Exhibit 10.16

                             COMMUNITY BANKS, INC.
                            SURVIVOR INCOME AGREEMENT


     THIS  AGREEMENT  is made  this  5th day of  February,  1999 by and  between
COMMUNITY BANKS, INC.,  Millersburg,  Pennsylvania,  and THE PEOPLES STATE BANK,
East  Berlin,   Pennsylvania,   (collectively  the  "Company"),   and  EDDIE  L.
DUNKLEBARGER (the "Executive").

                                  INTRODUCTION

     To  encourage  the  Executive  to remain an  employee of the  Company,  the
Company is willing to provide  benefits to the  Executive's  beneficiary  if the
Executive  dies  prior  to  terminating  employment.  The  Company  will pay the
benefits from its general assets,  but only so long as one of its general assets
is a life insurance policy on the Executive's life.

                                    AGREEMENT

     The Executive and the Company agree as follows:

                                    Article 1
                             Entitlement to Benefit

     1.1  Pre-Termination  Survivor Income Benefit. If the Executive dies before
otherwise  terminating  employment  with the Company,  and if the Company owns a
life insurance  policy on the  Executive's  life at the time of such death,  the
Company shall pay to the Executive's  designated beneficiary the survivor income
benefit described in Article 2.


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     1.2 Disability Continuation.  If the Executive terminates employment due to
disability and then dies before  recovering  from such  disability,  the Company
shall pay to the Executive's  designated beneficiary the survivor income benefit
described in Article 2. Whether the Executive is disabled or has recovered  from
a disability shall be determined by the Company in its sole discretion.

     1.3 Suicide.  No benefits shall be payable if the Executive commits suicide
within two years after the date of this Agreement.

     1.4  Change  of  Control.  Notwithstanding  any  other  provision  of  this
Agreement,  in the event of a Change of Control (as defined below),  the Company
or its successor  shall maintain in full force and effect this Agreement and the
related  life  insurance  policy that is in  existence on the date the Change of
Control occurs and, in no event shall the Company or its successor  terminate or
otherwise  abbrogate  the  Executive's  interest in the life  insurance  policy;
provided,  however, that at all times the life insurance policy shall be subject
to the claims of the Company's creditors.

     Change of Control shall mean:

     (a) A reorganization, merger, consolidation or sale of substantially all of
the assets of the Company,  or a similar transaction in which the Company is not
the resulting entity; or

     (b)  Individuals  who constitute the Incumbent Board (as herein defined) of
the  Company  cease for any  reason to  constitute  a  majority  of the Board of
Directors.  For these purposes,  "Incumbent Board" shall mean the members of the
Board of  Directors  of the Company on the  effective  date  hereof.  Any person
becoming a member of the Board of



<PAGE>



Directors  subsequent to such effective  date,  whose election was approved by a
vote of at least  three-quarters  (3/4) of the members of the Board of Directors
comprising the Incumbent  Board, or whose  nomination for election by members or
shareholders  was approved by the same  nominating  committee  serving under the
Incumbent  Board,  shall be  considered as though he or she were a member of the
Incumbent Board.

                                    Article 2
                             Survivor Income Benefit

     2.1 Amount of Benefits.  The survivor income benefit shall be determined in
accordance with the following formula:

                   x = y+T%x
wherein
                   x    =   the survivor income benefit payable hereunder
                   T%   =   the Company's projected marginal tax rate for
                            federal income tax purposes for the year in which
                            the Executive's death occurs and
                   y    =   the lesser of (1) three times the Executive's base
                            salary as established by the Company's Board of
                            Directors for the calendar year in which the
                            Executive's death occurs or (2) the life insurance
                            policy proceeds the Company receives due to the
                            Executive's death less the cash surrender value of
                            such policy on the day before the Executive's
                            death

     2.2 Form of Benefits.  The  survivor  income  benefit  shall be paid to the
Executive's  beneficiary  in a  lump  sum  within  sixty  (60)  days  after  the
Executive's death.




<PAGE>



                                    Article 3
                                  Beneficiaries

     3.1 Beneficiary  Designations.  The Executive shall designate a beneficiary
by filing a written  designation  with the Company.  The Executive may revoke or
modify  the  designation  at any  time by  filing  a new  designation.  However,
designations  will only be effective if signed by the  Executive and accepted by
the  Company  during  the  Executive's  lifetime.  The  Executive's  beneficiary
designation shall be deemed automatically revoked if the beneficiary predeceases
the  Executive,  or if the  Executive  names a  spouse  as  beneficiary  and the
marriage  is  subsequently  dissolved.  If the  Executive  dies  without a valid
beneficiary designation, all payments shall be made to the Executive's surviving
spouse,  if any,  and if none,  to the  Executive's  surviving  children and the
descendants of any deceased child by right of representation, and if no children
or descendants survive, to the Executive's estate.

     3.2  Facility of Payment.  If a benefit is payable to a minor,  to a person
declared  incompetent,  or to a person  incapable of handling the disposition of
his or her  property,  the Company may pay such benefit to the  guardian,  legal
representative  or person having the care or custody of such minor,  incompetent
person or  incapable  person.  The Company may  require  proof of  incompetency,
minority or guardianship as it may deem appropriate prior to distribution of the
benefit.  Such  distribution  shall  completely  discharge  the Company from all
liability with respect to such benefit.

                                    Article 4
                          Claims and Review Procedures
<PAGE>

     4.1 Claims Procedure.  The Company shall notify the Executive's beneficiary
in  writing,  within  ninety  (90) days of his or her  written  application  for
benefits,  of his or her  eligibility or  noneligibility  for benefits under the
Agreement.  If the Company  determines  that the beneficiary is not eligible for
benefits or full benefits,  the notice shall set forth (1) the specific  reasons
for such denial,  (2) a specific reference to the provisions of the Agreement on
which the denial is based,  (3) a description of any  additional  information or
material  necessary  for  the  claimant  to  perfect  his  or her  claim,  and a
description  of why it is  needed,  and (4) an  explanation  of the  Agreement's
claims review procedure and other appropriate  information as to the steps to be
taken if the  beneficiary  wishes to have the  claim  reviewed.  If the  Company
determines  that there are special  circumstances  requiring  additional time to
make a  decision,  the  Company  shall  notify the  beneficiary  of the  special
circumstances  and the date by which a decision is expected to be made,  and may
extend the time for up to an additional ninety-day period.

     4.2 Review  Procedure.  If the beneficiary is determined by the Company not
to be eligible for benefits,  or if the  beneficiary  believes that he or she is
entitled  to greater  or  different  benefits,  the  beneficiary  shall have the
opportunity  to have such claim reviewed by the Company by filing a petition for
review  with the  Company  within  sixty (60) days  after  receipt of the notice
issued by the Company.  Said petition shall state the specific reasons which the
beneficiary  believes  entitle him or her to benefits or to greater or different
benefits.  Within sixty (60) days after  receipt by the Company of the petition,
the Company shall afford the beneficiary (and counsel, if any) an opportunity to
present  his or her  position  to the  Company  orally  or in  writing,  and the
beneficiary (or counsel) shall have the right to review the pertinent documents.
The Company shall notify the  beneficiary  of its decision in writing within the
sixty-day period,  stating specifically the basis of its decision,  written in a
manner  calculated  to  be  understood  by  the  beneficiary  and  the  specific
provisions of the Agreement on which the decision is based.  If,  because of the
need for a hearing, the sixty-day period is not sufficient,  the decision may be
deferred for up to another sixty- day period at the election of the Company, but
notice of this deferral shall be given to the beneficiary.
<PAGE>

                                    Article 5
                           Conversion to Split Dollar

     If the Executive voluntarily  terminates employment after attaining the age
of  sixty-five  (65) and  completes  ten (10) years of  service,  or  terminates
employment  subsequent  to a change of control (as defined  herein),  unless the
Executive  elects  otherwise by written notice to the Company,  the Split Dollar
Insurance   Agreement   attached  as  the  Addendum  to  this  Agreement   shall
automatically take effect as of the Executive's  termination of employment.  The
Company shall take all actions necessary to implement the Split Dollar Insurance
Agreement.

                                    Article 6
                           Amendments and Termination

     Except as provided in Section 1.4 of this Agreement,  the Company may amend
or  terminate  this  Agreement  at any time  prior to the  Executive's  death by
written notice to the Executive.
<PAGE>

                                    Article 7
                                  Miscellaneous

     7.1  Exclusive  Agreement/Binding  Effect.  This  Agreement  is the  entire
agreement between the Company and the Executive, written or oral, related to the
Company's  obligation  to pay any survivor  income  benefits to the  Executive's
beneficiaries  or survivors.  This Agreement  supersedes  all prior  agreements,
understandings and negotiations. This Agreement shall bind the Executive and the
Company,  and their  beneficiaries,  survivors,  executors,  administrators  and
transferees.

     7.2 No Guaranty of Employment.  This Agreement is not an employment  policy
or contract.  It does not give the  Executive the right to remain an employee of
the Company,  nor does it interfere  with the  Company's  right to discharge the
Executive.  It also does not require  the  Executive  to remain an employee  nor
interfere with the Executive's right to terminate employment at any time.

     7.3 Tax Withholding. The Company shall withhold any taxes that are required
to be withheld from the benefits provided under this Agreement.

     7.4  Applicable  Law.  The  Agreement  and all  rights  hereunder  shall be
governed by the laws of the Commonwealth of  Pennsylvania,  except to the extent
preempted by the laws of the United States of America.

     7.5 Unfunded Plan. The beneficiary is a general  unsecured  creditor of the
Company for the payment of benefits under this Agreement. The benefits represent
the mere promise by the Company to pay such benefits.  The beneficiary's  rights
to such  benefits  are not  subject in any manner to  anticipation,  alienation,
sale, transfer, assignment,  pledge, encumbrance,  attachment, or garnishment by
creditors.  Any  insurance  on the  Executive's  life is a general  asset of the
Company to which the Executive and designated  beneficiary  have no preferred or
secured claim.

     IN WITNESS WHEREOF, the Executive and a duly authorized



<PAGE>


Company officer have signed this Agreement.

COMPANY:
COMMUNITY BANKS, INC.                            THE PEOPLES STATE BANK


By: /s/ Ernest L. Lowe                          By: /s/ Sally J. Leas
   -----------------------------------            ------------------------------

Title   Chairman                                Title  Corporate Secretary
     ---------------------------------               ---------------------------


EXECUTIVE:

/s/ Eddie L. Dunklebarger
--------------------------
Eddie L. Dunklebarger





<PAGE>

                            SPLIT DOLLAR ADDENDUM TO
                              COMMUNITY BANKS, INC.
                            SURVIVOR INCOME AGREEMENT


     THIS ADDENDUM is part of the Survivor Income  Agreement  between  COMMUNITY
BANKS, INC., Millersburg, Pennsylvania, and THE PEOPLES STATE BANK, East Berlin,
Pennsylvania  (collectively  the  "Company"),  and  EDDIE L.  DUNKLEBARGER  (the
"Executive").

                                  INTRODUCTION

     Under the terms of the Survivor Income Agreement  between the Executive and
the Company, the parties desire to divide the death proceeds of a life insurance
policy on the Executive's life.

                                    Article 1
                               General Definitions

     The following terms shall have the meanings specified:

     1.1 "Insurer"  means WEST COAST LIFE  INSURANCE  COMPANY,  or  TRANSAMERICA
ASSURANCE COMPANY, as the case may be.

     1.2 "Policy" means:
     West Coast Life Insurance Company policy # ULA904798 - $90,000
     Transamerica Assurance Company policy # 50328267 - $110,000







<PAGE>



                                    Article 2
                           Policy Ownership/Interests

     2.1 Company Ownership. The Company owns the Policy and shall have the right
to exercise  all  incidents  of  ownership  and to receive the Policy  values in
excess of the Executive's interest described in Section 2.2.

     2.2 Executive's  Interest.  The Executive shall have the right to designate
the  beneficiary  of the death proceeds of the Policy to the extent the proceeds
exceed the cash surrender  value of the Policy on the day before the Executive's
death.  The Executive  shall also have the right to elect and change  settlement
options that may be permitted for such beneficiary.

                                    Article 3
                                    Premiums

     3.1 Premium Payment. The Company shall pay any premiums due on the Policy.

     3.2 Imputed  Income.  The Company shall then impute income to the Executive
in an amount equal to the current term rate for the  Executive's  age multiplied
by the  aggregate  death benefit  payable to the  Executive's  beneficiary.  The
"current term rate" is the minimum  amount  required to be imputed under Revenue
Rulings 64-328 and 66-110, or any subsequent applicable authority.

     3.3 Cash Payment. If the Executive's termination of employment occurs after
the Normal  Retirement Date, the Company shall annually pay to the Executive the
amount necessary to pay the federal and state income taxes attributable to the



<PAGE>



imputed  income and to the  additional  cash payments  under this  sentence.  In
calculating the cash payments, the Company shall use the highest marginal income
tax brackets. The cash payments shall continue until the Executive's death.

     3.2 Company Portion. The Company shall then pay to the Insurer any premiums
due.

                                    Article 4
                                   Assignment

     The Executive may assign without  consideration all interests in the Policy
and in this Addendum to any person, entity, or trust.

                                    Article 5
                                     Insurer

     The Insurer  shall be bound only by the terms of the Policy.  Any  payments
the Insurer makes or actions it takes in accordance  with the Policy shall fully
discharge  it from all  claims,  suits and demands of all  persons.  The Insurer
shall  not be bound by or be deemed to have  notice  of the  provisions  of this
Addendum.

                                    Article 6
                                Claims Procedure

     6.1 Claims Procedure.  The Company shall notify the Executive's beneficiary
in  writing,  within  ninety  (90) days of his or her  written  application  for
benefits,  of his or her  eligibility or  noneligibility  for benefits under the
Addendum.  If the Company  determines  that the  beneficiary is not eligible for
benefits or full



<PAGE>



benefits,  the notice shall set forth (1) the specific  reasons for such denial,
(2) a specific  reference to the  provisions of the Addendum on which the denial
is based, (3) a description of any additional  information or material necessary
for the  claimant to perfect his or her claim,  and a  description  of why it is
needed,  and (4) an explanation of the  Addendum's  claims review  procedure and
other  appropriate  information  as to the steps to be taken if the  beneficiary
wishes to have the claim  reviewed.  If the  Company  determines  that there are
special circumstances  requiring additional time to make a decision, the Company
shall notify the beneficiary of the special  circumstances and the date by which
a  decision  is  expected  to be  made,  and may  extend  the  time for up to an
additional ninety-day period.

     6.2 Review  Procedure.  If the beneficiary is determined by the Company not
to be eligible for benefits,  or if the  beneficiary  believes that he or she is
entitled  to greater  or  different  benefits,  the  beneficiary  shall have the
opportunity  to have such claim reviewed by the Company by filing a petition for
review  with the  Company  within  sixty (60) days  after  receipt of the notice
issued by the Company.  Said petition shall state the specific reasons which the
beneficiary  believes  entitle him or her to benefits or to greater or different
benefits.  Within sixty (60) days after  receipt by the Company of the petition,
the Company shall afford the beneficiary (and counsel, if any) an opportunity to
present  his or her  position  to the  Company  orally  or in  writing,  and the
beneficiary (or counsel) shall have the right to review the pertinent documents.
The Company shall notify the  beneficiary  of its decision in writing within the
sixty-day period,  stating specifically the basis of its decision,  written in a
manner  calculated  to  be  understood  by  the  beneficiary  and  the  specific
provisions  of the Addendum on which the decision is based.  If,  because of the
need for a hearing, the sixty-day period is not sufficient,  the decision may be
deferred for up to another sixty- day period at the election of the Company, but
notice of this deferral shall be given to the beneficiary.



<PAGE>



                                    Article 7
                           Amendments and Termination

     The  Company may amend this  Addendum at any time prior to the  Executive's
death by  written  notice to the  Executive.  Either  party may  terminate  this
Addendum  at any time prior to the  Executive's  death by written  notice to the
other party.

     Upon  termination of this  Addendum,  the Executive may purchase the Policy
from the Company for an amount equal to the Policy's cash surrender  value as of
the date of the termination.

                                    Article 8
                                  Miscellaneous

     8.1 Binding Effect. This Addendum shall bind the Executive and the Company,
their beneficiaries,  survivors, executors,  administrators and transferees, and
any Policy beneficiary.

     8.2 No Guaranty of Employment. This Addendum is not an employment policy or
contract.  It does not give the Executive the right to remain an employee of the
Company,  nor does it  interfere  with the  Company's  right  to  discharge  the
Executive.  It also does not require  the  Executive  to remain an employee  nor
interfere with the Executive's right to terminate employment at any time.
<PAGE>

     8.3 Applicable Law. The Addendum and all rights hereunder shall be governed
by and  construed  according to the laws of the  Commonwealth  of  Pennsylvania,
except to the extent preempted by the laws of the United States of America.

                  The parties' signatures on the Survivor Income Agreement
witness their agreement to the terms of this Addendum.