COMMUNITY BANKSHARES INC /GA/ - 10-Q Quarterly Report

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q

/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarter period ended March 31, 2004

/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to _______

Community Bankshares, Inc.
(Exact name of registrant as specified in its charter)

N/A
(Former name, former address and former fiscal
year, if changed since last report)

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of May 1, 2004; 2,139,087

		Page No.
PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements

	Consolidated Balance Sheets -	3
	March 31, 2004 and December 31, 2003

	Consolidated Statements of Income	4
	and Comprehensive Income for Three
	Months Ended March 31, 2003 and 2003

	Consolidated Statements of Cash Flows -	5
	Three Months Ended March 31, 2004 and 2003

	Notes to Consolidated Financial Statements	6

Item 2.	Management’s Discussion and Analysis of	10
	Financial Condition and Results of Operations

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	15

Item 4.	Controls and Procedures	16

PART II. OTHER INFORMATION		16

Item 6.	Exhibits and Reports on Form 8 - K	16

	31.1 and 31.2 - Rule 13a-15(e) and 15d-15(e) Certifications

	32 - Certification of Chief Executive Officer and Chief Financial Officer, Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 9-6 of the Sarbanes-Oxley Act of 2002.

	Signatures	17

COMMUNITY BANKSHARES, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 2004 AND DECEMBER 31, 2003
(Dollars in thousands)
		(Unaudited)
Assets	2004		2003
Cash and due from banks	$	40,601	$	44,729
Interest-bearing deposits in banks		659		429
Federal funds sold		25,000		19,600
Securities available-for-sale		98,813		103,458
Securities held-to-maturity (fair value $23,930 and $24,352)		22,114		22,628
Restricted equity securities, at cost		1,451		1,243
Loans, net of unearned income		579,475		545,466
Less allowance for loan losses		8,563		7,561
Loans, net		570,912		537,905

Premises and equipment, net		15,743		15,239
Intangible assets, net		1,025		1,090
Goodwill		968		968
Other real estate		5,351		5,272
Other assets		11,754		13,624

Total assets	$	794,391	$	766,185
Liabilities, Redeemable Common Stock and Shareholders’ Equity
Liabilities:
Deposits:
Noninterest-bearing	$	115,368	$	111,562
Interest-bearing demand		171,222		174,070
Savings		37,801		35,157
Time, $100,000 and over		130,096		123,975
Other time		231,264		225,840
Total deposits		685,751		670,604
Other borrowings		26,081		16,153
Other liabilities		9,148		7,986
Total liabilities		720,980		694,743
Redeemable common stock held by ESOP, net of unearned ESOP shares related to ESOP debt guarantee of $876,162 and $973,675, at March 31, 2004 and December 31, 2003 respectively		15,881		15,783
Shareholders' equity
Common stock, par value $1; 5,000,000 shares authorized; 2,206,830 and 2,204,330 shares issued at March 31, 2004 and December 31, 2003, respectively		2,207		2,204
Capital surplus		6,437		6,342
Retained earnings		49,621		48,069
Accumulated other comprehensive income		2,168		1,607
Less cost of 67,743 and 60,135 shares of treasury stock at March 31, 2004 and December 31, 2003, respectively		(2,903)		(2,563)
Total shareholders' equity		57,530		55,659

Total liabilities, redeemable common stock and shareholders' equity	$	794,391	$	766,185

See Notes to Consolidated Financial Statements

COMMUNITY BANKSHARES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
AND COMPREHESIVE INCOME
THREE MONTHS ENDED MARCH 31, 2004 AND 2003
(Dollars in thousands, except per share amounts)
(Unaudited)
		Three Months Ended
		March 31,
	2004		2003
Interest income:
Loans, including fees	$	9,904	$	9,316
Taxable securities		616		634
Nontaxable securities		691		759
Interest-bearing deposits in other banks		2		2
Federal funds sold		35		67
Total interest income		11,248		10,778
Interest expense:
Deposits		2,743		3,460
Other borrowings		209		197
Total interest expense		2,952		3,657
Net interest income		8,296		7,121
Provision for loan losses		1,129		546
Net interest income after Provision for loan losses		7,167		6,575
Other income:
Service charges on deposit accounts		2,270		1,280
Other service charges, commissions and fees		530		530
Trust department fees		51		47
Gains on sale of loans		11		55
Nonbank subsidiary income		1,494		881
Security gains, net		36		-
Other operating income		97		71
Total other income		4,489		2,864
Other expenses:
Salaries and employee benefits		4,866		4,338
Equipment expense		814		833
Occupancy expense		524		480
Other operating expenses		3,185		2,093
Total other expenses		9,389		7,744
Income before income taxes		2,267		1,695
Income tax expense		544		317
Net income	$	1,723	$	1,378
Other comprehensive income (loss):
Unrealized income (losses) on securities available for sale: Unrealized gains (losses) arising during the period, net of taxes		583		(101)
Reclassification adjustment for gains realized in net income, net of taxes		(22)		-
Total other comprehensive income (loss)		561		(101)
Comprehensive income	$	2,284	$	1,277
Basic earnings per common share	$	.81	$	.64
Diluted earnings per common share	$	.80	$	.64
Cash dividends per share of common stock	$	.08	$	.07
See Notes to Consolidated Financial Statements.

COMMUNITY BANKSHARES, INC.
AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 2004 AND 2003
(Dollars in thousands)
(Unaudited)

		2004		2003

OPERATING ACTIVITIES
Net income	$	1,723	$	1,378
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		708		796
Provision for loan losses		1,129		546
Provision for losses on other real estate owned		10		-
Deferred income taxes		(50)		(113)
Net realized gains on securities available-for-sale		(36)		-
Net (gains) losses on sale of other real estate		-		5
Decrease in interest receivable		245		446
Increase (decrease) in interest payable		(101)		1,289
Increase (decrease) in taxes payable		933		(208)
(Increase) decrease in accounts receivable of nonbank subsidiary		(324)		3
Decrease in work in process of nonbank subsidiary		96		253
Increase (decrease) in accruals and payables of nonbank subsidiary		354		(1,462)
Net other operating activities		1,674		(2,203)

Net cash provided by operating activities		6,361		730

INVESTING ACTIVITIES
Purchases of securities available-for-sale		(409)		(6,377)
Proceeds from sales of securities available-for-sale		4,314		----
Proceeds from maturities of securities available-for-sale		1,502		6,189
Proceeds from maturities of securities held-to-maturity		514		1,579
Net increase in Federal funds sold		(5,400)		(22,550)
Net increase (decrease) in interest-bearing deposits in banks		(230)		433
Net (increase) in loans		(34,747)		(10,791)
Purchase of premises and equipment		(1,121)		(251)
Proceeds from sales of other real estate		520		209

Net cash used in investing activities		(35,053)		(31,559)

FINANCING ACTIVITIES
Net increase in deposits		15,147		28,715
Repayment of other borrowings		(147)		(147)
Purchase of Treasury Stock		(339)		(661)
Increase in FHLB Advances		10,075		-
Dividends paid		(172)		(150)

Net cash provided by Financing activities		24,564		27,757
Net decrease in cash and due from banks	$	(4,128)	$	(3,072)

Cash and due from banks at beginning of the period		44,729		44,966

Cash and due from banks at end of the period	$	40,601	$	41,894

SUPPLEMENTAL DISCLOSURES
Cash paid for:
Interest	$	3,042	$	2,368

Income taxes	$	53	$	154

NONCASH TRANSACTIONS

Principal balances on loans Transferred to other real estate	$	612	$	749

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

The results of operations for the three month period ending March 31, 2004 are not necessarily indicative of the results to be expected for the full year.

The Company has a stock-based employee compensation plan. The Company accounts for the plan under the recognition and measurement principles of APB Opinion No. 25, Accounting for Stock Issued to Employees, and related Interpretations. No stock-based employee compensation cost is reflected in net income, as all options granted under the plan had an exercise price equal to the market value of the underlying stock on the date of grant. The following table illustrates the effect on net income and earnings per share if the Company had applied the fair value recognition provisions of Statement of Financial Accounting Standards (SFAS) No. 123, Accounting for Stock-Based Compensation, to stock-based employee compensation.

There were no options granted during the three months ended March 31, 2004 and 2003 and all outstanding options were fully vested as of March 31, 2004 and 2003. Therefore, there is no proforma effect on net income.

The following is a reconciliation of net income (the numerator) and weighted-average shares outstanding (the denominator) used in determining basic and diluted earnings per common share (EPS).

Selected segment information by industry segment for the three month periods ended March 31, 2004 and 2003 is as follows:

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

Our discussion below in this Item 2 is based on the more detailed discussions about our business, operations and financial condition included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2003, under Item 7. Our discussions here focus on our results during or as of the quarter ended March 31, 2004, and the comparable period of 2003 for comparison purposes, and, to the extent applicable, any material changes from the information discussed in that Form 10-K or other important intervening developments or information since that time. These discussions should be read in conjunction with that 10-K for more detailed and background information.

This discussion contains forward-looking statements under the Private Securities Litigation Reform Act of 1995 that involve risks and uncertainties. Although the Company believes the assumptions underlying the forward-looking statements contained in the discussion are reasonable, any of the assumptions could be inaccurate, and therefore, no assurance can be made that any of the forward-looking statements included in this discussion will be accurate. Factors that could cause actual results to differ from results discussed in forward-looking statements include, but are not limited to: economic conditions (both generally and in the markets where the Company operates); competition from other providers of financial services; government regulation and legislation; changes in interest rates; and material unforeseen changes in the financial stability and liquidity of the Company’s credit customers; all of which are difficult to predict and which may be beyond the control of the Company. The Company undertakes no obligation to revise forward-looking statements to reflect events or changes after the date of this discussion or to reflect the occurrence of unanticipated events.

For the quarter ended March 31, 2004, we continue to experience growth in total assets, total loans and total deposits as compared to December 31, 2003. Total assets, loans, and deposits increased by 3.68%, 6.23% and 2.26% respectively. The growth in total assets and deposits, although less than the same period in 2003, is consistent with management’s expectations. The growth in assets is attributable to growth in deposits and retention of earnings. Management expects the growth to continue in the future.

As of March 31, 2004, the liquidity ratio was 17.78% which is below our target range of 20 - 25%, but within an acceptable range due to our bank's available lines of credit to meet unexpected liquidity needs. Liquidity is measured by the ratio of net cash, short term and marketable securities to net deposits and short term Liabilities.

Our guideline is to allow no more than 8% change in net interest income when interest rates rise or fall 200 basis points or more. Our overall interest rate risk was less than 3% of net interest income; therefore, we are within policy guidelines. We have attempted to position ourselves to minimize the impact of further changes in rates in either direction.

Banking regulation requires the Company and the banks to maintain capital levels in relation to our assets. At March 31, 2004, the bank’s capital ratios were considered well capitalized based on regulatory minimum capital requirements. The minimum capital requirements and the actual consolidated

Our financial statements do not reflect various commitments and contingent liabilities that arise in the normal course of business. These off-balance sheet financial instruments include commitments to extend credit and standby letters of credit. Such financial instruments are included in the financial statements when funds are distributed or the instruments become payable. Our exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters of credit is represented by the contractual amount of those instruments. We use the same credit policies in making commitments as we do for on-balance sheet instruments. Although these amounts do not necessarily represent future cash requirements, a summary of our commitments as of March 31, 2004 and December 31, 2003 are as follows:

Net income for the three month period ended March 31, 2004, was $1,723,000 or an increase of 25% over the same period for 2003.

Net interest income for the three month period ended March 31, 2004 was up 16.50% over the same period for 2003, from $7,121,000 to $8,296,000. This increase was the result of growth and improved margins. Interest income was up by 4.36% for the three month period ending March 31, 2004 from $10,778,000 to $11,248,000. The increase was caused by the increase in the volume of earning assets. Earning assets increased by 10.29% or $67,867,000 at March 31, 2004 as compared to March 31, 2003. The largest increase in earning assets since March 31, 2003 was the increase in loans of $78,672,000 or 15.71% . Securities decreased by $4,647,000 while federal funds decreased by $6,750,000.

Interest expense was down 19.28% or $705,000 for the three month period ended March 31, 2004, over the same period in 2003. These decreases were related to the repricing of time deposits.

The Company’s net interest margin was 4.80% for the three month period ended March 31, 2004 compared to 4.68% for the same period in 2003. Management anticipates a stable net interest margin over the next twelve months. Any increase in rates would have a slight positive effect on our net interest margin.

Other income increased by $1,625,000 or 56.74% during the three month period ended March 31, 2004 as compared to the same period for 2003. This increase is primarily due to increased service charges on deposit accounts of $990,000 or 77.34% for the three month period ended March 31, 2004 as compared to the same period in 2003 and increased sales of $536,000 or 66.34% by Financial Supermarkets, Inc. (“FSI”), a nonbank subsidiary, as compared to the same period in 2003. Service charges on deposits increased primarily as a result of the bank’s adding an overdraft protection product which allows customers to overdraw their account, up to a specific limits.

Non interest expenses increased by 21.24% or $1,645,000 for the three month period ending March 31, 2004 compared to the same periods in 2003. Full time equivalent employees increased from 392 at the end of March 2003 to 397 at the end of March 2004. The increase in full time equivalent employees was due to the addition of two new supermarket banking centers and one new stand-a-lone branch during the later part of 2003 as well as the overall growth of the Company’s banking operations. In addition, the incentive commissions related to sales activity at FSI has increased due to increased sales over the previous year. These increases caused salaries and benefits to increase by 12.17% or $528,000 for the three month period ended March 31, 2004 as compared to the same period in 2003.

Also attributable to the two new banking centers and new stand-a-lone branch, equipment and occupancy expenses were up by 1.9% or $25,000 for the three month period ending March 31, 2004 as compared to the same period in 2003.

Other operating expenses increased by 52.17% or $1,092,000 for the three month period ending March 31, 2004 as compared to the same periods in 2003. The single largest item included in this increase is attributed to the $440,000 expenses associated with the new carefree check program that was started in 2004. In addition, legal fees increased by $101,000 or 214.89% as compared to the same period in 2003 due to legal services related to past due loans and other real estate owned. Data processing expense increased by $85,000 or 36.33% as compared to the same period in 2003 due to growth of the banks and improvement in our technology platform. Advertising and marketing increased by $54,000 or 32.14% and travel expense increased by $78,000 or 32.50% as compared to the same period in 2003. These increases are attributed to the increased marketing and sales activity of FSI.

We incurred income tax expenses of $544,000 which represents an effective rate of 24.00% for the three month period ended March 31, 2004 as compared to $317,000 which represents an effective tax rate of 18.70% for the same period in 2003. The increase is due to a larger portion of our income being fully taxable.

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

The provision for loan losses was $1,129,000 and $546,000 for the first three months of 2004 and 2003 respectively. Most of this increase was needed due to our assessment of the allowance necessary to absorb probable losses in our increased loan portfolio. The reserve at March 31, 2004 represented 184% of non-accrual loans while the reserve at March 31, 2003 represented 159% of non-accrual loans. Non accrual loans have decreased from $4,824,000 to $4,659,000, past due loans greater than 90 days and accruing interest have increased from $1,879,000 to $2,741,000 and net charge-offs have decreased from $607,000 to $127,000 at March 31, 2003 and March 31, 2004, respectively.

Repossessed real estate owned by the bank increased 33.08% from $4,021,000 in March 2003 to $5,351,000 in March 2004. Other real estate is carried in the books at the lesser of cost or fair market value, less estimated costs to sell, with no significant losses anticipated.

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

Loans classified for regulatory purposes as loss, doubtful, substandard, or special mention that have not been included in the table above do not represent or result from trends or uncertainties which management reasonably expects will materially impact future operating results, liquidity or capital resources. These classified loans do not represent material credits about which management is aware of any information which causes management to have doubts concerning the collectibility of such credits.

The accrual of interest on loans is discontinued when, in management’s opinion, the borrower may be unable to meet payments as they become due, unless the loan is well-secured. All interest accrued but not collected for loans that are placed on nonaccrual or charged off is reversed against interest income. Interest income on nonaccrual loans is subsequently recognized only to the extent cash payments are received, until the loans are returned to accrual status.

The loan loss reserve is evaluated monthly and adjusted to reflect the risk in the portfolio in the following manner. We use two different methods of measuring risk in the portfolio: we evaluate the (a) risk in our watch list of loans and past due ratios and (b) percentage of classified loans. We then compare results to reserve balances to assure any and all identified risk is covered.

The following table, dollars in thousands, furnishes information on the loan loss reserve for the current three month reporting period and the same period for 2003.

Our Company operates in three distinct markets, northeast Georgia, midwest Georgia and mideast Alabama. Each of these markets has seen a modest increase in unemployment and bankruptcy filings.

Management has reviewed the non-accrual loans individually and determined that the likelihood of any significant loss of principal is mitigated due to the value of the collateral securing these loans. As of March 31, 2004, non-accrual loans and other real estate owned totaled approximately $10,010,000 as compared to $8,845,000 as of March 31, 2003. The ratio of the loan loss reserve balance to the total loan balance at March 31, 2004 was 1.48% as compared to 1.53% at March 31, 2003. As of March 31, 2004, management considered our allowance for loan losses adequate to cover any anticipated losses.

Our discussion below in this Item 3 is based on the more detailed discussions of our market risk and related matters included in our Annual Report on From 10‑K for the fiscal year ended December 31, 2003, under Item 7A. Our discussion here focuses on the quarter ended March 31, 2004, and any material changes from (or other important intervening developments since the time of) the information discussed in that Form 10-K. This discussion should be read in conjunction with that Form 10-K for more detailed and background information.

The Company is exposed only to U.S. dollar interest rate changes and accordingly, the Company manages exposure by considering the possible changes in the net interest margin. The Company does not have any trading instruments nor does it classify any portion of the investment portfolio as held for trading. The Company does not engage in any hedging activities or enter into any derivative instruments other than mortgage backed securities, which are commonly pass through securities. Finally, the Company has no exposure to foreign currency exchange rate risk, commodity price risk, and other market risks.

Interest rates play a major part in the net interest income of a financial institution. The sensitivity to rate changes is known as “interest rate risk”. The repricing of interest earning assets and interest-bearing liabilities can influence the changes in net interest income. As part of the Company’s asset/liability management program, the timing of repriced assets and liabilities is referred to as Gap management.

The Company’s objective in Gap management is to manage assets and liabilities to maintain satisfactory and consistent profitability. Officers of each bank are charged with monitoring policies and procedures designed to ensure an acceptable asset/liability mix. Management’s philosophy is to support asset growth primarily through growth of core deposits within the banks’ market areas.

The Company’s asset/liability mix is monitored regularly with a report reflecting the interest rate sensitive assets and interest rate sensitive liabilities that is prepared and presented to the Board of Directors of each bank on at least a quarterly basis. Management’s objective is to monitor interest rate sensitive assets and liabilities so as to minimize the impact on earnings of substantial fluctuations in interest rates. An asset or liability is considered to be interest rate-sensitive if it will reprice or mature within the time period analyzed, usually one year or less. The interest rate-sensitivity gap is the difference between the interest-earning assets and interest-bearing liabilities scheduled to mature or reprice within the relevant period. A gap is considered positive when the amount of interest rate-sensitive assets exceeds the amount of interest rate-sensitive liabilities. A gap is considered negative when the amount of interest rate-sensitive liabilities exceeds the interest rate-sensitive assets. During a period of rising interest rates, a negative gap would tend to adversely affect net interest income, while a positive gap would tend to result in an increase in net interest income. Conversely, during a period of falling interest rates, a negative gap would tend to result in an increase in net interest income, while a positive gap would tend to adversely affect net interest income. If the Company’s assets and liabilities were equally flexible and moved concurrently, the impact of any increase or decrease in interest rates on net interest income would be minimal.

A simple interest rate “gap” analysis by itself may not be an accurate indicator of how net interest income will be affected by changes in interest rates. For example, while interest-bearing transaction accounts are by their terms immediately repricable, competitive conditions and other circumstances usually preclude repricing such deposits proportionately with changes in rates affecting interest-earning assets.

Accordingly, the Company also evaluates how changes in interest rates impacts the repayment of particular assets and liabilities. Income associated with interest-earning assets and costs associated with interest-bearing liabilities may not be affected uniformly by changes in interest rates. In addition, the magnitude and duration of changes in interest rates may significantly affect net interest income. For example, although certain assets and liabilities may have similar maturities or periods of repricing, they may react in different degrees to changes in market interest rates. Interest rates on certain types of assets and liabilities fluctuate in advance of changes in general market rates, while interest rates on other types may lag behind changes in general market rates. In addition, certain assets have features (generally referred to as “interest rate caps and floors”) which limit changes in interest rates. Also, prepayments and early withdrawal levels could deviate significantly from those reflected in the interest rate gap. The Company prepares a report monthly that measures the potential impact on net interest margin by rising or falling rates. This report is reviewed monthly by the Asset/Liability Committee and quarterly by each Board of Director.

At March 31, 2004, the Company’s cumulative interest rate sensitivity gap ratio for the next twelve months was 106% which was within its targeted range of 80% to 120%.

Gap management alone is not enough to properly manage interest rate sensitivity because interest rates do not respond at the same speed or at the same level to market rate changes. For example, savings and money market rates are more stable than loans tied to a “Prime” rate and thus respond with less volatility to a market rate change. Thus, the Company uses a simulation model to monitor changes in net interest income due to changes in market rates. The model of rising, falling and stable interest rate scenarios allows management to monitor and adjust interest rate sensitivity to minimize the impact of market rate swings. The analysis of impact on net interest margins as well as market value of equity over a twelve month period is subjected to a 200 basis point increase and decrease in rate. The March 2004 model reflects an increase of 1.70% in net interest income and a 3.95% decrease in market value equity for a 200 basis point increase in rates. The same model shows a 2.43% decrease in net interest income and a 8.02% increase in market value equity for a 200 basis point decrease in rates. The Company’s policy is to allow no more than +-8% change in net interest income and no more than +-25% change in market value equity for these scenarios. Therefore, the Company is within its policy guidelines.

Our management, including the chief executive and chief financial officers, supervised and participated in an evaluation of our disclosure controls and procedures (as defined in federal securities rules) as of the end of the period covered by this report. Based on, and as of the date of, that evaluation, our CEO and CFO have concluded that our disclosure controls and procedures are effective in accumulating and communicating information to our management, including our CEO and CFO, as appropriate to allow timely decisions regarding required disclosures of that information under the Securities and Exchange Commission rules and forms and that our disclosure controls and procedures are designed to ensure that the information we are required to disclose in reports that we file or submit under all applicable federal securities laws is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms.

There were no significant changes in our internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation.

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, thereunto duly authorized.

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

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

	Net Income (Numerator)		Weighted-Average Shares (Denominator)		Per Share Amount

Basic EPS		$1,723		2,140		$0.81
Effect of Dilutive Securities Stock options		-0-		7		(.01)

Diluted EPS		$1,723		2,147		$0.80

	Net Income (Numerator)		Weighted-Average Shares (Denominator)		Per Share Amount


Basic EPS		$1,378		2,162		$0.64
Effect of Dilutive Securities Stock options		0		6		0.00

Diluted EPS		$1,378		2,168		$0.64

	Reportable Segments (Dollars in thousands)
For the period ended March 31, 2004		Banking		Financial Supermarkets		All Other		Total

Revenue from external customers		$	14,246	$	1,374	$	166	$	15,786
Intersegment revenues (expenses)			(31)		90		493		552
Segment profit (loss)			1,963		132		(396)		1,699
Segment assets		$	798,463	$	14,885	$	5,797	$	819,145



	Three Months Ended March 31, 2003 (Dollars and shares in Thousands, except per share amounts)

	Reportable Segments (Dollars in thousands)
For the period ended March 31, 2003		Banking		Financial Supermarkets		All Other		Total

Revenue from external customers		$	12,780	$	823	$	108	$	13,711
Intersegment revenues (expenses)			(40)		95		586		641
Segment profit (loss)			1,744		(77)		(312)		1,355
Segment assets		$	737,175	$	14,789	$	4,199	$	756,163

	2004

Total Assets

Total assets for reportable segments	$	813,348
Non-reportable segment assets		5,797
Elimination of intersegment assets		(24,754)
Total consolidated assets	$	794,391

	Actual	Regulatory Minimum

Leverage	8.98%	4.00
Core Capital	11.63%	4.00
Total Capital	12.89%	8.00

	March 31, 2004 (Dollars in Thousands)		December 31, 2003 (Dollars in Thousands)

Commitments to extend credit	$	72,568	$	52,733
Financial standby letters of credit		4,104		4,706

	Non-accrual		Past Due		Restructured
	Loans		90 days		Debt
			Still accruing

Commercial Loans	$ 544		$ 157		$ 14
Real Estate Loans	3,909		2,076		870
Consumer Loans		206		508		--

Total		$4,659		$2,741		$884

(a)	Exhibits
	31.1 and 31.2 - Rule 13a-15(e) and 15d-15(e) Certifications
	32 - Certification of Chief Executive Officer and Chief Financial Officer, Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant To Section 906 of the Sarbanes- Oxley Act of 2002.

	COMMUNITY BANKSHARES, INC.

DATE: May 14, 2004	BY: /s/ Harry L. Stephens Harry L. Stephens, Executive Vice President and Chief Financial Officer

Total Assets