<PAGE>   1
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                ----------------

                                    FORM 10-Q

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

                  FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2000

                                       OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
                              EXCHANGE ACT OF 1934

                          COMMISSION FILE NO. 000-16461

                           COMMUNITY BANCSHARES, INC.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)


             DELAWARE                                   63-0868361
             --------                                   ----------

     (STATE OF INCORPORATION)              (I.R.S. EMPLOYER IDENTIFICATION NO.)


68149 MAIN STREET, P. O. BOX 1000, BLOUNTSVILLE, AL                 35031
---------------------------------------------------                 -----
      (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)                    (ZIP CODE)


       REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (205) 429-1000


                                    NO CHANGE
                                    ---------
(FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR, IF CHANGED SINCE LAST
REPORT)

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 [ ]


AS OF JULY 31, 2000, THERE WERE 4,674,995 SHARES OF THE REGISTRANT'S COMMON
STOCK, $.10 PAR VALUE PER SHARE, OUTSTANDING.




<PAGE>   2



                                      INDEX
                   COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES


<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION                                                                                 PAGE
                                                                                                              ----
<S>                                                                                                           <C>
Item 1. Financial Statements (Unaudited)


           Consolidated Balance Sheets - June 30, 2000 and December 31, 1999 .......................           3

           Consolidated Statements of Income and Consolidated Statements of Comprehensive Income-
           Three months ended June 30, 2000 and 1999 ...............................................          4-5

           Consolidated Statements of Income and Consolidated Statements of Comprehensive Income-
           Six months ended June 30, 2000 and 1999 .................................................          6-7

           Consolidated Statements of Cash Flows - Six months ended June 30, 2000 and 1999 .........           8

           Notes to Consolidated Financial Statements - June 30, 2000 ..............................          10


Item 2.  Management's Discussion and Analysis of Financial Condition and Results of Operations .....          15


Item 3.  Quantitative and Qualitative Disclosures About Market Risk ................................          22


PART II.  OTHER INFORMATION


Item 1.  Legal Proceedings .........................................................................          23


Item 4.  Submission of Matters to a Vote of Security Holders .......................................          24


Item 6.  Exhibits and Reports on Form 8-K ..........................................................          26
</TABLE>


(a)  Exhibits


(b)  Reports on Form 8-K


SIGNATURES



<PAGE>   3



                         PART 1 - FINANCIAL INFORMATION
                          ITEM 1 - FINANCIAL STATEMENTS
                   COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION


<TABLE>
<CAPTION>
                                                                                 JUNE 30,                  December 31,
                                                                                   2000                        1999
                                                                              ---------------             -------------
                                                                                (UNAUDITED)
<S>                                                                           <C>                         <C>
ASSETS
  Cash ...........................................................             $   6,621,238              $  11,698,392
  Due from banks .................................................                24,434,475                 15,099,119
  Interest-bearing deposits with banks ...........................                   700,000                    700,000
  Federal funds sold .............................................                 1,000,000                        -0-
  Securities available for sale ..................................               111,350,980                 96,847,273
  Loans ..........................................................               531,070,677                499,297,647
  Less: Unearned income ..........................................                   302,439                    571,295
          Allowance for loan losses ..............................                 3,141,653                  2,603,128
                                                                               -------------              -------------
             NET LOANS ...........................................               527,626,585                496,123,224

  Premises and equipment, net ....................................                32,399,204                 35,683,614
  Accrued interest ...............................................                 7,535,769                  6,537,114
  Intangibles, net ...............................................                 6,925,116                  7,156,449
  Other real estate ..............................................                   766,409                    766,005
  Other assets ...................................................                 5,702,585                  4,287,061
                                                                               -------------              -------------
             TOTAL ASSETS ........................................             $ 725,062,361              $ 674,898,251
                                                                               =============              =============
LIABILITIES AND SHAREHOLDERS' EQUITY
  Deposits:
     Noninterest-bearing .........................................             $  72,225,858              $  64,840,153
     Interest-bearing ............................................               545,474,562                508,420,641
                                                                               -------------              -------------
               TOTAL DEPOSITS ....................................               617,700,420                573,260,794
  Other short-term borrowings ....................................                 2,269,106                  2,493,842
  Accrued interest ...............................................                 4,522,896                  3,743,606
  FHLB borrowing .................................................                38,000,000                 40,000,000
  Long-term debt .................................................                 6,171,144                  6,637,162
  Guaranteed preferred beneficial interest in the Company's
      junior subordinated deferrable interest debentures .........                10,000,000                        -0-
  Other liabilities ..............................................                 4,494,755                  4,287,471
                                                                               -------------              -------------
               TOTAL LIABILITIES .................................               683,158,321                630,422,875
  Shareholders' equity
     Preferred stock, par value $.01 per share, 200,000 shares
           authorized, no shares issued ..........................                       -0-                        -0-
     Common stock, par value $.10 per share, 20,000,000 shares
           authorized, 4,674,995 shares issued as of June 30, 2000
           and 4,665,514 shares issued as of December 31, 1999 ...                   467,499                    466,551
     Capital surplus .............................................                29,633,369                 29,411,513
     Retained earnings ...........................................                16,296,889                 19,038,875
     Unearned ESOP shares - 211,207 and 221,321 shares as of
           June 30, 2000 and December 31, 1999, respectively .....                (2,606,390)                (2,788,442)
     Accumulated other comprehensive loss ........................                (1,887,327)                (1,653,121)
                                                                               -------------              -------------
                  TOTAL SHAREHOLDERS' EQUITY .....................                41,904,040                 44,475,376
                                                                               -------------              -------------
                  TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY .....             $ 725,062,361              $ 674,898,251
                                                                               =============              =============
</TABLE>

                 See notes to consolidated financial statements

                                        3

<PAGE>   4


                   COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES
                        CONSOLIDATED STATEMENTS OF INCOME
                                   (UNAUDITED)



<TABLE>
<CAPTION>
                                                                                                Three Months Ended
                                                                                                     June 30,
                                                                                        ------------------------------------
                                                                                            2000                   1999
                                                                                        -----------             -----------
<S>                                                                                     <C>                     <C>
REVENUE FROM EARNING ASSETS
  Interest and fees on loans ..............................................             $13,408,810             $11,150,156
  Interest on investment securities:
  Taxable securities ......................................................               1,458,372               1,188,393
  Securities exempt from federal income taxes .............................                 207,287                 216,580
  Interest on federal funds sold ..........................................                 132,616                  38,622
  Interest on deposits in other banks .....................................                  16,093                   2,632
                                                                                        -----------             -----------
          TOTAL REVENUE FROM EARNING ASSETS ...............................              15,223,178              12,596,383
                                                                                        -----------             -----------
INTEREST EXPENSE
  Interest on deposits ....................................................               7,418,441               5,790,927
  Interest on other short-term borrowings .................................                  23,376                 145,089
  FHLB borrowing ..........................................................                 569,609                 115,500
  Interest on long-term debt ..............................................                 180,436                 132,853
  Interest on guaranteed preferred beneficial interests in the
     Company's junior subordinated deferrable interest debentures .........                 248,109                     -0-
                                                                                        -----------             -----------
          TOTAL INTEREST EXPENSE ..........................................               8,439,971               6,184,369
                                                                                        -----------             -----------

NET INTEREST INCOME .......................................................               6,783,207               6,412,014
Provision for loan losses .................................................               1,329,249                 463,661
                                                                                        -----------             -----------

NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES .......................               5,453,958               5,948,353
NONINTEREST INCOME
 Service charges on deposits ..............................................               1,049,224                 900,585
 Insurance commissions ....................................................                 680,486                 455,148
 Bank club dues ...........................................................                 178,479                 177,543
 Debt cancellation fees ...................................................                 202,807                 142,085
 Other operating income ...................................................                 527,157                 438,582
                                                                                        -----------             -----------
          TOTAL NONINTEREST INCOME ........................................               2,638,153               2,113,943
                                                                                        -----------             -----------
NONINTEREST EXPENSES
  Salaries and employee benefits ..........................................               4,867,997               4,000,637
  Occupancy expense .......................................................                 677,014                 662,693
  Furniture and equipment expense .........................................                 468,152                 437,545
  Director and committee fees .............................................                 140,774                 159,300
  Other operating expense .................................................               1,539,484               2,002,055
                                                                                        -----------             -----------
          TOTAL NONINTEREST EXPENSES ......................................               7,693,421               7,262,230
                                                                                        -----------             -----------

Income before income taxes ................................................                 398,690                 800,066
PROVISION FOR INCOME TAXES ................................................                  95,477                 214,161
                                                                                        -----------             -----------
          Net Income ......................................................             $   303,213             $   585,905
                                                                                        ===========             ===========

Net Income Per Common Share - Basic .......................................             $      0.07             $      0.13
Net Income Per Common Share - Diluted .....................................             $      0.06             $      0.13
</TABLE>



                 See notes to consolidated financial statements

                                        4

<PAGE>   5



                   COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
                                   (UNAUDITED)


<TABLE>
<CAPTION>
                                                                                              Three Months Ended
                                                                                                    June 30,
                                                                                        --------------------------------
                                                                                          2000                  1999
                                                                                        --------             -----------
<S>                                                                                     <C>                  <C>
Net income ................................................................             $303,213             $   585,905
Components of other comprehensive income:
  Unrealized holding gains/(losses) arising during the period .............              265,799              (1,564,681)
  Reclassification adjustments for net losses included
       in net income ......................................................                  -0-                     -0-
                                                                                        --------             -----------
 Other comprehensive gains/(losses) before income taxes ...................              265,799              (1,564,681)
 Income tax expense/(benefit) related to other
       comprehensive gains/(losses) .......................................              104,240                (625,872)
                                                                                        --------             -----------
 Total other comprehensive income/(loss) ..................................              161,559                (938,809)
                                                                                        --------             -----------

Comprehensive income/(loss) ...............................................             $464,772             $  (352,904)
                                                                                        ========             ===========
</TABLE>





             [The remainder of this page intentionally left blank]






                 See notes to consolidated financial statements



                                        5

<PAGE>   6



                   COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES
                        CONSOLIDATED STATEMENTS OF INCOME
                                   (UNAUDITED)


<TABLE>
<CAPTION>
                                                                                                   Six Months Ended
                                                                                                        June 30,
                                                                                        -------------------------------------
                                                                                            2000                     1999
                                                                                        ------------              -----------
<S>                                                                                     <C>                       <C>
REVENUE FROM EARNING ASSETS
  Interest and fees on loans ..............................................             $ 26,214,059              $21,800,453
  Interest on investment securities:
  Taxable securities ......................................................                2,797,820                2,426,107
  Securities exempt from federal income taxes .............................                  333,135                  428,923
  Interest on federal funds sold ..........................................                  163,415                   38,622
  Interest on deposits in other banks .....................................                   29,826                   39,920
                                                                                        ------------              -----------
          TOTAL REVENUE FROM EARNING ASSETS ...............................               29,538,255               24,734,025
                                                                                        ------------              -----------
INTEREST EXPENSE
  Interest on deposits ....................................................               14,160,141               11,535,014
  Interest on other short-term borrowings .................................                   52,932                  267,631
  FHLB borrowing ..........................................................                1,096,318                  115,500
  Interest on long-term debt ..............................................                  286,970                  283,161
  Interest on guaranteed preferred beneficial interests in the
     Company's junior subordinated deferrable interest debentures .........                  308,334                      -0-
                                                                                        ------------              -----------
          TOTAL INTEREST EXPENSE ..........................................               15,904,695               12,201,306
                                                                                        ------------              -----------

NET INTEREST INCOME .......................................................               13,633,560               12,532,719
Provision for loan losses .................................................                2,337,351                  843,453
                                                                                        ------------              -----------

NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES .......................               11,296,209               11,689,266
NONINTEREST INCOME
 Service charges on deposits ..............................................                2,030,840                1,701,314
 Insurance commissions ....................................................                1,259,438                  950,799
 Bank club dues ...........................................................                  354,033                  350,244
 Debt cancellation fees ...................................................                  398,850                  248,766
 Other operating income ...................................................                1,116,386                  729,294
 Investment securities losses .............................................                  (26,886)                     -0-
                                                                                        ------------              -----------
          TOTAL NONINTEREST INCOME ........................................                5,132,661                3,980,417
                                                                                        ------------              -----------
NONINTEREST EXPENSES
  Salaries and employee benefits ..........................................                9,703,882                8,142,441
  Occupancy expense .......................................................                1,322,180                1,278,071
  Furniture and equipment expense .........................................                  931,200                  854,738
  Director and committee fees .............................................                  289,278                  328,787
  Other operating expense .................................................                3,115,775                3,490,898
                                                                                        ------------              -----------
          TOTAL NONINTEREST EXPENSES ......................................               15,362,315               14,094,935
                                                                                        ------------              -----------

Income before income taxes ................................................                1,066,555                1,574,748
PROVISION FOR INCOME TAXES ................................................                  309,405                  402,389
                                                                                        ------------              -----------
          Net Income ......................................................             $    757,150              $ 1,172,359
                                                                                        ============              ===========

Net Income Per Common Share - Basic .......................................             $       0.17              $      0.27
Net Income Per Common Share - Diluted .....................................             $       0.16              $      0.26
Dividends Per Common Share ................................................             $       0.75              $      0.60
</TABLE>

                 See notes to consolidated financial statements


                                        6

<PAGE>   7
                   COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
                                   (UNAUDITED)


<TABLE>
<CAPTION>
                                                                                     Six Months Ended
                                                                                          June 30,
                                                                              --------------------------------
                                                                                  2000                  1999
                                                                              ---------               ----------
<S>                                                                           <C>                    <C>
Net income ......................................................             $ 757,150              $ 1,172,359
Components of other comprehensive income:
  Unrealized holding losses arising during the period ...........              (420,695)              (2,207,396)
  Reclassification adjustments for net losses included
       in net income ............................................                26,886                      -0-
                                                                              ---------              -----------
 Other comprehensive losses before income taxes .................              (393,809)              (2,207,396)
 Income tax benefit related to other
       comprehensive losses .....................................              (159,603)                (882,958)
                                                                              ---------              -----------
 Total other comprehensive loss .................................              (234,206)              (1,324,438)
                                                                              ---------              -----------

Comprehensive income ............................................             $ 522,944              $  (152,079)
                                                                              =========              ===========
</TABLE>



              [The remainder of this page intentionally left blank]






                 See notes to consolidated financial statements


                                        7

<PAGE>   8



                   COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)


<TABLE>
<CAPTION>
                                                                                                 Six Months Ended
                                                                                                       June 30,
                                                                                        -------------------------------------
                                                                                             2000                    1999
                                                                                        -------------             -----------
<S>                                                                                     <C>                       <C>
OPERATING ACTIVITIES
  Net income ..............................................................             $    757,150              $  1,172,359
  Adjustments to reconcile net income to net cash provided by
     operating activities:
          Provision for loan losses .......................................                2,337,351                   843,453
          Provision for depreciation and amortization .....................                1,198,898                 1,214,730
          Amortization of investment security premiums and
              accretion of discounts ......................................                   87,979                    74,213
          Deferred tax (benefit)/expense ..................................                 (298,938)                   67,467

          Loss/(gain) on sale of premises and equipment ...................                   12,042                    (2,462)
          Realized investment security losses .............................                   26,886                       -0-
          Increase in accrued interest receivable .........................                 (998,655)                 (127,955)
          Increase/(decrease) in accrued interest payable .................                  779,290                  (142,309)
          Other ...........................................................               (1,257,366)                  273,719
                                                                                        ------------              ------------
                    NET CASH PROVIDED BY OPERATING ACTIVITIES .............                2,644,637                 3,373,215
                                                                                        ------------              ------------
INVESTING ACTIVITIES:
  Proceeds from sales of investment securities - AFS ......................                4,684,487                       -0-
  Proceeds from maturity of investment securities - AFS ...................               22,357,956                 5,482,785
  Purchase of investment securities - AFS .................................              (42,054,824)               (3,501,153)
  Net increase in loans to customers ......................................              (33,840,712)              (26,213,546)
  Proceeds from sale of premises and equipment ............................                5,889,242                   149,310
  Net proceeds from sale of other real estate .............................                  582,088                   252,888
  Capital expenditures ....................................................               (3,553,955)               (3,415,521)
                                                                                        ------------              ------------
                    NET CASH USED BY INVESTING ACTIVITIES .................              (45,935,718)              (27,245,237)
                                                                                        ------------              ------------
FINANCING ACTIVITIES:
  Net increase in demand deposits, NOW accounts,
      and savings accounts ................................................                5,237,668                11,315,330
  Net increase/(decrease) in certificates of deposit ......................               39,201,958                (8,697,019)
  Net decrease in short-term borrowings ...................................                 (224,736)                 (197,442)
  (Decrease)/increase in FHLB borrowings ..................................               (2,000,000)               30,000,000
  Decrease in long-term debt ..............................................                 (389,275)                 (191,520)
  Issuance of guaranteed preferred beneficial interest in Company's
        junior subordinated deferrable interest debentures ................               10,000,000                       -0-
  Proceeds from issuance of common stock ..................................                  222,804                   294,541
  Cash dividends ..........................................................               (3,499,136)               (2,788,753)
                                                                                        ------------              ------------
                    NET CASH PROVIDED BY FINANCING ACTIVITIES .............               48,549,283                29,735,137
                                                                                        ------------              ------------

Net increase in cash and cash equivalents .................................             $  5,258,202              $  5,863,115

Cash and cash equivalents at beginning of period ..........................               26,797,511                25,553,170
                                                                                        ------------              ------------

CASH AND CASH EQUIVALENTS AT END OF PERIOD ................................             $ 32,055,713              $ 31,416,285
                                                                                        ============              ============
</TABLE>


                 See notes to consolidated financial statements

                                        8

<PAGE>   9



                   COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)



<TABLE>
<CAPTION>
                                                                                Six Months Ended
                                                                                    June 30,
                                                                          -----------------------------
                                                                             2000               1999
                                                                         -----------        -----------
<S>                                                                      <C>                <C>
Supplemental disclosures of cash flow information:
Cash paid during the period for:
       Interest ............................................             $16,683,985        $12,082,249
       Income taxes ........................................                 108,503            586,789
</TABLE>




Supplemental schedule of non-cash investing and financing activities:

The Company acquired $134,790 in other real estate as a result of purchasing
homes of employees under the Company's relocation program during the first six
months of 2000 compared to none during the same period of 1999.

Upon the pledging of purchased shares of the Company's common stock to obtain
additional ESOP debt of $1,076,958 on December 1, 1998, long-term debt was
increased and equity was decreased. The debt was reduced and shares of the
Company's common stock amounting to $76,743 and $80,443 were released during the
six month periods ended June 30, 2000 and 1999, respectively, as a result of
payments made by the Company's ESOP on the outstanding ESOP debt.






              [The remainder of this page intentionally left blank]


                                        9

<PAGE>   10



                   COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)
                                  JUNE 30, 2000


NOTE A - BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Certain amounts in 1999 have been reclassified to conform with
the 2000 presentation. Operating results for the three and six month periods
ending June 30, 2000 are not necessarily indicative of the results that may be
expected for the year ended December 31, 2000. For further information, refer to
the consolidated financial statements and footnotes thereto included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1999.


NOTE B - INVESTMENT SECURITIES

At June 30, 2000 and December 31, 1999, the Company's investment securities are
categorized as available for sale and, as a result, are stated at fair value
based generally on quoted market prices in accordance with Statement of
Financial Accounting Standards (SFAS) No. 115. Unrealized holding gains and
losses, net of applicable deferred taxes, are included as a component of
shareholders' equity (Accumulated Other Comprehensive Income) until realized.

At June 30, 2000, the Company's available-for-sale investment securities
reflected net unrealized losses of $3,149,011, which resulted in a decrease in
shareholders' equity of $1,887,327, net of the deferred tax asset. The net
decrease in shareholders' equity as a result of an adjustment in accordance with
SFAS 115 from December 31, 1999 to June 30, 2000 was $234,206.


NOTE C - CAPITAL SECURITIES

In March 2000, the Company formed a wholly-owned Delaware statutory business
trust, Community (AL) Capital Trust I (the "Trust"), which issued $10,000,000 of
guaranteed preferred securities representing undivided beneficial interests in
the assets of the Trust ("Capital Securities"). All of the common securities of
the Trust are owned by the Company. The proceeds from the issuance of the
Capital Securities ($10,000,000) and common securities ($310,000) were used by
the Trust to purchase $10,310,000 of junior subordinated deferrable interest
debentures of the Company which carry an interest rate of 10.875%. The
debentures represent the sole asset of the Trust. The debentures and related
income statement effects are eliminated in the Company's consolidated financial
statements. The Company is entitled to treat the aggregate liquidation amount of
the debentures as Tier I capital under Federal Reserve guidelines.

The Capital Securities accrue and pay distributions semiannually at a rate of
10.875% per annum of the stated liquidation value of $1,000 per capital
security. The Company has entered into an agreement which fully and
unconditionally guarantees payment of: (i) accrued and unpaid distributions
required to be paid on the Capital Securities; (ii) the redemption price with
respect to any Capital Securities called for redemption by the Trust and (iii)
payments due upon a voluntary or involuntary liquidation, winding up or
termination of the Trust.

The Capital Securities are mandatorily redeemable upon the maturity of the
debentures on March 8, 2030, or upon earlier redemption as provided in the
indenture pursuant to which the debentures were issued. The Company has the
right to redeem the debentures purchased by the Trust: (i) in whole or in part,
on or after March 8, 2010, and (ii) in whole (but not in part) at any time
within 90 days following the occurrence and during the continuation of a tax
event, capital treatment event or investment company event (each as defined in
the indenture). As specified in the indenture, if the debentures are redeemed
prior to maturity, the redemption price will be a percentage of the principal
amount, ranging from 105.438% in 2010 to 100.00% in and after 2020, plus accrued
but unpaid interest.


                                       10

<PAGE>   11
NOTE D - SHAREHOLDERS' EQUITY

Annual dividends of $.75 and $.60 per share were declared by the Company's Board
of Directors on its common stock and paid in January of 2000 and 1999,
respectively. The payment of dividends on common stock is subject to the prior
payment of principal and interest on the Company's long-term debt, maintenance
of sufficient earnings and capital of the subsidiaries and regulatory
restrictions.

The Company has issued options on several occasions to its directors and certain
senior officers, based upon their years of service and their positions with the
Company, to purchase shares of the Company's common stock. The options are
treated as non-qualified options under the provisions of the Internal Revenue
Code. The agreements evidencing these options also contain a provision whereby
the Company will compensate the optionee in cash for any federal or state tax
liability incurred upon the exercise of the options.

Options that have an exercise price below the current fair value of the
Company's common stock are assumed to be exercised in the calculation of diluted
average shares of common stock outstanding, causing the equivalent average
number of shares outstanding on a diluted basis to be 206,287 greater than that
used to calculate basic earnings per share for the six months ended June 30,
2000. Average shares outstanding when assuming dilution were greater than
average shares outstanding for basic earnings per share by 115,500 for June 30,
1999.


NOTE E - EMPLOYEE STOCK OWNERSHIP PLAN

The Company adopted an Employee Stock Ownership Plan (the "ESOP") effective as
of January 1, 1985, which enables eligible employees of the Company and its
subsidiaries to own Company common stock. An employee becomes a participant in
the ESOP on June 30 or December 31 after completing 12 months of employment
during which the employee is credited with 1,000 or more hours of service.
Contributions to the ESOP are made at the discretion of the Company's Board of
Directors, but may not be less than the amount required to cover the debt
service on the ESOP loan. Employer contributions are allocated to eligible
participants in proportion to their compensation, which equals W-2 wages plus
pre-tax reductions for the Company's cafeteria plan. The Internal Revenue Code
imposes a limit ($170,000 in 2000) on the amount of compensation which may be
considered under the ESOP.

On November 3, 1993, the ESOP's Trustees executed a promissory note of
$1,200,000 in order to purchase common stock in the Company's initial public
offering. The note was originally secured by 80,000 shares of purchased stock.
The promissory note has been refinanced in years subsequent to 1993 as
additional shares were purchased by the ESOP. On December 1, 1998, this note was
refinanced and an additional 56,682 shares of the Company's common stock were
obtained by the ESOP. This note, in the original principal of $2,963,842, was
secured by 261,433 shares of the Company's common stock. The note bears interest
at a floating rate, with principal and interest payments due monthly through
November 16, 2010, with the remaining principal, if any, due on that date. The
initial principal and interest payment on this debt in December 1998 was
$31,677. As changes occur in the interest rate on the loan, appropriate
adjustments are made to the monthly principal and interest payments. At June 30,
2000, the monthly payment was $33,852. The Company has guaranteed this debt and
in accordance with the applicable accounting and reporting guidelines the debt
has been recognized on the Company's balance sheet, with an offsetting charge
against equity. As principal payments are made by the ESOP, the debt and
offsetting charge against equity are reduced. The shares securing the note are
released on a prorata basis by the lender as monthly payments of principal and
interest are made. As of June 30, 2000, there were 211,207 unreleased shares
with a fair value, based on an independent valuation of $18 per share, of
approximately $3,801,726. These shares are subtracted from outstanding shares
for earnings per share calculations.

Effective January 1, 1994, the Company applied the accounting and reporting
requirements of Statement of Position No. 93-6, Employers' Accounting for
Employee Stock Ownership Plans ("SOP 93-6"). Under the provisions of SOP 93-6,
the employer must recognize the indebtedness of its sponsored ESOP on its
financial statements and reduce its shareholders' equity for shares of stock
which have not been released by a lender to the ESOP for allocation to its
participating employees. The portion of payments made by the Company to the ESOP
on behalf of its participating employees which are used to pay interest on the
ESOP debt ($122,498 and $111,779 during the first six months of 2000 and 1999,
respectively) is classified as interest expense on the Company's income
statement. Total compensation recorded during the first six months of 2000, as a
result of the release of shares held by the Company's leveraged ESOP, was
$182,052, based on the fair value of such shares.


                                       11

<PAGE>   12
NOTE E - EMPLOYEE STOCK OWNERSHIP PLAN (CONTINUED)

Dividends paid on released ESOP shares are credited to the accounts of the
participants to whom the shares are allocated. Dividends on unreleased shares
may be used to repay debt associated with the ESOP or treated as other income of
the ESOP and allocated to the participants..

At June 30, 2000 and 1999, the Company's financial statements reflected
long-term debt, related to the ESOP of $2,711,699 and $2,863,789, respectively.
The corresponding contra-equity account was $2,606,390 at June 30, 2000 and
2,863,789 at June 30, 1999.

Company contributions to the ESOP amounted to $199,241 and $190,064 for the six
months ended June 30, 2000 and 1999, respectively.


NOTE F - RELATED PARTY TRANSACTIONS

In May 2000, Community Bank made a $4,184,051 loan to REM, LLC, an Alabama
limited liability company of which a director of the Bank is a member, to
purchase from the Bank the real property located in the City of Hamilton, Marion
County, Alabama, the site of the Bank's Hamilton office. Concurrently with this
loan and the purchase of the real property, Community Bank entered into a lease
agreement with REM, LLC to lease back this real property from REM, LLC for a
term of 30 years, with monthly payments equal to the monthly amount of the
principal and interest due under the loan to REM, LLC plus applicable real
estate taxes, assessments, levies and insurance. The loan amortizes over a 30
year period and is collateralized by a first mortgage on the real property. The
loan carries a prime rate of interest that adjusts each time there is a change
in the prime rate. As adjustments occur in the interest rate on the loan,
appropriate increases or decreases are made to the monthly loan payment.

In June 2000, Community Bank made a $1,696,576 loan to Debter Properties, LLC,
an Alabama limited liability company of which a director of the Company is a
member, to purchase from the Bank the real property located in the City of Boaz,
Marshall County, Alabama, the site of the Bank's Boaz office. Concurrently with
this loan and the purchase of the real property, Community Bank entered into a
lease agreement with Debter Properties, LLC to lease back this real property
from Debter Properties, LLC for a term of 30 years, with monthly payments equal
to the monthly amount of the principal and interest due under the loan to Debter
Properties, LLC plus applicable real estate taxes, assessments, levies and
insurance. The loan amortizes over a 20 year period and is collateralized by a
first mortgage on the real property. The loan carries a prime rate of interest
that adjusts each time there is a change in the prime rate. As adjustments occur
in the interest rate on the loan, appropriate increases or decreases are made to
the monthly loan payment.

Management believes these loans were made in the ordinary course of business on
substantially the same credit terms, including interest rates and collateral and
do not represent more than a normal risk of collection or present other
unfavorable features.


NOTE G - LEASES

In May 2000, Community Bank entered into a lease agreement with REM, LLC, an
Alabama limited liability company of which a director of the Bank is a member,
as lessor on the real property located in the City of Hamilton, Marion County,
Alabama, the site of the Bank's Hamilton office. In connection with the lease
agreement, Community Bank loaned funds to REM, LLC to finance its purchase of
the real property from Community Bank. The term of the lease is 30 years
provided however that in no event shall the term of the lease expire prior to
the time when the loan obtained by the lessor to purchase the leased property is
paid in full. The monthly rent on this lease is an amount equal to the monthly
debt amortization of funds which the lessor borrowed to purchase the leased
property. Because the interest rate on the loan used to purchase the property
adjusts with fluctuations in the prime rate, the monthly lease payments are
subject to change. At June 30, 2000, the amount of the monthly rental payment
was $35,210. In addition, the Bank agrees to pay the lessor an additional sum to
be adjusted periodically to coincide with the cost to the lessor of the real
estate taxes and other items and insurance. Community Bank is responsible for
maintenance, repairs and utilities for the real property. Community Bank is also
responsible for maintaining fire and extended coverage and general liability
insurance coverage for the real property. The Company has the option to purchase
the leased premises from the lessor at any time during the term of the lease for
an amount equal to the lessor's cost in acquiring and/or constructing such
leased premises. In an Addendum to the Lease Agreement and Loan Agreement, dated
May 31, 2000, the Bank agreed to maintain and continue in force fire and
extended coverage insurance and general liability insurance upon the leased
premises. In return, the lessor agreed to reimburse the Bank on a quarterly
basis the amount of the insurance premium which is included in payments made by
the Bank under the lease.

In June 2000, Community Bank entered into a lease agreement with Debter
Properties, LLC, an Alabama limited liability company of which a director of the
Company is a member, as lessor on the real property located in the City of Boaz,
Marshall County, Alabama, the site of the Bank's Boaz office. In connection with
the lease agreement, Community Bank loaned funds to Debter Properties, LLC to
finance its purchase of the real property from Community Bank. The term of the
lease is 20 years


                                       12

<PAGE>   13
NOTE G - LEASES (CONTINUED)

provided however that in no event shall the term of the lease expire prior to
the time when the loan obtained by the lessor to purchase the leased property is
paid in full. The monthly rent on this lease is an amount equal to the monthly
debt amortization of funds which the lessor borrowed to purchase the leased
property. Because the interest rate on the loan used to purchase the property
adjusts with fluctuation in the prime rate, the monthly lease payments are
subject to change. At June 30, 2000, the amount of the monthly rental payment
was $15,821. In addition, the Bank agrees to pay the lessor an additional sum to
be adjusted periodically to coincide with the cost to the lessor of the real
estate taxes and other items and insurance. Community Bank is responsible for
maintenance, repairs and utilities for the real property. Community Bank is also
responsible for maintaining fire and extended coverage and general liability
insurance coverage for the real property. The Company has the option to purchase
the leased premises from the lessor at any time during the term of the lease for
an amount equal to the lessor's cost in acquiring and/or constructing such
leased premises. In an Addendum to the Lease Agreement and Loan Agreement, dated
June 1, 2000, the Bank agreed to maintain and continue in force fire and
extended coverage insurance and general liability insurance upon the leased
premises. In return, the lessor agreed to reimburse the Bank on a quarterly
basis the amount of the insurance premium which is included in payments made by
the Bank under the lease.


NOTE H - CONTINGENCIES

At a meeting of Community Bank's Board of Directors on June 20, 2000, a director
brought to the attention of the Board the total amount of money Community Bank
had paid subcontractors in connection with the construction of a new Community
Bank office. Management of the Company commenced an investigation of the
expenditures. At the request of management, the architects and subcontractors
involved in the construction project made presentations to the Boards of
Directors of the Company and Community Bank on July 15 and July 18, 2000,
respectively. At the July 18, 2000 meeting of the Board of Directors of
Community Bank, another director made a presentation alleging that Community
Bank had been overcharged by subcontractors on that construction project and
another current construction project. As of July 30, 2000, Community Bank had
paid a total of approximately $1,792,949 to these subcontractors with respect to
the two construction projects. On July 18, 2000, the Boards of Directors of the
Company and Community Bank appointed a joint committee comprised of independent
directors of the Company and of Community Bank to investigate the alleged
overcharges. Upon completion of its investigation, the joint committee is to
inform the Boards of Directors of the Company and Community Bank of its findings
and recommendations. The joint committee has retained legal counsel and an
independent accounting firm to assist the committee in its investigation.
Management has also been informed that the directors of Community Bank who
alleged the construction overcharges have contacted bank regulatory agencies and
law enforcement authorities. Management believes that these agencies and
authorities are currently conducting investigations regarding this matter.

On July 21, 2000, three shareholders of the Company, M. Lewis Benson, Doris E.
Benson and John M. Packard, Jr., filed a lawsuit in the state Circuit Court of
Marshall County, Alabama against the Company, Community Bank, certain directors
and officers of the Company and Community Bank, an employee of Community Bank
and two construction subcontractors. The plaintiffs purport to file the lawsuit
as a shareholder derivative action, which relates to the alleged construction
overcharges being investigated by the joint committee of the Boards of Directors
of the Company and Community Bank. The complaint alleges that the directors,
officers and employee named as defendants in the complaint breached their
fiduciary duties, failed to properly supervise officers and agents of the
Company and Community Bank, and permitted waste of corporate assets by allegedly
permitting the subcontractor defendants to overcharge Community Bank in
connection with the construction of two new Community Bank offices, and to
perform the construction work without written contracts, budgets, performance
guarantees and assurances of indemnification. In addition, the complaint alleges
that Kennon R. Patterson, Sr., the Chairman, President and Chief Executive
Officer of the Company, breached his fiduciary duties by permitting the two
named subcontractors to overcharge for work performed on the two construction
projects in exchange for discounted charges for work these subcontractors
performed in connection with the construction of Mr. Patterson's residence. The
complaint further alleges that the director defendants knew or should have known
of this alleged arrangement between Mr. Patterson and the subcontractors. The
complaint also alleges that Mr. Patterson, the Community Bank employee and the
two subcontractor defendants made false representations and suppressed
information about the alleged overcharges and arrangement between Mr. Patterson
and the subcontractors. On August 15, 2000, the plaintiffs filed an amended
complaint adding Andy C. Mann, a shareholder of the Company, as a plaintiff and
adding a former director of the Company and Community Bank as a defendant. The
amended complaint generally reiterates the allegations of the original
complaint. In addition, the amended complaint alleges that Community Bank was
overcharged on all construction projects from January 1997 to the present. The
amended complaint also alleges that the defendants breached their fiduciary
duties and are guilty of gross financial mismanagement, including allegations
concerning the making or approval of certain loans and taking improper actions
to conceal the fact that certain loans were uncollectible. The amended complaint
seeks, on behalf of the Company, an unspecified amount of compensatory damages
in excess of $1 million, punitive damages, disgorgement of improperly paid
profits and appropriate equitable relief. The defendants in this action have not
yet filed a response to the complaint. Because the complaint has just recently
been filed and the joint committee has not yet completed its


                                       13

<PAGE>   14



investigation, and as a result of the inherent uncertainties of the litigation
process, the Company is unable at this time to predict the outcome of this
lawsuit and its effect on the Company's financial condition and results of
operations. Regardless of the outcome, however, this lawsuit could be costly,
time-consuming and a diversion of management's attention.

On August 3, 2000, the Company, Community Bank and the Company's directors filed
a motion to stay the proceedings of a shareholder derivative action that was
filed on November 19, 1998 in the state Circuit Court of Blount County, Alabama
against the Company, Community Bank and the Company's directors by William
Towns, Pat Ballew and Mary Ballew, each a stockholder of the Company. The motion
seeks to stay the proceedings until the Company's and Community Bank's special
joint committee has completed its investigation of the alleged construction
overcharges discussed above. For additional information about this lawsuit,
please see the section captioned "Legal Proceedings" in the Company's Annual
Report on Form 10-K for the year ended December 31, 1999 and Quarterly Report on
Form 10-Q for the quarterly period ended March 31, 2000.

The Company's Certificate of Incorporation provides that, in certain
circumstances, the Company will indemnify and advance expenses to its directors
and officers for judgments, settlements and legal expenses incurred as a result
of their service as officers and directors of the Company. Community Bank's
Bylaws contain a similar provision for indemnification of directors and officers
of Community Bank.

In January 2000, management determined to increase Community Bank's provision
for loan losses and decrease its loan-to-deposit ratio. However, in connection
with a current examination of Community Bank by the State Banking Department of
Alabama, the State Banking Department regulators are likely to recommend and
management may determine to increase Community Bank's provision for loan losses.
Such amounts cannot be determined at this time.

In December 1999, Community Bank made a charge of approximately $2,631,000 to
its allowance for loan losses associated with impaired balances on automobile
and truck loans originated through Community Bank's Ft. Payne, Alabama Wal-mart
location which were not in compliance with the Bank's lending policy. Community
Bank, including its subsidiary 1st Community Credit Corporation, made additional
charges of approximately $567,000 to its allowance for loan losses during the
first six months of 2000 related to these Ft. Payne loans. In June, the
Company filed a lawsuit in the U.S. District Court for the Northern District of
Alabama against persons involved in originating these loans. The lawsuit seeks
damages of an unspecified amount to recover losses incurred by the Bank as a
result of originating such loans, along with all cost associated with this legal
action. Any amounts received by the Bank as a result of this litigation will be
treated as a recovery on loan losses.







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                                       14

<PAGE>   15



                                     ITEM 2.
           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                            AND RESULTS OF OPERATIONS


This discussion is intended to assist in an understanding of the financial
condition and results of operations of Community Bancshares, Inc. (the
"Company"). Unless the context otherwise indicates, references to the Company
shall include the Company and its subsidiaries. This analysis should be read in
conjunction with the financial statements and related notes appearing in Item 1
of this Report and Management's Discussion and Analysis of Financial Condition
and Results of Operations appearing in the Company's Annual Report on Form 10-K
for the year ended December 31, 1999.

Certain statements in this Report are "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1993, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. These forward-looking
statements are not based on historical facts and may be identified by their
reference to a future period or by the use of forward-looking terminology, such
as "anticipate," "estimate," "expect," "may" and "should." These forward-looking
statements include, without limitation, those relating to the Company's future
growth and profitability, non-interest expenses, pending litigation and
investigations, non-compliant and impaired loans originated in Community Bank's
Ft. Payne, Alabama office, capital requirements, operating strategy, interest
rate sensitivity, market risk and impact of Year 2000 issues. We caution you not
to place undue reliance on these forward-looking statements. Actual results
could differ materially from those indicated in such forward-looking statements
due to a variety of factors. These factors include, but are not limited to,
changes in economic conditions, government fiscal and monetary policies and
prevailing interest rates, effectiveness of the Company's interest rate
strategies, changes in laws, regulations and regulatory policies affecting
financial institutions, changes in and effectiveness of the Company's operating
or expansion strategies, geographic concentration of the Company's assets and
operations, competition from other financial services companies, the Company's
ability to obtain reimbursement from its fidelity bond insurance carrier or
other persons responsible for originating non-compliant and impaired loans in
Community Bank's Ft. Payne, Alabama office, adverse outcome of pending
litigation and other risks detailed from time to time in the Company's press
releases and filings with the Securities and Exchange Commission. We undertake
no obligation to update these forward-looking statements to reflect events or
circumstances occurring after the date of this Report.


FINANCIAL CONDITION

JUNE 30, 2000 COMPARED TO DECEMBER 31, 1999


LOANS

Loans comprised the largest single category of the Company's earning assets at
June 30, 2000. Loans, net of unearned income and reserve for loan losses, were
72.8% of total assets at June 30, 2000 and 73.5% of total assets at December 31,
1999. Total net loans were $527,626,585 at June 30, 2000, representing a
$31,503,361, or 6.4%, increase from the December 31, 1999 total net loans of
$496,123,224. Of this growth, $5,880,627, or 18.7%, was attributable to loans
made in connection with the sale/lease back arrangements on two Community Bank
locations. The remaining increase in total net loans was considered ordinary
growth occurring in most markets served by the Company. (See Note F to the
Consolidated Financial Statements)


INVESTMENT SECURITIES AND OTHER EARNING ASSETS

Investment securities increased $14,503,707, or 15.0%, to $111,350,980 at June
30, 2000 compared to $96,847,273 at December 31, 1999. The investment securities
portfolio is used to make various term investments, to provide a source of
liquidity and to serve as collateral to secure certain government deposits.
Short-term investments in the form of interest-bearing deposits with banks were
$700,000 at both June 30, 2000 and December 31, 1999. The Company had $1,000,000
in federal funds sold at June 30, 2000 compared to none at December 31, 1999.
Increases in investment securities and federal funds sold is due primarily to
growth in deposits.


                                       15

<PAGE>   16

ASSET QUALITY

Between December 31, 1999 and June 30, 2000, the three key ratios used as an
indicator of the quality of the Company's assets did not change significantly.
The ratio of loan loss allowance to total nonperforming assets (defined as
nonaccrual loans, loans past due 90 days or greater, restructured loans,
nonaccruing securities and other real estate) improved to 0.55 at June 30, 2000
from 0.54 at year-end 1999. The ratio of total nonperforming assets to total
assets increased to 0.008 at June 30, 2000 from 0.007 at year-end 1999, while
the ratio of nonperforming loans to total loans increased to 0.009 at June 30,
2000 from 0.008 at December 31, 1999. Total nonperforming assets increased
$870,000, or 18.1%, during the first six months of 2000. This increase resulted
from an increase of $1,267,000, or 95.1%, in loans past due 90 days or more,
which was partially offset by a decline of $397,000, or 14.7%, in nonaccrual
loans. Other real estate was unchanged during the first six months of 2000.
There was also a significant increase in the amount of charged-off loans during
the first six months of 2000 due to expansion into new markets, which expansion
resulting in growth in the loan portfolio, and aggressive lending. However, the
Company has taken steps to increase the provision for loan losses and to
decrease the loan-to-deposit ration from 87.0% at year-end 1999 to 85.9% at June
30, 2000. (See - Results of Operations/Provision for Loan Losses)

DEPOSITS

Total deposits of $617,700,420 at June 30, 2000 increased $44,439,626, or 7.8%,
over total deposits of $573,260,794 at year-end 1999. Deposits are the Company's
primary source of funds with which to support its earning assets.
Noninterest-bearing deposits increased $7,385,705, or 11.4%, from year-end 1999
to June 30, 2000, while interest-bearing deposits at June 30, 2000 increased
$37,053,921, or 7.3%, from year-end 1999. Certificates of deposit of $100,000 or
more increased $6,113,631, or 6.3%, to $103,431,601 at June 30, 2000 from
$97,317,970 at December 31, 1999.


OTHER SHORT-TERM BORROWINGS

Other short-term borrowings totaled $2,269,106 at June 30, 2000, representing a
decrease of $224,736, or 9.0%, from the December 31, 1999 level of $2,493,842.
At June 30, 2000, short-term borrowings consisted of the U S. Treasury Tax and
Loan Note Option account and securities sold under agreement to repurchase.
Balances under the U.S. Treasury Tax and Loan Note Option are subject to call at
any time by the U.S. Treasury. The decrease during the first six months of 2000
was due primarily to a decrease in the balances outstanding under the U.S.
Treasury Tax and Loan Note Option.


FHLB BORROWINGS AND LONG-TERM DEBT

At June 30, 2000 and December 31, 1999, the Company had notes payable totaling
$6,171,144 and $6,637,162, respectively.

In December 1992, the Company entered into a loan agreement with a regional bank
for amounts up to $6,500,000. At June 30, 2000 and December 31, 1999, the
amounts outstanding were $1,778,754 and $2,134,505, respectively, due December
2002, bearing interest at a floating prime rate, and collateralized by 100% of
the common stock of Community Bank, the Company's subsidiary bank. The note
agreement contains provisions which limit the Company's right to transfer or
issue shares of Community Bank stock. Principal payments of $59,292 are due
monthly; however, the Company has the option of postponing up to 24 monthly
principal payments, provided that no more than 6 consecutively scheduled
installments are deferred.

On November 3, 1993, the ESOP's Trustees executed a promissory note of
$1,200,000 in order to purchase common stock in the Company's initial public
offering. The note was originally secured by 80,000 shares of purchased stock.
The promissory note has been refinanced in years subsequent to 1993 as
additional shares were purchased by the ESOP. On December 1, 1998, this note was
refinanced and an additional 56,682 shares of the Company's common stock were
obtained by the ESOP. This note, in the original principal of $2,963,842, was
secured by 261,433 shares of the Company's common stock. The note bears interest
at a floating rate, with principal and interest payments due monthly through
November 16, 2010, with the remaining principal, if any, due on that date. The
initial monthly principal and interest payment on this debt in December 1998 was
$31,677. As changes occur in the interest rate on the loan, appropriate
adjustments are made to the monthly principal and interest payments. At June 30,
2000,


                                       16

<PAGE>   17
the monthly payment was $33,852. The Company has guaranteed this debt and in
accordance with the applicable accounting and reporting guidelines the debt has
been recognized on the Company's balance sheet, with an offsetting charge
against equity. As principal payments are made by the ESOP, the debt and
offsetting charge against equity are reduced. The shares securing the note are
released on a prorata basis by the lender as monthly payments of principal and
interest are made. The outstanding balance of this note was $2,711,699 at June
30, 2000 and $2,788,442 at December 31, 1999, secured by 211,207 and 221,321 of
unreleased shares of Company common stock, respectively.

On October 4, 1994, the Company entered into a 20-year subordinated installment
capital note due October 1, 2014 for the purchase of treasury stock. Monthly
principal and interest payments of $15,506 are made on the note, which bears
interest at the fixed rate of 7%. The Company maintains the right to prepay the
note at its sole discretion. The balance of the note was $1,680,691 at June 30,
2000 and $1,714,215 at December 31, 1999.

Since June 1999, Community Bank, has borrowed funds under the Federal Home Loan
Bank of Atlanta's "Convertible Advance Program." These advances have had
original maturities of 10 years, with stated call features during the life of
the obligation, at fixed interest rates for the life of the obligations.
Principal is due at final maturity or on a stated call date, with interest
payable each quarter. At December 31, 1999, Community Bank had an outstanding
advance of $40,000,000. This advance had a final maturity of September 1, 2009
(120 months), with a call feature every 6 months during the life of the
obligation, and carried a fixed rate of 4.99% per annum. Due to a stated call of
this obligation on March 1, 2000, Community Bank made a $2,000,000 reduction in
the amount advanced under the FHLB "Convertible Advance Program" and refinanced
$38,000,000. This new obligation has a final maturity of March 1, 2010 (120
months), a call feature every 12 months during the life of the obligation, and a
fixed interest rate of 5.93% per annum with interest payable each quarter. At
June 30, 2000, outstanding funds advanced to Community Bank under the FHLB
"Convertible Loan Program" totaled $38,000,000.

In March 2000, the Company formed a wholly-owned Delaware statutory business
trust, Community (AL) Capital Trust I (the "Trust"), which issued $10,000,000 of
guaranteed preferred securities representing undivided beneficial interests in
the assets of the Trust ("Capital Securities"). The proceeds from the issuance
of the Capital Securities and common securities ($310,000) were used by the
Trust to purchase $10,310,000 of junior subordinated deferrable interest
debentures of the Company which carry an annual interest rate of 10.875%. The
principal balance outstanding is due at maturity. However, as specified in the
indenture pursuant to which the debentures were issued, the debentures can be
redeemed prior to maturity at a redemption price equal to a percentage of the
principal amount, ranging from 105.438% in the year 2010 to 100.00% in and after
the year 2020, plus accrued but unpaid interest. As of June 30, 2000, the
Company's consolidated financial statements reflected $10,000,000 in junior
subordinated deferrable interest debentures, after the effects of elimination.
See Note C to the Consolidated Financial Statements.

Maturities/calls of long-term debt and FHLB borrowings for the years ending
December 31, are as follows:

<TABLE>
<CAPTION>
                                                                                                                  Junior
                                                    Notes           Subordinated             FHLB             Subordinated
                                                   Payable              Debt              Borrowings            Debentures
                                               ---------------    -----------------    ----------------    ------------------
<S>                                            <C>                <C>                  <C>                 <C>
2000.........................................  $       444,170    $          34,714    $            -0-    $              -0-
2001.........................................          895,476               73,171          38,000,000                   -0-
2002.........................................          912,234               78,461                 -0-                   -0-
2003.........................................          219,019               84,133                 -0-                   -0-
2004.........................................          238,970               90,215                 -0-                   -0-
Thereafter...................................        1,780,584            1,319,997                 -0-            10,000,000
                                               ---------------    -----------------    ----------------  - ------------------
                                               $     4,490,453    $       1,680,691    $     38,000,000    $       10,000,000
                                               ===============    =================    ================  = ==================
</TABLE>



                                       17

<PAGE>   18
SHAREHOLDERS' EQUITY

Company shareholders' equity decreased $2,571,336, or 5.8%, from $44,475,376 at
December 31, 1999 to $41,904,040 at June 30, 2000, resulting from net income of
$757,150, proceeds from the issuance of additional common stock for $222,804 and
a reduction of unearned ESOP shares by $182,052, being offset by the payment of
a cash dividend of $3,499,136 and an increase in unrealized losses on securities
available for sale totaling $234,206, net of deferred tax liability.


CAPITAL RESOURCES

Bank regulatory authorities have placed increased emphasis on the maintenance of
adequate capital, and subsequently developed risk-based capital guidelines. The
guidelines take into consideration risk factors, as defined by regulators,
associated with various categories of assets, both on and off the balance sheet.
Under the guidelines, capital strength is measured in two tiers which are used
in conjunction with risk-adjusted assets to determine the risk-based capital
ratios. The Company's Tier I capital, which consists of common equity and junior
subordinated deferrable interest debentures (see Note C to the Consolidated
Financial Statements), less goodwill, amounted to $47,828,084 at June 30, 2000.
Tier II capital components include supplemental capital components such as
qualifying allowance for loan losses and qualifying subordinated debt. Tier I
capital plus Tier II capital components are referred to as Total Risk- Based
capital and was $52,416,870 at June 30, 2000.

As of June 30, 2000, the Company was classified as well capitalized and
Community Bank, its banking subsidiary, was classified as adequately capitalized
under the financial institutions regulatory framework. Management has reviewed
and will continue to monitor the Company's asset mix, product pricing and loan
loss allowance, which are the areas determined to be most affected by these
requirements.











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                                       18

<PAGE>   19
RESULTS OF OPERATIONS

SIX MONTHS AND THREE MONTHS ENDED JUNE 30, 2000 AND 1999

SUMMARY

Net income of the Company for the six months ended June 30, 2000 was $757,150
compared to $1,172,359 for the same period in 1999, representing a decline of
$415,209, or 35.4%. Basic net income per share was $.17 for the six months ended
June 30, 2000 as compared to $.27 for the same period of 1999. Fully diluted net
income per share was $.16 and $.26 for the six months ended June 30, 2000 and
1999, respectively. This decline resulted primarily from an increase in the
provision for loan losses that exceeded the increase in the Company's net
interest income before the provision. A $1,152,244, or 29.0%, increase in
non-interest income was offset by a $1,267,380, or 9.0%, increase in
non-interest expense during the first six months of 2000 as compared to the same
period of 1999. This increase in non-interest income resulted primarily from
increases in service charges on deposit accounts, insurance commissions, debt
cancellation fees and other service fees associated with the delivery of
financial services, while the increase in non-interest expense was related to an
increase in salary and benefits associated with the Company's expansion.

Net income for the quarter ended June 30, 2000 was $303,213 compared to $585,905
for the same three month period of 1999, representing a decrease of $282,692, or
48.3%. Basic net income per share was $.07 for the second quarter of 2000
compared to $.13 for the same period of 1999. Fully diluted net income per share
was $.06 and $.13 for the three months ended June 30, 2000 and 1999,
respectively. Again, this decline during the second quarter of 2000 resulted
primarily from an increase in the provision for loan losses that exceeded the
increase in net interest income before the provision. The Company also
experienced a decline in its net interest income during the second quarter of
2000 as compared to the first quarter of 2000 due to rising interest rates as
Community Bank's interest-bearing liabilities repriced at a faster rate than its
interest earning assets. Non-interest income increased $524,210, or 24.8%, while
non-interest expense increased $431,191, or 5.9%, during the second quarter of
2000 as compared to the same period of 1999. The increase in non-interest income
was due primarily to increases in service charges on deposit accounts and
insurance commissions. The increase in non-interest expense was due primarily to
an increase in salaries and benefits.


NET INTEREST INCOME

Net interest income, the difference between interest earned on assets and the
cost of interest-bearing liabilities, is the largest component of the Company's
net income. Revenues from interest-earning assets of the Company during the six
months ended June 30, 2000 increased $4,804,230, or 19.4%, to $29,538,255 from
$24,734,025 for the same period in 1999. This increase was due to both higher
average outstanding balances of earning assets and an increase in the yield on
these balances. Average earning assets outstanding during the first six months
of 2000 were $619,483,000, which represents an increase of $76,425,000, or
14.1%, over the level of $543,058,000 for the first six months of 1999. In
addition, the Company's fully taxable equivalent yield on its average earning
assets increased 40 basis points to 9.65% during the first six months of 2000,
compared to 9.25% for the same period of 1999. Interest expense for the six
months ended June 30, 2000 increased $3,703,389, or 30.4%, to $15,904,695 from
$12,201,306 for the corresponding period of 1999. This increase was due to both
higher average outstanding balances of interest-bearing liabilities and an
increase in the rate paid on these balances. Average interest-bearing
liabilities during the first six months of 2000 were $579,591,000, which
represents an increase of $85,168,000, or 17.2%, as compared to $494,423,000 for
the same period of 1999. The rate paid on average interest-bearing liabilities
increased 51 basis points to 5.50% for the six month period ended June 30, 2000,
compared to 4.99% for the first six months of 1999. As a result of these
factors, net interest income, before provision for loan losses, increased
$1,100,841, or 8.8%, in the six months ended June 30, 2000, compared to the same
period of 1999.

Net interest income for the second quarter of 2000 increased $371,193, or 5.8%,
to $6,783,207 during the three months ended June 30, 2000 from $6,412,014 for
the same period of 1999. The Company continued to show increases in the average
balances outstanding in interest-earning assets and interest-bearing liabilities
during the second quarter of 2000 compared to the same period of 1999. However,
there was a decline in the growth of the Company's net interest income, for the
second quarter of 2000, due primarily to the impact of rising interest rates as
the rate paid on interest-bearing liabilities grew at a greater rate than the
yield on interest-earning assets. Interest income was $15,223,178 and
$12,596,383 for the three months ended June 30, 2000 and 1999, respectively.
This


                                       19

<PAGE>   20
represents a $2,626,795, or 20.9%, increase. Interest expense increased
$2,255,602, or 36.5%, to $8,439,971 for the three months ended June 30, 2000
from $6,184,369 for the three months ended June 30, 1999.


PROVISION FOR LOAN LOSSES

The provision for loan losses, which is charged to current earnings, is based on
the growth of the loan portfolio, the amount of net loan losses incurred and
management's estimation of potential future losses based on an evaluation of the
risk in the loan portfolio. This review takes into consideration the judgments
of the responsible lending officers and senior management, and also those of
bank regulatory agencies that review the loan portfolio as part of the regular
bank examination process.

In evaluating the allowance, management also considers the historical loan loss
experience of Community Bank, including its finance company subsidiary, the
amount of past due and nonperforming loans, current and anticipated economic
conditions, lender requirements and other appropriate information. Community
Bank allocates its allowance for loan losses to specific loan categories based
on an average of the previous five years net losses for each loan type.

The provision for loan losses was $2,337,351 for the six months ended June 30,
2000, compared to $843,453 for the same period of 1999, representing an increase
of $1,493,898, or 177.1%. This increase in the provision for loan losses during
the first six months of 2000 resulted from management's decision to make
provisions for current losses, actual growth in the loan portfolio and to
increase the overall level of the allowance for loan losses due to expansion
into new markets, which expansion resulted in growth in the loan portfolio, and
aggressive lending. There was also an increase in the amount of charged-off
loans during the first six months of 2000 due to expansion into new markets,
which resulted in growth in the loan portfolio, and aggressive lending.
Charge-offs exceeded recoveries by $1,798,000 for the six months ended June 30,
2000, compared to $999,000 for the same period of 1999. The reserve for loan
losses as a percentage of outstanding loans, net of unearned income, was 0.59%
at June 30, 2000 compared to 0.52% at year-end 1999.

The provision for loan losses for the second quarter of 2000 was $1,329,249
compared to $463,661 for the same period of 1999, representing an increase of
$865,588, or 186.7%. Charge-offs exceeded recoveries by $1,028,000 and $668,000
for the quarters ended June 30, 2000 and 1999, respectively. These changes
during the second quarter of 2000 resulted as management continued to carry out
its decision to increase the allowance for loan losses and its more aggressive
assessment of past due credits.

In January 2000, management determined to increase Community Bank's provision
for loan losses and decrease its loan-to-deposit ratio. However, in connection
with a current examination of Community Bank by the State Banking Department of
Alabama, the State Banking Department regulators are likely to recommend and
management may determine to increase Community Bank's provision for loan
losses. Such amounts cannot be determined at this time.

NON-INTEREST INCOME

Non-interest income for the six months ended June 30, 2000 was $5,132,661,
compared to $3,980,417 for the same period of 1999. This increase of 1,152,244,
or 29.0%, during the first six months of 2000, compared to the same period of
1999, resulted primarily from increases of $329,526, or 19.4%, in service
charges on deposit accounts, $308,639, or 32.5%, in insurance commissions,
$150,084, or 60.3%, in fees on debt cancellation contracts and $387,092, or
53.1%, in other operating income. Components of other operating income
reflecting increases were title insurance revenues and other fee income
associated with wire transfers, non-customer check cashing and ATM access. The
Company recorded net losses on the sale of investment securities of $26,886
during the six months ended June 30, 2000, while there were no gains or losses
on the sale of investment securities for the same period of 1999.

Non-interest income reflected an increase of $524,210, or 24.8%, for the second
quarter of 2000 compared to the same period of 1999. This increase resulted
primarily from increases of $148,639, or 16.5%, in service charges on deposit
accounts and $225,338, or 49.5%, in insurance commissions. Other components of
non-interest income reflecting increases during the second quarter of 2000
compared to the same period of 1999 were as follows: fees on debt cancellation
contracts increased $60,722, or 42.7%, and other operating income increased
$88,575, or 20.2%, due primarily to an increase in title insurance revenues.


                                       20

<PAGE>   21
NON-INTEREST EXPENSES

Non-interest expenses for the six months ended June 30, 2000 were $15,362,315,
reflecting a $1,267,380, or 9.0%, increase over $14,094,935 for the same period
of 1999. The primary components of non-interest expenses are salaries and
employee benefits, which increased $1,561,441 for the six months ended June 30,
2000, 19.2% higher than in the same period of 1999. The increases in salaries
and employee benefits are due to staffing for new banking locations and
expansion, as well as merit increases and incentive payments for existing
personnel. Salaries and benefits also include compensation expense related to
the release of shares in the Company's leveraged ESOP. Occupancy costs increased
$44,109, or 3.5%, furniture and equipment expenses rose by $76,462, or 9.0%,
while director and committee fees decreased $39,509, or 12.0%. Other operating
expenses declined $375,123,or 10.8%, to $3,115,775 during the first six months
of 2000 compared to $3,490,898 for the same period of 1999. This decline
primarily reflects a reduction in the audit fees, legal fees, publication and
advertising costs associated with the Company's 2000 annual shareholders'
meeting, as compared to these expenses for the 1999 meeting. As a result of the
Company's recent growth, management anticipates that non-interest expenses will
remain at least at their current level for the foreseeable future.

Non-interest expenses were $7,693,421 for the three months ended June 30, 2000
compared to $7,262,230 for the same period of 1999. This increase of $431,191,
or 5.9%, during the second quarter of 2000 resulted primarily from an increase
of $867,360, or 21.7%, in personnel cost associated with the Company's expansion
activities, which was offset by a decline of $462,571, or 23.1%, in other
operating expenses. The decrease in other operating expenses was due primarily
to a reduction in the professional fees, and publication and advertising cost
associated with the Company's 2000 annual shareholders' meeting.

The Company's strategy is to make each office of its subsidiary bank a vital
part of the community it serves. Each office has management and personnel
similar to a full service, stand-alone bank. Although more expensive, the
Company believes this strategy has been successful for Community Bank, and best
serves its communities, customers and the Company's shareholders.


INCOME TAXES

The provision for income taxes of $309,405 for the six months ended June 30,
2000 decreased $92,984, or 23.1%, compared to the same period of 1999, due
primarily to the decrease in income before taxes. While the effective tax rate
of approximately 29.0% for the first six months of 2000 is less than the
statutory rate, it does reflect an increase over the effective tax rate of 25.6%
for the same period of 1999. The Company's effective tax rate of 23.9% for the
second quarter of 2000 represents a decline from the effective tax rate of 26.8%
for the second quarter of 1999. These shifts are in part due to the effect of
tax-free interest income. The Company attempts to maximize its net income
through active tax planning.








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                                       21

<PAGE>   22
                                     ITEM 3.
           QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK


The Company's net interest income, and the fair value of its financial
instruments, are influenced by changes in the level of interest rates. Interest
rate sensitivity is a function of the repricing characteristics of the Company's
interest-earning assets and interest-bearing liabilities. Management monitors
its interest rate risk exposure through the use of a Static Gap analysis and an
Interest Rate Shock analysis.

The static gap analysis measures the amount of repricing risk embedded in the
balance sheet at a specific point in time, by comparing the difference in the
volume of interest-earning assets and interest-bearing liabilities that are
subject to repricing within specific time periods. During the first six months
of 2000, Community Bank saw its interest earning assets repricing within one
year increase while its interest bearing liabilities repricing during this same
period decreased. While these changes reflect a slight improvement in the
Company's static gap position, as compared to year-end 1999, the Company
remained liability sensitive at June 30, 2000, indicating that it had more
interest bearing liabilities than interest earning assets repricing during the
twelve months ending June 30, 2001. The cumulative static gap position of rate
sensitive assets to rate sensitive liabilities at June 30, 2000 was: i) 22.2% at
30 days; ii) 44.9% at 90 days; iii) 43.2% at 180 days; and iv) 41.6% at 365
days.

The interest rate shock analysis measures the impact on Community Bank's net
interest income as a result of immediate and sustained shift in interest rates.
The movement in market rates are based on statistical regression analyses while
management makes assumptions concerning balance sheet growth and the magnitude
of interest rate movements for certain interest earning asset and
interest-bearing liabilities. Using actual maturity and repricing opportunities
of Community Bank's portfolio, in conjunction with management's assumptions, a
rate shock analysis is performed using a plus 200 basis points shift and a minus
200 basis points shift in interest rates. Based on the Company's June 30, 2000
Asset/Liability Analysis, the improvement in net interest income, over the next
twelve months, resulting from a 200 basis points decrease in the interest rate
environment would be $934,000, or 3.2%. Conversely, a 200 basis points increase
in interest rates would result in a $1,195,000 or 4.1%, decrease in net interest
income for the same period.

While movement of interest rates cannot be predicted with any certainty,
management believes that Community Bank's current interest rate sensitivity
analysis fairly reflects its interest rate risk exposure during the twelve
months ending June 30, 2001. Management continually evaluates the condition of
the economy, the pattern of market interest rates and other economic data to
determine the types of investments that should be made and at what maturities.










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                                       22

<PAGE>   23

                           PART II - OTHER INFORMATION


                           Item 1 - Legal Proceedings

At a meeting of Community Bank's Board of Directors on June 20, 2000, a director
brought to the attention of the Board the total amount of money Community Bank
had paid subcontractors in connection with the construction of a new Community
Bank office. Management of the Company commenced an investigation of the
expenditures. At the request of management, the architects and subcontractors
involved in the construction project made presentations to the Boards of
Directors of the Company and Community Bank on July 15 and July 18, 2000,
respectively. At the July 18, 2000 meeting of the Board of Directors of
Community Bank, another director made a presentation alleging that Community
Bank had been overcharged by subcontractors on that construction project and
another current construction project. As of July 30, 2000, Community Bank had
paid a total of approximately $1,792,949 to these subcontractors with respect to
the two construction projects. On July 18, 2000, the Boards of Directors of the
Company and Community Bank appointed a joint committee comprised of independent
directors of the Company and of Community Bank to investigate the alleged
overcharges. Upon completion of its investigation, the joint committee is to
inform the Boards of Directors of the Company and Community Bank of its findings
and recommendations. The joint committee has retained legal counsel and an
independent accounting firm to assist the committee in its investigation.
Management has also been informed that the directors of Community Bank who
alleged the construction overcharges have contacted bank regulatory agencies and
law enforcement authorities. Management believes that these agencies and
authorities are currently conducting investigations regarding this matter.

On July 21, 2000, three shareholders of the Company, M. Lewis Benson, Doris E.
Benson and John M. Packard, Jr., filed a lawsuit in the state Circuit Court of
Marshall County, Alabama against the Company, Community Bank, certain directors
and officers of the Company and Community Bank, an employee of Community Bank
and two construction subcontractors. The plaintiffs purport to file the lawsuit
as a shareholder derivative action, which relates to the alleged construction
overcharges being investigated by the joint committee of the Boards of Directors
of the Company and Community Bank. The complaint alleges that the directors,
officers and employee named as defendants in the complaint breached their
fiduciary duties, failed to properly supervise officers and agents of the
Company and Community Bank, and permitted waste of corporate assets by allegedly
permitting the subcontractor defendants to overcharge Community Bank in
connection with the construction of two new Community Bank offices, and to
perform the construction work without written contracts, budgets, performance
guarantees and assurances of indemnification. In addition, the complaint alleges
that Kennon R. Patterson, Sr., the Chairman, President and Chief Executive
Officer of the Company, breached his fiduciary duties by permitting the two
named subcontractors to overcharge for work performed on the two construction
projects in exchange for discounted charges for work these subcontractors
performed in connection with the construction of Mr. Patterson's residence. The
complaint further alleges that the director defendants knew or should have known
of this alleged arrangement between Mr. Patterson and the subcontractors. The
complaint also alleges that Mr. Patterson, the Community Bank employee and the
two subcontractor defendants made false representations and suppressed
information about the alleged overcharges and arrangement between Mr. Patterson
and the subcontractors. On August 15, 2000, the plaintiffs filed an amended
complaint adding Andy C. Mann, a shareholder of the Company, as a plaintiff and
adding a former director of the Company and Community Bank as a defendant. The
amended complaint generally reiterates the allegations of the original
complaint. In addition, the amended complaint alleges that Community Bank was
overcharged on all construction projects from January 1997 to the present. The
amended complaint also alleges that the defendants breached their fiduciary
duties and are guilty of gross financial mismanagement, including allegations
concerning the making or approval of certain loans and taking improper actions
to conceal the fact that certain loans were uncollectible. The amended complaint
seeks, on behalf of the Company, an unspecified amount of compensatory damages
in excess of $1 million, punitive damages, disgorgement of improperly paid
profits and appropriate equitable relief. The defendants in this action have not
yet filed a response to the complaint. Because the complaint has just recently
been filed and the joint committee has not yet completed its investigation, and
as a result of the inherent uncertainties of the litigation process, the Company
is unable at this time to predict the outcome of this lawsuit and its effect on
the Company's financial condition and results of operations. Regardless of the
outcome, however, this lawsuit could be costly, time-consuming and a diversion
of management's attention.

The Company's Certificate of Incorporation provides that, in certain
circumstances, the Company will indemnify and advance expenses to its directors
and officers for judgments, settlements and legal expenses incurred as a result
of their service as officers and directors of the Company. Community Bank's
Bylaws contain a similar provision for indemnification of directors and officers
of Community Bank.

On August 3, 2000, the Company, Community Bank and the Company's directors filed
a motion to stay the proceedings of a shareholder derivative action that was
filed on November 19, 1998 in the state Circuit Court of Blount County, Alabama
against the Company, Community Bank and the Company's directors by William
Towns, Pat Ballew and Mary Ballew, each a stockholder of the Company. The motion
seeks to stay the proceedings until the Company's and Community Bank's special
joint committee has completed its investigation of the alleged construction
overcharges discussed above. For additional information about this lawsuit,
please see the section captioned "Legal Proceedings" in the Company's Annual
Report on Form 10-K for the year ended December 31, 1999 and Quarterly Report on
Form 10-Q for the quarterly period ended March 31, 2000.

                                       23

<PAGE>   24
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         The annual meeting of shareholders of the Company was held on Thursday,
May 11, 2000, at which the following matters were voted upon by the shareholders
of the Company.

(a) Election of Class I Directors

         Roy B. Jackson, Hodge Patterson, III, and Robert O. Summerford were
elected to serve as Class I directors of the Company until the annual meeting of
shareholders of the Company in 2003 or until their successors are elected and
qualified. The vote with respect to such election was as follows:

<TABLE>
<CAPTION>
                                                                Votes Cast           Abstentions
                                           Votes Cast           Against or           or Broker
Name                                        In Favor             Withheld            Non-Votes
----                                        --------             --------            ---------
<S>                                         <C>                 <C>                  <C>
Roy B. Jackson                              3,098,385            16,260                4,211
Hodge Patterson, III                        3,095,520            14,993                6,191
Robert O. Summerford                        3,098,596            14,973                4,211
</TABLE>


         The following directors continued in office following the shareholders
meeting:

<TABLE>
<CAPTION>
    Name                                                      Term Expires
    ----                                                      ------------
    <S>                                                       <C>
    Glynn Debter                                                2001
    John J. Lewis, Jr.                                          2001
    Loy McGruder                                                2001
    Bishop K. Walker, Jr.                                       2001
    Denny G. Kelly                                              2002
    Kennon R. Patterson, Sr.                                    2002
    Merritt M. Robbins                                          2002
    R. Wayne Washam                                             2002
</TABLE>


(b) Proposal to amend the Company's Certificate of Incorporation to limit the
liability of the Company's directors

    The shareholders of the Company approved the proposal to amend the Company's
Certificate of Incorporation to limit the liability of the Company's directors
by the following vote:

<TABLE>
<CAPTION>
                              Votes Cast                     Abstentions
    Votes Cast                Against or                      or Broker
     In Favor                  Withheld                      Non-Votes
    ---------                 ----------                     ----------
    <S>                       <C>                            <C>
    3,066,282                   34,185                          11,627
</TABLE>


(c) Proposal to amend the Company's Certificate of Incorporation to enhance the
Company's indemnification of directors and officers

    The shareholders of the Company approved the proposal to amend the Company's
Certificate of Incorporation to enhance the Company's indemnification of
directors and officers by the following vote:

<TABLE>
<CAPTION>
                              Votes Cast                      Abstentions
    Votes Cast                Against or                       or Broker
     In Favor                  Withheld                        Non-Votes
    ---------                 ----------                      -----------
    <S>                       <C>                             <C>
    3,064,336                  32,813                           14,945
</TABLE>




                                       24

<PAGE>   25



(d) Proposal to amend the Company's Certificate of Incorporation to eliminate
shareholder action by written consent

    The shareholders of the Company approved the proposal to amend the Company's
Certificate of Incorporation to eliminate shareholder action by written consent
by the following vote:

<TABLE>
<CAPTION>
                             Votes Cast                     Abstentions
    Votes Cast               Against or                      or Broker
     In Favor                 Withheld                       Non-Votes
    ----------               ----------                     -----------
    <S>                      <C>                            <C>
    3,027,626                  46,694                           13,286
</TABLE>


(e) Proposal to amend the Company's Certificate of Incorporation to provide for
staggered terms for directors

    The shareholders of the Company approve the proposal to amend the Company's
Certificate of Incorporation to provide for staggered terms for directors by the
following vote:

<TABLE>
<CAPTION>
                             Votes Cast                     Abstentions
    Votes Cast               Against or                      or Broker
     In Favor                 Withheld                       Non-Votes
     --------                 --------                       ---------
    <S>                      <C>                            <C>
    3,059,751                   13,231                          13,657
</TABLE>

(f) Proposal to amend the Company's Certificate of Incorporation regarding
vacancies on the Board of Directors and the removal of directors

    The shareholders of the Company approved the proposal to amend the Company's
Certificate of Incorporation regarding vacancies on the Board of Directors and
removal of directors by the following vote:

<TABLE>
<CAPTION>
                             Votes Cast                     Abstentions
    Votes Cast               Against or                      or Broker
     In Favor                 Withheld                       Non-Votes
     --------                 --------                       ---------
    <S>                      <C>                            <C>
    3,040,747                   29,844                          16,048
</TABLE>


(g) Proposal to amend the Company's Certificate of Incorporation to require a
super-majority vote by shareholders to amend the Company's Certificate of
Incorporation

    The shareholders of the Company approved the proposal to amend the Company's
Certificate of Incorporation requiring a super-majority vote by shareholders to
amend the Company's Certificate of Incorporation by the following vote:

<TABLE>
<CAPTION>
                             Votes Cast                     Abstentions
    Votes Cast               Against or                      or Broker
     In Favor                 Withheld                       Non-Votes
     --------                 --------                       ---------
    <S>                      <C>                            <C>
    3,028,239                   38,149                          20,615
</TABLE>


(h) Proposal to restate and make miscellaneous amendments to the Company's
Certificate of Incorporation

    The shareholders of the Company approved the proposal to restate and make
miscellaneous amendments to the Company's Certificate of Incorporation by the
following vote:

<TABLE>
<CAPTION>
                             Votes Cast                     Abstentions
    Votes Cast               Against or                      or Broker
     In Favor                 Withheld                       Non-Votes
     --------                 --------                       ---------
    <S>                      <C>                            <C>
    3,039,910                   29,546                          17,520
</TABLE>


                                       25

<PAGE>   26
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K


(a) Exhibits:

<TABLE>
<CAPTION>
    Exhibit Number                      Description of Exhibit
    --------------                      ----------------------
    <S>           <C>

         3.1      By-laws of Registrant, as amended and restated May 2000

         3.2      Certificate of Incorporation, as amended and restated May
                  2000

         4.1      Rights Agent Agreement, dated January 13, 1999, between
                  Community Bancshares, Inc. and the Bank of New York (Filed as
                  Exhibit 4.1 to Form 8-A, filed January 21, 1999, and
                  incorporated herein by reference)

         4.2      Indenture, dated March 23, 2000, between Community
                  Bancshares, Inc. and the Bank of New York (Filed as Exhibit
                  4.4 to Form 10-Q for the quarter ended March 31, 2000, and
                  incorporated herein by reference)

         10.1     Lease Agreement, dated May 31, 2000, between REM, LLC,
                  as lessor, and Community Bank, as lessee

         10.2     Addendum to Lease Agreement and Loan Agreement, dated May 31,
                  2000, between REM, LLC and Community Bank

         10.3     Lease Agreement, dated June 1, 2000, between Debter
                  Properties, LLC, as lessor, and Community Bank, as lessee

         10.4     Addendum to Lease Agreement and Loan Agreement, dated June 1,
                  2000, between Debter Properties, LLC and Community Bank

         11       Computation of Earnings Per Share

         27       Financial Data Schedule (for SEC use only)
</TABLE>


b) Reports on Form 8-K

       The Company filed the following reports on Form 8-K during the quarter
ended June 30, 2000:

         1.       Current report on Form 8-K filed on April 6, 2000, and
                  reporting press release regarding the offering of trust
                  preferred securities under Item 5

         2.       Current report on Form 8-K filed on May 16, 2000, and
                  reporting changes in certifying accountant on Item 4

         3.       Amendment to current report on Form 8-K/A filed on May 30,
                  2000, and reporting changes in certifying accountant under
                  Item 4


                                       26

<PAGE>   27



SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.



                                        COMMUNITY BANCSHARES, INC.



August 16, 2000                          /s/ Kennon R. Patterson, Sr.
--------------------------------        ---------------------------------------
Date                                    Kennon R. Patterson, Sr., as its
                                        President and Chief Executive Officer




August 16, 2000                          /s/ Michael A. Bean
--------------------------------        ---------------------------------------
Date                                    Michael A. Bean, as its Acting Chief
                                        Accounting Officer



                                       27
<PAGE>   28


<TABLE>
<CAPTION>
    Exhibit Number                      Description of Exhibit
    --------------                      ----------------------
    <S>           <C>

         3.1      By-laws of Registrant, as amended and restated May 2000

         3.2      Certificate of Incorporation, as amended and restated May
                  2000

         4.1      Rights Agent Agreement, dated January 13, 1999, between
                  Community Bancshares, Inc. and the Bank of New York (Filed as
                  Exhibit 4.1 to Form 8-A, filed January 21, 1999, and
                  incorporated herein by reference)

         4.2      Indenture, dated March 23, 2000, between Community
                  Bancshares, Inc. and the Bank of New York (Filed as Exhibit
                  4.4 to Form 10-Q for the quarter ended March 31, 2000, and
                  incorporated herein by reference)

         10.1     Lease Agreement, dated May 31, 2000, between REM, LLC,
                  as lessor, and Community Bank, as lessee

         10.2     Addendum to Lease Agreement and Loan Agreement, dated May 31,
                  2000, between REM, LLC and Community Bank

         10.3     Lease Agreement, dated June 1, 2000, between Debter
                  Properties, LLC, as lessor, and Community Bank, as lessee

         10.4     Addendum to Lease Agreement and Loan Agreement, dated June 1,
                  2000, between Debter Properties, LLC and Community Bank

         11       Computation of Earnings Per Share

         27       Financial Data Schedule (for SEC use only)

</TABLE>


<PAGE>   29
================================================================================




                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549






                                  -------------



                                  EXHIBITS TO



                                   FORM 10-Q


                                    for the

                      Quarterly Period Ended June 30, 2000


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                           COMMUNITY BANCSHARES, INC.

                                  P.O. BOX 1000

                                   MAIN STREET

                           BLOUNTSVILLE, ALABAMA 35031

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