evidence supporting the amounts and disclosures in the
     financial statements.  An audit also includes assessing the accounting 
     principles used and significant estimates made by management, as well as
     evaluating the overall financial statement presentation.  We believe that
     our audits provide a reasonable basis for our opinion.
     
	     In our opinion, the financial statements referred to above present
     fairly, in all material respects, the consolidated financial position 
     of Community Banks, Inc.  and subsidiaries as of December 31, 1995 and
     1994, and the consolidated results of their operations and cash flows for 
     each of the three years in the period ended December 31, 1995, in
     conformity with generally accepted accounting principles.
	     
	     As discussed in Note 2 to the consolidated financial statements,
     the Corporation has adopted Statement of Financial Accounting Standards No.
     115, "Accounting for Certain Investments in Debt and Equity Securities,"
     effective January 1, 1994.
     
     
     
                                     					      /S/  COOPERS & LYBRAND, L.L.P
     
     
     
     One South Market Square
     Harrisburg, PA 17101
     January 13, 1996
     
     
     
     
     
     
     

Community Banks, Inc. and Subsidiaries                                         
MANAGEMENT'S DISCUSSION OF FINANCIAL CONDITION AND                            
RESULTS OF OPERATIONS
																       
     Management's discussion of financial condition and results of operations
is based on the selected financial data listed below and should be read in
 conjunction with the Consolidated Financial Statements and Notes thereto.
         

<TABLE>
<CAPTION>
															      
FINANCIAL HIGHLIGHTS                             1995              1994              1993              1992              1991 
							       (dollars in thousands except per share data)          
<S>                                  <C>                <C>                <C>               <C>              <C>  
Balance Sheet Data                                                                                             
Total assets........................   $320,381          $307,121           $284,723          $272,297         $246,560 
Loans (net of unearned income and                                                                              
  allowance for loan losses)........    202,705           180,201            158,195           149,052          150,111 
Deposits............................    272,841           256,112            243,292           235,597          218,157 
Shareholders' equity................     36,593            30,352             29,503            26,703           24,261 
														     
Earnings Data                                                                                                        
Net interest income.................     14,181            12,910             11,675            10,998            9,753 
Provision for loan losses...........        712               462                702               683              737 
Other income........................      2,510             2,282              2,688             2,158            1,468 
Other expense.......................     10,076             9,280              8,456             7,803            7,281 
Net income..........................      4,425             4,162              3,916             3,491            2,529 
														     
Per Share Data                                                                                                       
Net income..........................       2.15              2.03               1.92              1.73             1.27 
Cash dividends......................        .80               .70                .62               .54              .44 
Book value..........................      18.03             14.99              14.64             13.33            12.11 
Average shares outstanding..........  2,054,822         2,053,475          2,040,911         2,014,381        2,003,032 

</TABLE>
														     
<TABLE>
<CAPTION>
Community Banks, Inc. and Subsidiaries                          
AVERAGE BALANCES, EFFECTIVE INTEREST DIFFERENTIAL 
AND INTEREST YIELDS   
Income and Rates on a Tax Equivalent Basis <F2> for the        
Years Ended December 31, 1995, 1994, and 1993 (dollars in thousands)  
																				  
		                                    					  1995                                1994                                1993    
								                                              	Average                          Average                        Average  
							                                   Interest     Rates              Interest      Rates              Interest    Rates   
					                           Average    Income/     Earned/  Average    Income/      Earned/  Average    Income/    Earned/  
                               Balance<F3> Expense<F1> Paid<F1> Balance<F3>Expense<F1>  Paid<F1> Balance<F3>Expense<F1>Paid<F1> 
<S>                               <C>         <C>       <C>     <C>         <C>       <C>     <C>         <C>        <C>     
Assets:                             
 Cash and due from banks.........  $ 11,459                      $  9,862                      $  8,146      
 Earnings Assets:                                                                                                             
   Interest-bearing deposits in                                                                                                
     other banks.................     1,187    $    51   4.30%      1,357    $    29   2.14%      1,307    $    29    2.22%   
   Investment securities:                                                                                                   
     Taxable.....................    63,207      4,251   6.73      71,048      4,490   6.32      68,540      4,613    6.73    
     Tax-exempt (b)..............    29,159      2,358   8.09      33,223      2,829   8.52      28,971      2,715    9.37    
   Total investment                                                                                                           
     securities..................    92,366                       104,271                        97,511                       
   Federal funds sold............       544         32   5.88       1,081         38   3.52       2,454         73    2.97    
   Loans, net of unearned                                                                                                  
     income (b)..................   196,138     18,588   9.48     170,945     15,037   8.80     159,976     14,213    8.88    
    Total Earning Assets.........   290,235    $25,280   8.71     277,654    $22,423   8.08     261,248    $21,643    8.28    
 Allowance for loans                                                                                                      
   losses........................    (2,196)                       (1,991)                       (1,783)                           
 Premises, equipment and                                                                                                      
    other assets.................    14,460                        12,790                        10,549                            
    Total assets.................  $313,958                      $298,315                      $278,160                            
Liabilities:                                                                                                                  
 Demand deposits.................    23,283                        21,452                        18,033                            
 Interest bearing liabilites:                                                                                               
   Savings deposits..............   113,081      2,517   2.23     116,334      2,537   2.18     103,932      2,621    2.52    
   Time deposits:                                                                                                           
     $100,000 or greater.........    10,221                         8,573                         8,049                            
     Other.......................   119,547                       108,438                       107,922                            
   Total time deposits...........   129,768      7,012   5.40     117,011      5,425   4.64     115,971      5,895    5.08    
   Total time and savings                                                                                                   
     deposits....................   242,849                       233,345                       219,903                            
   Short-term borrowings.........     3,891        225   5.78       2,626        115   4.38       1,116         29    2.60    
   Long-term debt................     7,781        444   5.71       7,871        410   5.21       9,014        460    5.10    
   Subordinated capital notes....         2         --  11.00          17          2  11.00          32          4   11.00    
    Total interest-bearing                                                                                                 
     liabilities.................   254,523    $10,198   4.01     243,859    $ 8,489   3.48     230,065    $ 9,009    3.92    
Accrued interst, taxes and                                                                                                 
   other liabilities.............     2,369                         2,477                         1,789                            
    Total liabilities.............  280,175                       267,788                       249,887                            
Stockholders' Equity..............   33,783                        30,527                        28,273                            
    Total liabilities and                                                                                                   
     stockholders' equity......... $313,958                      $298,315                      $278,160                            
  Interest income to earning                                                                                                
    assets........................                       8.71%                         8.08%                          8.28%   
  Interest expense to earning                                                                                               
    assets........................                       3.51                          3.06                           3.45    
      Effective interest                                                                                                   
	differential..............                    $15,082   5.20%               $13,934   5.02%               $12,634    4.83%
  
<FN>

<F1> Amortization of net deferred fees included in interest income and rate
calculation.
<F2>Interest income on all tax-exempt securities and loans have been adjusted
to tax equivalent basis utilizing a Federal income tax rate of 34%. 
<F3> Averages are a combination of monthly and daily averages.
</FN>                                          
</TABLE>

<TABLE>
<CAPTION>
Community Banks, Inc. and Subsidiaries   
Management's Discussion of Financial Condition and Results of Operations  
Rate/Volume Analysis <F1> 
For the Years Ended December 31, 1995 and 1994                      
(in thousands)


														     
 .                                         						  1995 vs 1994                        1994 vs 1993                   
 .                                   					     Volume   Rate     Total             Volume   Rate       Total                    
<S>                                         <C>      <C>      <C>               <C>      <C>      <C>                 
Increase (decrease) in interest income:                                                                              
  Loans...................................   $2,330   $1,221   $3,551            $  948   $(124)   $  824            
  Investment securities:                                                                                             
    Taxable...............................     (517)     278     (239)              165    (288)     (123)           
    Tax-exempt............................     (334)    (137)    (471)              375    (261)      114                     
       Total..............................     (851)     141     (710)              540    (549)       (9)           
  Federal funds sold......................      (24)      18       (6)              (46)     11       (35)           
  Interest-bearing deposits in other                                                                                 
   banks..................................       (4)      26       22                 1      (1)      ---                     
     Total................................    1,451    1,406    2,857             1,443    (663)      780            

Increase (decrease) in interest expense:                                                                             
  Savings deposits........................      (75)      55      (20)              292    (376)      (84)           
  Time deposits...........................      634      953    1,587                52    (522)     (470)           
  Short-term borrowings...................       66       44      110                57      29        86 
  Long-term debt and capital notes........      (16)      48       32               (61)      9       (52)           
     Total................................      609    1,100    1,709               340    (860)     (520)           
  Increase (decrease) in effective                                                                                            
   interest differential..................   $  842   $  306   $1,148            $1,103   $ 197    $1,300            

<FN>
<F1> Table shows approximate effect on the effective interest differential
 of volume and rate changes for the years 1995 and 1994. The effect of a
 change in average volume has been determined by applying the average yield
 or rate in the earlier period to the change in average volume during the
 period. The effect of a change in rate has been determined by applying the
 change in rate during the period to the average volume of the prior period.
 Any resulting unallocated amount was allocated ratably between the volume
 and rate components. Nonaccrual loans have been included in the average 
 volume of each period. Tax-exempt income is shown on a tax equivalent basis
 assuming a federal income tax rate of 34%.  
</FN>
</TABLE>

	  Community Banks, Inc. and Subsidiaries
	  MANAGEMENT'S DISCUSSION OF FINANCIAL CONDITION AND RESULTS OF
	  OPERATIONS
	  
	  
	  The earnings of Community Banks, Inc. are derived exclusively
	  from the operations of its wholly owned subsidiaries; Community
	  Banks, N.A.; Community Banks Investments, Inc.; and Community
	  Banks Life Insurance Co.
	  
	  Net income was $2.15 per share in 1995 compared to $2.03 per
	  share in 1994, and $1.92 in 1993. Net income per share in 1995
	  was 5.9% more than net income per share in 1994 and 12.0% more
	  than net income per share in 1993.
	  
	  Net Interest Income:
	  
	  The primary determinant of Community Banks, Inc. net income is
	  net interest income. This is the income which remains after
	  deducting from the total income generated by earning assets the
	  interest expense applicable to funds required to support the
	  earning assets.
	  
	  Total interest income increased $2,980,000 or 13.9% in 1995,
	  compared to an increase of $715,000 or 3.5% in 1994, and a
	  decrease of $367,000 or 1.7% in 1993. Interest and fees on loans
	  increased $3,514,000 or 23.5% in 1995. Most of this increase was
	  volume related and caused by an increase in average balances of
	  $25,193,000 or 14.7%. The decrease of $550,000 or 8.7% in
	  interest and dividends on investment securities was also volume
	  related. The average balances of tax-exempt securities decreased
	  $4,064,000 or 12.2% in 1995 which resulted in a decrease in
	  tax-exempt interest income. Because of significant loan demand
	  experienced in 1995, management chose to use proceeds from
	  maturities of investment securities to fund the demand. Interest
	  and fees on loans increased $798,000  or 5.6% in 1994. This was a
	  volume related change caused by an increase in average balances
	  of $10,969,000 or 6.9%. The decrease of $48,000 or 0.7% in
	  interest and dividends on investment securities was rate related.
	  The average balance of tax-exempt securities increased $4,252,000
	  or 14.7% in 1994 which resulted in an  increase in tax-exempt
	  interest income. Factors contributing to the 1993 change included
	  a rate related decrease in interest and fees on loans of $492,000
	  and a volume related increase of $85,000 in interest and
	  dividends on investment securities.  
	  
	  Total interest expense increased $1,709,000 or 20.1% in 1995,
	  after decreasing $520,000 or 5.8% in 1994, and $1,044,000 or
	  10.4% in 1993.  Materially affecting the 1995 increase was an
	  increase of $1,587,000 or 29.3% in time deposit interest expense.
	  Although a portion of the increase in time deposit interest
	  expense was caused by increased volume, a more significant factor
	  was an increase in rates paid for these funds. The increase in
	  interest paid on short-term borrowings and long-term debt was for
	  the most part, rate related. Material factors affecting the 1994
	  decrease were decreases of $84,000 or 3.2% in savings interest
	  expense and $470,000 or 8.0% in total time deposit interest
	  expense. These declines were slightly offset by an increase of
	  $36,000 in
	  
	  interest expense of short-term borrowings and long-term debt.
	  Although the average balances of savings accounts increased
	  $12,402,000 or 11.9%, this increase was more than offset by the
	  decline in the interest rates of these deposits. The decline in
	  time deposit interest expense in 1994 was also rate related.
	  Material factors affecting the 1993 decrease were decreases of
	  $517,000 in savings interest expense and $780,000 in time deposit
	  interest expense.  

	  Average interest-bearing deposits represented 91.3% of average
	  total deposits in 1995 compared to 91.6% in 1994 and 92.4% in
	  1993.
	  
	  Net interest income increased $1,271,000 or 9.8% in 1995,
	  compared to $1,235,000 or 10.6% in 1994 and $677,000 or 6.2% in
	  1993. Average earning assets increased $12,581,000 or 4.5% in
	  1995 compared to $16,406,000 or 6.3% in 1994 and $21,496,000 or
	  9.0% in 1993. Average interest-bearing liabilities increased
	  $10,664,000 or 4.4% in 1995 compared to $13,794,000 or 6.0% in
	  1994 and $18,551,000 or 8.8% in 1993.
	  
	  Net Interest Income Margin:
	  
	  Net interest income margin for 1995 was 5.20% compared to 5.02%
	  in 1994 and 4.83% in 1993. Interest income to earning assets
	  increased from 8.08% in 1994 to 8.71% in 1995. Interest expense
	  to earning assets also increased from 3.06% to 3.51%. Interest
	  rates applicable to earning assets and interest-bearing
	  liabilities (with the exception of the interest rates applicable
	  to tax-exempt investment securities and subordinated capital
	  notes) increased in 1995. In general, declines occurred in 1994
	  and 1993. 
	  
	  Provision for Loan Losses:
	  
	  Net loan charge-offs for 1995 were $501,000 compared to $230,000
	  in 1994 and $454,000 in 1993. The provision for loan losses
	  charged to income was $712,000 in 1995 compared to $462,000 in
	  1994 and $702,000 in 1993. Total non-performing loans
	  approximated $1,910,000, $1,158,000, and $1,122,000, as of
	  December 31, 1995, 1994, and 1993, respectively. Non-performing
	  residential real estate and commercial loans totalled
	  approximately $1,100,000 and $200,000, respectively, at year-end
	  1995. Total delinquencies as a percentage of total loans
	  approximated 4.3%, 3.9%, and 4.9% at December 31, 1995, 1994, and
	  1993, respectively.
	  
	  Other Income and Other Expenses:
	  
	  Other income net of security gains increased $486,000 or 25.8% in
	  1995 compared to a decrease of $647,000 or 25.5% in 1994 and an
	  increase of $373,000 or 17.3% in 1993. The increases in trust
	  department income and service charges on deposit accounts which
	  occurred in 1995 resulted from management's renewed emphasis on
	  these functions. Investment security gains in 1995 were
	  associated exclusively with equity securities held by Community
	  Banks Investments, Inc. No investment security losses were
	  recognized in 1995. Increased income on insurance premiums are a
	  reflection of increased loan demand and increased activity at
	  Community Banks Life Insurance Co. Gains on mortgage sales 
	  
	  increased in 1995 as a result of increased demand for fixed-rate
	  real estate loans. These sales are composed of only fixed-rate
	  real estate loans extended specifically for resale. The market
	  values of loans held for sale approximated their carrying values
	  at year ends 1995, 1994, and 1993. Loans originated for sale
	  increased $10,886,000 in 1995. The most notable change in other
	  income in 1994 was the decrease in gains on sales of mortgages.
	  This was a direct reflection of reduced demand and a
	  corresponding decline in the volume of loans originated for sale.
	  No investment security losses were recognized in 1994. Every
	  component of total other income with the exception of
	  miscellaneous income increased in 1993. Most notable was the
	  increase in gains on sales of mortgages. 
	    
	  Other expense increased $796,000 or 8.6% in 1995 compared to
	  $824,000 or 9.7% in 1994, and $653,000 or 8.4% in 1993. The 1995
	  increases in salaries and benefits of $583,000 or 13.7% and net
	  occupancy expense of $122,000 or 9.4% were affected by the
	  opening of two new banking offices. The increase in operating
	  expenses of insurance subsidiary was materially impacted by
	  additional claims recognized at Community Banks Life Insurance
	  Co. Increases of $409,000 or 10.6% in salaries and employee
	  benefits and $199,000 or 18.1% in net occupancy expense affected
	  the 1994 increase. Two new banking offices were also established
	  in 1994. Increases of $295,000 or 8.3% in salaries and benefits
	  and $108,000 or 10.9% in occupancy expense affected the 1993
	  increase.     
	  
	  Provision for Income Taxes:
	  
	  The relationship of the provision for income taxes to income
	  before income taxes increased from 23.6% in 1994 to 25.0% in
	  1995. Significantly impacting this change was a reduction in
	  tax-exempt investment security and loan income recognized in
	  1995. Although the provision for income taxes essentially
	  remained unchanged from 1993 to 1994, the relationship to pre-tax
	  income declined slightly due in part to additional tax-free
	  income. Similar changes occurred in 1993. 
	  
	  These factors contributed to increases in net income for 1995,
	  1994, and 1993 of $263,000 or 6.3%, $246,000 or 6.3%, and
	  $425,000 or 12.2%, respectively.
	    
	  Balance Sheet Data:
	  
	  Earning assets represented 92.1% of total assets at year-end 1995
	  compared to 92.4% at year-end 1994. Changes in the composition of
	  earning assets reflect management's attempt to respond to
	  fluctuating loan demand and corresponding policies relating to
	  liquidity and asset/liability management. 
	  
	  Effective January 1, 1994, the Corporation adopted the provisions
	  of Statement of Financial Accounting Standards No. 115,
	  "Accounting for Certain Investments in Debt and Equity
	  Securities", which requires the Corporation to reflect securities
	  available and held for sale at fair value on the balance sheet.
	  Upon adoption, the Corporation classified all investments held at
	  January 1, 1994, as available for sale and recorded the increase
	  to fair value as a separate component of equity. The increase
	  recorded to stockholders' equity at January 1, 1994 was
	  $2,246,000, net of applicable income taxes.
	  
	  Under the Corporation's current policy, if management has the
	  intent and the Corporation has the ability at the time of
	  purchase to hold securities until maturity or on a long-term
	  basis, securities are classified as investments and carried at
	  amortized historical cost. Securities to be held for indefinite
	  periods of time and not intended to be held to maturity or on a
	  long-term basis are classified as available for sale and carried
	  at the lower of cost or market value. Securities held for
	  indefinite periods of time include securities that management
	  intends to use as part of its asset/liability management strategy
	  and that may be sold in response to changes in interest rates,
	  resultant prepayment risk and other factors related to interest
	  rate and resultant prepayment risk changes.
	  
	  At December 31, 1995 and 1994, management classified investment
	  securities with book and market values of $85,469,000 and
	  $87,539,000 and $102,305,000 and $99,249,000, respectively, as
	  available for sale. Gross unrealized gains and losses relating to
	  investment securities were $2,467,000 and $397,000 and $822,000
	  and $3,878,000, respectively, at year-end 1995 and 1994. The
	  Corporation owned no securities below investment grade at
	  year-end 1995 and 1994. No securities were considered held for
	  sale or for trading purposes at December 31, 1995 and December
	  31, 1994.
	  
	  At December 31, 1995 and 1994, the unrealized gain (loss) on
	  investments available for sale, net of tax was $1,367,000 and
	  $(2,017,000), respectively, and was accordingly reflected in
	  shareholders equity. These fluctuations are deemed to be
	  temporary in nature and result from changes in interest
	  rates.    
	  
	  Net loans increased 12.5% from December 31, 1994 to December 31,
	  1995. Commercial, real estate, and personal and other loans
	  increased 21.0%, 7.7%, and 19.9%, respectively, during the
	  period. New banking offices opened in 1994 and 1995 affected
	  these increases.

	  The following table sets forth information regarding nonaccrual
	  loans, other real estate owned, and loans which are 90 days or
	  more delinquent but accruing interest at the dates indicated.

	  
	  
	  
 .                                    						  December 31              
 .                    				       1995    1994   1993     1992   1991 
 .                           					     (dollars in thousands)
	  
	  Nonaccrual loans..........  $1,448  $  832  $  918  $  680 $  429
	  
	      
	  Other real estate owned...     302     338     366     145    631
	  Accruing loans contractually    
	   past due 90 days or more..    462     326     204     871    922
	      Total.................  $2,212  $1,496  $1,488  $1,696 $1,982
	    
		
	  
		   
	   Ratio of nonaccrual loans,
	   other real estate owned,  
	   and accruing loans contractu-
	   ally past due 90 days or
	   more to total assets......     .69%    .49%   .52%    .62%  .80%
	  
	  
	  As discussed in Note 5 to the Financial statements, the
	  Corporation adopted FAS 114 "Accounting by Creditors for
	  Impairment of a Loan", as amended by FAS 118, on January 1, 1995.
	  The adoption of FAS 114 did not result in an additional provision
	  for credit losses. Management performs periodic reviews of its
	  loans to identify risks in the loan portfolio. As a result of
	  these periodic reviews, problem loans and potential problem loans
	  are identified and the likelihood of collectibility is assessed.
	  Based upon the results of these reviews, which also consider
	  other pertinent data, management determines an appropriate
	  allowance for loan losses. Other relevant factors include past
	  loss experience, current economic conditions, and the growth and
	  composition of the loan portfolio. The allowances for loan losses
	  is maintained at a level believed by management to be adequate to
	  absorb potential losses in the respective portfolios. The
	  allowance for loan losses to loans net of unearned income
	  approximated 1.11%, 1.14%, 1.15%, 1.05%, and .97%, at year-end,
	  1995, 1994, 1993, 1992, and 1991, respectively. 
	  
	  At December 31, 1995, management is not aware of any loans or
	  lending relationships that are expected to deteriorate in the
	  next year. In addition, the Corporation is not aware of any
	  significant environmental liability related to real estate owned
	  or in-foreclosure procedures.
	  
	  The increase of $744,000 or 11.3% in premises and equipment was
	  materially impacted by the previously noted new banking
	  locations. Goodwill is being amortized over fifteen years.
	  Increased interest rates on short-term borrowings resulted in the
	  reduction of these liabilities in 1995. The increase in loans
	  held for sale reflects increased demand for fixed-rate real
	  estate loans in 1995. Affecting the decrease of $794,000 in
	  accrued interest receivable and other assets was the elimination
	  of the deferred tax asset of $1,039,000 associated with the
	  previously noted SFAS No. 115 adjustment at December 31, 1994.
		
	  Total deposits increased  $16,729,000 or 6.5% in 1995. Total
	  deposits other than time deposits of $100,000 or more increased
	  5.8%. A general movement of funds from savings products to higher
	  rate time deposit products contributed to a decrease of
	  $3,286,000 in savings balances and an increase of $20,400,000 in
	  total time deposits. It is not management's general policy to bid
	  aggressively for funds. As previously mentioned, management chose
	  to reduce the Corporation's dependence on short-term borrowings
	  in 1995. Affecting the increase of $998,000 in accrued interest
	  payable and other liabilities was a deferred tax liability of
	  $704,000 associated with the previously mentioned SFAS No. 115
	  adjustment.
	  
	  Liquidity:
	  
	  The primary functions of asset/liability management are the
	  assurance of adequate liquidity and maintenance of an appropriate
	  balance between interest-sensitive earning assets and
	  interest-bearing liabilities. Liquidity management refers to the
	  ability to meet the cash flow requirements of depositors and
	  borrowers.
	  
	  A continuous review of net liquid assets is conducted to assure
	  appropriate cash flow to meet needs and obligations in a timely
	  manner. 
	  
	  The Corporation's primary funding requirement is loan demand. The
	  loan demand is primarily funded through deposit growth.
	  Generally, any deposit growth not used in funding loan demand is
	  invested in short-term, interest-bearing deposits or longer term
	  investments. These short-term investments and shorter term
	  investment portfolio securities are a source of liquidity to fund
	  loan demand.
	  
	  For the years ended December 31, 1995, 1994 and 1993, financing
	  activities provided cash of $4,453,000, $20,012,000, and
	  $8,893,000, respectively. Deposits accounted for the largest
	  portion of this funding source amounting to $16,729,000,
	  $12,820,000, and $7,695,000 for the years ended December 31,
	  1995, 1994 and 1993, respectively.
	  
	  Net cash used in investing activities totalled $8,240,000,
	  $24,525,000, and $12,269,000 for the years ended December 31,
	  1995, 1994 and 1993, respectively. The primary uses of funds in
	  1995 were increases in loans of $23,893,000 as proceeds from
	  maturities of investment securities were used to fund loan
	  demand. The primary uses of funds in 1994 were purchases of 
	  
	  
	  
	  investment securities of $18,939,000 and increases in loans of
	  $22,468,000. In 1994 and 1993, investment securities purchased
	  exceeded the proceeds from sales and maturities of securities,
	  resulting in a net increase in investment securities.

	   
	  Forward Outlook:
	  
	  On January 12, 1996, Community Bank's Inc. completed its merger
	  of The Citizens National Bank of Ashland (Citizens). Citizens has
	  three banking offices which are located in Ashland, Gordon, and
	  Lavelle, Pennsylvania. The Company issued 578,081 shares of
	  common stock in exchange for all the outstanding shares of common
	  stock of Citizens. At December 31, 1995 and for the year then
	  ended, Citizens had total interest earning assets, interest
	  bearing liabilities, equity capital and net income of $58.0
	  million, $51.3 million, $9.4 million and $4.8 million,
	  respectively.
	  
	  Management is unaware of any regulatory recommendations which, if
	  implemented, would have a material effect on the liquidity,
	  capital resources, or operations of the Corporation. Strong loan
	  demand is anticipated for the remainder of 1996 and management
	  will continue to carefully evaluate this demand based on the
	  creditworthiness of the borrower and the relative strength of the
	  economy in the Corporation's market.  
	  
	  Effects on Inflation:
	  
	  All business enterprises are affected by the constantly changing
	  economic environment. Changes in the economy, however, affect the
	  banking industry differently than other industries. A bank's
	  assets and liabilities are primarily monetary in nature and
	  values are established without regard to future price changes. 
	  
	  Also, banks, unlike industrial corporations are not required to
	  provide for large capital expenditures in the form of premises,
	  equipment and inventory. Interest rate changes and the actions of
	  the Federal Reserve Board have a greater impact on a bank's
	  operations than do the effects of inflation. Although occasional
	  deviations may occur, it is management's policy to generally
	  maintain rate-sensitive assets at a level approximating
	  rate-sensitive liabilities. Based on a one-year parameter, this
	  relationship approximated 99% at December 31, 1995.
	  
	  Accordingly, management anticipates that any additional decrease
	  in interest rates will positively impact earnings of the
	  Corporation. Conversely, management may not be able to increase
	  rates on certain earning assets as rapidly as those of
	  interest-bearing liabilities if a significant increase in
	  interest rates would occur. This may result in a decline in the
	  net interest margin of the Corporation. 
	  
	  Capital Strength:
	  
	  The current economic and regulatory environment has placed an
	  increased emphasis on capital strength. Risk-based capital
	  guidelines recognize the relative degree of credit risk
	  associated with various assets by setting lower capital
	  requirements for some assets which clearly have less credit risk
	  than others. Capital guidelines require banks to hold 4% Tier 1
	  and 8% Total Risk-based capital. Following is a summary of
	  significant capital ratios at the dates indicated.
	  
	  











 .                              	Regulatory     December 31, 
 .                            				  Minimum    1995       1994    
 .                               					  (dollars in thousands)


     Core (Tier 1) Capital          ---      $33,838  $30,740

     Leverage ratio (A)             4.0%       10.6%    10.1%  

     Risk-based Capital Ratios:

     Tier 1 capital ratio (B)       4.0%       15.3%    15.4%  

     Total risk-based capital 
      ratio (C)                     8.0%       17.2%    17.2%  
 

     (A)  Core capital divided by total assets less    
	  intangible assets.

     (B)  Core capital divided by year-end risk-adjusted 
	  assets, as defined by risk-based capital 
	  guidelines.

     (C)  Total capital divided by risk-adjusted assets,
	  as defined by risk-based guidelines.

As shown by the table, the Bank's capital ratios exceeded
regulatory minimums in 1995 and 1994. The core capital ratio
decreased from 15.4% to 15.3%, and the total capital ratio
remained unchanged at 17.2%, well above the regulatory minimums
of 4.0% for core and 8.0% for total capital. These changes were
impacted by the Corporation's retention of earnings during the
year.