10-Q 1 comm630-10q.htm QUARTERLY REPORT

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549

FORM 10-Q

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

For the quarter period ended June 30, 2002

¨	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 August 7, 2002: 2,175,418

COMMUNITY BANKSHARES, INC. AND SUBSIDIARIES INDEX

		Page No.

PART I.	FINANCIAL INFORMATION	2

Item 1.	Financial Statements	2

	Consolidated Balance Sheets -
	June 30, 2002 and December 31, 2001	2

	Consolidated Statements of Income
	and Comprehensive Income for Three
	Months Ended June 30, 2002 and 2001
	and Six Months Ended June 30, 2002
	and 2001	3

	Consolidated Statements of Cash Flows -
	Six Months Ended June 30, 2002 and 2001	4

	Notes to Consolidated Financial Statements	5

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

PART II	OTHER INFORMATION

Item 4.	Submission of Matters to a Vote of Security Holders	16

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

	Signatures	17

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

COMMUNITY BANKSHARES, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 2002 AND DECEMBER 31, 2001
(Dollars in thousands)

		(Unaudited)
Assets		2002		2001


Cash and due from banks	$	37,512	$	37,182
Interest-bearing deposits in banks		308		410
Federal funds sold		13,510		16,360
Securities available-for-sale		94,482		77,901
Securities held-to-maturity (fair value $29,812 and $30,384)		28,432		29,602
Restricted equity securities		1,215		1,215

Loans		463,668		455,791
Less allowance for loan losses		6,868		6,652

Loans, net		456,800		449,139


Premises and equipment		15,356		15,879
Other assets		18,394		18,521


Total assets	$	666,009	$	646,209


Liabilities, Redeemable Common Stock and Shareholders' Equity

Deposits
Non-interest-bearing demand	$	83,024	$	81,174
Interest-bearing demand		131,777		131,034
Savings		30,425		26,500
Time, $100,000 and over		118,910		113,545
Other time		217,211		209,962

Total deposits		581,347		562,215

Other borrowings		11,958		12,070
Other liabilities		10,705		13,321

Total liabilities		604,010		587,606


Redeemable common stock held by ESOP, net of unearned ESOP shares related to ESOP debt guarantee of $1,550,000 at June 30, 2002 and December 31, 2001, respectively		14,844		15,160


Shareholders' equity
Common stock, par value $1; 5,000,000 shares authorized; 2,186,330 outstanding		2,186		2,186
Capital surplus		6,182		6,182
Retained earnings		38,354		35,071
Accumulated other comprehensive income, net of tax		884		4
Less 10,912 shares of Treasury stock at June 30, 2002		(451)		0

Total shareholders' equity		47,155		43,443


Total liabilities, redeemable common stock and shareholders' equity	$	666,009	$	646,209


See Notes to Consolidated Financial Statements.

COMMUNITY BANKSHARES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
AND COMPREHESIVE INCOME
THREE MONTHS ENDED JUNE 30, 2002 AND 2001 AND
SIX MONTHS ENDED JUNE 30, 2002 AND 2001
(Dollars in thousands, except per share amounts)
(Unaudited)

COMMUNITY BANKSHARES, INC.

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

AND COMPREHESIVE INCOME

THREE MONTHS ENDED JUNE 30, 2002 AND 2001 AND

SIX MONTHS ENDED JUNE 30, 2002 AND 2001

(Dollars in thousands, except per share amounts)

(Unaudited)

	Three Months Ended June 30,		Six Months Ended June 30,

	2002	2001	2002	2001


Interest income
Loans

9,307

10,872

18,703

21,811

Taxable securities

739

687

1,366

1,385

Nontaxable securities

742

628

1,439

1,221

Deposits in banks

Federal funds sold

107

228

211

448

Total interest income

10,898

12,422

21,725

24,879

Interest expense on deposits

Deposits

3,985

5,942

8,264

11,964

Other borrowings

169

163

337

327

Total interest expense

4,154

6,105

8,601

12,291

Net interest income

6,744

6,317

13,124

12,588

Provision for loan losses

524

394

1,053

800

Net interest income after
Provision for loan losses

6,220

5,923

12,071

11,788

Other income

Service charges on deposit accounts

1,326

1,096

2,491

2,065

Other service charges and fees

365

281

702

572

Gains on sale of loans

Nonbank subsidiary non-interest income

2,218

2,478

4,157

6,137

Security transactions, net

(6)

139

Other operating income

177

156

393

377

Total other income

4,113

4,022

7,929

9,214

Other expenses

Salaries and employee benefits

4,281

4,101

8,675

8,512

Equipment expense

796

841

1,565

1,642

Occupancy expense

450

445

903

872

Other operating expenses

2,165

2,254

4,375

4,803

Total other expenses

7,692

7,641

15,518

15,829

Income before income taxes

2,641

2,304

4,482

5,173

Income tax expense

768

649

1,253

1,551

Net income

1,873

1,655

3,229

3,622

Other comprehensive income:

Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising during Periods

1,184

(110)

963

357

Reclassification adjustment for (gains) losses realized in net
income

(83)

Total other comprehensive income (loss)

1,188

(110)

880

357

Comprehensive income

3,061

1,545

4,109

3,979

Basic earnings per common share

0.86

0.76

1.48

1.66

Diluted earnings per common share

0.85

0.75

1.47

1.64

Cash dividends per share of common stock

0.06

0.05

0.12

.10

See Notes to Consolidated Financial Statements.

COMMUNITY BANKSHARES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2002 AND 2001
(Dollars in thousands)
(Unaudited)

		2002		2001


OPERATING ACTIVITIES
Net income	$	3,229	$	3,622
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		1,616		1,657
Provision for loan losses		1,053		800
Deferred income taxes		449		(206)
Decrease in loans held for sale		0		585
Net (gains) losses on sale of securities		(139)		0
Net (gains) losses on sale of other real estate		34		14
Decrease in interest receivable		544		103
Increase (decrease) in interest payable		(1,091)		116
Increase (decrease) in taxes payable		93		(860)
Decrease in accounts receivable of nonbank subsidiary		559		737
Decrease in work in process of nonbank subsidiary		174		555
Decrease in accruals and payables of nonbank subsidiary		(1,107)		(4,384)
Other operating activities		(2,018)		(731)


Net cash provided by operating activities		3,396		2,008


INVESTING ACTIVITIES
Purchases of securities available-for-sale		(25,642)		(19,937)
Proceeds from sales of securities available for sale		5,119		---
Proceeds from maturities of securities available-for-sale		5,548		11,065
Proceeds from maturities of securities held-to-maturity		1,170		1,352
Net decrease in Federal funds sold		2,850		200
Net decrease in interest-bearing deposits in banks		101		27
Net increase in loans		(12,147)		(20,733)
Purchase of premises and equipment		(880)		(2,552)
Proceeds from sales of premises and equipment		8		---
Proceeds from sales of other real estate		2,500		433


Net cash used in investing activities		(21,373)		(30,145)


FINANCING ACTIVITIES
Net increase in deposits		19,132		19,793
Repayment of other borrowings		(112)		(112)
Proceeds for the exercise of stock options		0		30
Dividends paid		(262)		(218)
Purchase of treasury stock		(451)		0

Net cash provided by
Financing activities		18,307		19,493


Net increase (decrease) in cash and
Due from banks	$	330	$	(8,644)

Cash and due from banks at beginning of the period		37,182		38,410


Cash and due from banks at end of the period	$	37,512	$	29,766


SUPPLEMENTAL DISCLOSURES Cash paid for: Interest	$	9,693	$	12,175

Income taxes	$	1,291	$	2,657

NONCASH TRANSACTIONS Principal balance of loan transferred to other real estate	$	3,433	$	429

See Notes to Consolidated Financial Statements

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 our opinion, necessary for a fair statement of results for the interim periods.

The results of operations for the three and six month periods ending June 30, 2002 are not necessarily indicative of the results to be expected for the full year.

NOTE 2. RECENT DEVELOPMENTS

In July 2001, the Financial Accounting Standards Board (“FASB”) issued Statement No. 141 (SFAS No. 141), “Business Combinations” and Statement No. 142 (SFAS No. 142), “Goodwill and Other Intangible Assets”. SFAS No. 141 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001. SFAS No. 141 also specifies criteria that intangible assets acquired in a purchase method business combination must meet to be recognized and reported apart from goodwill. SFAS No. 142 requires that goodwill and intangible assets with indefinite useful lives no longer be amortized, but instead tested for impairment at least annually in accordance with the provisions of SFAS No. 142. The impact of this change has resulted in a reduction of amortization expense of $2,000 per quarter. Goodwill was evaluated prior to June 30, 2002 and it was determined no write-down because of impairment was warranted. SFAS No. 142 also requires that intangible assets with estimable useful lives be amortized over their respective estimated useful lives to their estimated residual values, and reviewed for impairment. SFAS No. 141 was effective July 1, 2001 while the provisions of SFAS No. 142 were adopted effective January 1, 2002.

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 June 30, 2002 ( Dollars and shares in Thousands, except per share amounts)
	Net Income (Numerator)	Weighted-Average Shares (Denominator)	Per Share Amount

Basic EPS	$1,873	2,185	$.86
Effect of Dilutive Securities Stock options	0	15	.01

Diluted EPS	$1,873	2,200	$.85



	Three Months Ended June 30, 2001 (Dollars and shares in Thousands, except per share amounts)
	Net Income (Numerator)	Weighted-Average Shares (Denominator)	Per Share Amount


Basic EPS	$1,655	2,182	$0.76
Effect of Dilutive Securities Stock options	0	22	.01

Diluted EPS	$1,655	2,204	$0.75


	Six Months Ended June 30, 2002 ( Dollars and shares in Thousands, except per share amounts)
	Net Income (Numerator)	Weighted-Average Shares (Denominator)	Per Share Amount

Basic EPS	$3,229	2,186	$1.48
Effect of Dilutive Securities Stock options	0	15	.01

Diluted EPS	$3,229	2,201	$1.47

	Six Months Ended June 30, 2001 (Dollars and shares in Thousands, except per share amounts)
	Net Income (Numerator)	Weighted-Average Shares (Denominator)	Per Share Amount



Basic EPS	$3,622	2,182	$1.66
Effect of Dilutive Securities Stock options	0	22	.02

Diluted EPS	$3,622	2,204	$1.64

NOTE 4 SEGMENT INFORMATION

Selected segment information by industry segment for the three and six month periods ended June 30, 2002 and 2001 is as follows:

	Reportable Segments (Dollars in thousands)

For the three month period ended June 30, 2002		Banking		Financial Supermarkets		All Other		Total


Revenue from external customers		$	12,798	$	2,228	$	131	$	15,157
Intersegment revenues (expenses)			(112)		210		548		646
Segment profit (loss)			1,661		577		(341)		1,897
Segment assets			668,076		15,672		5,882		689,630

	Reportable Segments (Dollars in thousands)

For the three month period ended June 30, 2001		Banking		Financial Supermarkets		All Other		Total


Revenue from external customers		$	14,114	$	2,345	$	124	$	16,583
Intersegment revenues (expenses)			(232)		381		478		627
Segment profit (loss)			1,322		743		(356)		1,709
Segment assets			613,708		22,690		2,918		639,316

	Reportable Segments (Dollars in thousands)

For the six month period ended June 30, 2002		Banking		Financial Supermarkets		All Other		Total


Revenue from external customers		$	25,510	$	4,204	$	248	$	29,962
Intersegment revenues (expenses)			(243)		438		1,096		1,291
Segment profit (loss)			3,098		858		(678)		3,278
Segment assets			668,076		15,672		5,882		689,630

	Reportable Segments (Dollars in thousands)

For the six month period ended June 30, 2001		Banking		Financial Supermarkets		All Other		Total


Revenue from external customers		$	28,158	$	5,934	$	275	$	34,367
Intersegment revenues (expenses)			(452)		651		961		1,160
Segment profit (loss)			2,503		1,833		(646)		3,690
Segment assets			613,708		22,690		2,918		639,316

		For the three months Ended June 30,				For the six months Ended June 30,

		2002		2001		2002		2001


Net Income
Total profit for reportable segments	$	2,238	$	2,065	$	3,956	$	4,336
Non-reportable segment loss		(341)		(356)		(678)		(646)
Elimination of intersegment (gains) losses		(24)	$	(54)		(49)		(68)
Total consolidated other income	$	1,873		1,655	$	3,229	$	3,622

Total Assets		2002
Total assets for reportable segments	$	683,748
Non-reportable segment assets		5,882
Elimination of intersegment assets		(23,621)

Total consolidated assets	$	666,009

COMMUNITY BANKSHARES, INC.
AND SUBSIDIARIES

Item 2.

MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

Forward Looking Statements

The following appears in accordance with the Securities Litigation Reform Act. These financial statements and discussion and analysis include forward looking statements that involve inherent risks and uncertainties. A number of important factors could cause actual results to differ materially from those in the forward looking statements. Those factors include fluctuations in interest rates, inflation, government regulations, economic conditions, and competition in the geographic business areas in which we conduct operations.

The terrorist attacks that occurred in New York City and Washington D.C. on September 11, 2001, and the United States’ subsequent response to these events have resulted in a general economic slowdown that may adversely effect our banking business. Economic slowdowns or recessions in our primary market areas may be accompanied by reduced demand for credit, decreasing interest margins and declining real estate values, which may in turn result in a decrease in net earnings and an increased possibility of potential loan losses in the event of default. Any sustained period of decreased economic activity, increased delinquencies, foreclosures or losses could limit our growth and negatively affect our results of operations. We cannot predict the extent, duration of these events or effect upon our business and operations. We will, however, closely monitor the effect of these events upon our business, and make adjustments to our business strategy as deemed necessary.

Management’s Discussion and Analysis

The following is management’s discussion and analysis of certain significant factors which have affected our financial position and operating results during the periods included in the accompanying consolidated financial statements.

Financial Condition

As of June 30, 2002, we continue to experience moderate growth in total assets, total loans and total deposits as compared to December 31, 2001. Total assets, loans, and deposits increased by 5.06%, 1.73% and 3.40% respectively. The growth in all areas except for loans is slightly less than the same period last year but 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.

Liquidity

As of June 30, 2002, the liquidity ratio was 21.79% which is within our target range of 20 - 25%. The banks have 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.

Interest Rate Risk

Our overall interest rate risk was less than 3% of net interest income subjected to rising and falling rates of 200 basis points. We have positioned ourselves to minimize the affect of 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 June 30, 2002, the Company’s and banks' capital ratios were considered well capitalized based on regulatory minimum capital requirements. The minimum capital requirements and the actual capital ratios for the Company at June 30, 2002 were as follows:

	Actual	Regulatory Minimum

Leverage	8.85%	4.00%
Risked Based Capital ratios:
Core Capital	12.13%	4.00%
Total Capital	13.38%	8.00%

Results of Operation

Net interest income for the six month period ended June 30, 2002 is up 4.26% over the same period for 2001, from $12,588,000 to $13,124,000 and is up 6.76% for the three month period ending June 30, 2002 from $6,317,000 to $6,744,000 for 2002. Interest income was down by 12.68% for the six month period ending June 30, 2002 from $24,879,000 to $21,725,000 and down 12.27% for the three month period ending June 30, 2002 from $12,422,000 to $10,898,000. The decrease in interest income is the net effect of a decrease in the average prime rate of over 3% from the level of the same period one year ago and an increase in earning assets of $50,882,000 from June 2001 to June 2002. This represents a 9.24% increase in earning assets and includes a 23.66% increase in investments of $23,751,000 and a 5.86% increase in total loans amounting to $25,665,000 for the 12 month period. Interest expense was down 30.02% or $3,690,000 for the six month period ended June 30, 2002, over the same period in 2001 and down 31.95% or $1,951,000 for the three month period ending June 30, 2002, as compared to 2001. These decreases were related directly to the lower rate environment. The Company’s net interest margin was 4.43% for the six month period ended June 30,2002 compared to 4.74% for the same period in 2001. 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.

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: (1) Risk in our watch list of loans and past due ratios and (2) Percentage of classified loans. We then compare results to reserve balances to assure all identified risk are covered.

The following table furnishes information on the loan loss reserve for the current six month reporting period and the same period for 2001.

	2002	2001

Beginning Balance	$ 6,652	$ 6,306

Less Charge Offs:
Commercial Loans	(93)	(41)
Real Estate Loans	(368)	(115)
Consumer Loans	(468)	(540)

	(929)	(696)

Plus Recoveries
Commercial Loans	1	14
Real Estate Loans	5	7
Consumer Loans	86	39

	92	60

Net Charge-offs	(837)	(636)

Provision for loan loss	1,053	800

Ending Balance	$ 6,868	$ 6,470

The majority of the real estate loan charge-offs for 2002 related to one loan and does not represent a general decline in the real estate portfolio. The provision for loan losses for the six month period ended June 30, 2002 represented 113% of charge-offs for the same period, while the provision for the first six months of 2001 represented 115% of the charge offs recorded in that period. The reserve at June 30, 2002 represented 214% of non-accrual loans while the reserve at June 30, 2001 represented 193% of non-accrual loans. Non-accrual loans have decreased from $3,355,000 at June 30, 2001 to $3,202,000 as of June 30, 2002. Past due loans greater than 90 days and accruing interest have decreased from $3,154,000 in 2001 to $1,199,000 in 2002. The level of non-accrual loans is indicative of the overall state of the economy. Our net charged-off loans to total loan ratio was .18% for the six month period ended June 30, 2002 compared to .15% for the same period in 2001. 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. We are currently within our guideline of maintaining a loan loss reserve of 200% of non-performing assets. The loan loss reserve balance to total loan ratio at June 30, 2002 was 1.48% as compared to 1.48% at June 30, 2001. Management considered the loan loss reserve to be adequate to absorb any anticipated losses that may be incurred.

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

June 30, 2002
		Non-accrual Loans	Past Due 90 days still accruing	Restructured Debt


	Commercial Loans	$ 346	$ 276	$ 134
	Real Estate Loans	2,378	662	973
	Consumer Loans	478	261	58

	Total	$ 3,202	$ 1,199	$ 1,165

June 30, 2001
		Non-accrual Loans	Past Due 90 days still accruing	Restructured Debt


	Commercial Loans	$ 195	$ 209	$ 10
	Real Estate Loans	2,810	2,516	668
	Consumer Loans	350	429	62

	Total	$ 3,355	$ 1,199	$ 730

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 serious doubts as to the ability of such borrowers to comply with the loan payment terms.

The banks place loans on non-accrual at such a time it is apparent that the collection of principal and interest is questionable and the loan is either past due 90 days or bankruptcy has been filed.

Other income decreased by 13.95% or $1,285,000 during the six month period ended June 30, 2002 as compared to the same period for 2001 and the three month period ending June 30, 2002 showed a 2.26% or $91,000 increase over the same three month period of 2001. This decrease for the six month period is primarily due to the decrease in activity associated with an agreement between Financial Supermarkets, Inc. (FSI), a nonbank subsidiary, and the Canadian Imperial Bank of Commerce (“CIBC”) to establish banking pavilions in Florida. Due to slowing economic conditions, management anticipates fewer sales of supermarket bank units and thus anticipates a decline in revenue during 2002 as compared to 2001. Service charges on deposit accounts increased by $426,000 or 20.63% for the six month period ended June 30, 2002, and increased $230,000 or 20.99% for the three month period ended June 30, 2002, as compared to the same periods in 2001. During the last two quarters of 2001, the banks started charging a daily overdraft fee on accounts that are overdrawn more than one day. During the six and three month periods ended June 30, 2002, these fees totaled $318,000 and $169,000 respectively. Non-sufficient funds (NSF) charges increased $69,000 and $38,000 for the six month period and the three month period ended June 30, 2002, respectively, compared to the same period in 2001. NSF charges increased primarily as a result of our continued growth in accounts in the totally free checking program.

Other expenses decreased by 1.97% or $311,000 for the six month period ended June 30, 2002, but increased 0.67% or $51,000 for the three month period ending June 30, 2002 as compared to the same periods in 2001. Salaries and benefits increased by $163,000 or 1.92% during the six month period ended June 30, 2002 compared to the same period in 2001. Full time equivalent employees was 378 at the end of June 2001 and June 2002. Other operating expenses reflected a reduction of 8.91% or $428,000 for the six month period ending June 30, 2002 when compared to the six month period ended June 30, 2001 and a 3.9% decrease for the three month period ending June 30, 2002 compared to the same period in 2001. In other operating expenses, travel expenses decreased 33.41% or $278,000 for the six month period ended June 30, 2002, and 30.81% or $114,000 for the three month period ended June 30, 2002. These decreases are due to a slow down in non-bank subsidiary travel during the first half of 2002. In addition, legal fees decreased by 51.15% or $89,000 for the six month period ended June 30, 2002 and 32.35% or $22,000.00 for the three month period ended June 30, 2002 when compared to the same periods in 2001.

We incurred income tax expenses of $768,000 which represents an effective rate of 29% for the three month period ended June 30, 2002 as compared to $649,000 which represents an effective tax rate of 28% for the same period in 2001. In addition, we incurred income tax expenses of $1,253,000 which represents an effective rate of 28% for the six month period ended June 30, 2002 as compared to $1,551,000 which represents an effective tax rate of 30% for the same period in 2001.

Net income for the six month period ended June 30, 2002, was $3,229,000 or a decrease of 10.85% and for the three month period ended June 30, 2002, was $1,873,000 or an increase of 13.17% over the same periods for 2001. Our income fluctuated due to the timing of supermarket bank installations.Management does not anticipate meeting its original budgeted projections and management cannot guarantee an overall increase in earnings in 2002 compared to 2001 due to the variation in the number of supermarket bank installations from year to year.

We are not aware of any other known trends, events or uncertainties, other than the effect of events as described above, 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.

PART II - OTHER INFORMATION

ITEM 4. Submission of Matters to a Vote of Security Holders.

The Annual Meeting of the Shareholders of the Company was held on April 10, 2002. Total shares outstanding amounted to 2,186,330. A total of 1,759,535 (80.48%) were represented by shareholders in attendance or by proxy. The following directors were re-elected to serve for a one-year term. The results of the election were as follows:

	Shares Voted:
	For	Against	Abstain

Steven C. Adams	1,759,535	0	0
Edwin B. Burr	1,759,535	0	0
H. Calvin Stovall, Jr.	1,759,535	0	0
Dean C. Swanson	1,759,535	0	0
George D. Telford	1,759,535	0	0
Dr. A. Dan Windham	1,759,535	0	0
J. Alton Wingate	1,759,535	0	0
Lois M. Wood-Schroyer	1,759,535	0	0

ITEM 6. Exhibits and Reports on Form 8-K

(a) Exhibits

Exhibit 99 Certification Pursuant to 18 U.S.C. Section 1350

(b) Reports on Form 8-K

None

SIGNATURES

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

	COMMUNITY BANKSHARES, INC.

DATE: August 9, 2002	By:	/s/ Harry L. Stephens
		Harry L. Stephens, Executive Vice President and Chief Financial Officer

COMMUNITY BANKSHARES INC /GA/ 10-Q