UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-Q

               QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
                       THE SECURITIES EXCHANGE ACT OF 1934


For the quarterly period ended                        Commission File No.
     September 30, 2004                                    000-22054


                           COMMUNITY BANKSHARES, INC.
 -------------------------------------------------------------------------------
             (Exact name of registrant as specified in its charter)


         South Carolina                                57-0966962
---------------------------------              ---------------------------------
  (State or other jurisdiction of              (IRS Employer Identification No.)
  incorporation or organization)


                              791 Broughton Street
                        Orangeburg, South Carolina 29115
--------------------------------------------------------------------------------
               (Address of principal executive offices, zip code)


                                 (803) 535-1060
--------------------------------------------------------------------------------
              (Registrant's telephone number, including area code)



         Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days.

         Yes [X] No [ ]

         Indicate by check mark whether the registrant is an  accelerated  filer
(as defined in Rule 12b-2 of the Exchange Act).

         Yes [ ] No [X]

         Indicate  the  number of  shares  outstanding  of each of the  issuer's
classes of common stock, as of the latest practicable date: common stock, no par
or stated value, 4,385,744 shares outstanding on November 3, 2004.



<PAGE>


                           COMMUNITY BANKSHARES, INC.

                                    FORM 10-Q

                                      Index

                                                                            Page
PART I -     FINANCIAL INFORMATION

Item 1.      Financial Statements

             Consolidated Balance Sheet ....................................   3
             Consolidated Statement of Income...............................   4
             Consolidated Statement of Changes in Shareholders' Equity .....   5
             Consolidated Statement of Cash Flows ..........................   6
             Notes to Unaudited Consolidated Financial Statements ..........   7

Item 2.      Management's Discussion and Analysis
               of Financial Condition and Results of Operations ............   9
Item 3.      Quantitative and Qualitative Disclosures About Market Risk ....  17
Item 4.      Controls and Procedures .......................................  18

PART II -    OTHER INFORMATION

Item 6.      Exhibits ......................................................  18

SIGNATURES .................................................................  19



                                       2
<PAGE>


                         PART I - FINANCIAL INFORMATION

Item 1.  Financial Statements

COMMUNITY BANKSHARES, INC.
Consolidated Balance Sheet

<TABLE>
<CAPTION>
                                                                                                      (Unaudited)
                                                                                                      September 30,     December 31,
                                                                                                          2004              2003
                                                                                                          ----              ----
                                                                                                          (Dollars in thousands)
Assets
<S>                                                                                                    <C>                <C>
     Cash and due from banks .................................................................         $  12,609          $  16,554
     Federal funds sold ......................................................................            14,921             25,321
                                                                                                       ---------          ---------
            Total cash and cash equivalents ..................................................            27,530             41,875
     Interest bearing deposits with other banks ..............................................               874              1,124
     Securities available-for-sale ...........................................................            48,361             64,864
     Securities held-to-maturity (estimated fair value $1,959 for 2004
          and $2,155 for 2003) ...............................................................             2,000              2,000
     Other investments .......................................................................             2,040              2,038
     Loans held for sale .....................................................................            11,287              8,411
     Loans receivable ........................................................................           382,958            332,106
         Less, allowance for loan losses .....................................................            (5,769)            (4,206)
                                                                                                       ---------          ---------
            Net loans ........................................................................           377,189            327,900
     Premises and equipment - net ............................................................             7,397              6,915
     Accrued interest receivable .............................................................             2,214              2,186
     Net deferred income tax assets ..........................................................               793                805
     Intangible assets .......................................................................             7,466              7,650
     Prepaid expenses and other assets .......................................................             1,262                812
                                                                                                       ---------          ---------

            Total assets .....................................................................         $ 488,413          $ 466,580
                                                                                                       =========          =========

Liabilities
     Deposits
         Noninterest bearing .................................................................         $  60,660          $  59,337
         Interest bearing ....................................................................           332,907            319,367
                                                                                                       ---------          ---------
            Total deposits ...................................................................           393,567            378,704
     Short-term borrowings ...................................................................            12,295             17,960
     Long-term debt ..........................................................................            30,576             20,140
     Accrued interest payable ................................................................               742                585
     Accrued expenses and other liabilities ..................................................               717              1,121
                                                                                                       ---------          ---------
            Total liabilities ................................................................           437,897            418,510
                                                                                                       ---------          ---------

Shareholders' equity
     Common stock - no par value; 12,000,000 shares authorized; issued and
         outstanding - 4,364,362 for 2004 and 4,331,460 for 2003 .............................            29,786             29,402
     Retained earnings .......................................................................            20,650             18,610
     Accumulated other comprehensive income (loss) ...........................................                80                 58
                                                                                                       ---------          ---------
            Total shareholders' equity .......................................................            50,516             48,070
                                                                                                       ---------          ---------

            Total liabilities and shareholders' equity .......................................         $ 488,413          $ 466,580
                                                                                                       =========          =========
</TABLE>

See accompanying notes to unaudited consolidated financial statements.


                                       3
<PAGE>

COMMUNITY BANKSHARES, INC.
Consolidated Statement of Income
<TABLE>
<CAPTION>
                                                                                               (Unaudited)
                                                                                          Period Ended September 30,
                                                                                          --------------------------
                                                                               Three Months                       Nine Months
                                                                               ------------                       -----------
                                                                           2004             2003              2004            2003
                                                                           ----             ----              ----            ----
                                                                                   (Dollars in thousands, except per share)

Interest and dividend income
<S>                                                                     <C>              <C>              <C>              <C>
     Loans, including fees ....................................         $  5,756         $  5,698         $ 16,536         $ 16,789
     Interest bearing deposits with other banks ...............                4                5               12               14
     Debt securities ..........................................              434              365            1,339            1,210
     Dividends ................................................               19               18               57               58
     Federal funds sold .......................................               40               69              145              218
                                                                        --------         --------         --------         --------
         Total interest and dividend income ...................            6,253            6,155           18,089           18,289
                                                                        --------         --------         --------         --------

Interest expense
     Time deposits $100M and over .............................              360              382              996            1,221
     Other deposits ...........................................              958              993            2,772            3,191
                                                                        --------         --------         --------         --------
         Total deposits .......................................            1,318            1,375            3,768            4,412
     Short-term borrowings ....................................               76               28              245              103
     Long-term debt ...........................................              363              491            1,046            1,340
                                                                        --------         --------         --------         --------
         Total interest expense ...............................            1,757            1,894            5,059            5,855
                                                                        --------         --------         --------         --------

Net interest income ...........................................            4,496            4,261           13,030           12,434
Provision for loan losses .....................................            1,648              232            2,139              775
                                                                        --------         --------         --------         --------
Net interest income after provision ...........................            2,848            4,029           10,891           11,659
                                                                        --------         --------         --------         --------

Noninterest income
     Service charges on deposit accounts ......................              841              893            2,508            2,514
     Securities gains (losses) ................................               10                -                5             (252)
     Mortgage brokerage income ................................              835            1,428            2,487            4,253
     Other ....................................................              163              202              626              639
                                                                        --------         --------         --------         --------
         Total noninterest income .............................            1,849            2,523            5,626            7,154
                                                                        --------         --------         --------         --------

Noninterest expenses
     Salaries and employee benefits ...........................            2,123            2,461            6,459            7,492
     Premises and equipment ...................................              508              464            1,471            1,270
     Other ....................................................            1,195            1,184            3,403            3,300
                                                                        --------         --------         --------         --------
         Total noninterest expenses ...........................            3,826            4,109           11,333           12,062
                                                                        --------         --------         --------         --------

Income before income taxes ....................................              871            2,443            5,184            6,751
Income tax expense ............................................              306              871            1,839            2,413
                                                                        --------         --------         --------         --------
Net income ....................................................         $    565         $  1,572         $  3,345         $  4,338
                                                                        ========         ========         ========         ========

Per share
     Net income ...............................................         $   0.13         $   0.36         $   0.77         $   1.01
     Net income, assuming dilution ............................             0.12             0.35             0.74             0.98
     Cash dividends declared ..................................             0.10             0.09             0.30             0.27
</TABLE>



See accompanying notes to unaudited consolidated financial statements.


                                       4
<PAGE>

COMMUNITY BANKSHARES, INC.
Consolidated Statement of Changes in Shareholders' Equity

<TABLE>
<CAPTION>
                                                                   (Unaudited)

                                                                       Common Stock                        Accumulated
                                                                      ------------                           Other
                                                               Number of                      Retained   Comprehensive
                                                                Shares          Amount        Earnings    Income (Loss)     Total
                                                                ------          ------        --------    -------------     -----
                                                                               (Dollars in thousands, except per share)

<S>                                                             <C>           <C>           <C>            <C>            <C>
Balance, January 1, 2003 ..................................     4,304,384     $  29,090     $  14,529      $      98      $  43,717
                                                                                                                          ---------
Comprehensive income:
    Net income ............................................             -             -         4,338              -          4,338
                                                                                                                          ---------
    Unrealized holding gains and losses
      on available-for-sale securities arising
      during the period, net of income taxes of $136 ......             -             -             -           (242)          (242)
    Reclassification adjustment for losses (gains)
      realized in income, net of income taxes of $90 ......             -             -             -            162            162
                                                                                                                          ---------
        Total other comprehensive income ..................             -             -             -              -            (80)
                                                                                                                          ---------
          Total comprehensive income ......................             -             -             -              -          4,258
                                                                                                                          ---------
Exercise of employee stock options ........................        14,009           160             -              -            160
Cash dividends declared, $.27 per share ...................             -             -        (1,163)             -         (1,163)
                                                                ---------     ---------     ---------      ---------      ---------
Balance, September 30, 2003 ...............................     4,318,393     $  29,250     $  17,704      $      18      $  46,972
                                                                =========     =========     =========      =========      =========


Balance, January 1, 2004 ..................................     4,331,460     $  29,402     $  18,610      $      58      $  48,070
                                                                                                                          ---------
Comprehensive income:
    Net income ............................................             -             -         3,345              -          3,345
                                                                                                                          ---------
    Unrealized holding gains and losses
      on available-for-sale securities arising
      during the period, net of income taxes of $14 .......             -             -             -             25             25
    Reclassification adjustment for losses (gains)
      realized in income, net of income taxes of $2 .......             -             -             -             (3)            (3)
                                                                                                                          ---------
        Total other comprehensive income (loss) ...........             -             -             -              -             22
                                                                                                                          ---------
          Total comprehensive income ......................             -             -             -              -          3,367
                                                                                                                          ---------
Exercise of employee stock options ........................        32,902           384             -              -            384
Cash dividends declared, $.30 per share ...................             -             -        (1,305)             -         (1,305)
                                                                ---------     ---------     ---------      ---------      ---------
Balance, September 30, 2004 ...............................     4,364,362     $  29,786     $  20,650      $      80      $  50,516
                                                                =========     =========     =========      =========      =========
</TABLE>











See accompanying notes to unaudited consolidated financial statements.


                                       5
<PAGE>

COMMUNITY BANKSHARES, INC.
Consolidated Statement of Cash Flows
<TABLE>
<CAPTION>
                                                                                                                 (Unaudited)
                                                                                                              Nine Months Ended
                                                                                                                September 30,
                                                                                                            2004              2003
                                                                                                            ----              ----
                                                                                                              (Dollars in thousands)
Operating activities
<S>                                                                                                      <C>              <C>
     Net income ..................................................................................       $   3,345        $   4,338
     Adjustments to reconcile net income to net
         cash provided by operating activities
            Depreciation and amortization ........................................................             676              550
            Amortization of intangibles ..........................................................             184              184
            Net amortization of securities .......................................................             134              620
            Provision for loan losses ............................................................           2,139              775
            Net realized losses or (gains) on sales of securities ................................              (5)             (73)
            Net realized losses on other dispositions of securities available-for-sale ...........               -              325
            Net loss realized on disposition of equipment ........................................               -                5
            Net gain realized on sale of other real estate .......................................              (9)              (9)
            Proceeds of sales of loans held for sale .............................................         137,427          250,564
            Originations of loans held for sale ..................................................        (140,303)        (247,883)
            (Increase) decrease in accrued interest receivable ...................................             (28)              74
            (Increase) in other assets ...........................................................            (490)            (387)
            Increase in accrued interest payable .................................................             157                7
            (Decrease) increase in other liabilities .............................................            (404)             867
                                                                                                         ---------        ---------
                Net cash provided by operating activities ........................................           2,823            9,957
                                                                                                         ---------        ---------

Investing activities
     Net decrease (increase) in interest bearing deposits with other banks .......................             250             (860)
     Purchases of available-for-sale securities ..................................................         (24,671)         (54,973)
     Maturities, calls and paydowns of available-for-sale securities .............................          29,466           49,817
     Proceeds of sales of available-for-sale securities ..........................................          11,613            2,895
     Purchases of other investments ..............................................................              (2)               -
     Net increase in loans made to customers .....................................................         (51,515)         (18,179)
     Purchases of premises and equipment .........................................................          (1,158)          (1,288)
     Proceeds from sales of other real estate ....................................................             136              123
                                                                                                         ---------        ---------
                Net cash used by investing activities ............................................         (35,881)         (22,465)
                                                                                                         ---------        ---------

Financing activities
     Net increase in deposits ....................................................................          14,863           18,471
     Net (decrease) increase in short-term borrowings ............................................          (5,665)             636
     Proceeds from issuing long-term debt ........................................................          10,506                -
     Repayments of long-term debt ................................................................             (70)             (70)
     Exercise of employee stock options ..........................................................             384              160
     Cash dividends paid .........................................................................          (1,305)          (1,163)
                                                                                                         ---------        ---------
                Net cash provided by financing activities ........................................          18,713           18,034
                                                                                                         ---------        ---------
(Decrease) increase in cash and cash equivalents .................................................         (14,345)           5,526
Cash and cash equivalents, beginning of period ...................................................          41,875           38,569
                                                                                                         ---------        ---------
Cash and cash equivalents, end of period .........................................................       $  27,530        $  44,095
                                                                                                         =========        =========

Supplemental Disclosures of Cash Flow Information
     Cash payments for interest ..................................................................       $   4,902        $   5,848
                                                                                                         =========        =========
     Cash payments for income taxes ..............................................................       $   2,438        $   2,120
                                                                                                         =========        =========

Supplemental Disclosures of Non-cash Investing Activities
     Transfers of loans receivable to other real estate ..........................................       $      87        $     353
                                                                                                         =========        =========
</TABLE>

See accompanying notes to unaudited consolidated financial statements.


                                       6
<PAGE>

COMMUNITY BANKSHARES, INC.

Notes to Unaudited Consolidated Financial Statements

Accounting Principles - A summary of significant accounting policies is included
in Community  Bankshares,  Inc.'s (the "Company" or "CBI") Annual Report for the
year ended December 31, 2003 on Form 10-K filed with the Securities and Exchange
Commission.   Certain  amounts  in  the  2003  financial  statements  have  been
reclassified   to   conform   to   the   current   period   presentation.   Such
reclassifications  had no effect on previously reported  shareholders' equity or
net income.

Management  Opinion  - The  interim  financial  statements  in this  report  are
unaudited.  In the  opinion of  management,  all the  adjustments  necessary  to
present a fair  statement of the results for the interim  period have been made.
Such adjustments are of a normal and recurring nature. The results of operations
for any  interim  period are not  necessarily  indicative  of the  results to be
expected for an entire year. These interim  financial  statements should be read
in conjunction with the annual financial  statements and notes thereto contained
in the 2003 Annual Report on Form 10-K.

Nonperforming  Loans - As of  September  30,  2004,  there  were  $2,826,000  in
nonaccrual  loans  and  $557,000  in loans 90 or more  days  past due and  still
accruing interest.

Earnings Per Share - Basic earnings per share is computed by dividing net income
applicable  to common  shares by the weighted  average  number of common  shares
outstanding.  Diluted earnings per share is computed by dividing  applicable net
income by the weighted  average  number of shares  outstanding  and any dilutive
potential  common  shares and  dilutive  stock  options.  It is assumed that all
dilutive  stock  options are  exercised at the beginning of each period and that
the proceeds are used to purchase  shares of the  Company's  common stock at the
average market price during the period.  Net income per share and net income per
share, assuming dilution, were computed as follows:

<TABLE>
<CAPTION>
                                                                                          (Unaudited)
                                                                                   Period Ended September 30,
                                                                           Three Months                         Nine Months
                                                                           ------------                         -----------
                                                                      2004              2003               2004              2003
                                                                      ----              ----               ----              ----
                                                                       (Dollars in thousands, except per share amounts)

Net income per share, basic
<S>                                                              <C>                <C>                <C>                <C>
  Numerator - net income ...............................         $      565         $    1,572         $    3,345         $    4,338
                                                                 ==========         ==========         ==========         ==========
  Denominator
    Weighted average common shares
      issued and outstanding ...........................          4,363,582          4,315,482          4,348,798          4,309,673
                                                                 ==========         ==========         ==========         ==========

      Net income per share, basic ......................         $      .13         $      .36         $      .77         $     1.01
                                                                 ==========         ==========         ==========         ==========

Net income per share, assuming dilution
  Numerator - net income ...............................         $      565         $    1,572         $    3,345         $    4,338
                                                                 ==========         ==========         ==========         ==========
  Denominator
    Weighted average common shares
      issued and outstanding ...........................          4,363,582          4,315,482          4,348,798          4,309,673
  Effect of dilutive stock options .....................            298,929            113,966            185,142            113,966
                                                                 ----------         ----------         ----------         ----------
               Total shares ............................          4,662,511          4,429,448          4,533,940          4,423,639
                                                                 ==========         ==========         ==========         ==========

      Net income per share, assuming dilution ..........         $      .12         $      .35         $      .74         $      .98
                                                                 ==========         ==========         ==========         ==========
</TABLE>


Stock-Based  Compensation  - The  Company  has  elected  to  continue  using the
methodology  of  Accounting  Principles  Board  Opinion  No. 25 ("APB No.  25"),
"Accounting for Stock Issued to Employees," to account for compensation expenses
related to stock-based  compensation.  Options issued under the Company's  plans
have no intrinsic value at the grant date and no compensation cost is recognized
for them in  accordance  with APB No.  25.  Statement  of  Financial  Accounting
Standards No. 123 ("SFAS No. 123"),  "Accounting for Stock-Based  Compensation,"
as amended by SFAS 148, requires entities to provide proforma disclosures of net


                                       7
<PAGE>

income,  and earnings per share, as if the fair value based method of accounting
promulgated by that standard had been applied. While the Company has adopted the
disclosure  provisions  of SFAS  No.  123,  as  amended,  there  are no  current
intentions to adopt the fair value recognition provisions of that Statement. Had
compensation  cost of the Company's stock options been  determined  based on the
fair value as of the grant date for awards under the plans  consistent  with the
method  prescribed  by SFAS No. 123, the  Company's  net income and earnings per
share would have been adjusted to the pro forma amounts indicated below:

<TABLE>
<CAPTION>
                                                                                                  (Unaudited)
                                                                                          Period Ended September 30,
                                                                                          --------------------------
                                                                               Three Months                      Nine Months
                                                                               ------------                      -----------
                                                                          2004             2003             2004              2003
                                                                          ----             ----             ----              ----
                                                                              (Dollars in thousands, except per share amounts)

<S>                                                                    <C>             <C>               <C>               <C>
Net income, as reported ......................................         $   565         $   1,572         $   3,345         $   4,338
Deduct:  Total stock-based employee
     compensation expense determined under
     fair value based method for all awards,
     net of any related tax effects ..........................             214                 -               642                 -
                                                                       -------         ---------         ---------         ---------
Pro forma net income .........................................         $   351         $   1,572         $   2,703         $   4,338
                                                                       =======         =========         =========         =========

Net income per share, basic
     As reported .............................................         $  0.13         $    0.36          $   0.77         $    1.01
     Pro forma ...............................................            0.08              0.36              0.62              1.01
Net income per share, assuming dilution
     As reported .............................................         $  0.12         $    0.35          $   0.74         $    0.98
     Pro forma ...............................................            0.08              0.35              0.60              0.98
</TABLE>


Variable  Interest  Entity - On March 8, 2004,  CBI  sponsored the creation of a
Variable Interest Entity ("VIE"), SCB Capital Trust I (the "Trust"),  and is the
sole owner of the common  securities issued by the Trust. On March 10, 2004, the
Trust issued  $10,000,000 in floating rate capital  securities.  The proceeds of
this issuance, and the amount of CBI's capital investment,  were used to acquire
$10,310,000   principal  amount  of  CBI's  floating  rate  junior  subordinated
deferrable  interest debt  securities  ("Debentures")  due April 7, 2034,  which
securities,  and the accrued interest  thereon,  now constitute the Trust's sole
assets.  The  interest  rate  associated  with  the  debt  securities,  and  the
distribution  rate  on the  common  securities  of the  Trust,  was  established
initially at 3.91% and is  adjustable  quarterly at 3 month LIBOR plus 280 basis
points.  The index  rate  (LIBOR)  may not be lower  than  1.11%.  CBI may defer
interest payments on the Debentures for up to twenty consecutive  quarters,  but
not beyond the stated  maturity date of the  Debentures.  In the event that such
interest payments are deferred by CBI, the Trust may defer  distributions on the
common  securities.  In such an event, CBI would be restricted in its ability to
pay  dividends on its common stock and to perform under other  obligations  that
are not senior to the junior subordinated Debentures.

         The  Debentures are redeemable at par at the option of CBI, in whole or
in part, on any interest  payment date on or after April 7, 2009.  Prior to that
date,  the  Debentures  are  redeemable  at 105% of par upon the  occurrence  of
certain  events  that would  have a  negative  effect on the Trust or that would
cause it to be required to be  registered  as an  investment  company  under the
Investment  Company Act of 1940 or that would cause trust  preferred  securities
not to be eligible to be treated as Tier 1 capital by the Federal Reserve Board.
Upon repayment or redemption of the Debentures,  the Trust will use the proceeds
of the transaction to redeem an equivalent amount of trust preferred  securities
and trust common securities.  The Trust's  obligations under the trust preferred
securities are unconditionally guaranteed by CBI.

         FASB  Interpretation  46 (FIN 46),  "Consolidation of Variable Interest
Entities,"  was issued by the  Financial  Accounting  Standards  Board (FASB) in
January 2003.  FIN 46 requires the primary  beneficiary  of a variable  interest
entity's activities to consolidate the VIE. FIN 46 defines a VIE as an entity in
which the equity  investors do not have  substantive  voting rights and there is
not sufficient  equity at risk for the entity to finance its activities  without
additional  subordinated financial support. The primary beneficiary is the party
that absorbs a majority of the expected losses and/or receives a majority of the
expected  residual returns of the VIE's  activities.  In December 2003, the FASB
issued FIN 46(R),  which supersedes and amends certain provisions of FIN 46. FIN
46(R) retains many of the concepts and provisions of FIN 46, provides additional
guidance  related to the application of FIN 46, provides for certain  additional
scope exceptions,  and incorporates  several FASB Staff Positions issued related


                                       8
<PAGE>

to the  application  of  FIN  46.  The  provisions  of  FIN  46 are  immediately
applicable to VIEs  created,  or interests in VIEs  obtained,  after January 31,
2003  and the  provisions  of FIN  46(R)  are  required  to be  applied  to such
entities, except for special purpose entities, by the end of the first reporting
period ending after March 15, 2004 (March 31, 2004 for CBI).

         Since CBI is not the primary  beneficiary  of the VIE as defined by FIN
46 and FIN 46(R), the activities of this VIE have not been consolidated into the
consolidated financial statements of CBI. CBI's investment in the VIE is carried
in the  consolidated  balance  sheet  in other  assets  and the  Debentures  are
included in long-term debt.


Item 2. Management's  Discussion and Analysis of Financial Condition and Results
        of Operations

FORWARD LOOKING STATEMENTS

         Statements  included in this report which are not  historical in nature
are intended to be, and are hereby  identified as "forward  looking  statements"
for  purposes  of the safe  harbor  provided  by Section  21E of the  Securities
Exchange Act of 1934, as amended.  Forward-looking statements include statements
other than statements of historical facts concerning plans,  objectives,  goals,
strategies,  future  events or  performance  and  underlying  assumptions.  Such
forward-looking statements may be identified,  without limitation, by the use of
the words "anticipates," "believes," "estimates," "expects," "intends," "plans,"
"predicts,"  "projects," and similar  expressions.  The Company's  expectations,
beliefs,  estimates and projections are expressed in good faith and are believed
by the  Company  to  have a  reasonable  basis,  including  without  limitation,
management's  examination of historical  operating trends, data contained in the
Company's records and other data available from third parties,  but there can be
no assurance that management's  expectations,  beliefs, estimates or projections
will result or be achieved or  accomplished.  The Company  cautions readers that
forward looking statements,  including without limitation, those relating to the
Company's  recent  and  continuing  expansion,  its future  business  prospects,
revenues, working capital, liquidity, capital needs, interest costs, income, and
adequacy  of  the  allowance   for  loan  losses,   are  subject  to  risks  and
uncertainties  that could cause actual results to differ  materially  from those
indicated in the  forward-looking  statements,  due to several important factors
herein  identified,  among others,  and other risks and factors  identified from
time to time in the  Company's  reports filed with the  Securities  and Exchange
Commission.  The Company  undertakes no obligation to publicly  update or revise
any forward-looking statements,  whether as a result of new information,  future
events or otherwise.

CRITICAL ACCOUNTING POLICIES

         CBI  has  adopted  various  accounting   policies,   which  govern  the
application of accounting  principles generally accepted in the United States of
America  in the  preparation  of CBI's  financial  statements.  The  significant
accounting policies of CBI are described in detail in the notes to CBI's audited
consolidated  financial  statements included in CBI's 2003 Annual Report on Form
10-K.

         Certain accounting policies involve significant judgments and estimates
by  management,  which have a material  impact on the carrying  value of certain
assets and  liabilities.  Management  considers such  accounting  policies to be
critical accounting policies. The judgments and estimates used by management are
based on  historical  experience  and other  factors,  which are  believed to be
reasonable under the  circumstances.  Because of the nature of the judgments and
assumptions made by management, actual results could differ from these judgments
and  estimates,  which could have a material  impact on the  carrying  values of
assets and liabilities and the results of operations of CBI.

         CBI is a  holding  company  for four  community  banks  and a  mortgage
company and, as a financial institution,  believes the allowance for loan losses
is a critical accounting policy that requires the most significant judgments and
estimates used in preparation of its consolidated financial statements. Refer to
the sections  "Allowance for Loan Losses" and "Provision for Loan Losses" in the
Annual  Report  on Form  10-K  for  2003  for a  detailed  description  of CBI's
estimation process and methodology related to the allowance for loan losses.



                                       9
<PAGE>

RESULTS OF OPERATIONS

Earnings Performance

         Operating  results for both the third quarter and the first nine-months
of 2004  were  adversely  affected  by  additional  provision  for  loan  losses
resulting from the identification of certain problem loans at one of the banking
subsidiaries and by a marked decrease in mortgage loan origination activity.

         The  problem  loans were  originated  by a former  lending  officer and
totaled  $5,121,000  as of  September  30, 2004.  Based on  currently  available
information, management determined at the end of the 2004 third quarter that the
amount  of the  allowance  for loan  losses  should  include  an  allocation  of
$1,300,000  for those  loans.  That  allocation  was  effected by  charging  the
provision  for loan  losses.  Of these  loans,  $1,024,000  to one  borrower  is
currently in workout  status,  with  management and the borrower  cooperating to
achieve the orderly repayment of the debt.  Management has engaged legal counsel
and is vigorously  pursuing  collection of the  remaining  loans.  As collection
efforts  progress  and  additional   information   becomes  available,   further
provisions for loan losses may be required.  Management  anticipates any further
required provision expense will be recognized in the near future. For additional
information,  refer to the section  "Provision  and  Allowance  for Loan Losses,
Non-performing  and  Potential  Problem  Loans"  contained   elsewhere  in  this
discussion.

         Because of recent  increases in residential  mortgage  interest  rates,
mortgage origination and refinancing  activity decreased  significantly from the
unprecedented  industry-wide  levels  experienced  in the  previous  year.  As a
result,  income from mortgage  brokerage  activities  decreased by $593,000,  or
41.5%, for the third quarter of 2004 and by $1,766,000,  or 41.5%, for the first
nine months of 2004,  each compared with the same period of 2003.  These effects
were partially offset by decreases in interest expense on borrowings, commission
based  salaries  and  employee  benefits,  and  other  expenses  related  to the
origination of residential mortgage loans.

Three Months Ended September 30, 2004 and 2003

         For the quarter ended September 30, 2004, CBI earned  consolidated  net
income of $565,000,  compared with $1,572,000 for the comparable period of 2003,
a decrease of  $1,007,000,  or 64.1%.  Basic  earnings per share was $.13 in the
2004 quarter compared with $.36 for the 2003 quarter. Diluted earnings per share
was $.12 for the 2004  quarter  compared  with  $.35 for the 2003  quarter.  The
changes in the items  comprising net income  resulted from  essentially the same
factors  discussed below regarding the results of operations for the nine months
ended September 30, 2004.

<TABLE>
<CAPTION>
                                                                                  Summary Income Statement
                                                                                  ------------------------
                                                                                   (Dollars in thousands)
For the Three Months Ended September 30,                           2004              2003         Dollar Change   Percentage Change
                                                                   ----              ----         -------------   -----------------

<S>                                                              <C>               <C>               <C>                  <C>
Interest income ....................................             $ 6,253           $ 6,155           $    98                1.6%
Interest expense ...................................               1,757             1,894              (137)              -7.2%
                                                                 -------           -------            ------
Net interest income ................................               4,496             4,261               235                5.5%
Provision for loan losses ..........................               1,648               232             1,416              610.3%
Noninterest income .................................               1,849             2,523              (674)             -26.7%
Noninterest expenses ...............................               3,826             4,109              (283)              -6.9%
Income tax expense .................................                 306               871              (565)             -64.9%
                                                                 -------           -------            ------
Net income .........................................             $   565           $ 1,572           $(1,007)             -64.1%
                                                                 =======           =======            ======
</TABLE>

Nine Months Ended September 30, 2004 and 2003

         CBI's  consolidated  net income for the nine months ended September 30,
2004 was $3,345,000,  down 22.9% from $4,338,000 for the comparable 2003 period.
Basic earnings per share for the 2004 period was $.77, down from $1.01 per share
in 2003. Diluted earnings per share was $.74 for the 2004 period, down from $.98
for 2003.


                                       10
<PAGE>

<TABLE>
<CAPTION>
                                                                                Summary Income Statement
                                                                                ------------------------
                                                                                  (Dollars in thousands)
For the Nine Months Ended September 30,                        2004               2003            Dollar Change    Percentage Change
                                                               ----               ----            -------------    -----------------
<S>                                                          <C>                <C>                 <C>                  <C>
Interest income ....................................         $18,089            $18,289             $  (200)              -1.1%
Interest expense ...................................           5,059              5,855                (796)             -13.6%
                                                             -------            -------              ------
Net interest income ................................          13,030             12,434                 596                4.8%
Provision for loan losses ..........................           2,139                775               1,364              176.0%
Noninterest income .................................           5,626              7,154              (1,528)             -21.4%
Noninterest expenses ...............................          11,333             12,062                (729)              -6.0%
Income tax expense .................................           1,839              2,413                (574)             -23.8%
                                                             -------            -------              ------
Net income .........................................         $ 3,345            $ 4,338             $  (993)             -22.9%
                                                             =======            =======              ======
</TABLE>


         CBI increased net interest income by reallocating  resources into loans
and investments and decreasing average amounts of short-term  borrowings related
to mortgage brokerage activities. Also, rates paid on deposits and other funding
sources were lower in 2004 as compared with 2003.

Net Interest Income

         Net interest income is the amount of interest income earned on interest
earning assets (loans, securities, interest bearing deposits in other banks, and
federal  funds sold),  less the interest  expense  incurred on interest  bearing
liabilities  (interest  bearing  deposits  and  other  borrowings),  and  is the
principal source of CBI's earnings. Net interest income is affected by the level
of  interest  rates,  volume and mix of  interest  earning  assets and  interest
bearing liabilities and the relative funding of these assets.

         Net interest income  increased by $235,000,  or 5.5%, in the 2004 third
quarter compared with the same 2003 quarter. This occurred primarily as a result
of lower interest expenses. CBI had a reduced need for short-term funding during
the 2004 period  resulting  from lower  demand for  refinancing  of  residential
mortgage loans and the increased use of long-term debt that CBI obtained through
the issuance of  trust-preferred  securities  during the first  quarter of 2004.
Interest  income for the 2004 three month period was slightly higher than in the
same prior year period primarily because loans, other than residential  mortgage
loans held for sale, increased $28,186,000 during the 2004 third quarter.

         During the 2004 nine month  period,  net interest  income  increased by
$596,000,  or 4.8%, over the same period of 2003. This resulted primarily from a
decrease in interest  expense of $796,000 in the 2004  period.  Interest  income
decreased by $200,000 during the 2004 period, as well.

         Total average  interest  bearing  liabilities  for the 2004 nine months
increased  $6,870,000 or 2.0% over 2003. Average  short-term  borrowings for the
2004 nine-month  period fell  $21,451,000,  or 65.6%,  below the average for the
same  period of 2003,  while  long-term  debt for the 2004 period  increased  by
$7,594,000,  or 37.3%, due to the issuance of trust preferred  securities during
the 2004 first quarter. Average savings and interest bearing transaction account
balances  grew  significantly  in the 2004 nine month period,  also,  increasing
$21,710,000,  or 19.4%.  Average time deposits  were slightly  lower in the 2004
period. Management believes that the 45 basis point decrease in the average rate
paid for time  deposits in the 2004 nine month  period may have  contributed  to
depositors moving funds to shorter-term,  more liquid deposit products, probably
in anticipation  of increases in rates that depositors  expect to be offered for
time deposits in the future.

         Total average  interest  earning  assets for the 2004 nine month period
increased  $18,287,000  or  4.3%  over  the  same  2003  period.  Average  loans
outstanding   for  the  2004  period,   including  loans  held  for  sale,  were
$18,962,000, or 5.5%, greater than in the 2003 period. As of September 30, 2004,
loans, other than loans held for sale, were $50,852,000, or 15.3%, more than the
amount of such loans as of December 31, 2003.  Investment  securities grew also,
averaging $8,108,000,  or 15.5%, more than in the first nine months of 2003. The
average  rates  earned on these  assets were 30 basis  points  lower in the 2004
period than in the 2003 period, however.

         The following table provides  details of the changes in the composition
of CBI's  average  balance  sheet,  its  interest  income and  expense,  and the
relationships between those items.

                                       11
<PAGE>

<TABLE>
<CAPTION>
                                                                             Average Balances, Yields and Rates
                                                                               Nine Months Ended September 30,
                                                                               -------------------------------
                                                                        2004                                     2003
                                                                        ----                                     ----
                                                                      Interest                                 Interest
                                                           Average     Income /   Yields /          Average     Income /   Yields /
                                                          Balances     Expense     Rates *         Balances     Expense     Rates *
                                                          --------     -------     -------         --------     -------     -------
                                                                                      (Dollars in thousands)
Assets
<S>                                                       <C>           <C>           <C>          <C>           <C>           <C>
Interest earning deposits ...........................     $   1,008     $    12       1.59%        $     903     $    14       2.07%
Investment securities - taxable .....................        50,662       1,152       3.03%           43,105       1,023       3.16%
Investment securities - tax exempt ..................         9,619         244       3.38%            9,068         245       3.60%
Federal funds sold ..................................        17,866         145       1.08%           26,754         218       1.09%
Loans, including loans held for sale ................       360,723      16,536       6.11%          341,761      16,789       6.55%
                                                          ---------     -------                    ---------     -------
         Total interest earning assets ..............       439,878      18,089       5.48%          421,591      18,289       5.78%
Cash and due from banks .............................        15,536                                   13,621
Allowance for loan losses ...........................        (4,283)                                  (3,800)
Premises and equipment, net .........................         7,166                                    6,863
Intangible assets ...................................         7,557                                    7,803
Other assets ........................................         4,014                                    3,165
                                                          ---------                                ---------
         Total assets ...............................     $ 469,868                                $ 449,243
                                                          =========                                =========

Liabilities and shareholders' equity
Interest bearing deposits
     Savings ........................................     $  78,882     $   571       0.97%        $  68,791     $   586       1.14%
     Interest bearing transaction accounts ..........        54,813         165       0.40%           43,194         147       0.45%
     Time deposits ..................................       185,557       3,033       2.18%          186,540       3,679       2.63%
                                                          ---------     -------                    ---------     -------
         Total interest bearing deposits ............       319,252       3,769       1.57%          298,525       4,412       1.97%
Short-term borrowings ...............................        11,251         186       2.20%           32,702         603       2.46%
Long-term debt ......................................        27,943       1,105       5.27%           20,349         840       5.50%
                                                          ---------     -------                    ---------     -------
         Total interest bearing liabilities .........       358,446       5,060       1.88%          351,576       5,855       2.22%
Noninterest bearing demand deposits .................        59,704                                   49,930
Other liabilities ...................................         1,772                                    1,955
Shareholders' equity ................................        49,946                                   45,782
                                                          ---------                                ---------
         Total liabilities and shareholders' equity .     $ 469,868                                $ 449,243
                                                          =========                                =========


Interest rate spread ................................                                 3.60%                                    3.56%
Net interest income and net yield
     on earning assets ..............................                   $13,029       3.95%                      $12,434       3.93%
</TABLE>

* Yields and rates are annualized.




                                       12
<PAGE>

Provision and Allowance for Loan Losses,  Non-performing  and Potential  Problem
Loans

         The  provision  for  loan  losses  for the  third  quarter  of 2004 was
$1,648,000,  an increase of $1,416,000, or 610.3%, over the same period of 2003.
During  the 2004 third  quarter,  net loan  charge-offs  were  $164,000  and the
allowance for loan losses as a percentage of loans outstanding  (excluding loans
held for  sale)  increased  to 1.51% as  compared  with  1.21% at the end of the
second quarter of 2004.  Total  non-performing  loans  (non-accrual and accruing
loans past due 90 days and more) increased  $1,976,000  during the third quarter
of 2004.

         The  provision  for loan  losses  for the nine  month  2004  period was
$2,139,000,  an increase of $1,364,000 or 176.0% over the  comparable  period of
2003. Net  charge-offs in the 2004 period were $576,000,  compared with $318,000
in the  2003  period.  The  allowance  for loan  losses  stood at 1.51% of loans
outstanding  (excluding loans held for sale),  compared with 1.27% at the end of
2003.  The  activity  in the  allowance  for loan  losses is  summarized  in the
following table:

<TABLE>
<CAPTION>
                                                             Nine Months Ended           Year Ended           Nine Months Ended
                                                             September 30, 2004       December 31, 2003       September 30, 2003
                                                             ------------------       -----------------       ------------------
                                                                                   (Dollars in thousands)
<S>                                                            <C>                       <C>                       <C>
Allowance at beginning of period .........................     $   4,206                 $   3,573                 $   3,573
Provision for loan losses ................................         2,139                     1,119                       775
Net charge-offs ..........................................          (576)                     (486)                     (318)
                                                               ---------                 ---------                 ---------
Allowance at end of period ...............................     $   5,769                 $   4,206                 $   4,030
                                                               =========                 =========                 =========
Allowance as a percentage of loans outstanding ...........          1.51%                     1.27%                     1.24%

Loans at end of period ...................................     $ 382,958                 $ 332,106                 $ 323,992
                                                               =========                 =========                 =========
</TABLE>


         Non-performing  loans  totaled  $3,383,000  as of the  end of the  2004
period compared with $2,741,000 as of December 31, 2003, an increase of $642,000
or  23.4%.  Of  the  amount  of  nonaccrual  loans,   $1,776,000  or  62.8%  was
collateralized  by commercial  furniture and fixtures,  inventories and accounts
receivable,  $712,000 or 25.2% was secured by mortgages on real estate,  and the
remainder  is  primarily  secured by  consumer  automobiles  and other  personal
property.   The  coverage   ratio   (allowance   for  loan  losses   divided  by
non-performing  loans) was 1.71 as of the end of the 2004 third quarter and 1.53
at the end of  2003.  Following  is a  summary  of  non-performing  loans  as of
September  30, 2004 and  December  31, 2003.  There were no  restructured  loans
during any of the periods listed below.

<TABLE>
<CAPTION>
                                                                                      September 30, 2004     December 31, 2003
                                                                                      ------------------     -----------------
                                                                                                 (Dollars in thousands)
Non-performing loans
<S>                                                                                         <C>                      <C>
  Nonaccrual loans ...............................................................          $2,826                   $2,595
  Past due 90 days or more and still accruing ....................................             557                      146
                                                                                            ------                   ------
                     Total .......................................................          $3,383                   $2,741
                                                                                            ======                   ======
Non-performing loans as a percentage
  of loans outstanding ...........................................................            0.88%                    0.83%
</TABLE>


         Potential problem loans are defined as loans, not including  nonaccrual
loans or loans that are 90 days past due and still accruing,  where  information
about the borrowers'  credit problems causes management to have doubts about the
borrowers' ability to comply with the original repayment terms. At September 30,
2004, the Corporation had identified $6,800,000, or 1.8%, of the loan portfolio,
as potential problem loans. This is an increase of $3,563,000 over the amount as
of December 31, 2003.  The amount of potential  problem loans does not represent
management's  estimate of potential losses since a significant  portion of these
loans are secured by real estate and other forms of collateral.



                                       13
<PAGE>

         Based on current levels of  non-performing  and other potential problem
loans, including an evaluation of any available collateral,  management believes
that loan charge-offs in 2004 will  substantially  exceed the amount experienced
in 2003  as  such  loans  progress  through  the  collection,  foreclosure,  and
repossession process.  Management will continue to closely monitor the levels of
non-performing  and potential  problem loans and address the weaknesses in those
credits to enhance  the  amount of  ultimate  collection  or  recovery  of these
assets.  Management  considers the levels and trends in non-performing  and past
due loans in  determining  how the  provision  and  allowance for loan losses is
estimated and adjusted.

         During the third quarter of 2004,  management  identified $5,121,000 of
problem  loans in the  portfolio  of one of the  banking  subsidiaries.  Of this
amount, $1,750,000 is included in nonaccrual loans and $3,371,000 is included in
potential problem loans as of September 30, 2004.

         The loans  classified as nonaccrual  are  collateralized  by equipment,
inventory and accounts  receivable of business  entities  involved in bankruptcy
proceedings. It is doubtful that the net realizable value of the collateral will
be sufficient to repay the loans.

         Of  the  amount  included  in  potential  problem  loans,  $200,000  is
unsecured and $824,000 is collateralized by inventory,  accounts receivables and
the  proceeds of  contracts.  The  remaining  $2,347,000  is  collateralized  by
restricted securities of indeterminate value.

Noninterest Income

         Non-interest income for the 2004 quarter decreased  $674,000,  or 26.7%
from the 2003 quarter. The majority of the decrease was attributable to mortgage
brokerage income which decreased $593,000,  or 41.5%. Service charges on deposit
accounts  were down by  $52,000.  CBI  realized  gains of $10,000  from sales of
available-for-sale  securities  in the 2004  three-month  period.  There were no
sales of securities in the 2003 quarter.

         Non-interest   income  for  the  2004  nine  month   period   decreased
$1,528,000,   or  21.4%,  from  the  2003  amount.  Most  of  the  decrease  was
attributable to a $1,766,000 or 41.5% decrease in mortgage brokerage income. The
Company's mortgage brokerage  activities in 2004 have been affected adversely by
increasing  interest rates and decreasing  demand for mortgage  loans.  CBI also
recorded  securities gains of $5,000 in the 2004 nine month period compared with
losses of $252,000 in 2003.

Noninterest Expenses

         Noninterest expenses decreased $283,000, or 6.9%, for the third quarter
of 2004 compared with the 2003 quarter. Salaries and employee benefits decreased
$338,000, or 13.7%, due to the reduced mortgage brokerage activity. Premises and
equipment expenses increased $44,000,  or 9.5%,  primarily due to the deployment
of new technologies, as described below.

         During the first nine months of 2004,  noninterest  expenses  decreased
$729,000, or 6.0%, as compared with the same 2003 period.  Salaries and employee
benefits decreased $1,033,000, or 13.8%, primarily due to the mortgage brokerage
subsidiary's largely  commission-based  compensation system and the lower volume
of home mortgage  originations  and sales in 2004.  For the first nine months of
2004,  premises and equipment  expenses were up $201,000,  or 15.8%, as compared
with the 2003 period,  due to depreciation and amortization  expenses  resulting
from the acquisition and implementation of hardware and software associated with
imaging  technologies.  Over time,  the use of such  technology  is  expected to
reduce  certain  operating  expenses,  including  postage and research,  improve
internal  processes  and  access to  information,  enable  the  Company  to take
advantage  of  opportunities   presented  by  the   effectiveness  of  Check  21
legislation,  and enhance the  Company's  ability to provide  customer  service.
Management believes that noninterest  expenses will continue to increase for the
remainder  of 2004  and in 2005 as a result  of  legislative  mandates,  such as
Sarbanes-Oxley  Section  404 which  will be  effective  for the  Company's  2005
audited financial statements,  and the implementation of certain improvements in
internal processes that are presently contemplated.

Income Tax Expense

         Income  tax  expense  decreased  $565,000  and  $574,000  for the third
quarter and nine months ended  September  30, 2004,  respectively,  due to lower
taxable  income.  The average  income tax rates applied to  year-to-date  income
before  income  taxes during 2004 and 2003 were  approximately  35.5% and 35.7%,
respectively.

                                       14
<PAGE>

LIQUIDITY

         Liquidity is the ability to meet current and future obligations through
liquidation  or maturity of existing  assets or the  acquisition  of  additional
liabilities.  Adequate  liquidity  is  necessary  to meet  the  requirements  of
customers for loans and deposit  withdrawals in a timely and economical  manner.
The most manageable  sources of liquidity are composed of liabilities,  with the
primary  focus of  liquidity  management  being the ability to attract  deposits
within CBI's market areas.  Individual and  commercial  deposits are the primary
source of funds for credit activities,  along with long-term borrowings from the
Federal  Home Loan Bank of Atlanta and the  proceeds of issuing  $10,000,000  of
subordinated debentures.  Cash and amounts due from banks and federal funds sold
are CBI's  primary  sources of asset  liquidity.  These funds  provide a cushion
against  short-term  fluctuations  in cash flow from  both  loans and  deposits.
Securities  available-for-sale  are CBI's  principal  source of secondary  asset
liquidity.  However,  the  availability  of this  source is limited by  pledging
commitments  for  public  deposits  and  securities  sold  under  agreements  to
repurchase, and is influenced by market conditions.

         Total deposits at September 30, 2004 were $393,567,000,  an increase of
$14,863,000  or 3.9% over the amount at December 31, 2003.  As of September  30,
2004,  the loan to deposit ratio was 97.3%,  compared with 87.7% at December 31,
2003 and 91.1% as of September 30, 2003.

         Management  believes CBI and its  subsidiaries'  liquidity  sources are
adequate to meet their current and projected operating needs.

CAPITAL RESOURCES

         CBI and its banking  subsidiaries are subject to regulatory  risk-based
capital adequacy  standards.  Under these standards,  bank holding companies and
banks  are  required  to  maintain   certain   minimum   ratios  of  capital  to
risk-weighted  assets and average  total  assets.  Under the  provisions  of the
Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA),  federal
bank  regulatory  authorities  are  required  to  implement  prescribed  "prompt
corrective actions" upon the deterioration of the capital position of a bank. If
the  capital  position  of an affected  institution  were to fall below  certain
levels, increasingly stringent regulatory corrective actions are mandated.

         The  September  30,  2004 risk  based  capital  ratios  for CBI and its
banking  subsidiaries  are presented in the following  table,  compared with the
"well  capitalized"  and minimum  ratios under the  regulatory  definitions  and
guidelines:

<TABLE>
<CAPTION>
                                                                                            September 30, 2004
                                                                                            ------------------
                                                                             Tier 1            Total Capital          Leverage
                                                                             ------            -------------          --------

<S>                                                                          <C>                  <C>                  <C>
Community Bankshares, Inc. ..........................................        14.46%               15.63%               11.44%
Orangeburg National Bank ............................................        12.11%               13.36%                9.51%
Sumter National Bank ................................................         9.62%               10.88%                8.50%
Florence National Bank ..............................................        10.66%               11.68%                9.63%
Bank of Ridgeway ....................................................        14.04%               14.95%                8.70%
Minimum "well capitalized" requirement ..............................         6.00%               10.00%                6.00%
Minimum requirement .................................................         4.00%                8.00%                4.00%
</TABLE>


         As shown in the table  above,  each of the  capital  ratios  exceed the
regulatory  requirement for being considered "well  capitalized." In the opinion
of  management,  the CBI and the banking  subsidiaries'  current  and  projected
capital positions are adequate.

OFF-BALANCE-SHEET ACTIVITIES

         In the normal course of business,  CBI engages in transactions that, in
accordance with generally accepted  accounting  principles,  are not recorded in
the  financial  statements  (generally  commitments  to  extend  credit)  or are
recorded  in  amounts  that  differ  from  their  notional  amounts   (generally
derivatives).  These transactions involve elements of credit,  interest rate and
liquidity risk of varying degrees. Such transactions are used by CBI for general
corporate purposes.



                                       15
<PAGE>

Variable Interest Entity

         As discussed  under "Results of Operations - Net Interest  Income," and
in the notes to unaudited  consolidated  financial  statements  under  "Variable
Interest  Entities,"  as of  September  30,  2004,  CBI held an interest in, and
guarantees the liabilities of, a non-consolidated variable interest entity.

Commitments

         CBI's banking and mortgage brokerage subsidiaries are parties to credit
related financial instruments with  off-balance-sheet  risk in the normal course
of business to meet the  financing  needs of their  customers.  These  financial
instruments  include commitments to extend credit and standby letters of credit.
Such  commitments  involve  varying  degrees of credit and interest rate risk in
excess of the amount recognized in the consolidated balance sheets.  Exposure to
credit loss is represented  by the  contractual,  or notional,  amounts of these
commitments.  The same credit  policies  are used in making  commitments  as for
on-balance-sheet instruments.

         The following table sets forth the  contractual  amounts of commitments
which represent credit risk:

                                               September 30, 2004
                                               ------------------
                                                  (Dollars in
                                                   thousands)
Loan commitments ...........................      $ 51,936
Standby letters of credit ..................         2,609


         Commitments  to extend  credit are  agreements to lend to a customer as
long as 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 amounts do not necessarily
represent future cash requirements. The amount of collateral obtained, if deemed
necessary  by  management  upon  extension of credit,  is based on  management's
credit evaluation of the  counter-party.  Collateral held varies but may include
personal  residences,  accounts  receivable,  inventory,  property,  plant,  and
equipment, and income-producing commercial properties.

         Standby  letters  of  credit  are  conditional  commitments  issued  to
guarantee  the  performance  of a customer to a third  party.  Those  letters of
credit are  primarily  issued to support  private  borrowing  arrangements.  All
letters of credit are short-term guarantees. The credit risk involved in issuing
letters of credit is  essentially  the same as that  involved in extending  loan
facilities to customers.  Generally,  collateral supporting those commitments is
held if deemed  necessary.  Since  many of the  standby  letters  of credit  are
expected to expire  without being drawn upon, the total letter of credit amounts
do not necessarily represent future cash requirements.

Derivative Financial Instruments

         In  April,  2003,  the  Financial  Accounting  Standards  Board  issued
Statement No. 149,  "Amendment of Statement  133 on Derivative  Instruments  and
Hedging Activities." Among other requirements, this Statement provides that loan
commitment contracts entered into or modified after June 30, 2003 that relate to
the  origination of mortgage loans that will be held for sale shall be accounted
for as derivative  instruments by the issuer of the loan commitment.  CBI issues
mortgage loan rate lock  commitments  to potential  borrowers to facilitate  its
origination  of home  mortgage  loans that are intended to be sold.  Between the
time that CBI issues its  commitments  and the time that the loans close and are
sold,  CBI is subject to  variability  in the  selling  prices  related to those
commitments  due to changes in market  rates of interest.  However,  CBI offsets
this  variability  through the use of so-called  "forward  sales  contracts"  to
investors in the secondary market. Under these arrangements,  an investor agrees
to purchase the closed loans at a predetermined price. CBI generally enters into
such forward  sales  contracts at the same time that rate lock  commitments  are
issued. These derivative financial  instruments are carried in the balance sheet
at  estimated  fair value and  changes  in the  estimated  fair  values of these
derivatives  are  recorded in the  statement of income in net gains or losses on
loans held for sale.

         Derivative financial  instruments are written in amounts referred to as
notional  amounts.  Notional  amounts  only  provide  the basis for  calculating
payments  between  counterparties  and do not represent  amounts to be exchanged
between parties or a measure of financial risk. The following table includes the
notional  principal amounts of rate lock commitments and forward sales contracts
as of  September  30, 2004,  and the  estimated  fair values of those  financial
instruments  included in other assets and liabilities in the balance sheet as of
that date.


                                       16
<PAGE>

                                                        September 30, 2004
                                                        ------------------
                                                                      Estimated
                                                                      Fair Value
                                                    Notional            Asset
                                                      Amount         (Liability)
                                                      ------         -----------
                                                        (Dollars in thousands)
Rate lock commitments to potential borrowers
  to originate mortgage loans to be
  held for sale ..................................  $ 7,101              $ 36
Forward sales contracts with investors
  of mortgage loans to be held for sale ..........    7,101               (36)


ACCOUNTING AND REPORTING CHANGES

         Statement of Financial  Accounting  Standards No. 150 ("SFAS No. 150"),
"Accounting  for Certain  Financial  Instruments  with  Characteristics  of Both
Liabilities and Equity," requires  financial  instruments within its scope to be
classified as  liabilities  (or assets in some  circumstances).  SFAS No. 150 is
effective for financial instruments entered into or modified after May 31, 2003,
and otherwise  effective at the beginning of the first interim period  beginning
after  June 15,  2003,  except  for  certain  mandatorily  redeemable  financial
instruments.   For  those  mandatorily  redeemable  financial  instruments,  the
effective  date of certain  provisions of SFAS No. 150 has been deferred by FASB
Staff Position FAS 150-3. When fully  implemented,  the adoption of SFAS No. 150
is not expected to have a material on the Company's financial statements.

         Effectiveness  of the guidance  issued in paragraphs  10-20 of Emerging
Issues Task Force ("EITF") Issue No 03-1, "The Meaning of Other-Than-Temporarily
Impairment and Its Application to Certain  Investments" has been delayed by FASB
Staff Position EITF Issue 03-1-1 until the final issuance of proposed EITF Issue
03-1-a,  "Implementation  Guidance for the  Application  of Paragraph 16 of EITF
Issue No  03-1..."  All  disclosures  required  by EITF Issue No 03-1 for annual
financial  statements  continue to be  effective  for fiscal  years ending after
December 15, 2003 for investments accounted for under FASB Statements No 115 and
124. For all other  investments  within the scope of this Issue, the disclosures
continue to be effective in annual financial  statements for fiscal years ending
after June 15, 2004. Additional disclosures for cost method investments continue
to be effective  for fiscal  years  ending after June 15, 2004.  The adoption of
this  EITF  is  not  expected  to  materially  affect  the  Company's  financial
statements.

         The  American  Institute of Certified  Public  Accountants'  Accounting
Standards  Executive  Committee  issued its Statement of Position  ("SOP") 03-3,
"Accounting for Certain Loans or Debt Securities  Acquired in a Transfer," which
is  effective  generally  for loans  acquired in fiscal  years  beginning  after
December 15, 2004. Early application is encouraged. The SOP addresses accounting
for  differences  between  contractual  cash flows and cash flows expected to be
collected  from an investor's  initial  investment  in loans or debt  securities
(loans) acquired in a transfer if those differences are  attributable,  at least
in part, to credit quality. It includes loans acquired in business  combinations
and  applies  to all  nongovernmental  organizations,  including  not-for-profit
organizations.  The SOP does not apply to loans  originated  by the entity.  For
loans acquired in fiscal years prior to this SOP's effective date and within the
scope of Practice  Bulletin 6, the SOP also amends the  application  of Practice
Bulletin 6 with regard to accounting  for decreases in cash flows expected to be
collected.  The  adoption  of this SOP as of January 1, 2005 is not  expected to
have any material impact on the Company's financial statements.


Item 3.  Quantitative and Qualitative Disclosures about Market Risk

         Market risk is the risk of loss from adverse  changes in market  prices
and rates. CBI's market risk arises principally from interest rate risk inherent
in its lending,  deposit and borrowing activities.  Management actively monitors
and manages its interest rate risk  exposure.  Although CBI manages other risks,
such as credit  quality and  liquidity  risk in the normal  course of  business,
management  considers  interest rate risk to be its most significant market risk
and this  risk  could  potentially  have the  largest  material  effect on CBI's
financial condition and results of operations.  Other types of market risks such
as foreign  currency  exchange risk and commodity price risk do not arise in the
normal course of community banking activities.

                                       17
<PAGE>

         CBI's  Asset/Liability  Committee uses a simulation  model to assist in
achieving  consistent growth in net interest income while managing interest rate
risk.  According to the model,  as of September  30, 2004,  CBI is positioned so
that net interest  income would increase  $271,000 and net income would increase
$163,000 in the next  twelve  months if  interest  rates rose 100 basis  points.
Conversely,  net  interest  income would  decline  $371,000 and net income would
decline  $227,000 in the next twelve months if interest rates declined 100 basis
points. In the current interest rate environment, it is unlikely that there will
be any large rate decreases in the immediate future.  Computation of prospective
effects of hypothetical interest rate changes are based on numerous assumptions,
including  relative  levels of market  interest rates and loan  prepayment,  and
should  not be  relied  upon as  indicative  of  actual  results.  Further,  the
computations  do not  contemplate any actions CBI, its customers and the issuers
of its investment  securities could undertake in response to changes in interest
rates.

         As of September  30,  2004,  there was no  significant  change from the
interest rate  sensitivity  analysis for the various  changes in interest  rates
calculated  as of December 31, 2003.  The foregoing  disclosures  related to the
market risk of CBI should be read in connection with Management's Discussion and
Analysis of Financial  Position and Results of  Operations  included in the 2003
Annual Report on Form 10-K.

Item 4.  Controls and Procedures

         Based on the evaluation required by 17 C.F.R. Section  240.13a-15(b) or
240.15d-15(b) of the Company's disclosure controls and procedures (as defined in
17  C.F.R.  Sections  240.13a-15(e)  and  240.15d-15(e)),  the  Company's  chief
executive  officer and chief financial  officer concluded that such controls and
procedures,  as of the end of the period covered by this quarterly report,  were
effective.

         There  has  been  no  change  in the  issuer's  internal  control  over
financial  reporting  during the most recent fiscal  quarter that has materially
affected,  or is likely to reasonable  materially  affect, the issuer's internal
control over financial reporting.



                           PART II--OTHER INFORMATION

Item 6.  Exhibits

         Exhibits    31-1.   Rule 13a-14(a)/15d-14(a) Certification of principal
                             executive officer

                     31-2.   Rule 13a-14(a)/15d-14(a) Certification of principal
                             accounting officer

                       32.   Certifications Pursuant to 18 U.S.C. Section 1350









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<PAGE>


Signatures

         Pursuant to the  requirements  of the Securities  Exchange Act of 1934,
the  registrant  has duly  caused  this report to be signed on its behalf by the
undersigned, thereunto duly authorized.

                                                        DATED: November 10, 2004

COMMUNITY BANKSHARES, INC.
          s/E. J. Ayers, Jr.
By:      -------------------------------------
         E. J. Ayers, Jr.
         Chief Executive Officer


         s/William W. Traynham
By:      -------------------------------------
         William W. Traynham
         President and Chief Financial Officer
         (Principal Accounting Officer)




















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