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, 2002
                                       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 or other jurisdiction of             (I.R.S. Employer Identification No.)
 incorporation or organization)


                                68149 Main Street
                           Blountsville, Alabama 35031
                    (Address of principal executive offices)

                                 (205) 429-1000
                         (Registrant's telephone number)






     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:

                             |X| yes |_| no


                APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
                    PROCEEDINGS DURING THE PRECEDING 5 YEARS:

     Indicate by check mark whether the  registrant  has filed all documents and
reports  required  to be filed by  Sections  12,  13 or 15(d) of the  Securities
Exchange Act of 1934 subsequent to the  distribution of securities  under a plan
confirmed by a court. |_|yes |_|no


                      APPLICABLE ONLY TO CORPORATE ISSUERS:

As of July 29, 2002,  there were  4,645,589  shares of the  registrant's  common
                   stock, $.10 par value shares, outstanding.


<PAGE>



31

                                    FORM 10-Q
                           COMMUNITY BANCSHARES, INC.
                                  JUNE 30, 2002
<TABLE>
<CAPTION>


Table of Contents                                                                                     Page No.


Part 1 - Financial Information

<S>        <C>               <C> <C>               <C> <C>                                                  <C>

      Item 1 -    Consolidated Financial Statements (Unaudited)

                  Consolidated Statements of Financial Condition as of
                      June 30, 2002 and December 31, 2001                                                 3

                  Consolidated Statements of Income and Consolidated Statements of Comprehensive
                      Income for the Three Months Ended June 30, 2002 and 2001                          4 - 5

                  Consolidated Statements of Income and Consolidated Statements of Comprehensive
                      Income for the Six Months Ended June 30, 2002 and 2001                            6 - 7
                  Consolidated Statements of Cash Flows for the Six Months Ended
                      June 30, 2002 and 2001                                                            8 - 9

                  Notes to Consolidated Financial Statements                                           10 - 20

      Item 2 -    Management's Discussion and Analysis of
                      Financial Condition and Results of Operations                                    21 - 26

      Item 3 -    Quantitative and Qualitative Disclosures About Market Risk                             27

Part 2 - Other Information

      Item 1 -    Legal Proceedings                                                                      28

      Item 4 -    Submission of Matters to a Vote of Security Holders                                    28

      Item 6 -    Exhibits and Reports on Form 8-K                                                       29

Certification of Management                                                                              30

Signatures                                                                                               31
</TABLE>


                                       2

<PAGE>


PART 1
Item 1 - Financial Statements

                 CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
                   COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES

<TABLE>
<CAPTION>

                                                                             June 30, 2002      December 31, 2001
                                                                           ----------------     -----------------
                                                                              (UNAUDITED)
Assets
<S>                                                                        <C>                   <C>
   Cash  ................................................................  $      4,502,013      $      8,312,263
   Due from banks .......................................................        16,228,534            14,724,745
   Interest-bearing deposits with banks. ................................           200,000               200,000
   Federal funds sold ...................................................         6,000,000            30,000,000
   Securities available for sale ........................................       119,958,022           121,679,303
   Capitalized lease receivable..........................................         3,099,545                     -
   Loans ................................................................       384,729,812           501,583,650
   Less: Unearned income. ...............................................            51,973                63,991
      Allowance for loan losses .........................................         8,239,779             7,292,370
                                                                           ----------------      ----------------
      Net Loans .........................................................       376,438,060           494,227,289
   Premises and equipment, net ..........................................        29,702,856            39,626,868
   Accrued interest. ....................................................         4,734,144             7,061,043
   Intangibles, net. ....................................................         2,588,016             2,629,682
   Other real estate ....................................................         4,720,836             4,287,273
   Other assets .........................................................         6,484,964             6,733,102
                                                                           ----------------      ----------------
      Total Assets.......................................................  $    574,656,990      $    729,481,568
                                                                           ================      ================
Liabilities and Shareholders' Equity
   Deposits:
      Noninterest-bearing................................................  $     54,995,846      $     67,695,615
      Interest-bearing...................................................       408,999,457           550,010,415
                                                                           ----------------      ----------------
         Total Deposits .................................................       463,995,303           617,706,030
   Other short-term borrowings ..........................................         1,935,614             4,359,927
   Accrued interest. ....................................................         3,064,792             4,400,000
   FHLB borrowing .......................................................        38,000,000            38,000,000
   Capitalized lease obligations ........................................         4,093,703             5,766,076
   Long-term debt .......................................................         4,124,913             4,666,599
   Guaranteed preferred beneficial interest in the
      Company's junior subordinated deferrable interest debentures ......        10,000,000            10,000,000
   Other liabilities ....................................................         3,423,788             3,917,567
                                                                           ----------------      ----------------
      Total Liabilities .................................................       528,638,113           688,816,199
Shareholders' Equity
   Preferred stock, par value $.01 per share, 200,000 shares
      authorized, no shares issued ......................................                 -                     -
   Common stock, par value $.10 per share, 20,000,000
      shares authorized, 4,828,011 and 4,808,331 shares
      issued, as of June 30, 2002 and December 31 2001, respectively. ...           482,801               480,833
   Capital surplus ......................................................        30,882,747            30,753,008
   Retained earnings ....................................................        16,449,834            12,390,300
   Treasury Stock, 20,803 shares ........................................          (396,768)             (396,768)
   Unearned ESOP shares - 161,619 and 174,267 shares
      as of June 30, 2002 and December 31, 2001, respectively ...........        (2,126,328)           (2,317,902)
   Accumulated other comprehensive income (loss).........................           726,591              (244,102)
                                                                           ----------------      ----------------
      Total Shareholders' Equity ........................................        46,018,877            40,665,369
                                                                           ----------------      ----------------
Total Liabilities and Shareholders' Equity...............................  $    574,656,990      $    729,481,568
                                                                           ================      ================
</TABLE>

                 See notes to consolidated financial statements


                                       3
<PAGE>

                       CONSOLIDATED STATEMENTS OF INCOME
                   COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES
                                   (UNAUDITED)
<TABLE>
<CAPTION>

                                                                              For the Three Months Ended June 30,
                                                                                   2002                 2001
                                                                            ----------------     ---------------
Interest Income
<S>                                                                         <C>                  <C>
   Interest and fees on loans............................................   $      9,417,916     $    13,110,590
   Interest on investment securities:
      Taxable securities.................................................          1,594,748           1,515,813
      Securities exempt from federal income taxes .......................            124,408             161,369
   Interest on federal funds sold .......................................             83,107             143,313
   Interest on deposits in other banks ..................................              7,430              11,389
                                                                            ----------------     ---------------
      Total Interest Income .............................................         11,227,609          14,942,474
                                                                            ----------------     ---------------
Interest Expense
   Interest on deposits .................................................          3,816,507           7,165,353
   Interest on other short-term borrowings ..............................             13,316              27,524
   Interest on capitalized lease obligations. ...........................             61,487             109,581
   FHLB borrowings ......................................................            569,609             597,472
   Interest on long-term debt. ..........................................             51,237              76,225
   Interest on guaranteed preferred
      beneficial interest in the
      Company's junior subordinated
      deferrable interest debentures ....................................            280,303             288,731
                                                                            ----------------     ---------------
         Total Interest Expense. ........................................          4,792,459           8,264,886
                                                                            ----------------     ---------------
Net Interest Income. ....................................................          6,435,150           6,677,588
   Provision for loan losses ............................................          3,088,559           1,381,161
                                                                            ----------------     ---------------
Net Interest Income After Provision
   For Loan Losses ......................................................          3,346,591           5,296,427
Noninterest Income
   Service charges on deposits ..........................................            920,042           1,041,782
   Insurance commissions. ...............................................            552,804             415,223
   Bank club dues .......................................................            131,537             168,530
   Debt cancellation fees ...............................................             85,804             113,342
   Gain on sale of branches..............................................          6,520,542                   -
   Other operating income ...............................................            493,908             389,911
   Investment securities gains ..........................................            107,295              25,006
                                                                            ----------------     ---------------
      Total Noninterest Income...........................................          8,811,932           2,153,794
                                                                            ----------------     ---------------
Noninterest Expenses
   Salaries and employee benefits .......................................          3,957,297           3,956,588
   Occupancy expense ....................................................            644,654             728,153
   Furniture and equipment expense. .....................................            441,784             474,597
   Director and committee fees ..........................................            110,750             134,000
   Net gain/loss on disposal of assets...................................            (80,150)                851
   Other operating expenses .............................................          2,503,153           2,514,866
                                                                            ----------------     ----------------
      Total Noninterest Expenses ........................................          7,577,488           7,809,055
                                                                            ----------------     ---------------
Income (loss) before income taxes .......................................          4,581,035            (358,834)
Income tax expense (benefit).............................................          1,754,013            (202,471)
                                                                            ----------------     ----------------
      Net Income (Loss)..................................................   $      2,827,022     $      (156,363)
                                                                            ================     ================

Earnings (loss) per common share - basic.................................   $           0.61     $        (0.03)
Earnings (loss) per common share - diluted...............................   $           0.61     $        (0.03)
Dividends per share......................................................   $              -     $             -
</TABLE>

                 See notes to consolidated financial statements


                                       4
<PAGE>


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

                                                                              For the Three Months Ended June 30,
                                                                                   2002                2001
                                                                            ----------------     ---------------


<S>                                                                         <C>                  <C>
Net Income (loss).........................................................  $      2,827,022     $      (156,363)

Components of other comprehensive income:
   Unrealized holding gains arising during the period
      before income tax and reclassification adjustments .................         2,351,133              21,858
   Reclassification adjustments for net gains included in net income .....          (107,295)            (25,006)
                                                                            ----------------     ---------------
   Other comprehensive gains (losses), before income taxes ...............         2,243,838              (3,148)
   Income tax (expense) benefit related to other comprehensive income.....          (897,535)              1,260
                                                                            ----------------     ---------------
   Total other comprehensive income (loss), net of income tax.............         1,346,303              (1,888)
                                                                            ----------------     ----------------

Comprehensive income (loss)..............................................   $      4,173,325     $      (158,251)
</TABLE>

                 See notes to consolidated financial statements


                                       5
<PAGE>


                        CONSOLIDATED STATEMENTS OF INCOME
                   COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES
                                   (UNAUDITED)
<TABLE>
<CAPTION>

                                                                               For the Six Months Ended June 30,
                                                                                   2002                 2001
                                                                             ----------------     ---------------
Interest Income
<S>                                                                         <C>                  <C>
   Interest and fees on loans............................................   $     20,432,531     $    26,527,580
   Interest on investment securities:
      Taxable securities.................................................          3,145,293           2,859,898
      Securities exempt from federal income taxes .......................            269,496             361,178
   Interest on federal funds sold .......................................            226,190             270,334
   Interest on deposits in other banks ..................................             14,424              28,704
                                                                            ----------------     ---------------
      Total Interest Income .............................................         24,087,934          30,047,694
                                                                            ----------------     ---------------
Interest Expense
   Interest on deposits .................................................          8,716,392          14,863,023
   Interest on other short-term borrowings ..............................             32,213              64,215
   Interest on capitalized lease obligations. ...........................            130,185             232,080
   FHLB borrowings ......................................................          1,132,959           1,167,081
   Interest on long-term debt. ..........................................            105,135             192,433
   Interest on guaranteed preferred
      beneficial interest in the
      Company's junior subordinated
      deferrable interest debentures ....................................            560,606             560,606
                                                                            ----------------     ---------------
         Total Interest Expense. ........................................         10,677,490          17,079,438
                                                                            ----------------     ---------------
Net Interest Income. ....................................................         13,410,444          12,968,256
   Provision for loan losses ............................................          4,128,978           2,332,279
                                                                            ----------------     ---------------
Net Interest Income After Provision
   For Loan Losses ......................................................          9,281,466          10,635,977
Noninterest Income
   Service charges on deposits ..........................................          1,905,123           2,067,884
   Insurance commissions. ...............................................          1,087,932             956,065
   Bank club dues .......................................................            287,933             337,961
   Debt cancellation fees ...............................................            158,759             265,409
   Gain on sale of branches..............................................          8,071,985                   -
   Other operating income ...............................................            710,968             823,437
   Investment securities gains ..........................................            123,941             378,021
                                                                            ----------------     ---------------
      Total Noninterest Income...........................................         12,346,641           4,828,777
                                                                            ----------------     ---------------
Noninterest Expenses
   Salaries and employee benefits .......................................          7,935,836           8,038,030
   Occupancy expense ....................................................          1,400,001           1,440,241
   Furniture and equipment expense. .....................................            905,798             924,403
   Director and committee fees ..........................................            218,350             251,498
   Net loss on disposal of assets........................................            315,425              14,046
   Other operating expenses .............................................          4,425,029           4,018,621
                                                                            ----------------     ---------------
      Total Noninterest Expenses ........................................         15,200,439          14,686,839
                                                                            ----------------     ---------------
Income before income taxes ..............................................          6,427,668             777,915
Income tax expense.......................................................          2,368,133             129,188
                                                                            ----------------     ---------------
      Net Income.........................................................   $      4,059,535     $       648,727
                                                                            ================     ===============

Earnings per common share - basic........................................   $           0.88     $          0.14
Earnings per common share - diluted......................................   $           0.88     $          0.14
Dividends per share......................................................   $              -     $             -
</TABLE>

                 See notes to consolidated financial statements


                                       6
<PAGE>


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

<TABLE>
<CAPTION>
                                                                              For the Six Months Ended June 30,
                                                                                   2002                2001
                                                                            ----------------     ---------------


<S>                                                                         <C>                  <C>
Net Income................................................................  $      4,059,535     $       648,727

Components of other comprehensive income:
   Unrealized holding gains arising during the period
      before income tax and reclassification adjustments .................         1,741,763             886,389
   Reclassification adjustments for net gains included in net income .....          (123,941)           (378,021)
                                                                            ----------------     ---------------
   Other comprehensive gains, before income taxes ........................         1,617,822             508,368
   Income tax expense related to other comprehensive income...............          (647,129)           (203,347)
                                                                            ----------------     ---------------
   Total  other comprehensive income, net of income tax...................           970,693             305,021
                                                                            ----------------     ---------------

Comprehensive income.....................................................   $      5,030,228     $       953,748
                                                                            ================     ===============
</TABLE>

                 See notes to consolidated financial statements


                                       7

<PAGE>

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                   COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES
                                   (UNAUDITED)
<TABLE>
<CAPTION>

                                                                                    Six Months Ended June 30,
                                                                                    2002                2001
                                                                             -----------------   ---------------
Operating Activities:
<S>                                                                           <C>                <C>
   Net income...........................................................      $     4,059,535    $        648,727
   Adjustments to reconcile net income to net cash
      provided by operating activities:
   Provision for loan losses ...........................................            4,128,978           2,332,279
   Provision for depreciation and amortization .........................            1,068,169           1,275,233
   Amortization of investment security premiums
      and accretion of discounts. ......................................              149,811              36,209
   Deferred tax expense (benefit) ......................................              622,232             (81,570)
   Realized investment security gains. .................................             (123,941)           (378,021)
   Gain on sale of branches.............................................           (8,071,985)                  -
   Loss on sale of premises and equipment ..............................              315,425              14,046
   Decrease in accrued interest receivable. ............................            1,673,633           1,011,589
   Decrease in accrued interest payable ................................             (679,167)            (73,281)
   Other ...............................................................           (1,195,103)         (1,865,065)
                                                                              ---------------    ----------------
      Net cash provided by operating activities ........................            1,947,587           2,920,146
                                                                              ---------------    ----------------
Investing Activities:
   Proceeds from sales of securities available for sale ................           35,674,381          10,567,117
   Proceeds from maturity of securities available for sale .............           15,000,000          25,782,082
   Purchase of securities available for sale  ..........................          (47,361,146)        (52,087,440)
   Decrease in interest-bearing deposit with other banks................                    -             500,000
   Net decrease in loans to customers ..................................           17,809,200           9,653,210
   Proceeds from sale of assets. .......................................               60,350              87,478
   Capital expenditures ................................................             (252,404)         (1,690,336)
   Net proceeds from sale of other real estate .........................              398,403             478,307
   Cash disbursed in settlement of branch sale..........................          (32,054,765)                  -
                                                                              ---------------    ----------------
      Net cash used in investing activities ............................          (10,725,981)         (6,709,582)
                                                                              ---------------    ----------------
Financing Activities:
   Net increase in demand deposits, NOW accounts,
      savings and time open deposit accounts............................              310,669           1,443,965
   Net (decrease) increase in certificates of deposit ..................          (14,941,161)         11,258,768
   Net (decrease) increase in short-term borrowings ....................           (2,424,313)          1,241,258
   Net increase in FHLB borrowings......................................                    -           8,000,000
   Net decrease in capitalized lease obligations .......................              (58,055)            (34,290)
   Repayment of long-term debt, net ....................................             (415,207)           (488,245)
   Issuance of common stock. ...........................................                    -             209,865
                                                                              ---------------    ----------------
      Net cash (used) provided by financing activities .................          (17,528,067)         21,631,321
                                                                              ---------------    ----------------
Net (decrease) increase in cash and cash equivalents ...................          (26,306,461)         17,841,885
Cash and cash equivalents at beginning of year .........................           53,037,008          29,006,611
                                                                              ---------------    ----------------
Cash and cash equivalents at end of period..............................      $    26,730,547    $     46,848,496
                                                                              ===============    ================
</TABLE>

                 See notes to consolidated financial statements


                                       8

<PAGE>

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

<TABLE>
<CAPTION>

                                                                                    Six Months Ended June 30,
                                                                                     2002               2001
                                                                             -----------------   -----------------

Supplemental disclosures of cash flow information:

Cash paid (received) during the period for:
<S>                                                                           <C>                <C>
   Interest expense.....................................................      $    12,012,698    $     17,152,719
   Income taxes.........................................................            1,611,346          (1,080,464)

Supplemental schedule of non-cash investing and financing activities:

   Real estate acquired through foreclosure.............................      $     2,148,108    $      2,036,541
   Assets (except cash) disposed of in branch sale......................          104,262,635                   -
   Deposit liabilities including accrued interest
        released in branch sale.........................................          139,736,275                   -
   Capitalized lease receivable recorded as a result of branch sale.....            3,107,157                   -
</TABLE>



              [The remainder of this page intentionally left blank]



                 See notes to consolidated financial statements


                                       9
<PAGE>


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

NOTE 1 - GENERAL

     The  consolidated  financial  statements  include the accounts of Community
Bancshares,  Inc. and its wholly-owned subsidiaries,  collectively,  hereinafter
referred to as the "Company".  The accompanying unaudited consolidated financial
statements have been prepared in accordance with accounting principles generally
accepted in the United  States 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  accounting
principles  generally  accepted  in the  United  States 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.  Operating  results for the six month period  ending June 30, 2002 are
not  necessarily  indicative  of the results  that may be expected  for the year
ending December 31, 2002. The consolidated statement of financial condition,  at
December  31,  2001 has been  derived  from the audited  consolidated  financial
statements  at that  date,  but  does not  include  all of the  information  and
footnotes  required by generally  accepted  accounting  principles  for complete
financial  statements.  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, 2001.

     Certain reclassifications of prior years' amounts have been made to conform
to  current  year  presentation.  These  reclassifications  had no effect on net
income, total assets, total liabilities, or shareholders' equity.

NOTE 2 - BRANCH DIVESTITURES

     During the first six months of 2002, Community Bank consummated the sale of
the following  branch  offices:  two Pulaski,  Tennessee  locations on March 31,
2002,  two DeKalb  County,  Alabama  locations  on May 3, 2002 and six  Marshall
County,  Alabama  locations on May 31, 2002.  The  following  outlines the total
assets sold and total liabilities released on the transactions.
<TABLE>

<S>                                                                        <C>
                  Loans                                                    $    95,130,132
                    Less:  Allowance for loan losses                               752,193
                                                                           ---------------
                     Loans, net                                                 94,377,939
                  Premises and equipment, net                                    8,686,603
                  Accrued interest receivable                                      653,266
                  Other real estate owned                                          451,280
                  Other assets                                                      93,547
                                                                           ---------------
                     Total assets                                          $   104,262,635
                                                                           ===============

                  Deposits                                                 $   139,080,234
                  Accrued interest payable                                         656,041
                  Capitalized lease obligation                                   1,614,318
                  Other liabilities                                                 19,036
                                                                           ---------------
                     Total liabilities                                     $   141,369,629
                                                                           ===============
</TABLE>

     The Company paid  $32,054,765  in cash on the  transactions  and recorded a
capitalized lease receivable of $3,107,157.  The Company  recognized total gains
of $8,071,985  representing the premium received on core deposits less discounts
on loans and fixed assets.  The Company also recognized a gain of $87,400 on the
assignment of the capitalized lease on the Boaz, Alabama location. See also Note
6 - Capitalized Leases.

NOTE 3 - 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


                                       10
<PAGE>

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 annual
interest  rate of  10.875%.  Under the terms of the  indenture,  the Company may
elect to defer  payments of interest for up to ten semiannual  payment  periods.
The Company elected to defer its March 2002 interest payment and may elect to do
so again based on the liquidity needs of the Company when future payments become
due. For the duration of such deferral  period,  the Company is restricted  from
paying dividends to shareholders or paying debt that is junior to the debenture.
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.

NOTE 4 - SEGMENT REPORTING

     The Company's  segment  information is presented by line of business.  Each
line of business is a distinct unit that offers  products and services unique to
its operations and customers.  The Company's  reportable  operating segments are
commercial  banking,  appraisal services and insurance  services.  The appraisal
services segment's income and expenses are those of Community Bank's subsidiary,
Community  Appraisals,  Inc., and the insurance  services  segment's  income and
expense are those of Community  Insurance  Corp.  also a subsidiary of Community
Bank.  Support  services are the  activities  of the parent  company and are not
directly attributable to the reporting segments.  The commercial banking segment
does include fees from the sale of ancillary  insurance  products in  connection
with certain loans. The segment results shown below include certain intercompany
transactions  that are  eliminated  for financial  statement  presentation.  The
following  tables reflect the  approximate  amounts of revenues and expenses for
the Company's  segments as of and for the six months and three months ended June
30, 2002 and 2001.

<TABLE>
<CAPTION>

                                          Commercial      Appraisal      Insurance        Support
For the six months ended June 30, 2002      Banking       Services       Services        Services    Consolidated
                                        --------------  -------------  -------------  ------------  --------------

<S>                                     <C>             <C>            <C>            <C>           <C>
Net interest income                     $   14,089,716  $           -  $     (18,010) $   (661,262) $   13,410,444
Provision for loan losses                    4,128,978              -              -             -       4,128,978
Noninterest income                          11,114,809        159,278        919,029       150,600      12,343,716
Noninterest expense                         13,241,802        110,434        850,601       994,677      15,197,514
                                        --------------  -------------  -------------  ------------  --------------
Segment income before income tax        $    7,833,745  $      48,844  $      50,418  $ (1,505,339)      6,427,668
                                        ==============  =============  =============  ============
Consolidated income tax expense                                                                          2,368,133
                                                                                                    --------------

Net income                                                                                          $    4,059,535
                                                                                                    ==============

Total assets at June 30, 2002           $  568,224,473  $     332,630  $   3,606,356  $2,493,531      $574,656,990
                                        ==============  =============  =============  ============  ==============
</TABLE>


                                       11
<PAGE>


<TABLE>
<CAPTION>

                                          Commercial      Appraisal      Insurance        Support
For the six months ended June 30, 2001      Banking       Services       Services        Services    Consolidated
                                        --------------  -------------  -------------  ------------  --------------

<S>                                     <C>             <C>            <C>            <C>           <C>
Net interest income                     $   13,704,667  $           -  $     (33,544) $   (702,867) $   12,968,256
Provision for loan losses                    2,332,279              -              -             -       2,332,279
Noninterest income                           3,748,356        153,690        898,278       164,407       4,964,731
Noninterest expense                         12,126,726        126,568        937,523     1,631,976      14,822,793
                                        --------------  -------------  -------------  ------------  --------------
Segment income before income tax        $    2,994,018  $      27,122  $     (72,789) $ (2,170,436)        777,915
                                        ==============  =============  =============  ============
Consolidated income tax expense                                                                            129,188
                                                                                                    --------------

Net income                                                                                          $      648,727
                                                                                                    ==============

Total assets at June 30, 2001           $  728,541,427  $     273,069  $   4,662,154  $  2,677,772  $  736,154,422
                                        ==============  =============  =============  ============  ==============
</TABLE>

<TABLE>
<CAPTION>

                                          Commercial      Appraisal      Insurance        Support
For the three months ended June 30, 2002    Banking       Services       Services        Services    Consolidated
                                        --------------  -------------  -------------  ------------  --------------

<S>                                     <C>             <C>            <C>            <C>           <C>
Net interest income                     $    6,772,971  $           -  $      (8,663) $   (329,158) $    6,435,150
Provision for loan losses                    3,088,559              -              -             -       3,088,559
Noninterest income                           8,435,725         73,075        456,034        75,323       9,040,157
Noninterest expense                          6,842,600         59,734        411,134       492,245       7,805,713
                                        --------------  -------------  -------------  ------------  --------------
Segment income before income tax        $    5,277,537  $      13,341  $      36,237  $   (746,080)      4,581,035
                                        ==============  =============  =============  ============
Consolidated income tax expense                                                                          1,754,013
                                                                                                    --------------

Net income                                                                                          $    2,827,022
                                                                                                    ==============
</TABLE>

<TABLE>
<CAPTION>

                                          Commercial      Appraisal      Insurance        Support
For the three months ended June 30, 2001    Banking       Services       Services        Services    Consolidated
                                        --------------  -------------  -------------  ------------  --------------

<S>                                     <C>             <C>            <C>            <C>           <C>
Net interest income                     $    7,038,507  $           -  $     (16,451) $   (344,468) $    6,677,588
Provision for loan losses                    1,381,161              -              -             -       1,381,161
Noninterest income                           1,691,638         76,690        370,485        89,130       2,227,943
Noninterest expense                          6,379,248         48,727        422,059     1,033,170       7,883,204
                                        --------------  -------------  -------------  ------------  --------------
Segment income before income tax        $      969,736  $      27,963  $     (68,025) $ (1,288,508)       (358,834)
                                        ==============  =============  =============  ============
Consolidated income tax expense                                                                           (202,471)
                                                                                                    --------------

Net income                                                                                          $     (156,363)
                                                                                                    ==============

</TABLE>

NOTE 5 - CONTINGENCIES

Background

     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 ongoing construction  project. On July 18, 2000, the Boards of Directors
of the Company and  Community  Bank  appointed a joint  committee


                                       12
<PAGE>

comprised  of  independent  directors  of the Company and of  Community  Bank to
investigate the alleged overcharges.  Upon completion of its investigation,  the
joint  committee  was to inform  the  Boards of  Directors  of the  Company  and
Community Bank of its findings and recommendations. The joint committee retained
legal counsel and an independent  accounting firm to assist the committee in its
investigation. Management was also 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  either have  conducted or are currently  conducting  investigations
regarding this matter.

Benson Litigation

     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 purported 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
allegedly  permitting  the two  named  subcontractors  to  overcharge  for  work
performed on the two construction  projects in exchange for allegedly 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  August  2000.  The  amended
complaint also alleges that the defendants  breached their fiduciary  duties and
were guilty of gross financial  mismanagement,  including allegations concerning
the making or approval of certain loans and taking allegedly improper actions to
conceal the fact that certain  loans were  uncollectible.  On September 18, 2000
the plaintiffs filed a second amended  complaint.  The second amended  complaint
generally   reiterates  the  allegations  of  the  original  and  first  amended
complaints.   In  addition,  the  second  amended  complaint  alleges  that  the
plaintiffs  were  improperly  denied  their  rights to inspect and copy  certain
records of the Company and Community  Bank.  The second  amended  complaint also
alleges  that the  directors of the Company  abdicated  their roles as directors
either by express  agreement or as a result of wantonness and gross  negligence.
The second amended  complaint  asserts that the counts  involving  inspection of
corporate records and director abdication are individual,  nonderivative claims.
The second amended  complaint  seeks,  on behalf of the Company,  an unspecified
amount  of  compensatory  damages  in excess of $1  million,  punitive  damages,
disgorgement  of allegedly  improperly  paid profits and  appropriate  equitable
relief.  Upon motion of the  defendants,  the case was  transferred to the state
Circuit Court in Blount  County,  Alabama by order dated  September 21, 2000, as
amended on October 12, 2000.

     On August 24, 2000,  the Board of Directors of the Company  designated  the
directors  of the Company who serve on the joint  investigative  committee  as a
special  litigation  committee to investigate  and evaluate the  allegations and
issues  raised in this  lawsuit  and to arrive at such  decisions  and take such
action as the special litigation  committee deems appropriate.  On June 8, 2001,
the special litigation  committee filed its report under seal with the court. On
June 18,


                                       13
<PAGE>

2001, the court entered an order  affirming the  confidentiality  of the special
committee's  report.  On June 28, 2001, the Company,  Community Bank and various
other  defendants  filed a motion  with the  court to adopt  the  report  of the
special  committee,  for partial summary judgment and to realign the Company and
Community  Bank as plaintiffs in the lawsuit.  Following a hearing on August 29,
2001,  the court denied these motions on November 8, 2001.  The court also ruled
that the plaintiffs were entitled to conduct  discovery  except as it related to
one of the subcontractor defendants and granted the plaintiffs' motion to unseal
the report of the special  litigation  committee.  On  November  14,  2001,  the
directors of the Company filed a motion for the court to alter,  amend or vacate
its November 8, 2001  rulings.  On February 7, 2002,  the Company and  Community
Bank filed a motion to disqualify  Maynard,  Cooper & Gale,  P.C.,  the law firm
representing  the  plaintiffs,  due to conflicts  of interest.  The court held a
hearing on these  motions on February  22,  2002 and the parties are  awaiting a
ruling.  On February 25, 2002, the Company and Community Bank filed a motion for
limited discovery relating to its motion to disqualify the plaintiffs' law firm.
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.

Towns Derivative Litigation

     On November 19, 1998,  Mr.  William  Towns,  a shareholder  of the Company,
filed a shareholder  derivative  action  against the directors of the Company in
the state  Circuit  Court of Blount  County,  Alabama.  Mr.  Towns  amended  his
complaint  on  January  14,  1999  to add  the  Company  and  Community  Bank as
defendants in the action.  On February 11, 1999, the complaint was again amended
to add Mr. Pat Bellew and Mrs.  Mary Bellew,  who are also  shareholders  of the
Company, as additional  plaintiffs.  The complaint alleged that the directors of
the Company  breached their fiduciary duty to the Company and its  shareholders,
engaged in fraud,  fraudulent  concealment,  suppression  of  material  fact and
suppression of the plaintiff shareholders,  failed to supervise management,  and
conspired to conceal  wrongful  acts from the  Company's  shareholders  and paid
themselves excessive director fees. The complaint also alleged that the Board of
Directors  acquiesced in  mismanagement  and misconduct by Kennon R.  Patterson,
Sr., the Chairman of the Board,  Chief  Executive  Officer and  President of the
Company,  including  alleged self  dealing,  payment of excessive  compensation,
misappropriation of corporate  opportunities and  misappropriation of funds. The
complaint  sought an unspecified  amount of compensatory  and punitive  damages,
removal of the current directors,  appointment of a new Board of Directors,  and
attorneys fees and cost.

     On December 21, 1998, the Company and its directors filed a motion with the
court seeking to have the complaint  dismissed.  On March 1, 1999, the Company's
Board of Directors appointed a special Board committee comprised of non-employee
directors of the Company,  to review the  plaintiffs'  allegations in accordance
with Delaware law. On April 6, 1999, each of the parties to the action requested
that the court stay the litigation and related discovery,  motions and hearings,
pending  completion of the special  committee's  review.  On April 30, 1999, the
court entered an order staying the litigation and related discovery, motions and
hearing in  accordance  with the  parties'  request.  On October 15,  1999,  the
special  committee  filed its final report with the court.  On October 21, 1999,
the  parties   forwarded  to  the  court  an  agreed-upon  order  governing  the
confidentiality of the special  committee's  report,  which the court entered on
January  2,  2000.  On August  3,  2000,  the  Company,  Community  Bank and the
Company's  directors filed a motion to stay the proceedings  until the Company's
and   Community   Bank's  joint   investigative   committee  had  completed  its
investigation of the alleged  construction  overcharges  discussed above. At the
request  of the  Company  and the  other  defendants  in the  action,  the court
continued a hearing on the motion to dismiss.  On February 23,  2001,  the court
indicated  that there was no reason to  continue  the stay of this  action.  The
parties are  awaiting a hearing on the  defendants'  motion to dismiss the case.
Management of the Company  believes that the  plaintiffs'  allegations are false
and that the action lacks merit.  The Company and its directors intend to defend
the action  vigorously,  and management of the Company  believes that the action
will not have a material adverse effect on the Company's  financial condition or
results of operations. Regardless of the outcome, however, this lawsuit could be
costly, time consuming and a diversion of management's attention.


                                       14
<PAGE>

Corr Family Litigation

     On September 14, 2000,  another action was filed in the state Circuit Court
of Blount  County,  Alabama,  against the  Company,  Community  Bank and certain
directors  and officers of the Company and  Community  Bank by Bryan A. Corr and
six other  related  shareholders  of the  Company  alleging  that the  directors
actively  participated in or ratified the  misappropriation of corporate income.
The action  was not styled as a  shareholder  derivative  action.  On January 3,
2001, the defendants filed a motion for summary judgment on the basis that these
claims are  derivative  in nature and cannot be brought on behalf of  individual
shareholders.  The  court  has not  ruled on the  motion.  The  Company  and its
directors  believe that this  lawsuit is without  merit and intend to defend the
action vigorously.  Although management currently believes that this action will
not have a material  adverse  effect on the  Company's  financial  condition  or
results of  operations,  regardless of the outcome,  the action could be costly,
time consuming and a diversion of management's attention.

Auto Loan Litigation

     On June 28,  2000,  Community  Bank  filed an action in the  United  States
District  Court for the Northern  District of Alabama  against Carl Gregory Ford
L-M, Inc., an automobile  dealership located in Ft. Payne, Alabama, Carl Gregory
and Doug Broaddus,  the owners of the dealership,  several  employees and former
employees  of the  dealership  and Gerald  Scot  Parrish,  a former  employee of
Community  Bank,  with  respect  to  certain  loans  originated  during  1998 in
Community  Bank's  Wal-Mart  office  in Ft.  Payne,  Alabama.  In the  complaint
Community  Bank alleged that the defendants  willingly and knowingly  conducted,
participated  in, were employed by or  associated  with, or aided and abetted an
enterprise   within  the  meaning  of  the  Racketeer   Influenced  and  Corrupt
Organizations  Act (RICO) for the  purpose of  defrauding  Community  Bank.  The
complaint also asserted that the defendants  committed fraud,  misrepresentation
and deceit by submitting to Community  Bank and/or  approving  applications  for
automobile  loans which  contained false and/or  fraudulent  information for the
purpose of deceiving, influencing and persuading Community Bank to provide loans
to customers of the  automobile  dealership  who were otherwise not qualified to
receive such loans,  and  suppressed  material  facts  regarding the veracity of
information  contained in loan  applications  and the ability of persons seeking
the loans to repay them.  Community  Bank also alleged in the complaint that the
automobile  dealership is responsible  for the acts of its officers,  agents and
employees, and that the dealership and its management failed to adequately train
and/or  supervise  its  employees.  The  complaint  stated  that the  defendants
participated in a conspiracy to violate RICO and Alabama  statutes  dealing with
fraud,  misrepresentation  and suppression of material facts, and asserted civil
liability  under  Alabama law for  violation  of federal  statutes  dealing with
financial institution fraud, mail and wire fraud and making false statements for
the  purpose of  influencing  the  actions of a  financial  institution  upon an
application or loan.

     On June 29, 2000 and August 31, 2000,  the court granted  Community  Bank's
motions to dismiss  without  prejudice  two of the  employees of the  automobile
dealership as defendants in the action. On September 13, 2000, the court granted
Mr.  Parrish's  action to dismiss the complaint,  but granted  Community Bank 15
days to amend the  complaint.  On September  27, 2000,  Community  Bank filed an
amended  complaint  which  generally  reiterated the allegations of the original
complaint and added specific  information  concerning  the allegedly  fraudulent
activity  and the use of the  United  States  mail,  telephone  and  other  wire
transmissions  in the conduct of such  activity.  On December 1, 2000, the court
dismissed  Community Bank's claims based upon mail and wire fraud in the amended
complaint but otherwise denied Mr. Parrish's motion to dismiss the complaint. On
October 10, 2001,  the court  granted a joint motion to bifurcate the trial into
separate  stages of liability and damages.  On October 23 and November 19, 2001,
the court granted  Community Bank's motion to dismiss without prejudice three of
the employees of the automobile dealership as defendants in the action.

     The defendants have filed answers to the amended  complaint which generally
deny the  material  allegations  in the  complaint  and  allege  that any injury
suffered by  Community  Bank was the result of the  contributory  negligence  of
Community Bank, its officers,  employees and agents.  In the lawsuit,  Community
Bank  seeks  damages of an  unspecified  amount to recover  losses  incurred  in
connection with the loans made at Community Bank's Wal-Mart office in Ft. Payne,


                                       15
<PAGE>

Alabama,  along with all costs associated with the lawsuit. Any amounts received
by Community Bank as a result of this  litigation  will be treated as a recovery
on loan losses.

Employee Litigation

     On November  15,  2000,  Michael W. Alred and  Michael A. Bean,  two former
directors and executive officers of Community Bank, filed suit against Community
Bank in the United States  District  Court for the Northern  District of Alabama
alleging that their employment was wrongfully terminated for allegedly providing
information  to bank  regulatory  and  law  enforcement  authorities  concerning
possible violations of laws and regulations, gross mismanagement, gross waste of
funds and abuse of authority  by Community  Bank,  its  directors,  officers and
employees.   According  to  the  complaint,  the  information  which  these  two
individuals   provided  to  authorities   concerned  certain  bank  construction
projects,  specific  loans,  charge-offs,  expenses and past due  accounts.  The
complaint  seeks  reinstatement  of the plaintiffs to their former  positions as
officers and directors of Community  Bank as well as  compensatory  and punitive
damages.  Community Bank and its directors believe this lawsuit is without merit
and intend to defend the action  vigorously.  Management of the Company believes
that this  action  will not have a  material  adverse  effect  on the  Company's
financial  condition or results of  operations.  Regardless of the outcome,  the
litigation  could be costly,  time  consuming  and a diversion  of  management's
attention.

General

     The  Company  and its  subsidiaries  are from time to time also  parties to
other legal proceedings  arising in the ordinary course of business.  Management
believes,  after consultation with legal counsel,  that no such proceedings,  if
resulting in an outcome unfavorable to the Company, will, individually or in the
aggregate,  have a material adverse effect on the Company's  financial condition
or results of operations.

     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.

NOTE 6 - CAPITALIZED LEASES

     On May 31, 2002, the purchaser of Community  Bank's  Marshall County branch
offices assumed the Company's lease on the Boaz,  Alabama  location.  This lease
had been  accounted  for under  capitalized  lease  rules.  The  balances of the
capitalized lease asset and capitalized lease obligation on May 31, 2002 were as
follows:

<TABLE>
<S>                                                                       <C>
                  Capitalized lease asset                                 $      1,696,576
                    Less:  Accumulated depreciation                                169,658
                                                                          ----------------
                  Net capitalized lease asset                             $      1,526,918
                                                                          ================

                  Capitalized lease obligation                            $      1,614,318
                                                                          ================
</TABLE>

     A gain of $87,400 was  recognized  to account for the sale of the asset and
the  release of the  obligation  and is  included  in "net loss on  disposal  of
assets" on the Consolidated Statements of Income.

     The  purchaser  also  acquired  the land,  building  and land  improvements
located in  Albertville,  Alabama under a sales type lease.  The lease agreement
calls for 60  payments of $14,000 per month  beginning  June 1, 2002.  The lease
ends on May 31,  2007 and is  subject  to  options  which give the right for the
seller to require the  purchaser to purchase the property and gives the right to
the  purchaser to require the seller to sell the  property.  The purchase  price
upon option by either party is  $2,621,544.  This  lease/sale  qualifies  and is
accounted for under capitalized lease rules.


                                       16
<PAGE>

     The following is a schedule by year of the future minimum lease payments to
be received together with the present value of the net minimum lease payments as
of June 30, 2002.
<TABLE>
<CAPTION>
                  Years ending December 31,
<S>                 <C>                                                     <C>
                    2002                                                    $       84,000
                    2003                                                           168,000
                    2004                                                           168,000
                    2005                                                           168,000
                    2006                                                           168,000
                    2007                                                         2,691,591
                                                                            --------------
                  Total minimum lease payments                                   3,447,591
                    Less: Amount representing interest                             348,046
                                                                            --------------
                  Present value of net minimum lease payments               $    3,099,545
                                                                            ==============
</TABLE>

NOTE 7 - INTANGIBLE ASSETS

     In June  2001,  the FASB  issued  Statement  No.  142,  Goodwill  and Other
Intangible  Assets.  The statement  requires that goodwill and other  intangible
assets  with  indefinite  useful  lives no longer be  amortized,  but instead an
entity must perform an assessment of whether these assets are impaired as of the
date of adoption and test for  impairment at least  annually in accordance  with
the  provisions of the statement.  The statement  also required that  intangible
assets with determinable  lives be amortized.  The Company adopted Statement No.
142 on January 1, 2002.


     Acquired  goodwill  and  other  intangible  assets  at June 30,  2002,  are
detailed as follows:

<TABLE>
<CAPTION>
                                                                                 As of June 30, 2002
                                                                  -------------------------------------------------
                                                                       Gross                               Net
                                                                     Carrying        Accumulated        Carrying
                                                                      Amount        Amortization         Amount
                                                                  --------------   ---------------   --------------

<S>                                                               <C>              <C>               <C>
Identifiable amortizing assets.................................   $    2,063,311   $     1,268,102   $      795,209
Nonamortizing goodwill.........................................        2,851,372         1,058,565        1,792,807
                                                                  --------------   ---------------   --------------
Total acquired intangible asset................................   $    4,914,683   $     2,326,667   $    2,588,016
                                                                  ==============   ===============   ==============
</TABLE>

     Aggregate  amortization  expense for the period  ended June 30,  2002,  was
$41,656.  Aggregate  amortization  expense of $83,312 is estimated for the years
ending December 31, 2002 and 2003.


                                       17
<PAGE>

     The following  table presents net income and earnings per share as reported
and adjusted to exclude tax effected  amortization of goodwill that is no longer
being amortized.

<TABLE>
<CAPTION>
                                                        Three Months Ended                Six Months Ended
                                                             June 30,                         June 30,
                                                  ------------------------------   --------------------------------
                                                      2002             2001             2002              2001
                                                  -------------   --------------   ---------------   --------------

<S>                                               <C>             <C>              <C>               <C>
Reported net income (loss).....................   $   2,827,022   $     (156,363)  $     4,059,535   $      648,727
Add back: Goodwill amortization................               -           58,223                 -          116,447
                                                  -------------   --------------   ---------------   --------------

Adjusted net income (loss).....................   $   2,827,022   $      (98,140)  $     4,059,535   $      765,174
                                                  =============   ==============   ===============   ==============

Basic earnings per share:
   Reported net income (loss)..................   $        0.61   $       (0.03)   $          0.88   $         0.14
   Add back: Goodwill amortization.............               -             0.01                 -             0.03
                                                  -------------   --------------   ---------------   --------------

Adjusted net income (loss).....................   $        0.61   $       (0.02)   $          0.88   $         0.17
                                                  =============   =============    ===============   ==============

Diluted earnings per share:
   Reported net income (loss)..................   $        0.61   $       (0.03)   $          0.88   $         0.14
   Add back: Goodwill amortization.............               -             0.01                 -             0.03
                                                  -------------   --------------   ---------------   --------------

Adjusted net income (loss).....................   $        0.61   $       (0.02)   $          0.88   $         0.17
                                                  =============   =============    ===============   ==============
</TABLE>

NOTE 8 - RECENTLY ISSUED ACCOUNTING STANDARDS

     In June 1998, the Financial  Accounting  Standards  Board  ("FASB")  issued
Statement of Financial  Accounting  Standards  ("SFAS") No. 133,  Accounting for
Derivative  Instruments  and  Hedging  Activities.  This  statement  establishes
accounting and reporting  standards for derivative  instruments  and for hedging
activities.  It requires  that an entity  recognize  all  derivatives  as either
assets or liabilities in the statement of financial  condition and measure those
instruments  at fair value.  The  accounting  for changes in the fair value of a
derivative  is to be determined  based upon the intended use of the  derivative.
For certain hedge  designations  (cash flow and foreign  currency  exposure) the
derivative's  gain or loss is  reported as a  component  of other  comprehensive
income. Other designations require the gain or loss to be recognized in earnings
in the period of change.  This  statement,  amended as to effective date by SFAS
No. 137, is effective for financial  statements for periods beginning after June
15, 2000. In June 2000,  the Financial  Accounting  Standards  Board also issued
SFAS No. 138, Accounting for Certain Derivative  Instruments and Certain Hedging
Activities  - an  Amendment  of SFAS No. 133.  The  adoption of SFAS No. 133, as
amended  by SFAS  No.  138 did  not  have a  material  impact  on the  Company's
consolidated financial statements.

     In September  2000, the FASB issued SFAS No. 140,  Accounting for Transfers
and  Servicing  of  Financial  Assets and  Extinguishments  of  Liabilities  - a
replacement  of FASB  Statement No. 125. While SFAS No. 140 carries over most of
the  provisions  of SFAS No. 125,  Accounting  for  Transfers  and  Servicing of
Financial Assets and  Extinguishments of Liabilities,  it provides new standards
for reporting  financial assets  transferred as collateral and new standards for
the derecognition of financial assets, in particular  transactions involving the
use of  special  purpose  entities.  SFAS  No.  140 also  prescribes  additional
disclosures  for collateral  transactions  and for  securitization  transactions
accounted for as sales. The new collateral standards and disclosure requirements
are  effective  for fiscal years ending after  December 15, 2000,  while the new
standards for the  derecognition of financial assets are effective for transfers
made  after  March 31,  2001.  The  adoption  of this  statement  did not have a
material effect on the Company's consolidated financial statements.


                                       18
<PAGE>

     In June 2001,  the FASB issued SFAS No. 141,  Business  Combinations.  This
statement addresses financial accounting and reporting for business combinations
and  supersedes  ABP Opinion  No. 16,  Business  Combinations,  and SFAS No. 38,
Accounting  for  Preacquisition  Contingencies  of  Purchased  Enterprises.  All
business combinations in the scope of SFAS No. 141 are to be accounted for using
one method,  the  purchase  method.  Prior to the  issuance  of this  statement,
subject to certain criteria,  business combinations were accounted for using one
of two methods, the pooling-of-interests  method or the purchase method. The two
methods  produce  different  financial  statement  results.   The  single-method
approach  used in SFAS No.  141  reflects  the  conclusion  that  virtually  all
business  combinations are acquisitions and therefore should be accounted for in
the same manner as other asset acquisitions based on the values exchanged.  This
statement  provides  expanded and revised  guidance related to the allocation of
the purchase price to goodwill and other  intangibles  arising from the business
combination.  The provisions of SFAS No. 141 apply to all business  combinations
initiated  after  June 30,  2001.  The  adoption  of SFAS No.  141 has not had a
material effect on the Company's consolidated financial statements.

     In June 2001, the FASB issued SFAS No. 142,  Goodwill and Other  Intangible
Assets, which addresses financial accounting and reporting for acquired goodwill
and other  intangible  assets and  supersedes  APB  Opinion  No. 17,  Intangible
Assets.  SFAS  No.  142  provides  new  standards  for  accounting  relating  to
intangible assets after initial  recognition in the financial  statements.  This
statement   proscribes  the  accounting  practice  of  amortizing  or  expensing
intangibles  ratably over a  prescribed  period of time and imposes new guidance
requiring  that goodwill and certain other  intangibles be tested for impairment
at least  annually by comparing  fair values of those assets with their recorded
amounts. Additional disclosure requirements also are provided. The provisions of
SFAS No. 142 are required to be applied in fiscal years beginning after December
15, 2001.  The adoption of this  statement has not had a material  effect on the
Company's  consolidated  financial  statements.  See  also  Note 7 -  Intangible
Assets.

     In June 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement
Obligations.  This statement  requires that the fair value of a liability for an
asset retirement  obligation be recognized in the period in which it is incurred
if a  reasonable  estimate  of fair  value  can be made.  The  associated  asset
retirement  costs  are  capitalized  as  part  of  the  carrying  amount  of the
long-lived  asset.  This statement is effective for financial  statements issued
for fiscal years  beginning  after June 15, 2002. The adoption of this statement
is not  expected  to  have a  material  effect  on  the  Company's  consolidated
financial statements.

     In August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment
or Disposal of Long-lived Assets. This statement addresses financial  accounting
and  reporting  for the  impairment  or  disposal  of  long-lived  assets.  This
statement  supersedes  FASB Statement No. 121,  Accounting for the Impairment of
Long-Lived  Assets  and  for  Long-Lived  Assets  to Be  Disposed  Of,  and  the
accounting and reporting provisions of APB Opinion No. 30, Reporting the Results
of  Operations  - Reporting  the Effects of Disposal of a Segment of a Business,
and Extraordinary,  Unusual and Infrequently  Occurring Events and Transactions,
for the  disposal  of a segment of a  business  (as  previously  defined in that
opinion).  This  statement  also amends  Accounting  Research  Bulletin  No. 51,
Consolidated  Financial Statements,  to eliminate the exception to consolidation
for a subsidiary for which control is likely to be temporary.  The major changes
resulting from this statement relate to the establishment of a single method for
the  recognition of impairment  losses on long-lived  assets to be held and used
whether from  discontinuance of a business segment or otherwise.  This statement
is effective for financial  statements  issued for fiscal years  beginning after
December 15, 2001. The adoption of this statement has not had a material  effect
on the Company's consolidated financial statements.

NOTE 9 - RECENTLY PASSED LEGISLATION

     On July 30, 2002,  President Bush signed into law the Sarbanes-Oxley Act of
2002 (the "Act"), which immediately  impacts Securities and Exchange  Commission
registrants,  public accounting  firms,  lawyers and securities  analysts.  This
legislation is the most  comprehensive  since the passage of the Securities Acts
of 1933 and 1934. It has far reaching  effects on the standards of integrity for
corporate management,  board of directors, and executive management.  Additional
disclosures,  certifications  and  possibly  procedures  will be required of the
Company. We do not expect any material adverse effect on the Company as a result
of the passage of this legislation;  however,  the full scope of the Act has not
been determined. The Act provides for additional regulations and


                                       19
<PAGE>

requirements of publicly-traded companies which have yet to be issued.

NOTE 10 - SUBSEQUENT EVENTS

     On August 2, 2002,  Community Bank received notice from the Alabama Banking
Department (the  "Department")  that the Department had denied  Community Bank's
request  of April 11,  2002,  that  Dudley,  Hopton-Jones,  Sims & Freeman  PLLP
("Dudley Hopton") be approved as Community Bank's  independent  auditor.  Dudley
Hopton also  serves as the  Company's  independent  auditor.  Management  of the
Company  understands  that  representatives  of  Dudley  Hopton  have  scheduled
meetings  with  the  staff  of  the  Department  to  review  the  basis  of  the
Department's  decision  and to seek its  reversal.  Based  in large  part on the
outcome of those  discussions  and the  availability  of additional  information
regarding the basis for the  Department's  decision,  the Audit Committee of the
Company will  consider  whether it will  continue to engage Dudley Hopton as the
Company's  independent  auditor. In connection with the Department's notice, the
Audit  Committee is  presently  unaware of facts that would cause it to conclude
that there are any material  misstatements  in the Company's  previously  issued
audited financial statements.


                                       20
<PAGE>


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)
and its subsidiaries.  Unless the context otherwise indicates, the Company shall
include the Company and its subsidiaries.  All dollar amounts are rounded to the
nearest thousand. 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, 2001.

Forward looking information

     Certain statements in this Report are  "forward-looking  statements" within
the  meaning of Section  27A of the  Securities  Act of 1933,  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,  economic
prospects  of  market  areas,  dividends,  pending  litigation,   branch  office
divestitures,  non-compliant or impaired loans, capital requirements,  operating
strategy,  deposits,  consumer base,  allowance for loan losses,  non-performing
assets,  interest  rate  sensitivity,  market risk and impact of  inflation.  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 and government fiscal and
monetary policies, changes in prevailing interest rates and effectiveness of the
Company's interest rate strategies, laws, regulations and regulatory authorities
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,
unexpected  financial results or outcomes of legal  proceedings,  the effects of
recent bank sales,  changes in accounting  rules and  securities  laws 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, 2002 compared to December 31, 2001

Summary

     Total assets at June 30, 2002 were $574,657,000,  down from $729,482,000 at
December 31,  2001.  The  decrease in total  assets was mainly  attributable  to
Community  Bank  branch  divestitures  as well as an  overall  decrease  in loan
volume. Refer to "Notes to Consolidated  Financial  Statements,  Note 2 - Branch
Divestitures" throughout the discussion of financial condition.

Earning Assets

     The  earning  assets of the  Company  are  mainly  composed  of  investment
securities,  federal  funds  sold and  loans.  Investment  securities  decreased
$1,721,000,  or 1.4%,  to  $119,958,000  at June 30, 2002 from  $121,679,000  at
December 31, 2001. 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  $200,000  at both June 30, 2002 and
December 31, 2001.  The Company had $6,000,000 in federal funds sold at June 30,
2002,  compared to $30,000,000 at December 31, 2001,  representing a decrease of
$24,000,000,  or 80.0%.  The decrease in federal funds sold was primarily due to
the cash outlay used in the branch divestiture transactions. Management had kept
federal funds sold balances at high levels in anticipation of funding  necessary
to consummate  the sale of its branch  offices and depleted those funds upon the
aforementioned consumation.


                                       21
<PAGE>

     Loans comprise the largest single category of the Company's earning assets.
Loans,  net of  unearned  income,  were  $384,678,000  at  June  30,  2002  down
$116,842,000, or 23.3%, from $501,520,000 at December 31, 2001. This decrease is
partly   attributable   to  the  sale  of  the  loan  portfolio  in  the  branch
divestitures,  but the Company  continues to experience a decline in total loans
because of economic downturns, the tightening of the Company's credit standards,
and increased loan charge-offs.

Nonperforming Assets and Past Due Loans

     Overall  delinquency trends have slowed in terms of new additions,  but the
migration is disappointing.  Loans past due 30-89 days have decreased $4,688,000
since  December 31, 2001 which  depicts a slowing down of new past due accounts;
however,  each category of nonperforming  assets (defined as nonaccruing  loans,
loans past due 90 days or greater,  restructured loans,  nonaccruing securities,
and other real estate) have  increased  since  December 31, 2001,  indicating an
overall trend of past due loans eventually migrating to nonperforming status.

     Between December 31, 2001 and June 30, 2002, the ratio of the allowance for
loan losses to total nonperforming  assets declined from 58.37% at year-end 2001
to 42.82% at June 30,  2002.  The ratio of total  nonperforming  assets to total
assets  increased to 3.35% at June 30, 2002 from 1.71% at year-end  2001,  while
the  ratio of  nonperforming  loans  to total  loans,  net of  unearned  income,
increased  to 3.77% at June 30,  2002 from 1.64% at  December  31,  2001.  These
changes were primarily due to an increase in nonaccruing loans of $2,081,000, or
35.5%,  to $7,940,000 at June 30, 2002 from  $5,859,000 at December 31, 2001 and
an increase in other real estate of $434,000,  or 10.1%,  to  $4,721,000 at June
30, 2002 from  $4,287,000 at December 31, 2001. The Company also  experienced an
increase in loans past due 90 days or more of $625,000,  or 26.6%, to $2,971,000
at June 30, 2002 from  $2,346,000  at December  31,  2001.  Total  nonperforming
assets  increased  $6,750,000,  or 54.0%,  to  $19,242,000 at June 30, 2002 from
$12,492,000  at December 31, 2001. In their efforts to improve the asset quality
and  credit  standards  of the  Company,  management  continues  its  efforts to
recognize  problem  credits in a timely manner  through the loan review  process
implemented in 2001.

Funding

     The  Company's  primary  sources  of  funding  are from  deposits  from the
customers of Community Bank and from other short-term and long-term  borrowings.
Total  deposits  of  $463,995,000  at June 30,  2002  reflected  a  decrease  of
$153,711,000,  or 24.9%,  from  $617,706,000  at  year-end  2001.  Deposits  are
Community Bank's primary source of funds. Noninterest-bearing deposits decreased
$12,700,000,  or 18.8%,  to  $54,996,000  at June 30, 2002 from  $67,696,000  at
December 31, 2001, while interest-bearing  deposits decreased  $141,011,000,  or
25.6%, to $408,999,000 at June 30, 2002 from  $550,010,000 at December 31, 2001.
Certificates of deposit of $100,000 or more decreased $31,998,000,  or 26.8%, to
$87,538,000 at June 30, 2002 from  $119,536,000 at December 31, 2001. The branch
divestitures accounted for $139,080,000 of the decrease in total deposits.

     Total short-term borrowings decreased  $2,424,000,  or 55.6%, to $1,936,000
at June 30, 2002 from  $4,360,000  at  December  31,  2001.  This  decrease  was
attributable to a commercial account set up as "securities sold under agreements
to repurchase"  arrangement that transferred after the Marshall County,  Alabama
divestiture.  FHLB borrowings remained constant at $38,000,000 for both June 30,
2002 and December 31, 2001, while long-term debt decreased  $542,000,  or 11.6%,
to $4,125,000 at June 30, 2002 from $4,667,000 at December 31, 2001.

     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 annual  interest  rate of
10.875%.  Under  the  terms of the  indenture,  the  Company  may elect to defer
payments of  interest  for up to ten  semiannual  payment  periods.  The Company
elected to defer its March 2002  interest  payment  and may elect to do so again
based on the liquidity needs of the Company when future payments become due. For
the duration of such  deferral  period,  the Company is  restricted  from paying
dividends to shareholders


                                       22
<PAGE>

or paying debt that is junior to the  debentures.  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.

Liquidity

     The  following is a discussion  of cash flows.  The Company  experienced  a
$26,306,000 decrease in cash and cash equivalents during the first six months of
2002. Cash provided by operating activities was $1,948,000. Investing activities
used only  $10,726,000  despite a cash payment of $32,055,000 in the divestiture
of ten  Community  Bank  branches.  This payment was offset by increases in cash
from  other  investing  activities  such as  proceeds  from the sale or calls of
securities  and  decreases  in loans to  customers.  Financing  activities  used
$17,528,000  of cash and cash  equivalents  during the first six months of 2002.
Certificates of deposits decreased $14,941,000,  excluding any decreases for the
divested branches, but was partially offset by increases in cash from the growth
of demand deposits,  NOW deposits,  and other savings deposits totaling $311,000
also excluding any decreases due to the branch divestitures.

     Dividends paid by Community Bank are the primary source of funds  available
to the Company.  The Company relies on dividends from Community Bank in order to
pay  expenses,   service  debt  and  pay  dividends  to  shareholders.   Certain
restrictions  exist regarding the ability of Community Bank to transfer funds to
the Company in the form of cash dividends, loans or advances. Although dividends
from Community Bank are the primary source of funding, the Company also receives
cash from  Community  Bank in the form of  management  fee income and  generally
retains  cash  for  its  portion  of tax  benefit  on  intercompany  income  tax
settlements. Without dividends or management fee income from Community Bank, the
Company would not be able to pay expenses or service debt.  Management  fees for
the first six months of 2002 were $150,000. Community Bank cannot pay a dividend
to the Company without prior approval of the regulatory authorities,  nor is the
Company able to increase the  management  fee charged to Community  Bank without
the prior written approval of the Federal Reserve.

Capital Resources

     Total  shareholders'  equity at June 30, 2002 was 8.00% of total  assets as
compared to 5.57% at December 31,  2001.  The  increase  experienced  during the
first six months of 2002 is  primarily a result of increased  retained  earnings
from net income of  $4,060,000  coupled  with an increase in  accumulated  other
comprehensive income and a decline in total assets attributable to the Community
Bank branch divestitures.

     Bank regulatory  authorities have issued risk-based capital guidelines that
take into  consideration  risk factors  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 includes common stock,  retained  earnings and guaranteed
preferred  beneficial  interest in the Company's junior  subordinate  deferrable
interest  debentures,  amounted to  $53,499,000  at June 30,  2002,  compared to
$49,118,000  at  December  31,  2001.   Tier  II  capital   components   include
supplemental  capital components,


                                       23
<PAGE>

such as qualifying  allowance for loan losses and qualifying  subordinated debt.
Tier I capital  plus the Tier II capital  components  are  referred  to as Total
Risk-based  capital,  which was  $59,814,000  at June 30,  2002 as  compared  to
$56,833,000 at year-end 2001. The  percentage  ratios,  as calculated  under the
guidelines,  for Tier I and Total  Risk-based  capital  were  14.11% and 15.78%,
respectively,  at June 30, 2002, compared to 10.02% and 11.59%, respectively, at
year-end 2001. At June 30, 2002, both Tier I and Total Risk-based capital of the
Company exceeded the regulatory minimum ratios of 4% and 8%, respectively.

     Another important  indicator of capital adequacy in the banking industry is
the leverage  ratio.  The Tier I Leverage ratio is defined as the ratio that the
Company's  Tier I capital  bears to total  average  assets minus  goodwill.  The
Company's  Tier I  Leverage  ratios  were  8.39% and 6.70% at June 30,  2002 and
December 31, 2001, respectively, exceeding the regulatory minimum requirement of
4%.


RESULTS OF OPERATIONS

Three months and six months ended June 30, 2002 and 2001

Summary

     The  Company's  net income  for the three  months  ended June 30,  2002 was
$2,827,000,  an increase of $2,983,000  from a net loss of $156,000 for the same
period in 2001.  Both basic and  diluted  net income per share was $0.61 for the
three months  ended June 30, 2002,  as compared to a net loss per share of $0.03
for the same period in 2001.  This  increase  during the second  quarter of 2002
compared to the same period of 2001  resulted  only from the gain on sale of ten
Community Bank branches.

     The  Company's  net  income  for the six  months  ended  June 30,  2002 was
$4,060,000 up $3,411,000 from June 30, 2001 net income of $649,000.  Included in
this  increase  is the gain on sale of  branches  of  $8,072,000  along  with an
increase  of  $442,000  in net  interest  income  and offset by an  increase  in
provision  for loan  losses of  $1,797,000,  a decrease  in  noninterest  income
(excluding the gain on sale of branches) of $554,000, an increase in noninterest
expenses of $514,000 and an increase in income tax expense of $2,239,000.

Net Interest Income

     The  following  discussion  is on a fully  taxable  equivalent  basis.  Net
interest income,  the difference  between interest earned on assets and the cost
of interest-bearing  liabilities,  was $13,623,000 for the six months ended June
30, 2002.  Net interest  income,  before  provision  for loan losses,  increased
$365,000,  or 2.8%, from $13,258,000 for the same period of 2001.  Revenues from
interest  earning  assets of the  Company  decreased  $6,037,000,  or 19.9%,  to
$24,300,000 for the six months ended June 30, 2002 from $30,337,000 for the same
period in 2001. This decrease was due to lower yields on interest earning assets
as well as lower average  balances of interest  earning assets.  Average earning
assets outstanding during the first six months of 2002 were $609,356,000,  which
represents a decrease of $32,154,000,  or 5.0%, from  $641,510,000 for the first
six months of 2001. The Company's fully taxable  equivalent yield on its average
earning  assets  decreased 150 basis points to 8.04% for the first six months of
2002, compared to 9.54% for the same period of 2001. This decrease is reflective
of the  overall  decrease in interest  rates  experienced  during the year 2001.
Interest expense for the six months ended June 30, 2002 decreased $6,402,000, or
37.5%, to $10,677,000  from  $17,079,000 for the  corresponding  period of 2001.
This  decrease  occurred  due to a  decline  in rates  paid on  interest-bearing
liabilities  and more than  offset  the  decline  in income on  interest-bearing
assets. Average interest-bearing liabilities during the first six months of 2002
were  $566,047,000,  which  represents a decrease of $32,993,000,  or 5.5%, from
$599,040,000   for  the  same   period  of  2001.   The  rate  paid  on  average
interest-bearing  liabilities  decreased  195 basis  points to 3.80% for the six
month period ended June 30, 2002,  compared to 5.75% for the first six months of
2001.  This  decrease is also  attributable  to the overall  decline in interest
rates during the year 2001.


                                       24
<PAGE>

     The Company's net interest margin, on a fully taxable equivalent basis, for
the six months  ended June 30, 2002  increased  34 basis  points to 4.51%,  from
4.17%  for the six  months  ended  June 30,  2001,  due to the  increase  in net
interest  income,  on a fully taxable  equivalent  basis. Net interest margin is
computed by dividing net interest income,  on a fully taxable  equivalent basis,
by average interest earning assets. This ratio represents the difference between
the average yield  returned on average  interest  earning assets and the average
rate paid on funds used to support those interest earning assets, including both
interest-bearing and noninterest-bearing sources.

     The Company's net interest spread, on a fully taxable equivalent basis, for
the six months  ended June 30, 2002  increased  45 basis  points to 4.24%,  from
3.79%  for  the  six  months  ended  June  30,  2001,  as the  average  cost  of
interest-bearing  sources of funds  decreased  195 basis  points while the fully
taxable  equivalent average yield on interest earning assets decreased 150 basis
points. Net interest spread measures the difference between the average yield on
interest earning assets and the average rate paid on interest-bearing sources of
funds.

Provision for Loan Losses and Allowance for Loan Losses

     At June 30,  2002,  the  allowance  for loan  losses was  $8,240,000  which
represented an increase of $948,000, or 13.0%, from the December 31, 2001 amount
of  $7,292,000.  This  increase  resulted  from  management's  decision  to make
provisions  for current  losses in the loan portfolio as it continues its effort
to improve the overall  credit  quality of the Company.  The  provision for loan
losses was  $4,129,000 and $2,332,000 for the six months ended June 30, 2002 and
2001, respectively.  The allowance for loan losses account as a percent of loans
to reserve for potential losses in the loan portfolio has increased by virtue of
additional  provisions  for loan loss  expense as well as a  reduction  in total
loans. As a percentage of total loans, net of unearned income, the allowance for
loan losses increased to 2.14 % at June 30, 2002,  compared to 1.45% at December
31, 2001. Loan charge-offs  exceeded  recoveries by $2,429,000  during the first
six months of 2002,  which  represented a decrease of $334,000,  or 12.1%,  from
$2,763,000 for the same period during 2001.

     Provision  for loan losses for the three month  period  ended June 30, 2002
were $3,089,000 an increase of $1,707,000,  or 123.6%,  over the same period for
2001.  Loan  charge-offs  exceeded  recoveries by $1,575,000 for the three month
period ended June 30, 2002.  Management  believes  that the  allowance  for loan
losses at June 30, 2002 is adequate;  however,  no  assurance  can be given that
additional  losses may not occur or that additional  provisions to the allowance
for loan losses will not be necessary.

Noninterest Income

     Noninterest  income  for the six  months  ended  June  30,  2002  increased
$7,518,000 to $12,347,000, from $4,829,000 for the same period of 2001, due to a
gain  recognized on the sale of ten Community Bank branches.  Service charges on
deposit accounts  decreased  $163,000,  or 7.9%, to $1,905,000 for the first six
months  of  2002  from  $2,068,000  in  the  first  six  months  of  2001.  Debt
cancellation  fees decreased during the first six months of 2002, as compared to
the first six months of 2001,  $107,000,  or 40.2%,  due to decreased  volume in
debt  cancellation  coverage  associated  with the decline in the Company's loan
portfolio.  Other operating income decreased $112,000, or 13.7%, to $711,000 for
the first six  months of 2002 from  $823,000  for the same  period of 2001.  The
Company  recorded  net gains on the sale of  investment  securities  of $124,000
during the six months ended June 30, 2002,  compared to net gains on the sale of
investment  securities  of  $378,000  for the  same  period  of  2001.  The gain
recognized  on the sale of ten  Community  Bank  branches was  $8,072,000  which
represented a range of 7%-8% premium on the 30 day average of core deposits less
an agreed upon discount on loans and fixed assets.

     For the three month  period  ended June 30,  2002,  noninterest  income was
$8,812,000 as compared to $2,154,000 for the same period in 2001.  This increase
was  attributable  to the $6,521,000  gain  recognized on the sale of the DeKalb
County,  Alabama and Marshall  County,  Alabama branch offices during the second
quarter of 2002. The Company has experienced increases of $138,000 for the three
month  period  ended June 30, 2002 as compared to the three month  period  ended
June 30, 2001 in its insurance  commissions  income due to increased revenues at
Community  Bank's  subsidiary  Community  Insurance  Corp.,  but has experienced
decreases  in  service  charges  on  deposit  accounts,  bank club dues and debt
cancellation fees.


                                       25
<PAGE>

Noninterest Expenses

     Noninterest   expenses  for  the  six  months  ended  June  30,  2002  were
$15,200,000, representing a $513,000, or 3.5%, increase from $14,687,000 for the
same period of 2001.  This increase is in most part due to a loss  recognized on
the  disposal of one  building  located in  Uniontown,  Alabama and one building
located in New Hope,  Alabama in the first  quarter of 2002 and  included in the
$315,000 net loss on disposal of assets.  The primary  components of noninterest
expenses are salaries and employee benefits,  which decreased $102,000, or 1.3%,
to  $7,936,000  for the six months ended June 30, 2002 from  $8,038,000  for the
same  period  of 2001.  The  decrease  in  salaries  and  employee  benefits  is
attributable to the branch divestitures as well as managements  continued effort
to lower staff costs.  Occupancy costs decreased $40,000, or 2.8%, to $1,400,000
for the first six months of 2002 from  $1,440,000  for the same  period of 2001.
Furniture  and  equipment  expenses for the six month period ended June 30, 2002
decreased  $18,000,  or 1.9%,  to $906,000  from $924,000 for the same period of
2001.  Director and committee fees decreased $33,000,  or 13.1%, to $218,000 for
the first six  months of 2002 from  $251,000  for the first six  months of 2001.
Other  operating  expenses  were  $4,425,000  and  $4,019,000  for the six month
periods ended June 30, 2002 and 2001, respectively. This increase of $406,00, or
10.1%, was primarily due to increased  expenses,  especially legal fees, related
to the continued litigation against the Company.

     Noninterest  expenses  for the  three  month  period  ended  June 30,  2002
decreased  $232,000,  or 3.0%,  from  $7,809,000  for the same period in 2001 to
$7,577,000. All categories of expenses for the three month period ended June 30,
2002 are down from the same period in 2001 with the  exception  of salaries  and
benefits  which remained even. For the three month period ended June 30, 2002 as
compared to the same period in 2001, occupancy costs decreased $83,000 or 11.5%,
furniture, fixtures and equipment costs decreased $33,000 or 6.9%, directors and
committee fees decreased $23,000 or 17.4%, and other expenses  decreased $12,000
or 0.5%. All of the decreases are attributable to the reduction in the number of
Community Bank locations as a result of the sale of ten branches.

Income Taxes

     The  Company  attempts  to  maximize  its net  income  through  active  tax
planning.  The provision for income taxes increased $2,239,000 to $2,368,000 for
the six months ended June 30, 2002 from $129,000 for the same period of 2001 due
to tax provision  recognized on the gain on the sale of branches.  The effective
tax rate of  approximately  36.8% for the first six months of 2002 represents an
increase from the effective tax rate of approximately  16.6% for the same period
of 2001.


                                       26
<PAGE>


Item 3 - Quantitative and Qualitative Disclosures About Market Risk

Interest Rate Sensitivity

     Community Bank's net interest  income,  and the fair value of its financial
instruments, are influenced by changes in the level of interest rates. Community
Bank manages its exposure to  fluctuations  in interest  rates through  policies
established  by  its  Asset/Liability   Committee   ("ALCO").   The  ALCO  meets
periodically to monitor its interest rate risk exposure and implement strategies
that might improve its balance sheet  positioning  and/or  earnings.  Management
utilizes an Interest Rate  Simulation  model to estimate the  sensitivity of the
Bank's net  interest  income and net income to changes in interest  rates.  Such
estimates are based upon a number of assumptions  for each  scenario,  including
balance sheet growth, deposit repricing characteristics and prepayment rates.

     The estimated  impact on Community  Banks net interest  income  sensitivity
over a one year time  horizon at June 30,  2002 is shown  below.  Such  analysis
assumes an  immediate  and  nonparallel  shift in interest  rates and the Bank's
estimates of how interest-bearing transaction accounts will reprice.

                               RATE SHOCK ANALYSIS
<TABLE>
<CAPTION>
                                                                          -100                          +100
                                                                          Basis                         Basis
                                                                         Points           Level        Points
                                                                                 (Dollars in thousands)

<S>                                                                       <C>            <C>             <C>
Prime Rate....................................................              3.75%          4.75%          5.75%

Interest Income...............................................       $    38,548    $    40,067    $    41,504
Interest Expense..............................................            14,440         15,802         16,817
                                                                     -----------    -----------    -----------
     Net Interest Income......................................       $    24,108    $    24,265    $    24,687
                                                                     ===========    ===========    ===========

Dollar change from Level......................................       $      (157)                  $       422

Percentage change from Level..................................             -0.65%                         1.74%
</TABLE>

     As shown  above,  in a 100 basis  point  rising rate  environment,  the net
interest  margin is projected to increase 1.74% from the level rate scenario and
in a 100 basis  point  falling  rate  environment,  the net  interest  margin is
projected to decrease 0.65% from the level rate scenario.  These percent changes
fall  comfortably  within Community Bank's ALCO policy limit of +/-10.00% change
in net interest income from the level rate senario in a 100 basis point rise and
fall in the prime rate.


                                       27
<PAGE>


                            PART II OTHER INFORMATION

Item 1 - Legal Proceedings

     Except as noted below, no reportable  events or material  developments have
occurred  since the filing of the  Company's  Annual Report on Form 10-K for the
year ended December 31, 2001 and filed on April 16, 2002.

     In the case of Community  Bancshares,  Inc. and Community  Bank v. Bryan A.
Corr et al., on May 31, 2002,  the court denied  defendants'  motion to dismiss,
abate or stay the  action.  The court did  dismiss  Community  Bank's  state law
claims  against  Michael Alred and Michael Bean on the grounds that these claims
were  compulsory  counterclaims  in the suit  brought by Messrs.  Alred and Bean
against Community Bank alleging wrongful termination of employment. See Note 5 -
Contingencies  "Employee Litigation" in the Notes to the Consolidated  Financial
Statements.  The court did not  dismiss  the  state  law  claims of the  Company
against Messrs. Alred and Bean.



Item 4 - Submission of Matters to a Vote of Security Holders

     The annual meeting of stockholders of the Company was held on Tuesday, July
2, 2002, at which the following matter was voted upon by the stockholders of the
Company:


Election of Class III Directors

Denny G. Kelly, Kennon R. Patterson,  Sr. and Merritt M. Robbins were elected to
serve as Class  III  directors  of the  Company  until  the  annual  meeting  of
stockholders  in 2005 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>
Denny G. Kelly                                     .     2,901,851          618,283             6,803
Kennon R. Patterson, Sr.                                 2,893,495          626,639             6,803
Merritt M. Robbins                                       2,904,317          615,817             6,803
</TABLE>

The following directors continued in office following the stockholders meeting:

<TABLE>
<CAPTION>

Name                                Term Expires
----                                ------------
<S>                                     <C>
Roy B. Jackson                          2003
Kennon R. Patterson, Jr.                2003
Robert O. Summerford                    2003
Jimmie Trotter                          2003
Glynn Debter                            2004
Loy McGruder                            2004
John J. Lewis, Jr.                      2004
</TABLE>


                                       28
<PAGE>

Item 6 - Exhibits and Reports on Form 8-K

     (a)  Exhibits

          11   Statement of computation of per share earnings

     (b)  Reports on Form 8-K

          The Company  filed two  reports on Form 8-K during the  quarter  ended
          June 30, 2002 as follows:

          June  14,  2002 -  Press  release  commenting  on  federal  indictment
          charging the owners of Morgan City Construction,  Inc. of Union Grove,
          Alabama  with a fraud  scheme  related to  construction  projects  for
          Community Bank.

          June 14, 2002 - Acquisition or Disposition of Assets - announcing sale
          of six banking offices in Marshall County,  Alabama to Peoples Bank of
          North  Alabama  headquartered  in  Cullman,  Alabama  as  well  as the
          previous sale of two offices in Pulaski,  Tennessee and two offices in
          Rainsville and Ft. Payne, Alabama.


                                       29
<PAGE>


                            CERTIFICATION PURSUANT TO
                             18 U.S.C. SECTION 1350
                             AS ADOPTED PURSUANT TO
                  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002


     In connection with Community Bancshares,  Inc. ("Company") Quarterly Report
on Form  10-Q  for the  period  ended  June  30,  2002  ("Report"),  each of the
undersigned certify that:

     1.   The Report fully  complies with the  requirements  of Section 13(a) or
          15(d) of the Securities Exchange Act of 1934; and

     2.   The  information  contained  in the  Report  fairly  presents,  in all
          material respects,  the financial  condition and results of operations
          of the Company.



Date:  August 14, 2002      By:  /s/ Kennon R. Patterson, Sr.
       -----------------         -----------------------------------------------
                                 Kennon R. Patterson, Sr.
                                 Chairman, Chief Executive Officer and President



Date:   August 14, 2002     By:   /s/ Kerri C. Newton
       -----------------          ----------------------------------------------
                                  Kerri C. Newton
                                  Chief Financial Officer


                                       30
<PAGE>




                                   SIGNATURES

     Pursuant  to the  requirements  of  Section  13 or 15(d) of the  Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its  behalf  by the  undersigned,  hereunto  duly  authorized,  in the  city  of
Blountsville, State of Alabama, on August 14, 2002.


                                                      COMMUNITY BANCSHARES, INC.


                            By:  /s/ KENNON R. PATTERSON, SR.
                                 -----------------------------------------------
                                 Kennon R. Patterson, Sr.
                                 Chairman, Chief Executive Officer and President


                            By:  /s/ KERRI C. NEWTON
                                 -----------------------------------------------
                                 Kerri C. Newton
                                 Chief Financial Officer


                                       31
<PAGE>


Exhibit 11 - Statements Re:  Computation of Per Share Earnings

                           Community Bancshares, Inc.
                   Computation of Net Income per Common Share

The following  tabulation  presents the  calculation  of basic and fully diluted
earnings  per common  share for the three  months and six months  ended June 30,
2002 and 2001.
<TABLE>
<CAPTION>
                                                          For the Three Months Ended     For the Six Months Ended
                                                                   June 30,                    June 30,
                                                              2002           2001          2002           2001
                                                          ------------- ------------   ------------- --------------
<S>                                                       <C>           <C>            <C>           <C>
Reported net income (loss)..............................  $   2,827,022 $    (156,363) $   4,059,535 $      648,727
                                                          ============= =============  ============= ==============

Earnings (losses) on common shares......................  $   2,827,022 $    (156,363) $   4,059,535 $      648,727
                                                          ============= =============  ============= ==============


Weighted average common shares outstanding - basic......      4,642,330     4,595,760      4,632,811      4,538,622
                                                          ============= =============  ============= ==============

Earnings per common share- basic
   Income (loss) from continuing operations.............  $       0.61  $       (0.03) $        0.88 $        0.14
                                                          ============  =============  ============= =============
   Net income (loss)....................................  $       0.61  $       (0.03) $        0.88 $        0.14
                                                          ============  ============== ============= =============


Weighted average common shares outstanding - diluted....     4,642,330      4,595,760      4,632,811     4,538,622
                                                          ============  =============  ============= =============

Earnings per common share- diluted
   Income (loss) from continuing operations.............  $       0.61  $       (0.03) $        0.88 $        0.14
                                                          ============  =============  ============= =============
   Net income (loss)....................................  $       0.61  $       (0.03) $        0.88 $        0.14
                                                          ============  =============  ============= =============
</TABLE>


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                                       32