Edgar Filing: COMMUNITY BANCSHARES INC /DE/

SCHEDULE 14A

(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION

PROXY STATEMENT PURSUANT TO SECTION 14(a)
OF THE SECURITIES EXCHANGE ACT OF 1934

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14a-6(e)(2))

[X] Definitive Proxy Statement

[ ] Definitive Additional Materials

[ ] Soliciting Material Under Rule 14a-12

COMMUNITY BANCSHARES, INC.
-------------------------------------------------
(Name of Registrant as Specified in Its Charter)
-------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

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COMMUNITY BANCSHARES, INC.

68149 Highway 231 South
P.O. Box 1000
Blountsville, Alabama 35031

June 24, 2003

To the Stockholders of
Community Bancshares, Inc.:

In connection with the Annual Meeting of stockholders of Community
Bancshares, Inc. to be held at 10:00 a.m., Central Time, on Thursday, July 24,
2003, at the Main Club House at Limestone Springs, 3000 Colonial Drive, Oneonta,
Alabama, enclosed are a Notice of Annual Meeting of Stockholders, proxy card and
Proxy Statement containing information about your company and matters to be
considered at the Annual Meeting. We encourage you to read them.

You are cordially invited to attend the Annual Meeting in person.
Please sign, date and mark the enclosed proxy card and return it in the enclosed
postage-prepaid envelope to ensure that your shares are voted at the Annual
Meeting. This will not limit your rights to vote your shares in person or attend
the Annual Meeting.

We are enthusiastic about the future and appreciate your continued
support. We look forward to seeing you on July 24.

Sincerely yours,

Patrick M. Frawley
Chairman, Chief Executive
Officer and President

PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY CARD AND PROMPTLY MAIL IT IN
THE POSTAGE-PAID RETURN ENVELOPE FURNISHED FOR THAT PURPOSE, WHETHER OR NOT YOU
PLAN TO ATTEND THE ANNUAL MEETING.

COMMUNITY BANCSHARES, INC.

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

The Annual Meeting of the stockholders of Community Bancshares, Inc.
(the "Company") will be held at the Main Club House at Limestone Springs, 3000
Colonial Drive, Oneonta, Alabama on Thursday, July 24, 2003 at 10:00 a.m.,
Central Time, for the following purposes:

1. To elect Roy B. Jackson, Stacey W. Mann and Jimmie Trotter
(or, in the event that any or all of the foregoing are unable
to serve, such other nominee(s) designated by the Company's
Board of Directors) as Class I directors;

2. To remove Kennon R. Patterson, Sr. as a Class III director of
the Company; and

3. To transact such other business as may properly come before
the Annual Meeting or any adjournment thereof, but which is
not now anticipated.

The Board of Directors has fixed the close of business on June 9, 2003
as the record date for determining stockholders of the Company entitled to
notice of and to vote at the Annual Meeting and any adjournment of the Annual
Meeting.

Your attention is directed to the attached Proxy Statement for further
information with respect to the matters to be acted upon at the Annual Meeting.

You are cordially invited to attend the Annual Meeting. WHETHER OR NOT
YOU PLAN TO ATTEND THE ANNUAL MEETING IN PERSON, PLEASE COMPLETE, DATE AND SIGN
THE ENCLOSED PROXY CARD AND RETURN IT PROMPTLY IN THE POSTAGE-PAID RETURN
ENVELOPE ENCLOSED FOR THAT PURPOSE. The person giving the enclosed proxy may
revoke it at any time before it is voted by voting in person at the Annual
Meeting or by delivering a later executed proxy or a written revocation to the
Corporate Secretary of the Company, provided such later executed proxy or
revocation is actually received by the Corporate Secretary of the Company before
the vote of stockholders at the Annual Meeting.

If you need assistance in completing your proxy card, please call me at
(205) 429-1001.

THE COMPANY'S BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" APPROVAL OF
ITEMS 1 AND 2 ABOVE.

By Order of the Board of Directors,

William H. Caughran, Jr.
Secretary

Blountsville, Alabama
June 24, 2003

COMMUNITY BANCSHARES, INC.

68149 Highway 231 South
P.O. Box 1000
Blountsville, Alabama 35031

PROXY STATEMENT
FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JULY 24, 2003

INTRODUCTION

This Proxy Statement is furnished to stockholders of Community
Bancshares, Inc., a Delaware corporation (the "Company"), in connection with the
solicitation of proxies by the Board of Directors of the Company for use at the
Annual Meeting of stockholders to be held July 24, 2003, and at any adjournments
thereof (the "Annual Meeting"), for the purposes set forth in the accompanying
Notice of Annual Meeting of Stockholders.

The executive offices of the Company are located at 68149 Highway 231
South, P.O. Box 1000, Blountsville, Alabama 35031. This Proxy Statement is being
mailed to stockholders of the Company on or about June 24, 2003.

STOCKHOLDERS ENTITLED TO VOTE

Each holder of record of the Company's common stock, $.10 par value per
share ("Common Stock"), as of the close of business on June 9, 2003, will be
entitled to vote at the Annual Meeting. Each stockholder will be entitled to one
vote on each proposal for each share of Common Stock held as of such date. At
the close of business on June 9, 2003, there were approximately 4,806,553 shares
of Common Stock issued and outstanding, which were held by approximately 2,315
stockholders of record. The Company's stock transfer books will not be closed
and shares of Common Stock may be transferred subsequent to the record date,
although all votes must be cast in the names of stockholders of record as of the
record date.

PROXIES

If the enclosed proxy card is properly executed and received by the
Company before or at the Annual Meeting, the shares of Common Stock represented
thereby will be voted as specified in the proxy by the persons designated in
such proxy. If no specification is made in the proxy, shares of Common Stock
represented by the proxy will be voted (1) "FOR" the election of the nominees
for directors listed in the accompanying Notice of Annual Meeting of
Stockholders, (2) "FOR" the removal of Kennon R. Patterson, Sr. as a Class III
director of the Company, and (3) in accordance with the recommendation of the
Board of Directors as to any other matters which may properly come before the
Annual Meeting. The person giving the enclosed proxy may revoke it at any time
before it is voted by voting in person at the Annual Meeting or by delivering a
later executed proxy or a written revocation to the Corporate Secretary of the
Company, provided such later executed proxy or revocation is actually received
by the Corporate Secretary of the Company before the vote of stockholders at the
Annual Meeting.

SOLICITATION OF PROXIES

THIS SOLICITATION IS MADE BY THE BOARD OF DIRECTORS OF THE COMPANY. THE
BOARD OF DIRECTORS URGES THAT YOU EXECUTE AND RETURN THE ENCLOSED PROXY CARD AS
SOON AS POSSIBLE AND RECOMMENDS THAT THE SHARES OF COMMON STOCK REPRESENTED BY
THE PROXY BE VOTED "FOR" APPROVAL OF PROPOSAL 1 AND PROPOSAL 2.

The Company will bear the costs associated with this solicitation of
proxies.

OTHER MATTERS

The Board of Directors is not aware of any business to be presented at
the Annual Meeting except as described in the accompanying Notice of Annual
Meeting. If other matters properly come before the Annual Meeting, it is
intended that the persons named on the enclosed proxy card will vote on such
matters in accordance with the recommendations of the Board of Directors.

ANNUAL REPORTS

COPIES OF THE COMPANY'S 2002 ANNUAL REPORT TO STOCKHOLDERS AND ANNUAL
REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2002 ACCOMPANY THIS PROXY
STATEMENT. ADDITIONAL COPIES OF THESE DOCUMENTS WILL BE FURNISHED WITHOUT CHARGE
TO ANY STOCKHOLDER WHO REQUESTS SUCH REPORTS IN WRITING FROM PATRICK M. FRAWLEY,
COMMUNITY BANCSHARES, INC., P.O. BOX 1000, BLOUNTSVILLE, ALABAMA 35031.

PROPOSAL 1 -- ELECTION OF DIRECTORS

The Bylaws of the Company provide for a classified Board of Directors
consisting of three classes, with the three-year term of office of each class
expiring in successive years, and that the number of directors will be fixed
from time to time by the vote of the directors. The current number of directors
has been fixed at 11. The resolution adopted by the Board of Directors fixing
the number of directors provided that the number of directors will automatically
be reduced by one if Kennon R. Patterson, Sr. is removed as a director at the
Annual Meeting (see Proposal 2 below). The terms of the Class I directors expire
at the Annual Meeting. The terms of the Class II and Class III directors will
expire in 2004 and 2005, respectively. Each of the Class I directors elected at
the Annual Meeting will serve three-year terms expiring at the 2006 annual
meeting of stockholders and until his respective successor is elected and
qualified. A director of the Company is elected by the affirmative vote of the
holders of a plurality of the shares of Common Stock present, in person or by
proxy, at the Annual Meeting and entitled to vote.

The Board of Directors has nominated Roy B. Jackson, Stacey W. Mann and
Jimmie Trotter for election as Class I directors to hold office until expiration
of their term and until their successors have been elected and qualified.
Messrs. Jackson and Trotter are currently serving as Class I directors. Kennon
R. Patterson, Jr., son of the Company's former Chairman, President and Chief
Executive Officer, Kennon R. Patterson, Sr., also currently serves as a Class I
director, but has not been nominated for another term. The persons named in the
enclosed proxy card will vote for the election of the nominees, Messrs. Jackson,
Mann and Trotter, unless authority to vote for one or more nominees is withheld.
Each nominee has consented to serve as a director if elected. However, if prior
to the Annual Meeting, any person proposed for election as a director is
unavailable to serve or for good cause cannot serve, the shares of all valid
proxies may be voted for the election of such substitute as the members of the
Board of Directors may recommend. The names of the nominees and the directors
who will continue to serve unexpired terms and certain information relating to
them, including the business experience of each during the past five years,
follow.

THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" THE
ELECTION OF THE NOMINEES LISTED BELOW AS DIRECTORS OF THE COMPANY.

NOMINEES FOR TERMS EXPIRING IN 2006 (CLASS I)

DIRECTOR OF
NAME, AGE AND POSITIONS HELD WITH THE COMPANY PRINCIPAL OCCUPATION
COMPANY AND ITS SUBSIDIARIES SINCE DURING PAST FIVE YEARS
--------------------------------------------------------------- ----------- --------------------------------

ROY B. JACKSON (69 1999 (Retired) Owner of Jackson Farm
Director of the Company, Community Bank, 1st Community Credit & Garden Center, Minor Hill,
Corporation; Community Appraisals, Inc., Community Insurance Tennessee
Corp. and Southern Select Insurance, Inc.

STACEY W. MANN (50) 2003 President and Chief Operating
Director of the Company and Community Bank; President and Chief Officer of Community Bank
Operating Officer of Community Bank (2003-Present); Executive Vice
President and Chief Operating
Officer of Community Bank
(2001-2003); Area Executive Vice
President of Community Bank
(1997-2001)

JIMMIE TROTTER (65) 2000 (Retired) Principal of Mortimer
Director of the Company, Community Bank, 1st Community Credit Jordan High School, Morris,
Corporation, Community Appraisals, Inc., Community Insurance Alabama
Corp. and Southern Select Insurance, Inc.

DIRECTORS WITH TERMS EXPIRING IN 2004 (CLASS II)

GLYNN DEBTER (68) 1996 Owner-operator of Debter Farms
Director of the Company, Community Bank, 1st Community Credit (cattle breeding), Horton,
Corporation, Community Appraisals, Inc., Community Insurance Alabama
Corp. and Southern Select Insurance, Inc.

JOHN J. LEWIS, JR. (56) 1997 Production Planning Manager for
Director of the Company, Community Bank, 1st Community Credit Tyson Foods, Inc.(food
Corporation, Community Appraisals, Inc., Community Insurance processing), Blountsville,
Corp. and Southern Select Insurance, Inc. Alabama

LOY MCGRUDER (62) 1996 President of Community Bank
Director of the Company. (2002-2003); Executive Vice
President of Community Bank
(1994-2002).

DIRECTORS WITH TERMS EXPIRING IN 2005 (CLASS III)

KENNETH K. CAMPBELL (58) 2003 (Retired) President of Birmingham
Director of the Company and Community Bank Communications and Electronics,
Inc. (wireless telephones),
Birmingham, Alabama

PATRICK M. FRAWLEY (52) 2003 Chairman, President and Chief
Chairman, President and Chief Executive Officer of the Company; Executive Officer of the Company
Chairman and Chief Executive Officer of Community Bank; Chairman (2003-Present); Chairman and
of 1st Community Credit Corporation, Community Appraisals, Inc., Chief Executive Officer of
Community Insurance Corp. and Southern Select Insurance, Inc. Community Bank (2003-Present);
Senior Vice President of
Community Bank (2002-2003);
Director of Regulatory Relations
for Bank of America (1991-2002).

KENNON R. PATTERSON, SR. (60) 1983 Chairman, President and Chief
Director of the Company. Executive Officer of the Company
(1985-2003); Chairman and Chief
Executive Officer of Community
Bank (1993-2003)

MERRITT M. ROBBINS (65) 1996 Piggly Wiggly grocery store
Director of the Company, Community Bank, 1st Community Credit operator and property developer,
Corporation, Community Appraisals, Inc., Community Insurance New Hope, Alabama
Corp. and Southern Select Insurance, Inc.

Kennon R. Patterson, Sr. is the father of Kennon R. Patterson, Jr., a
Class I director whose term expires at the Annual Meeting upon the election of a
successor.

On January 20, 2003, Kennon R. Patterson, Sr. filed a petition for
protection under Chapter 11 of the United States Bankruptcy Code.

Mr. Mann was previously a director of the Company during 1997 and 1998
and again from June 2001 through February 2002.

Directors of the Company hold office for three-year terms unless they
sooner resign, become disqualified or are removed. The officers of the Company
are elected annually by the directors and serve until their successors are
elected and qualified or until their earlier resignation, removal or
disqualification.

BOARD MEETINGS AND COMMITTEES

The Board of Directors of the Company held 15 meetings during 2002. To
assist it in its work, the Board of Directors has the following standing
committees: Executive Committee, Nominating Committee, Executive Compensation
Committee, ESOP and Pension Plan Administrative Committee, and Audit Committee.

The membership of the Executive Committee currently consists of Patrick
M. Frawley (Chairman), Merritt Robbins (Vice Chairman), Roy B. Jackson, Loy
McGruder, and Jimmie Trotter. This committee has the authority, to the extent
permitted by law and the Company's governing documents, to exercise all the
powers of the Board of Directors in the management of the business and affairs
of the Company. This committee did not meet during 2002.

The Nominating Committee is currently composed of Glynn Debter
(Chairman), John J. Lewis, Jr. (Vice Chairman) and Loy McGruder. The purpose of
this committee is to recommend to the Board of Directors nominations for
directors of the Company. This committee met one time in 2002.

The Executive Compensation Committee reviews the compensation of all
officers of the Company and its subsidiaries. Membership of this committee
currently consists of Merritt M. Robbins (Chairman), Jimmie Trotter (Vice
Chairman), Glynn Debter, Roy B. Jackson, John J. Lewis, Jr. and Kennon R.
Patterson, Jr. The Executive Compensation Committee met one time during 2002.

The ESOP and Pension Plan Administrative Committee administers the
Company's pension plan and employee stock ownership plan ("ESOP"). This
committee is currently composed of Patrick M. Frawley (Chairman), John J. Lewis,
Jr. (Vice Chairman), Jimmie Trotter and Merritt Robbins. This committee held two
meetings in 2002.

The Audit Committee reviews the financial and internal operations of
the Company. Members of the Audit Committee are Roy B. Jackson (Chairman), Glynn
Debter, John J. Lewis, Jr. and Jimmie Trotter. This committee met three times
during 2002.

AUDIT COMMITTEE REPORT

The Audit Committee of the Board of Directors of the Company consists
of four directors, each of whom is "independent" as defined by the listing
standards of the Nasdaq Stock Market, Inc. and the applicable rules and
regulations promulgated by the Securities and Exchange Commission pursuant to
the Sarbanes-Oxley Act of 2002. The Board of Directors of the Company has not
adopted a written charter for the Audit Committee. In fulfilling its
responsibilities, the Audit Committee:

- Met three times during 2002.

- Reviewed and discussed with management the Company's audited
financial statements for the year ended December 31, 2002 and
determined that the Company's internal controls were adequate
for preparation of the financial statements.

- Discussed with the Company's independent auditors the
matters required to be discussed under Statement on Auditing
Standards No. 61, Communication with Audit Committees.

- Received the written disclosures and the letter from the
Company's independent auditors regarding the auditors'
independence as required by Independence Standards Board
Standard No. 1, and discussed with the Company's independent
auditors their independence.

- Reviewed with management and the Company's independent
auditors the quarterly financial statements of the Company
prior to the filing of the Company's quarterly reports on Form
10-Q in 2002.

One of the Audit Committee's responsibilities is to recommend to the
Company's Board of Directors an independent auditor. The Audit Committee has
recommended Carr, Riggs & Ingram, L.L.C. as the Company's independent auditor
for 2003 (See "Relationship With Independent Public Accountants").

Based on the Audit Committee's review of the Company's audited
financial statements for the year ended December 31, 2002 and its discussions
with management and the Company's independent auditors as described above and in
reliance thereon, the Audit Committee recommended to the Company's Board of
Directors that the Company's audited financial statements for the year ended
December 31, 2002 be included in the Company's Annual Report on Form 10-K for
the year ended December 31, 2002 for filing with the Securities and Exchange
Commission.

By the Audit Committee:

Roy B. Jackson (Chairman) Glynn Debter John J. Lewis, Jr. Jimmie Trotter

DIRECTOR ATTENDANCE

During 2002, all incumbent directors of the Company attended at least
75% of the total number of meetings of the Board of Directors and meetings of
the committees of which they were members.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") requires the Company's directors, executive officers and persons
who beneficially own more than 10% of the Common Stock to file with the
Securities and Exchange Commission ("SEC") initial reports of ownership and
reports of changes in ownership of Common Stock. These officers, directors and
stockholders are also required by SEC rules to furnish the Company with copies
of all Section 16(a) reports they file. There are specific dates by which these
reports are to be filed and the Company is required to report in this Proxy
Statement any failure to file reports as required for 2002.

The Company is not aware of any instance during 2002 in which directors
or executive officers of the Company failed to make timely filings required by
Section 16(a) of the Exchange Act. The Company has relied on written
representations of its directors and executive officers and copies of the
reports that have been filed in making required disclosures concerning
beneficial ownership reporting.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Community Bank has from time to time made loans to certain of its
directors and executive officers, and members of their immediate families.
Except as noted below, all such loans are made in the ordinary course of
business on substantially the same credit terms, including interest rates and
collateral, as those prevailing for comparable transactions with other persons,
and do not represent more than a normal risk of collection or present other
unfavorable features. Community Bank maintains a program whereby each of its
full-time employees is eligible for a 1% discount in the rate of interest
charged on a loan from Community Bank. Federal banking regulations permit
executive officers of Community Bank to participate in this program. In
addition, Community Bank maintains a program for executive officers and other of
its employees who are required by Community Bank to relocate within its market
area in connection with their employment with Community Bank. Under this
program, each of these employees is eligible for a 5% annual interest rate on
first mortgage real estate loans from Community Bank. The largest aggregate
amount of loans to directors and executive officers of the Company and members
of their immediate families outstanding at any time during 2002 under these two
programs was approximately $2.1 million. As of April 10, 2003, the total
outstanding balance of loans by Community Bank to directors and executive
officers of the Company and members of their immediate families under these two
programs was approximately $1.1 million.

As of June 9, 2003, Community Bank has outstanding to Kennon R.
Patterson, Sr., a director of the Company, a real-estate loan in the amount of
$5,372,050. During 2002, the highest balance outstanding for this loan was
$5,150,000, and its balance at year end was $5,150,000. The loan bears interest
at 4.25%. On January 20, 2003 Mr. Patterson filed a petition for protection
under Chapter 11 of the United States Bankruptcy Code, and this loan is
currently on nonaccrual status.

As of June 9, 2003, Community Bank has outstanding to Hodge Patterson,
former Executive Vice President of Community Bank, a real-estate loan of
$536,376. During 2002, the highest balance outstanding for this loan was
$552,732, and its balance at year end was $540,401. The loan bears interest at
5.00%.

As of June 9, 2003, Community Bank has outstanding to Denny G. Kelly, a
former director of the Company and Community Bank, a real estate loan in the
amount of $299,008. During 2002, the highest balance outstanding for this loan
was $305,402 and its balance at year end was $305,402. The loan bears interest
at 5.5%. During 2002 Community Bank had two additional loans outstanding to Mr.
Kelly. The highest outstanding combined balance of these two loans during 2002
was $677,500 and their combined year end balance was $677,500. As of June 9,
2003 Community Bank has charged off approximately $270,000 in connection with
these two loans and is pursuing collection efforts.

The Company has engaged the accounting firm of Schauer, Taylor, Cox,
Morgan & Fowler, P.C. to perform certain accounting services. Doug Schauer, a
member of the firm, is Kennon R. Patterson, Sr.'s son-in-law. Services performed
by Schauer, Taylor, Cox, Morgan & Fowler, P.C. for the Company in 2002 have been
limited to preparation of the Company's quarterly tax accruals, preparation and
filing the Company's federal and state tax returns, consultation regarding
interpretation and application of accounting standards and EDGAR services in
connection with the company's filings with the Securities and Exchange
Commission. The Company and its subsidiaries paid Schauer, Taylor, Cox, Morgan &
Fowler, P.C. $102,684 for services rendered during 2002.

In June 2000, Community Bank loaned $1,696,576 to Debter Properties,
LLC, an Alabama limited liability company of which Glynn Debter, a director of
the Company, is a member, to fund the purchase from Community Bank of the real
property in which Community Bank's Boaz, Alabama office was located.
Concurrently with this loan and the purchase of the real property, Community
Bank entered into a lease agreement, as the tenant, with Debter Properties, LLC
to lease back this real property from Debter Properties, LLC. On May 31, 2002
Community Bank sold its Boaz, Alabama office to Peoples Bank of North Alabama
which assumed the loan to Debter Properties, LLC and Community Bank's
obligations under the lease.

At December 31, 2002, the total outstanding balance of indebtedness
incurred by the ESOP to purchase shares of Common Stock was approximately
$2,083,342. This indebtedness, which is owed to a third party and is secured by
a pledge of 148,972 shares of Common Stock that have not been allocated by the
ESOP, is guaranteed by the Company.

LEGAL PROCEEDINGS

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 in Guntersville, Alabama. 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 alleged that Community
Bank had been overcharged by subcontractors on that construction project and
another current 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. The joint committee retained legal counsel and an
independent accounting firm to assist the committee in its investigation and has
made its report to the Board of Directors. The directors of Community Bank who
alleged the construction overcharges have made similar charges to bank
regulatory agencies and law enforcement authorities. Management believes that
these agencies and authorities are conducting investigations regarding this
matter.

BENSON DERIVATIVE LITIGATION

On July 21, 2000, three shareholders of the Company, M. Lewis Benson,
Doris E. Benson and John M. Packard, Jr., filed a lawsuit in the state Circuit
Court of Marshall County, Alabama against the Company, Community Bank, certain
directors and officers of the Company and Community Bank, an employee of

Community Bank and two construction subcontractors. The plaintiffs purported to
file the lawsuit as a shareholder derivative action, which relates to the
alleged construction overcharges being investigated by the joint committee of
the Boards of Directors of the Company and Community Bank. The complaint alleges
that the directors, officers and employee named as defendants in the complaint
breached their fiduciary duties, failed to properly supervise officers and
agents of the Company and Community Bank, and permitted waste of corporate
assets by allegedly permitting the subcontractor defendants to overcharge
Community Bank in connection with the construction of two new Community Bank
offices, and to perform the construction work without written contracts,
budgets, performance guarantees and assurances of indemnification. In addition,
the complaint alleges that Kennon R. Patterson, Sr., the Chairman, President and
Chief Executive Officer of the Company, breached his fiduciary duties by
allegedly permitting the two named subcontractors to overcharge for work
performed on the two construction projects in exchange for allegedly discounted
charges for work these subcontractors performed in connection with the
construction of Mr. Patterson's residence. The complaint further alleges that
the director defendants knew or should have known of this alleged arrangement
between Mr. Patterson and the subcontractors. The complaint also alleges that
Mr. Patterson, the Community Bank employee and the two subcontractor defendants
made false representations and suppressed information about the alleged
overcharges and arrangement between Mr. Patterson and the subcontractors.

On August 15, 2000, the plaintiffs filed an amended complaint adding
Andy C. Mann, a shareholder of the Company, as a plaintiff and adding a former
director of the Company and Community Bank as a defendant. The amended complaint
generally reiterates the allegations of the original complaint. In addition, the
amended complaint alleges that Community Bank was overcharged on all
construction projects from January 1997 to the present. The amended complaint
also alleges that the defendants breached their fiduciary duties and are guilty
of gross financial mismanagement, including allegations concerning the making or
approval of certain loans and taking allegedly improper actions to conceal the
fact that certain loans were uncollectible. On September 18, 2000 the plaintiffs
filed a second amended complaint. The second amended complaint generally
reiterates the allegations of the original and first amended complaints. In
addition, the second amended complaint alleges that the plaintiffs were
improperly denied their rights to inspect and copy certain records of the
Company and Community Bank. The second amended complaint also alleges that the
directors of the Company abdicated their roles as directors either by express
agreement or as a result of wantonness and gross negligence. The second amended
complaint asserts that the counts involving inspection of corporate records
and director abdication are individual, nonderivative claims. The second amended
complaint seeks, on behalf of the Company, an unspecified amount of compensatory
damages in excess of $1 million, punitive damages, disgorgement of allegedly
improperly paid profits and appropriate equitable relief. Upon motion of the
defendants, the case was transferred to the state Circuit Court in Blount
County, Alabama by order dated September 21, 2000, as amended on October 12,
2000.

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

Following a hearing on August 29, 2001, the court denied these motions
on November 8, 2001. The court also ruled that the plaintiffs were entitled to
conduct discovery except as it related to one of the subcontractor defendants
and granted the plaintiffs' motion to unseal the report of the special
litigation committee. On November 14, 2001, the directors of the Company filed a
motion for the court to alter, amend or vacate its November 8, 2001 rulings. On
February 7, 2002, the Company and Community Bank filed a motion to disqualify
Maynard, Cooper & Gale, P.C., the law firm representing the plaintiffs, due to
conflicts of interest. The court held a hearing on these motions on February 22,
2002 and the parties are awaiting a ruling. A tentative settlement of the
lawsuit was announced in November, 2002, but was not finalized. On or about
April 21, 2003 the plaintiffs filed a motion to enforce the tentative
settlement. The court has scheduled a hearing on the fairness of the tentative
settlement for September 5, 2003. One of the subcontractors named as a defendant
in this action, Morgan City Construction, Inc., and its principals, Mr. and Mrs.
Dewey Hamaker, have been tried and convicted in the United States District Court
for the Northern District of Alabama.

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

PACKARD DERIVATIVE LITIGATION

On April 4, 2003, a group composed of the same plaintiffs as in the
Benson case filed another derivative action against Sheffield Electrical
Contractors, Inc., Steve Sheffield, Jay Bolden, Dudley, Hopton-Jones, Sims &
Freeman, PLLP, Glynn Debter, Kennon R. Patterson, Jr., Robert O. Summerford,
Jimmie Trotter, John Lewis, Jr., Merritt Robbins, Stacey Mann, B.K. Walker, Jr.,
Denny Kelly, Roy B. Jackson, Loy McGruder and Hodge Patterson. The complaint in
this new derivative suit, besides adding defendants known during but not named
in the Benson lawsuit, is based upon the same allegations as in the Benson case,
but bases its claims against the director-defendants not "for what they did (and
did not do) before learning of the over billing allegations against Patterson
[Kennon R. Patterson, Sr., the Company's former Chairman and CEO] in July 2000"
but instead "only for what they have done (or failed to do) after the filing of
the Benson lawsuit - that is, after they learned of the allegations against
Patterson in July 2000." On May 8, 2003 the Company, Community Bank and most of
the individual defendants filed a motion to transfer the suit from the Circuit
Court of Jefferson County, Alabama, to the Circuit Court of Blount County,
Alabama, or, in the alternative, to dismiss the suit.

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. On May 15, 2003, the court granted defendants' motion and
dismissed the suit. The time for plaintiffs to appeal the dismissal has not yet
expired.

CONSPIRACY LITIGATION

On November 6, 2001 the Company and Community Bank filed a lawsuit in
the United States District Court for the Northern District of Alabama against
Bryan A. Corr, Doris J. Corr, individually and as executrix of the Estate of
R.C. Corr, Jr., Tina M. Corr, Corr, Inc., George M. Barnett, Michael A. Bean,
Michael W. Alred, R. Wayne Washam, M. Lewis Benson, Doris E. Benson, John M.
Packard and Andy Mann seeking damages in excess of $50 million. The complaint
also alleges that, by knowingly making false statements and unsupported
allegations to regulatory and law enforcement authorities and in certain
lawsuits discussed above, the defendants abused the civil legal process to
further their plan to discredit and dislodge the directors and management of the
Company and Community Bank and gain control of those companies. The complaint
further alleges that certain of the defendants who are former directors and/or
executive officers of Community Bank breached their fiduciary duties to
Community Bank by participating in, and taking action in the furtherance of, the
conspiracy. Finally, the complaint alleges that the defendants failed to make
filings which are required by the Federal securities laws to disclose that the
group is acting in concert to acquire control of the Company. The complaint
seeks compensatory and punitive damages as well as an order barring the
defendants from voting their shares of Company stock, purchasing additional
Company stock, soliciting proxies and submitting shareholder proposals for at
least three years.

On December 5, 2001, the Company, Community Bank and R. Wayne Washam
entered into a stipulation pursuant to which Mr. Washam would be dismissed as a
defendant. The court granted the stipulation on December 6, 2001. During the
time between December 3 and December 7, 2001 the other defendants filed various
motions to dismiss, abate or stay the lawsuit. On January 4, 2002, the Company
and Community Bank filed a motion to disqualify Maynard, Cooper & Gale, P.C.
from representing M. Lewis Benson, Doris E. Benson, John M.

Packard and Andy Mann due to a conflict of interest. On January 22, 2002
Maynard, Cooper & Gale, P.C. filed a motion to withdraw from the suit, which
motion was granted by the court on January 24, 2002. On January 29, 2002 the
Company and Community Bank filed an amended complaint to reflect the dismissal
of Wayne Washam as a defendant and to add a claim for defamation against two of
the defendants. As part of a settlement of a lawsuit by Michael Alred and
Michael Bean against Community Bank, Messrs. Alred and Bean were dismissed from
this lawsuit during 2002.

LENDING ACTS LITIGATION

On October 11, 2002, William Alston, Murphy Howard, and Jason Tittle
filed an action against Community Bank, the Company, Holsombeck Motors, Inc.,
Lee Brown d/b/a Alabama Bond & Investigation a/k/a ABI Recovery, Chris Holmes
d/b/a Alabama Bond & Investigation a/k/a ABI Recovery, Regina Holsombeck, Kennon
"Ken" Patterson, Sr., Hodge Patterson, James Timothy "Tim" Hodge, Ernie
Stephens, and the State of Alabama Department of Revenue. The plaintiffs in this
class action allege that Community Bank and others conspired or used
extortionate methods to effect a lending scheme of "churning phantom loans", and
that profits from the scheme were used to secure an interest in and/or to invest
in an enterprise that affects interstate commerce. The allegations state that
Community Bank used various methods to get uneducated customers with fair to
poor credit to sign numerous "phantom loans" when the customers only intended to
sign for one loan. Claims include racketeering activity within the meaning of
the Racketeer Influenced and Corrupt Organizations Act of 1970, conspiracy,
spoliation, conversion, negligence, wantonness, outrage, and civil conspiracy.

The Company and Community Bank intend to defend the action vigorously
and currently are conducting discovery to ascertain what substance, if any,
there is to the claims. 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.

PATTERSON LITIGATION

On April 9, 2003 Kennon R. Patterson, Sr., former Chairman, President
and Chief Executive Officer of the Company, filed an adversary proceeding in the
United States Bankruptcy Court for the Northern District of Alabama in
connection with his petition for protection under Chapter 11 of the United
States Bankruptcy Code. Defendants of the adversary proceeding are the Company,
Community Bank, five directors of the Company and Community Bank and the law
firm of Powell, Goldstein, Frazer and Murphy, LLP which represents Community
Bank's Audit Committee. The complaint alleges that the Company breached its
employment agreement with Mr. Patterson by terminating his employment on January
27, 2003 and failed to pay him for compensation and benefits which had allegedly
accrued prior to his termination. The complaint also alleges that Community
Bank, members of Community Bank's Audit Committee, the Audit Committee's
independent counsel and the Company's current Chairman, President and Chief
Executive Officer conspired to interfere with Mr. Patterson's contract and
business relationship with the Company. The suit seeks damages in excess of $150
million for, among other things, lost compensation and benefits, mental anguish,
and damage to Mr. Patterson's reputation. The Company believes that this lawsuit
is without merit and intends to defend the action vigorously. On May 9, 2003 the
defendants filed a motion to dismiss the suit. 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.

EMPLOYEE LITIGATION

On May 5, 2003 two former executive officers of the Company and
Community Bank filed separate suits in the Circuit Court of Blount County,
Alabama, against the Company, Community Bank, Kennon R. Patterson, Sr., former
Chairman and Chief Executive Officer of the Company and Community Bank, and a
number of fictitious defendants. Bishop K. Walker, Jr., former Senior Executive
Vice President and General Counsel of the Company, and Denny G. Kelly, former
President of Community Bank, allege that they were induced to retire based on
misrepresentations made by Kennon R. Patterson, Sr. who was allegedly acting
within the scope of his duties as an agent of the Company and Community Bank.
Plaintiffs claim that these actions constituted fraud, promissory

fraud, fraudulent suppression, fraud in the inducement, deceit, fraudulent
deceit, negligence, recklessness, wantonness and breach of contract. The
complaints ask for an unspecified amount of compensatory and punitive damages.
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.

INDEMNIFICATION AND ROUTINE PROCEEDINGS

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 directors and officers of the Company. Community Bank's
Bylaws contain a similar provision for indemnification of directors and officers
of Community Bank.

The Company and its subsidiaries are from time to time parties to other
legal proceedings arising from 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.

EXECUTIVE COMPENSATION

For additional information about compensation of the Company's
executive officers, please see the section below captioned "Executive
Compensation Committee Report on Executive Compensation."

SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION

The following table provides summary information concerning
compensation paid by the Company and its subsidiaries during 2002 to the Chief
Executive Officer and each of the four other most highly compensated executive
officers of the Company at December 31, 2002 (collectively, the "named executive
officers") for the fiscal years ended December 31, 2002, 2001 and 2000.

SUMMARY COMPENSATION TABLE

LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
------------------- ------
OTHER SECURITIES ALL
ANNUAL UNDERLYING OTHER
SALARY BONUS COMPENSATION OPTIONS/SAR COMPENSATION
NAME AND PRINCIPAL POSITION (1) YEAR ($) ($) ($) (#) ($)(2)
------------------------------- ---- ------ ----- ------------ ----------- -------------

Kennon R. Patterson, Sr. 2002 $ 917,000 -- -- 80,000 $ 21,363

Chairman, President 2001 917,000 -- -- 80,000 6,984

and Chief Executive Officer ... 2000 1,017,000 -- -- -- 8,003

Loy McGruder 2002 $ 273,782 -- -- 25,000 $ 13,163

President - 2001 220,500 -- -- 10,000 8,784

Community Bank ................ 2000 245,000 -- -- -- 9,803

Hodge Patterson, III (3) 2002 $ 257,438 -- -- 12,500 $ 13,163

Executive Vice President - 2001 234,000 -- 10,000 8,784

Community Bank ................ 2000 260,000 -- 29,679 (4) -- 9,803

Stacey W. Mann 2002 $ 200,000 -- 18,964 (4) 12,500 $ 13,163

Executive Vice President 2001 185,852 -- -- 10,000 8,784

Community Bank ................ 2000 185,000 -- -- -- 9,803

Patrick M. Frawley 2002 $ 175,782(5) -- -- -- --

Senior Vice President 2001 -- -- -- -- --

Community Bank ................ 2000 -- -- -- -- --

Bishop K . Walker, Jr. 2002 $ 29,658 -- 9,032 (6) -- $ 300,000

Vice Chairman and 2001 428,400 -- -- 10,000 10,761

General Counsel............... 2000 476,000 -- -- -- 11,780

Denny G. Kelly 2002 23,365 -- -- 15,000 $ 284,800

President - 2001 337,500 -- -- 10,000 8,784

Community Bank................ 2000 375,00 -- -- -- 9.803

(1) The position shown is the position held during 2002. Mr. Walker and Mr.
Kelly retired from the Company and Community Bank as of January, 2002. In
January 2003 the Board of Directors terminated Kennon R. Patterson, Sr.'s
employment with the Company and Community Bank , and elected Patrick M.
Frawley as Chairman, President and Chief Executive Officer of the Company
and Chairman and Chief Executive Officer of Community Bank. In February
2003, Loy McGruder took a medical leave of absence and retired in June,
2003. Stacey W. Mann was elected President of Community Bank during Mr.
McGruder's leave of absence. In April 2003, Hodge Patterson, III left
Community Bank to pursue other business interests.

(2) Includes life insurance premiums paid by the Company and contributions by
the Company and to the ESOP during 2002, 2001 and 2000, respectively, as
follows: Kennon R. Patterson, Sr., $21,363, $6,984 and $8,003; Bishop K.
Walker, Jr., $0, $10,761 and $11,780; Denny G. Kelly, $0, $8,784 and
$9,803; Loy McGruder, $13,163, $8,784 and $9,803 ; Hodge Patterson, III,
$13,163, $8,784 and $9,803; Stacey W. Mann, $13,163, $8,784 and $9,803; and
Patrick M. Frawley, $0, $0 and $0. ESOP contributions for 2002 are
estimated because the allocations for the 2002 plan year have not been
completed by the plan recordkeeper. This column also includes, in the case
of Mr. Walker, a $300,000 severance payment made in connection with his
retirement, and, in the case of Mr. Kelly, a $247,500 severance payment
made in connection with his retirement and $37,300 in fees for his service
during 2002 as a director of the Company and its subsidiaries following his
retirement.

(3) Hodge Patterson is the brother of Kennon R. Patterson, Sr. and the uncle of
Kennon R. Patterson, Jr.

(4) Includes for 2000 for Hodge Patterson and Stacey W. Mann, respectively,
$2,550 and $2,240 with respect to social club dues, $12,146 and $7,292 with
respect to usage of a Company-owned automobile, and $14,983 and $9,432 with
respect to discounted interest rates through participation in the Company's
employee loan programs.

(5) Mr. Frawley's employment by Community Bank was subject to regulatory
approval which was obtained on May 30, 2002. Mr. Frawley was an independent
contractor from March 1, 2002 until June 10, 2002. The amount shown in the
table includes $56,875 paid to Mr. Frawley as an independent contractor and
$118,907 paid to him as a Community Bank employee.

(6) Includes for 2002 for Bishop K. Walker, Jr. $8,959 with respect to usage of
a Company-owned automobile, and $73 with respect to discounted interest
rates through participation, prior to his retirement, in the Company's
employee loan programs.

STOCK OPTIONS

The following table provides information concerning grants of stock
options by the Company to the named executive officers during 2002:

OPTION GRANTS IN LAST FISCAL YEAR

Potential realizable value at
Individual assumed annual rates of stock
Grants price appreciation for option term
------ ----------------------------------
Number of Percent of
securities total options
underlying granted to Exercise or
options granted employees in base price Expiration
Name (#) fiscal year ($/sh) Date 5% ($) 10% ($)
---- --------------- ------------- ----------- ---------- -------- --------

Kennon R. Patterson. Sr. 80,000 23.53% $ 7.00 7/18/2007 $156,000 $342,400

Bishop K. Walker, Jr. 0 0% $ 7.00 7/18/2007 0 0

Denny G. Kelly 15,000 4.41% $ 7.00 7/18/2007 29,250 64,200

Hodge Patterson, III 12,500 3.68% $ 7.00 7/18/2007 24,375 53,500

Loy McGruder 25,000 7.35% $ 7.00 7/18/2007 48,750 107,000

Stacey W. Mann 12,500 3.68% $ 7.00 7/18/2007 24,375 53,500

Patrick M. Frawley 0 0% $ 7.00 7/18/2007 0 0

OPTION EXERCISES AND HOLDINGS

The following table provides information concerning the
exercise of stock options during 2002 by the named executive officers and the
unexercised stock options held by them at December 31, 2002.

AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES

Number of Securities
Underlying Unexercised Value of Unexercised In-the-
Options/SARs at FY-End (#) money Options/SARs at FY-End ($) (1)
-------------------------- ------------------------------------
Shares
Acquired on Value
Name Exercise (#) Realized ($) Exercisable Unexercisable Exercisable Unexercisable
------------------------ ------------ ------------ ----------- ------------- ----------- -------------

Kennon R. Patterson, Sr. 0 $ 0 160,000 -- -- --

Bishop K. Walker, Jr. 0 0 0 -- -- --

Denny Kelly 0 0 35,000 -- -- --

Hodge Patterson 0 0 15,000 -- -- --

Loy McGruder 0 0 41,667 -- -- --

Stacey W. Mann 0 0 27,500 -- -- --

Patrick M. Frawley 0 0 0 -- -- --

--------------
(1) Represents market value of underlying shares of Common Stock of $7.00 per
share at December 31, 2002, as determined by the Board of Directors, net of
the exercise price of the options.

RETIREMENT PLAN

The following table shows the estimated annual benefits payable at
normal retirement age (age 65) under a qualified defined benefit retirement plan
(Community Bancshares, Inc. Revised Pension Plan) as well as under a
non-qualified supplemental retirement plan (Community Bancshares Inc. Benefit
Restoration Plan). This supplemental plan provides benefits that would otherwise
be denied participants because of Internal Revenue Code limitations on qualified
plan benefits. All of the named executive officers except Mr. Frawley are
participants in this supplemental plan.

PENSION PLAN TABLE

Years of Credited Service
-------------------------------------------------
Average Annual
Compensation 10 20 30 40
------------ -- -- -- --

$ 25,000 $ 3,750 $ 7,500 $ 11,250 $ 15,000

50,000 7,500 15,000 22,500 30,000

75,000 11,250 22,500 33,750 45,000

100,000 15,000 30,000 45,000 60,000

250,000 37,500 75,000 112,500 150,000

500,000 75,000 150,000 225,000 300,000

750,000 112,500 225,000 337,500 450,000

1,000,000 150,000 300,000 450,000 600,000

1,250,000 187,500 375,000 562,500 750,000

The benefits shown are not subject to any deduction for Social Security
benefits or other offset amounts. Benefits shown above are computed as a
straight-life annuity beginning at age 65.

The amount of compensation covered by the combination of plans covering
the named executive officers is total compensation, including bonuses, overtime
or other forms of extraordinary compensation. The amount of the retirement
benefit is determined by the length of the retiree's credited service under the
plans and his average monthly earnings for the five highest compensated,
consecutive calendar years of the retiree's final ten consecutive calendar years
of employment with the Company and its subsidiaries. The full years of credited
service under the plans for the named executive officers as of December 31, 2002
are as follows: Kennon R. Patterson, Sr.: 19 years; Bishop K. Walker, Jr.: 15
years; Denny G. Kelly: 16 years; Hodge Patterson, III: 15 years; Loy McGruder:
15 years, Stacey W. Mann: 19 years and Patrick M. Frawley: 1 year.

COMPENSATION OF DIRECTORS

During 2002 non-employee directors of the Company were paid a fee of
$1,500 for each month during which the director served. Non-employee members of
the Company's Executive Committee, Nominating Committee, Executive Compensation
Committee and Audit Committee received a fee of $500 per meeting. Non-employee
directors of the Company who were also directors of Community Bank or its
subsidiaries received the following monthly fees: Community Bank - $500; 1st
Community Credit Corporation - $250; and Community Insurance Corp. - $250.
Non-employee directors of Community Appraisals, Inc. received a quarterly fee of
$250. Non-employee members of Community Bank's committees received the following
fees: Audit Committee and Asset Quality Committee - $500 per quarter;
Compensation Committee and Personnel Grievance Committee - $500 per meeting;
Electronic Data Processing Committee - $100 per quarter; and Executive
Committee, Directors Credit Committee and Construction Oversight Committee -
$100 per meeting.

Effective April 1, 2003, non-employee directors of the Company are paid
a fee of $500 for each quarterly meeting. Non-employee members of the Company's
Executive Committee, Nominating Committee, Executive Compensation Committee and
Audit Committee receive a fee of $250 per meeting. Non-employee directors of the

Company who are also directors of Community Bank receive a monthly fee of $1,500
plus $500 per meeting for each meeting in excess of one per month. Non-employee
directors of 1st Community Credit Corporation, Community Appraisal, Inc. and
Community Insurance Corp. receive a quarterly fee of $250. Non-employee members
of Community Bank's committees receive $250 per meeting.

EMPLOYMENT AGREEMENTS AND CHANGE IN CONTROL ARRANGEMENTS

EMPLOYMENT AGREEMENTS

Effective April 1, 1996, the Company entered into an Employment
Agreement with Kennon R. Patterson, Sr., which was amended on October 14, 1999.
The Employment Agreement, as amended, provided that Mr. Patterson would serve as
the Chairman of the Board of Directors, President and Chief Executive Officer of
the Company and receive an annual cash compensation of at least $898,600, the
amount of Mr. Patterson's total cash compensation for 1999, with increases in
his compensation as determined by the Board of Directors based on the
recommendation of the Company's Executive Compensation Committee. Mr.
Patterson's Employment Agreement also provided that he would receive four weeks
of paid vacation annually, use of an automobile for business and personal
purposes, reimbursement of reasonable business and professional expenses,
memberships in civic and social clubs, and an annual allowance of $10,000 for
the purchase of life insurance. In the event that Mr. Patterson was disabled to
the extent that he was incapable of performing his duties, he would have been
entitled to a continuation of his compensation during the period of disability,
but not to exceed one year. Mr. Patterson's employment with the Company and
Community Bank was terminated on January 27, 2003. Pursuant to the Employment
Agreement, Mr. Patterson may not engage in the business of banking within a 25
mile radius of any office of the Company or its subsidiaries for a period of two
years following the termination of his employment.

CHANGE IN CONTROL AGREEMENTS

The Company entered into Change in Control Agreements with each of the
named executive officers except Mr. Frawley on December 4, 1999. These
agreements have terms of three years and are automatically renewed unless
terminated at the end of their terms by the Company's Executive Compensation
Committee. In the event of a change in control (as defined in the agreements) of
the Company, the named executive officer is entitled to receive certain
severance benefits if his employment is terminated by the Company within 30
months following the change in control, unless the termination is for cause or
by reason of the officer's death, disability or retirement on or after age 65.
The officer is also entitled to these severance benefits if the officer
terminates employment with the Company within 30 months following a change in
control because, among other reasons, the officer's authority, duties,
compensation or benefits have been reduced or the officer is forced to relocate
more than 50 miles from his place of employment immediately prior to the change
in control. If, during the term of the agreement, a transaction is proposed
which, if consummated, would constitute a change in control and, the officer's
employment is thereafter terminated by the Company other than for cause or by
reason of the officer's death, disability or retirement on or after age 65, and
the proposed transaction is consummated within one year following the officer's
termination of employment, the change in control will be deemed to have occurred
during the term of the agreement and the officer will be entitled to severance
benefits. The officer is also entitled to receive severance benefits if the
officer terminates employment for any reason during a 30-day period beginning 12
months after the occurrence of a change in control.

The severance benefits payable under the Change in Control Agreements
are as follows: (i) a lump sum payment equal to the present value of the
officer's monthly salary which would have been payable for 30 months following
the officer's termination of employment but for such termination; (ii) a lump
sum payment equal to the present value of a monthly payment payable for 30
months, which monthly payment is calculated by taking one-twelfth of the average
of the bonuses earned by the officer for the two calendar years immediately
preceding the year in which the officer's termination of employment occurs;
(iii) continuation of the officer's health and life insurance benefits for 30
months following the officer's termination of employment at the same level and
on the same terms as provided to the officer immediately prior to his
termination of employment; (iv) full vesting and continued participation for a
period of 30 months following the officer's termination of employment in certain
retirement plans or, if such full vesting and continued participation is not
allowed, payment by the Company of a lump sum supplemental benefit in lieu of
full vesting and continued participation in such plans; and (v) individual
career counseling and outplacement services for a reasonable period of time
following the officer's termination of employment, up to a maximum cost to the
Company of $5,000 per officer.

The Change in Control Agreements with Bishop K. Walker, Jr. and Denny
G. Kelly were terminated on January 9, 2002. The Change in Control Agreements
with Kennon R. Patterson, Sr., Hodge Patterson and Loy McGruder were terminated
on January 27, 2003, April 18, 2003 and June 6, 2003, respectively.

RETIREMENT/CONSULTING AND STOCK PURCHASE AGREEMENTS

On January 9, 2002 the Company entered into agreements with Bishop K.
Walker, Jr. and Denny G. Kelly in connection with the retirement of Mr. Walker
and Mr. Kelly as executive officers of the Company and Community Bank. Pursuant
to these agreements Mr. Walker and Mr. Kelly are to receive payments from
Community Bank of $600,000 and $495,000, respectively, payable in two equal
installments in January, 2002 and January, 2003. In addition, Community Bank
agreed to transfer a bank-owned vehicle to each of Mr. Walker and Mr. Kelly. Mr.
Walker and Mr. Kelly each waived all claims against the Company, Community Bank
and their respective directors, officers and employees, and agreed to provide
consulting services during 2002 and 2003 as requested by management and the
Board of Directors on matters to include, but not be limited to, title insurance
and stock transfer, in the case of Mr. Walker, and shareholder relations,
customer relations and new customer development, in the case of Mr. Kelly. The
Company agreed to purchase approximately 270,000 shares of Common Stock from Mr.
Walker and approximately 77,000 shares of Common Stock from Mr. Kelly at a price
of $12.00 per share subject to any required regulatory approvals. Mr. Walker's
stock is to be purchased no later than January, 2004 and Mr. Kelly's stock is to
be purchased no later than January, 2005. The Change in Control Agreements
between the Company and each of Mr. Walker and Mr. Kelly were terminated. In the
event of a change in control of the Company prior to the consummation of the
stock purchase by the Company, Mr. Walker and Mr. Kelly each have the option to
decline to sell their stock to the Company and to receive the same consideration
being paid to other stockholders of the Company in connection with the change in
control.

Due to regulatory concerns, the Company did not make the payments due
under these contracts in January, 2003. By letter dated June 18, 2003, the FDIC
advised Community Bank that the January 2002 and 2003 payments were not
approved. In April 2003 at Mr. Walker's request the Company terminated its
obligations to purchase Mr. Walker's stock.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The following directors currently serve as members of the Executive
Compensation Committee of the Company's Board of Directors and also served on
such committee during 2002:

Merritt M. Robbins (Chairman) Glynn Debter John J. Lewis, Jr.
Jimmie Trotter (Vice Chairman) Roy B. Jackson Kennon R. Patterson, Jr.

Kennon R. Patterson, Jr. is a former executive officer of Community
Bank and the son of Kennon R. Patterson, Sr., the Company's former Chief
Executive Officer.

In June 2000, Community Bank sold to, and leased back from, Debter
Properties, LLC, an Alabama limited liability company of which Glynn Debter is a
member, real property. The lease was assigned to Peoples Bank of North Alabama
in May 2002.

EXECUTIVE COMPENSATION COMMITTEE REPORT
ON EXECUTIVE COMPENSATION

OVERVIEW

The Company's Executive Compensation Committee (the "Compensation
Committee") is responsible for establishing and administering the Company's
executive compensation program. The Compensation Committee also makes
recommendations regarding executive compensation to the Board of Directors,
which has final approval of the compensation of each executive officer,
including the named executive officers identified in the Summary Compensation
Table above. The named executive officers do not participate in the Board of
Directors' review and determination of their compensation or in the Compensation
Committee's review and recommendation of their compensation.

The Company's executive compensation program is designed to attract,
reward, retain and motivate executive officers who will provide strong
leadership necessary for the Company to achieve superior financial

performance and stockholder return, and who will be an integral part of the
communities that the Company serves. During 2002, the Company's executive
compensation program consisted only of base compensation and long-term
incentives. Executive officers also receive various perquisites comparable to
those made available to executive officers of other financial institutions, as
well as retirement and other employee benefits that are generally available to
employees of the Company and its subsidiaries.

EXECUTIVE COMPENSATION PROGRAM

BASE COMPENSATION

Base compensation provides the foundation for the Company's executive
compensation. Its purpose is to compensate the executive for performing the
basic duties that he or she is expected to perform. Salaries are typically
reviewed and adjusted each year. During 2002 the base compensation paid to
Kennon R. Patterson, Sr. was subject to the terms of his employment agreement
with the Company. Mr. Patterson's employment agreement provided for a minimum
base salary, is subject to annual review in the discretion of the Board of
Directors based upon the recommendation of the Compensation Committee

In determining the base compensation for a particular executive
officer, the Compensation Committee performs a subjective evaluation with three
primary factors in mind: (i) the officer's individual performance, (ii)
performance of the Company and business unit or units of the Company for which
the officer is responsible, and (iii) published compensation data for comparable
positions at other financial institutions. The Compensation Committee does not
assign any relative or specific weights to these factors, and individual members
of the Compensation Committee may give differing weights to different factors.
Accordingly, during a particular year, the base compensation of an executive
officer of the Company may not necessarily be related to the Company's
performance during that year or the prior year.

Individual Performance. In determining its recommended compensation for
each executive officer of the Company, the Compensation Committee considers the
officer's individual performance during the prior year. Individual performance
is generally evaluated by reference to the executive officer's annual
performance review, in which the officer is subjectively graded by his or her
superiors on various specified criteria, such as leadership skill and management
ability.

Company Performance. The Compensation Committee also considers the
performance during the prior year of the Company and the bank, branch, branches
or other business unit or units of the Company for which the executive officer
is responsible. For example, in determining the compensation for the Chairman,
Chief Executive Officer and President of the Company, the Compensation Committee
reviews the performance of the entire Company, and in determining the
compensation for the President of Community Bank, the Compensation Committee
reviews the performance of Community Bank as a whole. The Compensation Committee
subjectively evaluates the performance by the business units with respect to
criteria that the Compensation Committee believes to be relevant in assessing
the units' performance. The Compensation Committee has not established any
target amounts for these criteria, which may differ from unit to unit, depending
on the nature of the unit's business (such as banking, consumer finance or
insurance) and how long the unit has been in operation, among other factors. The
Compensation Committee generally focuses on the following five criteria, to the
extent applicable, in assessing each unit's performance: (i) growth in loan
portfolio; (ii) growth in deposits; (iii) amount of employee turnover; (iv) net
profit; and (v) charge-offs and loan losses.

Published Compensation Data. The Company subscribes to several industry
publications that report compensation of the executive officers of other
financial institutions. The Compensation Committee reviews information regarding
the compensation of similarly-situated executives at comparable institutions in
determining its recommended compensation for a particular executive officer.

Based on these and other factors that the Compensation Committee and
its members may deem to be relevant, the Compensation Committee determines the
base compensation of each executive officer and makes its recommendations to the
Board of Directors. The Board of Directors then considers the Compensation
Committee's recommendations, and may elect to decrease, increase or approve the
compensation recommended by the Compensation Committee. During 2002 the annual
base compensation for Kennon R. Patterson, Sr. remained at $917,000. The annual
base compensation of the following named officers was increased to reflect
additional duties or positions: Loy McGruder to $273,782; Hodge Patterson to
$257,438; and Stacey W. Mann to $200,000. Bishop K. Walker, Jr. and Denny G.
Kelly retired in January 2002 and Patrick M. Frawley was hired during 2002.

ANNUAL BONUSES

The Company has, to a limited extent, provided short-term incentives to
executive officers in the form of annual cash bonuses in recognition of
outstanding individual performance and/or business unit performance. The Board
of Directors did not award bonuses to any executive officer of the Company for
2002, based on the Board's determination that the officers' base compensation
provided adequate compensation based on the Company's performance during 2002.

LONG-TERM INCENTIVES

The purpose of long-term incentives is to provide incentives and
rewards recognizing the performance of the Company over time and to motivate
long-term, strategic thinking among executives. During 2002, the Company granted
stock options to its directors and certain of its officers as long-term
incentives because, among other reasons, the Compensation Committee believes
stock options properly align executive pay with stockholders' interests. The
grant of stock options is a common method of incentive compensation for
financial institutions and other publicly held companies and allows the Company
to be competitive with other employers. The number of options granted to a
particular executive officer generally reflects the officer's position within
the Company, the Compensation Committee's subjective evaluation of the officer's
performance and contribution to the Company, and the Compensation Committee's
analysis of the value of the options awarded (using a standard methodology for
valuing options). During 2002, the Company granted options to Kennon R.
Patterson, Sr., Loy McGruder, Hodge Patterson, Stacey Mann, Denny Kelly and
certain other senior officers of the Company, with an exercise price equal to
100% of the fair market value of the Common Stock on the date that the options
were granted, as determined by the Board of Directors.

CHIEF EXECUTIVE OFFICER COMPENSATION

Effective April 1, 1996, the Company entered into an employment
agreement with Kennon R. Patterson, Sr., the Chief Executive Officer of the
Company, which was amended on October 14, 1999. Compensation for Mr. Patterson
during 2002 was determined in accordance with the terms of his employment
agreement and the Board of Directors' subjective evaluation of Mr. Patterson's
performance and that of the Company, as well as the other factors and criteria
described above for other executive officers of the Company. For 2002 Mr.
Patterson's annual base salary remained at $917,000, the amount of his 2001 base
salary. Mr. Patterson's cash compensation for 2001 had been reduced by 10% as
part of a program to decrease non-interest expenses at the Company.

Mr. Patterson's employment with the Company and Community Bank was
terminated on January 27, 2003.

By the Executive Compensation Committee:

Merritt M. Robbins (Chairman) Glynn Debter John J. Lewis, Jr.
Jimmie Trotter (Vice Chairman) Roy B. Jackson Kennon R. Patterson, Jr.

PERFORMANCE GRAPH

Set forth below is a graph comparing the yearly percentage change in
the cumulative total return of the Common Stock against the cumulative total
return of the NASDAQ Stock Market Bank Index and the American Stock Exchange
Major Market Index for the last five years. It assumes that the value of the
investment in the Common Stock and in each index was $100.00 and that all
dividends were reinvested. There is no established trading market for the Common
Stock and, therefore, no reliable information is available as to the prices at
which such Common Stock has traded. To the extent that cumulative total return
data provided in the graph below is based in part on the price of the Common
Stock at the dates indicated, such information should not be viewed as
indicative of the actual or market value of the Common Stock.

(LINE GRAPH)

INDEX 12/31/97 12/31/98 12/31/99 12/31/00 12/31/01 12/31/02
----- -------- -------- -------- -------- -------- --------

Community Bancshares, Inc. 100.00 137.78 170.29 146.35 109.76 109.76
AMEX Major Markets 100.00 120.32 144.04 135.75 132.29 116.37
NASDAQ Bank Index* 100.00 99.36 95.51 108.95 117.97 120.61

Source: SNL Financial L.C.

The information provided under the headings "Audit Committee Report," "Executive
Compensation Committee Report on Executive Compensation" and "Performance Graph"
above shall not be deemed to be "soliciting material" or to be "filled" with the
SEC, or subject to Regulation 14A or 14C, other than as provided in Item 402 of
Regulation S-K, or to liabilities of Section 18 of the Exchange Act and, unless
specific reference is made therein to such headings, shall not be incorporated
by reference into any filings under the Securities Act of 1933 or the Exchange
Act.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS

The following table sets forth certain information, as of May 30, 2003,
with respect to ownership of shares of Common Stock by each of the Company's
directors, nominees, all directors, and executive officers of the Company as a
group, and each other person or group that is known by the Company, based solely
upon a review of filings made with the SEC, to be the beneficial owner of more
than 5% of the outstanding shares of Common Stock.

SHARES OF COMMON STOCK BENEFICIALLY OWNED (1)
--------------------------------------------- PERCENTAGE OF
TOTAL SHARES
PERSON, GROUP OR ENTITY SOLE POWER (2) SHARED POWER (3) AGGREGATE OUTSTANDING
----------------------- -------------- ---------------- --------- -------------

I. DIRECTORS, NOMINEES AND
EXECUTIVE OFFICERS

Kenneth K. Campbell 46,767 900 47,667 *

Glynn Debter 25,400(4) 21,611 47,011 *

Patrick M. Frawley 75,500(5) 174,267 249,767 5.20

Roy B. Jackson 26,500(6) 6,600 33,100 *

John J. Lewis, Jr. 68,390(7) 175,467 243,857 5.07

Stacey W. Mann 46,980(8) 4,155 51,135 1.06

Loy McGruder 46,367(9) 32,084 78,451 1.63

Kennon R. Patterson, Sr. 41,435(10) 552,442 593,877 12.35

Kennon R. Patterson, Jr. 31,699(11) 70,588 102,287 2.13

Merritt M. Robbins 198,427(12) 179,337 377,764 7.86

Jimmie Trotter 27,000(13) 178,281 205,281 4.27

All Company directors,
nominees for directors and
executive officers as a group
(12 persons) 649,465 802,351 1,451,808 30.20

II. OTHERS

U.S. Trust Company, N.A. as
Trustee of the Community
Bancshares, Inc. Employee
Stock Ownership Plan (14) -- 518,742(15) 518,742 (15) 10.80

Doris S. Corr, Bryan A. Corr, Sr.
Tina M. Corr, Joan M. Currier,
John David Currier, Sr.,
Christy C. Chandler, John
David Currier, Jr. and Corr,
Inc., as a group, 600 Third
Avenue East, Oneonta,
AL 35121 (16) 181,278 200,071 381,349 7.93

----------------------
* Less than 1%

(1) The number of shares reflected are shares which, under applicable SEC
regulations, are deemed to be beneficially owned, including shares as to which,
directly or indirectly, through any contract, arrangement, understanding,
relationship or otherwise, either voting power or investment power is held or
shared. In addition, in computing the number of shares beneficially owned by a
person and the percentage ownership of that person, shares of Common Stock
subject to options held by that person which are currently exercisable, or which
will become exercisable within 60 days following June 9, 2003, are deemed to be
outstanding. Such shares, however, are not deemed outstanding for the purposes
of computing the percentage ownership of any other person. The total number of
shares beneficially owned is divided, where applicable, into two categories: (i)
shares as to which voting/investment power is held solely, and (ii) shares as to
which voting/investment power is shared.

(2) Unless otherwise specified in the following footnotes, if a beneficial owner
is shown as having sole power, the owner has sole voting as well as sole
investment power, and if a beneficial owner is shown as having shared power, the
owner has shared voting power as well as shared investment power. Some
individuals are shown as beneficial owners of shares held by the Company's ESOP.
The individual has sole power to direct the ESOP trustee as to the manner in
which shares allocated to the individual's account under the ESOP are to be
voted. The individual has no direct power of disposition with respect to shares
allocated to the individual's account, except to request a distribution under
the terms of the ESOP. The ESOP recordkeeper has not completed the allocation as
of December 31, 2002, so the number of shares shown as allocated to an
individual's account are as of December 31, 2001.

(3) This column may include shares held in the name of, among others, a spouse,
minor children or certain other relatives sharing the same home as the director,
nominee, executive officer or 5% stockholder. In the cases of Messrs. Frawley,
Lewis, Robbins and Trotter this column includes 174,267 shares which are held by
the ESOP and which have not been allocated to any participant account. These
individuals serve as members of the Administrative Committee of the ESOP and
have investment authority over the unallocated shares, but each individual
disclaims any beneficial ownership with respect to such unallocated shares.

(4) Includes 25,500 shares which could be acquired within 60 days following June
9, 2003 pursuant to stock options

(5) Includes 75,000 shares which could be acquired within 60 days following June
9, 2003 pursuant to stock options.

(6) Includes 25,000 shares which could be acquired within 60 days following June
9, 2003 pursuant to stock options.

(7) Includes 25,000 shares which could be acquired within 60 days following June
9, 2003 pursuant to stock options.

(8) Includes 22,500 shares which could be acquired within 60 days following June
9, 2003 pursuant to stock options and 15,334 shares allocated to Mr. Mann's ESOP
account as of December 31, 2001.

(9) Includes 35,000 shares which could be acquired within 60 days following June
9, 2003 pursuant to stock options and 11,367 shares allocated to Mr. McGruder's
ESOP account as of December 31, 2001.

(10) Includes 41,335 shares allocated to Mr. Kennon R. Patterson, Sr.'s ESOP
account as of December 31, 2001.

(11) Includes 25,000 shares which could be acquired within 60 days following
June 9, 2003 pursuant to stock options.

(12) Includes 25,000 shares which could be acquired within 60 days following
June 9, 2003 pursuant to stock options.

(13) Includes 25,000 shares which could be acquired within 60 days following
June 9, 2003 pursuant to stock options.

(14) The address of North Star Trust Company is 500 West Madison Street, Suite
3630, Chicago, Illinois 60661.

(15) Participants in the ESOP have the power to direct the ESOP trustee how to
vote shares allocated to their individual accounts. Any unallocated shares, and
any allocated shares with respect to which voting instructions are not received
from a participant, will be voted by the appropriate ESOP fiduciary in its
discretion.

(16) Information about this group was obtained from a Schedule 13D, and
amendments thereto, filed by such group with the SEC.

PROPOSAL 2 - REMOVAL OF A DIRECTOR

The Company proposes to remove Kennon R. Patterson, Sr., a Class III
director whose term does not otherwise expire until the annual meeting of
stockholders in 2005. Pursuant to the Company's Certificate of Incorporation, a
director of the Company may be removed from office prior to the expiration of
his term only for cause and only by the affirmative vote of the holders of at
least 80% of the voting power of all the shares of the Company that are present,
in person or by proxy, at a meeting of the stockholders. Cause is defined in the
Certificate of Incorporation to mean "the director's willful dishonesty towards,
fraud upon, or deliberate injury or attempted injury" to the Company.

On January 21, 2003 Mr. Patterson, who at that time was Chairman,
President and Chief Executive Officer of the Company and Chairman and Chief
Executive Officer of Community Bank, requested that the Board of Directors of
Community Bank release a second mortgage on his property which was securing a
real estate loan to Mr. Patterson of approximately $5.1 million. The value of
the second mortgage was approximately $3.0 million based on financial statements
and appraisals provided by Mr. Patterson. The reason Community Bank obtained the
second mortgage in June 2002 was in response to regulatory concerns that the
$5.1 million loan to Mr. Patterson presented a greater [ ] than normal risk of
loss to Community Bank. The Board of Directors of Community Bank agreed to
release the mortgage only on the condition that the action not conflict with
certain regulatory requirements applicable to Community Bank and that it be
consistent with Community Bank's practice for similarly situated loans. On
January 22, 2003 Mr. Patterson caused two mortgage releases to be executed and
recorded which, due to an error in the legal description, purported to release
Community Bank's first and second mortgages. On January 23, 2003 at a regulatory
meeting in Atlanta, certain directors and officers attending the meeting learned
that Mr. Patterson had on January 20, 2003 filed for protection from creditors
under Chapter 11 of the United States Bankruptcy Code and had failed to inform
the directors of that action the next day when he requested a release of the
mortgage. On January 27, 2003 the Boards of Directors of the Company and
Community Bank terminated Mr. Patterson's employment. The directors have also
been informed that the condition they imposed on the release of the collateral
was not satisfied in that the collateral release was considered to be a
violation of regulatory requirements applicable to Community Bank. On February
6, 2003 the Board of Directors of the Company removed Mr. Patterson as a
director of Community Bank.

The Board of Directors of the Company conside Mr. Patterson's
concealment of his bankruptcy filing at the time he requested a release of
collateral on his substantial loan, his recording of the mortgage release
without satisfying the condition for the release imposed by the Board of
Directors causing Community Bank to be in violation of regulatory requirements,
and the attempted release of both mortgages, potentially leaving Community Bank
unsecured on a substantial loan, to constitute willful dishonesty towards, fraud
upon, or deliberate injury or attempted injury to the Company within the meaning
of the Certificate of Incorporation.

On May 20, 2003 the Federal Deposit Insurance Corporation ("FDIC")
instituted proceedings to determine whether Mr. Patterson should be (1) required
to make restitution of approximately $1.4 million to Community Bank for breach
of fiduciary duty as an officer and director of Community Bank, and (2)
prohibited from further participation in the conduct of the affairs of Community
Bank or any other FDIC-insured bank without prior regulatory approval. The FDIC
also notified Mr. Patterson of its intention to assess against him a civil money
penalty of $1.4 million. It is the Company's understanding that Mr. Patterson
will have an opportunity to contest these actions by the FDIC.

THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" THE
REMOVAL OF KENNON R. PATTERSON, SR. AS A DIRECTOR OF THE COMPANY.

RELATIONSHIP WITH INDEPENDENT PUBLIC ACCOUNTANTS

SELECTION

The Board of Directors of the Company engaged the accounting firm of
Carr, Riggs & Ingram, L.L.C. ("CRI") as the independent accountant of the
Company for 2002 and 2003. A representative from CRI is expected to attend the
Annual Meeting, have an opportunity to make a statement and be available to
respond to appropriate questions.

The Board of Directors of the Company had previously engaged Dudley
Hopton-Jones, Sims & Freeman, PLLP (("Dudley Hopton-Jones") to serve as the
independent accountant of the Company for 2000 and 2001. On April 11, 2002,
Community Bank requested approval from the Alabama Banking Department (the
"Department") pursuant to the Alabama state banking statutes for Dudley
Hopton-Jones to serve as Community Bank's independent auditor for 2002. By
letter dated August 1, 2002, the Department declined the request and
prospectively disapproved Dudley Hopton-Jones as Community Bank's independent
auditor. The reasons for the disapproval given in the Department's letter were
unspecified "concerns about the conclusions reached" by Dudley Hopton-Jones in
connection with the 2001 audit of Community Bank and certain unspecified "issues
from past audits." On October 4, 2002, Dudley Hopton-Jones tendered its
resignation as the Company's independent auditor which was accepted by the Audit
Committee of the Company's Board of Directors. On October 4, 2002 the chairman
of the Audit Committee executed an engagement letter with CRI, and the Board of
Directors ratified the engagement the same day.

Neither of Dudley Hopton-Jones' reports on the Company's financial
statements for 2000 or 2001 contained an adverse opinion or a disclaimer of
opinion or was qualified or modified as to uncertainty, audit scope or
accounting principles. During fiscal years 2000, 2001 and through October 4,
2002 there were no disagreements between the Company and Dudley Hopton-Jones on
any matter of accounting principles or practices, financial statements
disclosure or auditing scope or procedure.

AUDIT FEES

CRI billed the Company a total of $145,000 for professional services
rendered for the audit of the Company's financial statements as of December 31,
2002 and for the reviews of the financial statements included in the Company's
Third Quarter Report on Form 10-Q filed with the Securities and Exchange
Commission during 2002. CRI estimates that it will bill the Company an
additional $145,000 in connection with the audit of the Company's financial
statements as of December 31, 2002.

FINANCIAL INFORMATION SYSTEMS DESIGN AND IMPLEMENTATION FEES

For the fiscal year ended December 31, 2002, there were no fees billed
by CRI for professional services rendered for information technology services
relating to financial information systems design and implementation.

ALL OTHER FEES

CRI provided no additional services than the services described above
under "Audit Fees" for the fiscal year ended December 31, 2002.

VOTING PROCEDURES

Under the Delaware General Corporation Law ("DGCL") and the Company's
Bylaws, the presence in person or by proxy of a majority of the outstanding
shares of Common Stock is necessary to constitute a quorum of the stockholders
to take action at the Annual Meeting. For these purposes, shares which are
present or represented by a proxy at the Annual Meeting will be counted for
quorum purposes regardless of whether the holder of the shares or the proxy
abstains from voting on any particular matter or whether a broker with
discretionary authority fails to exercise its discretionary voting authority
with respect to any particular matter. Under the DGCL, once a quorum of the
stockholders is established, (i) the directors standing for election must be
elected by a plurality of the shares of Common Stock present, in person or by
proxy, at the Annual Meeting, and (ii) any other action to be taken must be
approved by the vote of the holders of a majority of the shares of Common Stock
present, in person or by proxy, at the Annual Meeting, unless otherwise provided
in the Company's Certificate of Incorporation or Bylaws. Pursuant to the
Company's Certificate of Incorporation, the holders of at least 80% of the
voting power of all the shares of the Company that are present, in person or by
proxy, at a meeting of the stockholders must approve the removal of a director
of the Company. Abstentions will in effect count as votes against approval of
actions to be taken at the Annual Meeting other than election of directors.
Broker non-votes will not have an effect on the outcome of the election of
directors or approval of any other action the Company is aware is to be taken at
the Annual Meeting.

MISCELLANEOUS INFORMATION

STOCKHOLDER PROPOSALS

Any proposals by stockholders intended to be presented at the Company's
2004 annual meeting of stockholders, if to be included in the Company's proxy
materials for that annual meeting, must be received in written form at the
Company's executive offices on or before February 1, 2004, and must otherwise be
in compliance with Rule 14a-8 under the Exchange Act and other applicable legal
requirements.

NOMINATIONS FOR DIRECTORS AND OTHER BUSINESS

The Company's Bylaws require stockholders to follow certain procedures
in order to submit nominations of persons for election to the Board of Directors
or to propose other business to be acted upon at the Company's 2003 annual
meeting of stockholders. The Company's Nominating Committee will consider
nominations of persons for election to the Board of Directors that are timely
and otherwise submitted in accordance with the following. The persons named on
the enclosed proxy card will not vote to elect any person other than the persons
nominated on page 3 of this Proxy Statement, or if any such persons are
unavailable to serve or for good cause cannot serve, then the persons named on
the enclosed proxy card will vote for the election of such substitute as the
members of the Board of Directors may recommend. Instructions given on the
enclosed proxy card to the contrary will not be followed.

In order to give timely notice for the Company's 2004 annual meeting, a
stockholder must give notice in writing of the nomination or other business to
the Corporate Secretary of the Company at its office at 68149 Highway 231 South,
P.O. Box 1000, Blountsville, Alabama 35031, not later than the close of business
on April 25, 2004, nor earlier than March 26, 2004. If the date of the annual
meeting is more than 30 days before or more than 60 days after July 24, 2004,
however, notice to be timely must be delivered not earlier than the close of
business on the 120th day prior to such annual meeting and not later than the
close of business on the later of the 90th day prior to the annual meeting or
the 10th day following the day on which public announcement of the date of such
meeting is first made by the Company. The stockholder must be a stockholder of
record at the time the notice is given and must be entitled to vote at such
meeting. The stockholder's notice must set forth (a) as to each nominee, all
information relating to that person that is required to be disclosed in
solicitations of proxies for election of directors in an election contest, or is
otherwise required, in each case pursuant to Regulation 14A under the Exchange
Act and Rule 14a-4 thereunder (including the nominee's written consent to being
named in the proxy statement as a nominee and to serving as a director if
elected), (b) as to any other business that the stockholder proposes to bring
before the annual meeting, a brief description of the business desired to be
brought

before the annual meeting, the reasons for conducting such business at the
annual meeting and any material interest in such business of such stockholder
and the beneficial owner, if any, on whose behalf the nomination or proposal is
made, and (c) as to the stockholder giving the notice and the beneficial owner,
if any, on whose behalf the nomination is made, the name and address of the
stockholder, as they appear on the Company's books, and of such beneficial
owner, and the number and class of shares of the Company owned of record and
beneficially by such stockholder and such beneficial owner.

The individuals named as proxies on the proxy card for the Company's
2004 annual meeting of stockholders will be entitled to exercise their
discretionary authority in voting proxies on any stockholder proposal that is
not included in the Company's proxy statement for the 2004 annual meeting of
stockholders, unless the Company receives notice of the matter(s) to be proposed
no later than April 25, 2004. Even if proper notice is received within such time
period, the individuals named as proxies on the proxy card for the meeting may
nevertheless exercise their discretionary authority with respect to such
matter(s) by advising stockholders of the proposal(s) and how the proxies intend
to exercise their discretion to vote on the matter(s), unless the stockholder
making the proposal(s) complies with Rule 14a-4(c)(2) under the Exchange Act.

PROXY CARD

COMMUNITY BANCSHARES, INC.

PROXY FOR 2003 ANNUAL MEETING OF STOCKHOLDERS

SOLICITED BY THE BOARD OF DIRECTORS

The undersigned hereby appoints Gary L. Duke and Gerald N. Player, and
either of them, or such other persons as the Board of Directors of Community
Bancshares, Inc. (the "Company") may designate, as proxies, with full power of
substitution and re-substitution, to vote all of the shares of Common Stock
which the undersigned is entitled to vote at the Annual Meeting of Stockholders
of the Company to be held at10:00 a.m., Central Time, on Thursday, July 24,
2003, at the Main Club House at Limestone Springs, 3000 Colonial Drive, Oneonta,
Alabama, and at any adjournment thereof (the "Annual Meeting").

IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE IN ACCORDANCE
WITH THE RECOMMENDATIONS OF THE BOARD OF DIRECTORS (i) FOR THE ELECTION OF A
PERSON TO THE BOARD OF DIRECTORS IF ANY NOMINEE NAMED HEREIN BECOMES UNABLE TO
SERVE OR FOR GOOD CAUSE WILL NOT SERVE, AND (ii) UPON SUCH OTHER MATTERS AS MAY
PROPERLY COME BEFORE THE ANNUAL MEETING, INCLUDING MATTERS INCIDENT TO THE
CONDUCT OF THE ANNUAL MEETING.

THIS PROXY IS BEING SOLICITED BY THE BOARD OF DIRECTORS AND WILL BE
VOTED AS SPECIFIED. IF NOT OTHERWISE SPECIFIED, THE ABOVE NAMED PROXIES WILL
VOTE (1) FOR THE ELECTION AS CLASS I DIRECTORS OF THE NOMINEES NAMED ON THIS
CARD, (2) FOR THE REMOVAL OF KENNON R. PATTERSON, SR. AS A CLASS III DIRECTOR OF
THE COMPANY, AND (3) IN ACCORDANCE WITH THE RECOMMENDATIONS OF THE BOARD OF
DIRECTORS ON ANY OTHER MATTERS THAT MAY PROPERLY COME BEFORE THE ANNUAL MEETING.

1. Election of Class I Directors Nominees: Roy B. Jackson, Stacey W. Mann and Jimmie Trotter (or, in
the event any such person is unable to serve, such nominee(s)
as are designated by the Company's Board of Directors)

[ ] FOR all nominees listed (except as marked to the contrary below)

[ ] WITHHOLD AUTHORITY to vote for all nominees listed

[ ] INSTRUCTION: To withhold authority to vote for any individual nominee,
write his name or their names in the following
space:___________________________________________________________

NOTICE: IF THIS PROXY IS EXECUTED IN SUCH MANNER AS NOT TO WITHHOLD AUTHORITY TO
VOTE FOR THE ELECTION OF ANY NOMINEE, IT SHALL BE DEEMED TO GRANT SUCH
AUTHORITY.

2. Removal of a Director

[ ] FOR removal of Kennon R. Patterson, Sr. as a Class III director of the
Company

[ ] AGAINST removal of Kennon R. Patterson, Sr. as a Class III director of
the Company

Dated:_______________________________, 2003 IMPORTANT: Please sign exactly
as your name or names appear
Signature:_________________________________ on this proxy card and mail
promptly in the enclosed
Signature:_________________________________ envelope. If you sign as an
(if held jointly) agent or in any other
capacity, please state the
capacity in which you sign.