****


**UNITED
STATES SECURITIES AND EXCHANGE COMMISSION**





**Washington,
D.C. 20549**





**FORM
10-QSB**





**[X]
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)**


**OF
THE SECURITIES EXCHANGE ACT OF 1934**





For the
Quarterly Period Ended March 31, 2005





**OR**





**[
] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)**


**OF
THE SECURITIES EXCHANGE ACT OF 1934**





For the
Transition Period from  to
_________








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
      Sammy McGhee Blvd.Jasper,
      Georgia
    30143(Address
      of principal executive offices)
    (Zip
      Code)








706-253-9600(Telephone
      Number)








Indicate
whether the issuer: (1) has filed all reports required to be filed by Section 13
or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.





YES     x NO


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 May 10, 2005





Transitional
small business disclosure format (check one):





YES   o NO x



















**COMMUNITY
BANKS OF GEORGIA, INC.**





**INDEX**Page
      No.PART
      I
    FINANCIAL INFORMATIONItem
      1.
    Consolidated Financial StatementsConsolidated Balance Sheet (unaudited) at March 31, 2005
      andConsolidated Balance Sheet (audited) at December 31,
      2004
    3Consolidated Statements of Earnings (unaudited) for the
      ThreeMonths Ended March 31, 2005 and 2004
    4Consolidated Statements of Comprehensive Income
      (unaudited) for the
    5Three Months Ended March 31, 2005 and
      2004Consolidated Statements of Cash Flows (unaudited) for
      the ThreeMonths Ended March 31, 2005 and 2004
    6Notes to Consolidated Financial Statements
      (unaudited)
    7Item
      2.
    Management's Discussion and Analysis of Financial Condition
      andResults of Operations
    9-10Item
      3.
    Controls and Procedures
    11PART
      II.
    OTHER INFORMATIONItem
      1.
    Legal Proceedings
    12Item
      2.
    Unregistered Sales of Equity Securities and Use of
      Proceeds
    12Item
      3.
    Defaults Upon Senior Securities
    12Item
      4.
    Submission of Matters to a Vote of Security
      Holders
    12Item
      5.
    Other Information
    12Item
      6.
    Exhibits
    12

















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 our
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 Securities and Exchange Commission.





Table of Contents





**PART
I.   FINANCIALINFORMATION**


Item
1. CONSOLIDATEDFINANCIAL STATEMENTS


**COMMUNITY
BANKS OF GEORGIA, INC.**


Consolidated
BalanceSheets




AssetsMarch
      31,
      2005
      (unaudited)
    
    December
      31, 2004
      (audited)Cash
      and due from banks, including reserve requirements of $310,000
      and
      $258,000,
      respectively
    
    $
    2,278,250
    
    
    818,805Federal
      funds sold
    
    
    -
    
    
    1,542,000Cash
      and cash equivalents
    
    
    2,278,250
    
    
    2,360,805Investment
      securities available for sale
    
    
    22,648,975
    
    
    24,075,600Other
      investments
    
    
    588,033
    
    
    514,951Loans,
      net
    
    
    126,795,932
    
    
    119,421,210Premises
      and equipment, net
    
    
    2,546,842
    
    
    2,454,068Bank
      owned life insurance
    
    
    1,907,051
    
    
    1,885,664Accrued
      interest receivable and other assets
    
    
    2,323,867
    
    
    2,070,533Total
      assets
    
    $
    159,088,950
    
    
    152,782,831Liabilities
      and Shareholders' EquityLiabilities:Deposits:Demand
    
    $
    7,317,190
    
    
    7,683,588Interest
      bearing demand and money market
    
    
    14,709,148
    
    
    15,030,470Savings
    
    
    2,358,954
    
    
    2,323,849Time
    
    
    69,523,018
    
    
    67,186,621Time
      over $100,000
    
    
    45,560,607
    
    
    42,492,030Total
      deposits
    
    
    139,468,917
    
    
    134,716,558Federal
      funds purchased
    
    
    994,000
    
    
    -Federal
      Home Loan Bank advances
    
    
    3,900,000
    
    
    3,900,000Accrued
      interest payable and other liabilities
    
    
    831,926
    
    
    622,792Total
      liabilities
    
    
    145,194,843
    
    
    139,239,350CommitmentsShareholders'
      equity:Common
      Stock, $5 par value; 10,000,000 shares authorized;
      970,000
      shares issued and outstanding
    
    
    4,850,000
    
    
    4,850,000Additional
      paid-in capital
    
    
    5,803,524
    
    
    5,803,524Retained
      earnings
    
    
    3,401,316
    
    
    2,880,866Accumulated
      comprehensive income (loss)
    
    
    (160,733
    )
    
    9,091Total
      shareholders’ equity
    
    
    13,894,107
    
    
    13,543,481$
    159,088,950
    
    
    152,782,831





See
accompanying notes to unadudited consolidated financial statements




3
 Table of Contents





**COMMUNITY
BANKS OF GEORGIA, INC.**


Consolidated
Statements of Earnings





For the
Three Months Ended March 31, 2005 and 2004


(Unaudited)








2005
    
    2004Interest
      income:Loans,
      including loan fees
    
    $
    2,208,618
    
    
    1,638,461Investment
      securities
    
    
    280,461
    
    
    264,184Federal
      funds sold
    
    
    5,877
    
    
    4,296Total
      interest income
    
    
    2,494,956
    
    
    1,906,941Interest
      expense:Deposits
    
    
    894,879
    
    
    582,548Federal
      Home Loan Bank advances
    
    
    25,065
    
    
    12,140Federal
      funds purchased
    
    
    4,317
    
    
    -Total
      interest expense
    
    
    924,261
    
    
    594,688Net
      interest income
    
    
    1,570,695
    
    
    1,312,253Provision
      for loan losses
    
    
    132,500
    
    
    40,000Net
      interest income after provision for loan losses
    
    
    1,438,195
    
    
    1,272,253Other
      income:Service
      charges on deposit accounts
    
    
    87,385
    
    
    71,559Mortgage
      origination fees
    
    
    8,719
    
    
    17,055Other
      income
    
    
    52,902
    
    
    29,677Total
      other income
    
    
    149,006
    
    
    118,291Other
      expenses:Salaries
      and employee benefits
    
    
    404,489
    
    
    328,616Occupancy
      and equipment
    
    
    100,603
    
    
    86,879Other
      operating
    
    
    350,264
    
    
    220,845Total
      other expenses
    
    
    855,356
    
    
    636,340Net
      earnings before income tax expense
    
    
    731,845
    
    
    754,204Income
      tax expense
    
    
    211,395
    
    
    286,639Net
      earnings
    
    $
    520,450
    
    
    467,565Earnings
      per common share:Basic
      earnings per share (based on average outstanding shares of
      970,000)
    
    $
    .54
    
    
    .48Diluted
      earnings per share (based on average outstandingshares
      of 1,036,667 and 1,035,000, respectively)
    
    $
    .50
    
    
    .45








See
accompanying notes to unaudited consolidated financial statements.





4
 Table of Contents





**COMMUNITY
BANKS OF GEORGIA, INC.**





Consolidated
Statements of ComprehensiveIncome





For the
Three Months Ended March 31, 2005 and 2004


(Unaudited)





2005
    
    2004Net
      earnings
    
    $
    520,450
    
    
    467,565Other
      comprehensive income (loss), net of tax:Unrealized
      gain (loss) on securities available-for-sale,net
      of tax of $104,088 and ($103,174)
    
    
    (169,824
    )
    
    168,337Comprehensive
      income
    
    $
    350,626
    
    
    635,902























See
accompanying notes to unaudited consolidated financial statements.





5
 Table of Contents








**COMMUNITY
BANKS OF GEORGIA, INC.**


Consolidated
Statements of CashFlows


For the
Three Months Ended March 31, 2005 and 2004


(Unaudited)





2005
    
    2004Cash
      flows from operating activities:Net
      earnings
    
    $
    520,450
    
    
    467,565Adjustments
      to reconcile net earnings to netcash
      provided by operating activities:Provision
      for loan losses
    
    
    132,500
    
    
    40,000Depreciation,
      amortization and accretion
    
    
    40,181
    
    
    33,935Increase
      in cash surrender value of life insurance
    
    
    (21,387
    )
    
    (16,635
    )Change
      in:Accrued
      interest receivable and other assets
    
    
    (149,246
    )
    
    (115,233
    )Accrued
      interest payable and other liabilities
    
    
    209,134
    
    
    425,793Net
      cash provided by operating activities
    
    
    731,632
    
    
    835,425Cash
      flows from investing activities:Proceeds
      from calls, maturities, andpaydowns
      of securities available for sale
    
    
    1,151,149
    
    
    227,309Purchases
      of other investments
    
    
    (73,082
    )
    
    (138,401
    )Purchases
      of investment securities available for sale
    
    
    -
    
    
    (2,384,242
    )Net
      change in loans
    
    
    (7,507,222
    )
    
    (7,950,833
    )Purchases
      of premises and equipment
    
    
    (131,391
    )
    
    (58,229
    )Purchase
      of bank owned life insurance
    
    
    -
    
    
    (467,340
    )Net
      cash used by investing activities
    
    
    (6,560,546
    )
    
    (10,771,736
    )Cash
      flows from financing activities:Net
      change in deposits
    
    
    4,752,359
    
    
    8,094,948Net
      change in federal funds purchased
    
    
    994,000
    
    
    -Net
      cash provided by financing activities
    
    
    5,746,359
    
    
    8,094,948Net
      decrease in cash and cash equivalents
    
    
    (82,555
    )
    
    (1,841,363
    )Cash
      and cash equivalents at beginning of the period
    
    
    2,360,805
    
    
    3,249,225Cash
      and cash equivalents at end of period
    
    $
    2,278,250
    
    
    1,407,862Supplemental
      schedule of noncash investing activities:Change
      in unrealized gain (loss) on securities available for sale, net of
      tax
    
    $
    (169,824
    )
    
    168,337Supplemental
      disclosure of cash flow information:Interest
      paid
    
    $
    901,827
    
    
    541,438Taxes
      paid
    
    $
    51,802
    
    
    122,395








See
accompanying notes to unaudited consolidated financial statements.








6
 Table of Contents





**COMMUNITY
BANKS OF GEORGIA, INC.**


Notesto 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 three-month
period ended March 31, 2005 are not necessarily indicative of the results that
may be expected for the year ended December 31, 2005. For further information,
refer to the financial statements and footnotes thereto included in our Form
10-KSB for the fiscal year ended December 31, 2004 as filed with the Securities
and Exchange Commission.





(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
earnings with and without the dilutive effects of potential common stock
issuances from instruments such as options, convertible securities, and
warrants.





**For
      the Three Months Ended March 31, 2005:**
    
    Net
      Earnings
    
    Weighted
      Average
      Common
      Shares
    
    Per
      Share
      AmountBasic
      earnings per share
    
    
    520,450
    
    
    970,000
    
    
    .54Effect
      of dilutive securities - stock warrants
    
    
    -
    
    
    66,667
    
    
    (.04
    )Diluted
      earnings per share
    
    
    520,450
    
    
    1,036,667
    
    
    .50





**For
      the Three Months Ended March 31, 2004:**
    
    Net
      Earnings
    
    Weighted
      Average
      Common
      Shares
    
    Per
      Share
      AmountBasic
      earnings per share
    
    $
    467,565
    
    
    970,000
    
    $
    .48Effect
      of dilutive securities - stock warrants
    
    
    -
    
    
    65,000
    
    
    (.03
    )Diluted
      earnings per share
    
    $
    467,565
    
    
    1,035,000
    
    $
    .45





(3)
    Off
      Balance Sheet Arrangements





In the
normal course of business, we enter into certain off-balance sheet transactions
that are connected with meeting the financing needs of our customers. These
off-balance sheet arrangements consist of letters of credit and commitments to
extend credit. The Company’s unfunded commitments remain consistent as a
percentage of total outstanding loans. For further information, please refer to
our Annual Report of Form 10-KSB for the year ended December 31,
2004.





7
 Table of Contents











(4)
    Reclassifications


Certain
amounts for the comparative periods of 2004 have been reclassified to conform to
the 2005 presentation. The reclassifications have no effect on net earnings or
shareholders’ equity as previously reported.





(5)
    Subsequent
      Event


On May 3,
2005, the Company filed a preliminary Proxy Statement with the Securities and
Exchange Commission concerning the Company’s intent to effect a reorganization
that will permit it to become a private company by reducing the number of
shareholders of record below 300. The reorganization will allow the Company to
realize significant cost savings by terminating the registration of its common
stock under the Securities Exchange Act of 1934, and its related reporting
obligations, In the reorganization, shareholders owning less than 500 shares of
Company common stock will receive $20.85 per share for each share of stock they
own as of the record date. All other shares will remain outstanding and be
unaffected by the reorganization. The projected impact of this reorganization
will be to reduce the number of record shareholders from 514 to approximately
248 and the number of outstanding shares of common stock will decrease from
970,000 to approximately 912,213.





















































8
 Table of Contents




Item 2.  MANAGEMENT’SDISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS










For the
Three Months Ended March 31, 2005 and 2004





**Financial
Condition**





Total
assets at March 31, 2005 were approximately $159.1 million representing a $6.3
million (4.1%) increase from December 31, 2004. Deposits increased $4.8 million
(3.5%) from December 31, 2004, while loans, net of the allowance, increased $7.4
million (6.2%).





The
allowance for loan losses at March 31, 2005 totaled $1.4 million, representing
1.1% of total loans compared to the December 31, 2004 total of $1.4 million,
which represented 1.2% of total loans.





There
were no related party loans or other loans which were considered nonperforming
at March 31, 2005.





**Results
of Operations**


**


*Overall
Year to Date.* **** Our
results for the three months ended March 31, 2005, when compared to the three
months ended March 31, 2004, reflected the continued growth of our earning
assets which resulted in increased net interest income. Total revenues, which
are comprised of interest income and other income, for the three months ended
March 31, 2005 were $2.6 million, compared to total revenues for the three
months ended March 31, 2004 of $2.0 million. The provision for loan losses was
$133,000 for the first three months of 2005 compared to $40,000 in the first
three months of 2004. Noninterest expenses were $855,000 for the three months
ended March 31, 2005, compared to $636,000 for the three months ended March 31,
2004. On a pre-tax basis net earnings for the three months ended March 31, 2005
were $732,000 compared to $754,000 for the same 2004 period. Net income for the
three months ended March 31, 2005 was $520,000 compared to $468,000 for the
three months ended March 31, 2004.





*Net
Interest Income.* For the
three months ended March 31, 2005, we reported net interest income of $1.6
million, a 19.7% increase over the $1.3 million reported for the period ended
March 31, 2004. This increase in net interest income is attributable to the
growth of our balance sheet in interest earning assets, primarily loans, as
compared to March 31, 2004.





For the
three months ended March 31, 2005, our yield on earning assets was 6.65% while
the cost of funding sources was 2.80%. While the net interest spread was 3.85%,
net interest margin, which is defined as net interest revenue as a percent of
average total interest earning assets and considers the positive effect of
investing non-interest bearing deposits, was 4.19%. For the three months ended
March 31, 2004, our yield on earning assets was 5.96% while the cost of funding
sources was 2.24%. While net interest spread was 3.72%, net interest margin, was
4.42%. Our decrease in net interest margin is related to our growth in total
interest earning assets. Our overall results of operations are materially
consistent with the year to date planned/budgeted operations.





*Provision
for Loan Losses.* We
provided $133,000 for the three months ended March 31, 2005 to the allowance for
loan losses, compared to $40,000 for the corresponding period in 2004, to
adequately provide for estimated future losses which may arise in our growing
loan portfolio. The increase in the amount provided in 2005 compared to the same
period in 2004 is due to the partial charge off of a specific loan in the first
quarter of 2005. Net charge offs were $170,000 and $3,000 for the three months
ended March 31, 2005 and 2004, respectively.





*Other
Income.* Other
income consists predominately of service charges on deposit accounts, and other
income. For the three months ended March 31, 2005, our other income was
$149,000, which was an increase of $31,000, or 26.0%, when compared to the three
months ended March 31, 2004. Our increase in other income is primarily the
result of increased service charges on a growing transaction deposit base of
average deposits, as well as income from bank owned life insurance of $21,000
for the three months ended March 31, 2005. Other income approximated 6% of our
total revenues (interest income plus noninterest income) for the first three
months of 2005 and 2004.





9
 Table of Contents








*Other
expense.* Other
expense consists of salaries and employee benefits, equipment and occupancy
expenses, and other operating expenses. For the three months ended March 31,
2005, we incurred approximately $855,000 in other expenses compared to $636,000
for the three months ended March 31, 2004. Our primary component of noninterest
expense is salaries and employee benefits, which is the primary component of the
increase in other expense due to an increase in employees to service our growing
customer base. In addition to the increase in salaries and employee benefits of
$76,000, we also incurred additional occupancy expenses related to depreciation
of the main office, as well as an increase in additional outside service fees of
$15,000 the three months ended March 31, 2005 compared to the same period in
2004.








**Capital**





The
following tables present the Bank’s regulatory capital position at March 31,
2005. The Company’s consolidated capital ratios are consistent with the Bank’s
capital ratios.




Risk-Based Capital RatiosTier
      1 Tangible Capital, Actual
    
    
    11.47
    %Tier
      1 Tangible Capital minimum requirement
    
    
    4.00
    %Excess
    
    
    7.47
    %Total
      Capital, Actual
    
    
    12.62
    %Total
      Capital minimum requirement
    
    
    8.00
    %Excess
    
    
    4.62
    %Leverage
      RatioTier
      1 Tangible Capital to adjusted total assets, Actual
    
    
    8.89
    %Minimum
      leverage requirement
    
    
    4.00
    %Excess
    
    
    4.89
    %




**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 its
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 their local funding requirements. Management believes the
current level of liquidity is adequate to meet our needs.





Primary
sources of liquidity for us are a stable base of deposits, scheduled repayments
on our loans, and interest and maturity of our 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 our 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 to us 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 decreased $83,000 from December 31, 2004. Cash inflows from
financing activities totaled $5.7 million, attributable to net deposit increases
during 2005 and net increases in federal funds purchased.





During
2005, cash provided by operating activities totaled $732,000, while investing
activities used $6.6 million, of which loans to customers, net of repayments,
totaled $7.5 million and proceeds from calls, maturities, and paydowns provided
approximately $1.2 million.








10
 Table of Contents





Item
3. CONTROLSAND 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, and as of, March
31, 2005, 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, 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.



































11
 Table of Contents





**COMMUNITY
BANKS OF GEORGIA, INC.**





**PART
II.   OTHERINFORMATION**








Item
1. LEGALPROCEEDINGS


None


Item
2. UNREGISTEREDSALES OF EQUITY SECURITIES AND USE OF
PROCEEDS


None





Item
3. DEFAULTSUPON SENIOR SECURITIES


None





Item
4. SUBMISSIONOF MATTERS TO A VOTE OF SECURITY
HOLDERS


None








Item
5. OTHERINFORMATION


None





Item
6. EXHIBITS




Exhibit
      Number
    Description31.1
    Certification
      by Chief Executive Officer pursuant to Rule 13a - 14(a) / 15(d) -
      14(a).31.2
    Certification
      by Chief Financial Officer pursuant to Rule 13a - 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
  200232.2
    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





12
 Table of Contents











**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 T.
      TrammellJohn T. Trammell, President/CEO(Principal Executive Officer)Date:May
      16, 2005By:/s/ Frank N.
      EubanksFrank N. Eubanks, CFO(Principal Financial and Accounting Officer)Date:May
      16, 2005













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