<PAGE>

                       SECURITIES AND EXCHANGE COMMISSION
                            Washington, D. C. 20549
                                 ______________

                                   FORM 10-Q
                          QUARTERLY REPORT PURSUANT TO
                           SECTION 13 or 15(d) OF THE
                        SECURITIES EXCHANGE ACT OF 1934

                      For the quarter ended June 30, 2001

                          Commission File No. 0-13100
                                 ______________

                       COMMUNITY BANKSHARES INCORPORATED
             (Exact name of registrant as specified in its charter)

            Virginia                                  54-1290793
     (State of incorporation)                     (I.R.S. Employer
                                                 Identification No.)

       11500 West Broad Street, P. O. Box 29569, Richmond, Virginia 23242
                    (Address of principal executive offices)

                                 (804) 360-2222
                        (Registrant's telephone number)
                                 ______________

          Securities registered pursuant to Section 12(b) of the Act:

        Title of each class                 Name of exchange on which registered
        -------------------                 ------------------------------------
  Common Stock, $3.00 par value                            NASDAQ

                                 ______________

       Securities registered pursuant to Section 12(G) of the Act:  None

Indicate by a check mark whether the registrant (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   .
                                              ---    ---

                                 ______________

The number of shares of common stock of the Registrant outstanding as of June
30, 2001 was 2,773,971.
<PAGE>

                       COMMUNITY BANKSHARES INCORPORATED

                                   FORM 10-Q

                                 June 30, 2001

                                     INDEX


<TABLE>
<CAPTION>
                                                                                 Page
                                                                                 ----
Part I.  Financial Information
<S>     <C>
Item 1.     Consolidated Balance Sheets as of June 30, 2001
               (Unaudited) and December 31, 2000...................................3

            Consolidated Statements of Income for the three months and six months
               ended June 30, 2001 and 2000 (Unaudited)............................4

            Consolidated Statements of Changes in Stockholders' Equity for
               the six months ended June 30, 2001 and 2000 (Unaudited).............5

            Consolidated Statements of Cash Flows for the six
               months ended June 30, 2001 and 2000 (Unaudited).....................6

            Notes to Consolidated Statements (Unaudited)...........................7

Item 2.     Management's Discussion and Analysis of Financial
               Condition and Results of Operations.................................8

Item 3.     Quantitative and Qualitative Disclosures Regarding
               Market Risk........................................................13

Part II.    Other Information

Item 1.     Legal Proceedings.....................................................13

Item 2.     Changes in Securities.................................................13

Item 3.     Defaults Upon Senior Securities.......................................13

Item 4.     Results of Votes of Security Holders..................................13

Item 5.     Other Information.....................................................13

Item 6.     Exhibits and Reports on Form 8-K
            (a) Exhibits - Financial Data Schedule, Exhibit 27....................13
            (b) Reports on Form 8-K...............................................13

</TABLE>

                                       2
<PAGE>

CONSOLIDATED BALANCE SHEETS
Community Bankshares Incorporated and Subsidiary

<TABLE>
<CAPTION>

                                                                                    (Unaudited)
                                                                                     June 30,         December 31,
(In thousands, except share data)                                                       2001              2000
------------------------------------------------------------------------------------------------------------------
<S>     <C>
ASSETS
------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents:
     Cash and due from banks                                                           $ 15,403          $ 13,188
     Federal funds sold                                                                  37,579            15,583
------------------------------------------------------------------------------------------------------------------
         Total cash and due from banks                                                   52,982            28,771
------------------------------------------------------------------------------------------------------------------
Securities available for sale, at fair value                                             48,454            57,700
Securities held to maturity (fair value, $4,954 - June 30, 2001;
     $5,351 - December 31, 2000)                                                          4,847             5,345
Total loans                                                                             299,136           292,069
Allowance for loan losses                                                                (3,241)           (3,176)
------------------------------------------------------------------------------------------------------------------
     Net loans                                                                          295,895           288,893
------------------------------------------------------------------------------------------------------------------
Bank premises and equipment, net                                                          7,343             7,413
Accrued interest receivable                                                               2,251             2,788
Other real estate owned                                                                     953             1,046
Other assets                                                                              3,692             4,083
------------------------------------------------------------------------------------------------------------------
         Total assets                                                                 $ 416,417         $ 396,039
------------------------------------------------------------------------------------------------------------------

LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------------------------------------------------------------------------------------
Deposits:
     Noninterest-bearing deposits                                                      $ 63,612          $ 55,869
     Interest-bearing deposits                                                          308,291           296,662
------------------------------------------------------------------------------------------------------------------
         Total deposits                                                                 371,903           352,531
------------------------------------------------------------------------------------------------------------------
Accrued interest payable                                                                  1,332             1,396
Other liabilities                                                                         1,000             2,586
Guaranteed ESOP debt                                                                        550               763
------------------------------------------------------------------------------------------------------------------
         Total liabilities                                                              374,785           357,276
------------------------------------------------------------------------------------------------------------------
Commitments and contingent liabilities

STOCKHOLDERS' EQUITY
------------------------------------------------------------------------------------------------------------------
Common stock, par value $3 per share, authorized 20,000,000 shares, shares
      issued June 30, 2001 - 2,773,971; December 31, 2000 - 2,735,576                     8,322             8,207
Capital surplus                                                                           3,924             3,901
Retained earnings                                                                        29,888            28,164
Accumulated other comprehensive income (loss), net of tax                                    48              (746)
Unearned ESOP shares                                                                       (550)             (763)
------------------------------------------------------------------------------------------------------------------
         Total stockholders' equity                                                      41,632            38,763
------------------------------------------------------------------------------------------------------------------
         Total liabilities and stockholders' equity                                   $ 416,417         $ 396,039
------------------------------------------------------------------------------------------------------------------

</TABLE>



See Notes to Consolidated Financial Statements.

                                       3
<PAGE>

CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
Community Bankshares Incorporated and Subsidiary

<TABLE>
<CAPTION>


                                                                          Three Months Ended                 Six Months Ended
                                                                               June 30,                          June 30,
                                                                   ----------------------------------------------------------------
(In thousands, except share data)                                         2001             2000            2001              2000
-----------------------------------------------------------------------------------------------------------------------------------
<S>     <C>
Interest Income
-----------------------------------------------------------------------------------------------------------------------------------
Interest and fees on loans                                             $ 6,606           $ 6,554        $ 13,433          $ 12,705
Interest on securities:
     U.S. government and agencies                                          628               810           1,361             1,629
     States and political subdivisions                                     171               172             341               347
     Other                                                                  14                42              29                79
Interest on federal funds sold                                             272               161             467               228
-----------------------------------------------------------------------------------------------------------------------------------
         Total interest income                                           7,691             7,739          15,631            14,988
-----------------------------------------------------------------------------------------------------------------------------------
Interest Expense
-----------------------------------------------------------------------------------------------------------------------------------
Interest on deposits                                                     3,718             3,383           7,487             6,370
Interest on federal funds purchased                                          -                25               -                80
-----------------------------------------------------------------------------------------------------------------------------------
         Total interest expense                                          3,718             3,408           7,487             6,450
-----------------------------------------------------------------------------------------------------------------------------------
Net interest income                                                      3,973             4,331           8,144             8,538
Provision for loan losses                                                  125               280             200               399
-----------------------------------------------------------------------------------------------------------------------------------
         Net interest income after provision for loan losses             3,848             4,051           7,944             8,139
-----------------------------------------------------------------------------------------------------------------------------------
Noninterest Income
-----------------------------------------------------------------------------------------------------------------------------------
Service charges on deposit accounts and other fees                         564               634           1,149             1,149
Securities gains                                                             8                 8              20                 8
Gain on sale of other real estate                                           24               114              24               127
Other operating income                                                     225                32             282                59
-----------------------------------------------------------------------------------------------------------------------------------
         Total noninterest income                                          821               788           1,475             1,343
-----------------------------------------------------------------------------------------------------------------------------------
Noninterest Expense
-----------------------------------------------------------------------------------------------------------------------------------
Salaries and benefits                                                    1,669             1,536           3,382             3,111
Occupancy and equipment expense                                            461               342             915               650
Other operating expense                                                    634               684           1,259             1,369
-----------------------------------------------------------------------------------------------------------------------------------
         Total noninterest expense                                       2,764             2,562           5,556             5,130
-----------------------------------------------------------------------------------------------------------------------------------
Earnings
-----------------------------------------------------------------------------------------------------------------------------------
Income before income taxes                                               1,905             2,277           3,863             4,352
Income tax expense                                                         525               674           1,078             1,345
-----------------------------------------------------------------------------------------------------------------------------------
Net Income                                                             $ 1,380           $ 1,603         $ 2,785           $ 3,007
-----------------------------------------------------------------------------------------------------------------------------------

Earnings Per Share
-----------------------------------------------------------------------------------------------------------------------------------
Net income per common share:
     Basic                                                              $ 0.50            $ 0.59          $ 1.01            $ 1.11
     Diluted                                                            $ 0.49            $ 0.58          $ 0.99            $ 1.09
Average shares outstanding:
     Basic                                                           2,749,623         2,725,605       2,744,108         2,725,605
     Diluted                                                         2,775,425         2,786,871       2,811,801         2,758,853
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>

See Notes to Consolidated Financial Statements.

                                       4
<PAGE>

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (Unaudited)
Community Bankshares Incorporated and Subsidiary

<TABLE>
<CAPTION>

                                                                                                 Accumulated
                                                                                                   Other       Unearned
                                                                Common   Capital    Retained    Comprehensive    ESOP
(In thousands, except per share data)                           Stock    Surplus    Earnings    Income (Loss)   Shares     Total
-----------------------------------------------------------------------------------------------------------------------------------
<S>     <C>
Balance, January 1, 2001                                        $8,207    $3,901    $ 28,164    $   (746)      $ (763)    $ 38,763
-----------------------------------------------------------------------------------------------------------------------------------
Comprehensive income:
     Net income                                                                        2,785                                 2,785
     Other comprehensive income:
        Net unrealized securities gains arising during the
           period, net of deferred income taxes of $415                                              807                       807
        Less reclassification adjustment for gains included
           in net income, net of income taxes of $7                                                  (13)                      (13)
                                                                                                                       ------------
        Total comprehensive income                                                                                           3,579
                                                                                                                       ------------
Issuance of common stock pursuant to exercise of
     stock options                                                 115       161                                               276
Cash settlement of options                                                  (138)                                             (138)
Cash dividends declared - $.40 per share                                              (1,101)                               (1,101)
Release of ESOP Shares                                                                    40                      213          253
-----------------------------------------------------------------------------------------------------------------------------------
Balance, June 30, 2001                                          $8,322    $3,924    $ 29,888    $     48       $ (550)    $ 41,632
-----------------------------------------------------------------------------------------------------------------------------------

-----------------------------------------------------------------------------------------------------------------------------------
Balance, January 1, 2000                                        $8,140    $3,894    $ 24,513    $ (2,154)      $ (229)    $ 34,164
Comprehensive income:
     Net income                                                                        3,007                                 3,007
     Other comprehensive income:
        Net unrealized securities losses arising during the
           period, net of deferred income taxes of $31                                               (61)                      (61)
                                                                                                                       ------------
        Total comprehensive income                                                                                           2,946
                                                                                                                       ------------
Issuance of common stock pursuant to exercise of
     stock option plans                                             84       101                                               185
Common stock repurchased                                            (2)      (10)                                              (12)
Cash dividends declared - $.37 per share                                              (1,010)                               (1,010)
Leveraged ESOP stock purchase                                                                                    (480)        (480)
-----------------------------------------------------------------------------------------------------------------------------------
Balance, June 30, 2000                                          $8,222    $3,985    $ 26,510    $ (2,215)      $ (709)    $ 35,793
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>


See Notes to Consolidated Financial Statements.


                                       5
<PAGE>

CONSOLIDATED STATEMENTS OF CASH FLOWS
Community Bankshares Incorporated and Subsidiary

<TABLE>
<CAPTION>


(In thousands) Six Months Ended June 30,                                                       2001         2000
------------------------------------------------------------------------------------------------------------------
<S>     <C>
Operating Activities
Net income                                                                                   $ 2,785      $ 3,007
Adjustments to reconcile net income to net cash provided by operating activities:
     Depreciation and amortization                                                               454          240
     Deferred income taxes                                                                        31          (65)
     Provision for loan losses                                                                   200          399
     Provision for losses on other real estate owned                                               3           12
     Accretion of investment securities                                                          (35)         (62)
     Gain on sale of securities                                                                  (20)          (8)
     Gain on sale of other real estate                                                           (24)        (127)
     Gain on sale of bank premises and equipment                                                  (2)           -
     Release of ESOP shares                                                                       40            -
     Changes in operating assets and liabilities:
         (Increase) decrease in accrued interest receivable                                      537         (192)
         Increase (decrease) in accrued expenses                                                (399)         209
         Net change in other operating assets and liabilities                                 (1,619)      (1,069)
------------------------------------------------------------------------------------------------------------------
            Net cash provided by operating activities                                          1,951        2,344
------------------------------------------------------------------------------------------------------------------
Investing Activities
Proceeds from maturity and redemption of securities held to maturity                             500          587
Proceeds from maturity, redemption and sale of securities
     available for sale                                                                       10,601        1,973
Purchase of investment securities available for sale                                             (93)        (549)
Net increase in loans                                                                         (7,516)     (14,878)
Proceeds from the sale of other real estate                                                      440        1,152
Proceeds from sale of property and equipment                                                       2            -
Capital expenditures                                                                            (384)        (570)
Decrease in other assets                                                                         313            2
Purchase of other real estate                                                                    (12)      (1,026)
------------------------------------------------------------------------------------------------------------------
            Net cash provided by (used in) investing activities                                3,851      (13,309)
------------------------------------------------------------------------------------------------------------------
Financing Activities
Net increase in deposits                                                                      19,372       23,408
Cash settlement of options                                                                      (138)           -
Decrease in federal funds purchased                                                                -       (2,137)
Dividends paid                                                                                (1,101)      (1,010)
Common stock repurchased                                                                           -          (12)
Net proceeds from issuance of common stock                                                       276          185
-----------------------------------------------------------------------------------------------------------------
            Net cash provided by financing activities                                         18,409       20,434
-----------------------------------------------------------------------------------------------------------------
            Increase in cash and cash equivalents                                             24,211        9,469
Cash and cash equivalents at beginning of year                                                28,771       17,564
-----------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year                                                     $52,982      $27,033
-----------------------------------------------------------------------------------------------------------------

Supplemental Disclosure Of Cash Flow Information
     Interest paid                                                                           $ 7,552      $ 6,241
     Income taxes paid                                                                       $ 1,151      $ 1,400
------------------------------------------------------------------------------------------------------------------
</TABLE>

See Notes to Consolidated Financial Statements.


                                       6
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 1. Accounting Policies

The accompanying unaudited interim consolidated financial statements have been
prepared in accordance with the instructions to Form 10-Q and, therefore, do not
include all of the disclosures and notes required by generally accepted
accounting principles. In the opinion of management, all material adjustments
(which are of a normal recurring nature) considered necessary for a fair
presentation have been made. The results for the interim period are not
necessarily indicative of the results to be expected for the entire year or any
other interim period. The information reported herein should be read in
conjunction with the Notes to Consolidated Financial Statements included in the
Company's Annual Report for the year ended December 31, 2000. Certain previously
reported amounts have been reclassified to conform to current presentations.




                                       7
<PAGE>

Item 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS


Community Bankshares Incorporated (the "Company" and "Community Bankshares"), a
Virginia corporation, is a bank holding company headquartered in Richmond,
Virginia. The Company serves the marketplace primarily through its wholly owned
banking subsidiary, Commerce Bank (the "Bank"), a Virginia chartered, Federal
Reserve member commercial bank. The Bank's deposits are insured by the Federal
Deposit Insurance Corporation (the "FDIC") to the extent provided by law.
Commerce Bank is supervised and examined by the Federal Reserve and the Bureau
of Financial Institutions of the State Corporation Commission of the
Commonwealth of Virginia (the "SCC"). At June 30, 2001, the Bank operated
thirteen branches in the cities of Richmond, Petersburg, and Colonial Heights,
and the counties of Chesterfield, Henrico, Hanover and Goochland.

Through Commerce Bank's network of banking facilities, Community Bankshares
provides a wide range of commercial banking services to individuals, small to
medium-sized businesses, institutions and governments, located in Virginia.  The
Company conducts substantially all of the business operations of a typical
independent commercial bank, including the acceptance of checking and savings
deposits, the making of commercial, real estate, personal, home improvement,
automobile and other installment loans.  The Company also offers other related
services, such as traveler's checks, safe deposit boxes, depositor transfer,
customer note payment, collection, notary public, escrow, drive-in and ATM
facilities, and other customary banking services.  Community Bankshares does not
offer trust services.

The following discussion provides information about the major components of the
financial condition, results of operations, asset quality, liquidity, and
capital resources of Community Bankshares Incorporated.  The discussion and
analysis should be read in conjunction with the Consolidated Financial
Statements.

FINANCIAL CONDITION

Total assets as of June 30, 2001 were $416.4 million, up $20.4 million from
year-end 2000. Total loans, accounting for the majority of the increase, grew
$7.1 million or 2.4%. Commercial loan categories accounted for the largest
portion of the increase. Federal funds sold also contributed to the growth in
total assets from year-end 2000, increasing $22.0 million to $37.6 million.
Compared to June 30, 2000, total assets increased $34.6 million or 9.1%, and
total loans increased  $18.4 million or 6.6% at June 30, 2001.

Total securities available for sale as of June 30, 2001 were $48.5 million, down
$9.3 million or 16.0%, primarily due to an increase in the volume of government
securities being called by the issuing agencies as a result of the current
interest rate environment. Approximately $8.3 million of government agency
securities (i.e., FNMA, FHLMC, etc.) were called during the first six months of
2001. The current rate environment has positively affected the market value of
the securities available for sale portfolio, increasing the market value by
approximately $1.2 million since December 31, 2000.

                                       8
<PAGE>

Total deposits as of June 30, 2001 stood at $371.9 million, an increase of $19.4
million or 5.5% over the $352.5 million recorded at December 31, 2000.
Approximately $7.7 million of this increase was attributable to growth in
noninterest-bearing deposits. Total interest-bearing deposits were $308.3
million at quarter-end June 2001, up $11.7 million since year-end 2000. Compared
to June 30, 2000, total deposits increased $30.1 million or 8.8%.

RESULTS OF OPERATIONS

Net income for the three months ended June 2001 totaled $1.4 million, or $.49
per diluted share, compared with $1.6 million, or $.58 per diluted share, a year
earlier. The decline was primarily due to the narrowing of the Company's net
interest margin, with four rate cuts by the Federal Reserve during the quarter
being a notable factor. Net income for the year was $2.8 million, or $.99 per
diluted share, compared with $3.0 million, or $1.09 per diluted, share for 2000.

Net interest income, the difference between the interest earned and interest
paid, is the largest component of the Company's earnings and changes in it have
the greatest impact on net income. Variations in the volume and mix of assets
and liabilities and their relative sensitivity to interest rate movements
determine changes in net interest income. Total interest income for the second
quarter of 2001 was essentially unchanged from the prior year quarter decreasing
$48 thousand. During the second quarter, approximately $4.8 million in
investment securities were called resulting in lower earnings on the Company's
securities portfolio. The other primary factor affecting interest income was the
additional reductions, totaling 125 basis points, in the prime interest rate
during the quarter. While the loan portfolio continued to grow, the impact of
lower interest rates on the loan portfolio was sufficient to offset the increase
in interest income derived from new loan activity.

Total interest expense for the quarter ended June 30, 2001 increased 9.1% to
$3.7 million, up $310 thousand over the same period one year earlier. This
increase was due primarily to an increase in the volume of interest-bearing
liabilities, principally certificates of deposit maturing in less than two
years.

For the three months ended June 30, 2001, noninterest income was essentially
unchanged increasing 4.2% to $821 thousand. Noninterest expense of $2.8 million
for the quarter reflected an increase of $202 thousand or 7.9% over the same
prior year period. Salaries and employee benefits, the largest component of
noninterest expense, increased 8.7% to $1.7 million due to higher staffing
levels and normal merit increases. Occupancy and equipment costs were up $119
thousand, due mainly to higher occupancy and equipment cost related to the
Company's new data processing and operating systems housed in the operations
center opened during the third quarter of last year.


                                       9
<PAGE>

Reflecting the sustained soft economic environment, total interest income for
the six-months ended June 2001 rose $643 thousand to $15.6 million, an increase
of 4.3 percent over the comparable prior year period. This increase was
principally driven by the $7.1 million growth in total loans to $299.1 million.
Interest income derived from the higher loan volume was sufficient to offset
approximately $1.0 million in reduced interest income attributed essentially to
the six reductions in prime rate that occurred over the comparable periods. The
Company's prime interest rate was 275 basis points lower on June 30, 2001 than a
year earlier.

Total interest expense increased 16.1 percent, or $1.0 million, to $7.5 million
for the six-months ended June 2001, as total interest-bearing deposits grew
$11.6 million to $308.3 million by period end. The comparable period growth was
primarily attributable to the Company's fifteen-month maturity, certificate of
deposit product promoted during the second and third quarter of 2000. The volume
increase in this deposit product was the primary expense driver contributing to
the compression of the net interest margin. Deposit growth accounted for an
increase in interest expense of approximately $2.3 million, while softening
deposit rates reduced interest expense by approximately $1.3 million. The
majority of the fifteen-month, certificates of deposit will mature during the
third quarter of this year. The net interest margin should improve as these and
other deposit products are re-priced over the remainder of 2001. Noninterest-
bearing deposits grew to $63.6 million as of June 30, 2001, an increase of $7.7
million, or 13.9 percent, from a year earlier.

Noninterest income increased 9.8 percent, or $132 thousand, to $1.5 million for
the first six months of 2001. Noninterest expense increased 8.3 percent, or $426
thousand, to $5.6 million over the same period. This increase was primarily due
to higher occupancy and equipment cost related to the Company's new data
processing and operating systems housed in the operations center opened during
the third quarter of last year. Increased salary and benefit costs resulting
from higher staffing levels and merit increases was responsible for the
remainder of the growth in noninterest expense.

ASSET QUALITY

The allowance for loan losses represents management's estimate of an amount
adequate to absorb potential future losses inherent in the loan portfolio. In
assessing the adequacy of the allowance, management relies predominately on its
ongoing review of the lending process and the risk characteristics of the
portfolio in the aggregate. Among other factors, management considers the
Company's loan loss experience, the amount of past-due loans, current and
anticipated economic conditions, and the estimated current values of collateral
securing loans in assessing the level of the allowance for loan losses.

The allowance for loan losses totaled $3.2 million as of June 30, 2001. The
allowance for loan losses to period end loans was 1.08% at June 30, 2001
compared to 1.09% at December 31, 2000 and June 30, 2000, respectively. The
provision for loan losses was $125 thousand for the second quarter of 2001,
raising to total amount provided for the year to $200 thousand. Net charge-offs
were $119 thousand for the second quarter of 2001 bringing total net charge-offs
for the year to $135 thousand or 0.09% of average loans on an annualized basis.

                                       10
<PAGE>

Nonperforming assets, which consist of nonaccrual loans, loans 90 days or more
past due, and other real estate owned, were $3.9 million at quarter-end June
2001, higher by $441 thousand compared to year-end 2000. Nonaccrual loans
totaled $988 thousand, an increase of $267 thousand over December 31, 2000.
Loans past due 90 days or more totaled $2.0 million at June 30, 2001, up $267
thousand from year-end 2000, and other real estate owned at $953 thousand, was
down $93 thousand from year-end 2000. Management does not expect to incur any
material losses related to nonperforming assets.

LIQUIDITY

In determining the Company's liquidity requirements, both sides of the balance
sheet are managed to ensure that adequate funding sources are available to
support loan growth, deposit withdrawals or any unanticipated need for funds.

Securities available for sale that mature within one year, or have a weighted
average life of one year are sources of liquidity. Anticipated mortgage-backed
securities paydowns and maturing loans also generate cashflows to meet liquidity
requirements. Wholesale funding sources are also used to supply liquidity such
as federal funds purchased and large denomination certificates of deposit. The
Company considers its sources of liquidity to be adequate to meet its
anticipated needs.

CAPITAL RESOURCES
Community Bankshares capital position provides the necessary assurance required
to support anticipated asset growth and to absorb potential losses.

The Company's Tier I capital was $41.6 million at June 30, 2001, or 14.05% of
risk-weighted assets. Total risk-based capital was $44.9 million or 15.14% of
risk-weighted assets.

Tier I capital consists primarily of common stockholders' equity, while total
risk-based capital includes the allowance for loan losses.  Risk weighted assets
are determined by assigning various levels of risk to different categories of
assets and off-balance sheet activities. Under current risk-based capital
standards, all banks are required to have Tier I capital of at least 4% and
total capital of 8%.

OTHER INFORMATION

On June 29, 2001, the Company announced it had signed a non-binding letter of
intent for the acquisition of Community Bankshares by SouthTrust Corporation
headquartered in Birmingham, Alabama. The proposed merger would include an
exchange of 1.5904 shares of SouthTrust stock for each outstanding share of
Community Bankshares stock. The proposed merger, which is contingent on the
completion of due diligence, execution of a definitive agreement and other
customary approvals and conditions, is expected to be completed in the fourth
quarter of 2001. SouthTrust Corporation ( www.southtrust.com ) is a $47 billion
regional bank holding company that operates more than 650 banking and loan
offices and 800 ATMs in nine southern states.

                                       11
<PAGE>

A WARNING ABOUT FORWARD-LOOKING STATEMENTS
This Form 10-Q contains forward-looking statements. The Company may also make
written forward-looking statements in periodic reports to the Securities and
Exchange Commission, proxy statements, offering circulars and prospectuses,
press releases and other written materials and oral statements made by Community
Bankshares' officers, directors or employees to third parties. Statements that
are not historical facts, including statements about the Company's beliefs and
expectations, are forward-looking statements. These statements are based on
beliefs and assumptions of the Company's management, and on information
currently available to such management. Forward-looking statements include
statements preceded by, followed by or that include the words "believes,"
"expects," "estimates," "anticipates," "plans," or similar expressions. Forward-
looking statements speak only as of the date they are made, and the Company
undertakes no obligation to update publicly any of them in light of new
information or future events.

Forward-looking statements involve inherent risks and uncertainties. Management
cautions the readers that a number of important factors could cause actual
results to differ materially from those contained in any forward-looking
statement. Such factors include, but are not limited to, the following:
competitive pressures among depository and other financial institutions may
increase significantly; changes in the interest rate environment may reduce
margins; general economic or business conditions may lead to a deterioration in
credit quality or a reduced demand for credit; legislative or regulatory
changes, including changes in accounting standards, may adversely affect the
business in which Community Bankshares is engaged; changes may occur in the
securities markets; and competitors of the Company may have greater financial
resources and develop products that enable such competitors to compete more
successfully than Community Bankshares.

Other factors that may cause actual results to differ from the forward-looking
statements include the following: the timely development of competitive new
products and services by the Company and the acceptance of such products and
services by customers; changes in consumer spending and savings habits; the
effects of competitors' pricing policies; the Company's success in managing the
costs associated with the expansion of existing distribution channels and
developing new ones, and in realizing increased revenues from such distribution
channels, including cross-selling initiatives; and mergers and acquisitions and
their integration into the Company and management's ability to manage these
other risks.

Management of Community Bankshares believes these forward-looking statements are
reasonable; however undue reliance should not be placed on such forward-looking
statements, which are based on current expectations.

Forward-looking statements are not guarantees of performance. They involve
risks, uncertainties and assumptions. The future results and stockholder values
of Community Bankshares may differ materially from those expressed in forward-
looking statements contained in this report. Many of the factors that will
determine these results and values are beyond the Company's ability to control
or predict.


                                       12
<PAGE>

Item 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no material changes from the information provided in the
December 31, 2000 Form 10-K.

Part II.  OTHER INFORMATION

Item:  1  Legal proceedings

          There are no material legal proceedings to which the Registrant or its
          subsidiary are involved in other than legal proceedings occurring in
          the ordinary course of business, which are deemed immaterial.

       2  Changes in securities - None

       3  Defaults upon senior securities - None

       4  Results of votes of security holders - None

       5  Other information - None

       6  Exhibits and Reports on Form 8-K

          (a)  Exhibits - Financial Data Schedule, Exhibit 27
          (b)  Reports on Form 8-K - None

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereto duly authorized.

COMMUNITY BANKSHARES INCORPORATED

/s/Nathan S. Jones, 3rd
-----------------------
Nathan S. Jones, 3rd
President and Chief Executive Officer

/s/Ray A. Fleming
-----------------
Ray A. Fleming
Chief Financial Officer


Date:  August 9, 2001