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U. S. SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D. C. 20549



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FORM 10-QSB



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|x | Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934
|- | ---------------------------------------------------------------------------------



For the quarterly period ended March 31, 2004



| ̈ | Transition Report Under Section 13 or 15(d) of the Exchange Act
|- | ---------------------------------------------------------------



For the transition period ended



Commission File Number 000-30517



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AMERICAN COMMUNITY BANCSHARES, INC.

(Exact name of registrant as specified in its charter)



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|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|NORTH CAROLINA                                                 |  | 56-2179531                          
|(State or other jurisdiction of incorporation or organization) |  | (IRS Employer Identification Number)



2593 WEST ROOSEVELT
BOULEVARD, MONROE, NORTH CAROLINA 28111

(Address of principal office)



(704) 225-8444

(Registrants Telephone Number, Including Area Code)



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Check whether the registrant (1) filed all reports required to be filed
by Section 13 or 15(d) of the Exchange Act of 1934 during the past 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 ̈



As of March 31, 2004, 2,827,709 shares of the issuers common stock, no
par value, were outstanding.



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##### Table of Contents

|         |  |                                                                                       |  |                                                                                  |  |   
|-------- |  | ------------------------------------------------------------------------------------- |  | -------------------------------------------------------------------------------- |  | --
|         |  |                                                                                       |  | Page No.                                                                        
|Part I.  |  | FINANCIAL INFORMATION                                                                 |  |                                                                                 
|         |  |                                                                                      
|Item 1 - |  | Financial Statements (Unaudited)                                                      |  |                                                                                 
|         |  |                                                                                       | 
|         |  |                                                                                       |  | Consolidated Balance Sheets March 31, 2004 and December 31, 2003                 |  | 3 
|         |  |                                                                                       | 
|         |  |                                                                                       |  | Consolidated Statements of Operations Three Months Ended March 31, 2004 and 2003 |  | 4 
|         |  |                                                                                       | 
|         |  |                                                                                       |  | Consolidated Statements of Cash Flows Three Months Ended March 31, 2004 and 2003 |  | 5 
|         |  |                                                                                       | 
|         |  |                                                                                       |  | Notes to Consolidated Financial Statements                                       |  | 6 
|         |  |                                                                                      
|Item 2 - |  | Managements Discussion and Analysis of Financial Condition and Results of Operations |  | 9                                                                               
|         |  |                                                                                      
|Item 3 - |  | Controls and procedures                                                               |  | 12                                                                              
|         |  |                                                                                      
|Part II. |  | OTHER INFORMATION                                                                     |  |                                                                                 
|         |  |                                                                                       | 
|         |  |                                                                                       |  | Item 6.
Exhibits and Reports on Form 8-K                                         |  | 13



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##### Table of Contents

Part I. FINANCIAL INFORMATION

Item 1 - Financial Statements



AMERICAN COMMUNITY BANCSHARES, INC.

CONSOLIDATED BALANCE SHEETS



|                                                                                                                      |  |                            |         |   |                    |   |         |  
|--------------------------------------------------------------------------------------------------------------------- |  | -------------------------- | ------- | - | ------------------ | - | ------- | -
|                                                                                                                      |  | March 31, 2004 (Unaudited) |         |   | December 31, 2003* |  
|                                                                                                                      |  | (In Thousands)             |        
|ASSETS                                                                                                                |  |                            |         |   |                    |   |         |  
|                                                                                                                      |  |                           
|Cash and due from banks                                                                                               |  | $                          | 9,351   |   |                    | $ | 7,330   |  
|Interest-earning deposits with banks                                                                                  |  |                            | 7,520   |   |                    |   | 11,012  |  
|Investment securities available for sale at fair value                                                                |  |                            | 47,018  |   |                    |   | 50,178  |  
|Investment securities held to maturity at cost                                                                        |  |                            | 1,890   |   |                    |   | 1,891   |  
|Loans                                                                                                                 |  |                            | 212,066 |   |                    |   | 204,533 |  
|Allowance for loan losses                                                                                             |  |                            | (2,645  | ) |                    |   | (2,529  | )
|                                                                                                                      |  |                            |         |   |                    |   |         |  
|NET LOANS                                                                                                             |  |                            | 209,421 |   |                    |   | 202,004 |  
|Accrued interest receivable                                                                                           |  |                            | 1,184   |   |                    |   | 1,131   |  
|Bank premises and equipment                                                                                           |  |                            | 5,267   |   |                    |   | 5,339   |  
|Foreclosed real estate                                                                                                |  |                            | 21      |   |                    |   | 117     |  
|Federal Home Loan Bank stock at cost                                                                                  |  |                            | 672     |   |                    |   | 792     |  
|Other assets                                                                                                          |  |                            | 1,774   |   |                    |   | 1,459   |  
|                                                                                                                      |  |                            |         |   |                    |   |         |  
|TOTAL ASSETS                                                                                                          |  | $                          | 284,118 |   |                    | $ | 281,253 |  
|                                                                                                                      |  |                            |         |   |                    |   |         |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                  |  |                            |         |   |                    |   |         |  
|                                                                                                                      |  |                           
|Deposits                                                                                                              |  |                            |         |   |                    |   |         |  
|Demand                                                                                                                |  | $                          | 35,638  |   |                    | $ | 29,782  |  
|Savings                                                                                                               |  |                            | 6,959   |   |                    |   | 6,197   |  
|Money market and NOW                                                                                                  |  |                            | 38,267  |   |                    |   | 40,865  |  
|Time                                                                                                                  |  |                            | 129,969 |   |                    |   | 131,319 |  
|                                                                                                                      |  |                            |         |   |                    |   |         |  
|TOTAL DEPOSITS                                                                                                        |  |                            | 210,833 |   |                    |   | 208,163 |  
|Borrowings                                                                                                            |  |                            | 13,278  |   |                    |   | 13,444  |  
|Securities sold under agreement to repurchase                                                                         |  |                            | 19,443  |   |                    |   | 19,667  |  
|Capital lease obligation                                                                                              |  |                            | 1,707   |   |                    |   | 1,708   |  
|Accrued expenses and other liabilities                                                                                |  |                            | 851     |   |                    |   | 582     |  
|Trust preferred securities                                                                                            |  |                            | 13,500  |   |                    |   | 13,500  |  
|                                                                                                                      |  |                            |         |   |                    |   |         |  
|TOTAL LIABILITIES                                                                                                     |  |                            | 259,612 |   |                    |   | 257,064 |  
|                                                                                                                      |  |                            |         |   |                    |   |         |  
|Stockholders Equity                                                                                                  |  |                            |         |   |                    |   |         |  
|Preferred stock, no par value, 1,000,000 shares authorized; none issued                                               |  |                            |         |   |                    |   |         |  
|Common stock, $1 par value, 9,000,000 shares authorized; 2,827,709 and 2,825,709 issued and outstanding, respectively |  |                            | 2,828   |   |                    |   | 2,826   |  
|Additional paid-in capital                                                                                            |  |                            | 19,216  |   |                    |   | 19,201  |  
|Retained earnings                                                                                                     |  |                            | 2,263   |   |                    |   | 2,071   |  
|Accumulated other comprehensive income                                                                                |  |                            | 199     |   |                    |   | 91      |  
|                                                                                                                      |  |                            |         |   |                    |   |         |  
|TOTAL STOCKHOLDERS EQUITY                                                                                            |  |                            | 24,506  |   |                    |   | 24,189  |  
|                                                                                                                      |  |                            |         |   |                    |   |         |  
|Commitments (Note B)                                                                                                  |  |                            |         |   |                    |   |         |  
|TOTAL LIABILITIES AND STOCKHOLDERS EQUITY                                                                            |  | $                          | 284,118 |   |                    | $ | 281,253 |  
|                                                                                                                      |  |                            |         |   |                    |   |         |  

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|* | Derived from audited financial statements.
|- | ------------------------------------------



See accompanying notes.



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AMERICAN COMMUNITY BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

Three Months Ended March 31, 2004 and 2003



|                                                    |  |                                                 |           |                                   |   |          
|--------------------------------------------------- |  | ----------------------------------------------- | --------- | --------------------------------- | - | ---------
|                                                    |  | Three months ended March 31, 2004               |           | Three months ended March 31, 2003
|                                                    |  | (In Thousands, except share and per share data)
|INTEREST INCOME                                     |  |                                                 |           |                                   |   |          
|Loans                                               |  | $                                               | 3,127     |                                   | $ | 2,751    
|Investments                                         |  |                                                 | 401       |                                   |   | 260      
|Interest-earning deposits with banks                |  |                                                 | 6         |                                   |   | 19       
|                                                    |  |                                                 |           |                                   |   |          
|TOTAL INTEREST INCOME                               |  |                                                 | 3,534     |                                   |   | 3,030    
|                                                    |  |                                                 |           |                                   |   |          
|INTEREST EXPENSE                                    |  |                                                 |           |                                   |   |          
|Money market, NOW and savings deposits              |  |                                                 | 49        |                                   |   | 52       
|Time deposits                                       |  |                                                 | 889       |                                   |   | 957      
|Borrowings                                          |  |                                                 | 408       |                                   |   | 257      
|                                                    |  |                                                 |           |                                   |   |          
|TOTAL INTEREST EXPENSE                              |  |                                                 | 1,346     |                                   |   | 1,266    
|                                                    |  |                                                 |           |                                   |   |          
|NET INTEREST INCOME                                 |  |                                                 | 2,188     |                                   |   | 1,764    
|PROVISION FOR LOAN LOSSES                           |  |                                                 | 118       |                                   |   | 365      
|                                                    |  |                                                 |           |                                   |   |          
|NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES |  |                                                 | 2,070     |                                   |   | 1,399    
|                                                    |  |                                                 |           |                                   |   |          
|NON-INTEREST INCOME                                 |  |                                                 |           |                                   |   |          
|Service charges on deposit accounts                 |  |                                                 | 465       |                                   |   | 467      
|Mortgage operations                                 |  |                                                 | 66        |                                   |   | 140      
|Gain on sale of investment securities               |  |                                                 | 58        |                                   |   |         
|Other                                               |  |                                                 | 113       |                                   |   | 73       
|                                                    |  |                                                 |           |                                   |   |          
|TOTAL NON-INTEREST INCOME                           |  |                                                 | 702       |                                   |   | 680      
|                                                    |  |                                                 |           |                                   |   |          
|NON-INTEREST EXPENSE                                |  |                                                 |           |                                   |   |          
|Salaries and employee benefits                      |  |                                                 | 1,011     |                                   |   | 854      
|Occupancy and equipment                             |  |                                                 | 369       |                                   |   | 297      
|Other                                               |  |                                                 | 634       |                                   |   | 514      
|                                                    |  |                                                 |           |                                   |   |          
|TOTAL NON-INTEREST EXPENSE                          |  |                                                 | 2,014     |                                   |   | 1,665    
|                                                    |  |                                                 |           |                                   |   |          
|INCOME BEFORE INCOME TAXES                          |  |                                                 | 758       |                                   |   | 414      
|INCOME TAXES                                        |  |                                                 | 283       |                                   |   | 151      
|                                                    |  |                                                 |           |                                   |   |          
|NET INCOME                                          |  | $                                               | 475       |                                   | $ | 263      
|                                                    |  |                                                 |           |                                   |   |          
|NET INCOME PER COMMON SHARE                         |  |                                                 |           |                                   |   |          
|BASIC                                               |  | $                                               | .17       |                                   | $ | .09      
|                                                    |  |                                                 |           |                                   |   |          
|DILUTED                                             |  | $                                               | .15       |                                   | $ | .09      
|                                                    |  |                                                 |           |                                   |   |          
|WEIGHTED AVERAGE COMMON SHARES OUTSTANDING          |  |                                                 |           |                                   |   |          
|BASIC                                               |  |                                                 | 2,826,039 |                                   |   | 2,824,376
|                                                    |  |                                                 |           |                                   |   |          
|DILUTED                                             |  |                                                 | 3,145,162 |                                   |   | 2,829,897
|                                                    |  |                                                 |           |                                   |   |          
|DIVIDEND DECLARED PER COMMON SHARE                  |  | $                                               | 0.10      |                                   | $ | 0.08     
|                                                    |  |                                                 |           |                                   |   |          



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AMERICAN COMMUNITY BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

Three Months Ended March 31, 2004 and 2003



|                                                                                  |  |                                   |        |   |                                   |   |         |  
|--------------------------------------------------------------------------------- |  | --------------------------------- | ------ | - | --------------------------------- | - | ------- | -
|                                                                                  |  | Three months ended March 31, 2004 |        |   | Three months ended March 31, 2003 |  
|                                                                                  |  | (In Thousands)                    |       
|CASH FLOWS FROM OPERATING ACTIVITIES                                              |  |                                   |        |   |                                   |   |         |  
|Net income                                                                        |  | $                                 | 475    |   |                                   | $ | 263     |  
|Adjustments to reconcile net income to net cash provided by operating activities: |  |                                   |        |   |                                   |   |         |  
|Depreciation and amortization                                                     |  |                                   | 268    |   |                                   |   | 185     |  
|Provision for loan losses                                                         |  |                                   | 118    |   |                                   |   | 365     |  
|Loss on sale of foreclosed real estate                                            |  |                                   | 7      |   |                                   |   | 28      |  
|Gain on sale of securities available for sale                                     |  |                                   | (58    | ) |                                   |   |        |  
|Change in assets and liabilities                                                  |  |                                   |        |   |                                   |   |         |  
|Increase in accrued interest receivable                                           |  |                                   | (53    | ) |                                   |   | (25     | )
|Increase in other assets                                                          |  |                                   | (381   | ) |                                   |   | (446    | )
|Increase (decrease) in accrued expenses and other liabilities                     |  |                                   | 268    |   |                                   |   | (358    | )
|                                                                                  |  |                                   |        |   |                                   |   |         |  
|NET CASH PROVIDED BY OPERATING ACTIVITIES                                         |  |                                   | 644    |   |                                   |   | 12      |  
|                                                                                  |  |                                   |        |   |                                   |   |         |  
|CASH FLOWS FROM INVESTING ACTIVITIES                                              |  |                                   |        |   |                                   |   |         |  
|Purchases of investment securities available for sale                             |  |                                   | (7,067 | ) |                                   |   | (12,614 | )
|Purchases of investment securities held to maturity                               |  |                                   |       |   |                                   |   | (1,482  | )
|Proceeds from sale of securities available for sale                               |  |                                   | 4,048  |   |                                   |   |        |  
|Proceeds from maturities, calls and principal repayments of investment securities |  |                                   | 6,288  |   |                                   |   | 8,031   |  
|Net increase in loans from originations and repayments                            |  |                                   | (7,536 | ) |                                   |   | (9,219  | )
|Purchases of bank premises and equipment                                          |  |                                   | (69    | ) |                                   |   | (329    | )
|Proceeds from sale of foreclosed real estate                                      |  |                                   | 89     |   |                                   |   | 324     |  
|(Purchase) redemption of Federal Home Loan Bank stock                             |  |                                   | 119    |   |                                   |   | (350    | )
|                                                                                  |  |                                   |        |   |                                   |   |         |  
|NET CASH USED BY INVESTING ACTIVITIES                                             |  |                                   | (4,128 | ) |                                   |   | (15,639 | )
|                                                                                  |  |                                   |        |   |                                   |   |         |  
|CASH FLOWS FROM FINANCING ACTIVITIES                                              |  |                                   |        |   |                                   |   |         |  
|Net increase in demand deposits                                                   |  |                                   | 4,020  |   |                                   |   | 5,234   |  
|Net increase (decrease) in time deposits                                          |  |                                   | (1,350 | ) |                                   |   | 2,809   |  
|Net increase (decrease) in advances from Federal Home Loan Bank                   |  |                                   | (167   | ) |                                   |   | 6,945   |  
|Net increase (decrease) in securities sold under agreement to repurchase          |  |                                   | (224   | ) |                                   |   | 1,293   |  
|Cash paid for dividends                                                           |  |                                   | (283   | ) |                                   |   | (226    | )
|Proceeds from common stock sold, net                                              |  |                                   | 17     |   |                                   |   |        |  
|                                                                                  |  |                                   |        |   |                                   |   |         |  
|NET CASH PROVIDED BY FINANCING ACTIVITIES                                         |  |                                   | 2,013  |   |                                   |   | 16,055  |  
|                                                                                  |  |                                   |        |   |                                   |   |         |  
|NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                              |  |                                   | (1,471 | ) |                                   |   | 428     |  
|                                                                                  |  |                                   |        |   |                                   |   |         |  
|CASH AND CASH EQUIVALENTS, BEGINNING                                              |  |                                   | 18,342 |   |                                   |   | 16,838  |  
|                                                                                  |  |                                   |        |   |                                   |   |         |  
|CASH AND CASH EQUIVALENTS, ENDING                                                 |  | $                                 | 16,871 |   |                                   | $ | 17,266  |  
|                                                                                  |  |                                   |        |   |                                   |   |         |  



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##### Table of Contents

AMERICAN COMMUNITY BANCSHARES, INC.

Notes to Consolidated Financial Statements



NOTE A - BASIS OF PRESENTATION



In managements opinion, the financial information, which is unaudited, reflects all
adjustments (consisting solely of normal recurring adjustments) necessary for a fair presentation of the financial information as of and for the three month periods ended March 31, 2004 and 2003, in conformity with accounting principles generally
accepted in the United States of America. The consolidated financial statements include the accounts of American Community Bancshares, Inc. (the Company) and its wholly owned subsidiaries, American Community Bank (the Bank),
American Community Capital Trust I (Capital Trust I), and American Community Capital Trust II, Ltd. (Capital Trust II). All significant inter-company transactions and balances are eliminated in consolidation. Operating
results for the three-month period ended March 31, 2004 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2004.



The organization and business of the Company, accounting policies followed by the Company and other information are contained in the notes
to the consolidated financial statements filed as part of the Companys 2003 annual report on Form 10-KSB. This quarterly report should be read in conjunction with such annual report.



NOTE B  COMMITMENTS



At March 31, 2004, loan commitments are as follows:



|                            |  |   |           
|--------------------------- |  | - | ----------
|Undisbursed lines of credit |  | $ | 37,259,979
|Stand-by letters of credit  |  |   | 2,908,101 



NOTE C  PER SHARE RESULTS



Basic earnings per share represents income available to common
stockholders divided by the weighted-average number of common shares outstanding during the period. Diluted earnings per share reflect additional common shares that would have been outstanding if dilutive potential common shares had been issued, as
well as any adjustment to income that would result from the assumed issuance. Potential common shares that may be issued by the company relate solely to outstanding stock options and warrants and are determined using the treasury stock method.



|                                                                                                                             |  |                              |  |          
|---------------------------------------------------------------------------------------------------------------------------- |  | ---------------------------- |  | ---------
|                                                                                                                             |  | Three months ended March 31,
|                                                                                                                             |  | 2004                         |  | 2003     
|Weighted average number of common shares used in computing basic net income per share                                        |  | 2,826,039                    |  | 2,824,376
|Effective of dilutive stock options                                                                                          |  | 319,123                      |  | 5,521    
|                                                                                                                             |  |                              |  |          
|Weighted average number of common shares and dilutive potential common shares used in computing diluted net income per share |  | 3,145,162                    |  | 2,829,897
|                                                                                                                             |  |                              |  |          



For the quarter ended March 31, 2004,
there were no options or warrants that were antidilutive.



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AMERICAN COMMUNITY BANCSHARES, INC.

Notes to Consolidated Financial Statements



NOTE D  COMPREHENSIVE INCOME



Total comprehensive income, consisting of net income and unrealized gains and losses on available for sale securities, net of taxes, was $583,000 and $178,000 for the three months ended March 31, 2004 and 2003.



NOTE E  STOCK COMPENSATION PLAN



Statement of Financial Accounting Standards (SFAS) No. 123, Accounting for
Stock-Based Compensation, encourages all entities to adopt a fair value based method of accounting for employee stock compensation plans, whereby compensation cost is measured at the grant date based on the value of the award and is recognized over
the service period, which is usually the vesting period. However, it also allows an entity to continue to measure compensation cost for those plans using the intrinsic value based method of accounting prescribed by Accounting Principles Board
Opinion No. 25, Accounting for Stock Issued to Employees, whereby compensation cost is the excess, if any, of the quoted market price of the stock at the grant date (or other measurement date) over the amount an employee must pay to acquire the
stock. Stock options issued under the companys stock option plans have no intrinsic value at the grant date and, under Opinion No. 25, no compensation cost is recognized for them. The company has elected to continue with the accounting
methodology in Opinion No. 25. Presented below are the pro forma disclosures of net income and earnings per share and other disclosures as if the fair value based method of accounting had been applied.



|                                                                                                                                      |  |                              |         |   |      |   |         |  
|------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------------- | ------- | - | ---- | - | ------- | -
|                                                                                                                                      |  | Three months ended March 31, |        
|                                                                                                                                      |  | 2004                         |         |   | 2003 |  
|Net income:                                                                                                                           |  |                              |         |   |      |   |         |  
|As reported                                                                                                                           |  | $                            | 475,000 |   |      | $ | 263,000 |  
|Deduct: Total stock-based employee compensation expense determined under fair value method for all awards, net of related tax
effects |  |                              | (17,300 | ) |      |   | (23,800 | )
|                                                                                                                                      |  |                              |         |   |      |   |         |  
|Pro forma                                                                                                                             |  | $                            | 457,700 |   |      | $ | 239,200 |  
|                                                                                                                                      |  |                              |         |   |      |   |         |  
|Basic net income per share                                                                                                            |  |                              |         |   |      |   |         |  
|As reported                                                                                                                           |  | $                            | 0.17    |   |      | $ | 0.09    |  
|Proforma                                                                                                                              |  |                              | 0.16    |   |      |   | 0.08    |  
|                                                                                                                                      |  |                             
|Diluted net income per share                                                                                                          |  |                              |         |   |      |   |         |  
|As reported                                                                                                                           |  |                              | 0.15    |   |      |   | 0.09    |  
|Proforma                                                                                                                              |  |                              | 0.15    |   |      |   | 0.08    |  



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AMERICAN COMMUNITY BANCSHARES, INC.

Notes to Consolidated Financial Statements



NOTE F  SUBSEQUENT EVENT



On
November 5, 2003, the Bank entered into an agreement and Plan of Reorganization and Merger with First National Bancshares, Inc. (First National), a bank holding company headquartered in Gaffney, SC, which is the parent company of First
National Bank of the Carolinas. Shareholders of First National as of the close of the merger will be entitled to receive a combination of cash and American Community common stock which, at the time the merger was announced, had a value of $20.50 per
share. The merger was consummated effective April 15, 2004.



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



This Quarterly Report on Form 10-QSB may contain certain forward-looking statements consisting of estimates with respect to the financial condition, results of operations
and business of the Company that are subject to various factors which could cause actual results to differ materially from these estimates. These factors include, but are not limited to, general economic conditions, changes in interest rates,
deposit flows, loan demand, real estate values, and competition; changes in accounting principles, policies, or guidelines; changes in legislation or regulation; and other economic, competitive, governmental, regulatory, and technological factors
affecting the Companys operations, pricing, products, and services. There are no pending legal proceedings other than those incurred in the normal course of business to which the Bank or Company is a party, or of which any of their property is
the subject.



COMPARISON OF FINANCIAL CONDITION AT MARCH 31, 2004 AND
DECEMBER 31, 2003



Total assets at March 31, 2004 increased by $2.8
million or 1.0% to $284.1 million compared to $281.3 million at December 31, 2003. The Company had earning assets of $269.2 million at month-end March 31, 2004 consisting of $212.1 million in gross loans, $49.6 million in investment securities and
Federal Home Loan Bank (FHLB) stock and $7.5 million in overnight investments. Total deposits as of March 31, 2004 increased by $2.6 million or 1.2% to $210.8 million compared to $208.2 million at December 31, 2003. Total borrowed money as of March
31, 2004 decreased $391,000 or .89% to $47.9 million compared to $48.3 million at December 31, 2003. Stockholders equity was $24.5 million at March 31, 2004 compared to $24.2 million at December 31, 2003 for an increase of $317,000 or 1.2%.
The increase resulted from net income of $475,000, the exercise of stock options which provided net proceeds of $17,000, other comprehensive income of $108,000 offset by the payment of a cash dividend in the amount of $283,000.



The Company recorded a $118,000 provision for loan losses for the quarter ended March 31,
2004, representing a decrease of $247,000 or 68% from the $365,000 provision for the quarter ended March 31, 2003. Provisions for loan losses are charged to income to bring the allowance for loan losses to a level deemed appropriate by management.
The Company has continued to provide provisions for loan losses principally as a result of the continued growth in the loan portfolio. Total loans receivable increased by $7.5 million during the quarter ended March 31, 2004. The allowance for loan
losses at March 31, 2004 of $2.65 million equaled 1.25% of total loans outstanding and 945% of non-performing loans, which totaled $280,000. The allowance for loan losses at December 31, 2003 of $2.53 million equaled 1.24% of total loans outstanding
and 766% of non-performing loans which totaled $330,000.



The Company had
investment securities available for sale of $47.0 million at March 31, 2004. The portfolio decreased by $3.2 million or 6.4% from the $50.2 million balance at December 31, 2003 as the Company sold two available for sale securities for a gain of
$58,000. In addition the Company had investment securities held to maturity of $1.9 million at March 31, 2004 and December 31, 2003.



Interest-earning deposits with banks at March 31, 2004 decreased by $3.5 million or 31.8% to $7.5 million compared to $11.0 million at December 31, 2003. This decrease
was primarily a result of the increase in cash and due from banks. The Company holds funds in interest-earning deposits with banks to provide liquidity for future loan demand and to satisfy fluctuations in deposit levels.



Non interest-earning assets at March 31, 2004 increased by $2.2 million or 14.3% to $17.6
million compared to $15.4 million at December 31, 2003. The increase is primarily attributable to an increase of $2.0 million to $9.3 million in the cash and due from banks category. This primarily represents customer deposits that are in the
process of collection and not available for overnight investment combined with cash on hand in the branches. Accrued interest receivable increased $53,000 to $1.2 million at March 31, 2004 as a result of the timing in the collection of interest
income. Bank premises



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and equipment was $5.3 million at March 31, 2004, a decrease of $72,000 from December 31, 2003. The net decrease resulted
from depreciation of $142,000 offset by purchases of $70,000. Other real estate owned decreased by $96,000 as a result of the sale of a 1-4 family property obtained through foreclosure. Other assets increased by $315,000 at March 31, 2004 to $1.8
million primarily as a result of the increase in other receivables and capitalized merger expenses.



Total deposits increased $2.6 million or 1.3% from $208.2 million at December 31, 2003 to $210.8 million at March 31, 2004. The composition of the deposit base, by category, at March 31, 2004 is as follows: 17%
non-interest bearing demand deposits, 3% savings deposits, 18% money market and interest bearing demand deposits and 62% time deposits. The non-interest bearing deposits and savings categories both experienced increases over the three-month period.
Dollar and percentage increases were as follows: non-interest bearing demand deposits, $5.9 million or 20%; and savings deposits, $762,000 or 12%. The money market and time deposits both experienced decreases over the three-month period. Dollar and
percentage decreases were as follows: money market, $2.6 million or 6%, and time deposits, $1.4 million or 1%. Time deposits of $100,000 or more totaled $62.9 million, or 30% of total deposits at March 31, 2004. The composition of deposits at
December 31, 2003 was 14% non-interest bearing demand deposits, 3% savings deposits, 20% money market and interest bearing demand deposits and 63% time deposits.



The Company had advances from the Federal Home Loan Bank of Atlanta at March 31, 2004 of $13.3 million with maturity dates ranging from June
2004 through February 2013. The balance of Federal Home Loan Bank advances at December 31, 2003 was $13.4 million with maturity dates ranging from June 2004 through February 2013. These advances are secured by a blanket lien on 1-4 family real
estate loans, certain commercial real property and certain securities available for sale. Total securities sold under agreement to repurchase decreased $224,000 or 1.1% from $19.7 million at December 31, 2003 to $19.4 million at March 31, 2004.
These borrowings are secured by certain of the Companys investment securities. The Company also maintained the capital lease for its main office. The recorded obligation under this capital lease at March 31, 2004 was $1.7 million. In addition,
Capital Trust I maintained Trust Preferred Securities in the amount of $3.5 million at a fixed rate of 9%. The Trust Preferred securities have a maturity date of March 1, 2032, are redeemable on or after March 1, 2007 at par value and are eligible
for inclusion as Tier I capital. Capital Trust II maintained Trust Preferred Securities in the amount of $10.0 million at a rate based off 90 day LIBOR.



Other liabilities increased by $269,000 to $851,000 or 46.2% at March 31, 2004 from $582,000 at December 31, 2003. The increase was primarily due to the increase in
accrued expenses.



Comparison of Results of Operations for the Three
Months Ended March 31, 2004 and 2003



Net Income The
Company generated net income for the three months ended March 31, 2004 of $475,000 compared to a profit for the three months ended March 31, 2003 of $263,000. On a fully diluted per share basis earnings were $.15 for 2004 compared to $.09 for 2003.
Return on average assets was 0.69% and 0.48% and return on average equity was 7.84% and 4.61% for the three months ended March 31, 2004 and 2003, respectively. Earnings for the three months ended March 31, 2004 were positively impacted by strong
growth in average earning assets and by increases in net interest income and non-interest income.



Net Interest Income. Net interest income increased $424,000 from $1.8 million for the three months ended March 31, 2003 to $2.2 million for the three months ended March 31, 2004. Total interest income
benefited from growth in average earning assets.



Total average earning assets
increased $56.5 million or 27.4% from an average of $206.5 million during the first quarter of 2003 to an average of $263.0 during the first quarter of 2004. The Company experienced strong loan growth with average loan balances increasing by $41.8
million. The increase in average balances for investment securities and interest-earning deposits was $20.3 million. Average interest-bearing liabilities increased by $47.6 million during the first quarter of 2004 of which $20.2 million was
attributable to deposits while borrowings increased $27.4 million.



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Net interest margin is interest income earned on loans, securities and other earning assets, less interest expense paid
on deposits and borrowings, expressed as a percentage of total average earning assets. The net interest margin for the quarter ended March 31, 2004 was 3.38% compared to 3.47% for the same quarter in 2003. The decrease in net interest margin
resulted primarily from the decrease in yields on the Banks loan portfolio. The interest rate spread, which is the difference between the average yield on earning assets and the cost of interest-bearing funds, decreased 13 basis points from
2.97% in the quarter ended March 31, 2003 to 2.84% for the same quarter in 2004.



Provision for Loan Losses. The Companys provision for loan losses for the quarter ended March 31, 2004 was $118,000, representing a $247,000 or 68% decrease from the $365,000 recorded for the quarter ended March 31,
2003. While the Company has continued to provide provisions for loan losses as a result of the continued growth in the loan portfolio, the provision in the 2003 quarter was greater due to the charge-off of a loan in the amount of $138,000 for which
no previous loan allowance had been recorded. Provisions for loan losses are charged to income to bring the allowance for loan losses to a level deemed appropriate by management.



Non-interest Income. Non-interest income increased by $22,000 or 3.2% to $702,000 for the three months ended March 31, 2004
compared with $680,000 for the same period in the prior year. Non-interest income as a percentage of total revenue (defined as net interest income plus non-interest income) decreased to 24% for the three months ended March 31, 2004 from 28% for the
same period in the prior year. The largest components of non-interest income were service charges on deposit accounts of $465,000 for the quarter ended March 31, 2004 as compared to $467,000 for the same period in 2003 or a 0.4% decrease and fees
from mortgage banking operations of $66,000 in 2004 as compared to $140,000 in 2003 or a 52.9% decrease. Fees from mortgage banking operations decreased due to a slowdown in the refinancing market in the first quarter of 2004. These decreases were
offset by a gain on the sale of investment securities in the amount of $58,000 and rental income received in the amount of $20,000 from the lease of excess space in one of our branch locations which began April 2003.



Non-interest Expense. Total non-interest expense increased from $1.7 million
for the three months ended March 31, 2003 to $2.0 million for the same period in 2004. This 21% increase was primarily due to increased expenses resulting from the full operation of all eight branches in 2004. In the first quarter of 2003, only six
of our eight branches had been fully operational for the entire quarter.



Provision for Income Taxes. The Companys provision for income taxes, as a percentage of income before income taxes, was 37.3% and 36.5% for the three months ended March 31, 2004 and 2003, respectively.



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Asset Quality



No material changes have occurred in the Companys asset quality since December 31, 2003.



Item 3. Controls and Procedures



The company
maintains a system of internal controls and procedures designed to provide reasonable assurance as to the reliability of our published financial statements and other disclosures included in this report. The Companys Board of Directors,
operating through its audit committee which is composed entirely of independent outside directors, provides oversight to the Companys financial reporting process.



The Companys management, under the supervision and with the participation of the Chief Executive Officer and the Chief Financial
Officer of the Company (its principal executive officer and principal financial officer, respectively), have concluded based on their evaluation as of the end of the period covered by this quarterly report that the Companys disclosure controls
and procedures are effective to ensure that information required to be disclosed by the Company in the reports filed or submitted by it under the Securities and Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within
the time periods specified in the applicable rules and forms, and include controls and procedures designed to ensure that information required to be disclosed by the Company in such reports is accumulated and communicated to the Companys
management, including the Chief Executive Officer and the Chief Financial Officer of the Company, as appropriate to allow timely decisions regarding required disclosure.



There have been no significant changes in internal control over financial reporting during the period covered by this quarterly report that
have materially affected, or are reasonably likely to materially affect, the Companys internal control over financial reporting.



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Part II. OTHER INFORMATION



Item 6. Exhibits and Reports on Form 8-K



|(a) | Exhibits:
|--- | ---------



|          |  |                                                                                                                                             
|--------- |  | --------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit # |  | Description                                                                                                                                 
|31.1      |  | Certification of the Chief Executive Officer pursuant to Rule 13a-14(a)                                                                     
|          | 
|31.2      |  | Certification of the Chief Financial Officer pursuant to Rule 13a-14(a)                                                                     
|          | 
|32.1      |  | Certification by the Chief Executive Officer pursuant to 18 U.S.C. 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|          | 
|32.2      |  | Certification by the Chief Financial Officer pursuant to 18 U.S.C. 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002



|(b) | Reports on Form 8-K.
|--- | --------------------



On February 2, 2004, the Registrant issued a press release dated January 27, 2004 with respect to the Registrants financial results for the year
ended December 31, 2003.



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SIGNATURES



Under 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.



|              |  |                                     |  |                                                  
|------------- |  | ----------------------------------- |  | -------------------------------------------------
|              |  | AMERICAN COMMUNITY BANCSHARES, INC.
|              |  |                                    
|Date: 4/27/04 |  | By:                                 |  | /s/ Randy P. Helton                              
|              |  |                                     |  | Randy P. Helton                                  
|              |  |                                     |  | President and Chief Executive Officer            
|              |  |                                    
|Date: 4/27/04 |  | By:                                 |  | /s/ Dan R. Ellis, Jr.                            
|              |  |                                     |  | Dan R. Ellis, Jr.                                
|              |  |                                     |  | Senior Vice President and Chief Financial Officer



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