UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D. C. 20549

FORM 10-Q

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

For the quarter period ended
June 30, 2002

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

For the transition period from _______ to _______

Commission File Number: 33-81890

Community Bankshares, Inc.



|Georgia                         |  | 58-1415887         
|------------------------------- |  | -------------------
|(State or other jurisdiction of |  | (IRS Employer      
|incorporation or organization)  |  | Identification No.)
|                                |  |                    



|448 North Main Street,                   |  |           
|---------------------------------------- |  | ----------
|Cornelia, Georgia                        |  | 30531     
|(Address of principal executive offices) |  | (Zip Code)

(706) 778-2265

N/A

---

Indicate by check mark whether the registrant has (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  þ     No      ̈

APPLICABLE ONLY TO CORPORATE ISSUERS

Indicate the number of shares outstanding of each of the issuer’s classes of common
stock, as of August 7, 2002: 2,175,418

---



COMMUNITY BANKSHARES, INC.
AND SUBSIDIARIES
INDEXPage No.PART I.
FINANCIAL INFORMATION
2Item 1.
Financial Statements
2Consolidated
Balance Sheets -June 30, 2002 and December 31, 2001
2Consolidated Statements of
Incomeand Comprehensive Income for ThreeMonths Ended June 30, 2002 and 2001and Six Months Ended June 30, 2002and 2001
3Consolidated
Statements of Cash Flows -Six Months Ended June 30, 2002 and 2001
4Notes to
Consolidated  Financial Statements
5Item 2.
Managements Discussion and Analysis ofFinancial Condition and Results of
Operations
10PART II
OTHER INFORMATIONItem 4.
Submission of Matters to a Vote of Security
Holders
16Item 6.
Exhibits and Reports on Form 8 - K
16Signatures
17




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PART I - FINANCIAL INFORMATION

ITEM 1.           
FINANCIAL
STATEMENTS



COMMUNITY BANKSHARES, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 2002 AND DECEMBER 31, 2001(Dollars in thousands)

|                                                                                                                                                                    |   | (Unaudited) |  |   |        
|------------------------------------------------------------------------------------------------------------------------------------------------------------------- | - | ----------- |  | - | -------
|Assets                                                                                                                                                              |   | 2002        |  |   | 2001   
|                                                                                                                                                                    |   |             |  |   |        
|                                                                                                                                                                    |   |             |  |   |        
|Cash and due from banks                                                                                                                                             | $ | 37,512      |  | $ | 37,182 
|Interest-bearing deposits in banks                                                                                                                                  |   | 308         |  |   | 410    
|Federal funds sold                                                                                                                                                  |   | 13,510      |  |   | 16,360 
|Securities available-for-sale                                                                                                                                       |   | 94,482      |  |   | 77,901 
|Securities held-to-maturity (fair value$29,812 and $30,384)                                                                                                         |   | 28,432      |  |   | 29,602 
|Restricted equity securities                                                                                                                                        |   | 1,215       |  |   | 1,215  
|                                                                                                                                                                    |   |             |  |   |        
|Loans                                                                                                                                                               |   | 463,668     |  |   | 455,791
|Less allowance for loan losses                                                                                                                                      |   | 6,868       |  |   | 6,652  
|                                                                                                                                                                    |   |             |  |   |        
|Loans, net                                                                                                                                                          |   | 456,800     |  |   | 449,139
|                                                                                                                                                                    |   |             |  |   |        
|                                                                                                                                                                    |   |             |  |   |        
|Premises and equipment                                                                                                                                              |   | 15,356      |  |   | 15,879 
|Other assets                                                                                                                                                        |   | 18,394      |  |   | 18,521 
|                                                                                                                                                                    |   |             |  |   |        
|                                                                                                                                                                    |   |             |  |   |        
|Total
assets                                                                                                                                                        | $ | 666,009     |  | $ | 646,209
|                                                                                                                                                                    |   |             |  |   |        
|                                                                                                                                                                    |   |             |  |   |        
|Liabilities, Redeemable Common Stock and Shareholders'
Equity                                                                                                       |   |             |  |   |        
|                                                                                                                                                                    |   |             |  |   |        
|Deposits                                                                                                                                                            |   |             |  |   |        
|Non-interest-bearing demand                                                                                                                                         | $ | 83,024      |  | $ | 81,174 
|Interest-bearing demand                                                                                                                                             |   | 131,777     |  |   | 131,034
|Savings                                                                                                                                                             |   | 30,425      |  |   | 26,500 
|Time, $100,000 and over                                                                                                                                             |   | 118,910     |  |   | 113,545
|Other time                                                                                                                                                          |   | 217,211     |  |   | 209,962
|                                                                                                                                                                    |   |             |  |   |        
|Total
deposits                                                                                                                                                      |   | 581,347     |  |   | 562,215
|                                                                                                                                                                    |   |             |  |   |        
|Other borrowings                                                                                                                                                    |   | 11,958      |  |   | 12,070 
|Other liabilities                                                                                                                                                   |   | 10,705      |  |   | 13,321 
|                                                                                                                                                                    |   |             |  |   |        
|Total
liabilities                                                                                                                                                   |   | 604,010     |  |   | 587,606
|                                                                                                                                                                    |   |             |  |   |        
|                                                                                                                                                                    |   |             |  |   |        
|Redeemable common stock held by ESOP, net of unearned ESOP
shares related to
ESOP debt guarantee of $1,550,000 at June 30, 2002
and December 31, 2001, respectively |   | 14,844      |  |   | 15,160 
|                                                                                                                                                                    |   |             |  |   |        
|                                                                                                                                                                    |   |             |  |   |        
|Shareholders' equity                                                                                                                                                |   |             |  |   |        
|Common stock, par value $1; 5,000,000shares authorized; 2,186,330
outstanding                                                                                       |   | 2,186       |  |   | 2,186  
|Capital surplus                                                                                                                                                     |   | 6,182       |  |   | 6,182  
|Retained earnings                                                                                                                                                   |   | 38,354      |  |   | 35,071 
|Accumulated other comprehensive income,net of tax                                                                                                                   |   | 884         |  |   | 4      
|Less 10,912 shares of Treasury stock at June 30,
2002                                                                                                               |   | (451)       |  |   | 0      
|                                                                                                                                                                    |   |             |  |   |        
|Total shareholders'
equity                                                                                                                                          |   | 47,155      |  |   | 43,443 
|                                                                                                                                                                    |   |             |  |   |        
|                                                                                                                                                                    |   |             |  |   |        
|Total liabilities, redeemable common stock and shareholders'
equity                                                                                                 | $ | 666,009     |  | $ | 646,209
|                                                                                                                                                                    |   |             |  |   |        
|                                                                                                                                                                    |   |             |  |   |        
|See Notes to Consolidated Financial Statements.                                                                                                                     |   |             |  |   |        

2

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COMMUNITY BANKSHARES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
AND COMPREHESIVE INCOME
THREE MONTHS ENDED JUNE 30, 2002 AND 2001 AND
SIX MONTHS ENDED JUNE 30, 2002 AND 2001
(Dollars in thousands, except per share amounts)(Unaudited)



|COMMUNITY BANKSHARES, INC.                      
|------------------------------------------------
|AND SUBSIDIARIES                                
|CONSOLIDATED STATEMENTS OF INCOME               
|AND COMPREHESIVE INCOME                         
|THREE MONTHS ENDED JUNE 30, 2002 AND 2001
AND   
|SIX MONTHS ENDED JUNE 30, 2002 AND 2001         
|(Dollars in thousands, except per share amounts)
|(Unaudited)                                     

Three Months Ended
  June 30,

Six Months Ended
  June 30,2002

2001

2002

2001Interest incomeLoans

  
$
  9,307
$
  10,872
$
  18,703
$
21,811Taxable securities

739

687

1,366

1,385Nontaxable securities

742

628

1,439

1,221Deposits in banks

3

7

6

14Federal funds sold

107

228

211

448Total interest income

10,898

12,422

21,725

24,879Interest expense on depositsDeposits

3,985

5,942

8,264

11,964Other borrowings

169

163

337

327Total interest expense

4,154

6,105

8,601

12,291Net interest income

6,744

6,317

13,124

12,588Provision for loan losses

524

394

1,053

800Net interest income after 
               Provision for loan losses

6,220

5,923

12,071

11,788Other incomeService charges on deposit accounts

1,326

1,096

2,491

2,065Other service charges and fees

365

281

702

572Gains on sale of loans

33

11

47

63Nonbank subsidiary non-interest income

2,218

2,478

4,157

6,137Security transactions, net

(6)

--

139

--Other operating income

177

156

393

377Total other income

4,113

4,022

7,929

9,214Other expensesSalaries and employee benefits

4,281

4,101

8,675

8,512Equipment expense

796

841

1,565

1,642Occupancy expense

450

445

903

872Other operating expenses

2,165

2,254

4,375

4,803Total other expenses

7,692

7,641

15,518

15,829Income before income taxes

2,641

2,304

4,482

5,173Income tax expense

768

649

1,253

1,551Net income
$
1,873
$
1,655
$
3,229
$
3,622Other comprehensive income:Unrealized gains (losses) on securities:
          Unrealized holding gains (losses)  arising during  Periods

1,184

(110)

963

357Reclassification adjustment  for (gains) losses realized in net 
                    income

4

--

(83)

--Total other comprehensive income (loss)

1,188

(110)

880

357Comprehensive income
$
3,061
$
1,545
$
4,109
$
3,979Basic earnings per common share
$
0.86
$
0.76
$
1.48
$
1.66Diluted earnings per common share
$
0.85
$
0.75
$
1.47
$
1.64Cash dividends per share of common stock
$
0.06
$
0.05
$
0.12
$
.10See Notes to Consolidated Financial Statements.


3

---



COMMUNITY BANKSHARES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2002 AND 2001
(Dollars in thousands)(Unaudited)

|                                                                                |   | 2002     |   | 2001    
|------------------------------------------------------------------------------- | - | -------- | - | --------
|                                                                                |   |          |   |         
|                                                                                |   |          |   |         
|OPERATING ACTIVITIES                                                            |   |          |   |         
|Net income                                                                      | $ | 3,229    | $ | 3,622   
|Adjustments to reconcile net income tonet cash provided by
operatingactivities: |   |          |   |         
|Depreciation and
amortization                                                   |   | 1,616    |   | 1,657   
|Provision for loan
losses                                                       |   | 1,053    |   | 800     
|Deferred income taxes                                                           |   | 449      |   | (206)   
|Decrease in loans held for
sale                                                 |   | 0        |   | 585     
|Net (gains) losses on sale of
securities                                        |   | (139)    |   | 0       
|Net (gains) losses on sale of
other real estate                                 |   | 34       |   | 14      
|Decrease in interest
receivable                                                 |   | 544      |   | 103     
|Increase (decrease) in interest
payable                                         |   | (1,091)  |   | 116     
|Increase (decrease) in taxes
payable                                            |   | 93       |   | (860)   
|Decrease in accountsreceivable of nonbank
subsidiary                            |   | 559      |   | 737     
|Decrease in work inprocess of nonbank
subsidiary                                |   | 174      |   | 555     
|Decrease in accruals and
payablesof nonbank
subsidiary                          |   | (1,107)  |   | (4,384) 
|Other operating
activities                                                      |   | (2,018)  |   | (731)   
|                                                                                |   |          |   |         
|                                                                                |   |          |   |         
|Net cash provided byoperating
activities                                        |   | 3,396    |   | 2,008   
|                                                                                |   |          |   |         
|                                                                                |   |          |   |         
|INVESTING ACTIVITIES                                                            |   |          |   |         
|Purchases of securities available-for-sale                                      |   | (25,642) |   | (19,937)
|Proceeds from sales of securities available for
sale                            |   | 5,119    |   | ---     
|Proceeds from maturities of securitiesavailable-for-sale                        |   | 5,548    |   | 11,065  
|Proceeds from maturities of securitiesheld-to-maturity                          |   | 1,170    |   | 1,352   
|Net 
decrease in Federal funds sold                                             |   | 2,850    |   | 200     
|Net  decrease in interest-bearingdeposits in banks                              |   | 101      |   | 27      
|Net increase in loans                                                           |   | (12,147) |   | (20,733)
|Purchase of premises and equipment                                              |   | (880)    |   | (2,552) 
|Proceeds from sales of premises and equipment                                   |   | 8        |   | ---     
|Proceeds from sales of other real estate                                        |   | 2,500    |   | 433     
|                                                                                |   |          |   |         
|                                                                                |   |          |   |         
|Net cash used ininvesting activities                                            |   | (21,373) |   | (30,145)
|                                                                                |   |          |   |         
|                                                                                |   |          |   |         
|FINANCING ACTIVITIES                                                            |   |          |   |         
|Net increase in deposits                                                        |   | 19,132   |   | 19,793  
|Repayment of other borrowings                                                   |   | (112)    |   | (112)   
|Proceeds for the exercise of stock options                                      |   | 0        |   | 30      
|Dividends paid                                                                  |   | (262)    |   | (218)   
|Purchase of treasury stock                                                      |   | (451)    |   | 0       
|                                                                                |   |          |   |         
|Net cash provided by                                                            |   |          |   |         
|Financing
activities                                                            |   | 18,307   |   | 19,493  
|                                                                                |   |          |   |         
|                                                                                |   |          |   |         
|Net increase (decrease) in cash and                                             |   |          |   |         
|Due from banks                                                                  | $ | 330      | $ | (8,644) 
|                                                                                |   |          |   |         
|Cash and due from banks at beginning of the
period                              |   | 37,182   |   | 38,410  
|                                                                                |   |          |   |         
|                                                                                |   |          |   |         
|Cash and due from banks at end of the period                                    | $ | 37,512   | $ | 29,766  
|                                                                                |   |          |   |         
|                                                                                |   |          |   |         
|SUPPLEMENTAL
DISCLOSURESCash paid for:Interest                                  | $ | 9,693    | $ | 12,175  
|                                                                                |   |          |   |         
|Income taxes                                                                    | $ | 1,291    | $ | 2,657   
|                                                                                |   |          |   |         
|NONCASH TRANSACTIONSPrincipal balance of loan transferred to other real
estate  | $ | 3,433    | $ | 429     

See Notes to Consolidated Financial Statements

4

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COMMUNITY BANKSHARES, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



NOTE 1.          BASIS OF
PRESENTATION

The consolidated financial information included herein is unaudited; however, such
information reflects all adjustments (consisting solely of normal recurring adjustments) which are, in our opinion, necessary for a
fair statement of results for the interim periods.

The results of operations for the three and six month periods ending June 30, 2002 are not
necessarily indicative of the results to be expected for the full year.

NOTE 2.         RECENT DEVELOPMENTS

In July 2001, the Financial Accounting Standards Board (“FASB”) issued
Statement No. 141 (SFAS No. 141), “Business Combinations” and Statement No. 142 (SFAS No. 142), “Goodwill and
Other Intangible Assets”.  SFAS No. 141 requires that the purchase method of accounting be used for all business
combinations initiated after June 30, 2001.  SFAS No. 141 also specifies criteria that intangible assets acquired in a
purchase method business combination must meet to be recognized and reported apart from goodwill.  SFAS No. 142 requires that
goodwill and intangible assets with indefinite useful lives no longer be amortized, but instead tested for impairment at least
annually in accordance with the provisions of SFAS No. 142.  The impact of this change has resulted in a reduction of
amortization expense of $2,000 per quarter.  Goodwill was evaluated prior to June 30, 2002 and it was determined no write-down
because of impairment was warranted.  SFAS No. 142 also requires that intangible assets with estimable useful lives be
amortized over their respective estimated useful lives to their estimated residual values, and reviewed for impairment.  SFAS
No. 141 was effective July 1, 2001 while the provisions of SFAS No. 142 were adopted effective January 1, 2002.

NOTE 3.         
EARNINGS PER COMMON
SHARE

The following is a reconciliation of net income (the numerator) and weighted-average
shares outstanding (the denominator) used in determining basic and diluted earnings per common share (EPS).

5

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|                                           | Three Months Ended June 30, 2002
( Dollars and shares in Thousands,
except per share amounts)
|------------------------------------------ | ---------------------------------------------------------------------------------------------
|                                           | Net
Income
(Numerator)                                                                       
|                                           |                                                                                              
|Basic EPS                                  | $1,873                                                                                       
|Effect of Dilutive SecuritiesStock options | 0                                                                                            
|                                           |                                                                                              
|Diluted EPS                                | $1,873                                                                                       
|                                           |                                                                                              
|                                           |                                                                                              
|                                           |                                                                                              
|                                           | Three Months Ended June 30, 2001
(Dollars and shares in Thousands,
except per share amounts) 
|                                           | Net
Income
(Numerator)                                                                       
|                                           |                                                                                              
|                                           |                                                                                              
|Basic EPS                                  | $1,655                                                                                       
|Effect of Dilutive SecuritiesStock options | 0                                                                                            
|                                           |                                                                                              
|Diluted EPS                                | $1,655                                                                                       
|                                           |                                                                                              
|                                           |                                                                                              
|                                           | Six Months Ended June 30, 2002
( Dollars and shares in Thousands,
except per share amounts)  
|                                           | Net
Income
(Numerator)                                                                       
|                                           |                                                                                              
|Basic EPS                                  | $3,229                                                                                       
|Effect of Dilutive SecuritiesStock options | 0                                                                                            
|                                           |                                                                                              
|Diluted EPS                                | $3,229                                                                                       
|                                           |                                                                                              

6

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|                                           | Six Months Ended June 30, 2001
(Dollars and shares in Thousands,
except per share amounts)
|------------------------------------------ | ------------------------------------------------------------------------------------------
|                                           | Net
Income
(Numerator)                                                                    
|                                           |                                                                                           
|                                           |                                                                                           
|                                           |                                                                                           
|Basic EPS                                  | $3,622                                                                                    
|Effect of Dilutive SecuritiesStock options | 0                                                                                         
|                                           |                                                                                           
|Diluted EPS                                | $3,622                                                                                    
|                                           |                                                                                           

NOTE 4         
SEGMENT
INFORMATION

Selected segment information by industry segment for the three and six month periods ended
June 30, 2002 and 2001 is as follows:

| |                                                | Reportable Segments(Dollars in thousands)
| | ---------------------------------------------- | -----------------------------------------
| |                                                |                                          
| | For the three month period ended June 30, 2002 |                                          
| |                                                |                                          
| |                                                |                                          
| | Revenue from external customers                |                                          
| | Intersegment revenues (expenses)               |                                          
| | Segment profit (loss)                          |                                          
| | Segment assets                                 |                                          



| |                                                | Reportable Segments(Dollars in thousands)
| | ---------------------------------------------- | -----------------------------------------
| |                                                |                                          
| | For the three month period ended June 30, 2001 |                                          
| |                                                |                                          
| |                                                |                                          
| | Revenue from external customers                |                                          
| | Intersegment revenues (expenses)               |                                          
| | Segment profit (loss)                          |                                          
| | Segment assets                                 |                                          

7

---



| |                                              | Reportable Segments(Dollars in thousands)
| | -------------------------------------------- | -----------------------------------------
| |                                              |                                          
| | For the six month period ended June 30,
2002 |                                          
| |                                              |                                          
| |                                              |                                          
| | Revenue from external customers              |                                          
| | Intersegment revenues (expenses)             |                                          
| | Segment profit (loss)                        |                                          
| | Segment assets                               |                                          



| |                                              | Reportable Segments(Dollars in thousands)
| | -------------------------------------------- | -----------------------------------------
| |                                              |                                          
| | For the six month period ended June 30, 2001 |                                          
| |                                              |                                          
| |                                              |                                          
| | Revenue from external customers              |                                          
| | Intersegment revenues (expenses)             |                                          
| | Segment profit (loss)                        |                                          
| | Segment assets                               |                                          



| |                                            |   | For the three months
Ended June 30, |  |   | For the six months
Ended June 30,
| | ------------------------------------------ | - | ----------------------------------- |  | - | ---------------------------------
| |                                            |   |                                     |  |   |                                  
| |                                            |   | 2002                                |  |   | 2001                             
| |                                            |   |                                     |  |   |                                  
| |                                            |   |                                     |  |   |                                  
| | Net Income                                 |   |                                     |  |   |                                  
| | Total profit for reportable segments       | $ | 2,238                               |  | $ | 2,065                            
| | Non-reportable segment loss                |   | (341)                               |  |   | (356)                            
| | Elimination of intersegment (gains) losses |   | (24)                                |  | $ | (54)                             
| | Total consolidated other income            | $ | 1,873                               |  |   | 1,655                            

8

---



|Total
Assets                         |   | 2002    
|------------------------------------ | - | --------
|Total assets for reportable
segments | $ | 683,748 
|Non-reportable segment
assets        |   | 5,882   
|Elimination of intersegment
assets   |   | (23,621)
|                                     |   |         
|Total consolidated assets            | $ | 666,009 





9

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COMMUNITY BANKSHARES, INC.
AND SUBSIDIARIES



Item 2.

MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS



Forward Looking Statements

The following appears in accordance with the Securities Litigation Reform Act.  These
financial statements and discussion and analysis include forward looking statements that involve inherent risks and
uncertainties.  A number of important factors could cause actual results to differ materially from those in the forward
looking statements.  Those factors include fluctuations in interest rates, inflation, government regulations, economic
conditions, and competition in the geographic business areas in which we conduct operations.

The terrorist attacks that occurred in New York City and Washington D.C. on September 11,
2001, and the United States’ subsequent response to these events have resulted in a general economic slowdown that may
adversely effect our banking business.  Economic slowdowns or recessions in our primary market areas may be accompanied by
reduced demand for credit, decreasing interest margins and declining real estate values, which may in turn result in a decrease in
net earnings and an increased possibility of potential loan losses in the event of default.  Any sustained period of decreased
economic activity, increased delinquencies, foreclosures or losses could limit our growth and negatively affect our results of
operations.  We cannot predict the extent, duration of these events or effect upon our business and operations.  We will,
however, closely monitor the effect of these events upon our business, and make adjustments to our business strategy as deemed
necessary.

Management’s Discussion and Analysis

The following is management’s discussion and analysis of certain significant factors
which have affected our financial position and operating results during the periods included in the accompanying consolidated
financial statements.

Financial Condition

As of June 30, 2002, we continue to experience moderate growth in total assets, total
loans and total deposits as compared to December 31, 2001.  Total assets, loans, and deposits increased by 5.06%, 1.73% and
3.40% respectively.  The growth in all areas except for loans is slightly less than the same period last year but consistent
with management’s expectations. The growth in assets is attributable to growth in deposits and retention of earnings. 
Management expects the growth to continue in the future.

Liquidity

As of June 30, 2002, the liquidity ratio was 21.79% which is within our target range of 20
- 25%.  The banks have available lines of credit to meet unexpected liquidity needs.  Liquidity is measured by the ratio
of net cash, short term and marketable securities to net deposits and short term liabilities.

Interest Rate Risk

Our overall interest rate risk was less than 3% of net interest income subjected to rising
and falling rates of 200 basis points.  We have positioned ourselves to minimize the affect of changes in rates in either
direction.

10

---



Capital

Banking regulation requires the Company and the Banks to maintain capital levels in
relation to our assets.  At June 30, 2002, the Company’s and banks' capital ratios were considered well capitalized
based on regulatory minimum capital requirements.  The minimum capital requirements and the actual capital ratios for the
Company at June 30, 2002 were as follows:

|                             | Actual | Regulatory Minimum
|---------------------------- | ------ | ------------------
|                             |        |                   
|Leverage                     | 8.85%  | 4.00%             
|Risked Based Capital ratios: |        |                   
|Core Capital                 | 12.13% | 4.00%             
|Total Capital                | 13.38% | 8.00%             

Results of Operation

Net interest income for the six month period ended June 30, 2002 is up 4.26% over the same
period for 2001, from $12,588,000 to $13,124,000 and is up 6.76% for the three month period ending June 30, 2002 from $6,317,000 to
$6,744,000 for 2002.  Interest income was down by 12.68% for the six month period ending June 30, 2002 from $24,879,000 to
$21,725,000 and down 12.27% for the three month period ending June 30, 2002 from $12,422,000 to $10,898,000. The decrease in
interest income is the net effect of a decrease in the average prime rate of over 3% from the level of the same period one year ago
and an increase in earning assets of $50,882,000 from June 2001 to June 2002.  This represents a 9.24% increase in earning
assets and includes a 23.66% increase in investments of $23,751,000 and a 5.86% increase in total loans amounting to $25,665,000
for the 12 month period.  Interest expense was down 30.02% or $3,690,000 for the six month period ended June 30, 2002, over
the same period in 2001 and down 31.95% or $1,951,000 for the three month period ending June 30, 2002, as compared to 2001. 
These decreases were related directly to the lower rate environment.  The Company’s net interest margin was 4.43% for
the six month period ended June 30,2002 compared to 4.74% for the same period in 2001.  Management anticipates a stable net
interest margin over the next twelve months.   Any increase in rates would have a slight positive effect on our net
interest margin.

The loan loss reserve is evaluated monthly and adjusted to reflect the risk in the
portfolio in the following manner.  We use two different methods of measuring risk in the portfolio: (1) Risk in our watch
list of loans and past due ratios and (2) Percentage of classified loans.  We then compare results to reserve balances to
assure  all identified risk are covered.

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The following table furnishes information on the loan loss reserve for the current six
month reporting period and the same period for 2001.

| |                         | 2002    | 2001    | 
| | ----------------------- | ------- | ------- | 
| |                         |         |         | 
| | Beginning Balance       | $ 6,652 | $ 6,306 | 
| |                         |         |         | 
| | Less Charge Offs:       |         |         | 
| | Commercial Loans        | (93)    | (41)    | 
| | Real Estate Loans       | (368)   | (115)   | 
| | Consumer Loans          | (468)   | (540)   | 
| |                         |         |         | 
| |                         | (929)   | (696)   | 
| |                         |         |         | 
| | Plus Recoveries         |         |         | 
| | Commercial Loans        | 1       | 14      | 
| | Real Estate Loans       | 5       | 7       | 
| | Consumer Loans          | 86      | 39      | 
| |                         |         |         | 
| |                         | 92      | 60      | 
| |                         |         |         | 
| | Net Charge-offs         | (837)   | (636)   | 
| |                         |         |         | 
| | Provision for loan loss | 1,053   | 800     | 
| |                         |         |         | 
| | Ending Balance          | $ 6,868 | $ 6,470 | 
| |                         |         |         | 

The majority of the real estate loan charge-offs for 2002 related to one loan and does not
represent a general decline in the real estate portfolio.  The provision for loan losses for the six month period ended June
30, 2002 represented 113% of charge-offs for the same period, while the provision for the first six months of 2001 represented 115%
of the charge offs recorded in that period.  The reserve at June 30, 2002 represented 214% of non-accrual loans while the
reserve at June 30, 2001 represented 193% of non-accrual loans.  Non-accrual loans have decreased from $3,355,000 at June 30,
2001 to $3,202,000 as of June 30, 2002.  Past due loans greater than 90 days and accruing interest have decreased from
$3,154,000 in 2001 to $1,199,000 in 2002.  The level of non-accrual loans is indicative of the overall state of the
economy.  Our net charged-off loans to total loan ratio was .18% for the six month period ended June 30, 2002 compared to .15%
for the same period in 2001.  Management has reviewed the non-accrual loans individually and determined that the likelihood
of any significant loss of principal is mitigated due to the value of the collateral securing these loans.  We are currently
within our guideline of maintaining a loan loss reserve of 200% of non-performing assets.  The loan loss reserve balance to
total loan ratio at June 30, 2002 was 1.48% as compared to 1.48% at June 30, 2001. 
Management considered the loan loss
reserve to be adequate to absorb any anticipated losses that may be incurred.

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The following table is a summary of Non Accrual, Past due and Restructured Debt

|June 30, 2002
|-------------
|             
|             
|             
|             
|             
|             
|             
|             
|             



|June 30,
  2001
|---------------
|               
|               
|               
|               
|               
|               
|               
|               
|               

Loans classified for regulatory purposes as loss, doubtful, substandard, or special
mention that have not been included in the table above do not represent or result from trends or uncertainties which management
reasonably expects will materially impact future operating results, liquidity or capital resources.  These classified loans do
not represent material credits about which management is aware of any information which causes management to have serious doubts as
to the ability of such borrowers to comply with the loan payment terms.

The banks place loans on non-accrual at such a time it is apparent that the collection of
principal and interest is questionable and the loan is either past due 90 days or bankruptcy has been filed.

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Other income decreased by 13.95% or $1,285,000 during the six month period ended June 30,
2002 as compared to the same period for 2001 and the three month period ending June 30, 2002 showed a 2.26% or $91,000 increase
over the same three month period of 2001.  This decrease for the six month period is primarily due to the decrease in activity
associated with an agreement between Financial Supermarkets, Inc. (FSI), a nonbank subsidiary, and the Canadian Imperial Bank of
Commerce (“CIBC”) to establish banking pavilions in Florida.  Due to slowing economic conditions, management
anticipates fewer sales of supermarket bank units and thus anticipates a decline in revenue during 2002 as compared to 2001. 
Service charges on deposit accounts increased by $426,000 or 20.63% for the six month period ended June 30, 2002, and increased
$230,000 or 20.99% for the three month period ended June 30, 2002, as compared to the same periods in 2001.  During the last
two quarters of 2001, the banks started charging a daily overdraft fee on accounts that are overdrawn more than one day. 
During the six and three month periods ended June 30, 2002, these fees totaled $318,000 and $169,000 respectively. 
Non-sufficient funds (NSF) charges increased $69,000 and $38,000 for the six month period and the three month period ended June 30,
2002, respectively, compared to the same period in 2001.  NSF charges increased primarily as a result of our continued growth
in accounts in the totally free checking program.

Other expenses decreased by 1.97% or $311,000 for the six month period ended June 30,
2002, but increased 0.67% or $51,000 for the three month period ending June 30, 2002 as compared to the same periods in 2001. 
Salaries and benefits increased by $163,000 or 1.92% during the six month period ended June 30, 2002 compared to the same period in
2001.  Full time equivalent employees was 378 at the end of June 2001 and June 2002.  Other operating expenses reflected
a reduction of 8.91% or $428,000 for the six month period ending June 30, 2002 when compared to the six month period ended June 30,
2001 and a 3.9%  decrease for the three month period ending June 30, 2002 compared to the same period in 2001.  In other
operating expenses, travel expenses decreased 33.41% or $278,000 for the six month period ended June 30, 2002, and
30.81% or $114,000 for the three month period ended June 30, 2002.  These decreases are due to a slow down in non-bank subsidiary travel
during the first half of 2002.  In addition, legal fees decreased by 51.15% or
$89,000 for the six month period ended June
30, 2002 and 32.35% or $22,000.00 for the three month period ended June 30, 2002 when compared to the same periods in
2001.

We incurred income tax expenses of $768,000 which represents an effective rate of 29% for
the three month period ended June 30, 2002 as compared to $649,000 which represents an effective tax rate of 28% for the same
period in 2001.  In addition, we incurred income tax expenses of $1,253,000 which represents an effective rate of 28% for the
six month period ended June 30, 2002 as compared to $1,551,000 which represents an effective tax rate of 30% for the same period in
2001.

Net income for the six month period ended June 30, 2002, was $3,229,000 or a decrease of
10.85% and for the three month period ended June 30, 2002, was $1,873,000 or an increase of 13.17% over the same periods for
2001.  Our income fluctuated due to the timing of supermarket bank installations.Management does not anticipate meeting its
original budgeted projections and management cannot guarantee an overall increase in earnings in 2002 compared to 2001 due to the
variation in the number of supermarket bank installations from year to year.

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We are not aware of any other known trends, events or uncertainties, other than the effect
of events as described above, that will have or that are reasonably likely to have a material effect on its liquidity, capital
resources or operations.  We are also not aware of any current recommendations by the regulatory authorities which, if they
were implemented, would have such an effect.

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PART II - OTHER INFORMATION



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

The Annual Meeting of the Shareholders of the Company was held on April 10, 2002. 
Total shares outstanding amounted to 2,186,330.  A total of 1,759,535 (80.48%) were represented by shareholders in attendance
or by proxy.  The following directors were re-elected to serve for a one-year term. 
The results of the election were as
follows:

| |                        | Shares Voted:
| | ---------------------- | -------------
| |                        | For          
| |                        |              
| | Steven C. Adams        | 1,759,535    
| | Edwin B. Burr          | 1,759,535    
| | H. Calvin Stovall, Jr. | 1,759,535    
| | Dean C. Swanson        | 1,759,535    
| | George D. Telford      | 1,759,535    
| | Dr. A. Dan Windham     | 1,759,535    
| | J. Alton Wingate       | 1,759,535    
| | Lois M. Wood-Schroyer  | 1,759,535    

ITEM 6.        
Exhibits and Reports on Form
8-K

(a)       Exhibits

Exhibit 99 Certification
Pursuant to 18 U.S.C. Section 1350

(b)       Reports on Form 8-K

None

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SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

|                     | COMMUNITY BANKSHARES, INC.
|-------------------- | --------------------------
|                     |                           
|DATE: August 9, 2002 | By:                       
|                     |                           







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