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, 2005

/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the transition period from _ to

Commission File Number: 33-81890

Community Bankshares, Inc.

(Exact name of registrant as specified in its charter)

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)

(706) 778-2265

(Registrant’s telephone number, including area code)

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

APPLICABLE ONLY TO CORPORATE ISSUERS

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of May 1, 2005; 2,141,275

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COMMUNITY BANKSHARES, INC.

AND SUBSIDIARIES

INDEX

PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements	3

	Consolidated Balance Sheets - March 31, 2005 and December 31, 2004	3

	Consolidated Statements of Income and Comprehensive Income for Three Months Ended March 31, 2005 and 2004	4

	Consolidated Statements of Cash Flows - Three Months Ended March 31, 2005 and 2004	5

	Notes to Consolidated Financial Statements	6

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

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	14

Item 4.	Controls and Procedures
		15
PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	16
Item 2.	Unregistered Sale of Equity Securities and Use of Proceeds	16
Item 3.	Defaults Upon Senior Securities	16
Item 4.	Submission of Matters to a Vote of Security Holders	16
Item 6.	Exhibits	16

Signatures		17

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PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

COMMUNITY BANKSHARES, INC.

AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

MARCH 31, 2005 AND DECEMBER 31, 2004

(Dollars in thousands)

(Unaudited)

Assets		2005			2004
Cash and due from banks	$	38,628		$	30,507
Interest-bearing deposits in banks		718			487
Federal funds sold		23,050			0
Securities available-for-sale		112,336			114,883
Securities held-to-maturity (fair value $19,874 and $21,330)		18,999			20,217
Restricted equity securities, at cost		2,810			2,469
Loans, net of unearned income		659,582			645,500
Less allowance for loan losses		9,621			9,170
Loans, net		649,961			636,330
Premises and equipment, net		18,483			18,330
Intangible assets, net		742			812
Goodwill		968			968
Other real estate		4,042			3,901
Other assets		14,652			14,474
Total assets	$	885,389		$	843,378
Liabilities, Redeemable Common Stock and Shareholders’ Equity
Liabilities: Deposits: Noninterest-bearing	$	129,009		$	119,097
Interest-bearing demand		206,927			197,927
Savings		41,787			39,043
Time, $100,000 and over		143,568			135,940
Other time		242,461			234,968
Total deposits		763,752			726,975
Other borrowings		30,703			25,794
Other liabilities		10,831			11,569
Total liabilities		805,286			764,338

Redeemable common stock held by ESOP, net of unearned ESOP shares related to ESOP debt guarantee of $487,971 and $585,218, at March 31, 2005 and December 31, 2004 respectively		19,023			18,925
Shareholders' equity Common stock, par value $1; 5,000,000 shares authorized; 2,211,330 and 2,211,330 shares issued at March 31, 2005 and December 31, 2004, respectively		2,211			2,211
Capital surplus		6,477			6,477
Retained earnings		55,364			53,536
Accumulated other comprehensive income		39			884
Less cost of 70,055 and 69,745 shares of treasury stock at March 31, 2005 and December 31, 2004, respectively		(3,011	)		(2,993	)
Total shareholders' equity		61,080			60,115

Total liabilities, redeemable common stock and shareholders' equity	$	885,389		$	843,378

See Notes to Consolidated Financial Statements

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COMMUNITY BANKSHARES, INC.

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

AND COMPREHESIVE INCOME

THREE MONTHS ENDED MARCH 31, 2005 AND 2004

(Dollars in thousands, except per share amounts)

(Unaudited)

	Three Months Ended March 31,
	2005			2004
Interest income: Loans, including fees	$	11,225		$	9,904
Taxable securities		654			616
Nontaxable securities		651			691
Interest-bearing deposits in other banks		4			2
Federal funds sold		94			35
Total interest income		12,628			11,248
Interest expense: Deposits		3,576			2,743
Other borrowings		269			209
Total interest expense		3,845			2,952
Net interest income		8,783			8,296
Provision for loan losses		713			1,129
Net interest income after Provision for loan losses		8,070			7,167
Other income: Service charges on deposit accounts		2,150			2,270
Other service charges, commissions and fees		625			530
Trust department fees		64			51
Gains on sale of loans		106			11
Nonbank subsidiary income		1,850			1,494
Security gains, net		(1	)		36
Other operating income		97			97
Total other income		4,891			4,489
Other expenses: Salaries and employee benefits		5,585			4,866
Equipment expense		936			814
Occupancy expense		638			524
Other operating expenses		2,955			3,185
Total other expenses		10,114			9,389
Income before income taxes		2,847			2,267
Income tax expense		826			544
Net income	$	2,021		$	1,723
Other comprehensive income (loss): Unrealized income (losses) on securities available for sale: Unrealized gains (losses) arising during the period, net of taxes		(845	)		583
Reclassification adjustment for gains realized in net income, net of taxes		0			(22	)
Total other comprehensive income (loss)		(845	)		561
Comprehensive income	$	1,176		$	2,284
Basic earnings per common share	$	.94		$	.81
Diluted earnings per common share	$	.94		$	.80
Cash dividends per share of common stock	$	.09		$	.08
See Notes to Consolidated Financial Statements.

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COMMUNITY BANKSHARES, INC.

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

THREE MONTHS ENDED MARCH 31, 2005 AND 2004

(Dollars in thousands)

(unaudited)

	2005			2004
OPERATING ACTIVITIES
Net income	$	2,021		$	1,723
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		768			708
Provision for loan losses		713			1,129
Provision for losses on other real estate owned		-			10
Deferred income taxes		(760	)		(50	)
Net realized (gains) losses on securities available-for-sale		1			(36	)
Decrease in interest receivable		169			245
Decrease in interest payable		(51	)		(101	)
Increase in taxes payable		777			933
Increase in accounts receivable of nonbank subsidiary		(621	)		(324	)
Decrease in work in Process of nonbank subsidiary		4			96
Increase (decrease) in accruals and payables of nonbank subsidiary		(548	)		354
Net other operating activities		772			1,674
Net cash provided by operating activities		3,245			6,361

INVESTING ACTIVITIES
Purchases of securities available-for-sale		(16,141	)		(409	)
Proceeds from sales of securities available-for-sale		11,071			4,314
Proceeds from maturities of securities available-for-sale		5,867			1,502
Proceeds from maturities of securities held-to-maturity		1,218			514
Net increase in Federal funds sold		(23,050	)		(5,400	)
Net decrease in interest-bearing deposits in banks		(231	)		(230	)
Net increase in loans		(14,841	)		(34,747	)
Purchase of premises and equipment		(849	)		(1,121	)
Proceeds from sales of other real estate		357			520
Net cash used in investing activities		(36,599	)		(35,057	)

FINANCING ACTIVITIES
Net increase in deposits		36,777			15,147
Repayment of other borrowings		(91	)		(147	)
Purchase of Treasury Stock		(18	)		(339	)
Increase in FHLB Advances		5,000			10,075
Dividends paid		(193	)		(172	)
Net cash provided by Financing activities		41,475			24,564
Net increase (decrease) in cash and due from banks	$	8,121		$	(4,128	)
Cash and due from banks at beginning of the period		30,507			44,729
Cash and due from banks at end of the period	$	38,628		$	40,601

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COMMUNITY BANKSHARES, INC.

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

THREE MONTHS ENDED MARCH 31, 2005 AND 2004

(Dollars in thousands)

(Unaudited)

(CONTINUED)

		2005		2004

SUPPLEMENTAL DISCLOSURES
Cash paid for: Interest	$	3,896	$	3,042
Income taxes	$	246	$	53

NONCASH TRANSACTIONS
Principal balances on loans Transferred to other real estate	$	497	$	612

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COMMUNITY BANKSHARES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. BASIS OF PRESENTATION

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, 2005 are not necessarily indicative of the results to be expected for the full year.

NOTE 2. STOCK COMPENSATION PLAN

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.

There were no options granted during the three months ended March 31, 2005 and 2004. Therefore, there would be no proforma effect on net income or 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.

NOTE 3. EARNINGS PER COMMON SHARE

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).

	Three Months Ended March 31, 2005
	(Dollars and shares in Thousands except per share amounts)
	Net Income (Numerator)		Weighted-Average Shares (Denominator)		Per Share Amount

Basic EPS	$	2,021		2,141	$	0.94
Effect of Dilutive Securities Stock options		-0-		8		-
Diluted EPS	$	2,021		2,149	$	0.94

	Three Months Ended March 31, 2004
	(Dollars and shares in Thousands, except per share amounts)
	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

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NOTE 4. SEGMENT INFORMATION

Selected segment information by industry segment for the three month periods ended March 31, 2005 and 2004 is as follows:

	Reportable Segments (Dollars in thousands)
For the period ended March 31, 2005	Banking			Financial Supermarkets		All Other			Total

Revenue from external customers	$	15,721		$	1,711	$	188		$	17,620
Intersegment revenues (expenses)		(52	)		108		654			710
Segment profit (loss)		2,159			309		(470	)		1,998
Segment assets	$	884,811		$	17,350	$	5,114		$	907,275

	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 1,3741	$	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

	2005			2004
Net Income

Total profit for reportable segments	$	2,468		$	2,095
Non-reportable segment loss		(470	)		(396	)
Elimination of intersegment (gains) losses		23			24
Total consolidated net income	$	2,021		$	1,723

	2005
Total Assets

Total assets for reportable segments	$	902,161
Non-reportable segment assets		5,114
Elimination of intersegment assets		(21,886	)
Total consolidated assets	$	885,389

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NOTE 5. REVERSE STOCK SPLIT

On January 13, 2005, the Board of Directors of the Company voted unanimously to declare a one for five-hundred reverse stock split for the primary for the purpose of “Going private” which will relieve the Company from the expense and burden associated with compliance with both current and proposed federal securities laws and regulations. Since the Board of Directors and executive officers, as defined by securities law, do not collectively control more than 50% of the voting shares of the Company’s outstanding stock and since the reverse stock split is subject to regulatory and shareholder approval to amend the Company’s by-laws, we have not restated the equity section of the balance sheet or per share amounts. The following table illustrates the effect on earnings per share if the Company had reflected the one for five-hundred reverse stock split.

	Three Months Ended March 31,
		2005		2004
Earnings per share:
Basic - as reported	$	.94	$	.81
Basic - pro forma	$	470.00	$	405.00
Diluted - as reported	$	.94	$	.80
Diluted - pro forma	$	470.00	$	400.00

NOTE 6. RECENT ACCOUNTING STANDARDS

In December 2004, the FASB published Statement No. 123 (revised 2004), “Share-Based Payment” (“FAS 123(R)” or the “Statement”). FAS 123(R) requires that the compensation cost relating to share-based payment transactions, including grants of employee stock options, be recognized in financial statements. That cost will be measured based on the fair value of the equity or liability instruments issued. FAS 123(R) covers a wide range of share-based compensation arrangements including stock options, restricted share plans, performance-based awards, share appreciation rights, and employee share purchase plans. FAS 123(R) is a replacement of FASB Statement No. 123, Accounting for Stock-Based Compensation, and supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees, and its related interpretive guidance (APB 25).

The effect of the Statement will be to require entities to measure the cost of employee services received in exchange for stock options based on the grant-date fair value of the award, and to recognize the cost over the period the employee is required to provide services for the award. FAS 123(R) permits entities to use any option-pricing model that meets the fair value objective in the Statement.

The Company will be required to apply FAS 123(R) as of the beginning of its first interim period that begins after December 15, 2005.

FAS 123(R) allows two methods for determining the effects of the transition: the modified prospective transition method and the modified retrospective method of transition. Under the modified prospective transition method, an entity would use the fair value based accounting method for all employee awards granted, modified, or settled after the effective date. As of the effective date, compensation cost related to the nonvested portion of awards outstanding as of that date would be based on the grant-date fair value of those awards as calculated under the original provisions of Statement No. 123; that is, an entity would not remeasure the grant-date fair value estimate of the unvested portion of awards granted prior to the effective date. An entity will have the further option to either apply the Statement to only the quarters in the period of adoption and subsequent periods, or apply the Statement to all quarters in the fiscal year of adoption. Under the modified retrospective method of transition, an entity would revise its previously issued financial statements to recognize employee compensation cost for prior periods presented in accordance with the original provisions of Statement No. 123.

The Company has not yet completed its study of the transition methods or made any decisions about how it will adopt FAS 123(R).

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COMMUNITY BANKSHARES, INC.

AND SUBSIDIARIES

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, 2004, under Item 7. Our discussions here focus on our results during or as of the quarter ended March 31, 2005, and the comparable period of 2004, 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.

Forward Looking Statements

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.

Critical Accounting Policies

The accounting principles the Company follows and its methods of applying these principles conform with accounting principles generally accepted in the United States and with general practices within the banking industry. In connection with the application of those principles, the Company has made judgments and estimates that, in the case of the determination of the allowance for loan losses have been critical to the determination of the Company’s financial position, results of operations and cash flows.

Management’s judgment in determining the adequacy of the allowance for loan losses is based on evaluations of the collectibility of loans in the portfolio. The allowance is an amount that management believes will be adequate to absorb estimated losses in the loan portfolio. The allowance for loan losses is evaluated on a regular basis by management and is based upon management’s periodic review of the collectibility of the loans in light of historical experience, the nature and volume of the loan portfolio, particular circumstances that may affect the borrower’s ability to repay, estimated value of any underlying collateral and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available. While management uses the best information available to make its evaluation, future adjustments to the allowance may be necessary if there are significant changes in economic conditions. In addition, regulatory agencies, as an integral part of their examination process, periodically review the Company’s allowance for loan losses, and may require the Banks to make additions to the allowance based on their judgment about information available to them at the time of their examinations.

Financial Condition

For the quarter ended March 31, 2005, we experienced growth in total assets, total loans and total deposits as compared to December 31, 2004. Total assets, loans, and deposits increased by 4.98%, 2.18% and 5.06% respectively. The growth in deposits is attributed to our expanding markets and increased efforts to grow our deposit base to help fund our increased loan demand. The growth in loans was funded by the maturity and sale of securities, advances from Federal Home Loan Bank, the growth of deposits and retention of earnings.

Liquidity

As of March 31, 2005, the liquidity ratio was 18.14% which is within our target range of 15 - 20%. Liquidity is measured by the ratio of net cash, short term and marketable securities to net deposits and short term liabilities.

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Interest Rate Risk

Our guideline is to allow no more than an 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 4% 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.

Capital

Banking regulation requires the Company and the banks to maintain capital levels in relation to our assets. At March 31, 2005, the banks' capital ratios were considered well capitalized based on regulatory minimum capital requirements. The minimum capital requirements for the Company and the actual consolidated capital ratios were as follows:

	Actual		Regulatory Minimum
Leverage		9.08%		4.00%
Core Capital		11.62%		4.00%
Total Capital		12.87%		8.00%

Off Balance Sheet Arrangements

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, 2005 and December 31, 2004 are as follows:

	March 31, 2005		December 31, 2004
	(Dollars in Thousands)		(Dollars in Thousands)
Commitments to extend credit	$	67,559	$	72,568
Financial standby letters of credit		3,853		4,104

A. Results of Operation

Net Income

Net income for the three month period ended March 31, 2005, was $2,021,000 or an increase of 17.30% over the same period for 2004.

Net Interest Income

Net interest income for the three month period ended March 31, 2005 was up 5.87% over the same period for 2004, from $8,296,000 to $8,783,000. Interest income was up by 12.27% for the three month period ending March 31, 2005 from $11,248,000 to $12,628,000. The increase was primarily caused by the increase in the volume of earning assets. Earning assets increased by 12.37% or $89,984,000 at March 31, 2005 as compared to March 31, 2004. The largest increase in earning assets since March 31, 2004 was the increase in loans of $80,107,000 or 13.82%. Securities increased by $11,767,000 while federal funds sold decreased by $1,950,000.

Interest expense was up 30.25% or $893,000 for the three month period ended March 31, 2005, over the same period in 2004. This increase was related to the increase in interest bearing deposits and the increase in Federal Home Loan Bank advances.

The Company’s net interest margin was 4.64% for the three month period ended March 31, 2005 compared to 4.80% for the same period in 2004. 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.

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Other Income

Other income increased by $402,000 or 8.96% during the three month period ended March 31, 2005 as compared to the same period for 2004. This increase is primarily due to increased sales by Financial Supermarkets, Inc. (“FSI”), a nonbank subsidiary, of $326,000 or 24.26% for the three month period ended March 31, 2005 as compared to the same period in 2004. In addition, gain on sale of loans increase by $95,000 or 863.64% as compared to same period in 2004.

Non Interest Expenses

Non interest expenses increased by 7.72% or $725,000 for the three month period ending March 31, 2005 compared to the same period in 2004. Full time equivalent employees increased from 397 at the end of March 2004 to 429 at the end of March 2005. The increase in full time equivalent employees was due to the overall growth of the Company’s banking operations. In addition, the incentive commissions related to sales activity at FSI have increased due to increased sales over the previous year. These increases caused salaries and benefits to increase by 14.77% or $719,000 for the three month period ended March 31, 2005 as compared to the same period in 2004.

Also attributable to the overall growth of the Company, equipment and occupancy expenses were up by 17.64% or $236,000 for the three month period ending March 31, 2005 as compared to the same period in 2004.

Other operating expenses decreased by 7.22% or $230,000 for the three month period ending March 31, 2005 as compared to the same periods in 2004. The single largest item included in this decrease is attributed to the $447,000 expenses associated with the new carefree check program that was started in 2004. In addition, legal fees increased by $6,000 or 4.05% as compared to the same period in 2004 due to legal services related to past due loans and other real estate owned and the class action lawsuit described in Part II, Item 1 of this Quarterly Report. Advertising and marketing increased by $62,000 or 27.93%, as compared to the same period in 2004. This increase is attributed to the increased marketing and sales activity of FSI. Director and advisory director fees increased by 36,000 or 37.11% as of March 31, 2005, as compared to the same period in 2004. The Board of Directors added advisory directors for most of the counties that we have significant banking activity.

Income Taxes

We incurred income tax expenses of $826,000 which represents an effective rate of 29.01% for the three month period ended March 31, 2005 as compared to $544,000 which represents an effective tax rate of 24.00% for the same period in 2004. The effective rate increase is due to a larger percentage of our income being fully taxable as a result of our increased taxable income.

Liquidity

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.

B. Asset Quality

Provision for Loan Losses

The provision for loan losses was $713,000 and $1,129,000 for the first three months of 2005 and 2004 respectively. The reserve at March 31, 2005 represented 136% of non-accrual loans while the reserve at March 31, 2004 represented 184% of non-accrual loans. Non accrual loans have increased from $4,659,000 to $7,062,000, past due loans greater than 90 days and accruing interest have increased from $2,741,000 to $2,956,000 and net charge-offs have increased from $127,000 to $262,000 at March 31, 2004 and March 31, 2005, respectively. The increase in non-accrual loans was made up of six new lines, from which management expects no losses.

Repossessed real estate owned by the bank decreased 24.46% from $5,351,000 in March 2004 to $4,042,000 in March 2005. 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.

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, 2005, non-accrual loans and other real estate owned totaled approximately $11,104,000 as compared to $10,010,000 as of March 31, 2004. The ratio of the loan loss reserve balance to the total loan balance at March 31, 2005 was 1.46% as compared to 1.48% at March 31, 2004. As of March 31, 2005, management considered our allowance for loan losses adequate to cover any anticipated losses.

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Non-accrual, Past Due and Restructured Debt

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

	March 31, 2005
	Non-accrual Loans		Past Due 90 days Still accruing		Restructured Debt

Commercial Loans	$	732	$	440	$	248
Real Estate Loans		5,895		2,270		626
Consumer Loans		435		246		25
Total		7,062		2,956		899

	March 31, 2004
	Non-accrual Loans		Past Due 90 days Still accruing		Restructured Debt

Commercial Loans	$	544	$	157	$	14
Real Estate Loans		3,909		2,076		870
Consumer Loans		206		508		--
Total	$	4,659	$	2,741	$	884

The Bank’s policy is to discontinue the accrual of interest income when, in the opinion of management, collection of such interest becomes doubtful. This status is accorded such interest when (1) there is a significant deterioration in the financial condition of the borrower and full repayment of principal and interest is not expected and (2) the principal or interest is more than ninety days past due, unless the loan is both well-secured and in the process of collection. Accrual of interest on such loans is resumed, in management’s judgment, when the collection of interest and principal become probable. Loans classified for regulatory purposes as 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 and which causes management to have serious doubts as to the ability of such borrowers to comply with the loan repayment terms.

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Allowance for Loan Loss

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 2004.

		2005			2004
		(Dollars in Thousands)

Beginning Balance	$	9,170		$	7,561
Less Charge Offs: Commercial Loans		(32	)		(89	)
Real Estate Loans		(169	)		(4	)
Consumer Loans		(155	)		(159	)
		(356	)		(252	)
Plus Recoveries: Commercial Loans		10			45
Real Estate Loans		49			48
Consumer Loans		35			32
		94			125
Net Charge-offs		(262	)		(127	)
Provision for loan loss		713			1,129
Ending Balance	$	9,621		$	8,563

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.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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.

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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 of the banks’ 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 Directors.

At March 31, 2005, the Company’s cumulative interest rate sensitivity gap ratio for the next twelve months was 113% 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 2005 model reflects an increase of 3.89% in net interest income and a 5.25% decrease in market value equity for a 200 basis point increase in rates. The same model shows a 3.85% decrease in net interest income and a .72% decrease 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.

ITEM 4. CONTROLS & PROCEDURES

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.

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PART II - OTHER INFORMATION

ITEM 1. Legal Proceedings

The Company was named in a lawsuit in the Superior Court of Greene County, Georgia on May 18, 2004. The case was removed to the Middle District of Georgia in June 2004. The plaintiff in the case is seeking class action certification for owners of self-directed individual retirement accounts at the Company’s Georgia bank subsidiaries that included investments in securities issued by Stewart Finance Company, National Finance Company or D&E Acquisitions, Inc. These issuing companies are bankrupt and have defaulted on the securities. The plaintiff claims that the Company aided and abetted and conspired with the issuing companies in issuing unregistered securities, committing acts in violation of the Georgia racketeering statute and in committing common law fraud. Although the plaintiff has not made a specific claim for damages, he is claiming that the proposed class is entitled to the amount of the lost investment in the securities and treble and punitive damages. The Company has denied liability in this case and does not believe the case will have a material adverse effect on the Company.

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds

Issuer Purchases of Equity Securities in the quarter ended March 31, 2005:

Period	Total Number of Shares Purchased ⁽¹⁾		Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs

January 1-31		60	$	58.10
February 1-28		-		-
March 1-31		250		58.14
Total		310		58.13

___________________

⁽¹⁾ The shares purchased during the first quarter of 2005 were purchased as treasury stock.

ITEM 3. Defaults upon Senior Securities - None

ITEM 4. Submission of Matters to a vote of Security Holders - None

ITEM 5. Other Information - None

ITEM 6. 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.

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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, thereunto duly authorized.


	COMMUNITY BANKSHARES, INC.

DATE: May 13, 2005	By:	/s/ Harry L. Stephens
		Harry L. Stephens, Executive Vice President and Chief Financial Officer

COMMUNITY BANKSHARES INC /GA/ 10-Q