Table of Contents

UNITED STATESSECURITIES AND EXCHANGE
COMMISSIONWASHINGTON, D. C. 20549FORM 10-Q

/X/     QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15
(d) OF THESECURITIES EXCHANGE ACT OF 1934For the quarter period ended
March 31, 2004

/  /     TRANSITION REPORT PURSUANT TO
SECTION 13 OR 15 (d) OF THESECURITIES EXCHANGE ACT OF 1934For the
transition period from _______ to _______

Commission File Number:
33-81890

Community Bankshares, Inc.
(Exact name of
registrant as specified in its charter)

Georgia

58-1415887(State or other jurisdiction of

(IRS Employerincorporation 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 area
code)

N/A(Former name, former address and former fiscalyear,
if changed since last report)

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. YesþNo ̈

APPLICABLE ONLY TO CORPORATE ISSUERS

Indicate the number of shares outstanding of each of the issuers classes of common stock, as of May 1, 2004;
2,139,087

---

COMMUNITY BANKSHARES, INC.AND
SUBSIDIARIESINDEX

Page No.PART I. FINANCIAL INFORMATIONItem 1.
Financial StatementsConsolidated Balance Sheets -
3March 31, 2004 and December 31, 2003Consolidated Statements of Income
4and Comprehensive Income for ThreeMonths Ended March 31, 2003 and 2003Consolidated Statements of Cash Flows -
5Three Months Ended March 31, 2004 and 2003Notes to Consolidated Financial Statements
6Item 2.
Management’s Discussion and Analysis of
10Financial Condition and Results of OperationsItem 3.
Quantitative and Qualitative Disclosures about Market Risk
15Item 4.
Controls and Procedures
16PART II. OTHER INFORMATION
16Item 6.
Exhibits and Reports on Form 8 - K
1631.1 and 31.2 - Rule 13a-15(e) and 15d-15(e) Certifications32 - Certification of Chief Executive Officer and Chief
Financial Officer,
Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to
Section 9-6 of the
Sarbanes-Oxley Act of 2002.Signatures
17


---

Table of Contents

PART I - FINANCIAL INFORMATION

ITEM
                                        1.               
                                        FINANCIAL STATEMENTS





---

COMMUNITY BANKSHARES, INC.AND SUBSIDIARIESCONSOLIDATED
                                                                      BALANCE SHEETSMARCH 31, 2004 AND DECEMBER 31,
                                                                      2003(Dollars in thousands)(Unaudited)Assets
                                                  2004
                                                  
                                                  2003Cash and due from banks
                                                  $
                                                  40,601
                                                  
                                                  $
                                                  44,729Interest-bearing deposits in
                                                                      banks
                                                  
                                                  659
                                                  
                                                  
                                                  429Federal funds sold
                                                  
                                                  25,000
                                                  
                                                  
                                                  19,600Securities available-for-sale
                                                  
                                                  98,813
                                                  
                                                  
                                                  103,458Securities held-to-maturity (fair
                                                                      value
                                                                      $23,930 and
                                                                      $24,352)
                                                  
                                                  22,114
                                                  
                                                  
                                                  22,628Restricted equity securities, at
                                                                      cost
                                                  
                                                  1,451
                                                  
                                                  
                                                  1,243Loans, net of unearned income
                                                  
                                                  579,475
                                                  
                                                  
                                                  545,466Less allowance for loan losses
                                                  
                                                  8,563
                                                  
                                                  
                                                  7,561Loans, net
                                                  
                                                  570,912
                                                  
                                                  
                                                  537,905Premises and equipment, net
                                                  
                                                  15,743
                                                  
                                                  
                                                  15,239Intangible assets, net
                                                  
                                                  1,025
                                                  
                                                  
                                                  1,090Goodwill
                                                  
                                                  968
                                                  
                                                  
                                                  968Other real estate
                                                  
                                                  5,351
                                                  
                                                  
                                                  5,272Other assets
                                                  
                                                  11,754
                                                  
                                                  
                                                  13,624Total assets
                                                  $
                                                  794,391
                                                  
                                                  $
                                                  766,185Liabilities, Redeemable Common Stock
                                                                      and Shareholders’ EquityLiabilities:Deposits:Noninterest-bearing
                                                  $
                                                  115,368
                                                  
                                                  $
                                                  111,562Interest-bearing
                                                                      demand
                                                  
                                                  171,222
                                                  
                                                  
                                                  174,070Savings
                                                  
                                                  37,801
                                                  
                                                  
                                                  35,157Time, $100,000 and
                                                                      over
                                                  
                                                  130,096
                                                  
                                                  
                                                  123,975Other time
                                                  
                                                  231,264
                                                  
                                                  
                                                  225,840Total deposits
                                                  
                                                  685,751
                                                  
                                                  
                                                  670,604Other borrowings
                                                  
                                                  26,081
                                                  
                                                  
                                                  16,153Other liabilities
                                                  
                                                  9,148
                                                  
                                                  
                                                  7,986Total
                                                                      liabilities
                                                  
                                                  720,980
                                                  
                                                  
                                                  694,743Redeemable common stock held by ESOP,
                                                                      net of unearned ESOP shares related to
                                                                      ESOP debt
                                                                      guarantee of $876,162 and $973,675, at March 31, 2004
    and
                                                                      December 31, 2003 respectively
                                                  
                                                  15,881
                                                  
                                                  
                                                  15,783Shareholders' equityCommon stock, par
       value $1; 5,000,000 shares authorized;
                   2,206,830
 and 2,204,330 shares issued  at March 31, 2004
 and          December 31, 2003, respectively
                                                  
                                                  2,207
                                                  
                                                  
                                                  2,204Capital
                                                                      surplus
                                                  
                                                  6,437
                                                  
                                                  
                                                  6,342Retained
                                                                      earnings
                                                  
                                                  49,621
                                                  
                                                  
                                                  48,069Accumulated other
                                                                      comprehensive income
                                                  
                                                  2,168
                                                  
                                                  
                                                  1,607Less cost of
                                                                      67,743 and 60,135 shares of treasury stock at March 31, 2004
                                                                      and
                                                                      December 31, 2003,
                                                                      respectively
                                                  
                                                  (2,903)
                                                  
                                                  
                                                  (2,563)Total shareholders' equity
                                                  
                                                  57,530
                                                  
                                                  
                                                  55,659Total liabilities,
                                                                      redeemable common stock and shareholders' equity
                                                  $
                                                  794,391
                                                  
                                                  $
                                                  766,185See Notes to Consolidated Financial
                                                                      Statements


3

COMMUNITY BANKSHARES, INC.AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF
                                                                      INCOMEAND COMPREHESIVE INCOMETHREE MONTHS ENDED MARCH 31, 2004 AND
                                                                      2003(Dollars in thousands, except per
                                                                      share amounts)(Unaudited)Three Months EndedMarch 31,2004
                                                  
                                                  2003Interest income:Loans, including
                                                                      fees
                                                  $
                                                  9,904
                                                  
                                                  $
                                                  9,316Taxable
                                                                      securities
                                                  
                                                  616
                                                  
                                                  
                                                  634Nontaxable
                                                                      securities
                                                  
                                                  691
                                                  
                                                  
                                                  759Interest-bearing
                                                                      deposits in other banks
                                                  
                                                  2
                                                  
                                                  
                                                  2Federal funds
                                                                      sold
                                                  
                                                  35
                                                  
                                                  
                                                  67Total interest income
                                                  
                                                  11,248
                                                  
                                                  
                                                  10,778Interest expense:Deposits
                                                  
                                                  2,743
                                                  
                                                  
                                                  3,460Other
                                                                      borrowings
                                                  
                                                  209
                                                  
                                                  
                                                  197Total interest expense
                                                  
                                                  2,952
                                                  
                                                  
                                                  3,657Net interest income
                                                  
                                                  8,296
                                                  
                                                  
                                                  7,121Provision for loan losses
                                                  
                                                  1,129
                                                  
                                                  
                                                  546Net interest income after  
               
  Provision for loan losses
                                                  
                                                  7,167
                                                  
                                                  
                                                  6,575Other income:Service charges on
                                                                      deposit accounts
                                                  
                                                  2,270
                                                  
                                                  
                                                  1,280Other service
                                                                      charges, commissions and fees
                                                  
                                                  530
                                                  
                                                  
                                                  530Trust department
                                                                      fees
                                                  
                                                  51
                                                  
                                                  
                                                  47Gains on sale of
                                                                      loans
                                                  
                                                  11
                                                  
                                                  
                                                  55Nonbank subsidiary
                                                                      income
                                                  
                                                  1,494
                                                  
                                                  
                                                  881Security gains,
                                                                      net
                                                  
                                                  36
                                                  
                                                  
                                                  -Other operating
                                                                      income
                                                  
                                                  97
                                                  
                                                  
                                                  71Total other income
                                                  
                                                  4,489
                                                  
                                                  
                                                  2,864Other expenses:Salaries and
                                                                      employee benefits
                                                  
                                                  4,866
                                                  
                                                  
                                                  4,338Equipment
                                                                      expense
                                                  
                                                  814
                                                  
                                                  
                                                  833Occupancy
                                                                      expense
                                                  
                                                  524
                                                  
                                                  
                                                  480Other operating
                                                                      expenses
                                                  
                                                  3,185
                                                  
                                                  
                                                  2,093Total other expenses
                                                  
                                                  9,389
                                                  
                                                  
                                                  7,744Income before income taxes
                                                  
                                                  2,267
                                                  
                                                  
                                                  1,695Income tax expense
                                                  
                                                  544
                                                  
                                                  
                                                  317Net income
                                                  $
                                                  1,723
                                                  
                                                  $
                                                  1,378Other comprehensive
                                                                      income (loss):Unrealized
   income (losses) on securities available for sale:          
   Unrealized  gains (losses)  arising during           
   the period, net of taxes
                                                  
                                                  583
                                                  
                                                  
                                                  (101)Reclassification adjustment                     
     for gains realized in net                     
           income, net of taxes
                                                  
                                                  (22)
                                                  
                                                  
                                                  -Total other
                                                                      comprehensive
                                                                      income (loss)
                                                  
                                                  561
                                                  
                                                  
                                                  (101)Comprehensive income
                                                  $
                                                  2,284
                                                  
                                                  $
                                                  1,277Basic earnings per common
                                                                      share
                                                  $
                                                  .81
                                                  
                                                  $
                                                  .64Diluted earnings per common
                                                                      share
                                                  $
                                                  .80
                                                  
                                                  $
                                                  .64Cash dividends per share of common
                                                                      stock
                                                  $
                                                  .08
                                                  
                                                  $
                                                  .07See Notes to Consolidated Financial
                                                                      Statements.


4

COMMUNITY BANKSHARES, INC.AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF
                                                                      CASH
                                                                      FLOWSTHREE
                                                                      MONTHS
                                                                      ENDED
                                                                      MARCH 31,
                                                                      2004 AND
                                                                      2003(Dollars in thousands)(Unaudited)2004
                                                  
                                                  
                                                  2003OPERATING ACTIVITIESNet income
                                                  $
                                                  1,723
                                                  
                                                  $
                                                  1,378Adjustments to
     reconcile net income to         net cash
  provided by operating         activities:Depreciation and amortization
                                                  
                                                  708
                                                  
                                                  
                                                  796Provision
                         for loan losses
                                                  
                                                  1,129
                                                  
                                                  
                                                  546Provision
                               for losses on other real estate owned
                                                  
                                                  10
                                                  
                                                  
                                                  -Deferred
                           income taxes
                                                  
                                                  (50)
                                                  
                                                  
                                                  (113)Net
                realized gains on securities
                          
                    available-for-sale
                                                  
                                                  (36)
                                                  
                                                  
                                                  -Net (gains)
      losses on sale of other real estate
                                                  
                                                  -
                                                  
                                                  
                                                  5Decrease in
                            interest receivable
                                                  
                                                  245
                                                  
                                                  
                                                  446Increase
         (decrease) in interest payable
                                                  
                                                  (101)
                                                  
                                                  
                                                  1,289Increase
     (decrease) in taxes payable
                                                  
                                                  933
                                                  
                                                  
                                                  (208)(Increase)
                                  decrease in accounts          
            receivable of nonbank  subsidiary
                                                  
                                                  (324)
                                                  
                                                  
                                                  3Decrease in
                  work in           
        process of nonbank subsidiary
                                                  
                                                  96
                                                  
                                                  
                                                  253Increase
      (decrease) in accruals and
               
     payables of nonbank subsidiary
                                                  
                                                  354
                                                  
                                                  
                                                  (1,462)Net other
                      operating activities
                                                  
                                                  1,674
                                                  
                                                  
                                                  (2,203)Net cash provided by                 
     operating activities
                                                  
                                                  6,361
                                                  
                                                  
                                                  730INVESTING ACTIVITIESPurchases of
                                                                      securities available-for-sale
                                                  
                                                  (409)
                                                  
                                                  
                                                  (6,377)Proceeds from
                                                                      sales of securities
                                                                            
                                                                      available-for-sale
                                                  
                                                  4,314
                                                  
                                                  
                                                  ----Proceeds from
                                                                      maturities of securities
                                                                           
                                                                      available-for-sale
                                                  
                                                  1,502
                                                  
                                                  
                                                  6,189Proceeds from
                                                                      maturities of securities
                                                                           
                                                                      held-to-maturity
                                                  
                                                  514
                                                  
                                                  
                                                  1,579Net increase in
                                                                      Federal funds sold
                                                  
                                                  (5,400)
                                                  
                                                  
                                                  (22,550)Net increase
                                                                      (decrease) in interest-bearing
                                                                      deposits in
                                                                      banks
                                                  
                                                  (230)
                                                  
                                                  
                                                  433Net (increase) in
                                                                      loans
                                                  
                                                  (34,747)
                                                  
                                                  
                                                  (10,791)Purchase of
                                                                      premises and equipment
                                                  
                                                  (1,121)
                                                  
                                                  
                                                  (251)Proceeds from
                                                                      sales of other real estate
                                                  
                                                  520
                                                  
                                                  
                                                  209Net cash used in                
           investing activities
                                                  
                                                  (35,053)
                                                  
                                                  
                                                  (31,559)FINANCING ACTIVITIESNet increase 
                                                                      in deposits
                                                  
                                                  15,147
                                                  
                                                  
                                                  28,715Repayment of other
                                                                      borrowings
                                                  
                                                  (147)
                                                  
                                                  
                                                  (147)Purchase of
                                                                      Treasury Stock
                                                  
                                                  (339)
                                                  
                                                  
                                                  (661)Increase in
                                                                      FHLB Advances
                                                  
                                                  10,075
                                                  
                                                  
                                                  -Dividends
                                                                      paid
                                                  
                                                  (172)
                                                  
                                                  
                                                  (150)Net cash provided by                
   Financing activities
                                                  
                                                  24,564
                                                  
                                                  
                                                  27,757Net decrease in cash and
                                                                         due from banks
                                                  $
                                                  (4,128)
                                                  
                                                  $
                                                  (3,072)Cash and due from banks at beginning
                                                                      of the period
                                                  
                                                  44,729
                                                  
                                                  
                                                  44,966Cash and due from banks at end of the
                                                                      period
                                                  $
                                                  40,601
                                                  
                                                  $
                                                  41,894SUPPLEMENTAL DISCLOSURESCash paid
                                                                      for:Interest
                                                  $
                                                  3,042
                                                  
                                                  $
                                                  2,368Income
                taxes
                                                  $
                                                  53
                                                  
                                                  $
                                                  154NONCASH TRANSACTIONSPrincipal balances
                                                                      on loans 
                                                                            
                                                                      Transferred to other  real
                                                                      estate
                                                  $
                                                  612
                                                  
                                                  $
                                                  749


5Table of Contents

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 opinion of management, necessary for a fair statement of results for the interim periods.

The results of operations for the three month period ending March 31, 2004 are not necessarily indicative of the results to be expected for the full year.

NOTE 2.          STOCK COMPENSATION PLAN

The Company has a stock-based employee compensation plan. The Company accounts for the plan under the recognition and measurement principles of APB Opinion No.
25, Accounting for Stock Issued to Employees, and related Interpretations. No stock-based employee compensation cost is reflected in net income, as all options granted under the plan had an exercise price equal to the market value of the underlying
stock on the date of grant. The following table illustrates the effect on net income and earnings per share if the Company had applied the fair value recognition provisions of Statement of Financial Accounting Standards (SFAS) No. 123, Accounting
for Stock-Based Compensation, to stock-based employee compensation.

There were
no options granted during the three months ended March 31, 2004 and 2003 and all
outstanding options were fully vested as of March 31, 2004 and 2003. 
Therefore, there is no proforma effect on net income.



6


Table of Contents

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).

Three Months Ended March 31, 2004(
Dollars and shares in Thousands,
except per share
amounts)


NetIncome(Numerator)
Weighted-AverageShares(Denominator)
Per Share AmountBasic EPS

$1,723


2,140


$0.81Effect of Dilutive Securities     Stock options

-0-


7


(.01)Diluted EPS

$1,723


2,147


$0.80


Three Months Ended March 31, 2003(Dollars and shares in
Thousands, except per share amounts)


NetIncome(Numerator)
Weighted-AverageShares(Denominator)
Per ShareAmountBasic EPS

$1,378


2,162


$0.64Effect of Dilutive Securities    Stock options

0


6


0.00Diluted EPS

$1,378


2,168


$0.64


7
Table of Contents

NOTE 4.              SEGMENT INFORMATION

Selected segment information by industry segment for the three month periods ended March 31, 2004 and 2003 is as follows:

Reportable Segments(Dollars in
thousands)For the  period ended March 31, 2004

Banking

FinancialSupermarkets

AllOther

TotalRevenue from external customers

$
14,246

$
1,374

$
166

$
15,786Intersegment revenues (expenses)


(31)


90


493


552Segment profit (loss)


1,963


132


(396)


1,699Segment assets

$
798,463

$
14,885

$
5,797

$
819,145




Reportable Segments(Dollars in
thousands)For the  period ended March 31, 2003

Banking

FinancialSupermarkets

AllOther

TotalRevenue from external customers

$
12,780

$
823

$
108

$
13,711Intersegment revenues (expenses)


(40)


95


586


641Segment profit (loss)


1,744


(77)


(312)


1,355Segment assets

$
737,175

$
14,789

$
4,199

$
756,163




2004

2003Net IncomeTotal profit for reportable segments
$
2,095

$
1,666Non-reportable segment loss

(396)


(315)Elimination of intersegment (gains)
losses

24


24Total consolidated net income
$
1,723

$
1,378




2004Total AssetsTotal assets for reportable segments
$
813,348Non-reportable segment assets

5,797Elimination of intersegment assets

(24,754)Total consolidated assets
$
794,391


8Table of Contents

COMMUNITY BANKSHARES, INC.

AND SUBSIDIARIES

ITEM 2. MANAGEMENT
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS



Our discussion below in this Item 2 is based on the more detailed discussions about our
business, operations and financial condition included in our Annual Report on Form 10-K for the fiscal year ended December 31,
2003, under Item 7.  Our discussions here focus on our results during or as of the quarter ended March 31, 2004, and the
comparable period of 2003 for comparison purposes, and, to the extent applicable, any material changes from the information
discussed in that Form 10-K or other important intervening developments or information since that time.  These discussions
should be read in conjunction with that 10-K for more detailed and background information.

Forward Looking Statements

This discussion contains forward-looking statements under the Private Securities Litigation Reform Act of 1995 that involve risks and uncertainties. Although the Company believes the
assumptions underlying the forward-looking statements contained in the discussion are reasonable, any of the assumptions could be inaccurate, and therefore, no assurance can be made that any of the forward-looking statements included in this
discussion will be accurate. Factors that could cause actual results to differ from results discussed in forward-looking statements include, but are not limited to: economic conditions (both generally and in the markets where the Company operates);
competition from other providers of financial services; government regulation and legislation; changes in interest rates; and material unforeseen changes in the financial stability and liquidity of the Companys credit customers; all of which
are difficult to predict and which may be beyond the control of the Company. The Company undertakes no obligation to revise forward-looking statements to reflect events or changes after the date of this discussion or to reflect the occurrence of
unanticipated events.

For the
quarter ended March 31, 2004, we continue to experience growth in total assets, total loans and total deposits as compared to December 31, 2003. Total assets, loans, and deposits increased by
3.68%,	 6.23%	 and 2.26% respectively. The growth in total assets and deposits, although less than the same period in 2003, is 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.

As of March 31, 2004, the liquidity ratio was 17.78%	 which is
below our target range of 20 - 25%, but within an acceptable range due to our bank's
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 guideline is to allow no more than 8% change in net interest income when interest rates rise or fall 200 basis points or more. Our overall interest rate risk was less than 3% of
net interest income; therefore, we are within policy guidelines. We have attempted to position ourselves to minimize the impact of further changes in rates in either direction.

9Table of Contents
Capital

Banking regulation requires the Company and the
banks to maintain capital levels in relation to our assets. At March 31, 2004, the
banks capital ratios
were considered well capitalized based on regulatory minimum capital requirements. The minimum capital requirements and the actual consolidated

| |               | Actual | Regulatory Minimum
| | ------------- | ------ | ------------------
| |               |        |                   
| | Leverage      | 8.98%  | 4.00              
| | Core Capital  | 11.63% | 4.00              
| | Total Capital | 12.89% | 8.00              
| |               |        |                   

Off Balance Sheet Arrangements

Our financial statements do not reflect various commitments and contingent liabilities
that arise in the normal course of business.  These off-balance sheet financial instruments include commitments to extend
credit and standby letters of credit.  Such financial instruments are included in the financial statements when funds are
distributed or the instruments become payable.  Our exposure to credit loss in the event of nonperformance by the other party
to the financial instrument for commitments to extend credit and standby letters of credit is represented by the contractual amount
of those instruments.  We use the same credit policies in making commitments as we do for on-balance sheet instruments. 
Although these amounts do not necessarily represent future cash requirements, a summary of our commitments as of March 31, 2004 and
December 31, 2003 are as follows:

|                                    | March 31, 2004
(Dollars in Thousands) |        | December 31, 2003
(Dollars in Thousands)
|----------------------------------- | ------------------------------------- | ------ | ----------------------------------------
|                                    |                                       |        |                                         
|Commitments to extend credit        | $                                     | 72,568 |                                         
|Financial standby letters of credit |                                       | 4,104  |                                         

A. Results of Operation

Net Income

Net income for the three month period ended March 31, 2004, was $1,723,000 or an increase of 25% over the same period for 2003.

Net interest income for the three month period ended March 31, 2004
was up 16.50%	 over the same period for 2003, from $7,121,000 to $8,296,000.
This increase was the result of growth and improved margins.  Interest income was up by 4.36%	 for
the three month period ending March 31, 2004 from $10,778,000 to $11,248,000. The increase was caused by the increase in the volume of earning assets. Earning assets  increased by 10.29%	 or $67,867,000 at March 31, 2004 as compared to March 31,
2003. The largest increase in earning assets since March 31, 2003 was the increase in loans of $78,672,000 or 15.71%	. Securities decreased by $4,647,000 while federal funds decreased by $6,750,000.

10Table of Contents

Interest expense was down 19.28%	 or $705,000 for the three month period ended March 31, 2004, over the same period in 2003. These decreases were related  to the repricing of

time deposits.

The Companys net interest margin was 4.80%	 for the three month period ended March 31, 2004  compared to 4.68%	 for the same period in 2003. 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.

Other income increased by $1,625,000 or 56.74%	 during the three month period ended March 31, 2004 as compared to the same period for 2003. This increase is primarily due to
increased service charges on deposit accounts of $990,000 or 77.34% for the
three month period ended March 31, 2004 as compared to the same period in 2003
and  increased sales of $536,000 or 66.34%  by Financial Supermarkets, Inc. (FSI), a nonbank
subsidiary, as compared to the same period in 2003.   Service charges on deposits increased primarily as a result of the
banks adding an overdraft protection product which allows customers  to overdraw their account, up to a specific limits.

Non interest expenses increased by 21.24%	 or $1,645,000 for the three month period ending March 31, 2004 compared to the same periods in 2003.  Full time equivalent employees increased from 392 at the end of March 2003 to 397 at the end of March 2004. The increase in full time equivalent employees was
due to the addition of two new supermarket banking centers and one new
stand-a-lone branch during the later part of 2003 as well as the overall growth of the Companys banking operations.
In addition, the incentive commissions related to sales activity at FSI has
increased due to increased sales over the previous year.  These increases
caused salaries and benefits to increase by 12.17% or $528,000 for the three
month period ended March 31, 2004 as compared to the same period in 2003.

Also
attributable to the two new banking centers and new stand-a-lone branch, equipment and occupancy expenses were up by 1.9% or $25,000 for the three month period ending March 31, 2004 as compared to the
same period in 2003.

Other operating expenses increased by 52.17%	 or $1,092,000 for the three month period ending March 31, 2004 as compared to the same periods in 2003. The single largest item included in this increase is attributed to the
$440,000 expenses associated with the new carefree check program that was started in 2004. In addition, legal fees increased by
$101,000 or 214.89%	 as compared to the same period in 2003 due to legal services related to past due loans and other real
estate owned. Data processing expense increased by $85,000 or 36.33%	 as compared to the same period in 2003 due to
growth of the banks and improvement in our technology platform. Advertising and marketing increased by $54,000 or 32.14%	 and travel expense increased by $78,000 or 32.50%
as compared to the same period in 2003. These increases are attributed to the increased marketing and sales activity of FSI.

Income Taxes

We incurred income tax expenses of $544,000 which represents an effective rate of 24.00%	 for the three month period ended March 31, 2004 as compared to $317,000 which represents an
effective tax rate of 18.70%	 for the same period in 2003. The increase is due to a larger portion of our income being fully taxable.

11Table of Contents

We are not aware of any other known trends, events or uncertainties, 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.

Provision for Loan Loss

The provision for loan losses was $1,129,000 and $546,000 for the first three months of 2004 and 2003 respectively. Most of this increase
was needed due to our assessment of the allowance necessary to absorb probable
losses in our increased loan portfolio.  The reserve at March 31, 2004 represented 184% of non-accrual loans while the reserve at March 31, 2003 represented 159% of non-accrual loans. Non accrual loans have decreased from $4,824,000 to $4,659,000,
past due loans greater than 90 days and accruing interest have increased from $1,879,000 to $2,741,000
and net charge-offs have decreased from $607,000 to $127,000 at March 31, 2003
and March 31, 2004, respectively.

Repossessed real estate owned by the bank increased 33.08% from $4,021,000 in March 2003 to $5,351,000 in March 2004. Other real estate is carried in the books at the lesser of
cost or fair market value, less estimated costs to sell,  with no
significant losses anticipated.

Non-accrual, Past Due and Restructured Debt

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

March 31, 2004

Non-accrual
Past Due
RestructuredLoans
90 days
DebtStill accruingCommercial Loans
$  544

$   157

$   14Real Estate Loans
3,909

2,076

870Consumer Loans

206


508


--Total

$4,659


$2,741


$884


March 31, 2003

Non-accrual
Past Due
RestructuredLoans
90 days
DebtStill accruingCommercial Loans
$  278

$    232

$  14Real Estate Loans
4,353

1,384

906Consumer Loans

193


263


--Total

$4,824


$1,879


$920


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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 doubts concerning the collectibility of such credits.

The accrual of interest on loans is discontinued when, in managements opinion, the borrower may be unable to meet payments as they become due, unless the loan is well-secured.
All interest accrued but not collected for loans that are placed on nonaccrual or charged off is reversed against interest income. Interest income on nonaccrual loans is subsequently recognized only to the extent cash payments are received, until
the loans are returned to accrual status.

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:
we evaluate the (a) risk in our watch list of loans and past due ratios and (b) percentage of classified loans. We then compare results to reserve balances to assure any and all identified risk is covered.

The following table,
dollars in thousands, furnishes information on the loan loss reserve for the current three month reporting period and the same period for 2003.

> 2004
> 
> 2003(Dollars in Thousands)Beginning Balance
> $  7,561
> 
> $  7,742Less Charge Offs:Commercial Loans
> (893)
> 
> (65)Real Estate Loans
> (4)
> 
> (279)Consumer Loans
> (159)
> 
> (314)(252)
> 
> (658)Plus Recoveries:Commercial Loans
> 45
> 
> 4Real Estate Loans
> 48
> 
> 5Consumer Loans
> 32
> 
> 42125
> 
> 51Net Charge-offs
> (127)
> 
> (607)Provision for loan loss
> 1,129
> 
> 546Ending Balance
> $ 8,563
> 
> $  7,681

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Our Company operates in three distinct markets, northeast Georgia, midwest Georgia and mideast
Alabama. Each of these markets has seen a modest increase in unemployment and
bankruptcy filings.

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. As of March 31, 2004, non-accrual loans and other real estate owned totaled approximately $10,010,000 as compared to $8,845,000 as of March 31, 2003. The ratio of the loan loss reserve balance to the total loan balance at March
31, 2004 was 1.48%	 as compared to 1.53%	 at March 31, 2003. As of March 31, 2004, management considered our allowance for loan losses adequate to cover any anticipated losses.

14Table of Contents

ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our discussion below in this Item 3 is based on the more detailed discussions of our
market risk and related matters included in our Annual Report on From 10‐K for the fiscal year ended December 31, 2003, under
Item 7A.  Our discussion here focuses on the quarter ended March 31, 2004, and any material changes from (or other important
intervening developments since the time of) the information discussed in that Form 10-K.  This discussion should be read in
conjunction with that Form 10-K for more detailed and background information.

The Company is exposed only to U.S. dollar interest rate changes and accordingly, the Company manages exposure by considering the possible changes in the net interest margin. The
Company does not have any trading instruments nor does it classify any portion of the investment portfolio as held for trading. The Company does not engage in any hedging activities or enter into any derivative instruments other than mortgage backed
securities, which are commonly pass through securities. Finally, the Company has 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 financial institution. The sensitivity to rate changes is known as interest rate risk. The repricing of
interest earning assets and interest-bearing liabilities can influence the changes in net interest income. As part of the Companys asset/liability management program, the timing of repriced assets and liabilities is referred to as Gap
management.

The Companys objective in Gap management is to manage assets and liabilities to maintain satisfactory and consistent profitability. Officers of each bank are charged with
monitoring policies and procedures designed to ensure an acceptable asset/liability mix. Managements philosophy is to support asset growth primarily through growth of core deposits within the banks market areas.

The Companys asset/liability mix is monitored regularly with a report reflecting the interest rate sensitive assets and interest rate sensitive liabilities that is prepared and
presented to the Board of Directors of each bank on at least a quarterly basis. Managements objective is to monitor interest rate sensitive assets and liabilities so as to minimize the impact on earnings of substantial fluctuations in interest
rates. An asset or liability is considered to be interest rate-sensitive if it will reprice or mature within the time period analyzed, usually one year or less. The interest rate-sensitivity gap is the difference between the interest-earning assets
and interest-bearing liabilities scheduled to mature or reprice within the relevant period. A gap is considered positive when the amount of interest rate-sensitive assets exceeds the amount of interest rate-sensitive liabilities. A gap is considered
negative when the amount of interest rate-sensitive liabilities exceeds the interest rate-sensitive assets. During a period of rising interest rates, a negative gap would tend to adversely affect net interest income, while a positive gap would tend
to result in an increase in net interest income. Conversely, during a period of falling interest rates, a negative gap would tend to result in an increase in net interest income, while a positive gap would tend to adversely affect net interest
income. If the Companys assets and liabilities were equally flexible and moved concurrently, the impact of any increase or decrease in interest rates on net interest income would be minimal.

A simple interest rate gap analysis by itself may not be an accurate indicator of how net interest income will be affected by changes in interest rates. For example, while
interest-bearing transaction accounts are by their terms immediately repricable, competitive conditions and other circumstances usually preclude repricing such deposits proportionately with changes in rates affecting interest-earning
assets.

Accordingly, the Company also evaluates how changes in interest rates impacts the repayment of particular assets and liabilities. Income associated with interest-earning assets and
costs associated with interest-bearing liabilities may not be affected uniformly by changes in interest rates. In addition, the magnitude and duration of changes in interest rates may significantly affect net interest income. For example, although
certain assets and liabilities may have similar maturities or periods of repricing, they may react in different degrees to changes in market interest rates. Interest rates on certain types of assets and liabilities fluctuate in advance of changes in
general market rates, while interest rates on other types may lag behind changes in general market rates. In addition, certain assets have features (generally referred to as interest rate caps and floors) which limit changes in interest
rates. Also, prepayments and early withdrawal levels could deviate significantly from those reflected in the interest rate gap. The Company prepares a report monthly that measures the potential impact on net interest margin by rising or falling
rates. This report is reviewed monthly by the Asset/Liability Committee and quarterly by each Board of Director.

At March 31, 2004, the Companys cumulative interest rate sensitivity gap ratio for the next twelve months was 106% which was within its targeted range of 80% to 120%.

15

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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 to market rate changes.
For example, savings and money market rates are more stable than loans tied to a Prime rate and thus respond with less volatility to a market rate change. Thus, the Company uses a simulation model to monitor changes in net interest
income due to changes in market rates. The model of rising, falling and stable interest rate scenarios allows management to monitor and adjust interest rate sensitivity to minimize the impact of market rate swings. The analysis of impact on net
interest margins as well as market value of equity over a twelve month period is subjected to a 200 basis point increase and decrease in rate. The March 2004 model reflects an increase of 1.70%	 in net interest income and a 3.95%	 decrease in market
value equity for a 200 basis point increase in rates. The same model shows a 2.43%	 decrease in net interest income and a 8.02%	 increase in market value equity for a 200 basis point decrease in rates. The Companys policy is to allow no more
than +-8% change in net interest income and no more than +-25% change in market value equity for these scenarios. Therefore, the Company is within its policy guidelines.

Our management, including the chief executive and chief financial officers, supervised and participated in an evaluation of our disclosure controls and procedures (as defined in
federal securities rules) as of the end of the period covered by this report. Based on, and as of the date of, that evaluation, our CEO and CFO have concluded that our disclosure controls and procedures are effective in accumulating and
communicating information to our management, including our CEO and CFO, as appropriate to allow timely decisions regarding required disclosures of that information under the Securities and Exchange Commission rules and forms and that our disclosure
controls and procedures are designed to ensure that the information we are required to disclose in reports that we file or submit under all applicable federal securities laws is recorded, processed, summarized and reported within the time periods
specified in the Securities and Exchange Commission rules and forms.

There were no significant changes in our internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation.

PART II  OTHER INFORMATION

|(a) | Exhibits                                                                                                                                                                             
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    | 31.1
and 31.2 - Rule 13a-15(e) and 15d-15(e) Certifications                                                                                                                          
|    | 32 - Certification of Chief Executive Officer and Chief Financial Officer, Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant To Section 906 of the Sarbanes- Oxley Act of 2002.

|(b) | Reports on Form 8-K
|--- | -------------------
|    | None.              

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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.



|                    | COMMUNITY BANKSHARES, INC.                                                                       
|------------------- | -------------------------------------------------------------------------------------------------
|                    |                                                                                                  
|DATE: May  14, 2004 | BY:  /s/ Harry L. StephensHarry L. Stephens, Executive Vice President
and Chief Financial Officer





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