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 June 30, 2004       Commission File No. 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, 4,364,362 shares outstanding on August 2, 2004.



<PAGE>


                           COMMUNITY BANKSHARES, INC.

                                    FORM 10-Q

                                      Index
<TABLE>
<CAPTION>

                                                                                                                       Page
PART I -          FINANCIAL INFORMATION

Item 1.           Financial Statements

<S>               <C>                                                                                                   <C>
                  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 ............................................................................  17

PART II -         OTHER INFORMATION

Item 4.           Submission of Matters to a Vote of Security Holders ................................................  18
Item 6.           Exhibits and Reports on Form 8-K ...................................................................  18

SIGNATURES ...........................................................................................................  19
</TABLE>




                                       2
<PAGE>


                         PART I - FINANCIAL INFORMATION

Item 1. - Financial Statements

COMMUNITY BANKSHARES, INC.
Consolidated Balance Sheet
<TABLE>
<CAPTION>
                                                                                                     (Unaudited)
                                                                                                       June 30,         December 31,
                                                                                                         2004               2003
                                                                                                         -----              ----
                                                                                                           (Dollars in thousands)
Assets
<S>                                                                                                    <C>                <C>
     Cash and due from banks .................................................................         $  14,857          $  16,554
     Federal funds sold ......................................................................            16,579             25,321
                                                                                                       ---------          ---------
            Total cash and cash equivalents ..................................................            31,436             41,875
     Interest bearing deposits with other banks ..............................................               965              1,124
     Securities available-for-sale ...........................................................            53,630             64,864
     Securities held-to-maturity (estimated fair value $1,833 for 2004
          and $2,155 for 2003) ...............................................................             2,000              2,000
     Other investments .......................................................................             2,040              2,038
     Loans held for sale .....................................................................            11,830              8,411
     Loans receivable ........................................................................           354,772            332,106
         Less, allowance for loan losses .....................................................            (4,285)            (4,206)
                                                                                                       ---------          ---------
            Net loans ........................................................................           350,487            327,900
     Premises and equipment - net ............................................................             6,858              6,915
     Accrued interest receivable .............................................................             2,152              2,186
     Net deferred income tax assets ..........................................................             1,131                805
     Intangible assets .......................................................................             7,527              7,650
     Prepaid expenses and other assets .......................................................             1,393                812
                                                                                                       ---------          ---------

            Total assets .....................................................................         $ 471,449          $ 466,580
                                                                                                       =========          =========

Liabilities
     Deposits
         Non-interest bearing ................................................................         $  59,769          $  59,337
         Interest bearing ....................................................................           320,998            319,367
                                                                                                       ---------          ---------
            Total deposits ...................................................................           380,767            378,704
     Short-term borrowings ...................................................................             8,484             17,960
     Long-term debt ..........................................................................            30,647             20,140
     Accrued interest payable ................................................................               702                585
     Accrued expenses and other liabilities ..................................................             1,126              1,121
                                                                                                       ---------          ---------
            Total liabilities ................................................................           421,726            418,510
                                                                                                       ---------          ---------

Shareholders' equity
     Common stock - no par value; 12,000,000 shares authorized; issued and
         outstanding - 4,359,237 for 2004 and 4,331,460 for 2003 .............................            29,725             29,402
     Retained earnings .......................................................................            20,521             18,610
     Accumulated other comprehensive income (loss) ...........................................              (523)                58
                                                                                                       ---------          ---------
            Total shareholders' equity .......................................................            49,723             48,070
                                                                                                       ---------          ---------

            Total liabilities and shareholders' equity .......................................         $ 471,449          $ 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 June 30,
                                                                                            ---------------------
                                                                                Three Months                      Six Months
                                                                                ------------                      ----------
                                                                           2004             2003             2004             2003
                                                                           ----             ----             ----             ----
                                                                                     (Dollars in thousands, except per share)

Interest and dividend income
<S>                                                                     <C>              <C>              <C>              <C>
     Loans, including fees .....................................        $  5,449         $  5,816         $ 10,780         $ 11,091
     Interest bearing deposits with other banks ................               4                5                8                9
     Debt securities ...........................................             409              352              905              845
     Dividends .................................................              19               20               38               40
     Federal funds sold ........................................              47               92              105              149
                                                                        --------         --------         --------         --------
         Total interest and dividend income ....................           5,928            6,285           11,836           12,134
                                                                        --------         --------         --------         --------

Interest expense
     Time deposits $100M and over ..............................             323              412              636              839
     Other deposits ............................................             895            1,079            1,814            2,198
                                                                        --------         --------         --------         --------
         Total deposits ........................................           1,218            1,491            2,450            3,037
     Short-term borrowings .....................................              64              190              169              371
     Long-term debt ............................................             380              279              683              553
                                                                        --------         --------         --------         --------
         Total interest expense ................................           1,662            1,960            3,302            3,961
                                                                        --------         --------         --------         --------

Net interest income ............................................           4,266            4,325            8,534            8,173
Provision for loan losses ......................................             258              279              491              543
                                                                        --------         --------         --------         --------
Net interest income after provision ............................           4,008            4,046            8,043            7,630
                                                                        --------         --------         --------         --------

Noninterest income
     Service charges on deposit accounts .......................             822              838            1,667            1,621
     Securities gains (losses) .................................              (1)            (298)              (5)            (252)
     Mortgage brokerage income .................................             903            1,314            1,652            2,825
     Other .....................................................             207              222              463              437
                                                                        --------         --------         --------         --------
         Total noninterest income ..............................           1,931            2,076            3,777            4,631
                                                                        --------         --------         --------         --------

Noninterest expenses
     Salaries and employee benefits ............................           2,225            2,680            4,336            5,031
     Premises and equipment ....................................             473              403              963              806
     Other .....................................................           1,077            1,135            2,208            2,116
                                                                        --------         --------         --------         --------
         Total noninterest expenses ............................           3,775            4,218            7,507            7,953
                                                                        --------         --------         --------         --------

Income before income taxes .....................................           2,164            1,904            4,313            4,308
Income tax expense .............................................             769              719            1,533            1,542
                                                                        --------         --------         --------         --------
Net income .....................................................        $  1,395         $  1,185         $  2,780         $  2,766
                                                                        ========         ========         ========         ========

Per share
     Net income ................................................        $   0.32         $   0.28         $   0.64         $   0.65
     Net income, assuming dilution .............................            0.31             0.27             0.62             0.63
     Cash dividends declared ...................................            0.10             0.09             0.20             0.18
</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
                                                                Number of                   Retained   Other 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 ............................................             -             -         2,766              -          2,766
                                                                                                                          ---------
    Unrealized holding gains and losses
      on available-for-sale securities arising
      during the period, net of income taxes of $247 ......             -             -             -            482            482
    Reclassification adjustment for losses (gains)
      realized in income, net of income taxes of $85 ......             -             -             -           (167)          (167)
                                                                                                                          ---------
    Total other comprehensive income ......................             -             -             -              -            315
                                                                                                                          ---------
        Total comprehensive income ........................             -             -             -              -          3,081
                                                                                                                          ---------
Exercise of employee stock options ........................         6,262            69             -              -             69
Cash dividends declared, $.18 per share ...................             -             -          (775)             -           (775)
                                                                ---------     ---------     ---------      ---------      ---------
Balance, June 30, 2003 ....................................     4,310,646     $  29,159     $  16,520      $     413      $  46,092
                                                                =========     =========     =========      =========      =========


Balance, January 1, 2004 ..................................     4,331,460     $  29,402     $  18,610      $      58      $  48,070
                                                                                                                          ---------
Comprehensive income:
    Net income ............................................             -             -         2,780              -          2,780
                                                                                                                          ---------
    Unrealized holding gains and losses
      on available-for-sale securities arising
      during the period, net of income taxes of $330 ......             -             -             -           (584)          (584)
    Reclassification adjustment for losses (gains)
      realized in income, net of income taxes of $2 .......             -             -             -              3              3
                                                                                                                          ---------
    Total other comprehensive income (loss) ...............             -             -             -              -           (581)
                                                                                                                          ---------
         Total comprehensive income ........................             -             -             -              -         2,199
                                                                                                                          ---------
Exercise of employee stock options ........................        27,777           323             -              -            323
Cash dividends declared, $.20 per share ...................             -             -          (869)             -           (869)
                                                                ---------     ---------     ---------      ---------      ---------
Balance, June 30, 2004 ....................................     4,359,237     $  29,725     $  20,521      $    (523)     $  49,723
                                                                =========     =========     =========      =========      =========
</TABLE>






See accompanying notes to unaudited consolidated financial statements.

                                       5
<PAGE>

COMMUNITY BANKSHARES, INC.
Consolidated Statement of Cash Flows
<TABLE>
<CAPTION>
                                                                                                                 (Unaudited)
                                                                                                              Six Months Ended
                                                                                                                   June 30,
                                                                                                           2004              2003
                                                                                                           -----             ----
                                                                                                             (Dollars in thousands)
Operating activities
<S>                                                                                                    <C>                <C>
     Net income ..............................................................................         $   2,780          $   2,766
     Adjustments to reconcile net income to net
         cash (used) provided by operating activities
            Depreciation and amortization ....................................................               566                465
            Net amortization of securities ...................................................               113                133
            Provision for loan losses ........................................................               491                543
            Net losses or (gains) on sales of securities .....................................                 5                (72)
            Proceeds of sales of loans held for sale .........................................            90,620            155,668
            Originations of loans held for sale ..............................................           (94,039)          (157,661)
            Decrease (increase) in accrued interest receivable ...............................                34                117
            (Decrease) increase in other assets ..............................................              (631)                81
            Gains on sales of other real estate ..............................................                (9)                 -
            Increase in accrued interest payable .............................................               117                 63
            Increase (decrease) in other liabilities .........................................                 5                (88)
                                                                                                       ---------          ---------
                Net cash provided by operating activities ....................................                52              2,015
                                                                                                       ---------          ---------

Investing activities
     Net decrease (increase) in interest bearing deposits with other banks ...................               159               (750)
     Purchases of available-for-sale securities ..............................................           (18,771)           (43,825)
     Maturities, calls and paydowns of available-for-sale securities .........................            20,054             42,286
     Proceeds of sales of available-for-sale securities ......................................             8,926              2,068
     Net purchases of other investments ......................................................                (2)                 -
     Net increase in loans made to customers .................................................           (23,078)           (11,927)
     Purchases of premises and equipment .....................................................              (386)              (746)
     Proceeds from sales of other real estate ................................................                59                  -
                                                                                                       ---------          ---------
                Net cash used by investing activities ........................................           (13,039)           (12,894)
                                                                                                       ---------          ---------

Financing activities
     Net increase in deposits ................................................................             2,063             18,750
     Net (decrease) increase in short-term borrowings ........................................            (9,476)             1,626
     Proceeds from issuing long-term debt ....................................................            10,507                  -
     Exercise of employee stock options ......................................................               323                 69
     Cash dividends paid .....................................................................              (869)              (775)
                                                                                                       ---------          ---------
                Net cash provided by financing activities ....................................             2,548             19,670
                                                                                                       ---------          ---------
(Decrease) increase in cash and cash equivalents .............................................           (10,439)             8,791
Cash and cash equivalents, beginning of period ...............................................            41,875             38,569
                                                                                                       ---------          ---------
Cash and cash equivalents, end of period .....................................................         $  31,436          $  47,360
                                                                                                       =========          =========

Supplemental Disclosures of Cash Flow Information
     Cash payments for interest ..............................................................         $   3,185          $   3,898
                                                                                                       =========          =========
     Cash payments for income taxes ..........................................................         $   1,624          $   1,470
                                                                                                       =========          =========

Supplemental Disclosures of Non-cash Investing Activities
     Transfers of loans receivable to other real estate ......................................         $      87          $     131
                                                                                                       =========          =========
</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 and the
audited  financial  statements  for 2003 are included in  Community  Bankshares,
Inc.'s (the  "Company" or "CBI")  Annual  Report on Form 10-K for the year ended
December 31, 2003. Certain amounts in the 2003 consolidated financial statements
have been  reclassified  to conform to the current period  classification.  Such
reclassification  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 June 30, 2004,  there were $1,181,000 in nonaccrual
loans  and  $226,000  of  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 June 30,
                                                                                         ---------------------
                                                                           Three Months                          Six Months
                                                                           ------------                          ----------
                                                                     2004               2003              2004                 2003
                                                                     ----               ----              ----                 ----
                                                                           (Dollars in thousands, except per share amounts)

<S>                                                              <C>                <C>                <C>                <C>
Net income per share, basic
  Numerator - net income ...............................         $    1,395         $    1,185         $    2,780         $    2,766
                                                                 ==========         ==========         ==========         ==========
  Denominator
    Weighted average common shares
      issued and outstanding ...........................          4,348,905          4,308,263          4,341,325          4,306,742
                                                                 ==========         ==========         ==========         ==========

        Net income per share, basic ....................         $      .32         $      .28         $      .64         $      .65
                                                                 ==========         ==========         ==========         ==========

Net income per share, assuming dilution
  Numerator - net income ...............................         $    1,395         $    1,185         $    2,780         $    2,766
                                                                 ==========         ==========         ==========         ==========
  Denominator
    Weighted average common shares
      issued and outstanding ...........................          4,348,905          4,308,263          4,341,325          4,306,742
    Effect of dilutive stock options ...................            112,304            113,573            124,051            113,574
                                                                 ----------         ----------         ----------         ----------
               Total shares ............................          4,461,209          4,421,836          4,465,376          4,420,316
                                                                 ==========         ==========         ==========         ==========

        Net income per share, assuming dilution ........         $      .31         $      .27         $      .62         $      .63
                                                                 ==========         ==========         ==========         ==========
</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
in accordance with APB No. 25. Statement of Financial  Accounting  Standards No.
123 ("SFAS No. 123"), as amended,  "Accounting  for  Stock-Based  Compensation,"


                                       7
<PAGE>

requires entities to provide pro forma  disclosures of net 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
for the Company's stock option plan been  determined  based on the fair value as
of the  grant  dates 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 June 30,
                                                                                           ---------------------
                                                                              Three Months                        Six Months
                                                                              ------------                        ----------
                                                                         2004             2003              2004              2003
                                                                         ----             ----              ----              ----
                                                                               (Dollars in thousands, except per share amounts)

<S>                                                                  <C>               <C>               <C>               <C>
Net income, as reported ....................................         $   1,395         $   1,185         $   2,780         $   2,766
Deduct:  Total stock-based employee
     compensation expense determined under
     fair value based method for all awards,
     net of any related tax effects ........................               214                 -               428                 -
                                                                     ---------         ---------         ---------         ---------
Pro forma net income .......................................         $   1,181         $   1,185         $   2,352         $   2,766
                                                                     =========         =========         =========         =========

Net income per share, basic
     As reported ...........................................         $    0.32         $    0.28         $    0.64         $    0.65
     Pro forma .............................................              0.27              0.28              0.54              0.65
Net income per share, assuming dilution
     As reported ...........................................         $    0.31         $    0.27         $    0.62         $    0.63
     Pro forma .............................................              0.26              0.27              0.53              0.63
</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


                                       8
<PAGE>

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


RESULTS OF OPERATIONS

Earnings Performance

Three Months Ended June 30, 2004 and 2003

         For the quarter ended June 30, 2004, CBI earned consolidated net income
of $1,395,000,  compared with $1,185,000 for the comparable period of 2003. This


                                       9
<PAGE>

represents an increase of $210,000 or 17.7%.  Basic earnings per share were $.32
in the 2004 period,  compared with $.28 for the 2003 quarter.  Diluted  earnings
per share were $.31 for the 2004 period and $.27 for the 2003 period.

         Operating  results  for the  second  quarter  of 2004  continued  to be
affected by lower demand for mortgage  loan  refinancing  and the effects of the
continued low interest rate  environment.  Because  interest rates have remained
low for a  relatively  long  period of time,  the  constant  strong  demand  for
mortgage  refinancings declined from the level of 2003. Management believes this
occurred because most people who were inclined to refinance had already done so.
However, in response to the Federal Reserve Board's recent actions to raise some
benchmark  interest rates, the Company has experienced some upward  fluctuations
in activity in this area. Still, except for these occasional spikes, the current
level of  mortgage  loan  activity  is  believed  to  reflect  more  nearly  the
underlying  base amount of such  activity  that would be expected to result from
normal, ongoing factors and, accordingly, is believed to be more indicative of a
sustainable level of such activity.

         Interest expense was lower in the 2004 quarter,  also. This is a result
of the low interest rate environment and a decreased rate of growth for deposits
and other interest bearing  liabilities.  Total interest bearing  liabilities at
June 30, 2004 were $360,129,000  compared with $357,467,000 at December 31, 2003
and $357,225,000 at June 30, 2003.  Short-term  borrowings have decreased due to
the Company's issuance in March, 2004 of $10,000,000 of subordinated  debentures
due in 2034, because of reduced demand for mortgage refinancing for the mortgage
subsidiary,  and the Company's decision to finance much of the existing mortgage
loan demand internally.

         Also affecting the Company favorably during the three month period were
lower amounts of losses recognized on investment securities  transactions in the
2004 period and decreased  salaries and employee  benefits costs  resulting from
the decreased mortgage lending activity.  Most of the mortgage subsidiary's loan
officers are  compensated  using a combination  of salary and  performance-based
incentives.  The incentive  component  results in lower total expenses for those
employees during periods of decreased mortgage lending activity.

<TABLE>
<CAPTION>
                                                                                Summary Income Statement
                                                                                ------------------------
                                                                                   (Dollars in thousands)
For the Three Months Ended June 30,                          2004                2003           Dollar Change   Percentage Change
                                                             ----                ----           -------------   -----------------
<S>                                                         <C>                <C>                <C>                   <C>
Interest income ......................................      $5,928             $6,285             $ (357)              -5.7%
Interest expense .....................................       1,662              1,960               (298)             -15.2%
                                                            ------             ------             ------
Net interest income ..................................       4,266              4,325                (59)              -1.4%
Provision for loan losses ............................         258                279                (21)              -7.5%
Noninterest income ...................................       1,931              2,076               (145)              -7.0%
Noninterest expenses .................................       3,775              4,218               (443)             -10.5%
Income tax expense ...................................         769                719                 50                7.0%
                                                            ------             ------             ------
Net income ...........................................      $1,395             $1,185             $  210               17.7%
                                                            ======             ======             ======
</TABLE>

Six Months Ended June 30, 2004 and 2003

         CBI's  consolidated  net income for the six months  ended June 30, 2004
was  $2,780,000,  an increase of $14,000 or 0.5% over the  comparable  period of
2003.  Basic  earnings  per share were $.64 for the 2004 period and $.65 for the
2003 period. Diluted earnings per share were $.62 and $.63 for the 2004 and 2003
periods,  respectively. Net interest income in the 2004 period was $361,000 more
than in the 2003 period,  but mortgage brokerage income decreased by $1,173,000.
Salaries and employee benefits were $695,000 less in the 2004 period than in the
2003  period.  As  discussed  above,  demand for,  and the  Company's  resources
dedicated to, mortgage  lending  activities were lower in 2004 than they were in
2003.


                                       10
<PAGE>

<TABLE>
<CAPTION>
                                                                                Summary Income Statement
                                                                                ------------------------
                                                                                 (Dollars in thousands)
For the Six Months Ended June 30,                           2004               2003            Dollar Change     Percentage Change
                                                            ----               ----            -------------     -----------------
<S>                                                      <C>                 <C>                 <C>                  <C>
Interest income ...................................      $11,836             $12,134             $  (298)              -2.5%
Interest expense ..................................        3,302               3,961                (659)             -16.6%
                                                         -------             -------              ------
Net interest income ...............................        8,534               8,173                 361                4.4%
Provision for loan losses .........................          491                 543                 (52)              -9.6%
Noninterest income ................................        3,777               4,631                (854)             -18.4%
Noninterest expenses ..............................        7,507               7,953                (446)              -5.6%
Income tax expense ................................        1,533               1,542                  (9)              -0.6%
                                                         -------             -------              ------
Net income ........................................      $ 2,780             $ 2,766             $    14                0.5%
                                                         =======             =======              ======
</TABLE>

Net Interest Income

         Net interest income is the amount of interest income earned on interest
earning assets  (primarily  loans,  securities,  interest  bearing deposits with
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 the Company'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 those
assets.

         Interest  income  decreased  by $357,000,  or 5.7%,  in the 2004 second
quarter compared with the same 2003 period. Interest and fees on loans decreased
to $5,449,000 for the 2004 quarter from  $5,816,000 for the same period of 2003,
primarily  due to lower  levels  of  mortgage  lending  activity  and the  lower
interest  rate  environment  in the 2004 period.  Amounts of interest  earned on
other categories of interest earning assets were substantially unchanged, in the
aggregate,  as  reductions  in the average  yields  earned on those  assets were
offset by increased average balances held.

         Interest expense for the second quarter of 2004 decreased to $1,662,000
from  $1,960,000  for the 2003 period  primarily  as a result of lower  interest
rates paid in the 2004  period.  Also,  because of the lower demand for mortgage
loan-related  products,  the Company's average amounts of short-term  borrowings
were lower in the 2004 period. As a result,  the quarterly  interest expense for
such  borrowings  declined from  $190,000 in 2003 to $64,000 for 2004.  Interest
expense  associated with long-term debt increased in the 2004 three month period
to $380,000  from  $279,000  for the same period of 2003 due to the  issuance of
$10,000,000 of subordinated debentures in March 2004, discussed below.

         Interest  income for the six months  ended June 30, 2004  decreased  by
$298,000,  or 2.5%  from the same  period of 2003,  due to the  lower  levels of
mortgage activity and lower interest rates. Interest and fee income on loans for
the 2004 six month period was  $10,780,000,  a decrease of $311,000 or 2.8% from
the same  period  of 2003.  The  decrease  was the  result  of an  approximately
$491,000  decrease in interest and fee income on loans  associated with mortgage
lending activities.

         Interest  expense for the 2004 six month period was $659,000 lower than
in the same 2003 period due to lower rates paid for deposits and reduced amounts
of short-term borrowings.  Lower deposit rates primarily are attributable to the
lower interest rate environment in 2004. Reduced short-term  borrowings resulted
directly  from lower  levels of  mortgage  lending  activity  and the  Company's
issuance of  $10,000,000  of long-term  subordinated  debentures  in March 2004,
discussed below.

         During the first quarter of 2004, CBI sponsored the creation of a Trust
that issued  $10,000,000 in trust preferred  securities.  The Trust invested the
proceeds  of  this  issuance  and  $310,000  of  capital  provided  by CBI  into
$10,310,000 of junior subordinated  debentures due in 2034 ("Debentures") issued
by CBI.  Interest  payments on the  Debentures  are due  quarterly at a variable
interest  rate.  CBI used  the  proceeds  of the  Debentures  to  repay  certain
pre-existing  debt  obligations,  to enhance the capital  position of two of the
subsidiary  banks, to provide an additional  funding  mechanism for its mortgage
brokerage  activities,  and for other general corporate  purposes.  Although the
interest rate associated with the debt is variable, management believes that the
indenture  provisions  governing that variability will result in less volatility
in interest expense than achievable under certain short-term debt agreements. In
addition,  because of the long-term nature of the new  arrangement,  transaction
costs,  such as those  incurred  to renew  lines of credit,  are  expected to be
reduced.  Under current regulatory  guidelines,  the trust preferred  securities
issued  by the  Trust  are  includible  in the  Company's  Tier  1  capital  for
risk-based capital purposes.


                                       11
<PAGE>

<TABLE>
<CAPTION>
                                                                                Average Balances, Yields and Rates
                                                                                    Six Months Ended June 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 ...............................    $  1,057      $    8         1.51%    $    625      $     9     2.88%
Investment securities - taxable .........................      52,270         779         2.98%      42,526          709     3.33%
Investment securities - tax exempt ......................       9,811         164         3.34%       9,317          176     3.78%
Federal funds sold ......................................      22,353         105         0.94%      26,001          149     1.15%
Loans, including loans held for sale ....................     351,261      10,780         6.14%     336,889       11,091     6.58%
                                                             --------      ------                  --------      -------
         Total interest earning assets ..................     436,752      11,836         5.42%     415,358       12,134     5.84%
Cash and due from banks .................................      16,277                                14,098
Allowance for loan losses ...............................      (4,237)                               (3,706)
Premises and equipment, net .............................       7,080                                 6,742
Intangible assets .......................................       7,588                                 7,834
Other assets ............................................       3,936                                 3,224
                                                             --------                              --------
         Total assets ...................................    $467,396                              $443,550
                                                             ========                              ========

Liabilities and shareholders' equity
Interest bearing deposits
     Savings ............................................    $ 78,473      $  371         0.95%    $ 67,394      $   416     1.23%
     Interest bearing transaction accounts ..............      55,822         114         0.41%      42,252          105     0.50%
     Time deposits ......................................     182,816       1,965         2.15%     185,852        2,516     2.71%
                                                             --------      ------                  --------      -------
         Total interest bearing deposits ................     317,111       2,450         1.55%     295,498        3,037     2.06%
Short-term borrowings ...................................      13,262         169         2.55%      31,598          371     2.35%
Long-term debt ..........................................      26,608         683         5.13%      20,298          553     5.45%
                                                             --------      ------                  --------      -------
         Total interest bearing liabilities .............     356,981       3,302         1.85%     347,394        3,961     2.28%
Noninterest bearing demand deposits .....................      59,542                                49,071
Other liabilities .......................................       1,710                                 1,837
Shareholders' equity ....................................      49,163                                45,248
                                                             --------                              --------
         Total liabilities and shareholders' equity .....    $467,396                              $443,550
                                                             ========                              ========

Interest rate spread ....................................                                 3.57%                              3.56%
Net interest income and net yield
     on earning assets ..................................                  $8,534         3.91%                  $ 8,173     3.93%
Interest free funds supporting earning assets ...........    $ 79,771                              $ 67,964
</TABLE>



* Yields and rates are annualized.


Provision and Allowance for Loan Losses

         The  provision  for loan  losses  for the 2004 three  month  period was
$258,000,  a decrease of $21,000,  or 7.5%, from $279,000 for the same period of
2003. The provision for loan losses decreased to $491,000 for the 2004 six month
period from $543,000 for the 2003 six month period.  During the first quarter of


                                       12
<PAGE>

2004, a nonaccrual loan of $1,350,000,  or  approximately  52% of CBI's December
31, 2003 nonaccrual loans, was  satisfactorily  resolved with CBI collecting all
principal  and interest  owed.  Because of this  favorable  outcome,  the amount
previously included in the allowance for loan losses for this loan was no longer
required.  Therefore,  the 2004  provision  for  loan  losses  was  beneficially
affected.

         Net  charge-offs  during  the six  months  ended  June  30,  2004  were
$412,000,  compared with $194,000 for the same period of 2003. The allowance for
loan losses as of June 30, 2004 was 1.21% of loans  outstanding,  compared  with
1.27% as of  December  31,  2003 and 1.23% as of June 30,  2003.  Non-performing
loans  totaled  $1,407,000 as of June 30, 2004,  compared with  $2,741,000 as of
December  31,  2003,  a decrease of  $1,334,000  or 48.7%.  The  coverage  ratio
(allowance for loan losses divided by non-performing loans) was 3.05x as of June
30, 2004 and 1.53x as of December 31, 2003. The majority of non-performing loans
at June 30, 2004 were secured by commercial real estate and other collateral.

         The  activity in the  allowance  for loan losses is  summarized  in the
following table:

<TABLE>
<CAPTION>
                                                                            Six Months            Year Ended            Six Months
                                                                               Ended              December 31,             Ended
                                                                           June 30, 2004             2003              June 30, 2003
                                                                           -------------             ----              -------------
                                                                                              (Dollars in thousands)
<S>                                                                          <C>                   <C>                   <C>
Allowance at beginning of period .................................           $   4,206             $   3,573             $   3,573
Provision for loan losses ........................................                 491                 1,119                   543
Net charge-offs ..................................................                (412)                 (486)                 (194)
                                                                             ---------             ---------             ---------
Allowance at end of period .......................................           $   4,285             $   4,206             $   3,922
                                                                             =========             =========             =========
Allowance as a percentage of loans outstanding ...................                1.21%                 1.27%                 1.23%

Loans at end of period ...........................................           $ 354,772             $ 332,106             $ 318,217
                                                                             =========             =========             =========
</TABLE>

         Following is a summary of non-performing  loans as of June 30, 2004 and
December 31, 2003:

<TABLE>
<CAPTION>
                                                                                       June 30, 2004         December 31, 2003
                                                                                       -------------         -----------------
                                                                                              (Dollars in thousands)
Non-performing loans
<S>                                                                                       <C>                      <C>
        Nonaccrual loans .........................................................        $1,181                   $2,595
        Past due 90 days or more and still accruing ..............................           226                      146
                                                                                          ------                   ------
                     Total .......................................................        $1,407                   $2,741
                                                                                          ======                   ======
Nonperforming loans as a percentage
    of loans outstanding .........................................................          0.40%                    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 June 30,
2004, the Corporation had identified $3,762,000,  or 1.1% of the loan portfolio,
as potential  problem loans.  This is an increase of $525,000 over the amount as
of December 31, 2003. At the end of the the second  quarter of 2004, an $824,000
commercial  loan was added to potential  problem loans.  Management is currently
working with this borrower who has presented  alternatives  for the repayment of
this loan in the near  term.  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.

         Management  will continue to monitor the levels of  non-performing  and
potential  problem loans and address the  weaknesses in these credits to enhance
the ultimate  collection or recovery of these assets.  Management  considers the
levels  and  trends in  non-performing  assets and  potential  problem  loans in
determining  how the  provision  and  allowance for loan losses is estimated and
adjusted.


                                       13
<PAGE>

Noninterest Income

         Non-interest income for the 2004 second quarter decreased $145,000,  or
7.0%, from the $2,076,000 reported for the same 2003 period.  Mortgage brokerage
income for the 2004 quarter decreased by $411,000,  or 31.3%, from $1,314,000 in
the 2003 period, due to the market factors discussed previously.  Service charge
income  totaled  $822,000 in the 2004 quarter,  a decrease of $16,000,  or 1.9%.
Losses on securities  transactions in the 2004 period were $297,000 less than in
the same period of 2003.

         For  the six  months  ended  June  30,  2004,  noninterest  income  was
$854,000,  or 18.4%  less than for the first six  months of 2003.  Again,  lower
amounts of mortgage  brokerage  income were the primary factor in this decrease,
but this was  partially  offset by a $247,000  decrease in losses on  securities
transactions.


Noninterest Expenses

         Noninterest  expenses for the second quarter of 2004 were $443,000,  or
10.5%, lower than the amounts reported for the same period of 2003. Salaries and
employee  benefits expenses were $455,000,  or 17.0%,  lower in the 2004 period,
due to the reduced  activity in mortgage  lending.  Expenses related to premises
and  equipment  increased  by $70,000 in the 2004  period,  however,  due to the
deployment of new technologies, as described below.

         Noninterest  expense for the first six months of 2004 was $446,000,  or
5.6% less than for the same period of 2003.  Salaries and employee  benefits for
the 2004 six month period were $695,000, or 13.8%, less than for the same period
of 2003. These decreases resulted primarily from the decreased level of activity
in the mortgage brokerage  subsidiary.  Because demand for refinancing and other
mortgage loan products has declined recently,  the number of employees needed to
conduct the  operations  of that  company has  decreased.  Also,  that  entity's
compensation system is predominantly commission-based.  Expenses associated with
premises  and  equipment  were  $157,000,  or 19.5%,  higher in the 2004 period,
primarily due to the  acquisition  and  implementation  of hardware and software
associated with imaging  technologies.  Over time, the use of such technology is
expected to reduce postage expense,  reduce time required for research,  improve
internal  processes  and  access to  information,  enable  the  Company  to take
advantage of the opportunities presented by the recent Check 21 legislation, and
enhance  the  Company's  ability to  provide  service  to its  customers.  Other
expenses were  $92,000,  or 4.3%,  higher in the 2004 period.  The major area of
increase  was  advertising,  which was  increased  primarily  as a result of the
mortgage company's efforts to increase the volume of loan originations.


Income Taxes

         Income tax expense was $50,000 more in the 2004 second quarter than for
the 2003  period,  as a result of higher net  income  before  taxes.  Income tax
expense  for the 2004 six month  period was $9,000 less than for the same period
of 2003.


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 service 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  fluctuation  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 as of June 30, 2004 were  $380,767,000,  an increase of
$2,063,000,  or .5%,  from the amount as of December  31,  2003.  During the six
months ended June 30, 2004,  there was a notable movement of funds from interest
bearing  transaction  accounts into savings and certificate of deposit accounts.
As of June 30, 2004 the loan to deposit ratio was 93.2%,  compared with 87.7% at
December 31, 2003 and 89.4% at June 30, 2003.



                                       14
<PAGE>

         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,  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 a certain level,
increasingly stringent regulatory corrective actions would be mandated.

         The June 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>
                                                                                                 June 30, 2004
                                                                                                 -------------
                                                                               Tier 1            Total Capital          Leverage
                                                                               ------            -------------          --------
<S>                                                                            <C>                  <C>                  <C>
Community Bankshares, Inc. ..........................................          14.90%               16.06%               11.45%
Orangeburg National Bank ............................................          12.67%               13.92%                9.40%
Sumter National Bank ................................................          10.72%               11.98%                9.26%
Florence National Bank ..............................................          11.23%               12.32%                9.80%
Bank of Ridgeway ....................................................          14.31%               15.20%                8.59%
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  exceeds the
regulatory  requirement to be considered  "well  capitalized." In the opinion of
management,  the current and projected  capital positions of CBI and its banking
subsidiaries are adequate. The Company's issuance of $10,000,000 of subordinated
debentures  during the first  quarter of 2004 is  includible in Tier 1 and Total
Capital for regulatory risk-based capital purposes.

OFF-BALANCE-SHEET ARRANGEMENTS

         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.

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 June 30, 2004,  CBI held an equity  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.


                                       15
<PAGE>

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

                                       June 30, 2004
                                       -------------
                                        (Dollars in
                                        thousands)
Loan commitments ...................    $ 44,703
Standby letters of credit ..........       2,835

         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.  In March,
2004,  the SEC issued  its Staff  Accounting  Bulletin  No 105  "Application  of
Accounting  Principles  to Loan  Commitments,"  which  resulted in no changes in
CBI's  accounting  for such  commitments.  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  arrangements  are
designated as fair value hedges.  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.  Because  CBI has
effectively  matched its forward  sales  contracts  to  investors  and rate lock
commitments  to  potential  borrowers,  no net gains or losses due to changes in
market interest rates have been recorded in the statement of income.

         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  June  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>

<TABLE>
<CAPTION>
                                                                                                           June 30, 2004
                                                                                                           -------------
                                                                                                                       Estimated
                                                                                                                      Fair Value
                                                                                                    Notional             Asset
                                                                                                     Amount           (Liability)
                                                                                                     ------           -----------
                                                                                                         (Dollars in thousands)
<S>                                                                                                 <C>                  <C>
Rate lock commitments to potential borrowers
  to originate mortgage loans to be held for sale .................................                 $17,170              $   166
Forward sales contracts with investors
  of mortgage loans to be held for sale ...........................................                  17,170                 (166)
</TABLE>

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.

         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 June 30, 2004, CBI is positioned so that net
interest income would increase  $300,000 and net income would increase  $167,000
in the next twelve months if interest  rates rose 100 basis points.  Conversely,
net interest income would decline $400,000 and net income would decline $231,000
in the next twelve  months if interest  rates  declined  100 basis  points.  CBI
issued $10 million in trust  preferred  securities  (also  referred to herein as
"subordinated  debentures")  that float with  LIBOR,  which are at or near their
contractual  floor rate.  In the current  interest rate  environment,  it is not
expected that there will be any large  decreases in market interest rates 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 and its customers could undertake in response to changes in interest
rates.

         As of June 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 the effectiveness
of such  controls and  procedures,  as of the end of the period  covered by this
quarterly report, was adequate.

         No disclosure is required under 17 C.F.R. Section 229.308(c).


                                       17
<PAGE>

                           PART II--OTHER INFORMATION

Item 4.  Submission of Matters to a Vote of Security Holders

         On Monday, May 17, 2004, the shareholders of Community Bankshares, Inc.
held their regular annual meeting. At the meeting, two matters were submitted to
a vote with results as follows:

1.   Election of six directors to hold office for three-year  terms, and for one
     director to hold office for a two-year term:

<TABLE>
<CAPTION>
                                                                               SHARES VOTE
                                                                               -----------
                                                                                                        AUTHORITY
         DIRECTORS                                       FOR                      AGAINST                WITHHELD
                                                         ---                      -------                --------

         Three-Year Terms
<S>                                                  <C>                             <C>                  <C>
         Anna O. Dantzler ......................     3,073,506                       0                    34,155
         William A. Harwell ....................     3,098,084                       0                     9,577
         Richard L. Havekost ...................     3,103,389                       0                     4,272
         William H. Nock * .....................     3,098,189                       0                     9,472
         Samuel F. Reid, Jr. ...................     3,098,084                       0                     9,577
         William W. Traynham ...................     3,097,684                       0                     9,977

         Two-Year Term

         Keith W. Buckhouse ....................     3,095,189                       0                    12,472
</TABLE>
         ---------------------
         * Mr.  Nock  resigned  effective  June 25, 2004 and Robert B. Smith was
         appointed to serve in his place until the next election of directors at
         the 2005 annual meeting of shareholders.

         The following directors continue to serve until the expiration of their
terms at the  annual  meetings  to be held in the years  indicated  and were not
voted on at the 2004 annual  meeting:  Thomas B. Edmunds - 2005,  Martha Rose C.
Carson - 2005, A. Wade Douroux - 2005, J. M. Guthrie - 2005,  Phil P. Leventis -
2005, Wm. Reynolds Williams - 2005, Michael A. Wolfe - 2005, E. J. Ayers, Jr., -
2006; Alvis J. Bynum - 2006; J. Otto Warren, Jr. - 2006 and J. V. Nicholson, Jr.
- 2006.

2.  Amendment  to the 1997 Stock  Option Plan to increase by 300,000  shares the
number of shares of common stock  reserved for issuance upon exercise of options
under that plan.

<TABLE>
<CAPTION>
                                                                         SHARES VOTED
                                                                         ------------
                                                                          AGAINST OR             ABSTENTIONS AND
                                                                          AUTHORITY                  BROKER
                                                         FOR               WITHHELD                 NON-VOTES
                                                         ---               --------                 ---------

<S>                                                    <C>                     <C>                   <C>
                                                       2,041,957               305,069               760,635
</TABLE>


Item 6.  Exhibits and Reports on Form 8-K

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

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

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


b)   Reports on Form 8-K.  Form 8-K filed April 21, 2004 pursuant to Items 7 and
     12 of that Form.




                                       18
<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: August 11, 2004

COMMUNITY BANKSHARES, INC.

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

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



                                       19
<PAGE>


                                  EXHIBIT INDEX

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

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

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







                                       20