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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C.  20549
FORM 10-K

[X]  Annual Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934

For the Fiscal Year Ended December 31, 2003

[   ] Transition Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934

Commission File Number 33-81890

Registrant’s telephone number, including area code: (706) 778-2265

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

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

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.          Not applicable.  Registrant is not required to be registered under the Securities Exchange Act of 1934.

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 126-2 of the Act).  Yes___  No  X      

Aggregate market value of the voting stock held by non-affiliates of the Registrant as of June 28, 2003:  $ 46,260,869 (based upon approximate market value of $44.38/share, the latest sales price known to the Registrant for the Common Stock at such date, for which there is no established trading market).

As of March 29, 2004, 2,139,163 shares of Common Stock, par value $1.00 per share, were issued and outstanding.

PART 1

ITEM 1.                BUSINESS.

General

                Community Bankshares, Inc. (the “Company”) was organized under the laws of Georgia in 1980 and commenced operations in 1981.  The Company is a financial holding company registered with the Board of Governors of the Federal Reserve (the “Federal Reserve”).  All of the Company’s activities are currently conducted by or through its subsidiaries, Community Bank & Trust (“Community”), Community Bank & Trust-Alabama (“Community-Alabama”), and Community Bank & Trust-Troup (“Community-Troup”)  (collectively, the “Banks”) and the non-bank subsidiaries of Community, Financial Supermarkets, Inc. (“Financial Supermarkets”) and Financial Properties, Inc. (“Financial Properties”).  Financial information about the Company’s segments is in note 15 to its audited consolidated financial statements included in this annual report.

                All references herein to the Company include Community Bankshares, Inc., the Banks, Financial Supermarkets and Financial Properties unless the context indicates a different meaning.

Forward Looking Statements

                This Form 10-K, both in the Management’s Discussion and Analysis section and elsewhere, 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 discussions are reasonable, any of the assumptions could be inaccurate; 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; material unforeseen changes in the financial stability and liquidity of our credit customers; and other risks detailed in the Company’s filings with the Securities and Exchange Commission, all of which are difficult to predict and which may be beyond the Company’s control.  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.

Business Description of Banks

                General.  Each of the Banks is community-oriented and offers customary banking services such as consumer and commercial checking accounts, NOW accounts, savings accounts, certificates of deposit, lines of credit and money transfers.  Each Bank finances commercial and consumer transactions, makes secured and unsecured loans, and provides a variety of other banking services.

                Community operates eight traditional bank branches and twenty-two banking offices in supermarkets and Wal-Mart stores in nine northeast Georgia counties.  Its traditional branches are located in Habersham, Jackson, Hall, Rabun and White Counties.  Community-Troup has two traditional branches in Troup County, Georgia and three in-store offices in Troup and adjacent Muscogee County (Columbus).  Community-Alabama operates one traditional branch in Bulloch County, Alabama and two in-store locations in adjacent Montgomery County.

                Deposits.  Each Bank offers a full range of depository accounts and services to both consumers and businesses.  At December 31, 2003, our aggregate deposit base, totaling approximately $670.6 million, consisted of approximately $111.6 million in non-interest-bearing demand deposits (16.64% of total deposits), approximately $174 million in interest-bearing demand deposits (including money market accounts) (25.95% of total deposits), approximately $35.2 million in savings deposits (5.25% of total deposits), approximately $225.8 million in time deposits in amounts less than $100,000 (33.67% of total deposits), and approximately $124 million in time deposits of $100,000 or more (18.49% of total deposits).

                Loans.  Each Bank makes both secured and unsecured loans to individuals, firms and corporations, and both consumer and commercial lending operations include various types of credit for customers.  In addition, Community also operates a loan production officein Gainesville, Georgia.  The Gainesville loan production office originates loans guaranteed by the Small Business Administration (the “SBA”) and resells the guaranteed portion of such loans to others.  Each Bank also makes direct installment loans to consumers on both a secured and unsecured basis.  At December 31, 2003, consumer and other, real estate (including mortgage and construction loans) and commercial loans represented approximately 10.36%, 80.35% and 9.29% respectively, of our total loan portfolio.  Real estate loans made by the Banks include residential real estate, construction, acquisition and development loans, as well as loans for other purposes, which are secured by real estate.

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                Commercial lending is directed principally toward businesses within the market area of the Banks or existing or potential deposit customers of the Banks.  The Gainesville loan production office, however, makes loans to individuals and businesses that are not located in its market. Commercial loan collateral includes marketable securities, certificates of deposit, accounts receivable, inventory and equipment.  Commercial lending decisions are based upon a determination of the borrower’s ability and willingness to repay the loan, which in turn are impacted by such factors as the borrower’s cash flow and sales trends, as well as relevant economic conditions.  This category includes loans made to individuals, partnership or corporate borrowers and obtained for a variety of purposes.  Risks associated with these loans can be significant.  Risks include, but are not limited to, economic downturn in industry trends, deteriorated or non-existing collateral, fraud, bankruptcy and changes in interest rates.

                Loans secured by real estate, which are made to businesses, are categorized as real estate loans.  Often, real estate collateral is deemed to be superior to other collateral available to small- to medium-sized businesses. 

                The Banks originate traditional first mortgage loans, through an affiliation with a mortgage banking company, to individuals for one-to-four family structures.  They offer traditional mortgage loans with loan-to-value amounts up to 95%. 

                The Banks also offer nontraditional mortgage loans which they retain in their own loan portfolios.  Various types of fixed-rate and variable-rate products are available, with fixed rate loans generally limited to short-term balloon maturities.  Risks involved with residential mortgage lending include, but are not limited to, title defects, fraud, general real estate market deterioration, inaccurate appraisals, interest rate fluctuations and financial deterioration of the borrower.

                The Banks also make residential construction loans, generally for one-to-four family unit structures.  The Banks require a first lien position on the loans associated with construction projects.  Loan disbursements require independent, on-site inspections to assure the project is on budget and that the loan proceeds are being used in accordance with the plans, specifications, and survey for the construction project and not being diverted to other uses.  The loan-to-value limit for such loans is 85% of the as-built appraised value for homes built for sale and second homes and 90% for owner occupied primary residents.  Loans for built for sale construction can present a high degree of risk depending on, among other things, whether the builder can sell the home and the nature of changing economic conditions. 

                Additionally, the Banks make acquisition and development loans to approved developers for the purpose of developing acreage into single-family lots on which houses will be built.  The loan-to-value ratio for such loans does not exceed 85% of the developed value as defined by an independent appraisal, or 100% of the cost, whichever is less.  Loans for acquisition and development can present a high degree of risk to the Banks, depending upon, among other things, whether the developer can find buyers for the lots, whether the builders can obtain financing, and the nature of changing economic conditions.

                In addition, the Banks make consumer loans, consisting primarily of installment loans to individuals for personal, family and household purposes, including loans for automobiles and home improvements.  Consumer lending decisions are based on a determination of the borrower’s ability and willingness to repay the loan, which in turn are affected by such factors as the borrower’s income, job stability, previous credit history and any collateral for the loan.  Risks associated with these loans include, but are not limited to, deteriorated or non-existing collateral, a general economic downturn, bankruptcy, layoffs, fraud, and consumer financial problems.

                Lending Policy.  The current lending policy of each Bank is to offer consumer, real estate and commercial credit services to individuals and entities that meet our credit standards.  Each Bank provides its lending officers with written guidelines for lending activities.  Lending authority is delegated by the Board of Directors of the particular Bank to loan officers, each of whom is limited in the amount of secured and unsecured loans which he or she can make to a single borrower or related group of borrowers.  In addition, the Board of Directors delegates lending authority above individual loan officer limits to the Asset/Liability Committee.

                Loan Review and Non-Performing Assets.  The Company reviews the loan portfolio of each Bank to determine deficiencies and corrective action to be taken.   Senior lending officers at the Banks conduct periodic reviews of borrowers and ongoing reviews of all past due loans.  Past due loans are reviewed at least weekly by lending officers and a summary report is reviewed monthly by the particular Bank’s Board of Directors.  The Boards of Directors review all relationships for Community over $400,000 and samples below $400,000, for Community–Alabama over $150,000 and samples below $150,000 and for Community-Troup over $275,000 and samples below $275,000, whether current or past due, are reviewed by the respective Bank’s Board of Directors at least once annually.  In addition, each Bank maintains internal classifications of problem and potential problem loans.

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                Asset/Liability Management.  The Board of Directors of each Bank is charged with establishing policies to manage the assets and liabilities of each Bank.  Each Board’s task is to manage asset growth, net interest margin, liquidity and capital.  The Company directs the overall acquisition and allocation of funds based on these policies.  At monthly meetings, the asset/liability committees of the Banks comprised of senior officers of the respective Bank review a report with regard to the monthly asset and liability funds budget and income and expense budget of the Bank in relation to the actual composition and flow of funds, the ratio of the amount of rate-sensitive assets to the amount of rate-sensitive liabilities, the amount of interest rate risk and equity market value exposure under varying rate environments, the ratio of loan loss reserve to outstanding loans and other variables, such as expected loan demand, investment opportunities, core deposit growth within specified categories, regulatory changes, monetary policy adjustments and the overall condition of the local and state economy.

                Investment Policy.  Our investment portfolio policy is to maximize income consistent with liquidity, asset quality and regulatory constraints.  The policy is reviewed annually by the Board of Directors of each Bank.  Individual transactions, portfolio composition and performance are reviewed and approved monthly by the Board of Directors of each bank or a committee thereof.  The President of each Bank reports to the Bank’s full Board of Directors on a monthly basis information concerning sales, purchases, resultant gains or losses, average maturity, federal taxable equivalent yields and appreciation or depreciation by investment categories.

Business Description of Non-Banking Subsidiaries

                Financial Supermarkets.  Financial Supermarkets, formed as a Georgia corporation in 1984, is a wholly-owned subsidiary of Community.  Financial Supermarkets’ primary business is to provide various consulting and licensing services to financial institutions in connection with the establishment of turn-key bank branches in supermarkets and other retail locations.  These services are marketed to other financial institutions.  Financial Supermarkets enters into agreements primarily with major supermarket chains for the right to establish bank branches in particular sites.  Financial Supermarkets then licenses such rights, along with the right to operate the Supermarket Bank®, to individual financial institutions, in addition to providing consulting services to such institutions ranging from providing alternative construction designs to coordinating employee training.

                Since 1984, Financial Supermarkets has assisted clients with the development of over 650 bank facilities in supermarkets and other retail locations throughout the United States.  Over its 20-year history, Financial Supermarkets has expanded the scope of its business beyond supermarket bank consulting and development to include regulatory consulting for the financial services industry, marketing consulting, a travel agency, and owning an interest in a company designed to provide wholesale internet services.

                Financial Properties.  Financial Properties is the Century 21® real estate franchisee in Habersham, Stephens and Jackson Counties, Georgia. 

Competition

                The Banks.  The banking business is highly competitive.  The Banks compete with other banks, savings associations, finance companies, credit unions, governmental agencies, and other financial service organizations in the three markets in which the Banks operate.  Many of these competitors have substantially greater resources than do the Banks.

                Non-Banking Subsidiaries.  Financial Supermarkets primarily competes in the in-store bank branch consulting business with International Banking Technologies of Atlanta, Georgia, and Memphis-based National Commerce Bank Services, Inc.  Financial Properties competes with other real estate brokers in Habersham, Stephens and Jackson Counties, Georgia.

Employees

                At December 31, 2003, the Company had 367 full-time employees and 53 part-time employees.  Neither the Company nor any of its subsidiaries is a party to any collective bargaining agreement, and our management believes that the Company’s employee relations are good.

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Supervision and Regulation

                The following discussion of statutes and regulations affecting bank holding companies and banks is a summary thereof and is qualified in its entirety by reference to such statutes and regulations.  This explanation does not purport to describe state or federal supervision and regulation of general business corporations.

                 General.  The Company is a registered financial holding company subject to regulation by the Federal Reserve under the Bank Holding Company Act of 1956, as amended (the “Bank Holding Company Act”).  The Company is required to file financial information with the Federal Reserve periodically and is subject to periodic examination by the Federal Reserve.

                The Act requires every financial holding company to obtain the Federal Reserve’s prior approval before (1) it may acquire direct or indirect ownership or control of more than 5% of the voting shares of any bank that it does not already control; (2) it or any of its non-bank subsidiaries may acquire all or substantially all of the assets of a bank; and (3) it may merge or consolidate with any other bank holding company.  In addition, a financial holding company is generally prohibited from engaging in, or acquiring, direct or indirect control of the voting shares of any company engaged in non-banking activities.  This prohibition does not apply to activities listed in the Act or found by the Federal Reserve, by order or regulation, to be closely related to banking or managing or controlling banks as to be a proper incident thereto.  Some of the activities that the Federal Reserve has determined by regulation or order to be closely related to banking are:

• making or servicing loans and certain types of leases;

• performing certain data processing services;

• acting as fiduciary or investment or financial advisor;

• providing brokerage services;

• underwriting bank eligible securities;

• underwriting debt and equity securities on a limited basis through separately capitalized subsidiaries; and

• making investments in corporations or projects designed primarily to promote community welfare.

                Although the activities of bank holding companies have traditionally been limited to the business of banking and activities closely related or incidental to banking (as discussed above), the Gramm-Leach-Bliley Act became effective in 2000, and relaxed the previous limitations thus permitting bank holding companies to engage in a broader range of financial activities.  Specifically, bank holding companies may elect to become financial holding companies which may affiliate with securities firms and insurance companies and engage in other activities that are financial in nature.  Among the activities that will be deemed “financial in nature” include:

• lending, exchanging, transferring, investing for others or safeguarding money or securities;

• insuring, guaranteeing, or indemnifying against loss, harm, damage, illness, disability, or death, or providing and issuing annuities, and acting as principal, agent, or broker with respect thereto;

• providing financial, investment, or economic advisory services, including advising an investment company;

• issuing or selling instruments representing interests in pools of assets permissible for a bank to hold directly; and

• underwriting, dealing in or making a market in securities.

                A bank holding company may become a financial holding company under this statute only if each of its subsidiary banks is well capitalized, is well managed and has at least a satisfactory rating under the Community Reinvestment Act.  A bank holding company that falls out of compliance with such requirement may be required to cease engaging in certain activities.  Any bank holding company that does not elect to become a financial holding company remains subject to the current restrictions of the Act.

                Under this legislation, the Federal Reserve Board serves as the primary “umbrella” regulator of financial holding companies with supervisory authority over each parent company and limited authority over its subsidiaries.  The primary regulator of each subsidiary of a financial holding company will depend on the type of activity conducted by the subsidiary.  For example, broker-dealer subsidiaries will be regulated largely by securities regulators and insurance subsidiaries will be regulated largely by insurance authorities.

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                 The Company must also register with the Department of Banking and Finance of the State of Georgia (the “DBF”) and file periodic information with the DBF.  As part of such registration, the DBF requires information with respect to the Company’s financial condition, operations, management and inter-company relationships, and related matters.  The DBF may also require such other information as is necessary to keep itself informed as to whether the provisions of Georgia law and the regulations and orders issued thereunder by the DBF have been complied with, and the DBF may examine the Company and each of the Banks.

               The Company is an “affiliate” of the Banks under the Federal Reserve Act, which imposes certain restrictions on (1 ) loans by the Banks to the Company,  (2)  investments in the stock or securities of the Company by the Banks,  (3)  the Banks taking the stock or securities of an “affiliate” as collateral for loans by the Banks to a borrower and (4) the purchase of assets from the Company by the Banks.  Further, a bank holding company and its subsidiaries are prohibited from engaging in certain tie-in arrangements in connection with any extension of credit, lease or sale of property or furnishing of services.

                Community and Community-Troup, as Georgia banks, are subject to the supervision of, and are regularly examined by, the Federal Deposit Insurance Corporation (the “FDIC”) and the DBF.  Community-Alabama, as an Alabama bank, is subject to the supervision and examination of the FDIC and the Alabama State Banking Department (the “ABD”).  Both the FDIC and the DBF must grant prior approval of any merger, consolidation or other corporate reorganization involving Community or Community-Troup and the FDIC and ABD must grant prior approval of any merger, consolidation or other corporate reorganization involving Community-Alabama.  A bank can be held liable for any loss incurred by, or reasonably expected to be incurred by, the FDIC in connection with the default of a commonly-controlled institution. 

                Payment of Dividends.   The Company is a legal entity separate and distinct from the Banks.  A portion of the Company’s revenues result from dividends paid to the Company by the Banks.  There are statutory and regulatory requirements applicable to the payment of dividends by the Banks, as well as by the Company to the Company’s shareholders.   

                The Banks are each state-chartered banks regulated by the DBF or ABD, as applicable, and the FDIC.  Under the regulations of the DBF, dividends may not be declared out of the retained earnings of a Georgia bank without first obtaining the written permission of the DBF unless such bank meets all of the following requirements:

• Total classified assets as of the most recent examination of the bank do not exceed 80% of equity capital (as defined by regulation);

• The aggregate amount of dividends declared or anticipated to be declared in the calendar year does not exceed 50% of the net profits after taxes but before dividends for the previous calendar year; and

• The ratio of equity capital to adjusted assets is not less than 6%. 

                Under the regulations of the ABD, dividends may be declared by a state bank without obtaining the prior written approval of the ABD only if:

• the bank’s surplus (as defined by regulation) is equal to at least 20% of its capital (as defined by regulation) and 

• the aggregate of all dividends declared or anticipated to be declared in the calendar year does not exceed the total of its net earnings (as defined by regulation) of that year combined with its retained net earnings of the preceding two years, less any required transfers to surplus. 

                The payment of dividends by the Company and the Banks may also be affected or limited by other factors, such as the requirement to maintain adequate capital above regulatory guidelines.  In addition, if, in the opinion of the applicable regulatory authority, a bank under its jurisdiction is engaged in or is about to engage in an unsafe or unsound practice (which, depending upon the financial condition of the Banks, could include the payment of dividends) such authority may require, after notice and hearing, that such bank cease and desist from such practice.  The FDIC has issued a policy statement providing that insured banks should generally only pay dividends out of current operating earnings.  In addition to the formal statutes and regulations, regulatory authorities consider the adequacy of each of the Bank’s total capital in relation to its assets, deposits and other such items.  Capital adequacy considerations could further limit the availability of dividends to the Banks.  At December 31, 2003, retained earnings available from the Banks to pay dividends totaled approximately $4.0 million without regulatory approval.  For 2003, the Company’s cash dividend payout to shareholders was 10.2% of net income.

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                Monetary Policy.   The results of operations of the Banks are affected by credit policies of monetary authorities, particularly the Federal Reserve.  The instruments of monetary policy employed by the Federal Reserve include open market operations in U.S. government securities, changes in the discount rate on bank borrowings and changes in reserve requirements against bank deposits.  In view of changing conditions in the national economy and in the money markets, as well as the effect of actions by monetary and fiscal authorities, including the Federal Reserve, no prediction can be made as to possible future changes in interest rates, deposit levels, loan demand or the business and earnings of the Banks.

                Capital Adequacy.   The Federal Reserve and the FDIC have implemented substantially identical risk-based rules for assessing bank and bank holding company capital adequacy.  These regulations establish minimum capital standards in relation to assets and off-balance sheet exposures as adjusted for credit risk.  Banks and bank holding companies are required to have  (1) a minimum level of total capital (as defined) to risk-weighted assets of 8%; (2) a minimum Tier One Capital (as defined below) to risk-weighted assets of 4%; and  (3) a minimum stockholders’ equity to risk-weighted assets of 4%.  In addition, the Federal Reserve and the FDIC have established a minimum 3% leverage ratio of Tier One Capital to total assets for the most highly-rated banks and bank holding companies.  “Tier One Capital” generally consists of common equity not including unrecognized gains and losses on securities, minority interests in equity accounts of consolidated  subsidiaries and certain perpetual preferred stock less certain intangibles. The Federal Reserve and the FDIC use the leverage ratio in tandem with the risk-based ratio to assess the capital adequacy of banks and bank holding companies.  The FDIC, the Office of the Comptroller of the Currency (the “OCC”) and the Federal Reserve amended, effective January 1, 1997, the capital adequacy standards to provide for the consideration of interest rate risk in the overall determination of a bank’s capital ratio, requiring banks with greater interest rate risk to maintain adequate capital for the risk.  The revised standards have not had a significant effect on the Company’s capital requirements.

                In addition, Section 38 of the Federal Deposit Insurance Act implemented the prompt corrective action provisions that Congress enacted as a part of the Federal Deposit Insurance Corporation Improvement Act of 1991 (the “1991 Act”).  The “prompt corrective action” provisions set forth five regulatory zones in which all banks are placed largely based on their capital positions.  Regulators are permitted to take increasingly harsh action as a bank’s financial condition declines.  Regulators are also empowered to place in receivership or require the sale of a bank to another depository institution when a bank’s capital leverage ratio reaches 2%.  Better capitalized institutions are generally subject to less onerous regulation and supervision than banks with lesser amounts of capital.

                The FDIC has adopted regulations implementing the prompt corrective action provisions of the 1991 Act, which place financial institutions in the following five categories based upon capitalization ratios:    (1) A “well capitalized” institution has a total risk-based capital ratio of at least 10%, a Tier One risk-based ratio of at least 6% and a leverage ratio of at least 5%;  (2)  an “adequately capitalized” institution has a total risk-based capital ratio of at least 8%, a Tier One risk-based ratio of at least 4% and a leverage ratio of at least 4%;  (3) an “undercapitalized” institution has a total risk-based capital ratio of under 8%, a Tier One risk-based ratio of under 4% or a leverage ratio of under 4%;  (4) a “significantly undercapitalized” institution has a total risk-based capital ratio of under 6%, a Tier One risk-based ratio of under 3% or a leverage ratio of under 3%; and  (5) a “critically undercapitalized” institution has a leverage ratio of 2% or less.   Institutions in any of the three undercapitalized categories would be prohibited from declaring dividends or making capital distributions.  The FDIC regulations also establish procedures for “downgrading” an institution to a lower capital category based on supervisory factors other than capital.  Under the FDIC’s regulations, all of the Banks were “well capitalized” institutions at December 31, 2003.

                Set forth below are pertinent capital ratios for the Company and the Banks as of December 31, 2003.

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Available Information

                The Company is subject to the information requirements of the Securities Exchange Act of 1934, which means that it is required to file certain reports and other information, all of which are available at the Public Reference Section of the Securities and Exchange Commission at Room 1024, 450 Fifth Street, NW, Washington, D.C. 20549.  You may also obtain copies of the reports and other information from the Public Reference Section of the SEC, at prescribed rates, by calling 1-800-SEC-0330.  The SEC maintains a World Wide Web site on the Internet at www.sec.gov where you can access reports, information and registration statements, and other information regarding registrants that file electronically with the SEC through the EDGAR system.

                The Company’s Internet website address is www.communitybankshares.com.

ITEM 2.  PROPERTIES.

                Community’s main office is located at 448 North Main Street, Cornelia, Georgia and it has seven other full-service branches in Habersham, Jackson, Hall and White counties and thirteen branches in supermarkets and Wal-Mart Stores.  In addition, Community operates seven other branches in supermarkets and Wal-Mart Stores in adjacent counties.  Community-Troup’s main office is located at 201 Broad Street, LaGrange, Georgia it has and one full-service branch,, three branches in supermarkets and Wal-Mart stores and one loan production office in Columbus, Georgia.  Community-Alabama’s main office is located at 202 N. Powell Street, Union Springs, Alabama and it has two branches in supermarkets and Wal-Mart stores.

                Community owns the property occupied by the operations center and the trust department in Cornelia and leases the property occupied by the Loan Production Office in Gainesville and Winder, Georgia.  Financial Supermarkets owns its main office located in Cornelia, Georgia, and leases an office in Atlanta, Georgia.  Financial Properties leases office space in Jackson and Stephens Counties, Georgia.

ITEM 3.  LEGAL PROCEEDINGS.

                The Company and its subsidiaries periodically are parties to or otherwise involved in legal proceedings arising in the normal course of business, such as claims to enforce liens, claims involving the making and servicing of real property loans and other issues incident to their business. Management does not believe that there is any pending or threatened proceeding against the Company or its banking subsidiaries which, if determined adversely, would have a material effect on the business, results of operations, or financial position of the Company or its subsidiaries.

ITEM 4.                SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

                No matters were submitted to a vote of security holders of the Company during the fourth quarter of its fiscal year.

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PART II

ITEM 5.                    MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

                The common stock is not traded in any established public trading market.  At December 31, 2003, there were 463    holders of record of the common stock and 2,144,195 shares of common stock issued and outstanding.  The following table sets forth certain information regarding trades of the common stock known by management for the indicated periods.  Included in the information for 2003 is the Company’s purchase of 25,562 shares at a price of $44.38 per share.  Included in the information for 2002 is the Company’s purchase of 34,573 shares at a price of $41.32 per share.

                 The Company declared cash dividends of $.29, $.25 and $.21 per share in 2003, 2002 and 2001, respectively.  The Company intends to continue to pay cash dividends.  However, the amount and frequency of dividends will be determined by the Company’s Board of Directors in light of the earnings, capital requirements and the financial condition of the Company, and no assurances can be given that dividends will be paid in the future. The Company’s ability to pay dividends will also be dependent on cash dividends paid to it by the Banks.  The ability of the Banks to pay dividends to the Company is restricted by applicable regulatory requirements.  See “ITEM 1 -- BUSINESS -- Supervision and Regulation.”

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ITEM 6.                SELECTED FINANCIAL DATA

_________________________________________
(1)           Net income divided by average total assets.
(2)           Net income divided by average equity.
(3)           Dividends declared per share divided by basic earnings per share.
(4)           Average equity divided by average total assets.

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ITEM 7.                  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
                                OPERATION.

                The following is a discussion and analysis of the Company’s financial condition at December 31, 2003 and 2002 and the results of operations for the three-year period ended December 31, 2003.  The purpose of the discussion is to focus on information about the Company’s financial condition and results of operations which are not otherwise apparent from the audited consolidated financial statements included in this annual report.  This discussion and analysis should be read in conjunction with the consolidated financial statements and related notes and the selected financial information and statistical data presented elsewhere in this Annual Report.

                Overview.  Our principal asset is the ownership of our Banks.  Accordingly, we derive most of our income from interest we receive on our loans and investments.  Our primary source of funds for making these loans and investments is our deposits, on which we pay interest.  Consequently, one of the key measures of our success is our amount of net interest income, or the difference between the income on our interest-earning assets, such as loans and investments, and the expense on our interest-bearing liabilities, such as deposits.  Another key measure is the spread between the yield we earn on these interest-earning assets and the rate we pay on our interest-bearing liabilities. 

                We have included a number of tables to assist in our description of these measures.  For example, the “Average Balances” table shows the average balance during 2003, 2002 and 2001 of each category of our assets and liabilities, as well as the yield we earned or the rate we paid with respect to each category.  A review of this table shows that our loans typically provide higher interest yields than do other types of interest earning assets, which is why we intend to channel a substantial percentage of our earning assets into our loan portfolio.  Similarly, the “Rate/Volume Analysis” table helps demonstrate the impact of changing interest rates and changing volume of assets and liabilities during the years shown.  We also track the sensitivity of our various categories of assets and liabilities to changes in interest rates, and we have included a “Sensitivity Analysis Table” to help explain this.  Finally, we have included a number of tables that provide detail about our investment securities, our loans, and our deposits.

                Of course, there are risks inherent in all loans, so we maintain an allowance for loan losses to absorb possible losses on existing loans that may become uncollectible.  We establish and maintain this allowance by charging a provision for loan losses against our operating earnings.  In the following section we have included a detailed discussion of this process, as well as several tables describing our allowance for loan losses.

                In addition to earning interest on our loans and investments, we earn income through fees we charge to our customers.  Our non-bank subsidiary enhances our ability to generate non-interest income.  However, the income generated from Financial Supermarkets is more susceptible to economic conditions and not as predictable as income generated from our Banks.  We describe the various components of this non-interest income, as well as our non-interest expense, in the following discussion.

                The following discussion and analysis also identifies significant factors that have affected our financial position and operating results during the periods included in the accompanying financial statements.  We encourage you to read this discussion and analysis in conjunction with the financial statements and the related notes and the other statistical information also included in this report.

                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 of America 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 evaluationsof 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.

                Balance Sheet Review.  We experienced moderate growth during 2003.  For the year ended December 31, 2003, consolidated assets grew $65.9 million, or 9.42%, up from 2002 growth of $54 million or 8.36%.  During 2003, our average assets were $723.6 million, compared with $667.7 million during 2002.  This represents an 8.37% increase in average assets during 2003 compared with a 8.98 % increase during 2002.

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Average Balance Sheet and Net Interest Margin Analysis

                The following tables set forth the amount of the Company’s interest income and interest expense for each category of interest-earning assets and interest-bearing liabilities and the average interest rate for total interest-earning assets and total interest-bearing liabilities, net interest spread and net yield on average interest-earning assets.

_________________________
(1) Includes non-accrual loans of 3.18, 4.35, and 3.35 million for the years 2003, 2002 and 2001, respectively.
(2) Loans are net of unearned fees.
(3) Unrealized gains & losses are included in equity, net of taxes and includes redeemable preferred stock.

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                Our total earning assets, which include investment securities, loans, federal funds sold, and interest-bearing deposits in banks increased $63.2 million or 10.03% during 2003.  During 2002, earning assets increased $45.1 million, or 7.76% over 2001.  Average earning assets for 2003 were $659.6 million, an increase of 8.48% over average earning assets in 2002 which were $608 million or an increase of 9.52% over 2001.

                Our total investments decreased in 2003 by $1.3 million or .98% from 2002 because of year-end loan growth.  Average investments in 2003 were $125.2 million for 2003, a 5.43% increase over average investments for 2002.  The net increase occurred in the available for sale portfolio.  Our total investments increased in 2002 by $19.9 million or 18.27% over 2001.  Average investments in 2002 were $118.7 million in 2002, a 21.40% increase over average investments for 2001.

Types of Investments

                The carrying amounts of securities at the dates indicated are summarized as follows:

__________________________________________
(1)           Includes restricted equity securities.

                The Banks’ mortgage-backed portfolio consists of seventy-eight U.S. Government corporation collateralized mortgage obligations. The actual maturity of these securities will differ from the contractual maturity because borrowers on the underlying loans usually have the right to prepay obligations with or without prepayment penalties.  Decreases in interest rates will generally cause prepayments to increase while increases in the interest rates will have the opposite effect on prepayments. Prepayments of the underlying loans may shorten the life of the security, thereby adversely effecting the yield to maturity. In an increasing interest rate environment, the Banks may have an obligation yielding a return less than the current yields on securities.  However, because the majority of these mortgage-backed securities have adjustable rates, negative effects of changes in interest rates on earnings and carrying values of these securities are mitigated.

                At December 31, 2003, we had net unrealized gains of approximately $2.7 million in the securities available for sale portfolio as compared to net unrealized gains of approximately $3.3 million at December 31, 2002.  Net unrealized gains represent the difference in the amortized cost of those securities and the fair value at those dates and are included in shareholders’ equity, net of the tax effect. Management sells securities to meet liquidity needs and may sell securities in rising interest-rate environments to take advantage of higher returns in the long run.  In 2003, we sold $2.5 million of securities classified as available for sale, realizing net gains of $77,000.  In 2002, we sold $5.1 million of securities classified as available for sale, realizing net gains of $139,000.  The held to maturity securities portfolio included net unrealized gains of approximately $1.7 million at December 31, 2003 compared to net unrealized gains of $1.7 million at December 31, 2002.   Such gains are not recognized in income or equity until such securities are sold.  U.S. Treasury, other U.S. Government agencies and corporations and mortgage-backed securities, which provide reasonable returns with limited risk, represent 47.80% of the total portfolio.  The remaining portfolio is comprised of municipal securities, and equity securities, which provide, in general, higher returns on a tax equivalent basis, with greater risk elements.  

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Maturities of Investments

                The amounts of securities in each category as of December 31, 2003 are shown in the following table according to maturity classifications of one year or less, after one year through five years, after five years through ten years, and after ten years.

______________________

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Loans

                Our total loans grew by $54 million during 2003 for an increase of 11.00% over 2002.  Our total loans grew in 2002 by $35.6 million for an increase of 7.81% over 2001.  During 2003, average loans were $511.8 million or an increase of 8.97% over 2002 compared to an increase during 2002 of 7.63% over 2001 to $469.7 million.  The increase in loans is primarily the result of continued loan growth in our existing markets and expansion into new market.

Types of Loans

                The amounts of loans outstanding at the indicated dates are in the following table according to the type of loan.

______________________________________

(1)                Amounts are disclosed net of unearned loan income.
(2)                Commercial, financial and agricultural loans include loans held for sale in 2000 and 1999.  The Company had no
                    loans held for sale in 2003, 2002 or 2001.

                Loans outstanding as of December 31, 1999 have been reclassified to be consistent with the presentation adopted for the year ended December 31, 2003.

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Maturities And Sensitivities Of Loans To Changes In Interest Rates

                Total loans as of December 31, 2003 are shown in the following table according to maturity classifications one year or less, after one year through five years and after five years:

                The following table summarizes loans at December 31, 2003 with due dates after one year which have predetermined and floating or adjustable interest rates:

                Federal funds sold increased by $10.4 million or 113.04% from year-end 2002 to 2003.  Average federal funds for 2003 were $21.9 million or a 16.55% increase.  During 2002, average federal funds sold decreased by $1.4 million or 7% as compared to 2001.

Deposits

                The growth in total assets for the year ended December 31, 2003 was funded mainly by growth in deposits.  Consolidated deposits grew $63.2 million or 10.41% in 2003 as compared to $45.1 million or 8.03% in 2002.  Much of the increase in total deposits was concentrated in interest bearing and noninterest bearing demand deposits.  We experienced a 13.12% increase in average interest bearing demand deposits in 2003 with a 18.18% growth in average noninterest bearing demand, a 12.76% growth in average savings and a 3.96% increase in average time deposits.  During 2002, we experienced a 19.91% increase in interest-bearing demand deposits with a 13.98% increase in average noninterest bearing demand, a 20.02% increase in average savings and a 4.42% increase in average time deposits.

                We borrowed $5 million from Federal Home Loan Bank in 2002 to increase our total outstanding debt to $16.6 million.  The loan proceeds were used to fund loans.

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Deposits

                Average deposits and average rates paid thereon, classified as to noninterest-bearing demand deposits, interest-bearing demand and savings deposits and time deposits, for the years indicated are presented below.

                The amounts of time certificates of deposit issued in amounts of $100,000 or more as of December 31, 2003 are shown below by category, which is based on time remaining until maturity of (1) three months or less, (2) over three through six months, (3) over six through twelve months and (4) over twelve months.

Results of Operations

                Net Income.  Our net income for 2003 was $6 million, as compared to $8.1 million in 2002, a decrease of 25.06%.  The decrease in net income between 2003 and 2002 is primarily attributable to a decrease in non-interest income due primarily to a decrease in non-bank subsidiary income from Financial Supermarkets.  Our net income for 2002 was $8.1 million, as compared to $7.2 million in 2001, an increase of 13.22% from the prior year.  The increase in net income between 2002 and 2001 is primarily attributable to an increase in non-interest income and net interest income.

                Net Interest Income.  Our results of operations are influenced by management’s ability to effectively manage interest income and expense, to minimize loan and investment losses, to generate non-interest income and to control operating expenses.  Because interest rates are determined by market forces and economic conditions beyond our control, our ability to generate net interest income is dependent upon our ability to obtain an adequate net interest spread between the rate paid on interest-bearing liabilities and the rate earned on interest-earning assets.  Our net interest income increased by $3.2 million for the year ended December 31, 2003 compared to an increase of $1.7 million for the year ended December 31, 2002.  The rate earned on interest-earning assets decreased 57 basis points in 2003 from 2002 as compared to a 159 basis points decrease in 2002 from 2001, while the rate paid on interest earning liabilities decreased by 81 basis points in 2003 as compared to a decrease of 174 basis points in 2002.  The increase in average interest earning assets in 2003 of $51.5 million over 2002, net of the increase in average interest-bearing liabilities of $37.1 million, contributed to the 11.83% increase in net interest income in 2003 as compared to an increase in average interest-earning assets in 2002 of 52.8 million over 2001, net of interest-earning liabilities of $43.3 million, which contributed to a 6.82% increase in net interest income.  The net interest margin increased from 4.44% to 4.58% during the same period.  The increase in net interest income was primarily the result of the 2003 increase over 2002 of 24 basis points in net interest spread from 3.93% to 4.17% due to a larger decrease in the costs of funds without a comparable decrease in the yield on earning  assets as compared to a decrease in 2002 over 2001 of 15 basis points from 3.78% to 3.93%. 

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                The Company will continue to actively monitor and maintain the net interest spread to counteract the current market trends. 

Rate and Volume Analysis

                The following table describes the extent to which changes in interest rates and changes in volume of interest-earning assets and interest-bearing liabilities have affected the Company’s interest income and expense during the year indicated.  For each category of interest-earning assets and interest-bearing liabilities, information is provided on changes attributable to (1) change in volume (change in volume multiplied by old rate); (2) change in rate (change in rate multiplied by old volume); and (3) a combination of change in rate and change in volume.  The changes in interest income and interest expense attributable to both volume and rate have been allocated proportionately to the change due to volume and the change due to rate.

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                Provision for Loan Loss.  The provision for loan losses for the year ended December 31, 2003, decreased by $24,000 from $3,320,000 for 2002 to $3,296,000 for 2003.  In 2002, the provision increased $956,000 from the 2001 level of $2,364,000.  The provision for loan losses fluctuates based on loan volume and changes in credit quality.  During 2003 and 2002, the provision for loan losses was increased as compared to 2001 due to an increased level of charged-off loans.   Management maintains an allowance for loan losses based on the evaluation of potential problem loans as well as minimal reserves for all loans based on past net charge-off experience.  The guaranteed portions of loans generated by the loan production office are subsequently sold.  Because most loans retained by the loan production office consist of the portion of SBA loans that are not guaranteed and are out-of market, these loans require additional allowances due to the greater risk of loss in the event of default.  These loans, however, are subjected to the same underwriting standards and periodic loan review procedures as other loans made by the Banks.

Nonaccrual, Past Due And Restructured Loans

                Information with respect to nonaccrual past due and restructured loans at the indicated dates is as follows:

                The reduction in interest income associated with nonaccrual and renegotiated loans as of December 31, 2003 is as follows:

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                The Banks’ 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, or (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 when in management’s judgment 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 effect 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.

                Nonaccrual loans, delinquent loans greater than 90 days and restructured loans decreased $5 million at year end 2003 compared to a $2.3 million increase in 2002 and a $4.2 million increase in 2001.  Delinquent and nonaccrual loans fluctuate depending on economic conditions. Due to economic conditions, the Company experienced a deterioration in credit quality that resulted in an increase in nonaccrual loans in 2002 and increased charge-off of loans in 2003.  Management has reviewed these loans and determined that the likelihood of any significant loss of principal is mitigated due to the value of the collateral securing these loans.  The ratio of the allowance for loan losses to nonaccrual, delinquent and restructured loans increased from 80% at December 31, 2002 to 164% at December 31, 2003.

                The allowance for loan losses as a percentage of total loans outstanding at December 31, 2003, 2002 and 2001 was 1.39%, 1.58% and 1.46%, respectively.  Net charge-offs in 2003 were $3,477,000, an increase of  $1,247,000 from $2,230,000 in 2002, and the net charge-off ratio increased from .47% in 2002 to .68% in 2003.  Based on management’s evaluation of the loan portfolio, including a review of past loan losses, current conditions that may affect borrowers’ ability to repay and the underlying collateral value of the loans, management considers the allowance for loan losses to be adequate.

Allowance for Loan Loss

                The following table summarizes the balances of loans for each year; changes in the allowance for possible loan losses arising from loans charged off and recoveries on loans previously charged off; additions to the allowance which have been charged to operating expense; and the ratio of net charge-offs during the year to average loans.

                The provision for possible loan losses is created by direct charges to income. Losses on loans are charged against the allowance in the year in which such loans, in management’s opinion, become uncollectible. Recoveries during the year are credited to this allowance. The factors that influence management’s judgment in determining the amount charged to income are past loan loss experience, composition of the loan portfolio, evaluation of possible future losses, current economic conditions and other relevant factors.  The Company’s allowance for loan losses was $7.6 million at December 31, 2003, representing 1.39% of total loans, compared with $7.7 million at December 31, 2002, which represented 1.58% of total loans and $6.7 million at December 31, 2001 representing 1.46% of total loans. The allowance for loan losses is reviewed regularly based on management’s evaluation of current risk characteristics of the loan portfolio, as well as the impact of prevailing and expected economic business conditions. Management considers the allowance for loan losses adequate to cover possible loan losses at December 31, 2003.

                Historically, management has not allocated the Company’s allowance for loan losses to specific categories of loans. However, based on management’s best estimate and historical experience, the allocation of the allowance for loan losses for December 31, 2003, 2002, 2001, 2000 and 1999 is summarized below:

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Non-Interest Income

                Non-Interest Income. Non-interest income consists of income from operations of the Banks, Financial Properties and Financial Supermarkets.  Traditional non-interest income of the Banks accounted for 74.5%, or $9.1 million, of total non-interest income for 2003, 44.18%, or $8.4 million, in 2002, and 39.10%, or $6.9 million, in 2001.  The majority of the increase in non-interest income of the Banks is related to the continued growth in deposits.  Service charges on deposit accounts increased by $370,000, $713,000 and $997,000, respectively, for the years ended December 31, 2003, 2002 and 2001 as average demand deposit accounts increased 15.07% in 2003 compared to a 17.54% increase in 2002 and a 9.4% increase in 2001.  Included in non-interest income of the Banks are gains on sale of SBA loans recognized by Community of $297,000, $240,000 and $167,000 for 2003, 2002 and 2001, respectively.  This represents an increase from 2002 of $57,000 and an increase in 2002 from 2001 of $73,000.  Income associated with the sale of SBA loans fluctuates from year to year depending on loan demand.

                In 2003, non-interest income generated by other subsidiaries decreased by $7.5 million or 71% compared to 2002 and decreased by $240,000 or 2.22% in 2002 compared to 2001.  This was primarily driven by a decrease in installation of supermarket bank units by Financial Supermarkets during 2003 as compared to 2002.  This decrease was due to the termination of Financial Supermarkets’ agreement with Candadian Imperial Bank of Commerce ("CIBC") to establish banking pavilions in Florida.  In connection with that termination, Financial Supermarkets received a payment of $2 million in lieu of future income expectations, which was included in income in 2002.  Also during 2002, Financial Supermarkets received a $1 million payment for the release of the Safeway supermarket chain from its agreement with CIBC.

                Non-Interest Expense.  Non-interest expenses increased for the year ended December 31, 2003 by $73,000 compared to a $757,000 increase in 2002 and a $3.3 million increase in 2001.  This represented a .23% increase in expenses for 2003,  a 2.5% increase for 2002 and a 12.33% increase for 2001.  Salaries and benefits decreased $919,000 or 5.26% in 2003 over 2002 due primarily to the reduction of incentive pay for Financial Supermarkets employees.  This compares to an increase of $765,000 or 5.84% in 2002 over 2001, which was primarily due to the staffing of new locations and an increase in incentive pay at Financial Supermarkets.

                Equipment and occupancy expenses increased by a combined $274,000 or 5.82% in 2003 over 2002 and $143,000 or 3.13% in 2002 over 2001.  The increases are due to the increased number of facilities operated by the Banks as well as additions of computer equipment.  We operated 40, 38 and 35 locations at year-end 2003, 2002, and 2001, respectively.  During 2003, we opened a new loan production office in Hall County and branch in Rabun County, Georgia.

                Data processing, travel, office supply and other operating expenses, increased by a combined $718,000 in 2003 compared to an decrease of $353,000 in 2002 and an increase of $801,000 in 2001.  The primary reason for the increase in such expenses during 2003 is attributed to the change in our fee structure with our debit card provider and an increased effort in business development and marketing of our non-bank subsidiary as well as increased legal fees due to legal services related to past due loans and other real estate owned.  Such non-interest expenses increased during 2001 primarily due to growth of the banking subsidiaries, increased costs associated with day-to-day operations and increased activity of Financial Supermarkets.

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                Income Taxes.  We incurred income tax expenses of $1.8 million in 2003, which represented an effective tax rate of   22.50%, compared to tax expense of $3.3 million in 2002, or an effective tax rate of 29%.  This decrease in our effective tax rate is attributable to a reduction in state income taxes due to a reduced level of income at Financial Supermarkets.  Income tax expense increased $250,000 to $3.3 million in 2002.  The effective tax rate for 2001 was 30%.

                Liquidity.  The liquidity and capital resources of the Banks are monitored by management and on a periodic basis by state and federal regulatory authorities.  The individual Banks’ liquidity ratios at December 31, 2003 were considered satisfactory under their own guidelines as well as regulatory guidelines.  At that date, the Banks’ cash equivalents and short-term investments were adequate to cover any reasonably anticipated immediate need for funds.

                Our cash flows are of three major types.  Cash flows from operating activities consist primarily of interest and fees received on loans, interest received on securities, Federal funds sold, and interest bearing deposits less cash paid for interest and operating expenses.  Investing activities use cash for the purchase of interest-bearing deposits, securities, fixed assets and to fund loans.  Investing activities also generate cash from the proceeds of matured interest-bearing deposits, matured securities, sales of securities, loan repayments and principal prepayments of securities.  Cash flows from financing activities generate cash from a net increase in deposit accounts, increases in other borrowed funds and the issuance of common stock.  Financing activities use cash for the payment of cash dividends and the repayment of other borrowed funds.

                The purpose of liquidity management is to ensure that cash flow is sufficient to satisfy demands for credit, withdrawals, and other needs.  Traditional sources of liquidity include asset maturities and growth in deposits.  A company may achieve its desired liquidity objectives from the management of assets and liabilities, and through funds provided by operations.  Funds invested in short-term marketable instruments and the continuous maturing of other earning assets are sources of liquidity from the asset perspective.  Scheduled loan payments are a relatively stable source of funds, but loan payoffs are influenced by interest rates, general economic conditions and competition and may fluctuate significantly.  The liability base provides sources of liquidity through deposit growth and accessibility to market sources of funds.  Our markets have traditionally provided us with a growing and stable deposit base.  We attempt to price our deposits to meet our asset/liability, including liquidity, objectives consistent with local market conditions.  In addition, we have lines of credit available.  We believe our sources of liquidity are stable and reliable for the foreseeable future.

                Off-Balance Sheet Arrangements.  The Company is a party to credit related financial obligations with off-balance sheet risk in the normal course of business to meet the financing needs of its customers.  These financial obligations include commitments to extend credit and letters of credit. 

                A commitment to extend credit is an agreements to lend to a customer as long as there is no violation of any condition established in the contract.  Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee.  Since many of the commitments are expected to expire without being drawn upon, the commitments do not necessarily represent future cash requirements.  The Company evaluates each customer’s creditworthiness on a case‑by-case basis.  The amount of collateral obtained is based on management’s credit evaluation.  Collateral held varies, but may include accounts receivable, inventory, property, plant and equipment and income producing commercial properties.

                Letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party.  The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers.  These commitments are primarily issued to local businesses.

                The exposure to credit loss in the event of nonperformance by the other party to the commitments to extend credit and letters of credit is represented by the contractual amount of these instruments.  The Company uses the same credit underwriting procedures for making commitments and letters of credit as for on-balance-sheet instruments.  The Company evaluates each customer’s creditworthiness on a case-by-case basis and the amount of collateral, if deemed necessary, is based on the credit evaluation.  Collateral held varies, but may include unimproved and improved real estate, certificates of deposit, personal property or other acceptable collateral.  All of these obligations involve, to varying degrees, elements of credit risk in excess of the amount recognized in the balance sheet.  The total amounts of these obligations does not necessarily represent future cash requirements because a significant portion of these obligations often expire without being used.

                The amounts outstanding under these financial obligations are described below as “Other Commercial Commitments.”  We are not involved in off-balance sheet contractual relationships, other than those disclosed in this report, that could result in liquidity needs or other commitments or that could significantly impact earnings.

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                Contractual Obligations and Commercial Commitments.  The Banks in the normal course of business, commit to extend credit in the form of letters of credit or lines of credit. The amount of outstanding loan commitments and letters of credit at December 31, 2003, 2002 and 2001 were $56.8 million, $38.0 million and $35.6 million, respectively.  Commitments to extend credit generally have fixed expiration dates or other termination provisions and may require payment of a fee.  Since many of the commitments expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements.

                The following tables present the Company’s contractual obligations and commercial commitments as of December 31, 2003. 

___________________
(1)  Commitments to extend credit in the “4-5 years” and "over 5 years" category primarily represent home equity lines of credit which typically have a five year draw period.

                Concentrations of Credit Risk.  Concentrations of credit risk arise when a number of borrowers have similar economic characteristics that would cause their ability to meet contractual obligations to be similarly affected by changes in the economy or other conditions.  The Company’s loan portfolio consists primarily of commercial and real estate loans located in the geographic markets served by the Company, making the value of the portfolio susceptible to declines in real estate values and other changes in economic conditions in such markets.  The Company does not believe it has unreasonable exposure to any individual customer.

                Capital Resources.  At December 31, 2003, the Company and Banks’ capital ratios were considered adequate based on minimum capital requirements of the FDIC and applicable state regulatory agencies.  During 2003, the Company increased capital by retaining net earnings of $5.4 million compared to an increase in 2002 of $7.6 million and an increase in 2001 of $6.7 million.  In 2003 and 2002, the company purchased $1.1 and 1.4 million in treasury stock, respectively.

                For a tabular presentation of the Banks’ capital ratios at December 31, 2003, see “BUSINESS --SUPERVISION AND REGULATION”.

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

                Effects of Inflation.  Inflation impacts banks differently than non-financial institutions.  Banks, as financial intermediaries, have assets which are primarily monetary in nature and which tend to fluctuate with inflation.  A bank can reduce the impact of inflation by managing its rate sensitivity gap, which represents the difference between rate-sensitive assets and rate-sensitive liabilities.  We, through our asset-liability committee, attempt to structure the assets and liabilities and manage the rate-sensitivity gap, thereby seeking to minimize the potential effects of inflation.

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ITEM 7A.               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 possible changes in its 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 the Banks 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 Banks 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 do not require 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 Directors. 

                At December 31, 2003, the Company’s cumulative interest rate sensitivity gap ratio for the next twelve months was     97%, which was within its targeted range of  80% to 120%.

                The following table sets forth the distribution of the repricing of the Company’s earning assets and interest-bearing liabilities as of December 31, 2003, the interest rate sensitivity gap, the cumulative interest rate-sensitivity gap, the interest rate-sensitivity gap ratio and the cumulative interest rate-sensitivity gap ratio.  The table also sets forth the time periods in which earning assets and liabilities will mature or may reprice in accordance with their contractual terms.  However, the table does not necessarily indicate the impact of general interest rate movements on the net interest margin since the repricing of various categories of assets and liabilities is subject to competitive conditions and the needs of the Company’s customers.  In addition, various assets and liabilities indicated as repricing within the same period may in fact reprice at different times within such period and at different rates.

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Consolidated Gap Report

                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 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 December 2003 model reflects an increase of 2.88% in net interest income and a 14.06% decrease in market value equity for a 200 basis point increase in rates.  The same model shows a 4.07% decrease in net interest income and a 19.54% 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.

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ITEM 8.                FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                The financial statements and the report of independent accountants are included in this report beginning at page F-1.

ITEM 9.              CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
                            DISCLOSURE.

                During the Company’s two most recent fiscal years, the Company did not change accountants and had no disagreement with its accountants on any matters of accounting principles or practices or financial statement disclosure.

ITEM 9A.           CONTROLS AND 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) and pursuant to such evaluation, concluded that our disclosure controls and procedures are effective as of December 31, 2003.  Disclosure controls and procedures are those controls and procedures which ensure that information required to be disclosed in this filing is accumulated and communicated to management and is recorded, processed, summarized and reported in a timely manner and in accordance with Securities and Exchange Commission rules and regulations.

                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.

PART III

ITEM 10.                DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

                The following is a brief description, as of December 31, 2003, of the business experience of each of the directors and executive officers of the Company who, except as otherwise indicated, has been or was engaged in his or her present of last principal employment, in the same or a similar position, for more than five years:

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                Directors are elected at each annual meeting of shareholders and hold office until the next annual meeting and until their successors are elected and qualified.  The executive officers are elected by the Board of Directors and serve at the will of the Board.  There are no family relationships among executive officers and directors of the Company.

                The company is not subject to Section 16(a) of the Securities Exchange Act of 1934.

Code of Ethical Conduct

                The Company has adopted a Code of Ethical Conduct that applies to the Company’s principal executive officer, principal financial officer and principal accounting officer. A copy of our Code of Ethical Conduct is included as Exhibit 14 to this Form 10-K.

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ITEM 11.                EXECUTIVE COMPENSATION.

                The following table sets forth the annual and long-term compensation paid by the Company to the Chief Executive Officer of the Company and the four other most highly compensated officers of the Company whose salary and bonus exceeded $100,000 during the last fiscal year (the “Named Executive Officers”).

Summary Compensation Table