UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549

FORM 10-Q





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

For the quarter period ended
June 30, 2001



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

For the transition period from _______ to _______

Commission File Number: 33-81890

Community Bankshares, Inc.

---





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



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



(706) 778-2265

---

N/A

---



Indicate by check mark whether the registrant has (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.          Yes  /X/     No     /_/



APPLICABLE ONLY TO CORPORATE ISSUERS



Indicate the number of shares outstanding of each of the issuers classes of common stock, as of
August 1, 2001:   2,184,830



---





|COMMUNITY BANKSHARES, INC.
AND SUBSIDIARIES
INDEX
|-------------------------------------------------
|                                                 
|                                                 
|                                                 
|PART I.                                          
|                                                 
|Item 1.                                          
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|Item 2.                                          
|                                                 
|                                                 
|PART II                                          
|                                                 
|Item 4.                                          
|                                                 
|Item 6.                                          
|                                                 
|                                                 



---



PART
I - FINANCIAL INFORMATION



ITEM
1.      FINANCIAL STATEMENTS

COMMUNITY BANKSHARES,
INC.
AND SUBSIDIARIESCONDENSED BALANCE SHEETSJUNE 30, 2001 AND DECEMBER 31, 2000

(Dollars in thousands)

|                                                                   |   | (Unaudited) |  |   |        
|------------------------------------------------------------------ | - | ----------- |  | - | -------
|Assets                                                             |   | 2001        |  |   | 2000   
|                                                                   |   |             |  |   |        
|Cash and due from
      banks                                      | $ | 29,766      |  | $ | 38,410 
|Interest-bearing
      deposits in banks                           |   | 427         |  |   | 454    
|Federal funds sold                                                 |   | 11,925      |  |   | 12,125 
|Securities
      available-for-sale                                |   | 70,537      |  |   | 61,069 
|Securities
      held-to-maturity (fair value $32,300 and $31,983) |   | 29,841      |  |   | 31,193 
|Loans held for sale                                                |   | 427         |  |   | 1,012  
|                                                                   |   |             |  |   |        
|Loans                                                              |   | 437,576     |  |   | 417,909
|Less allowance for
      loan losses                               |   | 6,470       |  |   | 6,307  
|                                                                   |   |             |  |   |        
|Loans,
      net                                                   |   | 431,106     |  |   | 411,602
|                                                                   |   |             |  |   |        
|                                                                   |   |             |  |   |        
|Premises and
      equipment                                       |   | 15,956      |  |   | 14,845 
|Other assets                                                       |   | 18,105      |  |   | 19,613 
|                                                                   |   |             |  |   |        
|                                                                   |   |             |  |   |        
|Total
      assets                                                 | $ | 608,090     |  | $ | 590,323
|                                                                   |   |             |  |   |        
|                                                                   |   |             |  |   |        
|Liabilities and
      Shareholders' Equity                         |   |             |  |   |        
|                                                                   |   |             |  |   |        
|Deposits                                                           |   |             |  |   |        
|Non-interest-bearing
      demand                                  | $ | 77,542      |  | $ | 77,960 
|Interest-bearing
      demand                                      |   | 106,718     |  |   | 101,486
|Savings                                                            |   | 25,423      |  |   | 21,913 
|Time, $100,000 and
      over                                      |   | 105,946     |  |   | 102,842
|Other time                                                         |   | 211,659     |  |   | 203,294
|                                                                   |   |             |  |   |        
|Total
      deposits                                               |   | 527,288     |  |   | 507,495
|Federal Home Loan
      Advances                                   |   | 10,000      |  |   | 10,000 
|Other borrowings                                                   |   | 732         |  |   | 844    
|Other liabilities                                                  |   | 13,592      |  |   | 18,646 
|                                                                   |   |             |  |   |        
|Total
      liabilities                                            |   | 551,612     |  |   | 536,985
|                                                                   |   |             |  |   |        
|                                                                   |   |             |  |   |        
|                                                                   |   |             |  |   |        
|                                                                   |   |             |  |   |        
|Redeemable common
      stock held by ESOP, 383,913                |   |             |  |   |        
|and
      370,539 shares outstanding at June 30, 2001              |   |             |  |   |        
|and
      December 31, 2000, respectively                          |   | 15,633      |  |   | 15,088 
|                                                                   |   |             |  |   |        
|                                                                   |   |             |  |   |        
|Shareholders' equity                                               |   |             |  |   |        
|Common
      stock, par value $1; 5,000,000                        |   |             |  |   |        
|shares
      authorized; 2,184,830 and 2,181,830                   |   |             |  |   |        
|shares
      issued and outstanding at June 30, 2001               |   |             |  |   |        
|and
      December 31, 2000, respectively                          |   | 2,185       |  |   | 2,182  
|Capital surplus                                                    |   | 6,060       |  |   | 6,142  
|Retained earnings                                                  |   | 32,943      |  |   | 29,976 
|Accumulated other
      comprehensive income,
      net of tax     |   | 307         |  |   | (50)   
|Less unearned ESOP
      shares                                    |   | (650)       |  |   | -      
|                                                                   |   |             |  |   |        
|Total
      shareholders' equity                                   |   | 40,845      |  |   | 38,250 
|                                                                   |   |             |  |   |        
|                                                                   |   |             |  |   |        
|Total liabilities
      and shareholders' equity                   | $ | 608,090     |  | $ | 590,323
|                                                                   |   |             |  |   |        
|                                                                   |   |             |  |   |        
|See Notes to
      Condensed Financial Statements.                 |   |             |  |   |        



2

---





COMMUNITY BANKSHARES,
INC.
AND SUBSIDIARIESCONDENSED STATEMENTS OF INCOME
AND COMPREHESIVE INCOME
THREE MONTHS ENDED JUNE 30, 2001 AND 2000 AND
SIX MONTHS ENDED JUNE 30, 2001 AND 2000
(Dollars in thousands, except per share amounts)
(Unaudited)

|                                                                                                        |   |                    |  |   |                  |  |   |       
|------------------------------------------------------------------------------------------------------- | - | ------------------ |  | - | ---------------- |  | - | ------
|                                                                                                        |   | Three Months Ended |  |   | Six Months Ended
|                                                                                                        |   | June 30,           |  |   | June 30,        
|                                                                                                        |   | 2001               |  |   | 2000             |  |   | 2001  
|                                                                                                        |   |                    |  |   |                 
|Interest income                                                                                         |   |                    |  |   |                  |  |   |       
|Loans                                                                                                   | $ | 10,872             |  | $ | 10,154           |  | $ | 21,811
|Taxable
      securities                                                                                |   | 687                |  |   | 737              |  |   | 1,385 
|Nontaxable
      securities                                                                             |   | 628                |  |   | 532              |  |   | 1,221 
|Deposits
      in banks                                                                                 |   | 7                  |  |   | -                |  |   | 14    
|Federal
      funds sold                                                                                |   | 228                |  |   | 192              |  |   | 448   
|                                                                                                        |   |                    |  |   |                  |  |   |       
|Total
      interest income                                                                             |   | 12,422             |  |   | 11,615           |  |   | 24,879
|                                                                                                        |   |                    |  |   |                  |  |   |       
|                                                                                                        |   |                    |  |   |                  |  |   |       
|Interest expense                                                                                        |   |                    |  |   |                  |  |   |       
|Deposits                                                                                                |   | 5,942              |  |   | 5,154            |  |   | 11,964
|Other
      borrowings                                                                                  |   | 163                |  |   | 234              |  |   | 327   
|                                                                                                        |   |                    |  |   |                  |  |   |       
|Total
      interest expense                                                                            |   | 6,105              |  |   | 5,388            |  |   | 12,291
|                                                                                                        |   |                    |  |   |                  |  |   |       
|                                                                                                        |   |                    |  |   |                  |  |   |       
|Net
      interest income                                                                               |   | 6,317              |  |   | 6,227            |  |   | 12,588
|Provision for loan
      losses                                                                         |   | 394                |  |   | 352              |  |   | 800   
|                                                                                                        |   |                    |  |   |                  |  |   |       
|Net
      interest income after                                                                         |   |                    |  |   |                  |  |   |       
|provision
      for loan losses                                                                         |   | 5,923              |  |   | 5,875            |  |   | 11,788
|                                                                                                        |   |                    |  |   |                  |  |   |       
|                                                                                                        |   |                    |  |   |                  |  |   |       
|Other income                                                                                            |   |                    |  |   |                  |  |   |       
|Service
      charges on deposit accounts                                                               |   | 1,096              |  |   | 864              |  |   | 2,065 
|Other
      service charges and fees                                                                    |   | 281                |  |   | 206              |  |   | 572   
|Gains
      on sale of loans                                                                            |   | 11                 |  |   | 51               |  |   | 63    
|Trust
      Department fees                                                                             |   | 26                 |  |   | 22               |  |   | 70    
|Nonbank
      subsidiary non-interest income                                                            |   | 2,407              |  |   | 1,933            |  |   | 6,010 
|Other
      operating income                                                                            |   | 201                |  |   | 185              |  |   | 434   
|                                                                                                        |   |                    |  |   |                  |  |   |       
|Total
      other income                                                                                |   | 4,022              |  |   | 3,261            |  |   | 9,214 
|                                                                                                        |   |                    |  |   |                  |  |   |       
|                                                                                                        |   |                    |  |   |                  |  |   |       
|Other expenses                                                                                          |   |                    |  |   |                  |  |   |       
|Salaries
      and employee benefits                                                                    |   | 4,101              |  |   | 3,541            |  |   | 8,512 
|Occupancy
      expense                                                                                 |   | 445                |  |   | 379              |  |   | 872   
|Equipment
      expense                                                                                 |   | 841                |  |   | 657              |  |   | 1,642 
|Other
      operating expenses                                                                          |   | 2,254              |  |   | 2,053            |  |   | 4,803 
|                                                                                                        |   |                    |  |   |                  |  |   |       
|Total
      other expenses                                                                              |   | 7,641              |  |   | 6,630            |  |   | 15,829
|                                                                                                        |   |                    |  |   |                  |  |   |       
|                                                                                                        |   |                    |  |   |                  |  |   |       
|Income
      before income taxes                                                                        |   | 2,304              |  |   | 2,506            |  |   | 5,173 
|                                                                                                        |   |                    |  |   |                  |  |   |       
|Income tax expense                                                                                      |   | 649                |  |   | 811              |  |   | 1,551 
|                                                                                                        |   |                    |  |   |                  |  |   |       
|                                                                                                        |   |                    |  |   |                  |  |   |       
|Net
      income                                                                                        | $ | 1,655              |  | $ | 1,695            |  | $ | 3,622 
|                                                                                                        |   |                    |  |   |                  |  |   |       
|                                                                                                        |   |                    |  |   |                  |  |   |       
|Other comprehensive
      income (loss):                                                                |   |                    |  |   |                  |  |   |       
|Unrealized
      gains (losses) on securities                                                           |   |                    |  |   |                  |  |   |       
|available-for-sale
      arising during the period                                                      |   | (110)              |  |   | 45               |  |   | 357   
|Less:
      reclassification adjustment for gains
                   gains
      included in net income |   | 0                  |  |   | 0                |  |   | 0     
|                                                                                                        |   |                    |  |   |                  |  |   |       
|Total
      other comprehensive income (loss)                                                           |   | (110)              |  |   | 45               |  |   | 357   
|                                                                                                        |   |                    |  |   |                  |  |   |       
|                                                                                                        |   |                    |  |   |                  |  |   |       
|Comprehensive
      income                                                                              | $ | 1,545              |  | $ | 1,740            |  | $ | 3,979 
|                                                                                                        |   |                    |  |   |                  |  |   |       
|                                                                                                        |   |                    |  |   |                  |  |   |       
|Basic earnings per
      common share                                                                   | $ | 0.76               |  | $ | 0.78             |  | $ | 1.66  
|                                                                                                        |   |                    |  |   |                  |  |   |       
|Diluted earnings per
      common share                                                                 |   | 0.75               |  |   | 0.77             |  |   | 1.64  
|                                                                                                        |   |                    |  |   |                  |  |   |       
|Cash dividends per
      share of common stock                                                          | $ | .05                |  | $ | .0435            |  | $ | .10   
|                                                                                                        |   |                    |  |   |                  |  |   |       
|                                                                                                        |   |                    |  |   |                  |  |   |       
|See Notes to
      Condensed Financial Statements.                                                      |   |                    |  |   |                  |  |   |       

3

---





COMMUNITY BANKSHARES,
INC.
AND SUBSIDIARIESCONDENSED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2001 AND 2000
(Dollars in thousands)
(Unaudited)

|                                                        
|--------------------------------------------------------
|                                                        
|                                                        
|OPERATING ACTIVITIES                                    
|Net
      income                                        
|Adjustments
      to reconcile net income to            
|net cash
      provided by operating activities:        
|Depreciation
      and amortization                     
|Provision
      for loan losses                         
|Provision
      for other real estate                   
|Deferred
      income taxes                             
|Decrease
      in loans held for sale                   
|Net
      (gains) losses on sale of other real estate   
|(Increase)
      decrease in interest receivable        
|Increase
      (decrease) in interest payable           
|Increase
      (decrease) in taxes payable              
|(Increase)
      decrease in accounts                   
|receivable
      of nonbank subsidiary                  
|(Increase)
      decrease in work in                    
|process
      of nonbank subsidiary                     
|Decrease
      in accruals and payables                 
|of
      nonbank subsidiary                             
|Other
      operating activities                        
|                                                        
|                                                        
|Net
      cash provided by operating activities         
|                                                        
|                                                        
|INVESTING ACTIVITIES                                    
|Purchases
      of securities available-for-sale        
|Proceeds
      from maturities of securities            
|available-for-sale                                      
|Purchases
      of securities held-to-maturity          
|Proceeds
      from maturities of securities            
|held-to-maturity                                        
|Net
      (increase) decrease in Federal funds sold     
|Net
      (increase) decrease in interest-bearing       
|deposits
      in banks                                 
|Net
      increase in loans                             
|Purchase
      of premises and equipment                
|Proceeds
      from sales of other real estate          
|                                                        
|                                                        
|Net
      cash used in investing activities             
|                                                        
|                                                        
|FINANCING ACTIVITIES                                    
|Net
      increase in deposits                          
|Repayment
      of other borrowings                     
|Proceeds
      for the exercise of stock options        
|Dividends
      paid                                    
|                                                        
|Net
      cash provided by financing activities         
|                                                        
|Net increase
      (decrease) in cash and               
|Due from
      banks                                    
|                                                        
|Cash and due from
      banks at beginning of the period
|                                                        
|                                                        
|Cash and due from
      banks at end of the period      
|                                                        
|                                                        
|SUPPLEMENTAL
      DISCLOSURES                          
|Cash paid
      for:                                    
|Interest                                                
|                                                        
|Income
      taxes                                      
|                                                        
|NONCASH TRANSACTIONS                                    
|Unrealized
      (gains) losses on                      
|securities
      available-for sale                     
|                                                        
|Principal
      balances on loans transferred           
|to
      other real estate                              



See Notes to Condensed
Financial Statements



4

---





COMMUNITY BANKSHARES,
INC.
AND SUBSIDIARIES

NOTES TO CONDENSED
FINANCIAL STATEMENTS



NOTE
1.          BASIS OF
PRESENTATION

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

The results of operations
for the three and six month periods ending June 30, 2001 are not necessarily
indicative of the results to be expected for the full year.

NOTE
2.          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
      June 30, 2001
      ( Dollars and shares in Thousands,
      except per share amounts)Net
      Income
      (Numerator)
    Weighted-Average
      Shares
      (Denominator)
    Per Share
      AmountBasic EPS
    $        1,655
    2,182
    $        0.76Effect of Dilutive
      Securities
                Stock options
    0
    22Diluted EPS
    $        1,655
    2,204
    $         0.75Three Months Ended
      June 30, 2000
      (Dollars and
      shares in Thousands,
      except per share
      amounts)Net
      Income
      (Numerator)
    Weighted-Average
      Shares
      (Denominator)
    Per Share AmountBasic EPS
    $        1,695
    2,179
    $          0.78Effect of Dilutive
      Securities
                Stock options
    0
    20Diluted EPS
    $        1,695
    2,199
    $          0.77




5

---



Six Months Ended
      June 30, 2001
      ( Dollars and
      shares in Thousands,
      except per share
      amounts)Net
      Income
      (Numerator)
    Weighted-Average
      Shares
      (Denominator)
    Per Share AmountBasic EPS
    $        3,622
    2,182
    $         1.66Effect of Dilutive
      Securities          Stock options
    0
    22Diluted EPS
    $        3,622
    2,204
    $         1.64Six Months Ended
      June 30, 2000
      (Dollars and
      shares in Thousands,
      except per share
      amounts)Net
      Income
      (Numerator)
    Weighted-Average
      Shares
      (Denominator)
    Per Share AmountDiluted EPS
    $        1,695
    2,199
    $          0.77Basic EPS
    $        3,296
    2,179
    $          1.51Effect of Dilutive
      Securities          Stock options
    0
    20Diluted EPS
    $        3,296
    2,199
    $           1.50


6

---



NOTE 3.          SEGMENT INFORMATION



Selected segment
information by industry segment for the three and six month periods ended June
30, 2001 and 2000 is as follows:



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



| |                                                      | Reportable
      Segments
      (Dollars in
      thousands)
| | ---------------------------------------------------- | ------------------------------------------------------------
| |                                                      |                                                             
| | For the three month
      period ended June 30, 2000 |                                                             
| |                                                      |                                                             
| |                                                      |                                                             
| | Revenue from
      external customers                |                                                             
| | Inter-segment
      revenues (expenses)              |                                                             
| | Segment profit
      (loss)                          |                                                             
| | Segment assets                                       |                                                             



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



7



---





| |                                                    | Reportable
      Segments
      (Dollars in
      thousands)
| | -------------------------------------------------- | ------------------------------------------------------------
| |                                                    |                                                             
| | For the six month
      period ended June 30, 2000 |                                                             
| |                                                    |                                                             
| |                                                    |                                                             
| | Revenue from
      external customers              |                                                             
| | Inter-segment
      revenues (expenses)            |                                                             
| | Segment profit
      (loss)                        |                                                             
| | Segment assets                                     |                                                             



| |                                                  |  |  | For the three
      months
      Ended June, 30 |  |  | For the six months
      Ended June, 30
| | ------------------------------------------------ |  |  | ----------------------------------------------- |  |  | ---------------------------------------
| |                                                  |  |  |                                                 |  |  |                                        
| |                                                  |  |  | 2001                                            |  |  | 2000                                   
| |                                                  |  |  |                                                 |  |  |                                        
| |                                                  |  |  |                                                 |  |  |                                        
| | Net Income                                       |  |  |                                                 |  |  |                                        
| | Total profit for
      reportable segments       |  |  | $     2,065                                     |  |  | $     2,032                            
| | Non-reportable
      segment loss                |  |  | (356)                                           |  |  | (198)                                  
| | Elimination of
      intersegment (gains) losses |  |  | (54)                                            |  |  | (139)                                  
| | Total consolidated
      other income            |  |  | $     1,655                                     |  |  | $     1,695                            



8

---



COMMUNITY BANKSHARES,
INC.
AND SUBSIDIARIES



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

Forward Looking Statements

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

Managements Discussion
and Analysis

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

Financial Condition

As of June 30, 2001, we
continue to experience growth in total assets, total loans and total deposits as
compared to December 31, 2000. Total assets, loans, and deposits increased by
3.12%, 4.56% and 3.90% respectively. The growth in all areas is slightly less
than the same period last year but consistent with managements expectations.
The growth in assets is attributable to growth in deposits and retention of
earnings. Management expects the growth to continue in the future.

Liquidity

As of June 30, 2001, the
liquidity ratio was 21.57% which is within our target range of 20 - 25%. The
banks have available lines of credit to meet unexpected liquidity needs.
Liquidity is measured by the ratio of net cash, short term and marketable
securities to net deposits and short term liabilities.

Interest Rate Risk

Our overall interest rate
risk was less than 3.60% of net interest income subjected to rising and falling
rates of 200 basis points. We have positioned ourselves to be protected against
any further changes in rates in either direction.

Capital

Banking regulation
requires the Company and the Banks to maintain capital levels in relation to our
assets. At June 30, 2001, the Companys and banks' capital ratios were
considered satisfactory based on regulatory minimum capital requirements. The
minimum capital requirements and the actual capital ratios for the Company at
June 30, 2001 were as follows:



| |                                    | Actual | Regulatory Minimum | 
| | ---------------------------------- | ------ | ------------------ | 
| |                                    |        |                    | 
| | Leverage                           | 8.97%  | 4.00%              | 
| | Risked Based Capital
      ratios: |        |                    | 
| | Core Capital                       | 11.75% | 4.00%              | 
| | Total Capital                      | 13.01% | 8.00%              | 
| |                                    |        |                    | 



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Results of Operation

Net interest income for
the six month period ended June 30, 2001 is up 4.14% over the same period for
2000, from $12,088,000 to $12,588,000 and is up 1.45% for the three month period
ending June 30, 2001 from $6,227,000 to $6,317,000 for 2001. Interest income was
up by 10.37% for the six month period ending June 30, 2001 from $22,542,000 to
$24,879,000 and up 6.95% for the three month period ending June 30, 2001 from
$11,615,000 to $12,422,000. The increase in interest income is due to an
increase of 9.75% or $50,987,000 in earning assets from June 30, 2000 to June
30, 2001. Investment securities increased by $7,506,000 or 8.08% during the same
period. Total loans increased $39,832,000 or 10.18% during the last twelve
months. Interest expense was up 17.57% or $1,837,000 for the six month period
ended June 30, 2001, over the same period in 2000 and up 13.31% or $717,000 for
the three month period ending June 30, 2001, as compared to 2000. This increase
in interest expense is due to an increase in interest bearing deposits of
$44,102,000 or 10.87% from June 30, 2000 to June 30, 2001.   Due to
our short-term asset sensitive position, interest expense has increased at a
faster rate than interest income.  Management anticipates a recovery in the
margin over the next twelve months.  The increases in
interest income, interest expense, and net interest income were consistent with
the budget projections made by management and are on target to be consistent
with annual projections.

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: (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 are covered.

The provision for loan
losses was $800,000 and $694,000 for the first six months of 2001 and 2000
respectively. This provision can fluctuate due to many factors as mentioned
above and the volume Small Business Administration (SBA) loans closed, as we
have a policy of reserving 5% of the unguaranteed portion of any SBA loans. We
currently have reserves totaling $1,072,000 for our unguaranteed portion of SBA
loans.

The following table
furnishes information on the loan loss reserve for the current six month
reporting period and the same period for 2000.



| |                               | 2001          | 2000          | 
| | ----------------------------- | ------------- | ------------- | 
| |                               |               |               | 
| | Beginning Balance             | $       6,306 | $       5,682 | 
| |                               |               |               | 
| | Less Charge Offs:             |               |               | 
| | Real Estate Loans             | (115)         | 0             | 
| | Commercial Loans              | (41)          | (238)         | 
| | Consumer Loans                | (540)         | (303)         | 
| | Credit Cards                  | 0             | (5)           | 
| |                               |               |               | 
| |                               | (696)         | (546)         | 
| |                               |               |               | 
| | Plus Recoveries               |               |               | 
| | Real Estate Loans             | 7             | 0             | 
| | Commercial Loans              | 14            | 45            | 
| | Consumer Loans                | 37            | 82            | 
| | Credit Cards                  | 2             | 0             | 
| |                               |               |               | 
| |                               | 60            | 127           | 
| |                               |               |               | 
| | Net Charge-offs               | (636)         | (419)         | 
| |                               |               |               | 
| | Provision for loan
      loss | 800           | 694           | 
| |                               |               |               | 
| | Ending Balance                | $      6,470  | $      5,957  | 
| |                               |               |               | 



The provision for loan
losses for the six month period ended June 30, 2001 represented 115% of
charge-offs for the same period, while the provision for the first six months of
2000 represented 128% of the charge offs recorded in that period. The reserve at
June 30, 2001 represented 194% of non-accrual loans while the reserve at June
30, 2000 represented 309% of non-accrual loans. Non-accrual loans have increased
from $1,918,000 at June 30, 2000 to $3,335,000 as of June 30, 2001. Past due
loans greater than 90 days and accruing interest have increased from $1,254,000
in 2000 to $3,154,000 in 2001. These increases are indicative of the overall
state of the economy. We are also aware of a slight deterioration in loan
quality. Management continues to take steps to address the issue of loan
quality. We are currently outside our guideline of maintaining a loan
loss reserve of 200% of non-performing assets. However, $86,000 of non-accrual
loans are guaranteed by the Small Business Administration. The loan loss reserve
balance to total loan ratio at June 30, 2001 was 1.48% as compared to 1.49% at
June 30, 2000. Management considered the loan loss reserve to be adequate to
absorb any anticipated losses that may be incurred.



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

June 30, 2001



| |                   | Non-accrual
      Loans | Past Due
      90 days
      still accruing | Restructured
      Debt
| | ----------------- | ----------------------- | ------------------------------------------- | -----------------------
| |                   |                         |                                             |                        
| |                   |                         |                                             |                        
| |                   |                         |                                             |                        
| | Real Estate Loans | $       2,810           | $       2,516                               | $           0          
| | Commercial Loans  | 1,95                    | 209                                         | 730                    
| | Consumer Loans    | 350                     | 429                                         | 0                      
| |                   |                         |                                             |                        
| | Total             | $       3,335           | $       3,154                               | $       730            
| |                   |                         |                                             |                        





June 30, 2000



| |                   | Non-accrual
      Loans | Past Due
      90 days
      still accruing | Restructured
      Debt
| | ----------------- | ----------------------- | ------------------------------------------- | -----------------------
| |                   |                         |                                             |                        
| |                   |                         |                                             |                        
| |                   |                         |                                             |                        
| | Real Estate Loans | $          0            | $          0                                | $          0           
| | Commercial Loans  | 1,272                   | 853                                         | 765                    
| | Consumer Loans    | 646                     | 401                                         | 0                      
| |                   |                         |                                             |                        
| | Total             | $     1,918             | $    1,254                                  | $      765             
| |                   |                         |                                             |                        



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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 serious doubts as to the ability of such
borrowers to comply with the loan payment terms.

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

Other income increased by
40.65% or $2,633,000 during the six month period ended June 30, 2001 as compared
to the same period for 2000 and the three month period ending June 30, 2001
showed a 23.34% or $761,000 increase over the same three month period of 2000.
This increase is primarily due to the increase in activity associated with an
agreement between Financial Supermarkets, Inc. (FSI), a nonbank subsidiary, and
the Canadian Imperial Bank of Commerce ("CIBC") to establish banking
pavilions in Florida. Management anticipates the level of activity associated
with pavilion installations for CIBC to continue for the foreseeable future.
Service charges on deposit accounts increased by $452,000 or 28.02% for the six
month period ended June 30, 2001, and $232,000 or 26.85% for the three month
period ended June 30, 2001, as compared to the same periods in 2000. The major
change was the increase in non-sufficient funds (NSF) charges of $410,000 and
$219,000 for the six month period and the three month period ended June 30,
2001, respectively, compared to the same period in 2000. NSF charges increased
primarily as a result of our continued growth in accounts in the totally free
checking program.

Other expenses increased
by 20.68% or $2,713,000 for the six month period ended June 30, 2001, and 15.25%
or $1,011,000 for the three month period ending June 30, 2001 as compared to the
same periods in 2000. Salaries and benefits increased by $1,484,000 or 21.12%
during the six month period ended June 30, 2001 compared to the same period in
2000. Full time equivalent employees increased from 347 at the end of June 2000
to 378 at the end of June 2001. Equipment and occupancy expenses were up by
24.64% or $497,000 for the six month period ended June 30, 2001, and 24.13% or
$250,000 for the three month period ending June 30, 2001, as compared to the
same period in 2000. The increase in full time equivalent employees as well as
equipment and occupancy expenses was influenced by the addition of three new
supermarket banking centers; as well, as the overall growth of the Companys
banking operations. In other operating expenses, travel expenses increased
$359,000 or 100.1%, sundry losses increased $79,000 or 143.8% and data
processing expenses increased $25,000 or 10.8% for the six month period ending
June 30, 2001 as compared to the same period in 2000.

We incurred income tax
expenses of $649,000 which represents an effective rate of 28% for the three
month period ended June 30, 2001 as compared to $811,000 which represents an
effective tax rate of 32% for the same period in 2000. In addition, we incurred
income tax expenses of $1,551,000 which represents an effective rate of 30% for
the six month period ended June 30, 2001 as compared to $1,533,000 which
represents an effective tax rate of 32% for the same period in 2000.

Net income for the six
month period ended June 30, 2001, was $3,622,000 or an increase of 9.89% and for
the three month period ended June 30, 2001, was $1,655,000 or a decrease of
2.36% over the same periods for 2000.   Due to scheduling delays in
supermarket bank installations, management does not anticipate meeting its
original budgeted projections and management cannot guarantee an
overall increase in earnings in 2001 compared to 2000 due to the variation in
the number of supermarket bank installations from year to year.

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

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PART II - OTHER
INFORMATION



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

The Annual Meeting of the
Shareholders of the Company was held on April 11, 2001. Total shares outstanding
amounted to 2,181,830. A total of 1,854,316 shares (84.99%) were represented by
shareholders in attendance or by proxy. The following directors were re-elected
to serve for a one-year term. The results of the election were as follows:



| |                              | Shares Voted:
| | ---------------------------- | -------------
| |                              |              
| |                              | For          
| |                              |              
| | Steven C. Adams              | 1,854,316    
| | Edwin B. Burr                | 1,854,316    
| | H. Calvin Stovall,
      Jr. | 1,854,316    
| | Dean C. Swanson              | 1,854,316    
| | George D. Telford            | 1,854,316    
| | Dr. A. Dan Windham           | 1,854,316    
| | J. Alton Wingate             | 1,854,316    
| | Lois M. Wood-Schroyer        | 1,854,316    
| |                              |              



ITEM 6.         Exhibits and
Reports on Form 8-K

1. Exhibits

> None

1. Reports on Form 8-K

> None



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SIGNATURES

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



COMMUNITY BANKSHARES, INC.DATE: August 14, 2001
      BY:     /s/ Harry L. StephensHarry
        L. Stephens,
              Executive Vice President and
               Chief Financial Officer






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