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**UNITED STATES****SECURITIES AND EXCHANGECOMMISSION****WASHINGTON, D. C. 20549****FORM 10-Q**
Mark One
/X/     QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES EXCHANGE ACT OF 1934For the quarter period endedMarch 31, 2003
/  /     TRANSITION REPORT PURSUANT TOSECTION 13 OR 15 (d) OF THESECURITIES EXCHANGE ACT OF 1934For thetransition period from _______ to _______Commission File Number:33-81890
**Community Bankshares, Inc.**(Exact name ofregistrant as specified in its charter)
**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***(Registrant’s telephone number, including areacode)*
**N/A***(Former name, former address and former fiscal**year,if changed since last report)*
Indicate by check mark whether the registrant has (1) has  filed all reportsrequired to be filed by Section 13 or  15 (d) of the Securities Exchange Act of1934 during  the preceding 12 months (or for such shorter period  that theregistrant was required to file such reports)  and (2) has been subject to suchfiling requirements  for the past 90 days. Yes /X/ No /  /
Indicate by check whether the registrant is an accelerated filer (as defined inRule 12b-2 of the Exchange Act).  Yes /  / No /X/
Indicate the number of shares outstanding of each of the issuer’s classesof common stock, as of May 1, 2003: 2,150,710
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**COMMUNITY BANKSHARES, INC.****ANDSUBSIDIARIES****INDEX**
 
Page No.
**PART I. FINANCIAL INFORMATION**
 
Item 1.

Financial Statements
   
Consolidated Balance Sheets - 

 3 
March 31, 2003 and December 31, 2002
  
Consolidated Statements of Income

 4 
and Comprehensive Income for Three 
 
Months Ended March 31, 2003 and 2002
  
Consolidated Statements of Cash Flows - 

 5 
Three Months Ended March 31, 2003 and 2002
  
Notes to Consolidated Financial Statements

6 
Item 2.

Management’s Discussion and Analysis of

 8 
Financial Condition and Results of Operations
 
Item 3. 

Quantitative and Qualitative Disclosures about Market Risk

 13 
Item 4. 

Controls and Procedures

  
**PART II. OTHER INFORMATION**

  
Item 6.

Exhibits and Reports on Form 8 - K

   
Signatures

  
Certifications
 

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**PART I - FINANCIAL INFORMATION**
**ITEM 1.     FINANCIAL STATEMENTS**
**COMMUNITY BANKSHARES, INC.**
**AND SUBSIDIARIES**** **
**CONSOLIDATED BALANCE SHEETS**
**MARCH 31, 2003 AND DECEMBER 31, 2002**
*(Dollars in thousands)*   
(Unaudited)
 
**Assets**
**2003**
** **
**2002**
      
Cash and due from banks

$
41,894  
$
44,966 
Interest-bearing deposits in banks
 
66   
499 
Federal funds sold
 
31,750   
9,200 
Securities available-for-sale
 
100,347   
100,356 
Securities held-to-maturity (fair value     $27,233and $28,681)
 
25,437   
27,016 
Restricted equity securities
 
1,243   
1,215       
Loans 
 
500,803   
491,368 
Less allowance for loan losses 

7,681 
 
 7,742 

          Loans, net

493,122 
 
483,626 
      
Premises and equipment
 
15,855   
16,295 
Other assets

17,529 
 
17,073 
      
          Total assets

$
727,243 
  
$

700,246 
      
**Liabilities, Redeemable Common Stock and Shareholders’ Equity**
           
Deposits
     
  Noninterest-bearing demand

$
103,178  
$
87,650 
  Interest-bearing demand
 
146,318   
146,092 
  Savings
 
33,003   
30,228 
  Time, $100,000 and over
 
125,363   
123,991 
  Other time

228,207 
 
219,394 

          Total deposits
 
636,069   
607,355 
Other borrowings
 
16,518   
16,665 
Other liabilities

7,047 
 
 9,181 

          Totalliabilities

659,634 
 
633,201 
      
Redeemable common stock held by ESOP, net of unearned ESOP shares related toESOP debt guarantee of $1,266,083 and $1,363,831 at March 31,2003     and December 31, 2002, respectively

15,292 
 
15,194 
      

Shareholders’ equity 
     
     Common stock, par value $1;5,000,000     Shares authorized; 2,201,330     Shares issued 
 
2,201   
2,201 
     Capital surplus
 
6,315   
6,315 
     Retained earnings
 
44,030   
42,802 
     Accumulated other comprehensive income (loss),          net of tax
 

1,861   

1,962 
     Less cost of 49,472 and 34,573 shares of treasury          stock at March31, 2003 and December 31, 2002

(2,090)
 
(1,429)

              Totalshareholders’ equity

52,317 
 
51,851 
      
Total liabilities, redeemable common stock and shareholders’ equity

$

727,243 
  
$

700,246 
      
See Notes to Consolidated Financial Statements.
     
3
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**COMMUNITY BANKSHARES, INC.**
**AND SUBSIDIARIES**
**CONSOLIDATED STATEMENTS OF INCOME**
**AND COMPREHESIVE INCOME**
**THREE MONTHS ENDED MARCH 31, 2003 AND 2002**
**(Dollars in thousands, except per share amounts)**
**(Unaudited)**   
**Three Months Ended** 
**March 31,**
 
 

**2003**** **
**-**

**2002**
      
Interest income
     
     Loans

$
9,316  
$
9,396 
     Taxable securities
 
634   
627 
     Nontaxable securities
 
759   
697 
     Deposits in banks
 
2   
3 
     Federal funds sold

-

67 
 
-

104 

               Totalinterest income 

-

10,778 
 
-

10,827 
      
Interest expense 
     
     Deposits
 
3,460   
4,279 
     Other borrowings

-

197 
 
-

168 

               Totalinterest expense

-

3,657 
 
-

4,447 
      
               Netinterest income
 
7,121   
6,380 
Provision for loan losses 

-

546 
 
-

529 

               Netinterest incomeafter                 Provisionfor loan losses

 

6,575 
 
 

5,851 
      
Other income
     
     Service charges on deposit accounts
 
1,280   
1,165 
     Other service charges and fees
 
530   
337 
     Trust Department fees
  
47   
33 
     Gains on sale of loans
 
55   
14 
     Nonbank subsidiary non-interest income
 
881   
1,939 
     Security transactions, net
    
145 
     Other operating income

71 
 
183 

               Totalother income

2,864 
 
3,816 
      
Other expenses
     
     Salaries and employee benefits
 
4,338   
4,394 
     Equipment expense
 
833   
769 
     Occupancy expense
 
480   
453 
     Other operating expenses

2,093 
 
2,210 

               Totalother expenses

7,744 
 
7,826 
      
               Incomebefore income taxes
 
1,695   
1,841       
Income tax expense

317 
 
485 
     
               Netincome

$

1,378 
 
$

1,356 
      
Other comprehensive (loss):
     
  Unrealized losses onsecurities:          Unrealizedholding losses  arising during          Periods, net oftax
 
(101)  
(221)
     Reclassification adjustment          for gainsrealized in net          income

- 
 
(87)

  Total other comprehensive loss

(101)
 
(308)
      
               Comprehensiveincome

$

1,277 
 
$

1,048 
      
Basic earnings per common share 

$

.64 
 
$

0.62 

Diluted earnings per common share

$

.64 
 
$

0.61 

Cash dividends per share of common stock

$

.0700 
 
$

0.0600 
      
See Notes to Consolidated Financial Statements.
     
4
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**COMMUNITY BANKSHARES, INC.**
**AND SUBSIDIARIES**** **
**CONSOLIDATED STATEMENTS OF CASH FLOWS**
**FOR THE THREE MONTHS ENDED MARCH 31, 2003 AND 2002**
**(Dollars in thousands)**
**(Unaudited)**  
-

2003
 
-

2002
      
OPERATING ACTIVITIES
     
     Net income

$
1,378  
$
1,356 
     Adjustments to reconcile net income to          net cashprovided by operating   activities:
     
          Depreciation andamortization
 
796   
810 
          Provision for loanlosses
 
546   
529 
          Deferred incometaxes 
 
(113)  
(306)
          Net realized gainson securities available-for-sale
    
(145) 
          Net (gains) losseson sale of other real estate
 
5   
(3) 
          Decrease in interestreceivable
 
446   
665 
          Increase  ininterest payable
 
1,289   
664 
          Increase (decrease)in taxes payable
 
(208)  
510 
          (Decrease) inaccounts receivable of nonbank subsidiary 
 
3   
(846)
          Decrease in work inprocess of nonbank subsidiary
 
253   
253 
          Decrease in accrualsand  payables of nonbank subsidiary
 
(1,462)  
(1,158)
          Net other operatingactivities

-

(2,203)
 
-

(1,506)
      
                    Netcash provided by operating activities

-

730 
 
823 
      
INVESTING ACTIVITIES
     
          Purchases ofsecurities available-for-sale
 
(6,377)  
(8,621)
          Proceeds from salesof securities  Available-for-sale
 
-   
5,118 
          Proceeds frommaturities of securities Available-for-sale
 
6,189   
321 
          Proceeds frommaturities of securities Held-to-maturity
 
1,579   
836 
          Net increase inFederal funds sold
 
(22,550)  
(18,940)
          Net (decrease) ininterest-bearing Deposits in banks
 
433   
(29)
          Net (increase) inloans
 
(10,791)  
(9,466)
          Purchase of premisesand equipment
 
(251)  
(500)
          Proceeds from salesof other real estate

209 
 
755 
      
                    Netcash used in investing activities

(31,559)
 
(30,526)
      
FINANCING ACTIVITIES
     
     Net increase in deposits
 
28,715   
26,752 
     Repayment of other borrowings  Purchase ofTreasury Stock
 
(147)  
(56)
     Dividends paid

(150)
 
(131)
      
               Netcash provided by Financing activities
 
27,757   
26,565 
Net decrease in cash and due from banks

$
(3,072) 
$
(3,138)      
Cash and due from banks at beginning of the period

44,966
 
37,182
      
Cash and due from banks at end of the period

$

41,894 
 
$

34,044 
      
SUPPLEMENTAL DISCLOSURES
     
     Cash paid for:
     
     Interest

$
2,368  
$
3,783       
     Income taxes

$
154  
$
75        
NONCASH TRANSACTIONS
           
  Principal balances on loans Transferred to other real estate

$
749  
$
2,428 
See Notes to Consolidated Financial Statements
5
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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 recurringadjustments) which are, in opinion of management, necessary for a fair statementof results for the interim periods.
The results of operations for the three month period ending March 31, 2003 arenot necessarily indicative of the results to be expected for the full year.
NOTE 2.  STOCK COMPENSATION PLAN
At December 31, 2002, the Company has a stock-based employee compensation plan.The Company accounts for the plan under the recognition and measurementprinciples of APB Opinion No. 25, Accounting for Stock Issued to Employees, andrelated Interpretations.  No stock-based employee compensation cost is reflectedin net income, as all options granted under the plan had an exercise price equalto the market value of the underlying stock on the date of grant.  The followingtable illustrates the effect on net income and earnings per share if the Companyhad applied the fair value recognition provisions of Statement of FinancialAccounting Standards (SFAS) No. 123, Accounting for Stock-Based Compensation, tostock-based employee compensation. 
 
**Three Months Ended****March31**
 
2003
 
2002

Net Income, as reported

$
1,378 
$
1,356      
Deduct:    Total stock-based employeecompensation     expense determined under fairvalue based     method for all awards, net ofrelated tax effects 
 
____  
____      
Pro forma net income 

$  
$       
Basic - as reported 

$
.64 
$
.62      
Basic - pro forma 

$
.64 
$
.62      
Diluted - as reported 

$
.64 
$
.61      
Diluted - pro forma

$
.64 
$
.61
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NOTE 3.  EARNINGS PER COMMON SHARE
The following is a reconciliation of net income (the numerator) andweighted-average shares outstanding (the denominator) used in determining basicand diluted earnings per common share (EPS).
 
Three Months Ended March 31, 2003(Dollars and shares in Thousands,except per shareamounts)
 
NetIncome(Numerator)

Weighted-AverageShares(Denominator)

Per Share Amount
    
Basic EPS
 
1,378  
2,162  
.64 
Effect of Dilutive Securities     Stock options
 
-0-
  
6
  
0
           
Diluted EPS
 
1,378
  
2,168
  
.64
               
Three Months Ended March 31,2002(Dollars and shares inThousands,except per share amounts)
 
NetIncome(Numerator)
Weighted-AverageShares(Denominator)
Per ShareAmount        
Basic EPS
 
$1,356  
2,186  
$0.62  
Effect of Dilutive Securities Stock options
 
0
  
19
  
(0.01)
           
Diluted EPS
 
$1,356
  
2,205
  
$0.61

 
              
7
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NOTE 4.  SEGMENT INFORMATION
Selected segment information by industry segment for the periods ended March 31,2003 and 2002 is as follows:
 
Reportable Segments(Dollars inthousands)

For the Period Ended March 31, 2003
 
Banking
 
FinancialSupermarkets
 
AllOther
 
Total
             
Revenue from external customers
 
$
12,780  
$
823  
$
108  
$
13,711
Intersegment revenues (expenses)
  
(40)  
95   
586   
641
Segment profit (loss)
  
1,744   
(77)  
(312)  
1,355
Segment assets
  
737,175   
14,789   
4,199   
756,163 
Reportable Segments(Dollars inthousands)

For the Period Ended March 31, 2002
 
Banking
 
FinancialSupermarkets
 
AllOther
 
Total
             
Revenue from external customers
  
$12,712   
1,976  
117   
14,805
Intersegment revenues (expenses)
  
(131)  
228  
548   
645
Segment profit (loss)
  
1,437   
221  
(337)  
1,381
Segment assets
  
675,181   
22,879  
5,015   
703,075 
2003
 
2002
      
Net Income
           
Total profit for reportable segments

$
1,666  
$
1,718 
Non-reportable segment loss
 
(312)  
(337)
Elimination of intersegment (gains) losses

-

24 
 
-

(25) 

Total consolidated net income

$

1,378 
 
$

1,356 
 
2003
   
Total Assets
     
Total assets for reportable segments

$
751,965 
Non-reportable segment assets
 
4,199 
Elimination of intersegment assets

-

(28,921)

Total consolidated assets

$

727,243 

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COMMUNITY BANKSHARES, INC.AND SUBSIDIARIES
ITEM 2.     MANAGEMENT DISCUSSION AND ANALYSIS OFFINANCIALCONDITION                   ANDRESULTS OF OPERATIONS
Forward Looking Statements 
This discussion contains forward-looking statements under the Private SecuritiesLitigation Reform Act of 1995 that involve risks and uncertainties. Although theCompany believes the assumptions underlying the forward-looking statementscontained in the discussion are reasonable, any of the assumptions could beinaccurate, and therefore, no assurance can be made that any of theforward-looking statements included in this discussion will be accurate. Factorsthat could cause actual results to differ from results discussed inforward-looking statements include, but are not limited to: economic conditions(both generally and in the markets where the Company operates); competition fromother providers of financial services offered by the Company; governmentregulation and legislation; changes in interest rates; and material unforeseenchanges in the financial stability and liquidity of the Company’s creditcustomers; all of which are difficult to predict and which may be beyond thecontrol of the Company. The Company undertakes no obligation to reviseforward-looking statements to reflect events or changes after the date of thisdiscussion or to reflect the occurrence of unanticipated events.
Management’s Discussion and Analysis
The following is management’s discussion and analysis of certainsignificant factors which have affected our financial position and operatingresults during the periods included in the accompanying consolidated financialstatements.
Financial Condition
As of March 31, 2003, we continue to experience growth in total assets, totalloans and total deposits as compared to December 31, 2002.  Total assets, loans,and deposits increased by 3.86%, 1.92% and 4.73% respectively.  The growth inloans and deposits, although less than the same period in 2002, is consistentwith management’s expectations.  The growth in assets is attributable togrowth in deposits and retention of earnings.  Management expects the growth tocontinue in the future.
Liquidity
As of March 31, 2003, the liquidity ratio was 23.61% which is within our targetrange of 20 - 25%.  The banks have available lines of credit to meet unexpectedliquidity needs.  Liquidity is measured by the ratio of net cash, short term andmarketable securities to net deposits and short term liabilities.
Interest Rate Risk
Our overall interest rate risk was less than 3% of net interest income subjectedto rising and falling rates of 200 basis points.  Our guideline is to allow nomore than 8% change in net interest income for these scenarios; therefore, weare within policy guidelines.  We have attempted to position ourselves tominimize the impact of further changes in rates in eitherdirection.
8  
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Capital
Banking regulation requires the Company and the Banks to maintain capital levelsin relation to our assets.  At March 31, 2003, the Company’s and theBank’s capital ratios were considered satisfactory based on regulatoryminimum capital requirements.  The minimum capital requirements and the actualconsolidated capital ratios at March 31, 2003 were as follows:
  
Actual
Regulatory Minimum       
Leverage

   8.99%
4.00%  
     Risked Based Capital ratios:
    
     Core Capital

12.19%
4.00%  
      Total Capital

13.44%
8.00%           
Results of Operations 
Net interest income for the three month period ending March 31, 2003 increase11.61% to 7,121,000 over $6,380,000 for the same period for 2002.  Interestincome for the three month period was down by .45% from $10,827,000 to$10,778,000.  This decrease was caused by a decline in the yield on earningassets from 7.68% in the first quarter at 2002 to 7.00% in the first quarter of2003 offset by the increase in the volume of earning assets..  Earning assetsincreased by 8.34% or $50,779,000 at March 31, 2003 as compared to March 31,2002.  The largest increase in earning assets since March 31, 2002 was theincrease in loans of $38,272,000 or 8.30%.  Securities increased by $16,329,000while federal funds decreased by $3,550,000.  Interest expense on interestbearing deposits was down by $819,000 or 19.14% for the first three months of2003 over the same period for 200.  This decrease in expense occurred eventhough there was an increase of $30,736,000 or 6.12% increase in interestbearing deposits during the period due to the cost of interest bearing depositsof 2.66% in the first quarter of 2003 compared to a 3.55% cost for the firstquarter of 2002.  These changes resulted in an increase in the company’snet interest margin from 4.55% for the three month period ending March31st, 2002 to 4.68% for the three month period ending March 31,2003.
The loan loss reserve is evaluated monthly and adjusted to reflect the risk inthe portfolio.  We use two different methods of measuring risk in the portfolio:(a) Risk in our watch list of loans and past due ratios and (b) Percentage ofclassified loans.  We then compare results to reserve balances to assure allidentified risks are covered.
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The following table furnishes information on the loan loss reserve for thecurrent three month reporting period and the same period for 2002.
  
2003
 
2002
        
Beginning Balance

$  7,742  
$  6,652         
Less Charge Offs:
     
     Commercial Loans

(65) 
(3)  
     Real Estate Loans

(279) 
(243)  
     Consumer Loans

(314)
 
(204)
         
(658)
 
(450)        
Plus Recoveries:
     
     Commercial Loans

4  
0   
     Real Estate Loans

5  
2   
     Consumer Loans

42 
 
50 
         
51 
 
52 
        
Net Charge-offs

(607) 
(398)        
Provision for loan loss

546 
 
529 
  
Ending Balance

$  7,681
 
$  6,783 
 
The provision for loan losses was $546,000 and $529,000 for the first threemonths of 2003 and 2002 respectively.  The provision for loan losses for thethree month period ended March 31, 2003 represented 83% of charge offs for thesame period, while the provision for the first three months of 2002 represented118% of the charge offs recorded in that period.  The reserve at March 31, 2003represented 159% of non-accrual loans while the reserve at March 31, 2002represented 189% of non-accrual loans. Non accrual loans have increased from$3,593,000 at March 31, 2002 to $4,824,000 as of March 31, 2003.  Past due loansgreater than 90 days and accruing interest have decreased from $1,921,000 in2002 to $1,879,000 in 2003.  The increase in non-accrual loans is indicative ofthe overall state of the economy. 
Our Company operates in three distinct markets, northeast Georgia, midwestGeorgia and mideast Alabama.  Each of these markets has seen a modest increasein unemployment and bankruptcy filings.  These increases however have been lowerthan those experienced by the national economy as a whole.
Management is aware of a deterioration in loan quality believed to be related tothe continuing decline in the overall economy.  Management has reviewed thenon-accrual loans individually and determined that the likelihood of anysignificant loss of principal is mitigated due to the value of the collateralsecuring these loans.  As of March 31, 2003, non-accrual loans and other realestate owned totaled approximately $8,845,000.  The ratio of the loan lossreserve balance to the total loan balance at March 31, 2003 was 1.53% ascompared to 1.47% at March 31, 2002.  As of March 31, 2003, managementconsidered our allowance for loan losses adequate to cover any anticipatedlosses.
Repossessed real estate owned by the bank decreased from $4,802,000 in March2002 to $4,022,000 in March 2003 or 16.24%.  Other real estate is carried in thebooks at the lesser of cost or fair market value with no loss anticipated.During early April 2003 the company moved approximately $2,000,000 from non-accrual loan status to other real estate.  The disposal of this property atno loss is anticipated within 90 days.
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The following table is a summary of Non Accrual, Past due and RestructuredDebt
March 31, 2003
 
**Non-accrual**
**Past Due**
**Restructured** 
**Loans**
**90 days**
**Debt**  
**Still accruing**     
Commercial Loans

$   278 
$   232 
$   14 
Real Estate Loans

4,353 
1,384 
906 
Consumer Loans
 
193
  
263
  
-0-
        
Total
 
$4,824
  
$1,879
  
$920
     

March 31, 2002
 
**Non-accrual**
**Past Due**
**Restructured** 
**Loans**
**90 days**
**Debt**  
**Still accruing**     
Commercial Loans

$  278 
$  406 
$  134 
Real Estate Loans

2,813 
1,063 
980 
Consumer Loans
 
502
  
452
  
60
        
Total
 
$3,593
  
$1,921
  
$1,174
 
Loans  classified for regulatory purposes as loss, doubtful, substandard, orspecial mention that have not been included in the table above do not representor result from trends or uncertainties which management reasonably expects willmaterially impact future operating results, liquidity or capital resources.These classified loans do not represent material credits about which managementis aware of any information which causes management to have doubts concerningthe collectibility of such credits.
The accrual of interest on loans is discontinued when, in management’sopinion, the borrower may be unable to meet payments as they become due, unlessthe loan is well-secured.  All interest accrued but not collected for loans thatare placed on nonaccrual or charged off is reversed against interest income.Interest income on nonaccrual loans is subsequently recognized only to theextent cash payments are received, until the loans are returned to accrualstatus.
Other income decreased by 24.95% or $952,000 during the three month period endedMarch 31, 2003 as compared to the same period for 2002.  This decrease isprimarily due to the termination of the agreement between FinancialSupermarkets, Inc. (FSI), a nonbank subsidiary, and the Canadian Imperial Bankof Commerce (“CIBC”) to establish banking pavilions.  Due to slowingeconomic conditions, management anticipates fewer sales of supermarket bankunits and thus anticipates a decline in revenue during 2003 as compared to 2002.It will take time and approximately 150-200 new unit sales to replace thisincome.  At this time, management is uncertain as to when this may beaccomplished.  Non-interest income for the year 2003 is expected to besubstantially less than it was in 2002.  Service charges on deposit accountsincreased by $115,000 or 9.87% for the three month period ended March 31, 2003,as compared to the same periods in 2002.  Service charges on deposits increasedprimarily as a result of the Company’s continued growth in accounts in thetotally free checking program. The gains on sale of loans increased by $41,000during the three month period ended March 31, 2003 as compared to the sameperiod for 2002. 
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Other expenses decreased by 1.05% or $82,000 for the three month period endedMarch 31, 2003, as compared to the same period in 2002.  Salaries and benefitsdecreased by $56,000 or 1.27% during the three month period ended March 31, 2003compared to the same period in 2002.  Full time equivalent employees increasedfrom 367 at the end of March 2002 to 392 at the end of March 2003.  The increasein full time equivalent employees was influenced by the addition of two newsupermarket banking centers and one new stand alone branch during the past yearas well as the overall growth of the Company’s banking operations.  Thedecline in salaries and benefits was a result of a reduced level of accrual ofincentive compensation associated with the reduced level of sales activity atFSI.  Equipment and occupancy expenses were up by 7.45% or $91,000 for the threemonth period ended March 31, 2003 as compared to the same period in 2002.  Inother operating expenses, travel expenses decreased $44,000 or 15.49% due to aslow down in travel for FSI for the three month period ending March 31, 2003 ascompared to the same period in 2002.  Most of the other reduction in expenses isalso associated with a reduced level of activity at FSI.
We incurred income tax expenses of $317,000 which represents an effective rateof 19% for the three month period ended March 31, 2003 as compared to $485,000which represents an effective tax rate of 26% for the same period in 2002.  Thedecrease is due to a smaller portion of our income being fully taxable.
Net income for the three month period ended March 31, 2003, was $1,378,000 or anincrease of 1.62% over the same period of 2002. 
We are not aware of any other known trends, events or uncertainties, other thanthe effect of events as described above, that will have or that are reasonablylikely to have a material effect on its liquidity, capital resources oroperations.  We are also not aware of any current recommendations by theregulatory authorities which, if they were implemented, would have such aneffect.
 
 
 
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ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed only to U.S. dollar interest rate changes andaccordingly, the Company manages exposure by considering the possible changes inthe net interest margin.  The Company does not have any trading instruments nordoes it classify any portion of the investment portfolio as held for trading.The Company does not engage in any hedging activities or enter into anyderivative instruments with a higher degree of risk than mortgage backedsecurities, which are commonly pass through securities.  Finally, the Companyhas no exposure to foreign currency exchange rate risk, commodity price risk,and other market risks. 
Interest rates play a major part in the net interest income of a financialinstitution.  The sensitivity to rate changes is known as “interest raterisk”.  The repricing of interest earning assets and interest-bearingliabilities influence changes in net interest income.  As part of theCompany’s asset/liability management program, the timing of repricedassets and liabilities is referred to as Gap management.  It is the policy ofthe Company to maintain Gap ratio in the one-year time horizon of .80 to1.20.
GAP management alone is not enough to properly manage interest rate sensitivity,because interest rates do not respond at the same speed or at the same level tomarket rate changes.  For example, savings and money market rates are morestable than loans tied to a “Prime” rate and thus respond with lessvolatility to a market rate change.
The Company uses a simulation model to monitor changes in net interest incomedue to changes in market rates.  The model of rising, falling and stableinterest rate scenarios allows management to monitor and adjust interest ratesensitivity to minimize the impact of market rate swings.  The analysis ofimpact on net interest margins as well as market value of equity over atwelve-month period is subjected to a 200 basis point increase and decrease inrate.  The March 2003 model reflects an increase of .83% in net interest incomeand a 2.05% decrease in market value equity for a 200 basis point increase inrates.  The same model shows a 1.15% decrease in net interest income and a 4.85%increase in market value equity for a 200 basis point decrease in rates.  TheCompany’s policy is to allow no more than +-8% change in net interestincome and no more than +-25% change in market value equity for these scenarios.Therefore, the Company is within its policy guidelines and is protected from anysignificant impact due to market rate changes.
ITEM 4.  CONTROLS & PROCEDURES
Our management, including the chief executive and chief financial officer,supervised and participated in an evaluation of our disclosure controls andprocedures (as defined in federal securities rules) within the 90 days before wefiled this report.  Based on that evaluation, our CEO and CFO have concludedthat our disclosure controls and procedures are effective in accumulating andcommunicating information to our management, including our President, CEO andCFO, as appropriate to allow timely decisions regarding required disclosures ofthat information under the Securities and Exchange Commission rules and formsand that our disclosure controls and procedures are designed to ensure that theinformation we are required to disclose in reports that we file or submit underall applicable federal securities laws is recorded, processed, summarized andreported within the time periods specified in the Securities and ExchangeCommission rules and forms.
There were no significant changes in our internal controls or in other factorsthat could significantly affect these controls subsequent to the date of theirevaluation.
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**PART II. OTHER INFORMATION**
ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K
(a)     Exhibits
     99.1 Section 906 CEO Certification     99.2 Section 906 CFO Certification
(b)     Reports on Form 8-K
          None.
 
 
 
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SIGNATURES
Pursuant to with the requirements of the Securities Exchange Act of 1934, theregistrant has duly caused this report to be signed on its behalf by theundersigned, thereunto duly authorized.
 
COMMUNITY BANKSHARES, INC.

DATE: May 14, 2003

BY:  /s/ Harry L. StephensHarry L. Stephens, Executive Vice Presidentand Chief Financial Officer

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**Certification**
I, J. Alton Wingate, certify that:-  I have reviewed this quarterly report on Form 10Q of Community Bankshares,Inc.; 
-  Based on my knowledge, this quarterly report does not contain any untruestatement of a material fact or omit to state a material fact necessary to makethe statements made, in light of the circumstances under which such statementswere made, not misleading with respect to the period covered by this quarterlyreport; 
-  Based on my knowledge, the financial statements, and other financial informationincluded in this quarterly report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant asof, and for, the periods presented in this quarterly report; 
-  The registrant’s other certifying officers and I are responsible forestablishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
-  designed such disclosure controls and procedures to ensure that materialinformation relating to the registrant, including its consolidated subsidiaries, is madeknown to us by others within those entities, particularly during the period inwhich this quarterly report is being prepared; 
-  evaluated the effectiveness of the registrant’s disclosure controls andprocedures as of a date within 90 days prior to the filing date of thisquarterly report (the “Evaluation Date”); and 
-  presented in this quarterly report our conclusions about the effectiveness ofthe disclosure controls and procedures based on our evaluation as of the Evaluation Date;
-  The registrant’s other certifying officers and I have disclosed, based onour most recent evaluation, to the registrant’s auditors and the auditcommittee of registrant’s board of directors (or persons performing theequivalent function):
-  all significant deficiencies in the design or operation of internal controlswhich could adversely affect the registrant’s ability to record, process, summarizeand report financial data and have identified for the registrant’sauditors any material weaknesses in internal controls; and 
-  any fraud, whether or not material, that involves management or other employeeswho have a significant role in the registrant’s internal controls; and
-  The registrant’s other certifying officers and I have indicated in thisquarterly report whether or not there were significant changes in internalcontrols or in other factors that could significantly affect internal controlssubsequent to the date of our most recent evaluation, including any correctiveactions with regard to significant deficiencies and material weaknesses.

Date:  May  14, 2003   /s/ J. Alton Wingate                                                                                    J. Alton Wingate                  President and Chief Executive Officer
**Certification**
I, Harry L. Stevens, certify that:-  I have reviewed this quarterly report on Form 10Q of Community Bankshares,Inc.; 
-  Based on my knowledge, this quarterly report does not contain any untruestatement of a material fact or omit to state a material fact necessary to makethe statements made, in light of the circumstances under which such statementswere made, not misleading with respect to the period covered by this quarterlyreport; 
-  Based on my knowledge, the financial statements, and other financial informationincluded in this quarterly report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant asof, and for, the periods presented in this quarterly report; 
-  The registrant’s other certifying officers and I are responsible forestablishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
-  designed such disclosure controls and procedures to ensure that materialinformation relating to the registrant, including its consolidated subsidiaries, is madeknown to us by others within those entities, particularly during the period inwhich this quarterly report is being prepared; 
-  evaluated the effectiveness of the registrant’s disclosure controls andprocedures as of a date within 90 days prior to the filing date of thisquarterly report (the “Evaluation Date”); and 
-  presented in this quarterly report our conclusions about the effectiveness ofthe disclosure controls and procedures based on our evaluation as of the Evaluation Date;
-  The registrant’s other certifying officers and I have disclosed, based onour most recent evaluation, to the registrant’s auditors and the auditcommittee of registrant’s board of directors (or persons performing theequivalent function):
-  all significant deficiencies in the design or operation of internal controlswhich could adversely affect the registrant’s ability to record, process, summarizeand report financial data and have identified for the registrant’sauditors any material weaknesses in internal controls; and 
-  any fraud, whether or not material, that involves management or other employeeswho have a significant role in the registrant’s internal controls; and
-  The registrant’s other certifying officers and I have indicated in thisquarterly report whether or not there were significant changes in internalcontrols or in other factors that could significantly affect internal controlssubsequent to the date of our most recent evaluation, including any correctiveactions with regard to significant deficiencies and material weaknesses.

Date:  May  14, 2003   /s/ Harry L. Stevens                                                                                                                    Harry L. Stevens                                  Chief Financial Officer