COMMUNITY BANKSHARES INC /GA/ - 10-K Annual Report

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

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

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.

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.

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.

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.

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.

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.

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.

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.

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.

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:

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:

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.

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:

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 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.

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.

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.

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.

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.

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

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.”

	Year Ended December 31,
	2003	2002	2001	2000	1999
	Dollars in Thousands, Except Per Share Amounts

Selected Statement Of Income Data:

Total interest income	$43,409	$43,488	$48,502	$47,039	$40,290

Total interest expense	13,228	16,501	23,240	22,303	17,697

Net interest income	30,181	26,987	25,262	24,736	22,593

Provision for loan losses	3,296	3,320	2,364	1,620	1,637

Nonbank subsidiary income	3,122	10,586	10,826	8,915	6,720

Other income	9,102	8,378	6,951	5,678	4,790

Other expenses	31,255	31,182	30,425	27,085	23,831

Net income	6,087	8,123	7,175	7,622	6,076

Earnings per share	2.83	3.73	3.29	3.50	2.80

Diluted earnings per share	2.83	3.72	3.26	3.46	2.80

Cash dividends per share	.29	.25	0.21	0.18	0.15

Selected Balance Sheet Data:

Total assets	$766,185	$700,246	$646,209	$590,323	$516,150

Total deposits	670,604	607,354	562,215	507,495	444,056

Other borrowings	16,153	16,665	12,070	10,844	16,054

Redeemable common stock held
by ESOP net of unearned ESOP shares related to ESOP debt	15,783	15,194	15,160	15,088	13,982

Shareholders’ equity	55,659	51,853	43,443	38,249	30,820

Return on assets (1)	.84%	1.22%	1.17%	1.40%	1.23%
Return on equity (2)	8.86%	13.06%	12.73%	16.45%	14.21%
Dividend payout ratio (3)	10.24%	6.70%	6.38%	5.14%	5.36%
Equity to assets ratio (4)	9.50%	9.32%	9.20%	8.48%	8.65%

_________________________________________
(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.

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.

Georgia		58-1415887
(State or other jurisdiction of		(I. R. S. Employer
Incorporation or organization)		Identification No.)

	Community	Community Alabama	Community Troup	The Company

Tier One Capital to Risk-based Assets	11.38%	14.48%	11.48%	12.03%

Total Capital to Risk-based Assets	12.63%	15.74%	12.73%	13.28%

Leverage Ratio (Tier One Capital to Average Assets)	8.50%	10.09%	8.60%	9.07%

	Number		Size of Trades		Price of Trades
Year	of Trades	Aggregate Shares	Smallest	Largest	Lowest	Highest
2003	29	30,660	23 shares	8,700 shares	$41.32	$44.38
2002	69	166,976	10 shares	25,143 shares	$41.00	$48.00