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, 2006       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)


                               102 Founders Court
                        Orangeburg, South Carolina 29118
--------------------------------------------------------------------------------
               (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 a large accelerated filer,
an accelerated filer, or a non-accelerated filer. See definition of "accelerated
filer and large  accelerated  filer" in Rule 12b-2 of the Exchange  Act.  (Check
one):

  Large accelerated filer [ ] Accelerated filer [ ] Non-accelerated filer [X]


     Indicate by check mark whether the  registrant is shell company (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, 4,438,158 shares outstanding on August 2, 2006.



<PAGE>


                           COMMUNITY BANKSHARES, INC.

                                    FORM 10-Q

                                      Index

<TABLE>
<CAPTION>
                                                                                                                     Page
PART I -          FINANCIAL INFORMATION

Item 1.           Financial Statements

<S>                                                                                                                    <C>
                  Consolidated Balance Sheets ......................................................................    3
                  Consolidated Statements of Income ................................................................    4
                  Consolidated Statements of Changes in Shareholders' Equity .......................................    5
                  Consolidated Statements 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 .......................................   23
Item 4.           Controls and Procedures...........................................................................   24

PART II -         OTHER INFORMATION

Item 4.           Submission of Matters to a Vote of Security Holders...............................................   25
Item 6.           Exhibits..........................................................................................   25

SIGNATURES .........................................................................................................   26
</TABLE>




                                       2
<PAGE>


                         PART I - FINANCIAL INFORMATION

Item 1. - Financial Statements

COMMUNITY BANKSHARES, INC.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
                                                                                                    (Unaudited)
                                                                                                      June 30,          December 31,
                                                                                                        2006               2005
                                                                                                        ----               ----
                                                                                                         (Dollars in thousands)
Assets
<S>                                                                                                    <C>                <C>
     Cash and due from banks .................................................................         $  15,437          $  19,508
     Federal funds sold ......................................................................            16,806             32,483
                                                                                                       ---------          ---------
            Total cash and cash equivalents ..................................................            32,243             51,991
     Interest bearing deposits with other banks ..............................................             1,611              1,038
     Securities available-for-sale ...........................................................            57,112             58,701
     Securities held-to-maturity (estimated fair value $1,802 for 2006
          and $1,820 for 2005) ...............................................................             1,850              1,850
     Other investments .......................................................................             2,777              2,980
     Loans held for sale .....................................................................            20,792             12,447
     Loans receivable ........................................................................           419,170            413,984
         Less, allowance for loan losses .....................................................            (9,871)           (11,641)
                                                                                                       ---------          ---------
            Net loans ........................................................................           409,299            402,343
     Premises and equipment - net ............................................................            10,290              9,412
     Accrued interest receivable .............................................................             3,136              3,134
     Net deferred income tax assets ..........................................................             3,730              3,655
     Goodwill ................................................................................             4,321              4,321
     Core deposit intangible assets ..........................................................             2,714              2,837
     Prepaid expenses and other assets .......................................................             2,292              2,127
                                                                                                       ---------          ---------
            Total assets .....................................................................         $ 552,167          $ 556,836
                                                                                                       =========          =========
Liabilities
     Deposits
         Noninterest bearing .................................................................         $  60,184          $  67,146
         Interest bearing ....................................................................           399,059            397,063
                                                                                                       ---------          ---------
            Total deposits ...................................................................           459,243            464,209
     Short-term borrowings ...................................................................            12,420              8,975
     Long-term debt ..........................................................................            26,192             32,196
     Accrued interest payable ................................................................             1,548              1,212
     Accrued expenses and other liabilities ..................................................             1,961              1,252
                                                                                                       ---------          ---------
            Total liabilities ................................................................           501,364            507,844
                                                                                                       ---------          ---------
Shareholders' equity
     Common stock - no par  value; 12,000,000 shares authorized; issued and
         outstanding - 4,435,898 for 2006 and 4,404,303 for 2005 .............................            30,546             30,202
     Retained earnings .......................................................................            20,925             19,325
     Accumulated other comprehensive income (loss) ...........................................              (668)              (535)
                                                                                                       ---------          ---------
            Total shareholders' equity .......................................................            50,803             48,992
                                                                                                       ---------          ---------
            Total liabilities and shareholders' equity .......................................         $ 552,167          $ 556,836
                                                                                                       =========          =========
</TABLE>

See accompanying notes to unaudited consolidated financial statements.

                                       3
<PAGE>

COMMUNITY BANKSHARES, INC.
Consolidated Statements of Income
<TABLE>
<CAPTION>
                                                                                                (Unaudited)
                                                                                           Period Ended June 30,
                                                                                           ---------------------
                                                                               Three Months                      Six Months
                                                                               ------------                      ----------
                                                                           2006            2005             2006              2005
                                                                           ----            ----             ----              ----
                                                                                   (Dollars in thousands, except per share)
Interest and dividend income
<S>                                                                     <C>              <C>              <C>              <C>
     Loans, including fees ....................................         $  8,156         $  7,202         $ 15,839         $ 13,918
     Interest bearing deposits with other banks ...............               35               11               55               19
     Debt securities ..........................................              556              432            1,109              869
     Dividends ................................................               41               34               75               58
     Federal funds sold .......................................              315               95              638              163
                                                                        --------         --------         --------         --------
            Total interest and dividend income ................            9,103            7,774           17,716           15,027
                                                                        --------         --------         --------         --------
Interest expense
     Deposits
         Time deposits $100M and over .........................              939              630            1,798            1,157
         Other deposits .......................................            2,233            1,361            4,177            2,569
                                                                        --------         --------         --------         --------
            Total interest expense on deposits ................            3,172            1,991            5,975            3,726
     Short-term borrowings ....................................               89               44              190               87
     Long-term debt ...........................................              475              468              957              906
                                                                        --------         --------         --------         --------
            Total interest expense ............................            3,736            2,503            7,122            4,719
                                                                        --------         --------         --------         --------
Net interest income ...........................................            5,367            5,271           10,594           10,308
Provision for loan losses .....................................              675              585            1,290            1,035
                                                                        --------         --------         --------         --------
Net interest income after provision ...........................            4,692            4,686            9,304            9,273
                                                                        --------         --------         --------         --------
Noninterest income
     Service charges on deposit accounts ......................              862              853            1,694            1,615
     Mortgage loan brokerage income ...........................              987              859            1,824            1,551
     Net securities gains or (losses) .........................                -                -                1              (10)
     Other ....................................................              211              254              475              475
                                                                        --------         --------         --------         --------
            Total noninterest income ..........................            2,060            1,966            3,994            3,631
                                                                        --------         --------         --------         --------
Noninterest expenses
     Salaries and employee benefits ...........................            2,753            2,334            5,332            4,612
     Premises and equipment ...................................              613              550            1,237            1,085
     Other ....................................................            1,266            1,341            2,690            2,647
                                                                        --------         --------         --------         --------
            Total noninterest expenses ........................            4,632            4,225            9,259            8,344
                                                                        --------         --------         --------         --------
Income before income taxes ....................................            2,120            2,427            4,039            4,560
Income tax expense ............................................              747              876            1,465            1,649
                                                                        --------         --------         --------         --------
Net income ....................................................         $  1,373         $  1,551         $  2,574         $  2,911
                                                                        ========         ========         ========         ========
Per share
     Net income ...............................................         $   0.31         $   0.35         $   0.58         $   0.66
     Net income - diluted .....................................             0.30             0.35             0.57             0.65
     Cash dividends declared ..................................             0.11             0.10             0.22             0.20
</TABLE>


See accompanying notes to unaudited consolidated financial statements.


                                       4
<PAGE>

COMMUNITY BANKSHARES, INC.
Consolidated Statements 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, 2005 .......................................    4,390,784    $  30,042    $  20,075     $     (90)    $  50,027
                                                                                                                          ---------
Comprehensive income:
    Net income .................................................            -            -        2,911             -         2,911
                                                                                                                          ---------
    Unrealized holding gains and losses
      on available-for-sale securities arising
      during the period, net of income taxes of $118 ...........            -            -            -          (212)         (212)
    Reclassification adjustment for losses (gains)
      realized in income, net of income taxes of $3 ............            -            -            -             7             7
                                                                                                                          ---------
    Total other comprehensive income ...........................            -            -            -             -          (205)
                                                                                                                          ---------
      Total comprehensive income ...............................            -            -            -             -         2,706
                                                                                                                          ---------
Proceeds of sale of common stock ...............................          775           14            -             -            14
Exercise of employee stock options .............................       12,744          146            -             -           146
Cash dividends declared, $.20 per share ........................            -            -         (880)            -          (880)
                                                                    ---------    ---------    ---------     ---------     ---------
Balance, June 30, 2005 .........................................    4,404,303    $  30,202    $  22,106     $    (295)    $  52,013
                                                                    =========    =========    =========     =========     =========


Balance, January 1, 2006 .......................................    4,404,303    $  30,202    $  19,325     $    (535)    $  48,992
                                                                                                                          ---------
Comprehensive income:
    Net income .................................................            -            -        2,574             -         2,574
                                                                                                                          ---------
    Unrealized holding gains and losses
      on available-for-sale securities arising
      during the period, net of income taxes of $75 ............            -            -            -          (132)         (132)
    Reclassification adjustment for losses (gains)
      realized in income, net of income taxes of $0 ............            -            -            -            (1)           (1)
                                                                                                                          ---------
    Total other comprehensive income (loss) ....................            -            -            -             -          (133)
                                                                                                                          ---------
      Total comprehensive income ...............................            -            -            -             -         2,441
                                                                                                                          ---------
Proceeds of sale of common stock ...............................        1,000           16            -             -            16
Exercise of employee stock options .............................       30,595          328            -             -           328
Cash dividends declared, $.22 per share ........................            -            -         (974)            -          (974)
                                                                    ---------    ---------    ---------     ---------     ---------
Balance, June 30, 2006 .........................................    4,435,898    $  30,546    $  20,925     $    (668)    $  50,803
                                                                    =========    =========    =========     =========     =========
</TABLE>










See accompanying notes to unaudited consolidated financial statements.


                                       5
<PAGE>

COMMUNITY BANKSHARES, INC.
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
                                                                                                                (Unaudited)
                                                                                                             Six Months Ended
                                                                                                                  June 30,
                                                                                                                  --------
                                                                                                          2006              2005
                                                                                                          ----              ----
                                                                                                            (Dollars in thousands)
Operating activities
<S>                                                                                                     <C>               <C>
     Net income ................................................................................        $   2,574         $   2,911
     Adjustments to reconcile net income to net
         cash (used) provided by operating activities
            Provision for loan losses ..........................................................            1,290             1,035
            Depreciation and amortization ......................................................              624               581
            Net amortization of securities .....................................................                9                50
            Net securities (gains) or losses ...................................................               (1)               10
            Proceeds of sales of loans held for sale ...........................................          113,356            96,500
            Originations of loans held for sale ................................................         (121,701)          (96,488)
            Increase in accrued interest receivable ............................................               (2)             (295)
            (Increase) decrease in other assets ................................................             (165)              409
            Gains on sales of other real estate ................................................                -               (24)
            Increase in accrued interest payable ...............................................              336               365
            Increase in other liabilities ......................................................              709               307
                                                                                                        ---------         ---------
                Net cash (used) provided by operating activities ...............................           (2,971)            5,361
                                                                                                        ---------         ---------
Investing activities
     Net (increase) decrease in interest bearing deposits with other banks .....................             (573)              393
     Purchases of available-for-sale securities ................................................           (6,499)           (5,745)
     Maturities, calls and paydowns of available-for-sale securities ...........................            7,872             4,242
     Proceeds of sales of available-for-sale securities ........................................                -             4,412
     Net decrease (increase) in other investments ..............................................              203              (248)
     Net increase in loans made to customers ...................................................           (8,246)          (20,796)
     Purchases of premises and equipment .......................................................           (1,379)             (542)
     Proceeds from sales of other real estate ..................................................                -               224
                                                                                                        ---------         ---------
                Net cash used by investing activities ..........................................           (8,622)          (18,060)
                                                                                                        ---------         ---------
Financing activities
     Net (decrease) increase in deposits .......................................................           (4,966)            9,960
     Net increase in short-term borrowings .....................................................            3,445             1,206
     Proceeds from issuing long-term debt ......................................................                -             3,000
     Repayment of long-term debt ...............................................................           (6,004)               (4)
     Exercise of employee stock options ........................................................              328               146
     Sale of common stock ......................................................................               16                14
     Cash dividends paid .......................................................................             (974)             (880)
                                                                                                        ---------         ---------
                Net cash (used) provided by financing activities ...............................           (8,155)           13,442
                                                                                                        ---------         ---------
(Decrease) increase in cash and cash equivalents ...............................................          (19,748)              743
Cash and cash equivalents, beginning of period .................................................           51,991            26,968
                                                                                                        ---------         ---------
Cash and cash equivalents, end of period .......................................................        $  32,243         $  27,711
                                                                                                        =========         =========

Supplemental Disclosures of Cash Flow Information
     Cash payments for interest ................................................................        $   6,786         $   4,354
                                                                                                        =========         =========
     Cash payments for income taxes ............................................................        $     631         $   1,690
                                                                                                        =========         =========

Supplemental Disclosures of Non-cash Activities
     Transfer to net deferred income tax assets from prepaid current income taxes ..............        $       -         $     297
                                                                                                        =========         =========
</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 2005 are included in  Community  Bankshares,
Inc.'s (the  "Company" or "CBI")  Annual  Report on Form 10-K for the year ended
December 31, 2005 filed with the  Securities  and Exchange  Commission.  Certain
amounts in the 2005 financial  statements  have been  reclassified to conform to
the current presentation.

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 2005 Annual Report on Form 10-K.

Nonperforming  Loans - As of June 30, 2006, there were $11,151,000 in nonaccrual
loans  and  $202,000  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:

                                       7
<PAGE>

<TABLE>
<CAPTION>
                                                                                            (Unaudited)
                                                                                       Period Ended June 30,
                                                                                       ---------------------
                                                                           Three Months                        Six Months
                                                                           ------------                        ----------
                                                                     2006               2005              2006              2005
                                                                     ----               ----              ----              ----
                                                                         (Dollars in thousands, except per share amounts)

Net income per share, basic
<S>                                                              <C>                <C>                <C>                <C>
  Numerator - net income ...............................         $    1,373         $    1,551         $    2,574         $    2,911
                                                                 ==========         ==========         ==========         ==========
  Denominator
    Weighted average common shares
      issued and outstanding ...........................          4,434,012          4,404,045          4,424,091          4,399,089
                                                                 ==========         ==========         ==========         ==========

Net income per share, basic ............................         $      .31         $      .35         $      .58         $      .66
                                                                 ==========         ==========         ==========         ==========

Net income per share, assuming dilution
  Numerator - net income ...............................         $    1,373         $    1,551         $    2,574         $    2,911
                                                                 ==========         ==========         ==========         ==========
  Denominator
    Weighted average common shares
      issued and outstanding ...........................          4,434,012          4,404,045          4,424,091          4,399,089
    Effect of dilutive stock options ...................             69,624            100,142             70,690            101,360
                                                                 ----------         ----------         ----------         ----------
               Total shares ............................          4,503,636          4,504,187          4,494,781          4,500,449
                                                                 ==========         ==========         ==========         ==========

Net income per share, assuming dilution ................         $      .30         $      .35         $      .57         $      .65
                                                                 ==========         ==========         ==========         ==========
</TABLE>



Stock  Based  Compensation  -  Effective  January 1,  2006,  the  Company  began
accounting  for  compensation  expenses  related  to stock  options  granted  to
employees and directors  under the  recognition  and  measurement  principles of
Statement of  Accounting  Standards  No.  123(R)  "Share-Based  Payment"  ("SFAS
123(R)")  using the modified  prospective  application  method.  The Company had
previously  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 until
the mandatory effective date for SFAS 123(R).

Options  previously  issued under the Company's  plans had no intrinsic value at
the grant date and no  compensation  cost was recognized in accordance  with APB
No. 25.  Statement of Financial  Accounting  Standards No. 123 ("SFAS No. 123"),
"Accounting  for  Stock-Based  Compensation,"  required  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. Under
the  modified  prospective  application  method of SFAS  123(R),  the Company is
required  to apply  SFAS  123(R)  only to new  awards  and to  awards  modified,
repurchased or cancelled after the required  effective date. Also,  compensation
cost  would  be  recognized  for  the  portions  of  previously  granted  awards
outstanding  which had not vested on the effective date. The Company had no such
awards outstanding as of January 1, 2006.

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


                                       8
<PAGE>

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.

         The  Company's  investment  in the  Trust is  carried  at cost in other
assets and the  debentures  are included in long-term  debt in the  consolidated
balance sheet.

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

Forward Looking Statements

         Statements  included in this report which are not  historical in nature
are intended to be, and are hereby  identified as  "forward-looking  statements"
for  purposes  of the safe  harbor  provided  by Section  21E of the  Securities
Exchange Act of 1934, as amended.  Forward-looking statements include statements
concerning plans, objectives,  goals,  strategies,  future events or performance
and underlying  assumptions and other statements which are other than statements
of historical facts. Such forward-looking statements may be identified,  without
limitation, by the use the 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.



                                       9
<PAGE>

References to our Website Address

         References to our website address  throughout this Quarterly  Report on
Form 10-Q and in any documents incorporated into this Form 10-Q by reference are
for informational purposes only, or to fulfill specific disclosure  requirements
of the Securities and Exchange Commission's rules or the American Stock Exchange
listing standards. These references are not intended to, and do not, incorporate
the contents of our website by reference into this Form 10-Q or the accompanying
materials.

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 2005 Annual Report on Form
10-K filed with the Securities and Exchange Commission.

         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  2005  for a  detailed  description  of CBI's
estimation process and methodology related to the allowance for loan losses.


CHANGES IN FINANCIAL CONDITION

         During  the six  months  ended  June  30,  2006,  loans  held  for sale
increased by $8,345,000,  or 67.0% and loans  increased by $5,186,000,  or 1.3%,
over the respective amounts as of December 31, 2005. The growth in these earning
asset  categories  was funded  largely by  reducing  cash and due from banks and
federal funds sold since the aggregate  amounts of deposits and  short-term  and
long-term  borrowings  decreased by $7,525,000,  or 1.5%,  from the December 31,
2005  amounts.  Also during the first six months of 2006,  charge-offs  of loans
totaled  $3,847,000,   including   $2,649,000  in  the  second  quarter.   Those
charge-offs decreased both loans and the allowance for loan losses.

         Management  expects that the Company will solicit deposit accounts more
aggressively  in order to fund  anticipated  growth.  However,  given the recent
increases in interest rates,  such a strategy would  significantly  increase the
probability that the Company's net interest margin in future  reporting  periods
would be affected adversely.




                                       10
<PAGE>

RESULTS OF OPERATIONS

Earnings Performance

Three Months Ended June 30, 2006 and 2005

         For the quarter  ended June 30,  2006,  CBI recorded  consolidated  net
income of $1,373,000,  compared with  $1,551,000  for the  comparable  period of
2005. This represents a decrease of $178,000 or 11.5%.  Basic earnings per share
were $.31 in the 2006 period,  compared with $.35 for the 2005 quarter.  Diluted
earnings per share were $.30 for the 2006 period and $.35 for the 2005 period.

         Compared  with the second  quarter of 2005,  operating  results for the
second quarter of 2006 were affected  primarily by higher  noninterest  expenses
and  provision  for loan  losses in the 2006  period,  increased  mortgage  loan
brokerage  income,  and an increase in net interest income  resulting  primarily
from growth in loans.  Generally,  market  interest  rates, as well as the rates
associated with the Company's  interest earning assets and its  interest-bearing
liabilities  were  higher in the 2006  period as a result of  continued  Federal
Reserve efforts to slow the U. S. economy and control inflation.

         Higher  noninterest  expenses and  provision  for loan losses more than
offset  the gains  made in net  interest  income  and  noninterest  income.  The
provision  for  loan  losses   continues  to  be  affected  by  high  levels  of
non-performing  and potential problem loans, and by growth in the Company's loan
portfolio.  During the second quarter of 2006, net  charge-offs  were $1,898,000
compared with $495,000 during the same period of 2005.

         Noninterest  expenses  increased  in part  because  of  changes  in the
corporate  management structure designed to enhance controls and risk management
activities,  particularly  in the lending  function,  and due to higher expenses
associated   with   the   commission-based   salary   structure   used   in  the
mortgage-brokerage  subsidiary. Also, in 2006, the Company increased its formula
for  matching  employees'  contributions  to  the  401(k)  defined  contribution
retirement plan. This resulted in higher levels of employee participation in the
plan.  In  addition,  expenses of premises and  equipment  increased in the 2006
quarter due to the Company's moving into its newly constructed  headquarters and
operations  center in the first  quarter of 2006 and the leasing of other office
space for certain  management  personnel who are located away from the corporate
headquarters.

<TABLE>
<CAPTION>
                                                                                   Summary Income Statement
                                                                                   ------------------------
                                                                                    (Dollars in thousands)
                                                                                                     Dollar           Percentage
For the Three Months Ended June 30,                                   2006            2005           Change             Change
                                                                      ----            ----           ------             ------
<S>                                                                  <C>             <C>             <C>               <C>
Interest income .............................................        $ 9,103         $ 7,774         $ 1,329            17.1%
Interest expense ............................................          3,736           2,503           1,233            49.3%
                                                                     -------         -------         -------
Net interest income .........................................          5,367           5,271              96             1.8%
Provision for loan losses ...................................            675             585              90            15.4%
Noninterest income ..........................................          2,060           1,966              94             4.8%
Noninterest expenses ........................................          4,632           4,225             407             9.6%
Income tax expense ..........................................            747             876            (129)          -14.7%
                                                                     -------         -------         -------
Net income ..................................................        $ 1,373         $ 1,551         $  (178)          -11.5%
                                                                     =======         =======         =======
</TABLE>


Six Months Ended June 30, 2006 and 2005

         CBI's  consolidated  net income for the six months  ended June 30, 2006
was positively  affected by increased levels of net interest  income,  primarily
related to  increased  loan volumes and yields,  and higher  amounts of mortgage


                                       11
<PAGE>

loan brokerage  income which reflect  continued  strength in the housing markets
within the  Company's  market  areas.  A  significant  proportion of the banking
subsidiaries'  loan  portfolios are made up of variable rate loans.  Those loans
have been repriced favorably several times during 2006. The prime rate, which is
the index to which most of those variable rate loans are related, increased four
times  totaling 100 basis points during 2006, and eight times totaling 200 basis
points since June 30, 2005.

         Interest  expense,  noninterest  expenses  and the  provision  for loan
losses negatively  affected results for the 2006 year-to-date  period because of
the same factors discussed above for the second quarter.

<TABLE>
<CAPTION>
                                                                                      Summary Income Statement
                                                                                      ------------------------
                                                                                       (Dollars in thousands)

                                                                                                      Dollar           Percentage
For the Six Months Ended June 30,                                     2006            2005            Change             Change
                                                                      ----            ----            ------             ------
<S>                                                                 <C>             <C>              <C>                 <C>
Interest income .....................................               $17,716         $15,027          $ 2,689              17.9%
Interest expense ....................................                 7,122           4,719            2,403              50.9%
                                                                    -------         -------          -------
Net interest income .................................                10,594          10,308              286               2.8%
Provision for loan losses ...........................                 1,290           1,035              255              24.6%
Noninterest income ..................................                 3,994           3,631              363              10.0%
Noninterest expenses ................................                 9,259           8,344              915              11.0%
Income tax expense ..................................                 1,465           1,649             (184)            -11.2%
                                                                    -------         -------          -------
Net income ..........................................               $ 2,574         $ 2,911          $  (337)            -11.6%
                                                                    =======         =======          =======
</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.

Three Months Ended June 30, 2006 and 2005

         Net  interest  income  for the three  months  ended  June 30,  2006 was
$5,367,000,  an increase of $96,000,  or 1.8%,  over the amount reported for the
second  quarter of 2005.  Interest  income  and  interest  expense  for the 2006
quarter were both significantly  higher than during the same period of 2005, due
to increases in the related  balance sheet items and increases in interest rates
earned on, or paid for, those items.

         The average rate earned on loans,  including  loans held for sale,  was
7.54% and 6.80% for the  second  quarters  of 2006 and 2005,  respectively.  The
average  yield on  earning  assets  was 6.99% for the  second  quarter  of 2006,
compared  with 6.30% for the second  quarter of 2005.  The average  cost of time
deposits increased to 4.03% for the second quarter of 2006,  compared with 2.91%
for  the  same  period  of  2005.  The  average  cost  of  all  interest-bearing
liabilities  was 3.40%  for the 2006  quarter  and 2.47% for the same  period of
2005. Accordingly, the interest rate spread (interest earning assets yield minus
the rate paid for  interest-bearing  liabilities)  for the 2006  second  quarter
narrowed to 3.59%, or 24 basis points lower than for the same period of 2005 and


                                       12
<PAGE>

net yield on earning  assets (net interest  income  divided by average  interest
earning  assets) for the 2006  quarter was 4.12%,  or 15 basis points lower than
for the same period of 2005.

         Average amounts of interest earning assets were significantly higher in
the 2006 period than in the 2005 period.  However,  that growth was overshadowed
by growth in the average  amounts of  interest-bearing  liabilities.  During the
second  quarter  of  2006,  the  Company  was  significantly   more  reliant  on
interest-bearing  liabilities to fund earning assets than it was during the 2005
second quarter.

<TABLE>
<CAPTION>
                                                                                Average Balances, Yields and Rates
                                                                                     Quarter Ended June 30,
                                                                                     ----------------------
                                                                          2006                                 2005
                                                                          ----                                 ----
                                                                       Interest                              Interest
                                                            Average     Income /  Yields /        Average    Income /  Yields /
                                                           Balances     Expense   Rates (1)      Balances    Expense   Rates (1)
                                                           --------     -------   ---------      --------    -------   ---------
                                                                                     (Dollars in thousands)
Assets
<S>                                                         <C>           <C>         <C>         <C>          <C>         <C>
Interest earning deposits ...............................   $   1,791     $    35     7.84%       $     537    $    11     8.22%
Investment securities - taxable .........................      56,700         553     3.91%          50,462        412     3.27%
Investment securities - tax exempt (2) ..................       4,966          44     3.55%           6,248         54     3.47%
Federal funds sold ......................................      25,220         315     5.01%          12,921         95     2.95%
Loans, including loans held for sale (2) (3) ............     433,767       8,156     7.54%         424,925      7,202     6.80%
                                                            ---------     -------                 ---------    -------
         Total interest earning assets ..................     522,444       9,103     6.99%         495,093      7,774     6.30%
Cash and due from banks .................................      14,438                                15,967
Allowance for loan losses ...............................     (10,665)                               (4,963)
Premises and equipment, net .............................       9,827                                 7,753
Intangible assets .......................................       7,670                                 7,310
Other assets ............................................       8,724                                 4,206
                                                            ---------                             ---------
         Total assets ...................................   $ 552,438                             $ 525,366
                                                            =========                             =========

Liabilities and shareholders' equity
Interest bearing deposits
     Savings ............................................   $  89,000     $   576     2.60%       $  87,738    $   320     1.46%
     Interest bearing transaction accounts ..............      73,212         179     0.98%          59,058         97     0.66%
     Time deposits ......................................     240,609       2,417     4.03%         217,270      1,574     2.91%
                                                            ---------     -------                 ---------    -------
         Total interest bearing deposits ................     402,821       3,172     3.16%         364,066      1,991     2.19%
Short-term borrowings ...................................       7,718          89     4.63%           8,335         44     2.12%
Long-term debt ..........................................      30,145         475     6.32%          33,556        468     5.59%
                                                            ---------     -------                 ---------    -------
         Total interest bearing liabilities .............     440,684       3,736     3.40%         405,957      2,503     2.47%
Noninterest bearing demand deposits .....................      57,052                                65,701
Other liabilities .......................................       2,493                                 2,448
Shareholders' equity ....................................      52,209                                51,260
                                                            ---------                             ---------
         Total liabilities and shareholders' equity .....   $ 552,438                             $ 525,366
                                                            =========                             =========
Interest rate spread ....................................                             3.59%                                3.83%
Net interest income and net yield on earning assets .....                 $ 5,367     4.12%                    $ 5,271     4.27%
</TABLE>
(1)  Yields and rates are annualized.
(2)  Yields  on  tax-exempt  securities  and  loans  have not been  stated  on a
     tax-equivalent basis.
(3)  Nonaccruing loans are included in the average balances and income from such
     loans is recognized on a cash basis.


                                       13
<PAGE>


Six Months Ended June 30, 2006 and 2005

         Net interest income for the six months ended June 30, 2006 increased by
$286,000,  or 2.8% over the amount for the same  period of 2005.  Both  interest
income and interest  expense  increased  significantly in the 2006 period due to
continued  increases  in market  interest  rates and higher  levels of  interest
earning assets and interest-bearing liabilities.

         For the 2006  year-to-date  period,  the  interest  rate spread and net
yield on earning assets both decreased as compared with the same period of 2005.
Interest  rate  spread  decreased  by 27 basis  points  and net yield on earning
assets  decreased by 15 basis points.  These decreases  resulted  primarily from
higher rates paid on interest-bearing liabilities, which increased slightly more
than rates earned on earning assets.  Net interest income increased despite this
narrowing of interest  margins,  however,  because of higher amounts of interest
earning assets, especially loans and federal funds sold.


                                       14
<PAGE>

<TABLE>
<CAPTION>
                                                                               Average Balances, Yields and Rates
                                                                                    Six Months Ended June 30,
                                                                                    -------------------------
                                                                          2006                                  2005
                                                                          ----                                  ----
                                                                        Interest                              Interest
                                                             Average     Income /   Yields /       Average     Income /   Yields /
                                                            Balances     Expense   Rates (1)      Balances     Expense    Rates (1)
                                                            --------     -------   ---------      --------     -------    ---------
                                                                                    (Dollars in thousands)
Assets
<S>                                                          <C>         <C>           <C>       <C>          <C>            <C>
Interest earning deposits ...............................    $   1,665   $     55      6.66%     $     665    $     19       5.76%
Investment securities - taxable .........................       57,281      1,093      3.85%        51,264         817       3.21%
Investment securities - tax exempt (2) ..................        5,193         91      3.53%         6,535         110       3.39%
Federal funds sold ......................................       27,394        638      4.70%        12,336         163       2.66%
Loans, including loans held for sale (2) (3) ............      431,948     15,839      7.39%       420,422      13,918       6.68%
                                                             ---------   --------                ---------    --------
         Total interest earning assets ..................      523,481     17,716      6.82%       491,222      15,027       6.17%
Cash and due from banks .................................       15,332                              15,897
Allowance for loan losses ...............................      (11,002)                             (4,890)
Premises and equipment, net .............................       10,135                               7,820
Intangible assets .......................................        7,096                               7,341
Other assets ............................................        8,353                               4,185
                                                             ---------                           ---------
         Total assets ...................................    $ 553,395                           $ 521,575
                                                             =========                           =========

Liabilities and shareholders' equity
Interest bearing deposits
     Savings ............................................    $  87,270   $  1,027      2.37%     $  88,899    $    627       1.42%
     Interest bearing transaction accounts ..............       73,557        398      1.09%        61,724         192       0.63%
     Time deposits ......................................      238,367      4,550      3.85%       213,048       2,907       2.75%
                                                             ---------   --------                ---------    --------
         Total interest bearing deposits ................      399,194      5,975      3.02%       363,671       3,726       2.07%
Short-term borrowings ...................................        8,990        190      4.26%         8,390          87       2.09%
Long-term debt ..........................................       31,421        957      6.14%        32,329         906       5.65%
                                                             ---------   --------                ---------    --------
         Total interest bearing liabilities .............      439,605      7,122      3.27%       404,390       4,719       2.35%
Noninterest bearing demand deposits .....................       60,102                              64,266
Other liabilities .......................................        2,731                               1,955
Shareholders' equity ....................................       50,957                              50,964
                                                             ---------                           ---------
         Total liabilities and shareholders' equity .....    $ 553,395                           $ 521,575
                                                             =========                           =========

Interest rate spread ....................................                              3.55%                                 3.82%
Net interest income and net yield
     on earning assets ..................................                $ 10,594      4.08%                  $ 10,308       4.23%
</TABLE>
(1)  Yields and rates are annualized.
(2)  Yields  on  tax-exempt  securities  and  loans  have not been  stated  on a
     tax-equivalent basis.
(3)  Nonaccruing loans are included in the average balances and income from such
     loans is recognized on a cash basis.

Provision and Allowance for Loan Losses

         The  provision  for loan  losses  for the 2006 three  month  period was
$675,000, an increase of $90,000, or 15.4%, from $585,000 for the same period of
2005.  The  provision for loan losses  increased to $1,290,000  for the 2006 six
month  period  from  $1,035,000  for the 2005 six month  period,  an increase of
$255,000 or 24.6%.  High levels of  non-performing  and potential  problem loans

                                       15
<PAGE>

continue  to affect  the  Company's  allowance  and  provision  for loan  losses
negatively.  Management  continues to use new  information  about these loans to
refine its estimates of the loans' ultimate  collectibility  and the adequacy of
its loan loss allowance.

         Net  charge-offs  during  the six  months  ended  June  30,  2006  were
$3,060,000,  compared  with  $570,000 for the same period of 2005.  The coverage
ratio (allowance for loan losses divided by non-performing loans) was .87x as of
June 30, 2006 and .94x as of December 31, 2005.

         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, 2006              2005              June 30, 2005
                                                                          -------------              ----              -------------
                                                                                            (Dollars in thousands)
<S>                                                                          <C>                   <C>                   <C>
Allowance at beginning of period .................................           $  11,641             $   4,347             $   4,347
Transfer of allowance for off-balance-sheet
  contingencies to other liabilities .............................                   -                  (305)                    -
Provision for loan losses ........................................               1,290                 9,637                 1,035
Net charge-offs ..................................................              (3,060)               (2,038)                 (570)
                                                                             ---------             ---------             ---------
Allowance at end of period .......................................           $   9,871             $  11,641             $   4,812
                                                                             =========             =========             =========
Allowance as a percentage of loans outstanding ...................                2.35%                 2.81%                 1.16%

Loans at end of period ...........................................           $ 419,170             $ 413,984             $ 413,875
                                                                             =========             =========             =========
</TABLE>

         Following is a summary of non-performing  loans as of June 30, 2006 and
December 31, 2005:

<TABLE>
<CAPTION>
                                                                                          June 30, 2006         December 31, 2005
                                                                                          -------------         -----------------
                                                                                                    (Dollars in thousands)
Non-performing loans
<S>                                                                                          <C>                      <C>
  Nonaccrual loans ...............................................................           $11,151                  $11,651
  Past due 90 days or more and still accruing ....................................               202                      729
                                                                                             -------                  -------
                Total ............................................................           $11,353                  $12,380
                                                                                             =======                  =======
Nonperforming loans as a percentage of:
  Loans outstanding ..............................................................              2.71%                    2.99%
  Allowance for loan losses ......................................................            115.01%                  106.35%
</TABLE>



                                       16
<PAGE>

         The  following  table  shows  quarterly  changes in  nonperforming  and
potential problem loans since December 31, 2004.

<TABLE>
<CAPTION>
                                                         90 Days or
                                                        More Past Due     Total        Percentage                         Percentage
                                         Nonaccrual      and Still     Nonperforming    of Total            Potential       of Total
                                           Loans          Accruing        Loans           Loans           Problem Loans      Loans
                                           -----          --------        -----           -----           -------------      -----
                                                                              (Dollars in thousands)
<S>                                      <C>             <C>             <C>               <C>                <C>             <C>
December 31, 2004 ................       $  4,941        $    137        $  5,078          1.29%              $  4,628        1.18%
Net change .......................            118             215             333                                2,972
                                         --------        --------        --------                             --------
March 31, 2005 ...................          5,059             352           5,411          1.33%                 7,600        1.87%
Net change .......................            200              (9)            191                               10,400
                                         --------        --------        --------                             --------
June 30, 2005 ....................          5,259             343           5,602          1.35%                18,000        4.35%
Net change .......................          4,954              74           5,028                               (4,107)
                                         --------        --------        --------                             --------
September 30, 2005 ...............         10,213             417          10,630          2.57%                13,893        3.35%
Net change .......................          1,438             312           1,750                               15,420
                                         --------        --------        --------                             --------
December 31, 2005 ................         11,651             729          12,380          2.99%                29,313        7.08%
Net change .......................          3,128             949           4,077                               (2,767)
                                         --------        --------        --------                             --------
March 31, 2006 ...................         14,779           1,678          16,457          3.94%                26,546        6.36%
Net change .......................         (3,628)         (1,476)         (5,104)                              (3,461)
                                         --------        --------        --------                             --------
June 30, 2006 ....................       $ 11,151        $    202        $ 11,353          2.71%              $ 23,085        5.51%
                                         ========        ========        ========                             ========
</TABLE>

         During the second  quarter of 2006,  nonperforming  loans  decreased by
$5,104,000  and  potential   problem  loans   decreased  by  $3,461,000.   These
improvements  were the results of net  charge-offs  of  $3,060,000  coupled with
collections and  improvements in the remaining  loans.  For example,  management
settled a loan  relationship of $1,450,000 that was included in nonaccrual loans
as of March 31,  2006,  realizing a recovery  of  approximately  $350,000  and a
charge-off of $1,100,000. Management also completed a project in the 2006 second
quarter that involved reviewing, and establishing workout or collection plans or
providing  other credit  enhancements  for, all  significant  nonperforming  and
potential problem loans.

         Management will continue to monitor the levels of non-performing  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.  In the
opinion of management,  the Corporation's  allowance for loan losses at June 30,
2006 is  adequate  to  provide  for  losses  that  may be  inherent  in the loan
portfolio.


Noninterest Income

         Noninterest  income for the 2006 second quarter increased  $94,000,  or
4.8%,  over the  $1,966,000  reported  for the same 2005 period.  Mortgage  loan
brokerage income for the 2006 quarter increased by $128,000,  or 14.9%, over the
$859,000 in the 2005 period.

         For the six months ended June 30, 2006,  noninterest  income  increased
$363,000,  or 10.0%,  over noninterest  income for the first six months of 2005.
Mortgage  loan  brokerage  income  for the  first six  months of 2006  increased
$273,000,  and service  charge income  increased by $79,000,  as compared to the
same period of 2005.

                                       17
<PAGE>


Noninterest Expenses

         Noninterest  expenses for the second quarter of 2006 were $407,000,  or
9.6%, higher than the amounts reported for the same period of 2005. Salaries and
employee benefits expenses were $419,000,  or 18.0%,  higher in the 2006 period,
due to higher  commission-based  compensation  expenses resulting from increased
activity  in  mortgage  lending  as well  as  additions  made  to the  Company's
executive  managment.  Expenses  related to premises and equipment  increased by
$63,000 in the 2006 period,  primarily due to the Company's occupancy of its new
headquarters and operations center building during the first quarter of 2006.

         Noninterest  expense for the first six months of 2006 was $915,000,  or
11.0%, more than for the same period of 2005. Salaries and employee benefits for
the 2006 six month period were $720,000, or 15.6%, more than for the same period
of 2005. This expense  increased due to higher levels of mortgage loan brokerage
commission-based compensation incurred in the 2006 period, additions made to the
Company's  executive  management,   increased  employee   participation  in  the
Company's 401(k) plan, and normal periodic wage and salary adjustments. Expenses
associated  with premises and equipment were $152,000,  or 14.0%,  higher in the
2006 period,  primarily due to the Company's  occupancy of its new  headquarters
and operations center building during the first quarter of 2006.


Income Taxes

         Income tax expense was  $129,000  less in the 2006 second  quarter than
for the 2005 period,  as a result of lower net income before  taxes.  Income tax
expense for the 2006 six month period was $184,000 less than for the same period
of 2005.


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


                                       18
<PAGE>

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.

         CBI's  banking  subsidiaries  maintain  various  federal funds lines of
credit  with  correspondent  banks.  The banks are also able to borrow  from the
Federal  Home Loan Bank of  Atlanta  ("FHLB")  and the  Federal  Reserve  Bank's
discount  window  using their loan  portfolios  as  security.  During the second
quarter  of  2006,  the  FHLB  suspended  the  ability  of one of the  Company's
subsidiary  banks to obtain  additional  financing  from the FHLB because of the
increase in nonperforming  and potential problem loans at that bank. This action
reduced by  approximately  $10,078,000  the  amount  previously  reported  as of
December 31, 2005 as available to the Company from the FHLB. The suspension does
not, however,  accelerate repayment of any of that subsidiary bank's outstanding
obligations.  The bank has not obtained any advances under that line for several
years, had no immediate or short-term plans to do so and, accordingly,  does not
anticipate that this will materially impair the bank's liquidity planning.

         Total  deposits  as of June 30, 2006 were  $459,243,000,  a decrease of
$4,966,000,  or 1.1%, from the amount as of December 31, 2005.  During the first
six  months of 2006,  there was a notable  movement  of funds  from  noninterest
bearing demand deposit accounts and  interest-bearing  transaction accounts into
savings and  certificate  of deposit  accounts.  Such transfers of funds are the
expected result of higher rates of interest, and larger differentials from rates
paid for highly liquid  interest-bearing  deposit  accounts,  that are currently
paid for  longer-term,  fixed  rate  deposits.  As of June 30,  2006 the loan to
deposit ratio,  excluding loans held for sale, was 91.3%, compared with 89.2% at
December 31, 2005 and 95.5% at June 30, 2005.

         Management  believes CBI's 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.

         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
loan  brokerage  activities,  and for other general  corporate  purposes.  Under
current  regulatory  guidelines,  the trust preferred  securities  issued by the
Trust are includible in CBI's Tier 1 capital for risk-based capital purposes.

         The June 30,  2006  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:



                                       19
<PAGE>

<TABLE>
<CAPTION>
                                                                                                      June 30, 2006
                                                                                                      -------------
                                                                                       Tier 1         Total Capital        Leverage
                                                                                       ------         -------------        --------
<S>                                                                                    <C>               <C>                <C>
Community Bankshares, Inc. ..........................................                  13.28%            14.46%             10.13%
Orangeburg National Bank ............................................                  11.35%            12.40%              8.71%
Sumter National Bank ................................................                  10.69%            12.00%              7.60%
Florence National Bank ..............................................                  10.11%            11.36%              8.62%
Bank of Ridgeway ....................................................                  11.13%            12.33%              8.11%
Minimum "well capitalized" requirement ..............................                   6.00%            10.00%              6.00%
Minimum requirement .................................................                   4.00%             8.00%              5.00%
</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.


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.

Variable Interest Entity

         As discussed  under  "Capital  Resources" and in the notes to unaudited
consolidated  financial  statements under "Variable Interest Entity," as of June
30, 2006, CBI held an equity  interest in, and guarantees the  liabilities of, a
non-consolidated variable interest entity, SCB Capital Trust I.

Commitments

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

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

                                                        June 30, 2006
                                                        -------------
                                                         (Dollars in
                                                          thousands)
Loan commitments ...................................      $ 54,598
Standby letters of credit ..........................         2,533



                                       20
<PAGE>

         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  fully 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.

         In  mid-2005,  CBI reached an agreement  with Jack Henry &  Associates,
Inc. to obtain licensing rights for a new core management  information  software
system, known as Silverlake, which will be used by each of its subsidiaries. The
cost of this  core  system  conversion  will be  approximately  $1,000,000.  The
agreement  also  requires  CBI to pay  various  support  and  maintenance  costs
throughout the licensing  period.  CBI estimates that during the next five years
these  costs  will range  from  approximately  $200,000  to  $300,000  per year.
However,  the exact amounts will be determined by future  events,  such as asset
growth, and cannot be exactly  determined at this time. The Orangeburg  National
Bank  subsidiary  was  converted  to the new  system  in June 2006 and the three
remaining  banks are  expected to be  converted  early in the fourth  quarter of
2006.

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
effectively  insulate  CBI from the effects of changes in interest  rates during
the time the commitments are outstanding, but the arrangements do not qualify 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.



                                       21
<PAGE>

         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,  2006,  and  the  estimated  fair  values  of  those  financial
instruments  included in other assets and liabilities in the balance sheet as of
that date.

                                                          June 30, 2006
                                                          -------------
                                                                    Estimated
                                                                    Fair Value
                                                    Notional          Asset
                                                     Amount        (Liability)
                                                     ------        -----------
                                                        (Dollars in thousands)
Rate lock commitments to potential borrowers
  to originate mortgage loans to be
  held for sale ................................   $ 33,426            $ (359)
Forward sales contracts with investors
  of mortgage loans to be held for sale ........     33,426               359



                                       22
<PAGE>

Status of Plans for Transition to a Single Bank Charter

         During the first and second quarters of 2006,  CBI's Board of Directors
and the boards of the  subsidiary  banks  approved a plan for a transition  to a
single bank charter under the name of Community  Resource Bank,  NA.  Contingent
upon receiving required legal and regulatory  approvals,  implementation of this
change is expected  early in the fourth  quarter of 2006.  CBI expects that this
change  ultimately  will  result  in  significant  financial  savings,  improved
operational  efficiency and  effectiveness,  improved  customer  service through
unified banking  products and services,  accelerated  approval of loan requests,
and  better  availability  of  ATM  and  in-bank  services  for  all  customers.
Significant  planning  activities  are ongoing for the  transition  phase of the
project.


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, 2006, CBI is positioned so that net
interest income would increase $120,000 and net income would increase $72,000 in
the next twelve months if interest rates rose 100 basis points.  Conversely, net
interest  income would decline  $120,000 and net income would decline $72,000 in



                                       23
<PAGE>

the next twelve months if interest rates declined 100 basis points.  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, 2006 there was no  significant  change from the interest
rate  sensitivity  analysis for the various changes in interest rates calculated
as of December 31, 2005. 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 2005 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)  or  240.15d-15(e)),   the  Company's  chief
executive  officer and chief financial  officer concluded that such controls and
procedures,  as of the end of the period covered by this quarterly report,  were
effective.

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





                                       24
<PAGE>

                           PART II--OTHER INFORMATION


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

     On Monday,  May 16, 2006, the  shareholders of Community  Bankshares,  Inc.
held their regular annual meeting. At the meeting, one matter was submitted to a
vote with results as follows:

1. Election of four directors to hold office for three-year terms:

                                                 SHARES VOTED
                                   ------------------------------------------
                                                  AGAINST OR          BROKER
   DIRECTORS                       FOR        AUTHORITY WITHHELD    NON-VOTES
                                   ---        ------------------    ---------

   Three-Year Terms
     E. J. Ayers, Jr.            3,124,186          18,717             0
     Alvis J. Bynum              3,137,169           5,734             0
     J. V. Nicholson, Jr.        3,080,013          62,890             0
     J. Otto Warren, Jr.         3,137,169           5,734             0

     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 2006 annual meeting:  Samuel L. Erwin - 2007; Anna O. Dantzler -
2007;  Richard L  Havekost  - 2007 and  Samuel F.  Reid,  Jr. - 2007;  Thomas B.
Edmunds - 2008; Martha Rose C. Carson - 2008; J. M. Guthrie - 2008; Wm. Reynolds
Williams - 2008; and Charles E. Fienning - 2008.

Item 6.  Exhibits

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

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

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








                                       25
<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 10, 2006

COMMUNITY BANKSHARES, INC.

By:  s/  Samuel L. Erwin
     -------------------------------------------
         Samuel L. Erwin
         Chief Executive Officer

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




                                       26
<PAGE>


                                  EXHIBIT INDEX

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

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

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








                                       27