---

UNITED STATES
SECURITIES
AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-QSB

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

For the Quarterly
Period Ended
June 30, 2004

OR

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

For the Transition
Period from _________ to  _________

Commission file number
000-50522

Community Banks of Georgia, Inc.(Exact name of small business issuer as specified in its
charter)

Georgia
  
  20-0485183(State of Incorporation)
  
  (I.R.S. Employer
  Identification No.)15 Mountainside Drive
  Jasper, Georgia
  
  30143(Address of principal executive offices)
  
  (Zip Code)


706-253-9600(Telephone Number)

Check
whether the issuer: (1)  filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act  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.

YESxNOo

State
the number of shares outstanding of each of the issuers classes of common
equity, as of the latest practicable date: 
Common stock, par value $5 per share: 
970,000 shares outstanding as of August 10, 2004

Transitional small
business disclosure format (check one):

YESoNOx

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COMMUNITY BANKS OF GEORGIA, INC.

|         | INDEX                 |                                                                                                                                 |         
|-------- | --------------------- | ------------------------------------------------------------------------------------------------------------------------------- | --------
|         |                       |                                                                                                                                 |         
|         |                       |                                                                                                                                 | Page No.
|         |                       |                                                                                                                                 |         
|PART I   | FINANCIAL INFORMATION |                                                                                                                                 |         
|         |                       |                                                                                                                                 |         
|         | Item 1.               | Consolidated Financial Statements                                                                                               |         
|         |                       |                                                                                                                                 |         
|         |                       | Consolidated Balance Sheet
  (unaudited) at June 30, 2004 andConsolidated Balance Sheet (audited) at December 31, 2003          |         
|         |                       |                                                                                                                                 |         
|         |                       | Consolidated Statements of
  Operations (unaudited) for the Three Months and Six Months Ended June 30, 2004 and 2003            |         
|         |                       |                                                                                                                                 |         
|         |                       | Consolidated Statements of
  Comprehensive Income (unaudited) for theThree Months and Six Months Ended June 30, 2004
  and 2003 |         
|         |                       |                                                                                                                                 |         
|         |                       | Consolidated Statements of Cash
  Flows (unaudited) for the Six MonthsEnded June 30, 2004 and 2003                              |         
|         |                       |                                                                                                                                 |         
|         |                       | Notes to Consolidated Financial
  Statements (unaudited)                                                                        |         
|         |                       |                                                                                                                                 |         
|         | Item 2.               | Managements Discussion and Analysis
  of Financial Condition andResults of Operations                                          |         
|         |                       |                                                                                                                                 |         
|         | Item 3.               | Controls and Procedures                                                                                                         |         
|         |                       |                                                                                                                                 |         
|PART II. | OTHER INFORMATION     |                                                                                                                                 |         
|         |                       |                                                                                                                                 |         
|         | Item 1.               | Legal Proceedings                                                                                                               |         
|         |                       |                                                                                                                                 |         
|         | Item 2.               | Changes in Securities and Purchases
  of Equity Securities                                                                      |         
|         |                       |                                                                                                                                 |         
|         | Item 3.               | Defaults Upon Senior Securities                                                                                                 |         
|         |                       |                                                                                                                                 |         
|         | Item 4.               | Submission of Matters to a Vote of
  Security Holders                                                                           |         
|         |                       |                                                                                                                                 |         
|         | Item 5.               | Other Information                                                                                                               |         
|         |                       |                                                                                                                                 |         
|         | Item 6.               | Exhibits and Reports on Form 8-K                                                                                                |         

This
form 10-QSB contains forward-looking statements. These statements are subject
to risks and uncertainties that could cause actual results to differ materially
from those anticipated in the forward-looking statements. Factors that may
cause these differences include, but are not limited to, changes in interest
rate environment, managements business strategy, national, regional and local
market conditions and legislative and regulatory conditions.

Readers
should not place undue reliance on forward-looking statements, which reflect
managements view only as of the date of this form 10-QSB. We undertake no
obligation to publicly revise these forward-looking statements to reflect
subsequent events or circumstances. Readers should also carefully review the
other documents we file from time to time with the Federal Deposit Insurance
Corporation and Securities and Exchange Commission.

- 2 -

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PART I. 
FINANCIAL INFORMATIONItem 1.  CONSOLIDATED
FINANCIAL STATEMENTS

COMMUNITY BANKS OF GEORGIA, INC.

Consolidated
Balance Sheets

Assets

June30,
  2004
  (unaudited)
  
  
  December 31,
  2003
  (audited)Cash and due from banks, including reserve
  requirements of $119,000
  
  $
  250,693
  
  
  1,222,225Federal funds sold
  
  
  3,963,000
  
  
  2,027,000Cash
  and cash equivalents
  
  
  4,213,693
  
  
  3,249,225Investment securities available for sale
  
  
  24,043,111
  
  
  20,906,782Other investments
  
  
  402,151
  
  
  263,750Loans, net
  
  
  105,073,828
  
  
  89,791,071Premises and equipment, net
  
  
  2,409,046
  
  
  2,375,012Accrued interest receivable and other assets
  
  
  1,928,391
  
  
  1,420,946Bank owned life insurance
  
  
  1,834,970
  
  
  1,350,995Total
  assets
  
  $
  139,905,190
  
  
  119,357,781Liabilities
  and Stockholders EquityLiabilities:Deposits:Demand
  
  $
  5,754,181
  
  
  5,930,829Interest
  bearing demand and money market
  
  
  14,307,081
  
  
  13,261,340Savings
  
  
  2,123,251
  
  
  1,385,673Time
  
  
  66,627,255
  
  
  54,590,810Time
  over $100,000
  
  
  36,538,992
  
  
  30,369,978Total
  deposits
  
  
  125,350,760
  
  
  105,538,630Federal
  Home Loan Bank advance
  
  
  1,900,000
  
  
  1,900,000Accrued
  interest payable and other liabilities
  
  
  531,283
  
  
  337,946Total
  liabilities
  
  
  127,782,043
  
  
  107,776,576CommitmentsShareholders equity:Common stock, $5 par
  value; authorized
        10,000,000 shares; issued and outstanding
  970,000 shares
  
  
  4,850,000
  
  
  4,850,000Additional paid-in
  capital
  
  
  5,803,524
  
  
  5,803,524Retained earnings
  
  
  1,860,374
  
  
  925,782Accumulated
  comprehensive (loss) income
  
  
  (390,751
  )
  
  1,899Total
  shareholders equity
  
  
  12,123,147
  
  
  11,581,205$
  139,905,190
  
  
  119,357,781


See accompanying notes to
unadudited consolidated financial statements

- 3 -

COMMUNITY BANKS OF GEORGIA, INC.Consolidated Statements of Operations

For the Three Months and Six Months Ended June 30, 2004 and 2003(Unaudited)

Three Months Ended
        
     Six Months EndedJune 30, 2004
        
     June 30, 2003
        
     June 30, 2004
        
     June 30, 2003Interest income:Loans
     $1,766,750
        
     1,279,909
        
     3,405,211
        
     2,463,230Investment securities
     
     
     
     275,795
        
     
     148,327
        
     
     539,979
        
     
     288,996Federal funds sold
     5,190
        
     11,525
        
     9,486
        
     19,520Total interest income
     2,047,735
        
     1,439,761
        
     3,954,676
        
     2,771,746Interest expense:Deposits
     
     
     
     639,109
        
     
     498,640
        
     
     1,221,657
        
     
     940,080Borrowings
     12,020
        
     11,810
        
     24,160
        
     23,163Total interest expense
     
     
     
     651,129
        
     
     510,450
        
     
     1,245,817
        
     
     963,243Net interest income
     
     
     
     1,396,606
        
     
     929,311
        
     
     2,708,859
        
     
     1,808,503Provision for loan losses
     
     
     
     100,000
        
     
     117,000
        
     
     140,000
        
     
     232,648Net interest income after provision for loan losses
     
     
     
     1,296,606
        
     
     812,311
        
     
     2,568,859
        
     
     1,575,855Other income:Service charges on deposit accounts
     
     
     
     89,850
        
     
     49,676
        
     
     161,409
        
     
     90,702Mortgage origination fees
     
     
     
     12,508
        
     
     36,306
        
     
     29,564
        
     
     68,968Other operating income
     
     
     
     33,545
        
     
     57,503
        
     
     63,221
        
     
     55,716Gain on sale of securities
     
     
     
     --
        
     
     75,310
        
     
     --
        
     
     75,310Total other income
     
     
     
     135,903
        
     
     218,795
        
     
     254,194
        
     
     290,696Other expense:Salaries and other personnel expense
     355,351
        
     281,161
        
     683,967
        
     548,240Net occupancy and equipment expense
     
     
     
     93,276
        
     
     70,356
        
     
     180,155
        
     
     155,868Other operating expense
     233,426
        
     197,652
        
     454,271
        
     358,392Total other expense
     
     
     
     682,053
        
     
     549,169
        
     
     1,318,393
        
     
     1,062,500Income before provision for income taxes
     750,456
        
     481,937
        
     1,504,660
        
     804,051Income tax expense
     
     
     
     283,429
        
     
     176,029
        
     
     570,068
        
     
     294,206Net earnings
     
     
     $
     467,027
        
     
     305,908
        
     
     934,592
        
     
     509,845Earnings per common share:Basic
     earnings per share (based on average outstandingshares of 970,000, 970,000, 970,000, and 931,583)
     
     
     $
     .48
        
     
     .32
        
     
     .96
        
     
     .55Diluted earnings
     per share (based on average outstandingshares of 1,035,000, 1,009,000,
     1,035,000, and 970,583)
     $.45
        
     .30
        
     .90
        
     .53


See accompanying notes to unaudited consolidated financial statements.

- 4 -

COMMUNITY
BANKS OF GEORGIA, INC.

Consolidated
Statements of Comprehensive Income

For the Three Months and Six Months Ended June 30, 2004 and 2003(Unaudited)

Three Months Ended
        
     
     Six Months EndedJune 30, 2004
        
     
     June 30, 2003
        
     
     June 30, 2004
        
     
     June 30, 2003Net earnings
     
     
     $
     467,027
        
     
     305,908
        
     
     934,592
        
     
     509,845Other comprehensive income, net of tax:Unrealized gain  (loss) on securities available-for-sale,net of tax of $343,831, $158, $240,656 and $8,946
     
     
     
     (560,987
        )
     
     (257
        )
     
     (392,650
        )
     
     14,600Gains on securities available-for-sale,net of tax of $0, $28,618, $0 and $28,618
     
     
     
     --
        
     
     46,692
        
     
     --
        
     
     46,692Total other comprehensive (loss) income
     
     
     
     (560,987
        )
     
     46,435
        
     
     (392,650
        )
     
     61,292Comprehensive (loss) income
     
     
     $
     (93,960
        )
     
     352,343
        
     
     541,942
        
     
     571,137


See
accompanying notes to unaudited consolidated financial statements.

- 5 -

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COMMUNITY
BANKS OF GEORGIA, INC.

Consolidated
Statements of Cash Flows

For the Six
Months Ended  31, 2004 and 2003
(Unaudited)

Six Months EndedJune 30, 2004
        
     
     June 30, 2003Cash flows from operating activities:Net earnings
     
     $934,592
        
     
     509,845Adjustments to reconcile net earnings to netcash provided by operating activitiesProvision for loan losses
     
     
     
     140,000
        
     
     232,648Depreciation, amortization and accretion
     
     
     70,150
        
     
     81,975Increase in bank owned life insurance
     
     
     
     (33,270
        )
     
     --Gain on sale of securities
     
     
     --
        
     
     (75,310
        )Change in:Accrued interest receivable and other assets
     
     
     (406,789
        )
     
     (52,312
        )Accrued interest payable and other liabilities
     
     
     
     333,337
        
     
     326,982Net cash provided by operating activities
     
     
     
     1,038,020
        
     
     1,023,828Cash
     flows from investing activities:Proceeds from calls, maturities, andpaydowns of securities available for sale
     
     
     
     615,526
        
     
     4,629,347Proceeds from sale of securities available for sale
     
     
     
     --
        
     
     2,065,938Purchases of other investments
     
     
     
     (138,401
        )
     
     (168,751
        )Purchases of investment securities available for sale
     
     
     
     (4,384,242
        )
     
     (10,085,695
        )Change in loans
     
     
     
     (15,422,757
        )
     
     (19,738,157
        )Purchases of premises and equipment
     
     
     
     (105,103
        )
     
     (8,340
        )Purchase of bank owned life insurance
     
     
     
     (450,705
        )
     
     (1,290,000
        )Net cash used by investing activities
     
     
     
     (19,885,682
        )
     
     (24,595,658
        )Cash
     flows from financing activities:Net change in deposits
     
     
     19,812,130
        
     
     25,842,904Proceeds from sale of stock, net of offering costs of $38,055 in 2003
     
     
     
     --
        
     
     1,571,556Net cash provided by financing activities
     
     
     
     19,812,130
        
     
     27,414,460Net increase in cash and cash equivalents
     
     
     
     964,468
        
     
     3,842,630Cash and cash equivalents at beginning of the period
     
     
     3,249,225
        
     
     2,607,938Cash and cash equivalents at end of period
     
     $
     4,213,693
        
     
     6,450,568Supplemental schedule of noncash investing
     activities:Change in unrealized gain on securities available for sale, net of tax
     
     
     $
     (392,650
        )
     
     61,292Supplemental disclosure of cash flow information:Interest paid
     
     $1,198,383
        
     
     971,533Taxes paid
     
     $
     622,395
        
     
     82,240


See
accompanying notes to unaudited consolidated financial statements.

- 6 -

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COMMUNITY BANKS OF GEORGIA, INC.Notes to Consolidated Financial Statements
(Unaudited)

|(1) | Basis of
  Presentation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    | The
accounting principles followed and the methods of applying these principles
conform with accounting principles generally accepted in the United States of
America and with general practices within the banking industry. In preparing
financial statements in conformity with GAAP, management is required to make
estimates and assumptions that affect the reported amounts in the financial
statements. Actual results could differ significantly from those estimates.
Material estimates common to the banking industry that are particularly
susceptible to significant change in the near term include, but are not limited
to, the determinations of the allowance for loan losses, the valuation of real
estate acquired in connection with or in lieu of foreclosure on loans, and
valuation allowances associated with deferred tax assets, the recognition of
which are based on future taxable income.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    | The
accompanying unaudited financial statements have been prepared in accordance
with accounting principles generally accepted in the United States of America
for interim financial information and with the instructions to Form 10-QSB.
Accordingly, they do not include all the information and footnotes required by
GAAP for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for a
fair presentation have been included. Operating results for the six-month period
ended June 30, 2004 are not necessarily indicative of the results that may be
expected for the year ended December 31, 2004. For further information, refer to
the financial statements and footnotes thereto included in our Form 10-KSB for
the fiscal year ended December 31, 2003 as filed with the Securities and
Exchange Commission.       
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    | Reclassifications
of certain amounts in the 2003 consolidated financial statements have been made
to conform with the financial statement presentation for 2004. The
reclassifications have no effect on net earnings or shareholders equity as
previously reported.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|(2) | Net Earnings Per Share                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    | Basic
earnings per share are based on the weighted average number of common shares
outstanding during the period while the effects of potential common shares
outstanding during the period are included in diluted earnings per share. The
presentation of earnings per share is required on the face of the statement of
operations with and without the dilutive effects of potential common stock
issuances from instruments such as options, convertible securities, and
warrants.                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

For the Six Months Ended June 30, 2004:

| |                                                |  |  | Net Earnings |         |  | Weighted
     Average
     Common Shares |           | Per Share
     Amount
| | ---------------------------------------------- |  |  | ------------ | ------- |  | ---------------------------------------- | --------- | ---------------------
| |                                                |  |  |              |         |  |                                          |           |                      
| | Basic earnings per share                       |  |  | $            | 934,592 |  |                                          | 970,000   |                      
| | Effect of dilutive securities - stock warrants |  |  |              | -       |  |                                          | 65,000    |                      
| |                                                |  |  |              |         |  |                                          |           |                      
| |                                                |  |  |              |         |  |                                          |           |                      
| | Diluted earnings per share                     |  |  | $            | 934,592 |  |                                          | 1,035,000 |                      
| |                                                |  |  |              |         |  |                                          |           |                      

For the
    Six Months Ended June 30, 2003:

| |                                                |  |  | Net Earnings |         |  | Weighted
     Average
     Common Shares |         | Per Share
     Amount
| | ---------------------------------------------- |  |  | ------------ | ------- |  | ---------------------------------------- | ------- | ---------------------
| |                                                |  |  |              |         |  |                                          |         |                      
| | Basic earnings per share                       |  |  | $            | 509,845 |  |                                          | 931,583 |                      
| | Effect of dilutive securities - stock warrants |  |  |              | -       |  |                                          | 39,000  |                      
| |                                                |  |  |              |         |  |                                          |         |                      
| |                                                |  |  |              |         |  |                                          |         |                      
| | Diluted earnings per share                     |  |  | $            | 509,845 |  |                                          | 970,583 |                      
| |                                                |  |  |              |         |  |                                          |         |                      

- 7 -

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COMMUNITY BANKS OF GEORGIA, INC.Notes to Consolidated Financial Statements
(Unaudited)



|(2) | Net Earnings
  Per Share, continued
|--- | -----------------------------------

For the Three Months Ended June 30, 2004:

| |                                                |  |  | Net Earnings |         |  | Weighted
     Average
     Common Shares |           | Per Share
     Amount
| | ---------------------------------------------- |  |  | ------------ | ------- |  | ---------------------------------------- | --------- | ---------------------
| |                                                |  |  |              |         |  |                                          |           |                      
| | Basic earnings per share                       |  |  | $            | 467,027 |  |                                          | 970,000   |                      
| | Effect of dilutive securities - stock warrants |  |  |              | -       |  |                                          | 65,000    |                      
| |                                                |  |  |              |         |  |                                          |           |                      
| |                                                |  |  |              |         |  |                                          |           |                      
| | Diluted earnings per share                     |  |  | $            | 467,027 |  |                                          | 1,035,000 |                      
| |                                                |  |  |              |         |  |                                          |           |                      

For the
    Three Months Ended June 30, 2003:

| |                                                |  |  | Net Earnings |         |  | Weighted
     Average
     Common Shares |           | Per Share
     Amount
| | ---------------------------------------------- |  |  | ------------ | ------- |  | ---------------------------------------- | --------- | ---------------------
| |                                                |  |  |              |         |  |                                          |           |                      
| | Basic earnings per share                       |  |  | $            | 305,908 |  |                                          | 970,000   |                      
| | Effect of dilutive securities - stock warrants |  |  |              | -       |  |                                          | 39,000    |                      
| |                                                |  |  |              |         |  |                                          |           |                      
| |                                                |  |  |              |         |  |                                          |           |                      
| | Diluted earnings per share                     |  |  | $            | 305,908 |  |                                          | 1,009,000 |                      
| |                                                |  |  |              |         |  |                                          |           |                      





- 8 -

---

|Item 2. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
  RESULTS OFOPERATIONS
|------- | --------------------------------------------------------------------------------------

For the Six Months Ended
June 30, 2004

Financial
Condition

Total
assets at June 30, 2004 were $139.9 million representing a $20.5 million (17.2%)
increase from December 31, 2003. Deposits increased $19.8 million (18.8%) from
December 31, 2003, while loans increased $15.4 million (16.9%).

The
allowance for loan losses at June 30, 2004 totaled $1.3 million, representing
1.2% of total loans compared to the December 31, 2003 total of $1.2 million,
which represented 1.3% of total loans. Cash and cash equivalents increased $1
million from December 31, 2003, which is discussed in more detail in
Liquidity.

There
were no related party loans or other loans which were considered nonperforming
at June 30, 2004.

Results of
Operations

Overall
Year to Date.Our results for the six months ended June 30,
2004, when compared to the six months ended June 30, 2003, reflected the
continued growth of our earning assets which resulted in increased net interest
income. Total revenues, which are comprised of interest income and noninterest
income, for the six months ended June 30, 2004 were $4.2 million, compared
to total revenues for the six months ended June 30, 2003 of $3.1 million. The
provision for loan losses was $140,000 for the first six months of 2004 compared
to $233,000 in the first six months of 2003. Noninterest expenses were $1.3
million for the six months ended June 30, 2004, compared to $1.1 million for the
six months ended June 30, 2003. On a pre-tax basis net earnings for the six
months ended June 30, 2004 were $1.5 million compared to $804,000 for the same
period in 2003. Net income for the six months ended June 30, 2004 was $935,000
compared to $510,000 for the six months ended June 30, 2003.

For
the six months ended June 30, 2004, our yield on earning assets was 6.40% while
the cost of funding sources was 2.25%. While the net interest spread was 4.15%,
net interest margin, which considers the effect of non-interest bearing
deposits, was 4.39%. For the six months ended June 30, 2003, our yield on
earning assets was 6.89% while the cost of funding sources was 2.76%. While net
interest spread was 4.13%, net interest margin, which considers the effect of
non-interest bearing deposits, was 4.50%. Our overall results of operations are
materially consistent with the year to date planned/budgeted operations.

Net
Interest Income.For the six months ended June 30, 2004, we reported net
interest income of $2.7 million, a 50% increase over the $1.8 million reported
for the period ended June 30, 2003. This increase in net interest income is
attributable to the growth of our balance sheet in interest earning assets,
primarily loans.

Provision
for Loan Losses. We provided $140,000 for the six months ended June 30, 2004
to the allowance for loan losses for potential problem loans, compared to
$233,000 for the corresponding period in 2003, to adequately provide for
estimated future losses which may arise in our growing loan portfolio. The
decrease in the amount provided in 2004 compared to the same period in 2003 is
due to the reversal of a specific reserve for an impaired loan that was paid off
during the year.

Noninterest
Income. Noninterest income consists predominately of service charges on
deposit accounts, and other miscellaneous revenues and fees. Noninterest income
may tend to have more fluctuations on a quarter to quarter basis than does net
interest income, since net interest income is the result of interest income from
the growth of earning assets offset by interest expense from interest-bearing
liabilities.

For
the six months ended June 30, 2004, our noninterest income was $254,000, which
was an decrease of $36,500, or 12.5%, when compared to the six months ended June
30, 2003. Our decrease in noninterest income is the result of no sales of
securities in 2004 compared to 2003, and a decrease in mortgage origination
activity. These decreases in noninterest income are netted against an increase
in service charges on a growing transaction deposit base, as well as income from
bank owned life insurance, which results in the overall decrease. Noninterest
income comprised 6.0% of our total revenues (interest income plus noninterest
income) for the first six months of 2004.

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Noninterest
expense. Noninterest expense consists of salaries and employee benefits,
equipment and occupancy expenses, and other operating expenses. For the six
months ended June 30, 2004, we incurred approximately $1.3 million in
noninterest expenses compared to $1.1 million for the six months ended June 30,
2003. Our primary component of noninterest expense is salaries and employee
benefits, which is the primary component of the increase in noninterest expense
due to an increase in employees to service our growing customer base. In
addition to the increase in salaries and employee benefits, we also incurred
additional occupancy expenses related to depreciation of the main office, as
well as additional outside service fees.

Capital

The
following tables present the Banks regulatory capital position at June 30,
2004. The Companys consolidated capital ratios are consistent with the
Banks capital ratios.

|Risk-Based Capital Ratios                                |  |       |  
|-------------------------------------------------------- |  | ----- | -
|                                                         |  |       |  
|Tier 1 Tangible Capital, Actual                          |  | 11.25 | %
|Tier 1 Tangible Capital minimum requirement              |  | 4.00  | %
|                                                         |  |      
|Excess                                                   |  | 7.25  | %
|                                                         |  |      
|                                                         |  |      
|Total Capital, Actual                                    |  | 12.41 | %
|Total Capital minimum requirement                        |  | 8.00  | %
|                                                         |  |      
|Excess                                                   |  | 4.41  | %
|                                                         |  |      
|Leverage Ratio                                           |  |      
|                                                         |  |      
|Tier 1 Tangible Capital to adjusted total assets, Actual |  | 9.22  | %
|Minimum leverage requirement                             |  | 4.00  | %
|                                                         |  |      
|Excess                                                   |  | 5.22  | %
|                                                         |  |      

Liquidity

We
must maintain, on a daily basis, sufficient funds to cover the withdrawals from
depositors accounts and to supply new borrowers with funds. To meet these
obligations, we keep cash on hand, maintain account balances with our
correspondent banks, and purchase and sell federal funds and other short-term
investments. Asset and liability maturities are monitored in an attempt to meet
liquidity needs. It is our policy to monitor our liquidity to meet regulatory
requirements and local funding requirements. Management believes the current
level of liquidity is adequate to meet these needs.

Primary
sources of liquidity are a stable base of deposits, scheduled repayments on
loans, and interest and maturity of investments. We have classified all
securities as available-for-sale. If necessary, we have the ability to sell a
portion of our investment securities to manage interest rate sensitivity gap or
liquidity. We may also use cash and due from banks and federal funds sold to
meet liquidity needs.

We
maintain relationships with correspondent banks that can provide funds on short
notice, if needed. Presently, we have an arrangement with The Bankers Bank for
short term unsecured advances up to $3,900,000.

Cash
and cash equivalents increased $1 million from December 31, 2003. Cash inflows
from financing activities totaled $19.8 million, attributable to net deposit
increases during 2004.

During
2004, cash provided by operating activities totaled $1.0 million, while
investing activities used $19.9 million, of which investment security purchases
totaled $4.4 million and loans to customers, net of repayments, totaled $15.4
million.

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Item 3. CONTROLS AND PROCEDURES

Our
management, including the Chief Executive Officer and Chief Financial Officer,
supervised and participated in an evaluation of our disclosure controls and
procedures (as defined by Exchange Act Rule 13a-15). Based on such evaluation,
and as of the date of June 30, 2004, our Chief Executive Officer and Chief
Financial Officer have concluded that our disclosure controls and procedures
were effective in accumulating and communicating information to management,
including the Chief Executive Officer and Chief Financial Officer, information
required to be included in our reports that are filed or submitted by us as
appropriate to allow timely decisions regarding disclosures of that information
under the Securities and Exchange Commissions rules and forms and that our
disclosure controls and procedures are designed to ensure that such information
is recorded, processed, summarized and reported within the time periods
specified in the Securities and Exchange Commissions rules and forms.

There
have been no significant changes in our internal controls or, to
managements knowledge, in other factors that could significantly affect
those internal controls subsequent to the date of their evaluation, and there
have been no corrective actions with respect to significant deficiencies or
material weaknesses.

















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COMMUNITY BANKS OF GEORGIA, INC.

PART II.  OTHER INFORMATION

Item
1.     LEGAL PROCEEDINGS                 None

Item
2.     CHANGES IN SECURITIES AND PURCHASES OF
EQUITY SECURITIES                 None

Item
3.     DEFAULTS UPON SENIOR SECURITIES                 None

Item
4.     SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERSCommunity Banks of Georgia, Inc. held its annual meeting of stockholders on May 13, 2004.

| | (a) | The
following is a summary of matters submitted to a vote of security holders:
| | --- | ------------------------------------------------------------------------------

| | 1. | The
election of the following directors to serve the current year term:                                              
| | -- | ---------------------------------------------------------------------------------------------------------------------
| |    | Mickey
Dunn
     Frank Eubanks
     Bobby James
     Don Keeter
     Lee Mullins
     Pierce Neese
     John Trammell
| |    |                                                                                                                      
| |    | A
tabulation of votes concerning time election of directors is as follows:                                           
| |    |                                                                                                                      

| |                                                                                              |        
| | -------------------------------------------------------------------------------------------- | -------
| | Shares voted by proxy in favor:                                                              | 311,875
| | Shares voted in person in favor:                                                             | 442,328
| | Shares voted by proxy against:                                                               | --     
| | Shares voted in person against:                                                              | --     
| | Shares abstained from voting:                                                                | --     
| |                                                                                              |        
| | Total shares represented                                                                     | 754,203
| |                                                                                              |        
| | Total shares outstanding                                                                     | 970,000
| |                                                                                              |        
| | * Directors were elected by slate, not individually.  Vote tabulation is therefore by slate.

Item
5.     OTHER INFORMATION                 None

Item
6.     EXHIBITS AND REPORTS ON FORM 8-K

(a)  Exhibits

| | Exhibit
  Number | Description                                                                                                                                          
| | ---------------- | -----------------------------------------------------------------------------------------------------------------------------------------------------
| | 31.1             | Certification by Chief Executive Officer pursuant to
  Rule 12a  14(a) / 15(d)  14(a).                                                             
| | 31.2             | Certification by Chief Financial Officer pursuant to
  Rule 12a  14(a) / 15(d)  14(a).                                                             
| | 32.1             | Certification by Chief Executive Officer pursuant to
  18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
  Sarbanes-Oxley Act of 2002
| | 32.2             | Certification by Chief Financial Officer pursuant to
  18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
  Sarbanes-Oxley Act of 2002

(b)  Reports on Form 8-K

On
June 21, 2004, we filed a Form 8-K reporting our change in independent auditors
from Porter Keadle Moore, LLP to Mauldin & Jenkins, LLC under Item 4 (Change in
Registrants Certifying Accountants).

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COMMUNITY BANKS OF GEORGIA, INC.

SIGNATURES

In
accordance with the requirements of the Securities Exchange Act of 1934, the
Registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.

| | COMMUNITY BANKS OF GEORGIA, INC. |                                             
| | -------------------------------- | --------------------------------------------
| |                                  |                                             
| |                                  |                                             
| | By:                              | /s/ John Trammell                           
| |                                  |                                             
| |                                  | John Trammell, President/CEO                
| |                                  | (Principal Executive Officer)               
| |                                  |                                             
| | Date:                            | August 13, 2004                             
| |                                  |                                             
| |                                  |                                             
| |                                  |                                             
| | By:                              | /s/ Frank Eubanks                           
| |                                  |                                             
| |                                  | Frank Eubanks, CFO                          
| |                                  | (Principal Financial and Accounting Officer)
| |                                  |                                             
| | Date:                            | August 13, 2004                             

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