SECURITIES AND EXCHANGE COMMISSION
                         Washington, D.C.  20549
                         -----------------------

                              FORM 10-KSB
                         -----------------------

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

                 For the Fiscal Year Ended December 31, 2001
               ------------------------------------------------

                       Commission File Number 0-22517

                         COMMUNITY BANCSHARES, INC.

                        A North Carolina Corporation
                 (IRS Employer Identification No. 56-1693841)
                   1301 Westwood Lane -- Westfield Village
                      Wilkesboro, North Carolina  28697
                              (336) 838-4100
              ------------------------------------------------

               Securities Registered Pursuant to Section 12(b)
                   of the Securities Exchange Act of 1934:

                                    None
              ------------------------------------------------

               Securities Registered Pursuant to Section 12(g)
                  of the Securities Exchange Act of 1934:

                        Common Stock, $3.00 par value
              ------------------------------------------------

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
                                           -----        -----

Check if disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, 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-KSB or any
amendment to this Form 10-KSB.  [X]

Revenue for the fiscal year ended December 31, 2001:  $10,091,784
                                                      -----------

The aggregate market value of the Common Stock of the Registrant held by
nonaffiliates of the Registrant (646,059 shares) on March 29, 2002, was
approximately $6,777,159.  As of such date, no organized trading market
existed for the Common Stock of the registrant.  The aggregate market value
was computed by reference to the book value of the Common Stock of the
Registrant as of December 31, 2001 ($10.49 per share).  For the purposes
of this response, directors, officers and holders of 5% or more of the
Registrant's Common Stock are considered the affiliates of the Registrant at
that date.

The number of shares outstanding of the Registrant's Common Stock, as of
March 29, 2002: 1,622,302 shares of $3.00 par value Common Stock.

                     DOCUMENTS INCORPORATED BY REFERENCE
              ------------------------------------------------

Portions of the Registrant's definitive proxy statement to be delivered to
shareholders in connection with the Annual Meeting of Shareholders scheduled
to be held on May 31, 2002 are incorporated by reference to Items 9, 10, 11
and 12 of this Report.

Transitional Small Business Disclosure Format (check one)
                       Yes           No    X
                            -----        -----


              SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES
                      LITIGATION REFORM ACT OF 1995

     Certain statements in this Annual Report on Form 10-KSB contain
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995, which statements generally can be identified
by the use of forward-looking terminology, such as "may," "will," "expect,"
"estimate," "anticipate," "believe," "target," "plan," "project," or
"continue" or the negatives thereof or other variations thereon or similar
terminology, and are made on the basis of management's plans and current
analyses of the Company, its business and the industry as a whole.  These
forward-looking statements are subject to risks and uncertainties, including,
but not limited to, economic conditions, competition, interest rate
sensitivity and exposure to regulatory and legislative changes.  The above
factors, in some cases, have affected, and in the future could affect, the
Company's financial performance and could cause actual results for fiscal
2002 and beyond to differ materially from those expressed or implied in such
forward-looking statements.  The Company does not undertake to publicly
update or revise its forward-looking statements even if experience or future
changes make it clear that any projected results expressed or implied therein
will not be realized.



                                  PART I

ITEM 1.  DESCRIPTION OF BUSINESS.
---------------------------------

GENERAL

     Community Bancshares, Inc. (the "Company") is a registered bank holding
company under the federal Bank Holding Company Act of 1956, as amended, and
owns 100% of the outstanding capital stock of Northwestern National Bank,
Wilkesboro, North Carolina (the "Bank").  The Company was incorporated under
the laws of the State of North Carolina on June 11, 1990 as a mechanism to
enhance the Bank's ability to serve its future customers' requirements for
financial services.  The holding company structure provides flexibility for
expansion of the Company's banking business through acquisition of other
financial institutions and the provision of additional banking-related
services which the traditional commercial bank may not provide under present
laws.

     The Bank commenced operations on January 17, 1992 in a permanent
facility located at 1600 Curtis Bridge Road in Wilkesboro, North Carolina.
The Bank opened full-service branches in North Wilkesboro in June 1994, in
Millers Creek in February 1996, and in Taylorsville in August 1997.  During
2001, the Bank opened three loan production offices: (i) West Jefferson,
North Carolina (March 2001), (ii) Boone, North Carolina (October 2001) and
(iii) Lenoir, North Carolina (December 2001).  The OCC has granted approval
for the Bank to open a full-service branch in each of these locations.  The
Bank intends to open full service branches at the West Jefferson and Boone
locations in the second quarter of 2002.  Management has not, to date,
determined if it will open a full service branch at the Lenoir location.

     The Bank is a full-service commercial bank, without trust powers.  The
Bank offers a full range of interest bearing and non-interest bearing
accounts, including commercial and retail checking accounts, money market
accounts, individual retirement accounts, regular interest bearing statement
savings accounts, certificates of deposit, commercial loans, real estate
loans, home equity loans and consumer/installment loans.  In addition, the
Bank provides such consumer services as U.S. Savings Bonds, travelers checks,
cashier's checks, safe deposit boxes, bank by mail services, direct deposit
and automatic teller services.

     The Company's operations include two primary business segments - banking
and mortgage activities.  The Company, through the Bank, provides traditional
banking services, including a full range of commercial and consumer banking
services.  Through its Community Mortgage Corporation subsidiary, the Company
provides mortgage services, including the origination and sale of mortgage
loans to various investors, including other financial institutions.  See Note
19 to the Company's consolidated financial statements for certain financial
information relating to these two segments.


MARKET AREA AND COMPETITION

     The primary service area for the Bank encompasses approximately 756
square miles in Wilkes County, North Carolina.  Located in the Yadkin Valley
on the eastern slope of the Blue Ridge Mountains, Wilkes County has a
population of approximately 60,000.  The largest employers in Wilkes County
include Tyson Food Service, Inc. (poultry processing), Lowe's Companies, Inc.
(home improvement retailer), and Wilkes Regional Medical Center (healthcare).

     Competition among financial institutions in this area is intense.  There
are 18 banking offices and one savings and loan association office within the
primary service area of the Bank.  Most of these offices are branches of or
are affiliated with major bank holding companies.  Financial institutions
primarily compete with one another for deposits.  In turn, a bank's deposit
base directly affects such bank's loan activities and general growth.
Primary methods of competition include interest rates on deposits and loans,
service charges on deposit accounts and the designing of unique financial
services products.  The Bank is competing with financial institutions which
have much greater financial resources than the Bank, and which may be able to
offer more and unique services and possibly better terms to their customers.
However, management of the Bank believes that the Bank will be able to
attract sufficient deposits to enable the Bank to compete effectively with
other area financial institutions.  According to FDIC estimates, as of June
30, 2001, deposits at the Bank represented approximately 14% of total
deposits of financial institutions in the Bank's primary service area.  This
compares with a market share of approximately 13.7% at June 30, 2000 and
14.1% at June 30, 1999.

     The Bank is in competition with existing area financial institutions
other than commercial banks and savings and loan associations, including
insurance companies, consumer finance companies, brokerage houses, credit
unions and other business entities which have been invading the traditional
banking markets.  Due to the growth of Wilkes County, it is anticipated that
additional competition will continue from new entrants to the market.


DISTRIBUTION OF ASSETS, LIABILITIES AND STOCKHOLDERS' EQUITY; INTEREST
RATES AND INTEREST

     The following is a presentation of the average consolidated balance
sheet of the Company for the years ended December 31, 2001 and 2000.  This
presentation includes all major categories of interest-earning assets and
interest-bearing liabilities:

                       AVERAGE CONSOLIDATED ASSETS
                             (In thousands)

                                                Years Ended December 31,
                                                ------------------------
                                                   2001          2000
                                                   ----          ----
Cash and due from banks                         $   3,133     $   3,289
                                                ---------     ---------
Deposits with other banks                           1,256         2,288
Taxable securities                                 32,003        26,661
Non-taxable securities                              2,538         2,560
Federal funds sold                                  1,473         2,478
Net loans                                          78,999        73,280
                                                ---------     ---------
   Total earning assets                           116,269       107,267
Other assets                                        3,164         3,441
                                                ---------     ---------
   Total assets                                 $ 122,566     $ 113,997
                                                =========     =========


        AVERAGE CONSOLIDATED LIABILITIES AND STOCKHOLDERS' EQUITY

                                                Years Ended December 31,
                                                ------------------------
                                                   2001          2000
                                                   ----          ----
Non interest-bearing deposits                   $   7,457     $   7,309
NOW and money market deposits                      27,544        19,798
Savings deposits                                    3,580         3,650
Time deposits                                      62,908        62,962
Other borrowings                                    6,289         6,004
Other liabilities                                   1,150         1,171
                                                ---------     ---------
   Total liabilities                              108,928       100,894
Stockholders' equity                               13,638        13,103
                                                ---------     ---------
   Total liabilities and stockholders' equity   $ 122,566     $ 113,997
                                                =========     =========

     The following is a presentation of an analysis of the net interest
earnings of the Company for the period indicated with respect to each major
category of interest-earning asset and each major category of interest-
bearing liability:

                                           Year Ended December 31, 2001
                                       -----------------------------------
                                         Average     Interest      Average
        Assets                           Amount       Earned        Yield
        ------                           -------     --------      -------
                                               (Dollars in thousands)
Deposits with other banks              $   1,256     $      37       2.95%
Taxable securities                        32,003         1,959       6.12%
Non-taxable securities                     2,538            98       5.85%(3)
Federal funds sold                         1,473            57       3.87%
Net loans                                 78,999(1)      6,936(2)    8.78%
                                       ---------     ---------      -----
   Total earning assets                $ 116,269     $   9,087       7.82%
                                       =========     =========      =====

                                         Average     Interest      Average
        Liabilities                      Amount        Paid       Rate Paid
        -----------                      -------     --------     ---------
NOW and money market deposits          $  27,544     $     750       2.72%
Savings deposits                           3,580            51       1.42%
Time deposits                             62,908         3,446       5.48%
Other borrowings                           6,289           372       5.92%
                                       ---------     ---------      -----
   Total interest-bearing liabilities  $ 100,324     $   4,619       4.60%
                                       =========     =========      =====
Net yield on earning assets                                          3.84%
                                                                    =====
______________________

(1)   At December 31, 2001, fourteen loans with an aggregate principal
      balance of $436,707 were not accruing interest.
(2)   Interest earned on net loans includes $303,023 in loan fees and loan
      service fees.
(3)   The yield is tax equivalent.


                                           Year Ended December 31, 2000
                                       -----------------------------------
                                         Average     Interest      Average
        Assets                           Amount       Earned        Yield
        ------                           -------     --------      -------
                                               (Dollars in thousands)
Deposits with other banks              $   2,288     $     169       7.38%
Taxable securities                        26,661         1,825       6.85%
Non-taxable securities                     2,560           105       6.21%(3)
Federal funds sold                         2,478           164       6.62%
Net loans                                 73,280(1)      7,906(2)   10.79%
                                       ---------     ---------      -----
   Total earning assets                $ 107,267     $  10,169       9.53%
                                       =========     =========      =====

                                         Average     Interest      Average
        Liabilities                      Amount        Paid       Rate Paid
        -----------                      -------     --------     ---------
NOW and money market deposits          $  19,798     $     583       2.94%
Savings deposits                           3,650            64       1.75%
Time deposits                             62,962         3,750       5.96%
Other borrowings                           6,004           442       7.36%
                                       ---------     ---------      -----
   Total interest-bearing liabilities  $  92,414     $   4,839       5.24%
                                       =========     =========      =====
Net yield on earning assets                                          4.97%
                                                                    =====
______________________

(1)   At December 31, 2000, three loans with an aggregate principal balance
of
      $86,490 were not accruing interest.
(2)   Interest earned on net loans includes $288,000 in loan fees and loan
      service fees.
(3)   The yield is tax equivalent.


RATE/VOLUME ANALYSIS OF NET INTEREST INCOME

     The following shows the effect on interest income, interest expense and
net interest income due to changes in average balances and rates for the
years therein indicated.  The effect of a change in average balance has been
determined by multiplying the average rate in the earlier period by the
difference in average balances between both time periods.  The change in
interest due to volume and rate has been allocated in proportion to the
relationship of the absolute dollar amounts of the change in each category.

                                           Year Ended December 31, 2001
                                                    Compared to
                                           Year Ended December 31, 2000
                                        ---------------------------------

                                           Increase (decrease) due to:

                                         Volume        Rate         Total
                                         ------        ----         -----
                                                 (In thousands)
Interest earned on:
Deposits with other banks               $   (56)     $   (76)     $  (132)
Taxable securities                          342         (208)         134
Non-taxable securities                       (1)          (6)          (7)
Federal funds sold                          (53)         (54)        (107)
Net loans                                   570       (1,540)        (970)
                                        -------      -------      -------
   Total interest income                $   802      $(1,884)     $(1,082)
                                        -------      -------      -------

Interest paid on:
NOW and money market deposits           $   214      $   (47)     $   167
Savings deposits                             (1)         (12)         (13)
Time deposits                                (3)        (301)        (304)
Other borrowings                             20          (90)         (70)
                                        -------      -------      -------
   Total interest expense               $   230      $  (450)     $  (220)
                                        -------      -------      -------
Change in net interest income           $   572      $(1,434)     $  (862)
                                        =======      =======      =======


                                           Year Ended December 31, 2000
                                                    Compared to
                                           Year Ended December 31, 1999
                                        ---------------------------------

                                           Increase (decrease) due to:

                                         Volume        Rate         Total
                                         ------        ----         -----
                                                 (In thousands)
Interest earned on:
Deposits with other banks               $    97      $    14      $   111
Taxable securities                          275          293          568
Non-taxable securities                     --             (1)          (1)
Federal funds sold                           86           21          107
Net loans                                    47          681          728
                                        -------      -------      -------
   Total interest income                $   505      $ 1,008      $ 1,513
                                        -------      -------      -------

Interest paid on:
NOW and money market deposits           $    77      $   (27)     $    50
Savings deposits                              3          (10)          (7)
Time deposits                                (9)         571          562
Other borrowings                            323           48          371
                                        -------      -------      -------
   Total interest expense               $   394      $   582      $   976
                                        -------      -------      -------
Change in net interest income           $   111      $   426      $   537
                                        =======      =======      =======


DEPOSITS

     The Bank offers a full range of interest bearing and non-interest
bearing accounts, including commercial and retail checking accounts, money
market accounts, individual retirement accounts, regular interest bearing
statement savings accounts and certificates of deposit with fixed and
variable rates and a range of maturity date options.  The sources of deposits
are residents, businesses and employees of businesses within the Bank's
market area, obtained through the personal solicitation of the Bank's
officers and directors, direct mail solicitation and advertisements published
in the local media.  The Bank pays competitive interest rates on time and
savings deposits up to the maximum permitted by law or regulation.  In
addition, the Bank has implemented a service charge fee schedule competitive
with other financial institutions in the Bank's market area, covering such
matters as maintenance fees on checking accounts, per item processing fees on
checking accounts, returned check charges and the like.

     The following table presents, for the periods indicated, the average
amount of, and average rate paid on, each of the following deposit
categories:

                                              Year Ended December 31, 2001
                                                -----------------------
                                                 Average       Average
Deposit Category                                  Amount      Rate Paid
----------------                                   ----       ---------
                                                  (Dollars in thousands)
Non interest-bearing demand deposits            $   7,457        N/A
NOW and money market deposits                      27,544       2.72%
Savings deposits                                    3,580       1.42%
Time deposits                                      62,908       5.48%
Other borrowings                                    6,289       5.92%


                                              Year Ended December 31, 2000
                                                -----------------------
                                                 Average       Average
Deposit Category                                  Amount      Rate Paid
----------------                                   ----       ---------
                                                  (Dollars in thousands)
Non interest-bearing demand deposits            $   7,309        N/A
NOW and money market deposits                      19,798       2.94%
Savings deposits                                    3,650       1.75%
Time deposits                                      63,962       5.96%
Other borrowings                                    6,004       7.36%

     The following table indicates amounts outstanding of time certificates
of deposit of $100,000 or more and respective maturities for the year ended
December 31, 2001:

                                         Time Certificates
                                             of Deposit
                                         -----------------
            3 months or less               $ 21,280,513
            3-6 months                       17,169,519
            6-12 months                       9,495,732
            Over 12 months                    2,131,074
                                           ------------
               Total                       $ 50,076,838
                                           ============


LOAN PORTFOLIO

     The Bank engages in a full complement of lending activities, including
commercial, consumer/installment and real estate loans.  As of December 31,
2001, the Bank had a legal lending limit for unsecured loans of up to
$1,893,000 to any one person.  See "- Supervision and Regulation."

     Commercial lending is directed principally towards businesses whose
demands for funds fall within the Bank's legal lending limits and which are
potential deposit customers of the Bank.  This category of loans includes
loans made to individual, partnership or corporate borrowers, and obtained
for a variety of business purposes.  Particular emphasis is placed on loans
to small- and medium-sized businesses.  The Bank's real estate loans consist
of residential first and second mortgage loans as well as residential
construction loans.

     The Bank's consumer loans consist primarily of installment loans to
individuals for personal, family and household purposes, including automobile
loans to individuals and pre-approved lines of credit.

     While risk of loss in the Bank's loan portfolio is primarily tied to the
credit quality of the various borrowers, risk of loss may also increase due
to factors beyond the Bank's control, such as local, regional and/or national
economic downturns.  General conditions in the real estate market may also
impact the relative risk in the Bank's real estate portfolio.  Of the Bank's
target areas of lending activities, commercial loans are generally considered
to have greater risk than real estate loans or consumer installment loans.

     Management of the Bank intends to originate loans and to participate
with other banks with respect to loans which exceed the Bank's lending
limits.  Management of the Bank does not believe that loan participations
will necessarily pose any greater risk of loss than loans which the Bank
originates and retains in its loan portfolio.

     The following is a description of each of the major categories of loans
in the Bank's loan portfolio:

     COMMERCIAL, FINANCIAL AND AGRICULTURAL.  These loans are customarily
granted to local business customers on a fully collateralized basis to meet
local credit needs.  The loans can be extended for periods of between one
year and five years and are usually structured to fully amortize over the
term of the loan or balloon after the third year or fifth year of the loan
with an amortization up to 10 years.  The terms and loan structure are
dependent on the collateral and strength of the borrower.  The loan to value
ratios range from 50% to 80%.  The risks of these types of loans depend on
the general business conditions of the local economy and the local business
borrower's ability to sell its products and services in order to generate
sufficient cash flow to repay the Bank under the agreed upon terms and
conditions.  The value of the collateral held by the Bank as a measure of
safety against loss is most volatile in this loan category.

     REAL ESTATE - CONSTRUCTION.  These loans are made for the construction
of single family residences in the Bank's market area and are collateralized
by a first mortgage on the property.  The loans are granted to qualified
individuals with down payments of at least 20% of the appraised value or
contract price, whichever is less.  The interest rates normally fluctuate at
1% to 2% above the Bank's prime interest rate during the construction period.
The Bank charges a fee of 1% to 2% in addition to the normal closing costs.
These loans generally command higher rates and fees commensurate with the
risk warranted in the construction lending field.  The risk in construction
lending is dependent upon the performance of the builder in building the
project to the plans and specifications of the borrower and the Bank's
ability to administer and control all phases of the construction
disbursements.  Upon completion of the construction period, the mortgage is
converted to a permanent loan and normally sold to an investor in the
secondary mortgage market.

     REAL ESTATE - MORTGAGE.  The Bank offers first mortgage home loans on
primary and second homes through the Federal Home Loan Bank's Mortgage
Partnership Financing Program.  The risk assumed by the Bank is conditioned
upon the Bank's internal controls, loan underwriting and market conditions in
the national mortgage market.  The loan underwriting standards and policies
are generally the same for both loans sold in the secondary market and those
retained in the Bank's portfolio.

     The Company provides mortgage services through its Community Mortgage
Corporation subsidiary, including the origination and sale of mortgage loans
to various investors, including other financial institutions.

     INSTALLMENT LOANS.  These loans are granted to individuals for the
purchase of personal goods such as automobiles, recreational vehicles, mobile
homes, boats and for the improvement of single family real estate in the form
of second mortgages.  The Bank obtains a lien against the item purchased by
the consumer and holds title until the loan is repaid in full.  These loans
are generally granted for periods ranging between one and five years at fixed
rates of interest 2% to 6% above the Bank's prime interest rate.  The loan to
value ratios range from 60% to 80%.  Loss or decline of income by the
borrower due to layoffs, divorce or unexpected medical expenses represent
unplanned occurrences that may represent risk of default to the Bank.  In the
event of default, a shortfall in the value of the collateral may pose a loss
to the Bank in this loan category.

     The Bank also offers home equity loans to qualified borrowers.  The
interest rate floats at 1% to 2% above the prime interest rate quoted in The
Wall Street Journal and it is capped at 16%.  The loan to appraised value
cannot exceed 80% and the maturity is limited to ten years.  Monthly payments
are required with the minimum payment equaling 1.5% of the outstanding loan
balance.  The Bank requires a first or second mortgage position and loans are
made on principal residences only.

     LEASE FINANCING.  The Bank offers leases to qualified individuals,
businesses and municipalities to lease machinery, rolling stock and
equipment.  Terms and fees are consistent with local market competition.
Leases are at fixed terms with "fair market value residuals" assigned at the
maturity of the lease.  Terms of leases generally range from two (2) to five
(5) years.  The Bank arranges competitive purchases of specified equipment
and retains title to it during the lease.

     The following table presents various categories of loans contained in
the Bank's loan portfolio for the period indicated and the total amount of
all loans for such period:

           Type of Loan                            As of December 31,
           ------------                         ----------------------
                                                   2001         2000
                                                   ----         ----
                                                     (In thousands)
Domestic:
Commercial, financial and agricultural          $  37,300    $  38,571
Real estate - construction                          6,582        4,378
Real estate - mortgage                             42,553       22,244
Installment and other loans to individuals          5,938       10,336
Lease financing                                       266          300
                                                ---------    ---------
   Subtotal                                     $  92,639    $  75,829
Less: Allowance for possible loan losses           (1,103)      (1,253)
                                                ---------    ---------
   Total (net of allowance)                     $  91,536    $  74,576
                                                =========    =========

     The following is a presentation of an analysis of maturities of loans as
of December 31, 2001:
                               Due in     Due after    Due
                               1 year       1 to      after
   Type of Loan                or less     5 years   5 years      Total
   ------------               ---------   --------   --------   ---------
Commercial, financial,
 and agricultural             $  29,820   $  6,318   $  1,162   $  37,300
Real estate-construction          6,582   $  --          --         6,582
                              ---------   --------   --------   ---------
   Total                      $  36,402   $  6,318   $  1,162   $  43,882
                              =========   ========   ========   =========

     For the above loans, the following is a presentation of an analysis of
sensitivities to changes in interest rates as of December 31, 2001:

                               Due in     Due after    Due
                               1 year       1 to      after
   Interest Category           or less     5 years   5 years      Total
   -----------------          ---------   --------   --------   ---------
Predetermined interest rate   $  10,647   $  6,314   $  1,099   $  18,060
Floating interest rate           25,755   $      4         63      25,822
                              ---------   --------   --------   ---------
   Total                      $  36,402   $  6,318   $  1,162   $  43,882
                              =========   ========   ========   =========

     As of December 31, 2001, fourteen loans with an aggregate principal
amount of $436,707 were on non-accrual status and no loans were defined as
"troubled debt restructurings."  At December 31, 2001, there were no loans
which were accruing interest and contractually past due 90 days or more.  No
significant interest income has been recognized during 2001 on loans that
have been accounted for on a non-accrual basis.  If the loans on non-accrual
status as of December 31, 2001 had been current in accordance with their
terms, $39,000 in gross income would have been recorded for such loans for
the period ended December 31, 2001.

     The Company considers impaired loans to include all restructured loans,
loans on which the accrual of interest had been discontinued and all other
loans which are performing according to the loan agreement, but may have
substantive indication of potential credit weakness.  At December 31, 2001
and December 31, 2000, the total recorded investment in impaired loans, all
of which had allowances determined in accordance with FASB Statements No. 114
and No. 118, amounted to approximately $3,000,672 and $3,709,698,
respectively.  The average recorded investment in impaired loans amounted to
approximately $3,355,185 and $2,685,766 for the years ended December 31, 2001
and December 31, 2000, respectively.  The allowance for loan losses related
to impaired loans amount to approximately $393,942 and $404,268 at December
31, 2001 and December 31, 2000, respectively.  Interest income recognized on
impaired loans for the years ended December 31, 2001 and 2000 amounted to
$289,588 and $207,055, respectively.  The amount of interest recognized on
impaired loans using the cash method of accounting was not material for the
years ended December 31, 2001 and December 31, 2000.  The Company has no
commitments to lend additional funds to borrowers whose loans have been
restructured.

     As of December 31, 2001, there are no loans not disclosed above that are
classified for regulatory purposes as doubtful, substandard or special
mention which (i) represent or result from trends or uncertainties which
management reasonably expects will materially impact future operating
results, liquidity, or capital resources, or (ii) represent material credits
about which management is aware of any information which causes management to
have serious doubts as to the ability of such borrowers to comply with the
loan repayment terms.  There are no loans not disclosed above where known
information about possible credit problems of borrowers causes management to
have serious doubts as to the ability of such borrowers to comply with the
present loan repayment terms.

     Accrual of interest is discontinued on a loan when management of the
Bank determines upon consideration of economic and business factors affecting
collection efforts that collection of interest is doubtful.  No significant
interest income has been recognized during 2001 or 2000 on loans that have
been accounted for on a non-accrual basis.


SUMMARY OF LOAN LOSS EXPERIENCE

     An analysis of the Bank's loss experience is furnished in the following
table for the periods indicated, as well as a breakdown of the allowance for
possible loan losses:

           ANALYSIS OF THE ALLOWANCE FOR POSSIBLE LOAN LOSSES

                                               Years Ended December 31,
                                               ------------------------
                                                   2001          2000
                                                   ----          ----
                                                 (Dollars in thousands)

Balance at beginning of period                  $   1,253     $   1,229
                                                ---------     ---------
Charge-offs:
Installment and other loans to individuals           (229)         (156)
Commercial, financial and agricultural               (141)          (39)
Real estate - mortgage                               --            --
Real estate - construction                           --            --
Lease financing                                      --            --
                                                ---------     ---------
                                                $    (370)    $    (195)
                                                ---------     ---------
Recoveries:
Installment and other loans to individuals      $      20     $      25
Commercial, financial and agricultural               --              64
Real estate - mortgage                               --            --
Real estate - construction                           --            --
Lease financing                                      --            --
                                                ---------     ---------
                                                $      20     $      89
                                                ---------     ---------

Net charge-offs                                 $    (350)    $    (106)
Additions charged to operations                       200           130
                                                ---------     ---------
Balance at end of period                        $   1,103     $   1,253
                                                =========     =========
Ratio of net charge-offs
 during the period to average
 loans outstanding during the period               0.44%         0.14%
                                                   ====          ====

     At December 31, 2001 the allowance was allocated as follows:

                                                           Percent of loans
                                                           in each category
                                                  Amount    to total loans
                                                ---------     ---------
                                                 (Dollars in thousands)

Commercial, financial and agricultural          $     548        40.3%
Real estate - construction                             66         7.1%
Real estate - mortgage                                213        45.9%
Installment and other loans to individuals            190         6.4%
Lease financing                                         2         0.3%
Unallocated                                            84         N/A
                                                ---------       -----
   Total                                        $   1,103       100.0%
                                                =========       =====

     At December 31, 2000 the allowance was allocated as follows:

                                                           Percent of loans
                                                           in each category
                                                  Amount    to total loans
                                                ---------     ---------
                                                 (Dollars in thousands)

Commercial, financial and agricultural          $     670        50.9%
Real estate - construction                             95         5.8%
Real estate - mortgage                                240        29.3%
Installment and other loans to individuals            195        13.6%
Lease financing                                         5         0.4%
Unallocated                                            48         N/A
                                                ---------       -----
   Total                                        $   1,253       100.0%
                                                =========       =====


LOAN LOSS RESERVE

     In considering the adequacy of the Bank's allowance for possible loan
losses, management has focused on the fact that as of December 31, 2001,
40.3% of outstanding loans are in the category of commercial loans, which
includes commercial real estate loans and agricultural loans.  Commercial
loans are generally considered by management as having greater risk than
other categories of loans in the Company's loan portfolio.  However, over
96.5% of these commercial loans at December 31, 2001 were made on a secured
basis.  Management believes that the secured condition of the preponderant
portion of its commercial loan portfolio greatly reduces any risk of loss
inherently present in commercial loans.

     The Company believes that the Bank's consumer loan portfolio is also
well secured.  At December 31, 2001 the majority of the Bank's consumer loans
were secured by collateral primarily consisting of automobiles, boats and
other personal property.  Management believes that these loans involve less
risk than commercial loans.

     Real estate mortgage loans constituted 45.9% of outstanding loans at
December 31, 2001.  All loans in this category represent residential real
estate mortgages where the amount of the original loan generally does not
exceed 80% of the appraised value of the collateral.  These loans are
considered by management to be well secured with a low risk of loss.

     A review of the loan portfolio by an independent firm is conducted
annually.  The purpose of this review is to assess the risk in the loan
portfolio and to determine the adequacy of the allowance for loan losses.
The review includes analyses of historical performance, the level of non-
conforming and rated loans, loan volume and activity, review of loan files
and consideration of economic conditions and other pertinent information.
Upon completion, the report is approved by the Board and management of the
Bank.  In addition to the above review, the Bank's primary regulator, the
Comptroller of Currency, also conducts an annual examination of the loan
portfolio.  Upon completion, the Comptroller of Currency presents their
report of findings to the Board and management of the Bank.  Information
provided from these two independent sources, together with information
provided by the management of the Bank and other information known to members
of the Board are utilized by the Board to monitor, on a quarterly basis, the
loan portfolio.  Specifically, the Board attempts to identify risks inherent
in the loan portfolio (e.g., problem loans, potential problem loans and loans
to be charged-off), assess the overall quality and collectibility of the loan
portfolio, and determine amounts of the allowance for loan losses and the
provision for loan losses to be reported based on the results of their
review.


INVESTMENTS

     As of December 31, 2001, investment securities comprised approximately
26.0% of the Bank's assets and net loans comprised approximately 67.0% of the
Bank's assets.  The Bank invests primarily in obligations of the United
States or obligations guaranteed as to principal and interest by the United
States, including mortgage-backed securities, and other taxable securities.
In addition, the Bank enters into Federal Funds transactions with its
principal correspondent banks, and acts as a net seller of such funds.  The
sale of Federal Funds amounts to a short-term loan from the Bank to another
bank.

     The following table presents, for the periods indicated, the book value
of the Bank's investments, reported by those available for-sale and those
held-to-maturity:

                                                Years Ended December 31,
                                                ------------------------
      INVESTMENT CATEGORY                          2001          2000
      -------------------                          ----          ----
                                                     (In thousands)
Available-for-Sale:
------------------
Obligations for U.S. Treasury
 and other U.S. Agencies                        $  23,430     $  23,122
Tax-exempt securities                               3,115         2,553
Federal Reserve Board and
 Federal Home Loan Bank stock                         728           625
Corporate bonds                                     3,320           510
Other securities                                    2,193         1,939
                                                ---------     ---------
   Total                                        $  32,786     $  28,749
                                                =========     =========

Held-to-Maturity:
----------------
Mortgage-backed securities                      $   1,887     $   1,618
Other securities                                      844         2,006
                                                ---------     ---------
   Total                                        $   2,731     $   3,624
                                                =========     =========

     The following table indicates for the year ended December 31, 2001 the
amount of investments due in (i) one year or less, (ii) one to five years,
(iii) five to ten years, and (iv) over 10 years:

                                                      Weighted Average
        Investment Category                Amount           Yield(1)
        -------------------                ------           -----
                                   (Dollars in thousands)
Available-for-Sale:
------------------

Obligations of U.S. Treasury and other U.S. Agencies:
     0 - 1 Yrs.                         $  1,022            6.77%
     Over 1 through 5 Yrs.                22,408            5.43%

Tax-exempt securities(1):
     0 - 1 yrs.                              292            6.44%
     Over 1 through 5 Yrs.                 1,649            6.19%
     Over 5 through 10 Yrs.                  122            6.97%
     Over 10 Yrs.                             98            6.97%

Mortgage Pools:
     0-1 Yrs.                                426            6.43%
     Over 1 through 5 Yrs.                 1,288            4.42%
     Over 5 through 10 Yrs.                  479            5.60%

Corporate bonds:
     Over 1 through 5 Yrs.                 3,320            4.99%

FHLB, FRB Stock (no maturity)                728            6.66%
                                        --------            ----
   Total                                $ 32,786            5.44%
                                        ========            ====
________________________
(1) The Company has invested in tax-exempt securities.  The yield on
    tax-exempt securities is reported at the tax- equivalent rate.

                                                      Weighted Average
        Investment Category                Amount           Yield
        -------------------                ------           -----
                                   (Dollars in thousands)
Held-to-Maturity:
----------------

Obligations of U.S. Treasury:
     Over 1 through 5 Yrs.               $    844           7.23%
     Over 5 through 10 Yrs.                  --              -- %

Mortgage pools:
     0 - 1 yrs.                               266           6.46%
     Over 1 through 5 Yrs.                  1,092           6.32%
     Over 5 through 10 Yrs.                   529           6.76%
                                         --------           ----
   Total                                 $  2,731           6.51%
                                         ========           ====


RETURN ON EQUITY AND ASSETS

     Returns on average consolidated assets and average consolidated equity
for the periods indicated are as follows:

                                                Years Ended December 31,
                                                ------------------------
                                                   2001          2000
                                                   ----          ----
     Return on Average Assets                      1.11%         1.41%
     Return on Average Equity                      9.96%        12.28%
     Average Equity to Average Assets Ratio       11.13%        11.49%
     Dividend Payout Ratio                         8.13%         --


ASSET/LIABILITY MANAGEMENT

     It is the objective of the Bank to manage assets and liabilities to
provide a satisfactory, consistent level of profitability within the
framework of established cash, loan, investment, borrowing and capital
policies.  Certain of the officers of the Bank will be responsible for
monitoring policies and procedures that are designed to ensure acceptable
composition of the asset/liability mix, stability and leverage of all sources
of funds while adhering to prudent banking practices.  It is the overall
philosophy of management to support asset growth primarily through growth of
core deposits, which include deposits of all categories made by individuals,
partnerships and corporations.  Management of the Bank seeks to invest the
largest portion of the Bank's assets in commercial, consumer and real estate
loans.

     The Bank's asset/liability mix is monitored on a daily basis with a
monthly report reflecting interest-sensitive assets and interest-sensitive
liabilities being prepared and presented to the Bank's Board of Directors.
The objective of this policy is to control interest-sensitive assets and
liabilities so as to minimize the impact of substantial movements in interest
rates on the Bank's earnings.


CORRESPONDENT BANKING

     Correspondent banking involves the providing of services by one bank to
another bank which cannot provide that service for itself from an economic or
practical standpoint.  The Bank purchases correspondent services offered by
larger banks, including purchase of Federal Funds, security safekeeping,
investment services, overline and liquidity loan participations and sales of
loans to or participations with correspondent banks.

     The Bank sells loan participations to correspondent banks with respect
to loans which exceed the Bank's lending limit.  As compensation for services
provided by a correspondent, the Bank may maintain certain balances with such
correspondents in non-interest bearing accounts.  At December 31, 2001 the
Bank had outstanding participations totaling $5,198,651.


DATA PROCESSING

     The Bank has entered into a data processing servicing agreement with
FISERV.  This servicing agreement provides for the Bank to receive a full
range of data processing services, including an automated general ledger,
deposit accounting, commercial, real estate and installment lending data
processing, and central information file.  The Bank has entered into a
servicing agreement with the Intercept Group to provide ATM processing for
the Bank and with ADP, Inc. to process its payroll.


FACILITIES

     The Bank's main office is located in an approximately 1,800 square foot
facility located at 1600 Curtis Bridge Road in Wilkesboro, North Carolina.
The facility includes four teller stations, one office, a vault, a night
depository, and a drive-in window.  The Bank opened a full service branch,
located in North Wilkesboro, in June 1994.  The Bank leases the 1,700 square
foot facility containing four teller stations, a drive-in window, one office,
a vault and a night depository.  The Bank's Millers Creek branch office
opened in February 1996.  The 2,000 square foot building is owned by the Bank
and contains four teller stations, one drive-in window, a vault, a night
depository and safe deposit boxes.  The Bank leases the land at Millers
Creek.

     On August 15, 1997, the Bank opened a full service branch in
Taylorsville, North Carolina.  In connection with the opening of this branch,
the Company purchased 1.6 acres of land and a 22,000 square foot facility in
Taylorsville at the intersection of Highway 90 and Highway 16.  The Company
renovated 5,600 square feet of this facility to house the operations of the
Taylorsville branch and intends to renovate and lease the remaining space to
other businesses.  Approximately 3,600 square feet of the facility is used
for the Bank's branch facility and contains three teller stations, a drive-in
window, two offices, a vault, safe deposit boxes, a night depository and an
automated teller machine.  The remaining 2,000 square feet may be used for
future expansion of the Bank.  In March, 2001 the Bank opened a loan
production office in a leased space at 1223 Mt. Jefferson Road, West
Jefferson.  The office space includes two offices and a reception area.  The
Bank is constructing a 3,280 square foot building at 1055 Mt. Jefferson Road
to house the West Jefferson branch, which management anticipates will be
completed in June, 2002.  In October, 2001 the Bank opened a loan production
office in a 600 square foot space at 206 Southgate Drive in Boone, North
Carolina.  This leased office space contains a reception area with teller
counter and two offices.  The Bank plans to open a branch in this space in
April, 2002.  The Bank leased office space in Lenoir at 2153-A Morganton
Blvd, SW to open a loan production office in December, 2001.  This facility
contains 1,250 square feet of space and includes a reception area and two
offices.  The reception area includes a counter that can be used for two
teller stations.

     The Company also leases 7,200 square feet of office space in the
Westfield Village Shopping Center in Wilkesboro, North Carolina.  This
facility houses the Company's administrative and operational functions.


EMPLOYEES

     The Bank presently employs 43 persons on a full-time basis, including 20
officers, and 7 persons on a part-time basis.  The Bank will hire additional
persons as needed, including additional tellers and financial service
representatives.


MONETARY POLICIES

     The results of operations of the Bank will be affected by credit
policies of monetary authorities, particularly the Federal Reserve Board.
The instruments of monetary policy employed by the Federal Reserve Board
include open market operations in U.S. Government securities, changes in the
discount rate on member bank borrowings, changes in reserve requirements
against member bank deposits and limitations on interest rates which member
banks may pay on time and savings deposits.  In view of changing conditions
in the national economy and in the money markets, as well as the effect of
action by monetary and fiscal authorities, including the Federal Reserve
Board, no prediction can be made as to possible future changes in interest
rates, deposit levels, loan demand or the business and earnings of the Bank.


SUPERVISION AND REGULATION

       GENERAL

	The Company and the Bank operate in a highly regulated environment, and
their business activities are governed by statute, regulation and
administrative policies.  The business activities of the Company and the Bank
are closely supervised by a number of regulatory agencies, including the
Federal Reserve Board, the Office of the Comptroller of the Currency ("OCC")
and the Federal Deposit Insurance Corporation ("FDIC").

	The Company is regulated by the Federal Reserve Board under the federal
Bank Holding Company Act of 1956, as amended, which requires every bank
holding company to obtain the prior approval of the Federal Reserve Board
before acquiring more than 5% of the voting shares of any bank or all or
substantially all of the assets of a bank, and before merging or
consolidating with another bank holding company.  The Federal Reserve Board
(pursuant to regulation and published policy statements) has maintained that
a bank holding company must serve as a source of financial strength to its
subsidiary banks.  In adhering to the Federal Reserve Board policy, the
Company may be required to provide financial support to a subsidiary bank at
a time when, absent such Federal Reserve Board policy, the Company may not
deem it advisable to provide such assistance.

	Under the Riegle-Neal Interstate Banking and Branching Efficiency Act
of 1994, restrictions on interstate acquisition of banks by bank holding
companies were repealed, such that the Company, or any other bank holding
company located in North Carolina, may acquire a bank located in any other
state, and a bank holding company located outside North Carolina may acquire
any North Carolina-based bank, in either case subject to certain deposit
percentage and other restrictions.  The legislation also provides that,
unless an individual state has elected to prohibit out-of-state banks from
operating interstate branches within its territory, adequately capitalized
and managed bank holding companies will be able to consolidate their
multistate bank operations into a single bank subsidiary and to branch
interstate through acquisitions.  De novo branching by an out-of-state bank
is permitted only if it is expressly permitted by the laws of the host state
and the authority of a bank to establish and operate branches within a state
remains subject to applicable state branching laws.

	A bank holding company which has not elected to become a financial
holding company under the Gramm-Leach-Bliley Act, as discussed below, will
generally be prohibited from acquiring control of any company which is not a
bank and from engaging in any business other than the business of banking or
managing and controlling banks.  However, bank holding companies may still
engage in certain activities which have been identified by the Federal
Reserve Board to be so closely related to banking as to be a proper incident
thereto and thus permissible for bank holding companies.

	The list of permissible nonbanking activities includes the following
activities:  extending credit and servicing loans; acting as investment or
financial advisor to any person, with certain limitations; leasing personal
and real property or acting as a broker with respect thereto; providing
management and employee benefits consulting advice and career counseling
services to nonaffiliated banks and nonbank depository institutions;
operating certain nonbank depository institutions; performing certain trust
company functions; providing certain agency transactional services, including
securities brokerage services, riskless principal transactions, private
placement services, and acting as a futures commission merchant; providing
data processing and data transmission services; acting as an insurance agent
or underwriter with respect to limited types of insurance; performing real
estate appraisals; arranging commercial real estate equity financing;
providing check-guaranty, collection agency and credit bureau services;
engaging in asset management, servicing and collection activities; providing
real estate settlement services; acquiring certain debt which is in default;
underwriting and dealing in obligations of the United States, the states and
their political subdivisions; engaging as a principal in foreign exchange
trading and dealing in precious metals; providing other support services such
as courier services and the printing and selling of checks; and investing in
programs designed to promote community welfare.

	In determining whether an activity is so closely related to banking as
to be permissible for bank holding companies, the Federal Reserve Board is
required to consider whether the performance of such activities by a bank
holding company or its subsidiaries can reasonably be expected to produce
benefits to the public, such as greater convenience, increased competition
and gains in efficiency, that outweigh such possible adverse effects as undue
concentration of resources, decreased or unfair competition, conflicts of
interest, and unsound banking practices.  Generally, bank holding companies
must obtain approval of the Federal Reserve Board to engage in any activity
not previously approved by the Federal Reserve Board or to modify in any
material respect an activity for which Federal Reserve Board approval had
been obtained.

	As a bank holding company which controls a national bank located in
North Carolina, the Company is required to register with the North Carolina
Commissioner of Banks within 180 days after becoming a bank holding company.
In addition, North Carolina law requires every bank holding company to obtain
the prior approval of the North Carolina Commissioner of Banks before
acquiring more than 5% of the voting shares of any North Carolina bank or all
or substantially all of the assets of a North Carolina bank, or before
merging or consolidating with any North Carolina bank holding company.

	Loans and extensions of credit by national banks are subject to legal
lending limitations.  Under federal law, a national bank may grant unsecured
loans and extensions of credit in an amount up to 15% of its unimpaired
capital and surplus to any person if the loans and extensions of credit are
not fully secured by collateral having a market value at least equal to their
face amount.  In addition, a national bank may grant loans and extensions of
credit to such person up to an additional 10% of its unimpaired capital and
surplus, provided that each loan or extension of credit is fully secured by
readily marketable collateral having a market value, determined by reliable
and continuously available price quotations, at least equal to the amount of
funds outstanding.  Loans and extensions of credit may exceed the general
lending limit if they qualify under one of several exceptions.  Such
exceptions include certain loans or extensions of credit arising from the
discount of commercial or business paper, the purchase of bankers'
acceptances, loans secured by documents of title, loans secured by U.S.
obligations and loans to or guaranteed by the federal government, and loans
or extensions of credit which have the approval of the OCC and which are made
to a financial institution or to any agent in charge of the business and
property of a financial institution.

       Gramm-Leach-Bliley

     The Gramm-Leach-Bliley Act, also known as the Financial Services
Modernization Act of 1999 ("GLBA"), enacted in 1999, enables bank holding
companies to acquire insurance companies and securities firms and effectively
repeals depression-era laws that prohibited the affiliation of banks and
these other financial services entities under a single holding company. Bank
holding companies, and other types of financial services entities, may elect
to become financial holding companies under the new law, which will enable
them to offer virtually any type of financial service, or services incident
to financial services, including banking, securities underwriting, merchant
banking and insurance (both underwriting and agency services). The new
financial services authorized by the GLBA also may be engaged in by a
"financial subsidiary" of a national or state bank, with the exception of
insurance or annuity underwriting, insurance company portfolio investments,
real estate investment and development, and merchant banking, all of which
must be conducted under the financial holding company.

     To become a financial holding company, a bank holding company must
provide notice to the Federal Reserve Board of its desire to become a
financial holding company, and certify to the Federal Reserve Board that each
of its bank subsidiaries is "well-capitalized," "well-managed" and has at
least a "satisfactory" rating under the Community Reinvestment Act.

     The GLBA establishes a system of functional regulation, under which the
Federal Reserve Board will regulate the banking activities of financial
holding companies and other federal banking regulators will regulate banks'
financial subsidiaries. The SEC will regulate securities activities of
financial holding companies and state insurance regulators will regulate
their insurance activities. The GLBA also provides new protections against
the transfer and use by financial institutions of consumers' non-public,
personal information.

     The implementation of the act increases competition in the financial
services sector by allowing many different entities, including banks and bank
holding companies, to affiliate and/or to merge with other financial services
entities and cross-sell their financial products in order to better serve
their current and prospective customers.  At this time, the Company does not
intend to seek qualification as a financial holding company or to enter into
these additional financial services areas.

       DIVIDENDS

     The Company is a legal entity separate and distinct from the Bank. The
principal source of cash flow for the Company is dividends from the Bank.
There are various statutory and regulatory limitations on the payment of
dividends by the Bank, as well as dividends paid by the Company to its
shareholders.

     The payment of dividends by the Company and the Bank may be affected or
limited by regulatory requirements and policies, such as the maintenance of
adequate capital.  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 could include the payment of dividends
depending on the institution's financial condition), such authority may
require, after notice and hearing, that the bank cease and desist from such
practice.  The FDIC and the Federal Reserve Board have issued policy
statements that provide, generally, that insured banks and bank holing
companies should only pay dividends out of current operating earnings.  The
Federal Reserve has issued a policy statement to the same effect for bank
holding companies. In addition, all insured depository institutions are
subject to the capital-based limitations required by the Federal Deposit
Insurance Corporation Improvement Act of 1991, as discussed below.

	The Bank is restricted in its ability to pay dividends under national
banking laws and the regulations of the OCC.  The Bank may only pay dividends
out of undivided profits, subject to other applicable provisions of law.  In
addition, the Bank may not declare a dividend until the Bank's surplus equals
its stated capital, unless there has been transferred to surplus not less
than 10% of the Bank's net income of the preceding two consecutive six-month
periods (in the case of an annual dividend).  Approval by the OCC is required
if the total dividends declared by the Bank in any calendar year exceeds the
total of its net income for that year combined with its retained net income
for the preceding two years, less any required transfers to surplus.

       CAPITAL ADEQUACY REQUIREMENTS

	Both the Company and the Bank are subject to regulatory capital
requirements imposed by the Federal Reserve Board and the OCC.  The Federal
Reserve Board and the OCC have issued risk-based capital guidelines for bank
holding companies and banks which make regulatory capital requirements more
sensitive to differences in the risk profiles of various banking
organizations.  The capital adequacy guidelines issued by the Federal Reserve
Board are applied to bank holding companies, on a consolidated basis with the
banks owned by the holding company, as well as to state member banks.  The
OCC's risk capital guidelines apply directly to national banks regardless of
whether they are a subsidiary of a bank holding company.  Both agencies'
requirements (which are substantially similar), provide that banking
organizations must have capital equivalent to at least 8% of risk-weighted
assets.  The risk weights assigned to assets are based primarily on credit
risks.  Depending upon the risk level of a particular asset, it is assigned
to a risk category.

	For example, securities with an unconditional guarantee by the United
States government are assigned to the lowest risk category, while a risk
weight of 50% is assigned to loans secured by owner-occupied one to four
family residential mortgages, provided that certain conditions are met.  The
aggregate amount of assets assigned to each risk category is multiplied by
the risk weight assigned to that category to determine the weighted values,
which are then added together to determine total risk-weighted assets.

	The Federal Reserve Board and the OCC have also implemented minimum
capital leverage ratios to be used in tandem with the risk-based guidelines
in assessing the overall capital adequacy of banks and bank holding
companies.  Under these rules, banking institutions must maintain a ratio of
at least 3% "Tier 1" capital to total weighted risk assets (net of goodwill,
certain intangible assets, and certain deferred tax assets).  Tier 1 capital
includes common shareholders equity, noncumulative perpetual preferred stock
and minority interests in the equity accounts of consolidated subsidiaries.

	Both the risk-based capital guidelines and the leverage ratio are
minimum requirements.  They are applicable to all banking institutions unless
the applicable regulating authority determines that different minimum capital
ratios are appropriate for a particular institution based upon its
circumstances.  Institutions operating at or near these ratios are expected
to have well-diversified risks, excellent control systems, high asset
quality, high liquidity, good earnings, and  in general must be considered
strong banking organizations, rated composite 1 under the CAMELS rating
system of banks or the BOPEC rating system of bank holding companies.  The
OCC requires that all but the most highly-rated banks and all banks with high
levels of risk or experiencing or anticipating significant growth maintain
ratios of at least 4% Tier 1 capital to total assets.  The Federal Reserve
Board also requires bank holding companies without a BOPEC-1 rating to
maintain a ratio of at least 4% Tier 1 capital to total assets; furthermore,
banking organizations with supervisory, financial, operational, or managerial
weaknesses, as well as organizations that are anticipating or experiencing
significant growth, are expected to maintain capital ratios well above the 3%
and 4% minimum levels.

	The FDIC has also adopted a rule substantially similar to that issued
by the Federal Reserve Board, that establishes a minimum leverage ratio of 3%
and provides that FDIC-regulated banks with anything less than a CAMELS-1
rating must maintain a ratio of at least 4%.  In addition, the FDIC rule
specifies that a depository institution operating with less than the
applicable minimum leverage capital requirement will be deemed to be
operating in an unsafe and unsound manner unless the institution is in
compliance with a plan, submitted to and approved by the FDIC, to increase
the ratio to an appropriate level.  Finally, the FDIC requires any insured
depository institution with a leverage ratio of less than 2% to enter into
and be in compliance with a written agreement between it and the FDIC (or the
primary regulator, with the FDIC as a party to the agreement).  Such an
agreement should contemplate immediate efforts to acquire the capital
required to increase the ratio to an appropriate level.  Institutions that
fail to enter into or maintain compliance with such an agreement will be
subject to enforcement action by the FDIC.

	The OCC's guidelines provide that intangible assets are generally
deducted from Tier 1 capital in calculating a bank's risk-based capital
ratio.  However, certain intangible assets which meet specified criteria
("qualifying intangibles") are retained as a part of Tier 1 capital.  The OCC
has modified the list of qualifying intangibles, currently including only
purchased credit card relationships and mortgage and non-mortgage servicing
assets, whether originated or purchased and excluding any interest-only
strips receivable related thereto.  The OCC has amended its guidelines to
increase the limitation on such qualifying intangibles from 50% to 100% of
Tier 1 capital, of which no more than 25% may consist of purchased credit
card relationships and non-mortgage servicing assets.

	The risk-based capital guidelines of the OCC, the Federal Reserve Board
and the FDIC explicitly include provisions regarding a bank's exposure to
declines in the economic value of its capital due to changes in interest
rates to ensure that the guidelines take adequate account of interest rate
risk.  Interest rate risk is the adverse effect that changes in market
interest rates may have on a bank's financial condition and is inherent to
the business of banking.  The exposure of a bank's economic value generally
represents the change in the present value of its assets, less the change in
the value of its liabilities, plus the change in the value of its interest
rate off-balance sheet contracts.  Concurrently, the agencies issued a joint
policy statement to bankers, effective June 26, 1996,  to provide guidance on
sound practices for managing interest rate risk.  In the policy statement,
the agencies emphasize the necessity of adequate oversight by a bank's Board
of Directors and senior management and of a comprehensive risk management
process.  The policy statement also describes the critical factors affecting
the agencies' evaluations of a bank's interest rate risk when making a
determination of capital adequacy.  The agencies' risk assessment approach
used to evaluate a bank's capital adequacy for interest rate risk relies on a
combination of quantitative and qualitative factors.  Banks that are found to
have high levels of exposure and/or weak management practices will be
directed by the agencies to take corrective action.

	The OCC, the Federal Reserve Board and the FDIC have added a provision
to the risk-based capital guidelines that supplements and modifies the usual
risk-based capital calculations to ensure that institutions with significant
exposure to market risk maintain adequate capital to support that exposure.
Market risk is the potential loss to an institution resulting from changes in
market prices.  The modifications are intended to address two types of market
risk: general market risk, which includes changes in general interest rates,
equity prices, exchange rates, or commodity prices, and specific market risk,
which includes particular risks faced by the individual institution, such as
event and default risks.  The provision defines a new category of capital,
Tier 3, which includes certain types of subordinated debt.  The provision
automatically applies only to those institutions whose trading activity, on a
worldwide consolidated basis, equals either (i) 10% or more of total assets
or (ii) $1 billion or more, although the agencies may apply the provision's
requirements to any institution for which application of the new standard is
deemed necessary or appropriate for safe banking practices.  For institutions
to which the modifications apply, Tier 3 capital may not be included in the
calculation rendering the 8% credit risk ratio; the sum of Tier 2 and Tier 3
capital may not exceed 100% of Tier 1 capital; and Tier 3 capital is used in
both the numerator and denominator of the normal risk-based capital ratio
calculation to account for the estimated maximum amount that the value of all
positions in the institution's trading account, as well as all foreign
exchange and commodity positions, could decline within certain parameters set
forth in a model defined by the statute.  Furthermore, covered institutions
must "backtest," comparing the actual net trading profit or loss for each of
its most recent 250 days against the corresponding measures generated by the
statutory model.  Once per quarter, the institution must identify the number
of times the actual net trading loss exceeded the corresponding measure and
must then apply a statutory multiplication factor based on that number for
the next quarter's capital charge for market risk.

       PROMPT CORRECTIVE ACTION

	The Federal Deposit Insurance Corporation Improvement Act of 1991 (the
"FDICIA"), provides for a number of reforms relating to the safety and
soundness of the deposit insurance system, supervision of domestic and
foreign depository institutions and improvement of accounting standards.  One
element of the FDICIA provides for the development of a regulatory monitoring
system requiring prompt action on the part of banking regulators with regard
to certain classes of undercapitalized institutions.  While the FDICIA does
not change any of the minimum capital requirements, it directs each of the
federal banking agencies to issue regulations putting the monitoring plan
into effect.  The FDICIA creates five "capital categories" ("well
capitalized," "adequately capitalized," "undercapitalized," "significantly
undercapitalized" and "critically undercapitalized") which are defined in the
FDICIA and are used to determine the severity of corrective action the
appropriate regulator may take in the event an institution reaches a given
level of undercapitalization.  For example, an institution which becomes
"undercapitalized" must submit a capital restoration plan to the appropriate
regulator outlining the steps it will take to become adequately capitalized.
Upon approving the plan, the regulator will monitor the institution's
compliance.  Before a capital restoration plan will be approved, any entity
controlling a bank (i.e., a holding company) must guarantee compliance with
the plan until the institution has been adequately capitalized for four
consecutive calendar quarters.  The liability of the holding company is
limited to the lesser of five percent of the institution's total assets or
the amount which is necessary to bring the institution into compliance with
all capital standards.  In addition, "undercapitalized" institutions will be
restricted from paying management fees, dividends and other capital
distributions, will be subject to certain asset growth restrictions and will
be required to obtain prior approval from the appropriate regulator to open
new branches or expand into new lines of business.

	As an institution's capital levels decline, the extent of action to be
taken by the appropriate regulator increases, restricting the types of
transactions in which the institution may engage and ultimately providing for
the appointment of a receiver for certain institutions deemed to be
critically undercapitalized.

	The OCC, the Federal Reserve Board and the FDIC have established
regulations which, among other things, prescribe the capital thresholds for
each of the five capital categories established by the Act.  The following
table reflects the capital thresholds:

                                  Total Risk-     Tier 1 Risk-     Tier 1
                                 Based Capital    Based Capital   Leverage
                                    Ratio            Ratio          Ratio
                                 -------------    -------------   --------
Well capitalized(1)                 >=10%             >=6%          >=5%
Adequately capitalized(1)           >= 8%             >=4%          >=4%(2)
Undercapitalized(4)                 <  8%             < 4%          < 4%(3)
Significantly undercapitalized(4)   <  6%             < 3%          < 3%
Critically undercapitalized          --                --           <=2%(5)
____________________
(1)  An institution must meet all three minimums.
(2)  >=3% for composite 1-rated institutions, subject to appropriate federal
     banking agency guidelines.
(3)  <3% for composite 1-rated institutions, subject to applicable federal
     banking agency guidelines.
(4)  An institution falls into this category if it is below the specified
     capital level for any of the three capital measures.
(5)  Ratio of tangible equity to total assets.

	In addition, the Federal Reserve Board, the OCC and the FDIC have
adopted regulations, pursuant to the FDICIA, defining operational and
managerial standards relating to internal controls, loan documentation,
credit underwriting, interest rate exposure, asset growth, and compensation,
fees and benefits.  	Both the capital standards and the safety and
soundness standards which the FDICIA seeks to implement are designed to
bolster and protect the deposit insurance fund.

       REPORTING REQUIREMENTS

	As a national bank, the Bank is subject to examination and review by
the OCC.  This examination is typically completed on-site every eighteen
months and is subject to off-site review at call.  The OCC, at will, can
access quarterly reports of condition, as well as such additional reports as
may be required by the national banking laws.

	As a bank holding company, the Company is required to file with the
Federal Reserve Board an annual report of its operations at the end of each
fiscal year and such additional information as the Federal Reserve Board may
require pursuant to the Act.  The Federal Reserve Board may also make
examinations of the Company and each of its subsidiaries.

	The scope of regulation and permissible activities of the Company and
the Bank is subject to change by future federal and state legislation.  In
addition, regulators sometimes require higher capital levels on a case-by-
case basis based on such factors as the risk characteristics or management of
a particular institution.  The Company and the Bank are not aware of any
attributes of their operating plan that would cause regulators to impose
higher requirements.



ITEM 2.    DESCRIPTION OF PROPERTY.
-----------------------------------

     The Bank's main office is located in an approximately 1,800 square foot
facility owned by the Bank located at 1600 Curtis Bridge Road in Wilkesboro,
North Carolina.  The facility includes four teller stations, one office, a
vault, a night depository, and a drive-in window.  The Bank opened a full
service branch, located in North Wilkesboro, in June 1994.  The Bank
currently leases the 1,700 square foot facility containing four teller
stations, a drive-in window, one office, a vault and a night depository.  The
Bank's Millers Creek branch office opened in February 1996.  This 2,000
square foot leased facility contains four teller stations, one drive-in
window, a vault, a night depository and safe deposit boxes.

     On August 15, 1997, the Bank opened a full service branch in
Taylorsville, North Carolina.  In connection with the opening of this branch,
the Company purchased 1.6 acres of land and a 22,000 square foot facility in
Taylorsville at the intersection of Highway 90 and Highway 16.  The Company
renovated 5,600 square feet of this facility to house the operations of the
Taylorsville branch and intends to renovate and lease the remaining space to
other businesses.  Approximately 3,600 square feet of the facility is used
for the Bank's branch facility and contains three teller stations, a drive-in
window, two offices, a vault, safe deposit boxes, a night depository and an
automated teller machine.  The remaining 2,000 square feet will be used for
future expansion of the Bank.  In March, 2001 the Bank opened a loan
production office in a leased space at 1223 Mt. Jefferson Road, West
Jefferson.  The office space includes two offices and a reception area.  The
Bank is constructing a 3,280 square foot building at 1055 Mt. Jefferson Road
to house the West Jefferson branch, which management anticipates will be
completed in June, 2002.  In October, 2001 the Bank opened a loan production
office in a 600 square foot space at 206 Southgate Drive in Boone, North
Carolina.  This leased office space contains a reception area with teller
counter and two offices.  The Bank plans to open a branch in this space in
April, 2002.  The Bank leased office space in Lenoir at 2153-A Morganton
Blvd, SW to open a loan production office in December, 2001.  This facility
contains 1,250 square feet of space and includes a reception area and two
offices.  The reception area includes a counter that can be used for two
teller stations.

     The Company also leases 7,200 square feet of office space in the
Westfield Village Shopping Center in Wilkesboro, North Carolina.  This
facility houses certain of the Company's administrative and operational
functions.



ITEM 3.    LEGAL PROCEEDINGS.
-----------------------------

     There are no material pending legal proceedings to which the Company is
a party or of which any of its properties are subject; nor are there material
proceedings known to the Company to be contemplated by any governmental
authority; nor are there material proceedings known to the Company  in which
any director, officer or affiliate or any principal security holder of the
Company, or any associate of any of the foregoing is a party or has an
interest adverse to the Company.


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

     No matter was submitted during the fourth quarter ended December 31,
2001 to a vote of security holders of the Company.



                                     PART II


ITEM 5.    MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
--------------------------------------------------------------------

     (A)   Market Information

     During the period covered by this report and to date, there has been no
established public trading market for the Company's Common Stock.

     (B)   Holders of Common Stock

     As of March 29, 2002, the number of holders of record of the Company's
Common Stock was 747.

     (C)   Dividends

     The Company declared the following cash dividends during the fiscal year
ended December 31, 2001:

                           Date Paid       Dividend Per Share
                           ---------       ------------------
                          June 25, 2001         $.025
                         August 25, 2001        $.025
                        November 20, 2001       $.025

     In addition, on January 17, 2002, the Company declared a cash dividend
of $.025 per share payable on February 15, 2002 to shareholders of record as
of January 31, 2002.  Prior to June 25, 2001, the Company had not paid any
cash dividends on shares of the Company's Common Stock.  The Company's future
dividend policy will depend on the Company's earnings, capital requirements,
financial condition and other factors considered relevant by the Board of
Directors of the Company.

     Because the Company's principal operations are conducted through the
Bank, the Company generates cash to pay dividends primarily through dividends
paid to it by the Bank.  Accordingly, any dividends paid by the Company will
depend on the Bank's earnings, capital requirements, financial condition and
other factors.  The Bank is restricted in its ability to pay dividends under
the national banking laws and by regulations of the OCC.  Pursuant to 12
U.S.C. 56, a national bank may not pay dividends from its capital.  All
dividends must be paid out of undivided profits, subject to other applicable
provisions of law.  Payments of dividends out of undivided profits is further
limited by 12 U.S.C. 60(a), which prohibits a bank from declaring a dividend
on its shares of common stock until its surplus equals its stated capital,
unless there has been transferred to surplus not less than 1/10 of the Bank's
net income of the preceding two consecutive half-year periods (in the case of
an annual dividend).  Pursuant to 12 U.S.C. 60(b), the approval of the OCC is
required if the total of all dividends declared by the Bank in any calendar
year exceeds the total of its net income for that year combined with its
retained net income for the preceding two years, less any required transfers
to surplus.



ITEM 6.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
--------------------------------------------------------------------------
           RESULTS OF OPERATIONS.
           ----------------------

RESULTS OF OPERATIONS - YEAR ENDED DECEMBER 31, 2001 COMPARED TO YEAR ENDED
DECEMBER 31, 2000

     For the years ended December 31, 2001 and December 31, 2000, net income
amounted to $1,358,556 and $1,610,166, respectively.  For the years ended
December 31, 2001 and December 31, 2000, basic income per share amounted to
$.92 and $1.10, respectively, and diluted income per share amounted to $.88
and $1.02, respectively.  During 2001 and 2000, there were outstanding
warrants and stock options that were dilutive (i.e., upon exercise, they
diluted earnings per share by more than 3%), therefore necessitating the
disclosure of basic and diluted income per share.  Net income in 2001
decreased by $251,610 or 15.6% over net income in 2000.  The primary reason
for this decrease was the continual reduction in short-term interest rates by
the Federal Reserve during 2001.  For example, the prime lending rate, which
is a base rate for a significant portion of the Bank's loan portfolio was
9.75%, January 2001, declined to 4.75% by December 31, 2001.  As a result of
this dramatic and rapid decline in interest rates during the year, a majority
of the Bank's loans adjusted when the prime rate adjusted while a majority of
the Bank's interest-bearing liabilities, principally time deposits, could not
be readjusted with the prime rate changes because they adjust at maturity.
As a result, the yield on the Bank's loan portfolio declined by more than the
decline in the rates paid on deposits.  This negatively impacted the net
yield on earning assets and the interest rate spread.

     Average earning assets increased from $107.3 million at December 31,
2000 to $116.3 million at December 31, 2001, representing an increase of $9.0
million, or 8.4%.  Average net loans grew a modest 7.8% as the recession in
the national economy affected both credit demand and the number of quality
borrowing opportunities.  With loan demand softening, the Bank decided to
invest additional funds in various taxable securities. Below are the various
components of average earning assets for the periods indicated:

                                                      December 31,
                                                ------------------------
                                                   2001          2000
                                                   ----          ----
                                                     (In thousands)
Deposits with other banks                       $   1,256     $   2,288
Federal funds sold                                  1,473         2,478
Taxable securities                                 32,003        26,661
Non-taxable securities                              2,538         2,560
Net loans                                          78,999        73,280
                                                ---------     ---------
   Total earning assets                         $ 116,269     $ 107,267
                                                =========     =========

     This increase in average earning assets was, however, not sufficient to
compensate for the interest rate declines discussed above as net interest
income declined from $5,329,798 to $4,467,835. Below are the various
components of interest income and expense, as well as their yield/costs for
the periods indicated:

                                                Years Ended
                                  -------------------------------------
                                  December 31, 2001   December 31, 2000
                                  -----------------   -----------------
                                  Interest            Interest
                                   Income/    Yield    Income/    Yield
                                   Expense    Cost     Expense    Cost
Interest income:
---------------
Deposits with other banks         $     37    2.95%   $   169     7.38%
Federal funds sold                      57    3.87%       164     6.62%
Federal funds sold                   1,959    6.12%     1,825     6.85%
Taxable securities                      98    3.86%       105     6.21%
Non-taxable securities               6,936    8.78%     7,906    10.79%
                                  --------   -----    -------    -----
   Total                          $  9,087    7.82%   $10,169     9.53%
                                  ========   =====    =======    =====

Interest expense:
----------------
NOW and money market deposits     $    750    2.72%   $   583     2.94%
Savings deposits                        51    1.42%        64     1.75%
Time deposits                        3,446    5.48%     3,750     5.96%
Other borrowings                       372    5.92%       442     7.36%
                                  --------   -----    -------    -----
   Total                          $  4,619    4.60%   $ 4,839     5.24%
                                  ========   =====    =======    =====
   Net interest income            $  4,468            $ 5,330
                                  ========            =======
   Net yield on earning assets                3.84%               4.97%
                                             =====               =====

     Non-interest income as a percentage of average total assets for the
years ended December 31, 2001 and December 31, 2000 amounted to .82% and
..44%, respectively.  The year ended December 31, 2001 results are
significantly above those of the year ended December 31, 2000 because of
gains from the sale of securities.  The drop in interest rates resulted in
higher bond prices which favorably impacted the Bank's securities portfolio.
Management chose to realize some of these gains and sold securities on
several occasions during the year. Non-interest expense, as a percentage of
average assets for the years ended December 31, 2001 and December 31, 2000,
amounted to 2.84% and 2.92%, respectively.  The primary reasons for the
increase in expense in 2001, as compared to 2000 are higher occupancy,
personnel and data processing expenses.


NET INTEREST INCOME

     The Company's results of operations are determined by its ability to
manage effectively interest income and expense, to minimize loan and
investment losses, to generate non-interest income and to control non-
interest expense.  Since interest rates are determined by market forces and
economic conditions beyond the control of the Company, the ability to
generate net interest income is dependent upon management's ability to
maintain an adequate spread between the rate earned on earning assets and the
rate paid on interest-bearing liabilities, such as deposits and borrowings.
Thus, net interest income is a key performance measure of income.

     The Company's net interest income for the year ended December 31, 2001
was $4,467,835 as compared to $5,329,798 for the year ended December 31,
2000.  Average yields on earning assets were 7.82% and 9.53% for the years
ended December 31, 2001 and December 31, 2000, respectively.  The average
cost of funds for the year ended December 31, 2001 decreased to 4.60% from
the year ended December 31, 2000 cost of 5.24%.  Net interest yield is
computed by subtracting interest expense from interest income and dividing
the resulting figure by average interest-earning assets.  Net interest yield
for the years ended December 31, 2001 and December 31, 2000 amounted to 3.84%
and 4.97%, respectively.  As discussed earlier, despite an increase in
interest-earning assets, net interest income for the year ended December 31,
2001 as compared to the year ended December 31, 2000 decreased by $861,963 as
a result of the continuous decline in interest rates throughout 2001. The net
interest rate spread, which is the difference between interest-earning assets
and interest-bearing liabilities, decreased 107 basis points from 4.29% in
2000 to 3.22% in 2001.


NON-INTEREST INCOME

     Non-interest income for the years ended December 31, 2001 and 2000
amounted to $1,005,223 and $498,272, respectively.  As a percentage of
average assets, non-interest income increased from 0.44% in 2000 to .82% in
2001 primarily because of gains realized from the sales of securities from
the Bank's available-for-sale portfolio.

     The following table summarizes the major components of non-interest
income for the periods therein indicated:

                                                 Year Ended December 31,
                                                ------------------------
                                                   2001          2000
                                                   ----          ----
                                                      (In thousands)
     Service fees on deposit accounts            $    279      $    287
     Gain (loss) on sale of securities                421           (50)
     Fees from Community Mortgage                     133           180
     Miscellaneous, other                             172            81
                                                 --------      --------
        Total non-interest income                $  1,005      $    498
                                                 ========      ========


NON-INTEREST EXPENSE

     Non-interest expense increased from $3,323,636 at December 31, 2000 to
$3,474,752 at December 31, 2001.  As a percent of total average assets, non-
interest expense decreased from 2.92% in 2000 to 2.84% in 2001.  Below are
the components of non-interest expense for the years 2001 and 2000.

                                                 Year Ended December 31,
                                                ------------------------
                                                   2001          2000
                                                   ----          ----
                                                      (In thousands)
     Salaries and other personnel benefits       $  1,934      $  1,900
     Data processing charges                          246           234
     Professional fees                                119           130
     Occupancy                                        278           230
     Depreciation and amortization                    184           146
     Other expenses                                   714           684
                                                 --------      --------
        Total non-interest expense               $  3,475      $  3,324
                                                 ========      ========


ALLOWANCE FOR LOAN LOSSES

     During 2001, the allowance for loan losses increased from $1,252,537 at
December 31, 2000 to $1,102,576 at December 31, 2001.  The allowance for loan
losses as a percent of gross loans declined slightly from 1.65% at December
31, 2000 to 1.19% at December 31, 2001.  As of December 31, 2001, management
considers the allowance for loan losses to be adequate to absorb possible
future losses.  However, there can be no assurance that charge-offs in future
periods will not exceed the allowance for loan losses or that additional
provisions to the allowance will not be required.


LIQUIDITY AND INTEREST RATE SENSITIVITY

     Net interest income, the Company's primary source of earnings,
fluctuates with significant interest rate movements.  To lessen the impact of
these margin swings, the balance sheet should be structured so that repricing
opportunities exist for both assets and liabilities in roughly equivalent
amounts at approximately the same time intervals.  Imbalances in these
repricing opportunities at any point in time constitute interest rate
sensitivity.

     Interest rate sensitivity refers to the responsiveness of interest-
bearing assets and liabilities to changes in market interest rates.  The rate
sensitive position, or gap, is the difference in the volume of rate sensitive
assets and liabilities, at a given time interval.  The general objective of
gap management is to manage actively rate sensitive assets and liabilities so
as to reduce the impact of interest rate fluctuations ,on the net interest
margin.  Management generally attempts to maintain a balance between rate
sensitive assets and liabilities as the exposure period is lengthened to
minimize the Company's overall interest rate risks.

     The asset mix of the balance sheet is continually evaluated in terms of
several variables:  yield, credit quality, appropriate funding sources and
liquidity.  To effectively manage the liability mix of the balance sheet,
management focuses on expanding the various funding sources.  The interest
rate sensitivity position at December 31, 2001 is presented below.  Since all
interest rates and yields do not adjust at the same velocity, the gap is only
a general indicator of rate sensitivity.

                                 After
                                 three    After
                                 months    six
                                  but     months   After one
                         Within  within    but      year but   After
                         three    six     within     within    five
                         months  months  one year  five years  years  Total
                         ------  ------  --------  ----------  -----  -----
                                       (Dollars in Thousands)
EARNING ASSETS
Loans                   $57,389 $  1,901  $  2,061  $23,550  $ 7,738 $ 92,639
Securities                1,464      867       628   30,601    1,957   35,517
Federal funds sold         --       --        --       --       --       --
Interest-bearing
 deposit                  1,713     --        --       --       --      1,713
                         ------  -------   -------   ------   ------  -------
Total earning assets    $60,566 $  2,768  $  2,689  $54,151  $ 9,695 $129,869
                         ======  =======   =======   ======   ======  =======

SUPPORTING SOURCE OF FUNDS

Interest-bearing demand
  deposits and savings  $40,441 $  2,068  $  1,301  $ 6,792  $  --   $ 50,602
Certificates,
  less than $100M        10,832    7,972     6,202    1,437     --     26,443
Certificates,
  $100M and over         11,448    8,198     3,294      694     --     23,634
FHLB borrowings               5    5,005        10    5,094      536   10,650
                         ------  -------   -------   ------   ------  -------
Total interest-
  bearing liabilities   $62,726 $ 23,243  $ 10,807  $14,017  $   536 $111,329
                         ======  =======   =======   ======   ======  =======

Interest rate
  sensitivity gap       $(2,160)$(20,475) $ (8,118) $40,134  $ 9,159 $ 18,540

Cumulative gap          $(2,160)$(22,635) $(30,753) $ 9,381  $15,540 $ 18,540

Interest rate
  sensitivity gap ratio   0.97     0.12      0.25     3.86    18.09     1.17

Cumulative interest rate
  sensitivity gap ratio   0.97     0.74      0.68     1.08     1.17     1.17

     As evidenced by the above table, the Company is marginally liability
sensitive from zero to three months, liability sensitive from three months to
one year and asset sensitive thereafter.  In a declining interest rate
environment, a liability sensitive position (a gap ratio of less than 1.0) is
generally more advantageous since liabilities are repriced sooner than
assets.  Conversely, in a rising interest rate environment, an asset
sensitive position (a gap ratio over 1.0) is generally more advantageous, as
earning assets are repriced sooner than liabilities.  With respect to the
Company, an one time increase in interest rates will result in slightly lower
earnings for the first three months, lower earnings from three months to one
year, and higher earnings thereafter.  Conversely, a decline in interest
rates will result in slightly higher earnings for the first three months,
increased earnings from three months to one year, and lower earnings
thereafter.  This, however, assumes that all other factors affecting earnings
remain constant.

     As the Company continues to grow, management will continuously structure
its rate sensitivity position to best hedge against rapidly rising or falling
interest rates. The Bank's Asset/Liability Committee meets on a quarterly
basis and develops management's strategy for the upcoming period.  Such
strategy includes anticipations of future interest rate movements.  Interest
rate risk will, nonetheless, fall within previously adopted policy parameters
to contain any risk.

     Liquidity represents the ability to provide steady sources of funds for
loan commitments and investment activities and to maintain sufficient funds
to cover deposit withdrawals and payment of debt and operating obligations.
These funds can be obtained by converting assets to cash or by attracting new
deposits.  The Company's primary source of liquidity comes from its ability
to maintain and increase deposits through the Bank.  Deposits grew by $13.0
million during the year ended December 31, 2001.

     Large denomination certificates (greater than $100,000) remained
relatively flat during 2001, and reliance on certificates of deposit to fund
normal banking operations declined from the prior year. At December 31, 2001
and December 31, 2000, large denomination certificates accounted for 21.7%
and 24.2% of total deposits, respectively.  Large denomination CDs are
generally more volatile than other deposits. As a result, management
continually monitors the competitiveness of the rates it pays on its large
denomination CDs and periodically adjusts its rates in accordance with market
demands.  Significant withdrawals of large denomination CDs may have a
material adverse effect on the Bank's liquidity.  Management believes that
since a majority of the certificates were obtained from Bank customers
residing in Wilkes County and Alexander County, North Carolina, the
volatility of such deposits is lower than if such deposits were obtained from
depositors residing outside of the Bank's market area, as outside depositors
are more likely to be interest rate sensitive.

     Securities, particularly securities available-for-sale, provide a
secondary source of liquidity for the Bank.  Approximately $1.7 million of
the $31.5 million in the Bank's available-for-sale securities portfolio is
scheduled to mature during 2002.  Additionally, several securities have call
dates prior to their maturity dates, thus enhancing the Company's liquidity
posture.

     Brokered deposits are deposit instruments, such as certificates of
deposits, deposit notes, bank instrument contracts and certain municipal
investment contracts that are issued through brokers and dealers who then
offer and/or sell these deposit instruments to one or more investors.  As of
December 31, 2001 and 2000, the Company had no brokered deposits in its
portfolio.

     Other than as set forth above, management knows of no trends, demands,
commitments, events or uncertainties that should result in or are reasonably
likely to result in the Company's liquidity increasing or decreasing in any
material way in the foreseeable future.


CAPITAL ADEQUACY
     There are two primary measures of capital adequacy for banks and bank
holding companies: (i) risk-based capital guidelines; and (ii) the leverage
ratio.

     The risk-based capital guidelines measure the amount of a bank's
required capital in relation to the degree of risk perceived in its assets
and its off-balance sheet items.  Capital is divided into two "tiers."  Tier
1 capital consists of common shareholders' equity, non-cumulative and
cumulative (bank holding companies only), perpetual preferred stock and
minority interests.  Goodwill is subtracted from the total.  Tier 2 capital
consists of the allowance for loan losses, hybrid capital instruments, term
subordinated debt and intermediate term preferred stock.  Banks are required
to maintain a minimum risk-based capital ratio of 8.0%, with at least 4.0%
consisting of Tier 1 capital.

     The second measure of capital adequacy relates to the leverage ratio.
The OCC has established a 3.0% minimum leverage ratio requirement. The
leverage ratio is computed by dividing Tier 1 capital into total assets.
Banks that are not rated CAMEL 1 by their primary regulator should maintain a
minimum leverage ratio of 3.0% plus an additional cushion of at least 1 to 2
percent, depending upon risk profiles and other factors.

     The Federal Reserve Board, the OCC and the FDIC issued a joint policy
statement to bankers, effective June 26, 1996,  to provide guidance on sound
practices for managing interest rate risk.  In the policy statement, the
agencies emphasized the necessity of adequate oversight by a bank's board of
directors and senior management and of a comprehensive risk management
process.  The policy statement also described the critical factors affecting
the agencies' evaluations of a bank's interest rate risk when making a
determination of capital adequacy.  The agencies' risk assessment approach
used to evaluate a bank's capital adequacy for interest rate risk relies on a
combination of quantitative and qualitative factors.  Banks that are found to
have high levels of exposure and/or weak management practices will be
directed by the agencies to take corrective action.

     The table below illustrates the Bank's and Company's regulatory capital
ratios at December 31, 2001.

                                                          Minimum
                                                         Regulatory
                                    December 31, 2001    Requirement
                                    -----------------    -----------
 Bank
 ----
 Tier 1 Capital                           11.9%              4.0%
 Tier 2 Capital                            1.1%              N/A
                                          ----              ----
    Total risk-based capital ratio        13.0%              8.0%
                                          ====              ====

 Leverage ratio                           10.0%              4.0%
                                          ====              ====

 Company - Consolidated
 ----------------------
 Tier 1 Capital                           14.9%              4.0%
 Tier 2 Capital                            1.1%              N/A
                                          ----              ----
    Total risk-based capital ratio        16.0%              8.0%
                                          ====              ====

 Leverage ratio                           12.6%              4.0%
                                          ====              ====

     The above ratios indicate that the capital positions of the Company and
the Bank are sound and that the Company is well positioned for future growth.



ITEM 7.  FINANCIAL STATEMENTS.
-----------------------------

     The following financial statements are filed with this report:

   Independent Auditors' Report

   Consolidated Balance Sheet - December 31, 2001 and 2000

   Consolidated Statements of Income - Years ended December 31, 2001
    and 2000

   Consolidated Statements of Changes in Shareholders' Equity -
    Years ended December 31, 2001 and 2000

   Consolidated Statements of Cash Flows - Years ended
    December 31, 2001 and 2000

   Notes to Consolidated Financial Statements



                         INDEPENDENT AUDITORS' REPORT
                         ----------------------------

Board of Directors
Community Bancshares, Inc.and Subsidiaries
Wilkesboro, North Carolina

We have audited the accompanying consolidated balance sheets of Community
Bancshares, Inc. and subsidiaries (the "Company") as of December 31, 2001,
and the related consolidated statements of income, changes in shareholders'
equity and cash flows for the year then ended.  These consolidated financial
statements are the responsibility of the Company's management.  Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit.  The consolidated financial statements of the
Company as of December 31, 2000, were audited by other auditors whose report
dated March 1, 2001, expressed an unqualified opinion on those consolidated
statements.

We conducted our audit in accordance with auditing standards generally
accepted in the United States of America.  Those standards require that we
plan and perform the audit to obtain misstatement.  An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements.  An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation.  We believe that our
audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Community Bancshares, Inc., and subsidiaries at December 31, 2001, and the
consolidated results of their operations and their cash flows for the year
ended December 31, 2001, in conformity with accounting principles generally
accepted in the United States of America.


                                 /s/  CHERRY, BEKAERT & HOLLAND, L.L.P.

Greensboro, North Carolina
February 22, 2002



                         COMMUNITY BANCSHARES, INC.
                         WILKESBORO, NORTH CAROLINA
                        Consolidated Balance Sheets


ASSETS                                              As of December 31,
------                                       -----------------------------
                                                   2001            2000
                                                   ----            ----
Cash and due from banks                      $   4,022,530   $   3,121,848
Interest bearing deposits                        1,713,466       2,789,223
Federal funds sold                                 -  -          1,200,000
                                             -------------   -------------
  Total cash and cash equivalents                5,735,996       7,111,071
Securities:
  Available-for-sale at fair value              32,786,293      28,748,815
  Held-to-maturity (Estimated market
  values of $2,781,000 and $3,672,801 at
  December 31, 2001 and 2000, respectively)      2,731,031       3,623,682
Loans, net                                      91,536,336      74,576,196
Property and equipment, net                      2,995,830       2,174,511
Other assets                                       944,845       1,214,187
                                             -------------   -------------
  Total Assets                               $ 136,730,331   $ 117,448,462
                                             =============   =============

LIABILITIES AND SHAREHOLDERS' EQUITY

Liabilities:
Deposits
  Non-interest bearing deposits              $   8,600,031   $   7,841,546
  Interest bearing deposits                    100,678,394      88,478,580
                                             -------------   -------------
       Total deposits                          109,278,425      96,320,126
FHLB borrowings                                 10,649,548       5,667,288
Other liabilities                                1,006,045       1,200,811
                                             -------------   -------------
  Total Liabilities                            120,934,018     103,188,225
                                             -------------   -------------

Commitments and Contingencies

Shareholders' Equity:
Common stock, $3.00 par value,
   10,000,000 shares authorized;
   issued and outstanding 1,512,882
   in 2001 and 1,471,884 in 2000                 4,538,646   $   4,415,652
Paid-in-capital                                  4,828,013       4,762,393
Retained earnings                                6,079,520       4,831,429
Accumulated other comprehensive income             350,134         250,763
                                             -------------   -------------
   Total Shareholders' Equity                   15,796,313      14,260,237
                                             -------------   -------------
   Total Liabilities
   and Shareholders' Equity                  $ 136,730,331   $ 117,448,462
                                             =============   =============


             See notes to the consolidated financial statements.



                         COMMUNITY BANCSHARES, INC.
                         WILKESBORO, NORTH CAROLINA
                      Consolidated Statements of Income


                                              Years Ended of December 31,
                                             -----------------------------
                                                   2001            2000
                                                   ----            ----
Interest Income:
 Interest and fees on loans                  $   6,935,932   $   7,905,772
 Interest on investment securities               2,057,072       1,929,805
 Interest on deposits with other banks              36,778         169,310
 Interest on federal funds sold                     56,779         164,277
                                             -------------   -------------
      Total interest income                      9,086,561      10,169,164
Interest Expense:
 Interest on deposits and borrowings             4,618,726       4,839,366
                                             -------------   -------------
      Net interest income                        4,467,835       5,329,798
 Provision for possible loan losses                200,000         130,000
                                             -------------   -------------
      Net interest income after provision
       for possible loan losses                  4,267,835       5,199,798
                                             -------------   -------------

Other Income:
  Gain on sale of securities                       421,094         (49,559)
  Gain on sale of assets                           100,000          -  -
  Service fees on deposit accounts                 278,520         286,884
  Fees from Community Mortgage                     132,761         179,896
  Miscellaneous, other                              72,848          81,051
                                             -------------   -------------
      Total other income                         1,005,223         498,272
                                             -------------   -------------

Other Expenses:
  Salaries and benefits                          1,933,465       1,899,781
  Data processing expense                          246,215         233,768
  Occupancy expense                                278,355         229,576
  Professional fees                                118,694         130,060
  Depreciation and amortization                    183,721         145,750
  Other operating expenses                         714,302         684,701
                                             -------------   -------------
      Total other expenses                       3,474,752       3,323,636
                                             -------------   -------------

Income before income taxes                       1,798,306       2,374,434
Income taxes                                       439,750         764,268
                                             -------------   -------------

Net income                                   $   1,358,556   $   1,610,166
                                             =============   =============

Basic earnings per share                          $    .92        $   1.10
                                                  ========        ========
Diluted earnings per share                        $    .88        $   1.02
                                                  ========        ========


             See notes to the consolidated financial statements.



                       COMMUNITY BANCSHARES, INC.
                       WILKESBORO, NORTH CAROLINA
           Consolidated Statements of Changes in Shareholders' Equity
                 for the years ended December 31, 2001 and 2000


                                                       Accumulated
                                                          Other
              Number    Common       Paid                Compre-
                Of      Stock        -in-      Retained  hensive
              Shares   Par Value    Capital    Earnings  Income      Total
              ------   ---------    -------    --------  ------      -----
Balance,
December 31,
  1999       1,467,384 $4,402,152 $4,742,143 $3,221,263 $(230,122) $12,135,436

Comprehensive
 income:
 Net income,
  2000           --         --         --     1,610,166     --       1,610,166
 Unrealized
   gain,
   securities,
   net of tax    --         --         --         --      480,885      480,885
                                                                    ----------
Total
 comprehensive
 income                                                              2,091,051

Exercise of
 options        16,500     49,500    128,250      --        --         177,750

Purchase and
 cancellation
 of common
 stock         (12,000)   (36,000)  (108,000)     --        --        (144,000)
             ---------  ---------  ---------  ---------  --------   ----------
Balance,
December 31,
  2000       1,471,884  4,415,652  4,762,393  4,831,429   250,763   14,260,237
             ---------  ---------  ---------  ---------  --------   ----------

Comprehensive income:
  Net income,
   2001          --         --         --     1,358,556     --       1,358,556
  Unrealized
   gain,
   securities,
   net of tax    --         --         --         --      198,513      198,513
  Less: reclass-
   ification
   adjustment,
   net of tax    --         --         --         --      (99,142)     (99,142)
                                                         --------   ----------
                                                           99,371       99,371
                                                         --------   ----------
Total
 comprehensive
 income                                                              1,457,937
                                                                    ----------
Cash dividends
 (.075 per
  share)         --         --         --      (110,465)    --        (110,465)

Exercise of
 options        16,000     48,000    112,000      --        --         160,000

Warrants
 exercised      41,748    125,244    104,370      --        --         229,614

Purchase and
 cancellation
 of common
 stock         (16,750)   (50,250)  (150,750)     --        --        (201,000)
             ---------  ---------  ---------  ---------  --------   ----------

Balance,
December 31,
  2001       1,512,882  4,538,646 $4,828,013 $6,079,520 $ 350,134  $15,796,313
             =========  =========  =========  =========  ========   ==========

             See notes to the consolidated financial statements.



                         COMMUNITY BANCSHARES, INC.
                         WILKESBORO, NORTH CAROLINA
                   Consolidated Statements of Cash Flows

                                              Years Ended of December 31,
                                             -----------------------------
                                                   2001            2000
                                                   ----            ----
Cash flows from operating activities:
Net income                                    $   1,358,556   $   1,610,166
Adjustments to reconcile net income
 to net cash provided by operating
 activities:
    Depreciation and amortization                  183,720         145,750
    Net accretion or discount on securities       (120,961)        (44,278)
    (Gain) loss on sale or  settlements
     of securities                                (421,094)         49,559
    Provision for loan losses                      200,000         130,000
    Decrease (increase) in other assets            269,342        (171,794)
    Increase (decrease) in liabilities            (194,766)        158,156
                                             -------------   -------------
Net cash provided by operating activities        1,274,797       1,877,559
                                             -------------   -------------

Cash flows from investing activities:
Available-for-sale securities:
   Proceeds from sale of securities             16,503,272       3,807,773
   Proceeds from maturities,
    calls and paydowns                           7,166,651       2,609,446
   Purchase of securities                      (27,021,354)    (15,318,150)
Held-to-maturity securities:
   Purchase of securities                       (1,067,446)     (1,950,403)
   Proceeds from maturities,
    calls and paydowns                           1,915,476         133,211
Net increase in loans                          (17,160,140)     (1,770,595)
Purchase of property and equipment              (1,005,039)       (140,751)
                                             -------------   -------------
Net cash used by investing activities          (20,668,580)    (12,629,469)
                                             -------------   -------------

Cash flows from financing activities:
Proceeds from exercise of options
   and warrants                                    389,614         177,750
Purchase and cancellation of common stock         (201,000)       (144,000)
Cash dividends                                    (110,465)         -  -
FHLB borrowings                                  5,000,000      (3,017,631)
FHLB repayments                                    (17,740)         -  -
Increase in deposits                            12,958,299       4,377,606
                                             -------------   -------------
Net cash provided by financing activities       18,018,708       1,393,725

Net (decrease) in cash and cash equivalents     (1,375,075)     (9,358,185)
Cash and cash equivalents, beginning of year     7,111,071      16,469,256
                                             -------------   -------------
Cash and cash equivalents, end of year       $   5,735,996   $   7,111,071
                                             =============   =============

Supplemental Information:
Income taxes paid                            $     428,595   $     726,985
                                             =============   =============
Interest paid                                $   4,621,185   $   4,720,693
                                             =============   =============


             See notes to the consolidated financial statements.



                        COMMUNITY BANCSHARES, INC.
                        WILKESBORO, NORTH CAROLINA
                 Notes To Consolidated Financial Statements
                        December 31, 2001 And 2000


NOTE 1 - SUMMARY OF ORGANIZATION

Community Bancshares, Inc., Wilkesboro, North Carolina (the "Company") was
incorporated under the laws of the State of North Carolina on June 11, 1990,
and owns 100% of Northwestern National Bank (formerly Wilkes National Bank)
(the "Bank") and Community Mortgage Corporation ("Community Mortgage").  The
Bank commenced operations on January 17, 1992, as Wilkes National Bank.  It
changed its name to Northwestern National Bank in 2001.  The Bank is
primarily engaged in the business of obtaining deposits and providing
commercial, consumer, and real estate loans to the general public.  Bank
deposits are each insured up to $100,000 by the Federal Deposit Insurance
Corporation (the "FDIC") subject to certain limitations imposed by the FDIC.
The Bank operates four full service branches, three in Wilkes County and one
in Alexander County.  A fifth branch is under construction in Ashe County.
The Bank has three loan production offices located in Ashe, Caldwell and
Watauga counties.

During 1994, the Company, together with four unrelated banks, established
Community Mortgage Corporation ("Community Mortgage") to engage in mortgage
related activities. The Company initially invested $50,000 in Community
Mortgage in exchange for 20% of Community Mortgage's common stock.  During
1996 and 1997, the Company acquired additional shares of Community Mortgage,
eventually increasing its ownership position to 100% of the voting shares.


NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of presentation and reclassification

The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries, Northwestern National Bank and Community
Mortgage Corporation, (collectively "the Company".)  All significant
intercompany accounts and transactions have been eliminated in consolidation.
Certain prior year amounts have been reclassified to conform to the current
year presentation.  Such reclassifications had no impact on net income or
shareholders' equity.

Basis of accounting and uses of estimates

The accounting and reporting policies of the Company conform to generally
accepted accounting principles and to general practices in the banking
industry.  In preparing the financial statements, management is required to
make estimates and assumptions that affect the reported amounts of assets and
liabilities as of the date of the financial statements and income and
expenses during the reporting period.  Actual results could differ
significantly from those estimates.  Material estimates that are particularly
susceptible to significant change in the near term relate to the
determination of the allowance for loan losses.

Cash and due from banks

The Company maintains ongoing deposit relationships with other banks which,
at times, may exceed federally insured limits.  The Company has never
experienced any material losses from such deposit relationships.

Investment securities

Investment securities that the Company has the positive intent and ability to
hold to maturity are classified as held-to-maturity and are reported at
amortized cost.  Investment securities held for current resale are classified
as trading securities and are reported at fair value, with unrealized gains
and losses included in earnings.  Investment securities not classified either
as securities held-to-maturity or trading securities are classified as
available-for-sale and reported at fair value; net unrealized gains or losses
(net of related taxes) are excluded from earnings and are reported as
accumulated other comprehensive income/(loss) within shareholders' equity.
The classification of investment securities as held-to-maturity, trading or
available-for-sale is determined at the date of purchase.

Realized gains and losses from sales of investment securities are determined
based upon the specific identification method.  Premiums and discounts are
recognized in interest income using the level-yield method.

Management periodically evaluates investment securities for other than
temporary declines in value and records losses, if any, through an adjustment
to earnings.

Loans, interest and fee income on loans

Loans are reported at their outstanding principal balance adjusted for
charge-offs, unamortized loan fees and the allowance for possible loan
losses.  Interest income is recognized over the term of the loan based on the
principal amount outstanding.  Non-refundable loan fees are taken into income
to the extent they represent the direct cost of initiating a loan; the amount
in excess of direct costs is deferred and amortized over the expected life of
the loan.

Accrual of interest on loans is discontinued either when (i) reasonable doubt
exists as to the full or timely collection of interest or principal or when
(ii) a loan becomes contractually past due by 90 days or more with respect to
interest or principal.  When a loan is placed on non-accrual status, all
interest previously accrued but not collected is reversed against current
period interest income.  Income on such loans is then recognized only to the
extent cash is received and where the future collection of principal is
probable.  Loans are returned to accruing status only when they are brought
fully current with respect to interest and principal and when, in the
judgment of management, the loans are estimated to be fully collectible as to
both principal and interest.

Impaired loans are:  (i) non-performing loans that have been placed on
nonaccrual status; and (ii) loans which are performing according to all
contractual terms of the loan agreement, but many have substantive indication
of potential credit weakness.  Accounting standards require impaired loans to
be measured based on:  (a) the present value of expected future cash flows
discounted at the loan's original effective interest rate; or (b) the loan's
observable market price; or (c) the fair value of the collateral if the loan
is collateral dependent.

Allowance for loan losses

The allowance for loan losses represents management's estimate of probable
losses inherent in the loan portfolio and is established through provisions
charged to operations.  Loans deemed to be uncollectible are charged against
the allowance, and subsequent recoveries, if any, are credited to the
allowance.  The adequacy of the allowance is based on management's evaluation
of the loan portfolio under current economic conditions, past loan loss
experience, adequacy of underlying collateral, changes in the nature and
volume of the loan portfolio, review of specific problem loans, and such
other factors which, in management's judgment, deserve recognition in
estimating loan losses.  The evaluation for the adequacy of the allowance is
inherently subjective as its requires material estimates, including the
amounts and timing of future cash flows expected to be received on impaired
loans that may be susceptible to significant change.  Various regulatory
agencies, as an integral part of their examination process, periodically
review the Company's allowance.  Such agencies may require the Company to
recognize additions to the allowance based on their judgments about
information available to them at the time of their examination.

Property and equipment

Building, furniture, equipment and leasehold improvements are stated at cost,
net of accumulated depreciation.  Land is carried at cost.  Maintenance and
repairs are charged to operations, while major improvements are capitalized.
Upon retirement, sale or other disposition of property and equipment, the
cost and accumulated depreciation are eliminated from the accounts, and gain
or loss is included in income from operations.  Depreciation expense is
charged to operations over the estimated useful lives of the assets.  The
estimated useful lives and methods of depreciation for the principal items
follow:

            Type of Asset            Life in Years     Depreciation Method

     Furniture and equipment            3 to 18          Straight-line
     Building and improvements         27 to 39          Straight-line
     Leasehold improvements               5              Straight-line

Other real estate

Other real estate represents property acquired through foreclosure
proceedings.  Other real estate is carried at the lower of:  (i) cost; or
(ii) fair value less estimated selling costs.  Fair value is determined on
the basis of current appraisals, comparable sales and other estimates of
value obtained principally from independent sources.  Any excess of the loan
balance at the time of foreclosure over the fair value of the real estate
held as collateral is treated as a loan loss and charged against the
allowance of loan losses.  Gain or loss on the sale of the property and any
subsequent adjustments to reflect changes in fair value of the property are
reflected in the income statement.  Recoverable costs relating to the
development and improvement of the property are capitalized whereas routine
holding costs are charged to expense.

Income Taxes

Income tax expense consists of current and deferred taxes.  Current income
tax provisions approximate taxes to be paid or refunded for the applicable
year.  Deferred tax assets and liabilities are recognized for the temporary
differences between the bases of assets and liabilities as measured by tax
laws and their bases as reported in the financial statements.  Deferred tax
expense or benefit is then recognized for the change in deferred tax assets
or liabilities between periods.

Recognition of deferred tax assets is based on management's belief that it is
more likely than not that the tax benefit associated with certain temporary
differences, tax operating loss carryforwards, and tax credits will be
realized.  A valuation allowance is recorded for those deferred tax items for
which it is more likely than not that realization will not occur.

Statement of cash flows

For purposes of reporting cash flows, cash and cash equivalents include cash
on hand, amounts due from banks, interest bearing deposits with other banks,
and federal funds sold.  Generally, federal funds are purchased or sold for
one day periods.

Earnings per share ("EPS")

Basic EPS is defined as the amount of earnings available to each share of
common stock outstanding during the reporting period.  Diluted EPS is defined
as the amount of earnings available to each share of common stock outstanding
during the reporting period and to each share that would have been
outstanding assuming the issuance of common stock for all dilutive potential
common stock outstanding during the reporting period.

The following is a reconciliation of net income (the numerator) and the
weighted average shares outstanding (the denominator) used in determining
basic and diluted EPS for each of the following periods:

                                        Year Ended December 31, 2001
                                      Basic EPS             Diluted EPS
                                Numerator  Denominator  Numerator
Denominator
Net income                     $ 1,358,556     -       $ 1,358,556     -
Weighted average shares             -       1,472,485       -       1,472,485
Dilutive options,
   warrants, net                    -          -            -          76,986
     Totals                    $ 1,358,556  1,472,485  $ 1,358,556  1,549,471

EPS                                      $.92                    $.88


                                        Year Ended December 31, 2000
                                      Basic EPS             Diluted EPS
                                Numerator  Denominator  Numerator
Denominator
Net income                     $ 1,610,166     -       $ 1,610,166     -
Weighted average shares             -       1,469,119       -       1,469,119
Dilutive options,
   warrants, net                    -          -            -         114,578
     Totals                    $ 1,610,166  1,469,119  $ 1,610,166  1,583,697

EPS                                     $1.10                   $1.02

New accounting pronouncements

Statement of Financial Accounting Standards (SFAS) No. 141, "Business
Combinations," establishes standards for the financial accounting and
reporting for business combinations and supersedes APB Opinion No. 16,
"Business Combinations," and FASB Statement No. 38, "Accounting for
Preacquisition Contingencies of Purchased Enterprises."  All business
combinations within the scope of SFAS No. 141 initiated after June 30, 2001,
are to be accounted for using the purchase method.

SFAS No. 142, "Goodwill and Other Intangible Assets," was issued in June 2001
and establishes standards for the financial accounting and reporting for
acquired goodwill and other intangible assets and supersedes APB Opinion No.
17, "Intangible Assets."  It addresses how intangible assets that are
acquired individually or with groups of other assets (but not those acquired
in a business combination) should be accounted for in financial statements
upon their acquisition.  SFAS No. 142 also addresses how goodwill and other
intangible assets should be accounted for after they have been initially
recognized in the financial statements.  Under SFAS No. 142, goodwill and
intangible assets that have indefinite useful lives will not be amortized but
rather will be tested at least annually for impairment.  Intangible assets
that have finite useful lives will continue to be amortized over their useful
lives, but without the constraint of the 40-year maximum life required by
SFAS No. 142.  The provisions of SFAS No. 142 are required to be applied
starting with fiscal years beginning after December 15, 2001.  The Company
had no intangible assets at December 31, 2001.

SFAS No. 144, "Accounting for the Impairment or Disposal of Long-lived
Assets," was issued in August 2001 and supersedes SFAS No. 121.  SFAS No. 144
establishes standards for the financial accounting and reporting requirements
for the impairment or disposal of long-lived assets.  The provisions of SFAS
No. 144 are effective for financial statements issued for fiscal years
beginning after December 15, 2001.  The Company expects that adopting the
provisions of SFAS No. 144 will not have a material impact on the
consolidated financial statements of the Company.

Operating segments

The FASB issued Statement No. 131, "Disclosures about Segments of an
Enterprise and Related Information," in June 1997, which established
standards for the way public business enterprises report information about
operating segments.  This statement also establishes standards for related
disclosures about products, services, geographic areas and major customers.
In adopting Statement No. 131, the Company has determined that, using the
definitions contained in the statement, all of its activities constitute two
reportable operating segments.


NOTE 3 - REQUIRED RESERVES AND FEDERAL FUNDS SOLD

The Bank is required to maintain legal cash reserves computed by applying
prescribed percentages to its various types of deposits.  Pursuant to the
FRB's reserve requirements, the Bank was required to maintain certain cash
reserve balances with the Federal Reserve System of approximately  $343,000
and $326,000 at December 31, 2001 and 2000, respectively.  When the Bank's
cash reserves are in excess of the required amount, the Bank may lend the
excess to other banks on a daily basis.  At December 31, 2001 and 2000, the
Bank sold zero and $1,200,000, respectively, to other banks through the
federal funds market.


NOTE 4 - SECURITIES AVAILABLE-FOR-SALE

The amortized costs and estimated market values of securities available-for-
sale follow:
                                              Gross
                           Amortized        Unrealized
Description                  Cost         Gains      Losses     Fair Value
December 31, 2001

U.S. Agency securities    $ 22,939,523  $ 527,273  $ (36,943)  $ 23,429,853
Municipal securities         3,075,035     41,237       (776)     3,115,496
Corporate bonds              3,339,163     21,871    (41,294)     3,319,740
Mortgage pools               2,174,098     20,459     (1,320)     2,193,237
FRB, FHLB stock                727,967      -          -            727,967

     Total                $ 32,255,786  $ 610,840  $ (80,333)  $ 32,786,293

December 31, 2000

U.S. Agency securities    $ 22,729,514  $ 394,103  $  (1,370)  $ 23,122,247
FRB, FHLB stock                625,400      -          -            625,400
Municipal securities         2,556,069      5,628     (8,607)     2,553,090
Corporate bonds                509,664      -          -            509,664
Mortgage pools               1,948,223      3,172    (12,981)     1,938,414

     Total                $ 28,368,870  $ 402,903  $ (22,958)  $ 28,748,815

All national banks are required to hold Federal Reserve Bank stock and all
members of the Federal Home Loan Bank are required to hold FHLB stock.  Since
no ready market exists for either stock, both FRB and FHLB stocks are
considered restricted and are reported at cost.

The amortized cost and fair value of securities available-for-sale at
December 31, 2001, by contractual maturity, are shown in the following chart.
Expected maturities may differ from contractual maturities because issuers
may have the right to call or prepay obligations with or without call or
prepayment penalties.
                                         Amortized
                                            Cost             Fair Value
	Due in one year or less           $  1,748,155        $  1,768,850
	Due after one through five years    28,088,054          28,580,301
	Due after five through ten years     1,105,970           1,110,357
	Due after ten years                    585,640             598,819
	Total                             $ 31,527,819        $ 32,058,327

Proceeds from sales of securities during calendar years 2001 and 2000 were
$16,503,272 and $3,807,773, respectively; gross realized gains and losses
were $414,055 and $0 in 2001, and $0 and $49,552 in 2000.

As of December 31, 2001, securities with a carrying value of $4,375,000 were
pledged to secure public funds, repurchase agreements and for other purposes
required or permitted by law.  Also, securities with a carrying value of
$5,104,700 were pledged to the Federal Home Loan Bank as surety for certain
advances.


NOTE 5 - SECURITIES HELD-TO-MATURITY

The amortized costs and estimated market values of securities held-to-
maturity follow:

                                              Gross
                           Amortized        Unrealized
Description                  Cost         Gains      Losses     Fair Value
December 31, 2001

U.S. Agency securities    $    844,184  $  20,368  $   -       $    864,552
Mortgage pools               1,886,847     29,605         (3)     1,916,448
     Total                $  2,731,031  $  49,973  $      (3)  $  2,781,000

                                              Gross
                           Amortized        Unrealized
Description                  Cost         Gains      Losses     Fair Value
December 31, 2000

U.S. Agency securities    $  2,005,826  $  42,287  $    (879)  $  2,047,234
Mortgage pools               1,617,856      9,952     (2,241)     1,625,567
     Total                $  3,623,682  $  52,239  $  (3,120)  $  3,672,801

The amortized costs and estimated market values of securities held-to-
maturity at December 31, 2001, by contractual maturity, are shown below.
Expected maturities will differ from contractual maturities because borrowers
may have the right to call or prepay obligations with or without call or
prepayment penalties.
                                         Amortized
                                            Cost             Fair Value
	Due in one year or less           $     52,347        $     52,913
	Due after one through five years     1,332,259           1,366,087
	Due after five through ten years       755,689             764,967
	Due after ten years                    590,736             597,033
	Total                             $  2,731,031        $  2,781,000

At December 31, 2001, securities with a carrying value of $438,000 were
pledged to secure public funds, repurchase agreements and for other purposes
required or permitted by law.


NOTE 6 - LOANS

The composition of loans by major loan category, as of December 31, 2001 and
2000, follows:
	                                                December 31,
	                                            2001           2000
	Commercial, financial, agricultural    $ 37,300,022   $ 38,570,611
	Real estate - construction                6,581,730      4,377,975
	Real estate - mortgage                   42,553,085     22,244,182
	Installment                               5,938,522     10,336,549
	Lease financing                             265,554        299,416
	     Loan, gross                         92,638,913     75,828,733
	Less:
	     Allowance for loan losses           (1,102,577)    (1,252,537)
	         Loans, net                    $ 91,536,336   $ 74,576,196

The Company considers impaired loans to include all restructured loans, loans
on which the accrual of interest had been discontinued and all other loans
which are performing according to the loan agreement, but may have
substantive indication of potential credit weakness.  At December 31, 2001
and 2000, the total recorded investment in impaired loans, all of which had
allowances determined in accordance with FASB Statements No. 114 and No. 118,
amounted to approximately $3,000,672 and $3,709,698, respectively.  The
average recorded investment in impaired loans amount to approximately
$3,355,185 and $2,685,766 for the years ended December 31, 2001 and 2000,
respectively.  The allowance for loan losses related to impaired loans amount
to approximately $393,942 and $404,268 at December 31, 2001 and 2000,
respectively.  Interest income recognized on impaired loans for the years
ended December 31, 2001 and 2000 amounted to $289,588 and $207,055,
respectively.  The amount of interest recognized on impaired loans using the
cash method of accounting was not material for the years ended December 31,
2001 and 2000.  The Company has no commitments to lend additional funds to
borrowers whose loans have been modified.


NOTE 7 - ALLOWANCE FOR LOAN LOSSES

The activity within the allowance for loan losses for the years ended
December 31, 2001 and 2000 follows:
	                                                December 31,
	                                            2001           2000
	Balance, beginning of year             $  1,252,537   $  1,228,895
	Add:  Provision for loan losses             200,000        130,000
	Add:  Recoveries of previously
	       charged-off amounts                   20,080         89,130
	      Total                               1,472,617      1,448,025
	Deduct:  Amounts charged-off               (370,041)      (195,488)
	Balance, end of year                   $  1,102,576   $  1,252,537


NOTE 8 - PROPERTY AND EQUIPMENT

Building, furniture, equipment, land, and leasehold improvements are stated
at cost less accumulated depreciation.  Components of property and equipment
included in the consolidated balance sheets at December 31, 2001 and 2000
follow:
	                                             December 31,
	                                            2001           2000
	Land                                   $  1,154,304   $    574,193
	Building and improvements                 1,528,589      1,495,984
	Leasehold improvement                        96,488         13,165
	Furniture and equipment                     909,051        638,502
	Construction in progress                      4,858          -
	    Property and equipment                3,693,290      2,721,844
	Deduct:
	    Accumulated depreciation               (697,460)      (547,333)
	        Property and equipment, net    $  2,995,830   $  2,174,511

Depreciation expense for the years ended December 31, 2001 and 2000 amounted
to $177,060 and $141,068, respectively.


NOTE 9 - COMMITMENTS AND CONTINGENCIES

In the normal course of business, there are various outstanding commitments
to extend credit in the form of unused loan commitments and standby letters
of credit that are not reflected in the consolidated financial statements.
Since commitments may expire without being exercised, these amounts do not
necessarily represent future funding requirements.  The Company uses the same
credit and collateral policies in making commitments as those it uses in
making loans.

At December 31, 2001 and 2000, the Company had unused loan commitments of
approximately $16.2 million and $12.3 million, respectively.  Additionally,
standby letters of credit of approximately $76,000 and $42,000 were
outstanding at December 31, 2001 and 2000, respectively.  The majority of
these commitments are collateralized by various assets. No material losses
are anticipated as a result of these transactions.

The Company leases its administrative offices, land for one branch, and
buildings for one branch and three loan production offices under operating
leases.

For the years ended December 31, 2001 and 2000, lease payments relating to
these operating leases amounted to $87,349 and $12,266, respectively.

Future minimum annual rental payments on these leases, excluding possible
renewals and extensions are as follows:

                    Year Ended
                    December 31,             Amount
                       2002                $ 126,000
                       2003                  113,000
                       2004                   94,000
                       2005                   95,000
                       2006                   81,000
                     Thereafter              126,000
                       Total               $ 635,000

The Company and its subsidiaries are subject to claims and lawsuits which
arise primarily in the ordinary course of business.  It is the opinion of
management that the disposition or ultimate resolution of such claims and
lawsuits will not have a material adverse effect on the consolidated
financial position of the Company and its subsidiaries.


NOTE 10 - DEPOSITS

The following details deposit accounts at December 31, 2001 and 2000:

	                                                December 31,
	                                            2001           2000
	Non-interest bearing deposits          $  8,600,031   $  7,841,546
	Interest bearing deposits:
	     NOW accounts                        10,301,980      9,097,664
	     Money market accounts               25,643,728     12,951,589
	     Savings                             14,655,839      3,565,927
	     Time, less than $100,000            26,443,300     39,518,502
	     Time, $100,000 and over             23,633,547     23,344,898
	          Total deposits               $109,278,425   $ 96,320,126

At December 31, 2001, the scheduled maturities of all certificates of deposit
were as follows:

                    Year Ended
                    December 31,             Amount
                       2002                $ 47,945,771
                       2003                   1,513,557
                       2004                     495,492
                       2005                      66,836
                       2006                      55,191
                       Total               $ 50,076,847


NOTE 11 - FHLB BORROWINGS

Borrowings from the FHLB totaled $10,649,547 and $5,667,288 at December 31,
2001 and 2000, respectively.  These advances are collateralized by a lien on
qualifying first mortgage loans in an amount necessary to satisfy the
outstanding indebtedness plus accrued interest.  In addition, the borrowings
are secured by the Company's FHLB stock and may also be collateralized by
additional pledges of eligible investment securities.  Advances had interest
rates ranging from 2.25% to 6.41% at December 31, 2001, and 5.71% to 6.60% at
December 31, 2000.  Maturities of advances at December 31, 2001 are as
follows:

                    Year Ended
                    December 31,             Amount
                       2002                $ 5,019,185
                       2003                  1,020,748
                       2004                  2,022,300
                       2005                  2,024,255
                       2006                     26,231
                     Thereafter                536,829
                       Total               $10,649,548

Fixed rate borrowings amounting to $649,547 and $667,288 were outstanding at
December 31, 2001 and 2000, respectively.  All other borrowings are at fixed
rates with call dates, at the option of the FHLB, ranging from March 17, 2001
to March 17, 2002.


NOTE 12 - SHAREHOLDERS' EQUITY

The Company currently has 10.0 million shares of common stock authorized,
1,512,882 shares of which were issued and outstanding at December 31, 2001.
The holders of common stock have no preemptive rights with respects to the
issuance of any shares by the Company.  The Company is authorized to issue up
to 1.0 million shares of preferred stock, $6.00 par value, issuable in
series, the relative rights and preferences of which shall be designated by
the Board of Directors.  The preferred stock may have senior dividend and/or
liquidation preferences superior to those of common stock.  No preferred
stock was issued and outstanding at December 31, 2001 and 2000.

In the initial stock sale in 1990, the Company offered warrants to its
organizers and to a group of initial subscribers.  Each warrant, when
surrendered with $5.50 to the Company, is convertible into one share of
common stock.  The warrants expire from January 17, 2002.  At December 31,
2001 and 2000, there were 109,820 and 151,568 stock warrants outstanding,
respectively.  During 2001 and 2000, 41,748 and zero warrants, respectively,
were exercised at $5.50 per share.

The Company adopted an incentive stock option plan covering 400,000 stock
options.  At December 31, 2001 and 2000, there were 186,000 and 170,000 stock
options, respectively, outstanding.  See Note 16.


NOTE 13 - INTEREST ON DEPOSITS AND BORROWINGS

A summary of interest expense for the years ended December 31, 2001 and 2000
follows:
	                                                December 31,
	                                            2001           2000
	Interest on NOW accounts               $     61,284   $     42,543
	Interest on money market accounts           688,972        340,861
	Interest on savings accounts                 50,719         63,915
	Interest on CDs under $100,000            2,279,988      2,291,526
	Interest on CDs $100,000 and over         1,165,725      1,458,387
	Interest, other borrowings                  372,038        442,134
	          Total deposits               $  4,618,726   $  4,839,366


NOTE 14 - OTHER OPERATING EXPENSES

A summary of other operating expenses for the years ended December 31, 2001
and 2000 follows:
	                                                December 31,
	                                            2001           2000
	Advertising and public relations       $     97,132   $     82,813
	Supplies and printing                        93,258         83,399
	Courier expense                              65,753         73,308
	Equipment expense                            96,386         66,156
	Loan expenses                                77,307         81,859
	Computer expense                             44,648         33,439
	Regulatory assessments                       62,123         61,172
	All other operating expenses                177,695        202,555

	     Total other operating expenses    $    714,302   $    684,701


NOTE 15 - INCOME TAXES

As of December 31, 2001 and 2000, the Company's provision for income taxes
consisted of the following:
                                             December 31,
                                          2001          2000
Current                               $  443,000    $  758,757
Deferred (benefit)                        (3,250)        5,511

     Income tax expense               $  439,750    $  764,268

The Company's provision for income taxes differs from the amounts computed by
applying the federal income tax statutory rates to income before income
taxes.  A reconciliation of federal statutory income taxes to the Company's
actual income tax provision follows for the years ended December 31, 2001 and
2000.
                                          2001          2000
Income taxes at statutory rate        $  611,400    $  807,308
State tax, net of Federal benefits         2,310        34,070
Change in valuation allowance            (66,500)       29,899
Tax exempt income                       (190,100)      (74,185)
Other                                      1,640       (32,824)

     Total                            $  439,750    $  764,268

The tax effects of the temporary differences that comprise the net deferred
tax liability at December 31, 2001 and the net tax assets at December 31,
2000 are presented below:
                                          2001          2000
Deferred tax assets:
   Allowance for loan losses          $  490,700    $  398,239
   Other                                  27,800        27,880
                                         518,500       426,119
   Less:  Valuation allowance           (468,300)     (401,822)
                                          50,200        24,297

Deferred tax liabilities:
   Net unrealized gain on
    securities available-for-sale       (180,400)     (129,181)
   Depreciation                          (22,600)        1,365
                                        (203,000)     (127,816)
Net deferred tax liability            $ (152,800)   $ (103,519)

There was a net change in the valuation allowance during the calendar years
2001 and 2000.  In assessing the realizability of deferred tax assets,
management considers whether it is more likely than not that some portion or
all of the deferred tax assets will not be realized.  The ultimate
realization of deferred tax assets is dependent upon the generation of future
taxable income during the periods in which those temporary differences become
deductible.  Management considers the scheduled reversal of deferred tax
liabilities, projected future taxable income, and tax planning strategies in
making this assessment.  Based upon the level of historical taxable income
and projection for future taxable income over the periods which the temporary
differences resulting in the deferred tax assets are deductible, management
believes it is more likely than not that the Company will realize the
benefits of those deductible differences, net of the existing valuation
allowance at December 31, 2001.


NOTE 16 - BENEFIT PLANS AND STOCK OPTIONS

The Company has a savings plan (the "Savings Plan") administered under the
provisions of the Internal Revenue Code Section 401(k).  During the calendar
years 2001 and 2000, the Company made contributions totaling $47,982 and
$44,810, respectively, to the Savings Plan.

On November 18, 1993, the Bank's Board of Directors adopted a profit sharing
plan ("Profit Plan") for the benefit of its employees.  There were no
transactions relating to this Profit Plan during either 2001 or 2000.

The shareholders of the Company approved an incentive stock option plan
("Incentive Plan") for directors and key employees.  The Incentive Plan
became effective March 18, 1993 and covers 400,000 options.  The exercise
price of options granted must be at least the average market price as of the
date of the grant.  The above options expire between five to ten years from
the date of the grant.  In May, 1994, the Incentive Plan was amended to,
among other things, provide for the automatic annual grant of options to
purchase 2,000 shares of common stock to each of the Company's outside
directors.  The Plan is accounted for under the provisions of Statement of
Financial Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation"
as permitted by SFAS No. 123, the Company has elected to continue using the
measurement method prescribed in Accounting Principles Board (APB) Opinion
No. 25 and, accordingly, SFAS No. 123 has no effect on the Company's
financial position or results of operations.  The following table summarizes
the activities within the Company's Incentive Plan.

                                              Stock Options
                                            2001         2000
Options outstanding                       170,000      180,500
Options granted this year                  34,000       19,000
Options exercised this year               (16,000)     (16,500)
Options forfeited this year                (2,000)     (13,000)
Options cancelled this year                   -            -

Balance, end of year                      186,000      170,000

The options, which are all exerciseable, entitle their holders to purchase
one share of the Company's common stock for an amount between $5.50 to $17.00
each, at a weighted average price of $12.72.  The weighted average fair value
of options granted in 2001 is $3.24.

Because the Company had adopted the disclosure-only provisions of SFAS No.
123, no compensation cost has been recognized for the stock option plans.
Had compensation cost for the Company's stock option plans been determined
based on the fair value at the grant date of the awards consistent with the
provisions of SFAS No. 123, the Company's net income and income per share
would have changed to the pro forma amounts indicated below:

                                            2001          2000
     Net earnings - as reported        $ 1,358,556   $ 1,610,166
     Net earnings - pro forma            1,337,102     1,554,967
     Basic income per share
      - as reported                            .92          1.10
     Diluted income per share
      - as reported                            .88          1.02
     Basic loss per share - pro forma          .91          1.06
     Diluted loss per share - pro forma        .86           .99

The fair value of each option grant was estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted average
assumptions: dividend yield of 0%, expected volatility of 20%, risk-free
interest 5.00%, and 6.00%, in 2001 and 2000, respectively and weighted
average expected lives of 7 years.


NOTE 17 - RELATED PARTY TRANSACTIONS

Certain directors, principal officers and companies with which they are
affiliated are customers of and have banking transactions with the Bank in
the ordinary course of business.  As of December 31, 2001 and 2000, loans
outstanding to directors, their related interests and executive officers
aggregated $1,272,685 and $1,420,841, respectively.  These loans were made on
substantially the same terms, including interest rates and collateral, as
those prevailing at the same time for comparable transactions with unrelated
parties.  In the opinion of management, loans to related parties did not
involve more than normal credit risk or present other unfavorable features.

A summary of the related party loan transactions during the calendar years
2001 and 2000 follows:
                                            2001          2000
     Balance, beginning of year        $ 1,420,841   $   815,874
     New loans                           1,485,195     1,121,111
     Less:  Principal reductions        (1,633,351)     (516,144)
     Balance, end of year              $ 1,272,685   $ 1,420,841


NOTE 18 - FAIR VALUE OF FINANCIAL INSTRUMENTS

The fair value of a financial instruments is the current amount that would be
exchanged between willing parties, other than in a forced liquidation.  Fair
value is best determined based upon quoted market prices.  However, in many
instances, there are no quoted market prices for the

Company's various financial instruments.  In cases where quoted market prices
are not available, fair values are based on estimates using present value or
other valuation techniques.  Those techniques are significantly affected by
the assumptions used, including the discount rate and estimates of future
cash flows.  Accordingly, the fair value estimates may not be realized in an
immediate settlement of the instrument.  SFAS No. 107, "Disclosure about Fair
Values of Financial Instruments", excludes certain financial instruments and
all nonfinancial instruments from its disclosure requirements.  Accordingly,
the aggregate fair value amounts presented may not necessarily represent the
underlying fair value of the Company.

The following methods and assumptions were used by the Company in estimating
fair values of financial instruments as disclosed herein:

Cash and Due from Banks, Interest-Bearing Deposits with Banks and Federal
Funds Sold

The carrying amounts of cash and due from banks, interest-bearing deposits
with banks, and federal funds sold approximate their fair value.

Available-for-Sale and Held-to-Maturity Securities

Fair values for securities are based on quoted market prices.  Fair value for
FRB stock and FHLB stock approximate their carrying values based on their
redemption provisions.

Loans

The Fair values of the Company's loans and lease financing have been
estimated using two methods:  (1) the carrying amounts of short-term and
variable rate loans approximate fair values excluding certain credit card
loans which are tied to an index floor; and (2) for all other loans, the
discounting of projected future cash flows.  When using the discounted
method, loans are pooled in homogeneous groups with similar terms and
conditions and discounted at a target rate at which similar loans would be
made to borrowers at year end.  In addition, when computing the estimated
fair values for all loans, the allowance for loan losses is subtracted from
the calculated fair values for consideration of credit issues.

Deposits

The carrying amounts of demand deposits and savings deposits approximate
their fair values.  The methodologies used to estimate the fair values of all
other deposits are similar to the two methods used to estimate the fair
values of loans.  Deposits are pooled in homogeneous groups and the future
cash flows of these groups are discounted using current market rates offered
for similar products at year end.

FHLB Borrowings

The fair value of FHLB borrowings are estimated by discounting future cash
flows using current market rates for similar types of borrowing arrangements.

Off-Balance Sheet Instruments

Fair values of the Company's off-balance sheet financial instruments are
based on fees charged to enter into similar agreements.  However, commitments
to extend credit and standby letters of credit do not represent a significant
value to the Company until such commitments are funded.  The Company has
determined that these instruments do not have a distinguishable fair value
and no fair value has been assigned.

The following table presents the carrying amounts and fair values of the
specified assets and liabilities held by the Company at December 31, 2001 and
2000.  The information presented is based on pertinent information available
to management as of December 31, 2001 and 2000.  Although management is not
aware of any factors that would significantly affect the estimated fair value
amounts, such amounts have not been comprehensively revalued since that time,
and the current estimated fair value of these financial instruments may have
changed since that point in time.

                           December 31, 2001           December 31, 2000
                         Carrying    Estimated       Carrying    Estimated
                          Amount     Fair Value       Amount     Fair Value
Financial assets:
   Cash and due
    from banks        $  4,022,530  $  4,022,530  $  3,121,848  $  3,121,848
   Interest bearing
    deposits at
    other banks          1,713,466     1,713,466     2,789,223     2,789,223
   Federal funds sold        -             -         1,200,000     1,200,000
   Securities
    available-for-sale  32,786,293    32,786,293    28,748,815    28,748,815
   Securities
    held-to-maturity     2,731,031     2,781,000     3,623,682     3,672,801
Loans, net              91,536,336    92,102,687    74,576,196    75,042,665

Financial liabilities:
   Deposits            109,278,425   112,482,630    96,320,126    96,592,679
   FHLB borrowings      10,649,548    10,923,097     5,667,288     5,672,144


NOTE 19 - SEGMENT REPORTING

The Company's operations include two primary business segments, banking and
mortgage activities.  The Company, through the Bank, provides traditional
banking services including a full range of commercial and consumer banking
services.  Through Community Mortgage, the Company provides mortgage services
including the origination and sale of mortgage loans to various investors,
including other financial institutions.  The following provides additional
information about the Company's business segments as of and for the year
ended December 31, 2001.

                                           Community    Elimin-     Consol-
                 Holding Co.      Bank     Mortgage     ations      idated
                 -----------      ----     --------     ------    -----------
-
Revenues from
 non-affiliates  $       570  $  9,958,452 $132,761 $      --    $ 10,091,784
Revenues from
 affiliates          232,074         --       --        (232,074)      --
Interest
 revenues              --        9,086,561    --           --       9,086,561
Interest expense       --        4,750,800    --        (132,074)   4,618,726
Depreciation and
 amortization         12,891       170,830    --           --         183,721
Income tax
 expense/(benefit)     --          439,750    --           --         439,750
Segment
 profit/(loss)        57,443     1,254,671   46,442        --       1,358,556
Segment assets    15,882,684   136,190,071   55,240  (15,397,664) 136,730,331


NOTE 20 - CONCENTRATIONS OF CREDIT

The Company originates primarily commercial, residential, and consumer loans
to customers in Wilkes County, North Carolina, and surrounding counties.  The
ability of the majority of the Company's customers to honor their contractual
loan obligations is dependent on economic conditions prevailing at the time
in Wilkes County and the surrounding counties.

Forty-one percent of the Company's loan portfolio is concentrated in loans
secured by real estate, of which a substantial portion is secured by real
estate in the Company's primary market area.  Accordingly, the ultimate
collectibility of the loan portfolio is susceptible to changes in market
conditions in the Company's primary market area.  The other significant
concentrations of credit by type of loan are set forth under Note 6.

The Company, as a matter of policy, does not generally extend credit to any
single borrower or group of related borrowers in excess of 15% of the Bank's
statutory capital, or approximately $1,893,000.


NOTE 21 - REGULATORY MATTERS

The Company is governed by various regulatory agencies.  Bank holding
companies and their nonbanking subsidiaries are regulated by the FRB.
National banks are primarily regulated by the OCC.  All federally-insured
banks are also regulated by the FDIC.  The Company's banking subsidiary
includes a national bank, which is insured by the FDIC.

Various requirements and restrictions under federal and state laws regulate
the operations of the Company.  These laws, among other things, require the
maintenance of reserves against deposits, impose certain restrictions on the
nature and terms of the loans, restrict investments and other activities, and
regulate mergers and the establishment of branches and related operations.
The ability of the parent company to pay cash dividends to its shareholders
and service debt may be dependent upon cash dividends from its subsidiary
bank.  The subsidiary bank is subject to limitations under federal law in the
amount of dividends it may declare.  At December 31, 2001, approximately
$4,345,000 of the subsidiary bank's retained earnings was available for
dividend declaration without prior regulatory approval.

The Company and the Bank are subject to various regulatory capital
requirements administered by federal banking agencies.  Failure to meet
minimum capital requirements can initiate certain mandatory and possible
additional discretionary actions by regulators that, if undertaken, could
have a direct material effect on the Company's financial statements.  Under
capital adequacy guidelines and the regulatory framework for prompt
corrective action, the Company and the Bank must meet specific capital
guidelines that involve quantitative measures of the company's assets,
liabilities, and certain off-balance-sheet items as calculated under
regulatory accounting practices.  The capital amounts and classification are
also subject to qualitative judgments by the regulators about components,
risk weighting and other factors.

Qualitative measures established by regulation to ensure capital adequacy
require the Company and the Bank to maintain minimum amounts and ratios (set
forth in the table below) of total and Tier 1 capital (as defined in the
regulations) to risk-weighted assets (as defined), and of Tier 1 capital to
average assets (as defined).  Management believes that the Company and the
Bank, as of December 31, 2001, meet all capital adequacy requirements to
which they are subject.

As of December 31, 2001, the Bank was considered to be well capitalized.
There are no conditions or events since December 31, 2001 that management
believes have changed the Bank's well capitalized category.  To be
categorized as adequately capitalized or well capitalized, the Bank must
maintain the following capital ratios:

                                    Adequately            Well
                                    Capitalized        Capitalized
  Total risk-based capital ratio       8.0%               10.0%
  Tier 1 risk-based capital ratio      4.0%                6.0%
  Tier 1 leverage ratio                4.0%                5.0%

The Company's and the Bank's actual capital amounts and ratios are presented
in the following table:

                                              Minimum Regulatory Capital
                                                 Guidelines for Banks
                                              Adequately        Well
(Dollars in thousands)            Actual      Capitalized    Capitalized
                              Amount  Ratio  Amount  Ratio  Amount  Ratio

As of December 31, 2001:
Total capital-risk-based
(to risk-weighted assets):
   Bank                      $13,378  13.0%  $8,230 >= 8% $10,288 >= 10%
   Consolidated               16,549  16.0%   8,274 >= 8%    N/A  >= N/A

Tier 1 capital-risk-based
(to risk-weighted assets):
   Bank                      $12,275  11.9%  $4,115 >= 4%  $6,173 >= 6%
   Consolidated               15,446  14.9%   4,137 >= 4%    N/A  >= N/A

Tier 1 capital-leverage
(to average assets):
   Bank                      $12,275  10.0%  $4,892 >= 4%  $6,115 >= 5%
   Consolidated               15,446  12.6%   4,903 >= 4%    N/A  >= N/A


                                              Minimum Regulatory Capital
                                                 Guidelines for Banks
                                              Adequately        Well
(Dollars in thousands)            Actual      Capitalized    Capitalized
                              Amount  Ratio  Amount  Ratio  Amount  Ratio

As of December 31, 2000:
Total capital-risk-based
(to risk-weighted assets):
   Bank                      $12,145  14.7%  $6,584 >= 8%  $8,230 >= 10%
   Consolidated               15,041  18.2%   6,597 >= 8%    N/A  >= N/A

Tier 1 capital-risk-based
(to risk-weighted assets):
   Bank                      $11,117  13.5%  $3,292 >= 4%  $4,938 >= 6%
   Consolidated               14,010  17.0%   3,298 >= 4%    N/A  >= N/A

Tier 1 capital-leverage
(to average assets):
   Bank                      $11,117   9.8%  $4,553 >= 4%  $5,691 >= 5%
   Consolidated               14,010  12.3%   4,560 >= 4%    N/A  >= N/A


NOTE 22 - DIVIDENDS

The primary source of funds available to the Company to pay shareholder
dividends and other expenses is from the Bank.  Bank regulatory authorities
impose restrictions on the amounts of dividends that may be declared by the
Bank.  Further restrictions could result from a review by regulatory
authorities of the Bank's capital adequacy.  For the year ended December 31,
2001, the Company paid cash dividends of $110,465 to its shareholders.  No
dividends were paid to shareholders in 2000.


NOTE 23 - PARENT COMPANY FINANCIAL INFORMATION

This information should be read in conjunction with the other notes to the
consolidated financial statements.

                         Parent Company Balance Sheets

                                                     December 31,
Assets                                              2001         2000
Cash                                            $ 2,629,863  $ 2,781,404
Investment in Community Mortgage                     51,740        5,298
Investment in Bank                               12,622,224   11,368,182
Property and equipment                              537,859      110,873
Other assets                                         40,997       72,851
   Total Assets                                 $15,882,683  $14,338,608

Liabilities and Shareholders' Equity:
Accounts payable                                $    86,370  $    78,371
   Total Liabilities                                 86,370       78,371

Common stock                                      4,538,646    4,415,652
Paid-in-capital                                   4,828,013    4,762,393
Retained earnings                                 6,079,520    4,831,429
Unrealized gain on securities                       350,134      250,763
   Total Shareholders' equity                    15,796,313   14,260,237
   Total Liabilities and Shareholders' equity   $15,882,683  $14,338,608



                     Parent Company Statements of Income

                                                     December 31,
Revenues                                            2001         2000
  Interest income                               $   132,074  $   132,317
  Dividend income                                   100,000      500,000
  Other income                                          570        --
     Total revenues                                 232,317      632,317

Expenses:
  Depreciation and amortization                      12,890        7,155
  Professional fees                                  36,582       28,247
  Other expenses                                     25,728       23,022
     Total expenses                                  75,200       58,424
(Loss) before taxes and equity in undistributed
  earnings of subsidiaries                          157,444      573,893
Tax (benefit)                                         --            (733)
Earnings before equity in
 undistributed earnings of subsidiaries             157,444      574,626
Equity in undistributed
 earnings of subsidiaries                         1,201,112    1,035,540
  Net Income                                    $ 1,358,556  $ 1,610,166



                Parent Company Statements of Cash Flows


                                                     December 31,
Cashflows from operating activities:                2000        1999
  Net income                                    $ 1,358,556  $ 1,610,166
  Adjustments to reconcile net income to
  net cash provided by operating activities:
    Equity in undistributed
     earnings of subsidiaries                    (1,201,112)  (1,035,540)
   Depreciation and amortization                     12,890        7,155
   Decrease (increase) in other assets               31,854      (35,880)
   Increase in payables and other liabilities         7,999        5,392
  Net cash (used in) provided by
   operating activities                             210,187      551,293

Cash flows from investing activities:
------------------------------------
  Acquisition of property and equipment            (439,877)       --
  Net cash provided from financing activities      (439,877)       --

Cash flows from financing activities:
  Payment of cash dividends                        (110,465)       --
  Purchase and cancellation of common stock        (201,000)    (144,000)
  Exercise of warrants/options                      389,614      177,750
Net cash provided by financing activities            78,149       33,750

Net (decrease) increase in
 cash and cash equivalents                         (151,541)     585,043
Cash and cash equivalents,
 beginning of the year                            2,781,404    2,196,361
Cash and cash equivalents, end of year          $ 2,629,863  $ 2,781,404



ITEM 8.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
------------------------------------------------------------------------
         FINANCIAL DISCLOSURE.
         --------------------

     On October 30, 2001, the Company dismissed its independent auditors,
Francis and Company, CPAs, and on the same date authorized the engagement of
Cherry, Bekaert & Holland, L.L.P., as its independent auditors for the fiscal
year ending December 31, 2001.  Each of these actions was approved by the
Board of Directors and the Audit Committee of the Company.

     Francis and Company, CPAs, audited the financial statements of the
Company for the fiscal year ended December 31, 2000 and for the fiscal year
ended December 31, 1999.  Neither of the audit reports of Francis and
Company, CPAs, for those years contained any adverse opinion or a disclaimer
of opinion, or was qualified or modified as to uncertainty, audit scope, or
accounting principles.

     Except as described herein, in connection with the audits for the fiscal
years ended December 31, 2000 and 1999 and for the unaudited interim period
through September 30, 2001, there were no disagreements with Francis and
Company, CPAs, on any matter of accounting principle or practice, financial
statement disclosure, or audit procedure or scope with disagreement, if not
resolved to the satisfaction of Francis and Company, CPAs, would have caused
it to make reference to the subject matter of the disagreement in its report.

     Further, prior to the engagement of Cherry, Bekaert & Holland, L.L.P.,
neither the Company nor any of its representatives sought the advice of
Cherry, Bekaert & Holland, L.L.P. regarding the application of accounting
principles to a specific completed or contemplated transaction or the type of
audit opinion that might be rendered on the Company's financial statements,
which advice was an important factor considered by the Company in reaching a
decision as to the accounting, auditing or financial reporting issue.

     In connection with the audit of the fiscal year ended December 31, 2000
and for the unaudited interim period through September 30, 2001, Francis and
Company, CPAs, did not advise the Company that:

     (i)     internal controls necessary for the Company to develop reliable
             financial statements did not exist;

     (ii)    information had come to its attention that led it to no longer
be
             able to rely on management's representations, or that made it
             unwilling to be associated with the financial statements
prepared
             by management;

     (iii)   there existed a need to expand significantly the scope of its
             audit, or that information had come to the attention of Francis
and
             Company, CPAs, that if further investigated may materially
impact
             the fairness or reliability of either a previously issued audit
             report or the underlying financial statements, or the financial
             statements issued or to be issued covering the fiscal period
             subsequent to the date of the most recent financial statements
             covered by an audit report (including information that may
prevent
             it from rendering an unqualified audit report on those financial
             statements).



                                   PART III

ITEM 9.  DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
----------------------------------------------------------------------
         COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.
         -------------------------------------------------

     The information relating to directors and executive officers of the
Company contained in the Company's definitive proxy statement to be delivered
to shareholders in connection with the 2002 Annual Meeting of Shareholders
scheduled to be held on May 31, 2002 is incorporated herein by reference.


ITEM 10.  EXECUTIVE COMPENSATION.
--------------------------------

	The information relating to executive compensation contained in the
Company's definitive proxy statement to be delivered to shareholders in
connection with the 2002 Annual Meeting of Shareholders scheduled to be held
on May 31, 2002 is incorporated herein by reference.


ITEM 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
------------------------------------------------------------------------

     The information relating to security ownership of certain beneficial
owners and management contained in the Company's definitive proxy statement
to be delivered to shareholders in connection with the 2002 Annual Meeting of
Shareholders scheduled to be held on May 31, 2002 is incorporated herein by
reference.


ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
--------------------------------------------------------

     The information relating to related party transactions contained in the
registrant's definitive proxy statement to be delivered to shareholders in
connection with the 2002 Annual Meeting of Shareholders scheduled to be held
on May 31, 2002 is incorporated herein by reference.


ITEM 13.  EXHIBITS AND REPORTS ON FORM 8-K.
------------------------------------------

(a)  EXHIBITS.  The following exhibits are filed with or incorporated by
reference into this report.  The exhibits which are denominated by an
asterisk (*) were previously filed as a part of, and are hereby incorporated
by reference from either (i) a Registration Statement on Form S-1 under the
Securities Act of 1933 for the Company, Registration Number 33-36512
(referred to as "S-1"), (ii) the Annual Report on Form 10-K of the Company
for the year ended December 31, 1991 (referred to as "1991 10-K"), (iii) the
Annual Report on Form 10-KSB of the Company for the year ended December 31,
1993 (referred to as "1993 10-K"), (iv) the Quarterly Report on Form 10-KSB
of the Company for the quarter ended September 30, 1995 (referred to as "10-
Q"), (v) a Registration Statement on Form S-2 under the Securities Act of
1933 for the Company, Registration Number 33-99416 (referred to as "S-2"),
(vi) the Annual Report on Form 10-KSB for the year ended December 31, 1996
(referred to as "1996 10-K"), or (vii) the Report on Form 8-K dated February
18, 1999 (referred to as "8-K").  The exhibit numbers correspond to the
exhibit numbers in the referenced document.

EXHIBIT NO.                        DESCRIPTION OF EXHIBIT
-----------                        ----------------------

  *3.1      -      Articles of Incorporation dated June 11, 1990 (S-1).

  *3.2      -      Articles of Amendment dated August 21, 1990 (S-1).

  *3.2.1    -      Articles of Amendment dated November 13, 1995 (10-Q).

  *3.3      -      Amended and Restated Bylaws (8-K).

 *10.4      -      Lease Agreement dated June 27, 1991 by and between
                   Registrant and Edward F. and Frances C. Greene,
                   for facility located in Wilkesboro, North Carolina
                   (1991 10-K).

 *10.5      -      Lease Agreement dated November 17, 1993 by and
                   between Registrant and Edward F. Greene and Joe
                   D. Severt for facility located in North
                   Wilkesboro, North Carolina (1993 10-K).

 *10.6      -      Employment Agreement, dated February 1, 1995,
                   by and among Community Bancshares, Inc., Wilkes
                   National Bank and Ronald S. Shoemaker (S-2).

 *10.7      -      Lease Agreement dated February 25, 1997 by and
                   between Wilkes National Bank and Edward F. and
                   Francis C. Greene, for facility located at 1600
                   Curtis Bridge Road, Wilkesboro, North Carolina
                   (1996 10-K).

  21.1      -      Subsidiaries of the Registrant.

  23.1      -      Consent of Cherry, Bekaert & Holland, L.L.P.

  23.2      -      Consent of Francis & Company, CPAs

(b)  REPORTS ON FORM 8-K.  The Company filed a report on Form 8-K on November
1, 2001 to report the dismissal of Francis and Company, CPAs, as the
Company's independent auditors and the engagement of Cherry, Bekaert &
Holland, L.L.P. as the Company's independent auditors for the fiscal year
ended December 31, 2001.



                              SIGNATURES
                              ----------

     Pursuant to the requirements of Section 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

                                      COMMUNITY BANCSHARES, INC.



Dated: March 29, 2002                 By: /s/ Ronald S. Shoemaker
                                          -----------------------------------
                                          Ronald S. Shoemaker
                                          President and Chief Executive
                                          Officer (Chief Executive, Financial
                                          and Accounting Officer)


     Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:

             Signature                                    Date
             ---------                                    ----

/s/ Larry Farthing                                     March 29, 2002
-------------------------------------
   LARRY FARTHING
   Class II Director

/s/ Jack R. Ferguson                                   March 29, 2002
-------------------------------------
   JACK R. FERGUSON
   Class II Director

/s/ Gilbert R. Miller                                  March 29, 2002
-------------------------------------
   GILBERT R. MILLER
   Class I Director

/s/ Randy D. Miller                                    March 29, 2002
-------------------------------------
   RANDY D. MILLER
   Class I Director

/s/ Dwight E. Pardue                                   March 29, 2002
-------------------------------------
   DWIGHT E. PARDUE
   Class III Director

/s/ Robert F. Ricketts, D.D.S.                         March 29, 2002
-------------------------------------
   ROBERT F. RICKETTS, D.D.S.
   Class II Director

/s/ Rebecca Ann Sebastian                              March 29, 2002
-------------------------------------
   REBECCA ANN SEBASTIAN
   Class I Director

/s/ R. Colin Shoemaker                                 March 29, 2002
-------------------------------------
   R. COLIN SHOEMAKER
   Class III Director

/s/ Ronald S. Shoemaker                                March 29, 2002
-------------------------------------
   RONALD S. SHOEMAKER
   President and Class III Director


                               EXHIBIT INDEX



Exhibit
Number                   Description of Exhibit
-------                  ----------------------

  21.1              Subsidiaries of the Registrant.

  23.1              Consent of Cherry, Bekaert & Holland, L.L.P.

  23.2              Consent of Francis & Company, CPAs