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 September 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


     Indicate by check mark whether the registrant is an  accelerated  filer (as
defined in Rule 12b-2 of the Exchange Act)
                                  |_|yes |X|no


                      APPLICABLE ONLY TO CORPORATE ISSUERS:

    As of October 31, 2002, there were 4,651,912 shares of the registrant's
               common stock, $.10 par value shares, outstanding.

<PAGE>


                                    FORM 10-Q
                           COMMUNITY BANCSHARES, INC.
                               SEPTEMBER 30, 2002

<TABLE>
<CAPTION>

Table of Contents                                                                                     Page No.

Part 1 - Financial Information
      Item 1 -    Consolidated Financial Statements (Unaudited)

                  Consolidated Statements of Financial Condition as of
<S>                             <C> <C>               <C> <C>                                             <C>
                      September 30, 2002 and December 31, 2001...................................         3
                  Consolidated Statements of Income and Consolidated Statements of Comprehensive
                      Income for the Three Months Ended September 30, 2002 and 2001..............       4 - 6
                  Consolidated Statements of Income and Consolidated Statements of Comprehensive
                      Income for the Nine Months Ended September 30, 2002 and 2001...............       7 - 9
                  Consolidated Statements of Cash Flows for the Nine Months Ended
                      September 30, 2002 and 2001................................................      10 - 11
                  Notes to Consolidated Financial Statements.....................................      12 - 21

      Item 2 -    Management's Discussion and Analysis of
                      Financial Condition and Results of Operations..............................      22 - 28

      Item 3 -    Quantitative and Qualitative Disclosures About Market Risk.....................        29

      Item 4 -    Controls and Procedures........................................................        30

Part 2 - Other Information
      Item 1 -    Legal Proceedings..............................................................        31

      Item 6 -    Exhibits and Reports on Form 8-K...............................................        31
</TABLE>

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,  including,  but not limited to consummation of proposed
settlements,  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.

                                       2

<PAGE>

PART 1
Item 1 - Financial Statements

                 CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
                   COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>

                                                                          September 30, 2002
                                                                              (Unaudited)        December 31, 2001
Assets                                                                    ------------------     -----------------
<S>                                                                        <C>                   <C>
   Cash  ................................................................  $      6,128,607      $      8,312,263
   Due from banks .......................................................        16,147,574            14,724,745
   Interest-bearing deposits with banks. ................................           200,000               200,000
   Federal funds sold ...................................................        18,210,000            30,000,000
   Securities available for sale ........................................       122,717,263           121,679,303
   Capitalized lease receivable..........................................         3,076,614                     -
   Loans ................................................................       372,618,680           501,583,650
   Less: Unearned income. ...............................................            47,582                63,991
      Allowance for loan losses .........................................         8,637,875             7,292,370
                                                                                -----------           -----------
      Net Loans .........................................................       363,933,223           494,227,289
   Premises and equipment, net ..........................................        26,598,943            39,626,868
   Accrued interest. ....................................................         4,527,400             7,061,043
   Intangibles, net. ....................................................         2,544,793             2,629,682
   Other real estate ....................................................         7,793,862             4,287,273
   Other assets .........................................................         7,956,812             6,751,759
      Total Assets.......................................................  $    579,835,091      $    729,500,225
                                                                                ===========           ===========
Liabilities and Shareholders' Equity
   Deposits:
      Noninterest-bearing................................................  $     56,751,713      $     67,695,615
      Interest-bearing...................................................       412,811,259           550,010,415
                                                                                -----------           ===========
         Total Deposits .................................................       469,562,972           617,706,030
   Other short-term borrowings ..........................................         1,481,886             4,359,927
   Accrued interest. ....................................................         3,449,019             4,400,000
   FHLB borrowing .......................................................        38,000,000            38,000,000
   Capitalized lease obligations ........................................         4,076,363             5,766,076
   Long-term debt .......................................................         3,852,550             4,666,599
   Guaranteed preferred beneficial interest in the
      Company's junior subordinated deferrable interest debentures ......        10,000,000            10,000,000
   Other liabilities ....................................................         5,772,067             4,297,542
                                                                                -----------           -----------
      Total Liabilities .................................................       536,194,857           689,196,174
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
      September 30, 2002 and December 31 2001, respectively..............           482,801               480,833
   Capital surplus ......................................................        30,825,834            30,753,008
   Retained earnings ....................................................        13,585,083            12,028,982
   Treasury Stock, 20,803 shares ........................................          (396,768)             (396,768)
   Unearned ESOP shares - 155,296 and 174,267 shares
      as of September 30, 2002 and December 31, 2001, respectively ......        (2,063,098)           (2,317,902)
   Accumulated other comprehensive income (loss).........................         1,206,382              (244,102)
                                                                                -----------           -----------
      Total Shareholders' Equity ........................................        43,640,234            40,304,051
                                                                                -----------           -----------
Total Liabilities and Shareholders' Equity...............................  $    579,835,091      $    729,500,225
                                                                                ===========           ===========

</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 September 30,
                                                                          ----------------------------------------
                                                                                    2002                2001
Interest Income                                                                 ------------       -------------
<S>                                                                         <C>                  <C>
   Interest and fees on loans............................................   $      8,248,749     $    12,440,605
   Interest on investment securities:
      Taxable securities.................................................          1,599,851           1,690,510
      Securities exempt from federal income taxes .......................             94,881             165,728
   Interest on federal funds sold .......................................             76,313             183,228
   Interest on deposits in other banks ..................................              9,087               7,670
                                                                                ------------       -------------
      Total Interest Income .............................................         10,028,881          14,487,741
                                                                                ------------       -------------
Interest Expense
   Interest on deposits .................................................          3,290,504           6,741,849
   Interest on other short-term borrowings ..............................              2,601              30,397
   Interest on capitalized lease obligations. ...........................             48,940              93,766
   FHLB borrowings ......................................................            575,868             659,790
   Interest on long-term debt. ..........................................             48,073              81,186
   Interest on guaranteed preferred
      beneficial interest in the
      Company's junior subordinated
      deferrable interest debentures ....................................            313,331             280,303
                                                                                ------------       -------------
         Total Interest Expense .........................................          4,279,317           7,887,291
                                                                                ------------       -------------
Net Interest Income. ....................................................          5,749,564           6,600,450
   Provision for loan losses ............................................          2,389,403           2,448,577
                                                                                ------------       -------------
Net Interest Income After Provision For Loan Losses......................          3,360,161           4,151,873
Noninterest Income
   Service charges on deposits ..........................................            777,935             996,401
   Insurance commissions. ...............................................            500,392             483,932
   Bank club dues .......................................................            112,239             164,153
   Debt cancellation fees ...............................................             65,585             129,803
   Gain on sale of branches..............................................                  -                   -
   Other operating income ...............................................            245,228             230,683
   Investment securities gains ..........................................            305,180             155,113
                                                                                ------------       -------------
      Total Noninterest Income...........................................          2,006,559           2,160,085
                                                                                ------------       -------------
Noninterest Expenses
   Salaries and employee benefits .......................................          3,579,141           3,897,369
   Occupancy expense ....................................................            579,363             748,007
   Furniture and equipment expense. .....................................            417,435             476,655
   Director and committee fees ..........................................            113,750             116,818
   Net loss on sale or writedown of other real estate owned..............          1,359,597                   -
   Net (gain) loss on disposal of assets.................................             18,760                   -
   Other operating expenses .............................................          3,626,615           2,082,597
                                                                                ------------       -------------
      Total Noninterest Expenses ........................................          9,694,661           7,321,446
                                                                                ------------       -------------

Income (loss) from continuing operations before income taxes ............         (4,327,941)         (1,009,488)
Income tax expense (benefit).............................................         (1,824,406)             23,802
                                                                                ------------       -------------
      Income (Loss) from continuing operations...........................         (2,503,535)         (1,033,290)
                                                                                ------------       -------------
</TABLE>

                 See notes to consolidated financial statements

                                       4
<PAGE>


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

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

Discontinued Operations (Note - 2)
   Income from operations of divested branches ..........................                  -                   -
   Income tax expense....................................................                  -                   -
                                                                                -------------      --------------
Gain from discontinued operations........................................                  -                   -
                                                                                -------------      --------------
<S>                                                                         <C>                  <C>
         Net Income (Loss)...............................................   $     (2,503,535)    $    (1,033,290)
                                                                                =============      ==============

Earnings (loss) from continuing operations per common share - basic......   $         (0.54)     $         (0.22)
Earnings (loss) from continuing operations per common share - diluted....   $         (0.54)     $         (0.22)

Earnings (loss) from discontinued operations per common share - basic....   $              -     $            -
Earnings (loss) from discontinued operations per common share - diluted..   $              -     $            -

Earnings (loss) per common share - basic.................................   $         (0.54)     $         (0.22)
Earnings (loss) per common share - diluted...............................   $         (0.54)     $         (0.22)

Dividends per share......................................................   $              -     $             -
</TABLE>

                 See notes to consolidated financial statements

                                       5

<PAGE>


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

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


<S>                                                                         <C>                  <C>
Net Income (loss).........................................................  $     (2,503,535)    $    (1,033,290)

Components of other comprehensive income:
   Unrealized holding gains arising during the period
      before income tax and reclassification adjustments .................         2,515,058           1,664,411
   Reclassification adjustments for net (gains) included in net income ...          (305,180)           (155,113)
                                                                                -------------      --------------
   Other comprehensive gains (losses), before income taxes ...............         2,209,878           1,509,298
   Income tax (expense) benefit related to other comprehensive income.....           319,861             603,719
                                                                                -------------      --------------
   Total other comprehensive income (loss), net of income tax.............         1,890,017             905,579
                                                                                -------------      --------------

Comprehensive income (loss)..............................................   $       (613,518)    $      (127,711)
                                                                                =============      ==============
</TABLE>

                 See notes to consolidated financial statements

                                       6

<PAGE>

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

                                                                            For the Nine Months Ended September 30,
                                                                            ---------------------------------------
                                                                                    2002                2001
Interest Income                                                                 ------------       -------------
<S>                                                                         <C>                  <C>
   Interest and fees on loans............................................   $     25,540,746     $    30,435,613
   Interest on investment securities:
      Taxable securities.................................................          4,745,144           4,550,408
      Securities exempt from federal income taxes .......................            364,377             526,906
   Interest on federal funds sold .......................................            302,503             453,562
   Interest on deposits in other banks ..................................             23,511              36,374
                                                                                ------------       -------------
      Total Interest Income .............................................         30,976,281          36,002,863
                                                                                ------------       -------------
Interest Expense
   Interest on deposits .................................................         10,232,158          16,112,454
   Interest on other short-term borrowings ..............................             34,814              30,252
   Interest on capitalized lease obligations. ...........................            179,125             325,846
   FHLB borrowings ......................................................          1,708,827           1,826,871
   Interest on long-term debt. ..........................................            153,108             273,619
   Interest on guaranteed preferred
      beneficial interest in the
      Company's junior subordinated
      deferrable interest debentures ....................................            873,937             840,909
                                                                                ------------       -------------
         Total Interest Expense. ........................................         13,181,969          19,409,951
                                                                                ------------       -------------
Net Interest Income. ....................................................         17,794,312          16,592,912
   Provision for loan losses ............................................          6,443,255           4,548,481
                                                                                ------------       -------------
Net Interest Income After Provision For Loan Losses......................         11,351,057          12,044,431
Noninterest Income
   Service charges on deposits ..........................................          2,314,086           2,374,680
   Insurance commissions. ...............................................          1,593,052           1,436,982
   Bank club dues .......................................................            329,009             351,885
   Debt cancellation fees ...............................................            204,439             312,709
   Other operating income ...............................................            872,623             884,706
   Investment securities gains ..........................................            429,121             533,134
                                                                                ------------       -------------
      Total Noninterest Income...........................................          5,742,330           5,894,096
                                                                                ------------       -------------
Noninterest Expenses
   Salaries and employee benefits .......................................         10,789,335          10,284,199
   Occupancy expense ....................................................          1,731,289           1,676,266
   Furniture and equipment expense. .....................................          1,243,194           1,232,433
   Director and committee fees ..........................................            315,750             335,799
   Net loss on sale or writedown of other real estate owned..............          1,563,201                   -
   Net loss on disposal of assets........................................            334,185                   -
   Other operating expenses .............................................          7,520,668           5,540,358
                                                                                ------------       -------------
      Total Noninterest Expenses ........................................         23,497,622          19,069,055
                                                                                ------------       -------------

Income (loss) from continuing operations before income taxes ............         (6,404,235)         (1,130,528)
Income tax expense (benefit).............................................         (2,033,004)           (119,393)
                                                                                ------------       -------------
      Income (Loss) from continuing operations...........................         (4,371,231)         (1,011,135)
                                                                                ------------       -------------
</TABLE>

                 See notes to consolidated financial statements

                                       7

<PAGE>

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

                                                                            For the Nine Months Ended September 30,
                                                                            ---------------------------------------
                                                                                   2002                 2001
                                                                                ------------       -------------

Discontinued Operations (Note - 2)
   Income from operations of divested branches
<S>                                 <C>                                            <C>                   <C>
      (includes gain on disposal of $8,071,985)..........................          8,504,062             898,955
   Income tax expense....................................................          2,576,731             272,383
                                                                                ------------       -------------
Gain from discontinued operations........................................          5,927,331             626,572
                                                                                ------------       -------------
         Net Income (Loss)...............................................   $      1,556,100     $      (384,563)
                                                                                ============       =============

Earnings (loss) from continuing operations per common share - basic......   $         (0.94)     $         (0.22)
Earnings (loss) from continuing operations per common share - diluted....   $         (0.94)     $         (0.22)

Earnings (loss) from discontinued operations per common share - basic....   $          1.28      $          0.14
Earnings (loss) from discontinued operations per common share - diluted..   $          1.28      $          0.14

Earnings (loss) per common share - basic.................................   $          0.34      $         (0.08)
Earnings (loss) per common share - diluted...............................   $          0.34      $         (0.08)

Dividends per share......................................................   $              -     $             -
</TABLE>

                 See notes to consolidated financial statements

                                       8
<PAGE>

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

                                                                            For the Nine Months Ended September 30,
                                                                            ---------------------------------------
                                                                                    2002                2001
                                                                                ------------       -------------


<S>                                                                         <C>                  <C>
Net Income (loss).........................................................  $      1,556,100     $      (384,563)

Components of other comprehensive income:
   Unrealized holding gains arising during the period
      before income tax and reclassification adjustments .................         4,256,821           2,550,800
   Reclassification adjustments for net (gains) included in net income ...          (429,121)           (533,134)
                                                                                ------------       -------------
   Other comprehensive gains, before income taxes ........................         3,827,700           2,017,666
   Income tax expense related to other comprehensive income...............           966,990             807,066
                                                                                ------------       -------------
   Total  other comprehensive income, net of income tax...................         2,860,710           1,210,600
                                                                                ------------       -------------

Comprehensive income.....................................................   $      4,416,810     $       826,037
                                                                                ============       =============
</TABLE>

                 See notes to consolidated financial statements

                                       9

<PAGE>

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

                                                                                Nine Months Ended September 30,
                                                                                --------------------------------
                                                                                    2002                2001
                                                                                -------------       -------------
Operating Activities:
<S>                                                                           <C>                <C>
   Net income (loss)....................................................      $     1,556,100    $       (384,563)
   Adjustments to reconcile net income to net cash
      provided by operating activities:
   Provision for loan losses ...........................................            6,518,381           4,780,856
   Provision for depreciation and amortization .........................            1,545,833           1,939,704
   Amortization of investment security premiums
      and accretion of discounts. ......................................              213,157              76,189
   Deferred tax expense (benefit) ......................................             (189,543)            949,850
   Realized investment security gains. .................................             (429,121)           (533,134)
   Gain on sale of branches.............................................           (8,071,985)                  -
   Loss on sale of premises and equipment ..............................              334,185              47,527
   Net loss on sale of other real estate owned .........................            1,563,201                   -
   Decrease in accrued interest receivable. ............................            1,880,377           1,002,716
   Decrease in accrued interest payable ................................             (294,940)           (626,493)
   Other ...............................................................             (354,643)            733,967
                                                                                -------------       -------------
      Net cash provided by operating activities ........................            4,271,002           7,986,619
                                                                                -------------       -------------
Investing Activities:
   Proceeds from sales of securities available for sale ................           65,081,103          49,474,247
   Proceeds from maturity of securities available for sale .............           15,000,000           2,500,000
   Purchase of securities available for sale  ..........................          (78,485,625)        (75,612,731)
   Decrease in interest-bearing deposit with other banks................                    -             500,000
   Net decrease in loans to customers ..................................           26,111,889          10,022,466
   Proceeds from sale of assets. .......................................               60,350             108,074
   Capital expenditures ................................................             (463,139)         (2,201,300)
   Net proceeds from sale of other real estate .........................              625,870             250,213
   Cash disbursed in settlement of branch sale..........................          (32,054,765)                  -
                                                                                -------------       -------------
      Net cash used in investing activities ............................           (4,124,317)        (14,959,031)
                                                                                -------------       -------------
Financing Activities:
   Net increase in demand deposits, NOW accounts,
      savings and time open deposit accounts............................             (906,019)         13,943,584
   Net (decrease) increase in certificates of deposit ..................           (8,156,804)          4,206,715
   Net (decrease) increase in short-term borrowings ....................           (2,878,041)          2,012,116
   Net increase in FHLB borrowings......................................                    -           8,000,000
   Net decrease in capitalized lease obligations .......................              (75,395)            (57,675)
   Repayment of long-term debt, net ....................................             (681,253)           (741,988)
   Issuance of common stock. ...........................................                    -             209,865
                                                                                -------------       -------------
      Net cash (used) provided by financing activities .................          (12,697,512)         27,572,617
                                                                                -------------       -------------
Net (decrease) increase in cash and cash equivalents ...................          (12,550,827)         20,600,205
Cash and cash equivalents at beginning of year .........................           53,037,008          29,006,611
                                                                                -------------       -------------
Cash and cash equivalents at end of period..............................      $    40,486,181    $     49,606,816
                                                                                =============       =============
</TABLE>

                 See notes to consolidated financial statements

                                       10
<PAGE>

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


                                                                                 Nine Months Ended September 30,
                                                                                 -------------------------------
                                                                                     2002               2001
                                                                                -------------       -------------

Supplemental disclosures of cash flow information:

Cash paid (received) during the period for:
<S>                                                                           <C>                <C>
   Interest expense.....................................................      $    15,907,788    $     25,593,222
   Income taxes.........................................................            1,650,484          (1,082,900)

Supplemental schedule of non-cash investing and financing activities:

   Real estate acquired through foreclosure.............................      $     4,001,499    $      2,975,580
   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

                                       11

<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 nine month period ending September 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 and adjusted for prior period adjustments (See Note 10 -
Prior  Period  Adjustment),  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 and Note 10 - Prior
Period Adjustment included in this report.

     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 - DISCONTINUED OPERATIONS

     During 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

                                       12

<PAGE>

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 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 and September 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 - OTHER REAL ESTATE OWNED

     As  discussed  in Note 2, the  Company  consummated  the sale of six branch
locations  in Marshall  County,  Alabama on May 31, 2002.  The Company  retained
ownership of a partially  developed  parcel of land in Marshall  County that was
originally  intended for branch expansion.  The total investment in the property
was $2,702,907, which included $252,631 of capitalized interest.

     Subsequent  to the sale of the Marshall  County  branches,  the Company had
continued to formally  assess  potential uses for the property.  As part of this
assessment,  management  requested  and obtained an appraisal of the property in
late  September  2002.  Upon review of the  appraisal,  the  Company  decided to
abandon any future plans of enhancing  the property and recorded the property at
the appraised value of $1,508,000.  This amount was transferred  into Other Real
Estate  Owned as of  September  30,  2002,  resulting  in an  after  tax loss of
$756,734 related to this transaction.

                                       13

<PAGE>

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  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 employees 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

                                       14

<PAGE>

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, 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.  Thereafter,
discovery commenced.

     In  November,   2002,  the  parties  entered  into  meaningful   settlement
negotiations and on November 15, 2002, reached a provisional agreement to settle
all  claims in this  lawsuit.  The terms of the  settlement  are  subject to the
negotiation and execution of a definitive  agreement and approvals of the court.
Depending  on its final  terms,  any  agreement  may be  subject  to  regulatory
approval.  Although the Company anticipates that a settlement may be consummated
in the  fourth  quarter  of 2002,  it cannot  predict  with  certainty  that the
consummation will occur and, if it does, what its effect may be on the Company's
financial condition and results of operations.

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,

                                       15

<PAGE>

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 August 9, 2002, the court found that the joint investigative committee's
recommendation  that  the  claims  be  dismissed  was the  result  of  informed,
reasonable  business  judgment.   Accordingly,  the  court  dismissed  the  Town
Derivative   Litigation  with  prejudice,   with  counsel  for  the  shareholder
plaintiffs concurring in the findings.

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

                                       16

<PAGE>

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,
Alabama, along with all costs associated with the lawsuit.

     On November 4, 2002,  mediation was conducted in the matter with the result
that the lawsuit was  settled,  conditionally  as to all  defendants  other than
Gerald  Scot  Parrish.  The  condition  was  approved  by the  Bank's  board  of
directors.  The  settlement  was  approved by the Bank's  board of  directors on
November 12,  2002,  and, as a result of the  settlement,  the Bank will be paid
$500,000 on or before  December  15,  2002.  Other terms of the  settlement  are
confidential.  As a result of the settlement, all claims and all defendants will
be dismissed  with the exception of the claims  against Mr.  Parrish,  which are
scheduled  to go to trial on  January  6,  2003.  The Bank is  receiving  mutual
releases with respect to the settling defendants.  This amount is reflected as a
receivable  and is  included  in other  assets  on the  Company's  Statement  of
Financial  Condition as of  September  30, 2002 and as a reduction of legal fees
included in other operating expenses on the Company's  Consolidated Statement of
Income for the three and nine month periods ended September 30, 2002. The effect
on net income is $307,500 after applicable income tax expense.

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.

     The  Bank  considers  its  defenses  to  these  claims  to be  meritorious.
Nevertheless,   the  Bank  and  its  insurers   have  entered  into   settlement
negotiations  with the plaintiffs in order to avoid the uncertainty and costs of
litigation.  As of the date of this  report,  the parties  have  entered  into a
provisional  settlement of the litigation.  The Company anticipates that a final
settlement  will be  reached in the fourth  quarter  of 2002.  As a result,  the
Company  has  estimated  the  settlement  will  result in an  increase  in other
operating expenses of $1,630,000 and will decrease net income by $1,002,450, net
of applicable  income taxes for the three and nine month periods ended September
30, 2002. The Company  cannot  predict with certainty if the settlement  will be
consummated  nor can it assure  that its  current  estimate of the effect of the
cost of settlement on operating expenses will be borne out.

Consumer Automobile Financing

     On October 11, 2002, William Alston,  Murphy Howard, and Jason Tittle filed
an action in the United  States  District  Court for the  Northern  District  of
Alabama  purporting  to be a class  action  against  Community  Bank,  Community
Bancshares,  Inc.,  certain of their officers and others.  The suit alleges that
certain  of the  defendants  engaged  in various  purported  tortious  practices
related to consumer  automobile  financing.  The Company believes

                                       17

<PAGE>

the lawsuit is without  merit and intends to defend it  vigorously.  Because the
case is in its very initial stages,  it is impossible now to predict the outcome
of the suit and its effect on the  Company's  financial  condition and result of
operations.

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.

     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 September 30, 2002.

<TABLE>
<CAPTION>
                  Years ending December 31,
<S>                 <C>                                                     <C>
                    2002...............................................     $       42,000
                    2003...............................................            168,000
                    2004...............................................            168,000
                    2005...............................................            168,000
                    2006...............................................            168,000
                    2007...............................................          2,691,591
                                                                                ----------
                  Total minimum lease payments.........................          3,405,591
                    Less: Amount representing interest.................            328,977
                                                                                ----------
                  Present value of net minimum lease payments..........     $    3,076,614
                                                                                ==========
</TABLE>

                                       18

<PAGE>

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
September 30, 2002, are detailed as follows:

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

<S>                                                               <C>              <C>               <C>
Identifiable amortizing assets.................................   $    2,063,311   $     1,311,325   $      751,986
Nonamortizing goodwill.........................................        2,851,372         1,058,565        1,792,807
                                                                     -----------     -------------    -------------
Total acquired intangible asset................................   $    4,914,683   $     2,369,890   $    2,544,793
                                                                     ===========     =============    =============
</TABLE>

     Aggregate amortization expense for the period ended September 30, 2002, was
$84,879. Aggregate amortization expense of $104,733 and $79,415 is estimated for
the years ending December 31, 2002 and 2003, respectively.

     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                Nine Months Ended
                                                           September 30,                    September 30,
                                                     ---------------------------     ------------------------------
                                                         2002           2001              2002             2001
                                                     ------------  -------------     --------------   -------------

<S>                                               <C>             <C>              <C>               <C>
Reported net income (loss).....................   $  (2,503,535)  $   (1,033,290)  $     1,556,100   $     (384,563)
Add back: Goodwill amortization................               -           27,859                 -           83,578
                                                     ------------  -------------     --------------   -------------

Adjusted net income (loss).....................   $  (2,503,535)  $   (1,005,431)  $     1,556,100   $     (300,985)
                                                     ============  =============     ==============   =============

Basic earnings per share:
   Reported net income (loss)..................   $       (0.54)  $       (0.22)   $          0.34   $       (0.08)
   Add back: Goodwill amortization.............               -            0.01                  -            0.02
                                                     ------------  -------------     --------------   -------------

Adjusted net income (loss).....................   $       (0.54)  $       (0.21)   $          0.34   $       (0.06)
                                                     ============  =============     ==============   =============

Diluted earnings per share:
   Reported net income (loss)..................   $       (0.54)  $       (0.22)   $          0.34   $       (0.08)
   Add back: Goodwill amortization.............               -            0.01                  -            0.02
                                                     ------------  -------------     --------------   -------------

Adjusted net income (loss).....................   $       (0.54)  $       (0.21)   $          0.34   $       (0.06)
                                                     ============  =============     ==============   =============
</TABLE>

                                       19


<PAGE>

NOTE 8 - RECENTLY ISSUED ACCOUNTING STANDARDS

     On June 29, 2001, the Financial  Accounting Standards Board issued SFAS No.
141, "Business  Combinations".  This statement is effective for all combinations
initiated after June 30, 2001. This statement supersedes  Accounting  Principles
Board  Opinion  No.  16,  "Business  Combinations".  SFAS No. 141  requires  the
purchase  method of accounting be used for all business  combinations  initiated
after June 30,  2001,  establishes  specific  criteria  for the  recognition  of
intangible assets separately from goodwill,  and requires  unallocated  negative
goodwill to be written off immediately as an extraordinary gain instead of being
deferred and amortized.

     On June 29, 2001, the Financial  Accounting Standards Board issued SFAS No.
142, "Intangible Assets". This statement is effective for fiscal years beginning
after  December 15, 2001.  SFAS No. 142 requires  that  goodwill and  indefinite
lived intangible assets no longer be amortized, that goodwill will be tested for
impairment  at  least  annually,  that  intangible  assets  deemed  to  have  an
indefinite  life will be tested for impairment at least  annually,  and that the
amortization  period of  intangible  assets with finite  lives will no longer be
limited to forty years. The Company adopted SFAS 142 on January 1, 2002.

     In June 2001, the Financial Accounting Standards Board issued SFAS No. 143,
"Accounting for Asset Retirement  Obligations".  This statement is effective for
fiscal years beginning after June 15, 2002, with early adoption permitted.  SFAS
No. 143 addresses the recognition and measurement of obligations associated with
the  retirement  of  tangible  long-lived  assets  resulting  from  acquisition,
construction,  development,  or the normal operation of a long-lived asset. SFAS
No.  143  requires  that the fair  value of an asset  retirement  obligation  be
recognized  as a  liability  in the  period in which it is  incurred.  The asset
retirement obligation is to be capitalized as part of the carrying amount of the
long-lived asset and the expense is to be recognized over the useful life of the
long-lived  asset.  Management is currently  evaluating the impact that SFAS No.
143 will have on the Company's financials, but does not expect the adoption will
have a material effect.

     In August 2001, the Financial  Accounting  Standards  Board issued SFAS No.
144,  "Accounting  for the  Impairment  or Disposal of Long-Lived  Assets".  The
effective date for this  statement was January 1, 2002 and  superseded  SFAS No.
121.  SFAS No. 144 carries  forward from SFAS No. 121 the  fundamental  guidance
related to the  recognition  and  measurement  of an impairment  loss related to
assets to be held and used and  provides  guidance  related to the  disposal  of
long-lived  assets to be abandoned or disposal by sale. The Company adopted SFAS
No. 144 on January 1, 2002.  The  implementation  of SFAS No. 144 did not have a
material effect on the Company's financials.

     In April 2002,  the Financial  Accounting  Standards  Board issued SFAS No.
145,  "Rescission  of FASB  Statements  No.  4, 44,  and 64,  Amendment  of FASB
Statement No. 13, and Technical Corrections". Management is currently evaluating
the impact  that SFAS No. 145 will have on the  Company's  financials,  but as a
result of very limited  applicability,  does not expect the adoption will have a
material effect.

     In June 2002, the Financial Accounting Standards Board issued SFAS No. 146,
"Accounting  for  Costs  Associated  with  Exit  or  Disposal  Activities".  The
statement addresses financial reporting and accounting for costs associated with
exit or disposal  activities and nullifies  Emerging Issues Task Force Issue No.
94-3, "Liability Recognition for Certain Employee Termination Benefits and Other
Costs  to  Exit  an   Activity   (including   Certain   Costs   Incurred   in  a
Restructuring)."  The  primary  difference  between  SFAS No. 146 and Issue 94-3
relates to the requirement for recognition of a liability related to the cost of
an exit or disposal  activity when the liability is incurred.  Under 94-3,  such
liability  would be recognized at the date of an entity's  commitment to an exit
plan. SFAS No. 146 is effective for exit or disposal activities  initiated after
December  31,  2002,  with early  application  encouraged.  Management  does not
believe  the  adoption  of SFAS  No.  146 will  have a  material  impact  on the
Company's financials.

                                       20

<PAGE>

     In October 2002, the Financial  Accounting  Standards Board issued SFAS No.
147, "Acquisitions of Certain Financial Institutions",  an amendment of SFAS No.
72 and 144 and FASB Interpretation No. 9. Except for transactions between two or
more  mutual  enterprises,  SFAS  No.  147  removes  acquisitions  of  financial
institutions  from the scope of SFAS No. 72 and  Interpretation  9 and  requires
those  transactions  be accounted for in  accordance  with SFAS No. 141 and 142.
SFAS No.  147 also  amends  SFAS  No.  144 to  include  in its  scope  long-term
customer-relationship  intangible  assets  of  financial  institutions  such  as
depositor  and borrower  relationship  intangible  assets and credit  cardholder
intangible assets. Consequently, those intangible assets are subject to the same
undiscounted cash flow  recoverability  test and impairment loss recognition and
measurement  provisions that SFAS No. 144 requires for other  long-lived  assets
that are held and used.  SFAS No. 147 is essentially  effective as of October 1,
2002. As a result,  the Company  adopted SFAS No. 147 on October 1, 2002 with no
material impact on the Company's financials.


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 procedures will be required of our Company.  We
do not  expect any  material  adverse  effect on our  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  requirements  of
publicly-traded companies which have yet to be issued.


NOTE 10 - PRIOR PERIOD ADJUSTMENT

     During the quarter ended September 30, 2002, it was determined that certain
items related to the fourth  quarter of the year ended December 31, 2001 had not
been  properly  recorded  in  that  period.  The  items  related  to  unrecorded
liabilities,   valuation  of   repossessed   assets  and  accounts   receivable.
Accordingly, the December 31, 2001 Consolidated Statement of Financial Condition
has been adjusted and restated as follows:



<TABLE>
<S>                                  <C> <C>                                            <C>
         Retained Earnings, December 31, 2001, as previously reported...............    $    12,390,300
         Adjustments:
              Unrecorded liabilities................................................           (227,985)
              Valuation of repossessed assets.......................................            (85,986)
              Accounts Receivable...................................................            (47,347)
                                                                                            -----------
         Retained Earnings, December 31, 2001, as restated..........................    $    12,028,982
                                                                                            ===========
</TABLE>


NOTE 11 - SUBSEQUENT EVENTS

     On November 15, 2002, the Company filed Form 12B-25  (Notification  of Late
Filing) with the Securities and Exchange  Commission due to the fact that during
the third quarter, the Company changed external auditors and the new independent
auditors needed  additional time to review the 10Q. In that filing,  the Company
reported for the three month and nine month period  ended  September  30, 2002 a
net loss of $1,809,000  and net income of  $2,251,000,  respectively.  That same
day,  after  filing  the  12B-25,   management  became  aware  that  provisional
settlements  had been  reached  in  certain  lawsuits  in which the  Company  is
involved (See Note 5 - Contingencies). Management determined that the outcome of
certain of these  lawsuits are now estimable and probable and,  therefore,  have
now been  reflected in the  Company's  financial  statements as of September 30,
2002.

                                       21

<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.

Critical Accounting Policies

     Accounting  policies  involving  significant  estimates and  assumptions by
management,  which have, or could have, a material  impact on the carrying value
of certain  assets and impact  comprehensive  income,  are  considered  critical
accounting  policies.  Community  Bancshares,  Inc.  recognizes the following as
critical  accounting  policies:  Accounting  for  Allowance  for Loan Losses and
Accounting for Income Taxes.

     Accounting for Allowance for Loan Losses.  Management's  ongoing evaluation
of the adequacy and  allocation  of the  allowance  considers  both impaired and
unimpaired  loans  and  takes  into  consideration  the  Bank's  past  loan loss
experience,  known and inherent risks in the portfolio,  adverse situations that
may affect the borrowers'  ability to repay,  estimated  value of any underlying
collateral,  the reviews of  regulators,  and an  analysis  of current  economic
conditions. While management believes that it has exercised prudent judgment and
applied reasonable  assumptions which have resulted in an allowance presented in
accordance  with  generally  accepted  accounting  principles,  there  can be no
assurance  that  in  the  future,   adverse   economic   conditions,   increased
nonperforming  loans,  regulatory  concerns,  or other  factors will not require
further  increases in, or  re-allocation  of the allowance.  See "Provisions for
Loan Losses and Allowance for Loan Losses."

     Accounting for Income Taxes. Community Bancshares,  Inc. uses the asset and
liability  method of accounting for income taxes.  Determination of the deferred
and current provision requires analysis by management of certain transaction and
the related tax laws and regulations.  Management exercises significant judgment
in  evaluating  the  amount  and  timing of  recognition  of the  resulting  tax
liabilities  and assets.  Those  judgments and estimates are  re-evaluated  on a
continual basis as regulatory and business factors change.


FINANCIAL CONDITION

September 30, 2002 compared to December 31, 2001

Summary

     Total  assets  at  September   30,  2002  were   $579,835,000,   down  from
$729,500,000  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  increased
$1,038,000,  or 0.9%, to $122,717,000 at September 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  September 30, 2002
and December  31, 2001.  The Company had  $18,210,000  in federal  funds sold at
September 30, 2002, compared to $30,000,000 at December 31, 2001, representing a
decrease  of  $11,790,000,  or 39.3%.  The  decrease  in federal  funds

                                       22

<PAGE>

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.

     Loans comprise the largest single category of the Company's earning assets.
Loans,  net of unearned  income,  were  $372,571,000  at September 30, 2002 down
$128,949,000, or 25.7%, 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.

Non-performing Assets and Past Due Loans

     Total  delinquent and  non-performing  loans reflect some  improvement over
second quarter  numbers.  Weak economic  growth and the lack of new job creation
continue to hamper several of the Bank's lending  areas.  However,  the recently
implemented procedures for timely identification of potential repayment problems
coupled with aggressive  collection  efforts have resulted in slowing the growth
in the  30-89 day  delinquency  totals as well as  providing  for a  substantial
reduction in loans that are over 90 days past due. Still,  nonperforming  assets
currently exceed the level of the reserve for loan losses, but while the overall
level of  delinquent  and  non-performing  loans remains  excessive,  management
remains committed to effecting improvement in these areas.

     Between  December  31,  2001  and  September  30,  2002,  the  ratio of the
allowance for loan losses to total nonperforming  assets declined from 58.37% at
year-end 2001 to 47.50% at September 30, 2002. The ratio of total  nonperforming
assets to total assets  increased  to 3.14% at September  30, 2002 from 1.71% at
year-end 2001,  while the ratio of  nonperforming  loans to total loans,  net of
unearned income, increased to 2.79% at September 30, 2002 from 1.64% at December
31, 2001.  These changes were primarily due to an increase in nonaccruing  loans
of $2,334,000,  or 39.8%, to $8,193,000 at September 30, 2002 from $5,859,000 at
December 31, 2001 and an increase in other real estate of $3,507,000,  or 81.8%,
to $7,794,000 at September 30, 2002 from  $4,287,000 at December 31, 2001.  This
increase is partly attributable to the Guntersville property located in Marshall
County, Alabama as discussed in Note 4 - Other Real Estate Owned in the Notes to
Consolidated  Financial Statements.  The Company experienced a decrease in loans
past due 90 days or more of $1,301,000, or 55.5%, to $1,045,000 at September 30,
2002 from $2,346,000 at December 31, 2001. Total nonperforming  assets increased
$5,695,000,  or 45.6%, to $18,187,000 at September 30, 2002 from  $12,492,000 at
December 31, 2001.  The overall level of delinquent  and  non-performing  assets
remains  excessive.  The trend for loans past due 90 days or more  appears to be
for these  loans to then be placed on  non-accrual  status as  evidenced  by the
large increase in non-accrual  loans. The Company will continue this recognition
process and identify non-performing assets through its loan review process. This
process  has  been  fully  implemented  for  less  than one year and as the loan
reviews  have been  completed  the Company  has seen  substantial  increases  in
non-performing assets. The Company has also, however, experienced an improvement
in loans 90 days or more past due since  December 31,  2001.  We believe this is
attributable  to  recognizing  problem  credits  more  timely  as  well  as more
aggressive  collection  efforts.  The Company does expect a further  increase in
non-performing assets during the fourth quarter of 2002.

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  $469,563,000  at September 30, 2002  reflected a decrease of
$148,143,000,  or 24.0%,  from  $617,706,000  at  year-end  2001.  Deposits  are
Community Bank's primary source of funds. Noninterest-bearing deposits decreased
$10,944,000,  or 16.2%, to $56,752,000 at September 30, 2002 from $67,696,000 at
December 31, 2001, while interest-bearing  deposits decreased  $137,199,000,  or
24.9%, to  $412,811,000 at September 30, 2002 from  $550,010,000 at December 31,
2001.  Certificates  of deposit of $100,000 or more  decreased  $29,849,000,  or
25.0%,  to $89,687,000 at September 30, 2002 from  $119,536,000  at December 31,
2001.  The branch  divestitures  accounted for  $139,080,000  of the decrease in
total deposits.

                                       23

<PAGE>

     Total short-term borrowings decreased  $2,878,000,  or 66.0%, to $1,482,000
at September 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 September
30, 2002 and December 31, 2001,  while  long-term  debt decreased  $814,000,  or
17.4%, to $3,853,000 at September 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 and September 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
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
$12,551,000  decrease in cash and cash equivalents  during the first nine months
of 2002.  Cash  provided  by  operating  activities  was  $4,271,000.  Investing
activities  used only  $4,124,000  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
$12,698,000 of cash and cash  equivalents  during the first nine months of 2002.
Certificates of deposits decreased  $8,157,000,  excluding any decreases for the
divested branches and demand deposits,  NOW deposits, and other savings deposits
decreased $906,000 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

                                       24

<PAGE>

nine months of 2002 were  $225,000.  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 September 30, 2002 was 7.52% of total assets
as compared to 5.52% at December 31, 2001. The increase  experienced  during the
first nine months of 2002 is primarily a result of increased  retained  earnings
from net income of  $1,556,000  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 $50,641,000 at September 30, 2002, compared to
$49,118,000  at  December  31,  2001.   Tier  II  capital   components   include
supplemental  capital components,  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 $56,830,000 at
September 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 13.69% and 15.36%, respectively, at September 30, 2002, compared to
10.02% and 11.59%,  respectively,  at year-end 2001. At September 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 8.79% and 6.70% at September 30, 2002 and
December 31, 2001, respectively, exceeding the regulatory minimum requirement of
4%.


RESULTS OF OPERATIONS

Three months and nine months ended September 30, 2002 and 2001
--------------------------------------------------------------

Summary

     The  Company's  net loss for the three months ended  September 30, 2002 was
$2,504,000, an increase of $1,471,000 from a net loss of $1,033,000 for the same
period  in 2001.  Both  basic and  diluted  net loss per share was $0.54 for the
three months ended  September  30, 2002,  as compared to a net loss per share of
$0.22 for the same period in 2001.  This  increased  loss in 2002 is a result of
lower net interest income and increased  noninterest  expense net of related tax
benefit.

     The Company's net loss from continuing operations for the nine months ended
September  30, 2002 was  $4,371,000  as  compared to a net loss from  continuing
operations of $1,011,000  for the same period in 2001.  This is in most part due
to increased  noninterest  expense  related to the net loss on other real estate
owned and disposal of assets as well as increased other noninterest expenses due
to legal expenses and settlement of lawsuits.

     Discontinued  operations  provided  net income of  $5,927,000  for the nine
months ended  September  30, 2002 as compared to $627,000 for the same period in
2001.  Of the net  income  from  discontinued  operations  in  2002,  $8,072,000
represents the gain on the sale transactions themselves before any reduction for
income taxes.

                                       25

<PAGE>

Net Interest Income

     The  following  discussion  is on a fully  taxable  equivalent  basis.  All
average balances and yield  calculations  exclude average balances and yields of
discontinued  operations.  Net interest income,  the difference between interest
earned on assets and the cost of interest-bearing  liabilities,  was $18,087,000
for the nine months ended  September  30,  2002.  Net  interest  income,  before
provision for loan losses, increased $1,061,000,  or 6.23%, from $17,026,000 for
the same period of 2001.  Revenues from interest  earning  assets of the Company
decreased  $5,167,000,  or  14.2%,  to  $31,269,000  for the nine  months  ended
September 30, 2002 from  $36,436,000  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 nine months of 2002 were $529,639,000,  which represents a decrease of
$1,689,000,  or 0.3%, from  $531,328,000  for the first nine months of 2001. The
Company's fully taxable equivalent yield on its average earning assets decreased
128 basis  points to 7.89% for the first nine months of 2002,  compared to 9.17%
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
nine  months  ended  September  30,  2002  decreased  $6,228,000,  or 32.1%,  to
$13,182,000 from $19,410,000 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  nine  months  of  2002  were
$471,358,000,   which  represents  a  decrease  of  $3,184,000,  or  6.7%,  from
$474,542,000   for  the  same   period  of  2001.   The  rate  paid  on  average
interest-bearing  liabilities  decreased  173 basis points to 3.74% for the nine
month period  ended  September  30,  2002,  compared to 5.47% for the first nine
months of 2001.  This decrease is also  attributable  to the overall  decline in
interest rates during the year 2001.

     The Company's net interest margin, on a fully taxable equivalent basis, for
the nine months  ended  September  30, 2002  increased 29 basis points to 4.57%,
from 4.28% for the nine months ended  September 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 nine months  ended  September  30, 2002  increased 45 basis points to 4.15%,
from 3.70% for the nine months ended  September 30, 2001, as the average cost of
interest-bearing  sources of funds  decreased  173 basis  points while the fully
taxable  equivalent average yield on interest earning assets decreased 128 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 September 30, 2002, the allowance for loan losses was $8,638,000,  which
represented  an increase of  $1,346,000,  or 18.5%,  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 to recognize
problem  credits  in the  loan  portfolio  The  provision  for loan  losses  was
$6,443,000 and $4,548,000 for the nine months ended September 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 2.32 % at September  30,  2002,  compared to 1.45% at
December 31, 2001. Loan charge-offs exceeded recoveries by $4,420,000 during the
first nine months of 2002, which  represented a decrease of $930,000,  or 17.4%,
from  $5,350,000 for the same period during 2001.  Provision for loan losses for
the three month period ended  September  30, 2002 were  $2,389,000 a decrease of
$60,000,  or 2.4%,  over the same  period for 2001.  Loan  charge-offs  exceeded
recoveries by $1,991,000 for the three month period ended September 30, 2002.

                                       26

<PAGE>

     Management  believes  that the  allowance  for loan losses at September 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.  The amount  reserved for loan losses is  considered  adequate
based on managements the Company's present  methodology and the assumptions used
in the methodology.  The Company has determined the need to evaluate its current
methodology and to continually revise and document the procedures to address the
dynamic   economic   situations  that  face  the  Company's  loan  portfolio  to
incorporate such issues as higher levels of past due and  nonperforming  assets,
higher than average regional unemployment issues,  declining real estate values,
etc.  The  Company  has also  identified  a possible  need to more  specifically
address loans that are not adversely classified.

Noninterest Income

     Noninterest  income from  continuing  operations  for the nine months ended
September 30, 2002  decreased  $152,000 to $5,742,000,  from  $5,894,000 for the
same period of 2001. Service charges on deposit accounts  decreased $61,000,  or
2.6%,  to  $2,314,000  for the first nine months of 2002 from  $2,375,000 in the
first nine months of 2001.  Debt  cancellation  fees decreased  during the first
nine months of 2002, as compared to the first nine months of 2001, $109,000,  or
34.8%, due to decreased volume in debt cancellation coverage associated with the
decline in the Company's loan portfolio.  The Company  recorded net gains on the
sale of investment securities of $429,000 during the nine months ended September
30, 2002, compared to net gains on the sale of investment securities of $533,000
for the same period of 2001.

     For the three month period ended September 30, 2002, noninterest income was
$2,007,000  as compared to $2,160,000  for the same period in 2001.  The Company
has experienced  increases of $16,000 for the three month period ended September
30, 2002 as compared to the three month period ended  September  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.

Noninterest Expenses

     Noninterest  expenses  for the nine months  ended  September  30, 2002 were
$23,498,000,  representing a $4,429,000, or 23.2%, increase from $19,069,000 for
the same  period of 2001.  This  increase is due to the loss  recognized  on the
writedown of the Company's property located in Guntersville, Alabama (see Note 4
- Other Real Estate Owned in the Notes to  Consolidated  Financial  Statements),
the 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 $334,000 net loss on disposal of assets and an increase
in other operating  expenses in most part due to legal expenses incurred as well
as lawsuit  settlements.  The primary  components  of  noninterest  expenses are
salaries  and  employee  benefits,   which  increased  $505,000,   or  4.9%,  to
$10,789,000  for the nine months ended  September 30, 2002 from  $10,284,000 for
the  same  period  of 2001.  Occupancy  costs  increased  $55,000,  or 3.3%,  to
$1,731,000 for the first nine months of 2002 from $1,676,000 for the same period
of 2001.  Furniture  and  equipment  expenses  for the nine month  period  ended
September 30, 2002 decreased $11,000, or 0.9%, to $1,243,000 from $1,232,000 for
the same period of 2001. Director and committee fees decreased $20,000, or 6.0%,
to $316,000  for the first nine months of 2002 from  $336,000 for the first nine
months of 2001. Other operating  expenses were $7,521,000 and $5,540,000 for the
nine  month  periods  ended  September  30,  2002 and 2001,  respectively.  This
increase of  $1,981,000,  or 35.6%,  was  primarily  due to increased  expenses,
especially legal fees and lawsuit settlements.

     Noninterest  expenses for the three month period ended  September  30, 2002
increased  $2,374,000,  or 32.4%, from $7,321,000 for the same period in 2001 to
$9,695,000.  All  categories  of  expenses  for the  three  month  period  ended
September  30, 2002 are down from the same period in 2001 with the  exception of
the losses on other real  estate  owned and  disposal of assets as well as other
operating  expenses.  For the three month  period  ended  September  30, 2002 as
compared  to the same  period in 2001,  occupancy  costs  decreased  $169,000 or
22.6%,  furniture,  fixtures and  equipment  costs  decreased  $60,000 or 12.6%,
directors  and  committee  fees  remained  relatively  even for both nine  month
periods ended September 30, 2001 and 2002.

                                       27

<PAGE>

Income Taxes

     The  Company  attempts  to  maximize  its net  income  through  active  tax
planning.  Total provision for income taxes  increased  $391,000 to $544,000 for
the nine months ended  September  30, 2002 from  $153,000 for the same period of
2001 due to tax provision  recognized  on the gain on the sale of branches.  The
effective tax rate for the first nine months of 2002 was 25.9%.

                                       28

<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 September 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.
<TABLE>
<CAPTION>

                                                                                 RATE SHOCK ANALYSIS
                                                                          -100                          +100
                                                                          Basis                         Basis
                                                                         Points           Level        Points
                                                                                 (Dollars in thousands)

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

Interest Income...............................................       $    38,461    $    40,098    $    41,617
Interest Expense..............................................            14,680         15,957         17,211
                                                                       ---------      ---------       --------
     Net Interest Income......................................       $    23,781    $    24,141    $    24,406
                                                                       =========      =========       ========

Dollar change from Level......................................       $      (360)                  $       265

Percentage change from Level..................................             -1.49%                         1.10%
</TABLE>

     As shown  above,  in a 100 basis  point  rising rate  environment,  the net
interest  margin is projected to increase 1.10% from the level rate scenario and
in a 100 basis  point  falling  rate  environment,  the net  interest  margin is
projected to decrease 1.49% 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  scenario in a 100 basis point rise
and fall in the prime rate.

                                       29

<PAGE>

Item 4 - Controls and Procedures

     The  Company  maintains  disclosure  controls  and  procedures,  which  are
designed to ensure that  information  required to be disclosed by the Company in
the reports it files or submits  under the  Securities  Exchange Act of 1934, as
amended (the "Exchange  Act"), is recorded,  processed,  summarized and reported
within the time periods  specified in the Securities  and Exchange  Commission's
rules and forms,  and that such  information is accumulated and  communicated to
the  Company's  management,  including  its Chief  Executive  Officer  and Chief
Financial Officer,  as appropriate to allow timely decisions  regarding required
disclosure.


     In November  2002,  an  evaluation  of the  effectiveness  of the Company's
disclosure  controls and procedures was conducted  under the supervision of, and
reviewed by, the Company's Chief Executive Officer and Chief Financial  Officer.
Based on that  evaluation,  the  Company's  Chief  Executive  Officer  and Chief
Financial  Officer have  concluded  that the Company's  disclosure  controls and
procedures  were  adequate  and  designed  to ensure that  material  information
relating to the Company would be made known to the Chief  Executive  Officer and
Chief Financial Officer by others within those entities, particularly during the
periods  when  periodic  reports  under the  Exchange  Act are  being  prepared.
Furthermore,  there have been no significant  changes in the Company's  internal
controls or in other factors  (including any  corrective  actions with regard to
significant  deficiencies  or  material  weaknesses  in the  Company's  internal
controls)  that could  significantly  affect those  controls  subsequent  to the
November 2002  evaluation.  Refer to the  Certifications  by the Company's Chief
Executive  Officer and Chief Financial  Officer  following the signature page of
this report.

                                       30

<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 the 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 Bank has settled the litigation against Carl Gregory Ford L-M, Inc. and
others. Pursuant to the settlement,  the Bank will receive a payment of $500,000
on or  before  December  15,  2002.  See  Note 5 -  Contingencies  - "Auto  Loan
Litigation" in the Notes to Consolidated Financial Statements.

     On August 9, 2002,  the court entered an order  dismissing  the  derivative
action filed by William Towns. See Note 5 - "Towns Derivative Litigation" in the
Notes to the Consolidated Financial Statements.

     The Company and the Bank have entered into  provisional  settlements of the
"Benson  Litigation" and the "Employee  Litigation" See Note 5 - Contingencies -
"Benson  Litigation and "Employee  Litigation" in the Notes to the  Consolidated
Financial Statements.

     On October 11, 2002, William Alston,  Murphy Howard, and Jason Tittle filed
an action  purporting to be a class action  against  Community  Bank,  Community
Bancshares,  Inc.,  certain of their  officers  and others in the United  States
District  Court for the  Northern  District of Alabama.  The suit  alleges  that
certain  of the  defendants  engaged  in various  purported  tortious  practices
related to consumer  automobile  financing.  The Company believes the lawsuit is
without  merit and intends to defend it  vigorously.  Because the case is in its
very initial stages, it is impossible now to predict the outcome of the suit and
its effect on the Company's financial condition and result of operations.


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  did not file any reports on Form 8-K during the quarter  ended
     September 30, 2002.

                                       31
<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  September  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:  November 19, 2002       By:  /s/ Kennon R. Patterson, Sr.
     --------------------         ----------------------------------------------
                                 Kennon R. Patterson, Sr.
                                 Chairman, Chief Executive Officer and President



Date:  November 19, 2002       By:   /s/ Kerri C. Newton
     --------------------        -----------------------------------------------
                                 Kerri C. Newton
                                 Chief Financial Officer

                                       32

<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 November 19, 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

                                       33

<PAGE>

CERTIFICATIONS

I, Kennon R. Patterson, Sr., certify that:

1.   I have reviewed this quarterly report on Form 10-Q of Community Bancshares,
     Inc.;

2.   Based on my knowledge,  this  quarterly  report does not contain any untrue
     statement of a material fact or omit to state a material fact  necessary to
     make the statements  made, in light of the  circumstances  under which such
     statements  were made, not misleading with respect to the period covered by
     this quarterly report;

3.   Based on my  knowledge,  the  financial  statements,  and  other  financial
     information  included  in this  quarterly  report,  fairly  present  in all
     material respects the financial  condition,  results of operations and cash
     flows of the  registrant  as of, and for,  the  periods  presented  in this
     quarterly report;

4.   The  registrant's  other  certifying  officers  and I are  responsible  for
     establishing and maintaining disclosure controls and procedures (as defined
     in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

     a)   designed  such  disclosure  controls  and  procedures  to ensure  that
          material  information  relating  to  the  registrant,   including  its
          consolidated subsidiaries,  is made known to us by others within those
          entities,  particularly  during  the  period in which  this  quarterly
          report is being prepared;

     b)   evaluated the  effectiveness of the registrant's  disclosure  controls
          and procedures as of a date within 90 days prior to the filing date of
          this quarterly report (the "Evaluation Date"); and

     c)   presented  in  this  quarterly   report  our  conclusions   about  the
          effectiveness  of the disclosure  controls and procedures based on our
          evaluation as of the Evaluation Date;

5.   The registrant's other certifying  officers and I have disclosed,  based on
     our most recent  evaluation,  to the  registrant's  auditors  and the audit
     committee of  registrant's  board of directors (or persons  performing  the
     equivalent function):

     a)   all  significant  deficiencies  in the design or operation of internal
          controls  which could  adversely  affect the  registrant's  ability to
          record,  process,   summarize  and  report  financial  data  and  have
          identified for the  registrant's  auditors any material  weaknesses in
          internal controls; and

     b)   any fraud, whether or not material,  that involves management or other
          employees who have a  significant  role in the  registrant's  internal
          controls; and

6.   The  registrant's  other  certifying  officers and I have indicated in this
     quarterly  report  whether  there  were  significant  changes  in  internal
     controls  or in other  factors  that could  significantly  affect  internal
     controls  subsequent to the date of our most recent  evaluation,  including
     any corrective actions with regard to significant deficiencies and material
     weaknesses.

By: /s/    Kennon R. Patterson, Sr.
  -------------------------------------
 [GRAPHIC OMITTED]
  Kennon R. Patterson, Sr.
  Chairman, Chief Executive Officer and
  President


Date:  November 19, 2002
     -------------------

                                       34

<PAGE>

CERTIFICATIONS

I, Kerri C. Newton, certify that:

1.   I have reviewed this quarterly report on Form 10-Q of Community Bancshares,
     Inc.;

2.   Based on my knowledge,  this  quarterly  report does not contain any untrue
     statement of a material fact or omit to state a material fact  necessary to
     make the statements  made, in light of the  circumstances  under which such
     statements  were made, not misleading with respect to the period covered by
     this quarterly report;

3.   Based on my  knowledge,  the  financial  statements,  and  other  financial
     information  included  in this  quarterly  report,  fairly  present  in all
     material respects the financial  condition,  results of operations and cash
     flows of the  registrant  as of, and for,  the  periods  presented  in this
     quarterly report;

4.   The  registrant's  other  certifying  officers  and I are  responsible  for
     establishing and maintaining disclosure controls and procedures (as defined
     in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

     a)   designed  such  disclosure  controls  and  procedures  to ensure  that
          material  information  relating  to  the  registrant,   including  its
          consolidated subsidiaries,  is made known to us by others within those
          entities,  particularly  during  the  period in which  this  quarterly
          report is being prepared;

     b)   evaluated the  effectiveness of the registrant's  disclosure  controls
          and procedures as of a date within 90 days prior to the filing date of
          this quarterly report (the "Evaluation Date"); and

     c)   presented  in  this  quarterly   report  our  conclusions   about  the
          effectiveness  of the disclosure  controls and procedures based on our
          evaluation as of the Evaluation Date;

5.   The registrant's other certifying  officers and I have disclosed,  based on
     our most recent  evaluation,  to the  registrant's  auditors  and the audit
     committee of  registrant's  board of directors (or persons  performing  the
     equivalent function):

     a)   all  significant  deficiencies  in the design or operation of internal
          controls  which could  adversely  affect the  registrant's  ability to
          record,  process,   summarize  and  report  financial  data  and  have
          identified for the  registrant's  auditors any material  weaknesses in
          internal controls; and

     b)   any fraud, whether or not material,  that involves management or other
          employees who have a  significant  role in the  registrant's  internal
          controls; and

6.   The  registrant's  other  certifying  officers and I have indicated in this
     quarterly  report  whether  there  were  significant  changes  in  internal
     controls  or in other  factors  that could  significantly  affect  internal
     controls  subsequent to the date of our most recent  evaluation,  including
     any corrective actions with regard to significant deficiencies and material
     weaknesses.

By:  /s/    Kerri C. Newton
  -------------------------------------
 [GRAPHIC OMITTED]
  Kerri C. Newton
  Chief Financial Officer


Date:  November 19, 2002
     -------------------

                                       35

<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 nine months ended  September
30, 2002 and 2001.

<TABLE>
<CAPTION>

                                                            For the Three Months Ended  For the  Nine Months Ended
                                                          ----------------------------  ----------------------------
                                                                 September 30,                September 30,
                                                          ----------------------------  ----------------------------
                                                              2002            2001         2002            2001
                                                          -------------   ------------  -------------  -------------

<S>                                                       <C>            <C>            <C>           <C>
Reported income (loss) from continuing operations.......  $  (2,503,535) $  (1,033,290) $ (4,371,231) $  (1,011,135)
                                                          =============   ============  =============  =============
Reported income (loss) from discontinued operations.....  $           0  $           0  $  5,927,331  $     626,572
                                                          =============   ============  =============  =============
Earnings (losses) on common shares......................  $  (2,503,535) $  (1,033,290) $  1,556,100  $    (384,563)
                                                          =============   ============  =============  =============


Weighted average common shares outstanding - basic......      4,649,782      4,602,569     4,638,801      4,560,172
                                                          =============   ============  =============  =============

Earnings per common share- basic
   Income (loss) from continuing operations.............  $       (0.54) $       (0.22) $      (0.94) $       (0.22)
                                                          =============   ============  =============  =============
   Income (loss) from discontinued operations...........  $           0  $           0  $       1.28  $        0.14
                                                          =============   ============  =============  =============
   Net income (loss)....................................  $       (0.54) $       (0.22) $       0.34  $       (0.08)
                                                          =============   ============  =============  =============


Weighted average common shares outstanding - diluted....      4,649,782      4,602,569     4,638,801      4,560,172
                                                          =============   ============  =============  =============

Earnings per common share- diluted
   Income (loss) from continuing operations.............  $       (0.54) $       (0.22) $      (0.94) $       (0.22)
                                                          =============   ============  =============  =============
   Income (loss) from discontinued operations...........  $           0  $           0  $       1.28  $        0.14
                                                          =============   ============  =============  =============
   Net income (loss)....................................  $       (0.54) $       (0.22) $       0.34  $       (0.08)
                                                          =============   ============  =============  =============
</TABLE>





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