Related Party Transactions and Outside Related Director Information

Community Banks, Inc. (CMTY)

3/31/2006 Proxy Information

Prior to the merger of PennRock into Community Banks, Inc., Mr. Pankuch had served as Executive Vice President and Chief Executive Officer of PennRock.

Prior to the July 2005 merger of PennRock Financial Services, Corp. into Community Banks, Inc., Glenn H. Weaver consulted as President of PennRock, a position he had held since 1989.

Community’s primary subsidiary is the Bank, and the most significant source of revenue generation by the Bank is its lending business. As part of its normal and customary lending business, the Bank had in 2005, and expects to have in the future, banking transactions in the ordinary course of business with directors and officers of Community and their associates on substantially the same terms, including interest rates and collateral on loans, as those prevailing at the time for comparable transactions with other persons. With the exception of loans to Hearthside LLC, a company in which Sandra Bricker, a director of Community, is an executive officer, management believes that the loans to its directors and officers present no more than the normal risk of collectibility or other unfavorable features.

As of the effective date of the PennRock merger, Community wrote down $550,000 of commercial loans, from an aggregate exposure approximating $4 million, it has with Hearthside LLC. All loans were made at prevailing commercial rates and terms and were originated primarily in 2001. Blue Ball National Bank had established a reserve for these loans. The company is and has been current in its payments on the loans. The write down was the direct result of the application of revised accounting rules governing the treatment of certain loans acquired in a purchase business combination.

Aaron Kurtz, a director of Community, is the president and owner of Ludwig Office Furniture, Inc., which made sales in the ordinary course of business to Blue Ball National Bank in the amount of $149,366 in 2005.

Allen Shaffer, a director of Community, is an attorney with offices in Harrisburg and Millersburg, Pennsylvania; he has been retained in the last fiscal year by Community and Community proposes to retain him in the current fiscal year.

James A. Ulsh, a director of Community, is a shareholder/employee of the law firm of Mette, Evans & Woodside, Harrisburg, Pennsylvania, which Community has retained in the last fiscal year and proposes to retain in the current fiscal year.

Earl L. Mummert, a director of Community, is an actuarial consultant with Conrad Siegel, a Harrisburg, Pennsylvania firm which provides actuarial services to Community.