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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C.  20549
FORM 10-K

For the Fiscal Year Ended December 31, 2001

The Securities Exchange Act of 1934

Commission File Number 33-81890

Registrant’s telephone number, including area code: (706) 778-2265

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes  þ   No  ¨.

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.      Not applicable.  Registrant is not required to be registered under the Securities Exchange Act of 1934.

Aggregate market value of the voting stock held by non-affiliates of the Registrant as of March 18, 2002: $ 38,102,660 (based upon approximate market value of $41.32 /share, the latest sales price known to the Registrant for the Common Stock, for which there is no established trading market.

As of March 18, 2002, 2,186,330 shares of Common Stock, par value $1.00 per share, were issued and outstanding.

PART 1

ITEM 1.       BUSINESS.

                Community Bankshares, Inc. (the “Company”) was organized under the laws of Georgia in 1980 and commenced operations in 1981.  The Company is a registered financial holding company.  All of the Company’s activities are currently conducted by or through its subsidiaries, Community Bank & Trust (“Community”), Community Bank & Trust-Alabama (“Community-Alabama”), and Community Bank & Trust-Troup (“Community-Troup”)  (collectively, the “Community Banking Subsidiaries”) and the non-bank subsidiaries of Community, Financial Supermarkets, Inc. (“Financial Supermarkets”) and Financial Properties, Inc. (“Financial Properties”).

                All references herein to the Company include Community Bankshares, Inc., the Community Banking Subsidiaries, Financial Supermarkets and Financial Properties, unless the context indicates a different meaning.

Forward Looking Statements

                This Form 10-K, both in the Management’s Discussion and Analysis section and elsewhere, contains forward-looking statements under the Private Securities Litigation Reform Act of 1995 that involve risks and uncertainties.  Although we believe the assumptions underlying the forward-looking statements contained in the discussions are reasonable, any of the assumptions could be inaccurate; therefore, no assurance can be made that any of the forward-looking statements included in this discussion will be accurate.  Factors that could cause actual results to differ from results discussed in forward-looking statements include, but are not limited to: economic conditions (both generally and in the markets where we operate); competition from other providers of financial services; government regulation and legislation; changes in interest rates; material unforeseen changes in the financial stability and liquidity of our credit customers; and other risks detailed in our filings with the Securities and Exchange Commission, all of which are difficult to predict and which may be beyond our control.  We undertake no obligation to revise forward-looking statements to reflect events or changes after the date of this discussion or to reflect the occurrence of unanticipated events.

Business Description of Community Banking Subsidiaries

                GENERAL.    Each of the Community Banking Subsidiaries is community-oriented and offers such customary banking services as consumer and commercial checking accounts, NOW accounts, savings accounts, certificates of deposit, lines of credit and money transfers.  Each Community Banking Subsidiary finances commercial and consumer transactions, makes secured and unsecured loans, and provides a variety of other banking services.

                DEPOSITS.    Each Community Banking Subsidiary offers a full range of depository accounts and services to both consumers and businesses.  At December 31, 2001, our aggregate deposit base, totaling approximately $562.2 million, consisted of approximately $81.2 million in non-interest-bearing demand deposits (14.44% of total deposits), approximately $131.0 million in interest-bearing demand deposits (including money market accounts) (23.30% of total deposits), approximately $26.5 million in savings deposits (4.71% of total deposits), approximately $210.0 million in time deposits in amounts less than $100,000 (37.35% of total deposits), and approximately $113.5 million in time deposits of $100,000 or more (20.20% of total deposits).

                LOANS.    Each Community Banking Subsidiary makes both secured and unsecured loans to individuals, firms and corporations, and both consumer and commercial lending operations include various types of credit for customers.  In addition, the Company operates a loan production office in Gainesville, Georgia through Community.  The Gainesville loan production office funds and sells on the open market loans guaranteed by the Small Business Administration (the “SBA”) and servicing rights with respect to those loans.  Each Community Banking Subsidiary also makes direct installment loans to consumers on both a secured and unsecured basis.  At December 31, 2001, consumer, real estate (including mortgage and construction loans) and commercial loans represented approximately 11.84%, 75.93% and 11.69%, respectively, of our total loan portfolio.  The real estate loans made by each Community Banking Subsidiary include residential real estate construction, acquisition and development loans, as well as some loans for other purposes, which are secured by real estate.

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                Commercial lending is directed principally toward businesses within the defined market area of the Community Banking Subsidiaries or existing or potential deposit customers of the Community Banking Subsidiaries.  The Gainesville loan production office, however, makes a large portion of loans to individuals and businesses that are not located in its market area. Collateral includes marketable securities, certificates of deposit, accounts receivable, inventory and equipment.  Commercial lending decisions are based upon a determination of the borrower’s ability and willingness to repay the loan, which in turn are impacted by such factors as the borrower’s cash flow, sales trends and inventory levels, as well as relevant economic conditions.  This category includes loans made to individuals, partnership or corporate borrowers that are obtained for a variety of purposes.  Risks associated with these loans can be significant.  Risks include, but are not limited to, fraud, bankruptcy, economic downturn in industry trends, deteriorated or non-existing collateral, and changes in interest rates.

                Some loans secured by real estate, which are made to businesses, are categorized as real estate loans.  Often, real estate collateral is deemed to be superior to other collateral available to small- to medium-sized businesses.  The underwriting standards of and risks to the Community Banking Subsidiaries are as described below with respect to real estate loans.

                The Community Banking Subsidiaries offer traditional first mortgage loans to individuals for one-to-four family structures.  These loans are sold in the secondary market.  Since the Community Banking Subsidiaries are originators of mortgages rather than investors, they sell them servicing-released.  They offer loan-to-value amounts from 70% to 95%.  Various types of fixed-rate and variable-rate products are available.  Risks involved with residential mortgage lending include, but are not limited to, title defects, fraud, general real estate market deterioration, inaccurate appraisals, interest rate fluctuations and financial deterioration of the borrower.

                The Community Banking Subsidiaries also make residential construction loans, generally for one-to-four family unit structures.  The Community Banking Subsidiaries require a first lien position on the loans associated with construction projects and offer these loans only to bona fide professional building contractors.  Loan disbursements require independent, on-site inspections to assure the project is on budget and that the loan proceeds are being used in accordance with the plans, specifications, and survey for the construction project and not being diverted to other uses.  The loan-to-value limit for such loans is 85% for non-owner occupied and 90% for owner occupied of the as-built appraised value.  Loans for construction can present a high degree of risk depending on, among other things, whether the builder can sell the home to a buyer and the nature of changing economic conditions.  In addition all loans for development and construction projects should have a take-out commitment from one of the Community Banking Subsidiaries or from another qualified lender, which should be in writing prior to closing of the construction loan.

                Additionally, the Community Banking Subsidiaries make acquisition and development loans to approved developers for the purpose of developing acreage into single-family lots on which houses will be built.  The loan-to-value ratio for such loans does not exceed 75% of the value as defined by an independent appraisal, or 100% of the cost, whichever is less.  Loans for acquisition and development can present a high degree of risk to the Community Banking Subsidiaries, depending upon, among other things, whether the developer can find builders to buy the lots, whether the builders can obtain financing, whether the transaction produces income in the interim, and the nature of changing economic conditions.

                In addition, the Community Banking Subsidiaries make consumer loans, consisting primarily of installment loans to individuals for personal, family and household purposes, including loans for automobiles, home improvements and investments.  Consumer lending decisions are based on a determination of the borrower’s ability and willingness to repay the loan, which in turn are affected by such factors as the borrower’s income, job stability, previous credit history and any collateral for the loan.  Risks associated with these loans include, but are not limited to, fraud, deteriorated or non-existing collateral, a general economic downturn, bankruptcy, layoffs and consumer financial problems.

                LENDING POLICY.    The current lending strategy of each Community Banking Subsidiary is to offer consumer, real estate and commercial credit services to individuals and entities that meet our credit standards.  Each Community Banking Subsidiary provides its lending officers with written guidelines for lending activities.  Lending authority is delegated by the Board of Directors of the particular Community Banking Subsidiary to loan officers, each of whom is limited in the amount of secured and unsecured loans which he or she can make to a single borrower or related group of borrowers.

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                LOAN REVIEW AND NON-PERFORMING ASSETS.    Each Community Banking Subsidiary reviews its loan portfolio to determine deficiencies and corrective action to be taken, and the Company reviews the loan portfolio of each Community Banking Subsidiary.  Senior lending officers conduct periodic reviews of borrowers and ongoing reviews of all past due loans.  Past due loans are reviewed at least weekly by lending officers and a summary report is reviewed monthly by the particular Community Banking Subsidiary’s Board of Directors.  Each Board of Directors review all loans for Community over $400,000 and samples below $400,000, all loans for Community – Alabama over $100,000 and samples below $100,000 and all loans for Community-Troup over $200,000 and samples below $200,000 whether current or past due, at least once annually.  In addition, each Community Banking Subsidiary maintains internal classifications of problem and potential problem loans.

                ASSET/LIABILITY MANAGEMENT.    Each Community Banking Subsidiary’s Board of Directors is charged with establishing policies to manage the assets and liabilities of the bank.  Each Board’s task is to manage asset growth, net interest margin, liquidity and capital.  The Board directs the bank’s overall acquisition and allocation of funds.  At monthly meetings, a committee of our executives  receives a report from each bank with regard to the monthly asset and liability funds budget and income and expense budget in relation to the actual composition and flow of funds, the ratio of the amount of rate-sensitive assets to the amount of rate-sensitive liabilities, the amount of interest rate risk and equity market value exposure under varying rate environments, the ratio of loan loss reserve to outstanding loans and other variables, such as expected loan demand, investment opportunities, core deposit growth within specified categories, regulatory changes, monetary policy adjustments and the overall condition of the local and state economy.

                INVESTMENT POLICY.    Our investment portfolio policy is to maximize income consistent with liquidity, asset quality and regulatory constraints.  The policy is reviewed from time to time by our Board of Directors.  Individual transactions, portfolio composition and performance are reviewed and approved monthly by the Board of Directors of each bank or a committee thereof.  The President of each Community Banking Subsidiary implements the policy and reports to the bank’s full Board of Directors on a monthly basis information concerning sales, purchases, resultant gains or losses, average maturity, federal taxable equivalent yields and appreciation or depreciation by investment categories.

Business Description of Non-Banking Subsidiaries

                FINANCIAL SUPERMARKETS.  Financial Supermarkets, formed as a Georgia corporation in 1984, is a wholly-owned subsidiary of Community and has four divisions.  Financial Supermarkets’ primary division, The Supermarket Bank, provides various consulting and licensing services to financial institutions in connection with the establishment of bank branches in supermarkets and retail stores.  These services are marketed to international, national, regional and community financial institutions.  Financial Supermarkets enters into agreements primarily with major supermarket chains for the right to establish bank branches in particular sites.  Financial Supermarkets then licenses such rights, along with the right to operate the “Supermarket Bank”, to individual financial institutions, in addition to providing consulting services to such institutions ranging from providing alternative construction designs to coordinating employee training.

                Since 1984, Financial Supermarkets has assisted clients with the development of Supermarket Bank facilities in grocery stores throughout the United States.  Financial Supermarkets primarily competes in the in-store bank branch consulting business with International Banking Technologies of Atlanta, Georgia, and Memphis-based National Commerce Bank Services, Inc. 

                Over its 17-year history, Financial Supermarkets has expanded the scope of its business beyond the supermarket bank industry.  In 1988, it formed a consulting division for the financial services industry.  The division is based in Atlanta and works with financial institutions across the Southeastern United States with regard to state and federal regulatory compliance issues and other day-to-day operational matters.

                In 1992, Financial Supermarkets formed a full-service marketing consulting firm to consult with financial institutions primarily in the Southeastern United States, in addition to working closely with Supermarket Bank clients to develop related advertising and marketing programs. 

                In 1994, Financial Supermarkets formed a travel agency to provide customers with a full range of travel services.

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                In 2000, Financial Supermarkets invested in Internet EMC and Unus, Inc, two companies that work together in providing wholesale internet service.

                FINANCIAL PROPERTIES. Community acquired in March 1998 Financial Properties, Inc.   (“Financial Properties”).   Financial Properties engages in real estate brokerage and related activities primarily in Habersham, Stephens and Jackson Counties, Georgia. 

Competition

                The banking business is highly competitive.  Community competes with four other institutions in Habersham County, Georgia, three institutions in White County, Georgia, nine institutions in Hall County, Georgia, five institutions in Jackson County, Georgia and one institution in Banks County, Georgia; Community-Alabama competes with one other depository institution in Bullock County, Alabama, and eleven other depository institutions in Montgomery, Alabama, and Community-Troup competes with eight other depository institutions in Troup County, Georgia and nineteen institutions in Muscogee County, Georgia.  Each Community Banking Subsidiary also competes with other financial service organizations, including savings banks, finance companies, credit unions and certain governmental agencies.  To the extent that banks must maintain non-interest-earning reserves against deposits, they may be at a competitive disadvantage when compared with other financial service organizations that are not required to maintain reserves against substantially equivalent sources of funds.  Further, the increased competition from investment bankers and brokers and other financial service organizations may have a significant impact on the competitive environment in which each Community Banking Subsidiary operates. 

                The business of the Community Banking Subsidiaries is not  seasonal.  Construction and development lending are strongest in the spring and summer.  Building slows somewhat in the fall and winter, but not to the degree that there is an appreciable impact upon the balance sheets or statement of earnings of any particular Community Banking Subsidiary.

Employees

                At December 31, 2001, we had 348 full-time employees and 45 part-time employees.  Neither we nor any of our subsidiaries are a party to any collective bargaining agreement, and our management believes that our employee relations are good.

Supervision and Regulation

                GENERAL.   We are a registered bank holding company subject to regulation by the Board of Governors of the Federal Reserve (the “Federal Reserve”) under the Bank Holding Company Act of 1956, as amended (the “Bank Holding Act”).  We are required to file financial information with the Federal Reserve periodically and is subject to periodic examination by the Federal Reserve.

                The Act requires every bank holding company to obtain the Federal Reserve’s prior approval before (1) it may acquire direct or indirect ownership or control of more than 5% of the voting shares of any bank that it does not already control; (2) it or any of its non-bank subsidiaries may acquire all or substantially all of the assets of a bank; and (3) it may merge or consolidate with any other bank holding company. 

                Financial holding companies have the authority to engage in activities that are “financial in nature” that are not permitted for other bank holding companies.  Activities that are financial in nature include activities that the Federal Reserve Board had determined by order or regulation, prior to the adoption of the GLB Act, to be closely related to banking or managing or controlling banks or to be a proper incident thereto.  Some of the activities that the Act provides are financial in nature are:

• lending, exchanging, transferring, investing for others or safeguarding money or securities;
• insuring, guaranteeing, or indemnifying against loss, harm, damage, illness, disability, or death, or providing and issuing annuities, and acting as principal, agent, or broker with respect thereto;
• providing financial, investment, or economic advisory services, including advising an investment company;
• issuing or selling instruments representing interests in pools of assets permissible for a bank to hold directly; and

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• underwriting, dealing in, or making a market in securities.

                We must also register with the Department of Banking and Finance of the State of Georgia (the “DBF”) and file periodic information with the DBF.  As part of such registration, the DBF requires information with respect to our financial condition, operations, management and inter-company relationships,  Community and Community-Troup and related matters.  The DBF may also require such other information as is necessary to keep itself informed as to whether the provisions of Georgia law and the regulations and orders issued thereunder by the DBF have been complied with, and the DBF may examine us and each of the Georgia Community Banking Subsidiaries.

                We are an “affiliate” of the Community Banking Subsidiaries under the Federal Reserve Act, which imposes certain restrictions on (i ) loans by the Community Banking Subsidiaries to the Company,  (ii)  investments in the stock or securities of the Company by the Community Banking Subsidiaries,  (iii)  the Community Banking Subsidiaries taking the stock or securities of an “affiliate” as collateral for loans by the Community Banking Subsidiaries to a borrower and (iv) the purchase of assets from the Company by the Community Banking Subsidiaries.  Further, a bank holding company and its subsidiaries are prohibited from engaging in certain tie-in arrangements in connection with any extension of credit, lease or sale of property or furnishing of services.

                Community and Community-Troup, as Georgia banking associations, are subject to the supervision of, and are regularly examined by, the Federal Deposit Insurance Corporation (the “FDIC”) and the DBF.  Community-Alabama is subject to the supervision and examination of the Alabama State Banking Department (the “ABD”) in addition to the FDIC.  Both the FDIC and the DBF must grant prior approval of any merger, consolidation or other corporate reorganization involving Community or Community-Troup.  The ABD must grant prior approval of any merger, consolidation or other corporate reorganization involving Community-Alabama.  A bank can be held liable for any loss incurred by, or reasonably expected to be incurred by, the FDIC in connection with the default of a commonly-controlled institution. 

                PAYMENT OF DIVIDENDS.   We are a legal entity separate and distinct from the Community Banking Subsidiaries.  Most of our  revenues result from dividends paid to us by the Community Banking Subsidiaries.  There are statutory and regulatory requirements applicable to the payment of dividends by the Community Banking Subsidiaries, as well as by us to our shareholders.   

                The Community Banking Subsidiaries are each state-chartered banks regulated by the DBF or ABD, as applicable, and the FDIC.  Under the regulations of the DBF, dividends may not be declared out of the retained earnings of a Georgia bank without first obtaining the written permission of the DBF unless such bank meets all of the following requirements:

(a)	Total classified assets as of the most recent examination of the bank do not exceed 80% of equity capital (as defined by regulation);
(b)	The aggregate amount of dividends declared or anticipated to be declared in the calendar year does not exceed 50% of the net profits after taxes but before dividends for the previous calendar year; and
(c)	The ratio of equity capital to adjusted assets is not less than 6%.

                Under the regulations of the ABD, dividends may be declared by a state bank without obtaining the prior written approval of the ABD only if  (i)  the bank’s surplus (as defined by regulation) is equal to at least 20% of its capital (as defined by regulation) and  (ii)  the aggregate of all dividends declared or anticipated to be declared in the calendar year does not exceed the total of its net earnings (as defined by regulation) of that year combined with its retained net earnings of the preceding two years, less any required transfers to surplus.  No dividends may be paid from an Alabama bank’s surplus without the prior written approval of the ABD.

                The payment of dividends by the Company and the Community Banking Subsidiaries may also be affected or limited by other factors, such as the requirement to maintain adequate capital above regulatory guidelines.  In addition, if, in the opinion of the applicable regulatory authority, a bank under its jurisdiction

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is engaged in or is about to engage in an unsafe or unsound practice (which, depending upon the financial condition of the Community Banking Subsidiaries, could include the payment of dividends) such authority may require, after notice and hearing, that such bank cease and desist from such practice.  The FDIC has issued a policy statement providing that insured banks should generally only pay dividends out of current operating earnings.  In addition to the formal statutes and regulations, regulatory authorities consider the adequacy of each of the Community Banking Subsidiary’s total capital in relation to its assets, deposits and other such items.  Capital adequacy considerations could further limit the availability of dividends to the Community Banking Subsidiaries.  At December 31, 2001, retained earnings available from the Community Banking Subsidiaries to pay dividends totaled approximately $5.0 million, which did not require regulatory approval.  For 2001, the Company’s cash dividend payout to shareholders was 6.40% of net income.

                MONETARY POLICY.   The results of operations of the Community Banking Subsidiaries are affected by credit policies of monetary authorities, particularly the Federal Reserve.  The instruments of monetary policy employed by the Federal Reserve include open market operations in U.S. government securities, changes in the discount rate on bank borrowings and changes in reserve requirements against bank deposits.  In view of changing conditions in the national economy and in the money markets, as well as the effect of actions by monetary and fiscal authorities, including the Federal Reserve, no prediction can be made as to possible future changes in interest rates, deposit levels, loan demand or the business and earnings of the Community Banking Subsidiaries.

                CAPITAL ADEQUACY.   The Federal Reserve and the FDIC have implemented substantially identical risk-based rules for assessing bank and bank holding company capital adequacy.  These regulations establish minimum capital standards in relation to assets and off-balance sheet exposures as adjusted for credit risk.  Banks and bank holding companies are required to have  (1) a minimum level of total capital (as defined) to risk-weighted assets of eight percent (8%);   (2) a minimum Tier One Capital (as defined) to risk-weighted assets of four percent (4%); and (3) a minimum stockholders’ equity to risk-risk-weighted assets of four percent (4%).  In addition, the Federal Reserve and the FDIC have established a minimum three percent (3%) leverage ratio of Tier One Capital to total assets (4% for all but the most highly-rated banks and bank holding companies).  “Tier One Capital” generally consists of common equity not including unrecognized gains and losses on securities, minority interests in equity accounts of consolidated  subsidiaries and certain perpetual preferred stock less certain intangibles. The Federal Reserve and the FDIC use the leverage ratio in tandem with the risk-based ratio to assess the capital adequacy of banks and  bank holding companies.  The FDIC, the Office of the Comptroller of the Currency (the “OCC”) and the Federal Reserve amended, effective January 1, 1997, the capital adequacy standards to provide for the consideration of interest rate risk in the overall determination of a bank’s capital ratio, requiring banks with greater interest rate risk to maintain adequate capital for the risk.

                In addition, effective December 19, 1992, a new Section 38 to the Federal Deposit Insurance Act implemented the prompt corrective action provisions that Congress enacted as a part of the Federal Deposit Insurance Corporation Improvement Act of 1991 (the “1991 Act”).  The “prompt corrective action” provisions set forth five regulatory zones in which all banks are placed largely based on their capital positions.  Regulators are permitted to take increasingly harsh action as a bank’s financial condition declines.  Regulators are also empowered to place in receivership or require the sale of a bank to another depository institution when a bank’s tangible equity to total asset ratio reaches two percent (2%).  Better capitalized institutions are generally subject to less onerous regulation and supervision than banks with lesser amounts of capital.

                The FDIC has adopted regulations implementing the prompt corrective action provisions of the 1991 Act, which place financial institutions in the following five categories based upon capitalization ratios:    (1) A “well capitalized” institution has a total risk-based capital ratio of at least 10%, a Tier One risk-based ratio of at least 6% and a leverage ratio of at least 5%;  (2)  an “adequately capitalized” institution has a total risk-based capital ratio of at least 8%, a Tier One risk-based ratio of at least 4% and a leverage ratio of at least 4%;  (3) an “undercapitalized” institution has a total risk-based capital ratio of under 8%, a Tier One risk-based ratio of under 4% or a leverage ratio of under 4%;  (4) a “significantly undercapitalized” institution has a total risk-based capital ratio of under 6%, a Tier One risk-based ratio of under 3% or a leverage ratio of under 3%; and  (5) a “critically undercapitalized” institution has a leverage ratio of 2% or less.   Institutions in any of the three undercapitalized categories would be prohibited from declaring dividends or making capital distributions.  The FDIC regulations also establish procedures for

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 “downgrading” an institution to a lower capital category based on supervisory factors other than capital.  Under the FDIC’s regulations, all of the Community Banking Subsidiaries were “well capitalized” institutions at December 31, 2001.

                Set forth below are pertinent capital ratios for the Company and the Community Banking Subsidiaries as of December 31, 2001.

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                RECENT LEGISLATIVE AND REGULATORY ACTION.  

                On November 12, 1999, President Clinton signed the Gramm-Leach-Bliley Act, a very significant piece of legislation intended to modernize the financial services industry.  The bill repeals the anti-affiliation provisions of the 1933 Glass-Steagall Act to allow for the merger of banking and securities organizations and permits banking organizations to engage in insurance activities including insurance underwriting.  The bill also allows bank holding companies to engage in financial activities that are “financial in nature or complementary to a financial activity.”  The act lists the expanded areas that are financial in nature and includes insurance and securities underwriting and merchant banking among others.  The bill also:

• Prohibits non-financial entities from acquiring or establishing a thrift while grandfathering existing thrifts owned by non-financial entities.
  
  
• Establishes state regulators as the appropriate functional regulators for insurance activities but provides that state regulators cannot “prevent or significantly interfere” with affiliations between banks and insurance firms.
  
  
• Contains provisions designed to protect consumer privacy.  The bill requires financial institutions to disclose their policy for collecting and protecting confidential information and allows consumers to “opt out” of information sharing except with unaffiliated third parties who market the institutions’ own products and services or pursuant to joint agreements between two or more financial institutions.
  
  
• Provides for functional regulation of a bank’s securities activities by the Securities and Exchange Commission.

                Various portions of the bill have different effective dates, ranging from immediately to more than a year for implementation.

ITEM 2.      PROPERTIES.

                Community’s main office is located at 448 North Main Street, Cornelia, Georgia.  Community-Alabama’s main office is located at 202 N. Powell Street, Union Springs, Alabama.  Community-Troup’s main office is located at 201 Broad Street, LaGrange, Georgia.  Community has twenty-six branch offices (five owned and twenty-one leased, eighteen of which are operated in  store locations) located in Athens, Auburn, Banks County, Cornelia, Clarkesville, Clayton, Cleveland, Commerce, Demorest, Gainesville, Jefferson and Toccoa, Georgia.  The Bank owns the property occupied by the operations center and the trust department in Cornelia.  In addition, the Bank leases the property occupied by the Loan Production Office in Gainesville.  Community-Alabama has two branches (leased and operated in store locations) in Montgomery, Alabama.  Community – Troup has one branch office (leased and operated in a store location)  in LaGrange, Georgia and one branch office (leased and operated in a store location) in Columbus, Georgia.  Financial Supermarkets owns its main office located in Cornelia, Georgia, and leases a division office in Atlanta, Georgia.  Management of the Company believes that all of its properties are adequately covered by insurance.

ITEM 3.      LEGAL PROCEEDINGS.

                The Company is not a party to, nor is any of its property the subject of, any material pending legal proceedings.

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

                No matters were submitted to a vote of security holders of the Company during the fourth quarter of its fiscal year.

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PART II

ITEM 5.     MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

                There is no established public trading market for the Common Stock.  As of January 1, 2002, there were 465 holders of record of the Common Stock.  Management is aware of 88 and 32 trades of Company stock during 2001 and 2000, respectively.  During 2001, trades ranged from 10 shares to 48,919 shares at prices ranging from $40.00 to $44.00 per share.  During 2000, trades ranged from 25 shares to 13,849 shares at prices ranging from $33.00 to $40.00 per share.

                In 2001, the Company declared cash dividends of $ 0.21 per share. The Company declared cash dividends of $ 0.18 and $ 0.15 per share in 2000 and 1999, respectively.  The Company intends to continue to pay cash dividends.  However, the amount and frequency of dividends will be determined by the Company’s Board of Directors in light of the earnings, capital requirements and the financial condition of the Company, and no assurances can be given that dividends will be paid in the future. The Company’s ability to pay dividends will also be dependent on cash dividends paid to it by the Community Banking Subsidiaries.  The ability of the Community Banking Subsidiaries to pay dividends to the Company is restricted by applicable regulatory requirements.  See “ITEM 1 -- BUSINESS -- Supervision and Regulation.”

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ITEM 6.                  SELECTED FINANCIAL DATA

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Item 7.   MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
              AND RESULTS OF OPERATION.

                The following is a discussion and analysis of the Company’s financial condition at December 31, 2001 and 2000 and the results of operations for the three year period ended December 31, 2001.  The purpose of the discussion is to focus on information about the Company’s financial condition and results of operations which are not otherwise apparent from the audited consolidated financial statements included in this annual report.  This discussion and analysis should be read in conjunction with the consolidated financial statements and related notes and the selected financial information and statistical data presented elsewhere in this Annual Report.

                BALANCE SHEET REVIEW.  We experienced moderate growth during 2001.  For the year ended December 31, 2001, consolidated assets grew $55.9 million, or 9.47%, down from 2000 growth of $74.2 million or 14.37%.  During 2001,  our average assets were $612.6 million, compared with $546.4 million during 2000.  This represents a 12.13% increase in average assets during 2001 compared with a 10.45% increase during 2000.

                Our total earning assets, which include investment securities, loans, federal funds sold, and interest-bearing deposits in banks increased $57.5 million or 10.98% during 2001.  During 2000, earning assets increased  $62.7 million, or 13.60%.  Average earning assets for 2001 were $555.2 million, an increase of 11.49% over average earning assets in 2000 which were $498.0 million or an increase of 12.34% over 1999.

                Our total investments increased by $16.4 million or 17.84% over 2000.  Average investments were $97.8 million for 2001, a 10.68% increase over average investments for 2000.  The net increase occurred  in the available for sale portfolio.

                Our total loans grew by $36.9 million during 2001 for an increase of 8.80% over  2000.  During 2001 average loans were $436.4 million or an increase of 10.44% over 2000 compared to an increase during 2000 of 12.82% to $395.2 million.  The increase in loans is primarily the result of continued loan growth in our existing markets.

                 Federal funds sold increased by $4.2 million or 34.93% from year-end 2000 to 2001.  Average federal funds for 2001 were $20.3 million or a 43.58% increase.  During 2000, average federal funds sold increased by $1.0 million or 8.01% as compared to 1999.

                The growth in total assets for the year ended December 31, 2001 resulted mainly from growth in deposits.  Consolidated deposits grew $54.7 million or 10.78% in 2001 as compared to $63.4 million or 14.29% in 2000.  The majority of this increase in total deposits was concentrated in interest bearing demand deposits and time deposits.  We experienced a 9.66% increase in average interest bearing demand with a 9.01% growth in average noninterest bearing demand, a 10.42% growth in average savings and a 13.60% increase in average time deposits. We borrowed $1.5 million from SunTrust Bank  to increase our outstanding debt to $12.1 million in 2001.  The loan proceeds were used to fund a loan to our employee stock ownership plan for the acquisition of available common stock.

                At December 31, 2001, we reported net unrealized gains of approximately $7,000 in the securities available for sale portfolio as compared to net unrealized losses of approximately $84,000 at December 31, 2000.  Net unrealized gains (losses) represent the difference in the amortized cost of those securities compared to the fair value at those dates and are included in shareholders’ equity, net of the tax effect. Management sells securities to meet liquidity needs and may sell securities in rising interest-rate environments to take advantage of higher returns in the long run.  In 2001 we sold $6.7 million of securities classified as available for sale, realizing net gains of approximately $48,000 on a consolidated basis.  In 2000, we sold $1.2 million of securities classified as available for sale, realizing net losses of approximately $2,000 on a consolidated basis.  The held to maturity securities portfolio included net unrealized gains of approximately $781,000 at December 31, 2001 compared to net unrealized gains of $790,000 in 2000.   Table 4 of the Selected Statistical Data summarizes the combined investment portfolios by types of securities.  U.S. Treasury and other U.S. Government agencies and corporations represent 43.08% of the total portfolio, which typically provide reasonable returns with limited risk.  The remaining portfolio is

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comprised of municipal securities,  and equity securities, which provide, in general, higher returns on a tax equivalent basis, with greater risk elements.   Management regularly monitors our investment portfolios and utilizes forecasting models to project our net interest margin in various rising, flat, and falling interest-rate scenarios.  In a changing interest rate environment, management would act to change our asset or liability composition and interest sensitivity in response to a definitive change in the direction of interest rates.  We actively manage the mix of asset and liability maturities to control the effects of changes in the general level of interest rates on net interest income.  Except for the effect of inflation on interest rates, inflation does not have a material impact on us due to variability and short-term maturities of our earning assets repriced or matured within one year.

                LIQUIDITY AND CAPITAL RESOURCES.  The liquidity and capital resources of the Company and the Community Banking Subsidiaries are monitored by management and periodically by state and federal regulatory authorities.  The individual Community Banking Subsidiaries’ liquidity ratios at December 31, 2001 were considered satisfactory under their own guidelines as well as regulatory guidelines.  At that date, the Community Banking Subsidiaries’ short-term investments were adequate to cover any reasonably anticipated immediate need for funds.

                The purpose of liquidity management is to ensure that cash flow is sufficient to satisfy demands for credit, withdrawals, and other needs for us.  Traditional sources of liquidity include asset maturities and growth in core deposits.  A company may achieve its desired liquidity objectives from the management of assets and liabilities, and through funds provided by operations.  Funds invested in short-term marketable instruments and the continuous maturing of other earning assets are sources of liquidity from the asset perspective.  The liability base provides sources of liquidity through deposit growth and accessibility to market sources of funds.  Our markets have traditionally provided us with a stable deposit base with healthy growth.  In addition, we have lines of credit available.  We believe our sources of liquidity are stable and reliable for the foreseeable future.

                Scheduled loan payments are a relatively stable source of funds, but loan payoffs and deposit flows are influenced by interest rates, general economic conditions and competition and may fluctuate significantly.  We attempt to price our deposits to meet our asset/liability objectives consistent with local market conditions.

                Cash flows for us are of three major types.  Cash flows from operating activities consist primarily of interest and fees received on loans, interest received on  securities, Federal funds sold, and interest bearing deposits less cash paid for interest and operating expenses.  Investing activities use cash for the purchase of interest-bearing deposits,  securities, fixed assets and to fund loans.  Investing activities also generate cash from the proceeds of matured interest-bearing deposits, matured  securities, sales of  securities, loan repayments and principal prepayments of securities.  Cash flows from financing activities generate cash from a net increase in deposit accounts, increases in other borrowed funds and the issuance of common stock.  Financing activities use cash for the payment of cash dividends and the repayment of other borrowed funds.

                At December 31, 2001, the Company and Community Banking Subsidiaries’ capital ratios were considered adequate based on minimum capital requirements of the FDIC and applicable state regulatory agencies.  During 2001, the Company increased capital by retaining net earnings of $6.7 million and the issuance of  $44,000 in common stock compared to an increase in 2000 of $7.2 million in retained net earnings and the issuance of $30,000 in common stock.

                We believe we are capable of meeting our debt service requirements related to existing long-term debt and other borrowings through dividends available from our subsidiaries and current operations. Although we consider that we have adequate capital to meet our short-term needs, we, at times, may seek additional capital to support our long-term business goals, including expansion of our fixed asset base, and for general corporate purposes.

                For a tabular presentation of the Community Banking Subsidiaries’ capital ratios at December 31, 2001 see “SUPERVISION AND REGULATION”.

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                We are not aware of any other trends, events or uncertainties that will have or that are reasonably likely to have a material effect on our liquidity, capital resources or operations.  We are not aware of any current recommendations by the regulatory authorities, which if they were implemented, would have such an effect.

                EFFECTS OF INFLATION.  Inflation impacts banks differently than non-financial institutions.  Banks, as financial intermediaries, have assets which are primarily monetary in nature and which tend to fluctuate with inflation.  A bank can reduce the impact of inflation by managing its rate sensitivity gap, which represents the difference between rate-sensitive assets and rate-sensitive liabilities.  We, through our asset-liability committee, attempts to structure the assets and liabilities and manage the rate-sensitivity gap, thereby seeking to minimize the potential effects of inflation.  See “Asset/liability Management”.

RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999

                NET INTEREST INCOME.  Our results of operations are influenced by management’s ability to effectively manage interest income and expense, to minimize loan and investment losses, to generate non-interest income and to control operating expenses.  Because interest rates are determined by market forces and economic conditions beyond our control, our ability to generate net interest income is dependent upon our ability to obtain an adequate net interest spread between the rate paid on interest-bearing liabilities and the rate earned on interest-earning assets.  Our net interest income increased by $527,000 for the year ended December 31, 2001 as compared to an increase of  $2.1 million for the same period in 2000.  The increase in net interest income is attributable to increases in earning assets, particularly loans.  The yield on interest-earning assets decreased 71 basis points in 2001 from 2000, while the yield on interest earning liabilities decreased by only 33 basis points.  The increase in average interest earning assets of $57.2 million, net of the increase in average interest-bearing liabilities of  $47.1 million, contributes to for the 2.13% increase in net interest income.  Net interest income increased for all Community Banking Subsidiaries.

                The 38 basis point decrease in the net interest spread in Table 2 is due in part to the percentage on interest income earned from loans decreasing compared to 2000. The Company will continue to actively monitor and maintain the net interest spread to counteract the current market trends.  Net interest income for 2000 increased $2.1 million over 1999.  The increase is mainly attributable to growth in earning assets as shown in Table 1.

                PROVISION FOR LOAN LOSSES.  The provision for loan losses for the year ended December 31, 2001 increased by $744,000 from $1,620,000 at December 31, 2000 to $2,364,000 at December 31, 2001. In 2000 the provision decreased $16,000 from the December 31, 1999 level of $1,637,000.  The provision for loan losses will fluctuate based on loan volume and changes in credit quality.   During 2001, the provision for loan losses was increased due to an increased level of charged off loans due to the downturn in the economy.  Management maintains an allowance for loan losses based on the evaluation of potential problem loans as well as minimal reserves for all loans based on past net charge-off experience. The guaranteed portions of loans generated by the loan production office are subsequently sold.  Because most loans retained by the loan production office consist of the portion of SBA loans that are not guaranteed and are out-of market, these loans require additional allowances due to the greater risk of loss in the event of default.  These loans, however, are subjected to the same underwriting standards and periodic loan review procedures as other loans made by the Community Banking Subsidiaries.

                As shown in Table 8 of the Selected Statistical Data, nonaccrual delinquent loans greater than 90 days and restructured loans increased $4.2 million during 2001 compared to a $989,000 decrease in 2000.  Delinquent and nonaccrual and delinquent loans will fluctuate depending on economic conditions, which effect not only conventional loans but also the SBA loans.  During 2001, due to the below normal economic conditions, the Company experienced a deterioration in credit quality that resulted in an increase in non-accrual loans.    Management has reviewed these loans and determined that the likelihood of any significant loss of principal is mitigated due to the value of the collateral securing these loans.  The ratio of the allowance for loan losses to nonaccrual delinquent and restructured loans decreased from 199% at December 31, 2000 to 90% at December 31, 2001.

                The allowance for loan losses as a percentage of total loans outstanding at December 31, 2001 and 2000 were 1.46% and 1.51%, respectively.  Net charge-offs in 2001 were $2,019,000, an increase of 

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$1,023,000 from $776,000 in 2000, and the net charge-off ratio increased from .25% in 2000 to .46% in 2001.  The increase in the provision is primarily attributable to one large line of credit that was charged off in 2001. Based on management’s evaluation of the loan portfolio, including a review of past loan losses, current conditions that may affect borrowers’ ability to repay and the underlying collateral value of the loans, management considers the allowance for loan losses to be adequate.

OTHER INCOME. Other income consists of income from operations of the Community Banking Subsidiaries and Financial Supermarkets. Traditional non-interest income of the Community Banking Subsidiaries accounts for only 39.11%, or $7.0 million of total other income for 2001, 38.9% in 2000, and 41.6% in 1999.  The majority of the increase in other income of the Community Banking Subsidiaries is related to the continued growth in deposits.  Service charges on deposit accounts increased by $997,000 and $660,000, respectively, for the years ended December 31, 2001 and 2000.  In addition, income associated with non-sufficient funds (“NSF fees”) will fluctuate depending on activity.  NSF fees increased $844,000 or 22.57% in 2001 compared to 2000.  Average demand deposit and savings accounts increased 9.5% in 2001 compared to 0.87% decrease in 2000.   Included in other income of the Community Banking Subsidiaries are gains on sale of loans recognized by Community of $167,000 and $358,000 for 2001 and 2000, respectively.  This represents a decrease from 2000 of $191,000.

                The allocation of services as a percentage of total income for Financial Supermarkets is shown below:

                                                   FINANCIAL SUPERMARKETS

Consulting Services provided for Supermarket     bank installation and opening	64%
Supermarket consulting and ancillary services	35
Other Miscellaneous Consulting Services	1
	100%

                The primary business of Financial Supermarkets is services offered in connection with the establishment and operation of Supermarket Bank® service centers.  In 2001, Financial Supermarkets had consulting revenue of $10.4 million compared to $8.6 million in 2000, an increase of $1.8 million or 20.9%.  The increase in net consulting revenues in 2000 over 1999 was $2.3 million, or 39%.

                The Company had an increase in installations of supermarket bank units during 2001 as compared to 2000.  This increase is primarily due to the increase in activity associated with FSI’s agreement with the Canadian Imperial Bank of Commerce (“CIBC”) to establish banking pavilions in Florida.  Due to slowing economic conditions, management anticipates fewer sales of supermarket bank units and thus anticipates a decline in revenues during 2002 as compared to 2001.

                NON-INTEREST EXPENSE.  Other expenses increased for the year ended December 31, 2001 by $3.3 million compared to the $3.3 million increase in 2000.  This represented a 12.33% increase in expenses for 2001 and 13.65% increase in 2000.  Salaries and benefits increased $2,123,000 or 14.75% in 2001 over 2000 due primarily to the staffing of new branches, general growth of the Company and an increase in incentive pay at FSI.  This compares to an increase of $2,049,000 or 16.60 % in 2000 over 1999.  Although salaries and benefits continue to increase as a result of the growth in the banking subsidiaries, incentive pay in FSI decreased in 2000 as compared to 1999 resulting in a smaller increase in the overall salaries and benefits during that period of time.  For the years ended 2001, 2000, and 1999 we had total employees (F.T.E.) of 370, 357, and 313, respectively.  Other expenses increased by $799,000 in 2001 and 1.0 million in 2000 primarily due to growth of the banking subsidiaries, increased costs associated with day-to-day operations and increased activity of FSI.

                Equipment and occupancy expenses increased by  $418,000 or 9.60% in 2001 over 2000 and  $231,000 or 5.88% in 2000 over 1999.  The increases are due to the increased number of facilities operated by the Community Banking Subsidiaries as well as additions of computer equipment necessary to operate the Company.  We operated 35, 33 and 29 locations at the year-end 2001, 2000, and 1999, respectively.  As 2001 closed, preparations were being made to open three additional facilities during 2002.  Management expects these locations to add to the continued growth and profitability of the Company.

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                INCOME TAXES.  We incurred income tax expenses of $3.1 million in 2001, which represented an effective tax rate of 30%, compared to tax expense of $3.0 million in 2000, or an effective tax rate of 28%.  Income tax expense increased $442,000 to $3.0 million in 2000.  The effective tax rate at December 31, 1999 was 30%. The increase in the effective tax rate from 2000 to 2001 is related to the increased income of Financial Supermarkets, which does not have a portion of its income tax-free as do the Community Banking Subsidiaries.

                NET INCOME.  Our net income for 2001 was $7.2 million, as compared to $7.6 million in 2000, a decrease of 5.86%.  The decrease in net income between 2001 and 2000 is primarily attributable to the decrease in net interest income and an increase in loan loss provision, which was offset by an increase in non-bank subsidiary income.  Net income for 2000 increased to $7.6 million or 25.44% over 1999’s net income of  $6.1 million. 

                ASSET/LIABILITY MANAGEMENT.  The Company’s objective is to manage assets and liabilities to maintain satisfactory and consistent profitability.  Officers of each Community Banking Subsidiary are charged with monitoring policies and procedures designed to ensure an acceptable asset/liability mix.  Management’s philosophy is to support asset growth primarily through growth of core deposits within the Community Banking Subsidiaries’ market areas.

                The Company’s asset/liability mix is monitored regularly with a report reflecting the interest rate sensitive assets and interest rate sensitive liabilities that is prepared and presented to the Board of Directors of each Community Banking Subsidiary on at least a quarterly basis.  Management’s objective is to monitor interest rate sensitive assets and liabilities so as to minimize the impact on earnings of substantial fluctuations in interest rates.  An asset or liability is considered to be interest rate-sensitive if it will reprice or mature within the time period analyzed, usually one year or less.  The interest rate-sensitivity gap is the difference between the interest-earning assets and interest-bearing liabilities scheduled to mature or reprice within the relevant period.  A gap is considered positive when the amount of interest rate-sensitive assets exceeds the amount of interest rate-sensitive liabilities.  A gap is considered negative when the amount of interest rate-sensitive liabilities exceeds the interest rate-sensitive assets.  During a period of rising interest rates, a negative gap would tend to adversely affect net interest income, while a positive gap would tend to result in an increase in net interest income.  Conversely, during a period of falling interest rates, a negative gap would tend to result in an increase in net interest income, while a positive gap would tend to adversely affect net interest income.  If the Company’s assets and liabilities were equally flexible and moved concurrently, the impact of any increase or decrease in interest rates on net interest income would be minimal.

                A simple interest rate “gap” analysis by itself may not be an accurate indicator of how net interest income will be affected by changes in interest rates.  Accordingly, the Company also evaluates how changes in interest rates impacts the repayment of particular assets and liabilities.  Income associated with interest-

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earning assets and costs associated with interest-bearing liabilities may not be affected uniformly by changes in interest rates.  In addition, the magnitude and duration of changes in interest rates may significantly affect net interest income.  For example, although certain assets and liabilities may have similar maturities or periods of repricing, they may react in different degrees to changes in market interest rates.  Interest rates on certain types of assets and liabilities fluctuate in advance of changes in general market rates, while interest rates on other types may lag behind changes in general market rates.  In addition, certain assets have features (generally referred to as “interest rate caps and floors”) which limit changes in interest rates.  Also, prepayments and early withdrawal levels could deviate significantly from those assumed in calculating the interest rate gap.  Changes in interest rates also affect the Company’s liquidity position, if deposits are not priced in response to market rates, a loss of deposits could occur which would negatively affect the Company’s liquidity position.  The Company prepares a report monthly that measures the potential impact on net interest margin by rising or falling rates.  This report is reviewed monthly by the Asset/Liability Committee and quarterly by each Board of Directors.  (See “QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK”)

                At December 31, 2001, the Company’s cumulative interest rate sensitivity gap ratio was 118%, which  was within its targeted range of 80% to 120% for all time horizons.

                The following table sets forth the distribution of the repricing of the Company’s earning assets and interest-bearing liabilities as of December 31, 2001, the interest rate sensitivity gap, the cumulative interest rate-sensitivity gap, the interest rate-sensitivity gap ratio and the cumulative interest rate-sensitivity gap ratio.  The table also sets forth the time periods in which earning assets and  liabilities will mature or may reprice in accordance with their contractual terms.  However, the table does not necessarily indicate the impact of general interest rate movements on the net interest margin since the repricing of various categories of assets and liabilities is subject to competitive pressures and the needs of the Company’s customers.  In addition, various assets and liabilities indicated as repricing within the same period may in fact reprice at different times within such period and at different rates.            

Community Bankshares, Inc.
Consolidated Gap Report

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ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

                The Company is exposed only to U.S. dollar interest rate changes and accordingly, the Company manages exposure by considering the possible changes in the net interest margin.  The Company does not have any trading instruments nor does it classify any portion of the investment portfolio as held for trading.  The Company does not engage in any hedging activities or enter into any derivative instruments with a higher degree of risk than mortgage backed securities, which are commonly pass through securities.  Finally, the Company has no exposure to foreign currency exchange rate risk, commodity price risk, and other market risks.

Interest rates play a major part in the net interest income of a financial institution.  The sensitivity to rate changes is known as “interest rate risk.”  The repricing of interest earning assets and interest-bearing liabilities can influence the changes in net interest income.  As part of the Company’s asset/liability management program, the timing of repriced assets and liabilities is referred to as Gap management.  It is the policy of the Company to maintain Gap ratio in the one-year time horizon of .80 to 1.20. See “ASSET/LIABILITY MANAGEMENT”.

                GAP management alone is not enough to properly manage interest rate sensitivity, because interest rates do not respond at the same speed or at the same level to market rate changes.  For example, savings and money market rates are more stable than loans tied to a “Prime” rate and thus respond with less volatility to a market rate change.

                The Company uses a simulation model to monitor changes in net interest income due to changes in market rates.  The model of rising, falling and stable interest rate scenarios allows management to monitor and adjust interest rate sensitivity to minimize the impact of market rate swings.  The analysis of impact on net interest margins as well as market value of equity over a twelve-month period is subjected to a 200 basis point increase and decrease in rate.  The December 2001 model reflects an increase of 2% in net interest income and a 14% decrease in market value equity for a 200 basis point increase in rates.  The same model shows a 1% decrease in net interest income and a 16% increase in market value equity for a 200 basis point decrease in rates.  The Company’s policy is to allow no more than +- 8% change in net interest income and no more than +- 25% change in market value equity for these scenarios.  Therefore, the Company is within its policy guidelines and is protected from any significant impact due to market rate changes.

SELECTED STATISTICAL INFORMATION

The tables and schedules on the following pages set forth certain significant financial information and statistical data with respect to the distribution of assets, liabilities and shareholders’ equity of the Company; the interest rates and interest differentials experienced by the Company; the investment portfolio of the Company; the loan portfolio of the Company, including types of loans, maturities and sensitivity to changes in interest rates and information on nonperforming loans; summary of the loan loss experience and reserves for loan losses of the Company; types of deposits of the Company and the return on equity and assets for the Company.

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DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS’ EQUITY:
INTEREST RATES AND INTEREST DIFFERENTIALS

Table 1   Average Balances

The condensed average balance sheets for the periods indicated are presented below. (1)

(1)       Average balances calculated using daily averages during 2001 and 2000 and using month-end
            balances during 1999
(2)       Includes non-accrual loans
(3)       Loans are net of unearned fees
(4)       Unrealized gains & losses are included in equity

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 TABLE 2               INTEREST INCOME AND INTEREST EXPENSE

                The following tables set forth the amount of the Company’s interest income and interest expense for each category of interest-earning asset and interest-bearing liabilities and the average interest rate for total interest-earning assets and total interest-bearing liabilities, net interest spread and net yield on average interest-earning assets.

TABLE 3                RATE AND VOLUME ANALYSIS

                The following table describes the extent to which changes in interest rates and changes in volume of interest-earning assets and interest-bearing liabilities have affected the Company’s interest income and expense during the year indicated.  For each category of interest-earning assets and interest-bearing liabilities, information is provided on changes attributable to (1) change in volume (change in volume multiplied by old rate); (2) change in rate (change in rate multiplied by old volume); and (3) a combination of change in rate and change in volume.  The changes in interest income and interest expense attributable to both volume and rate have been allocated proportionately to the change due to volume and the change due to rate.

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INVESTMENT PORTFOLIO

TABLE 4                TYPES OF INVESTMENTS

The carrying amounts of securities at the dates indicated are summarized as follows: (1)

(1)          Securities include “held to maturity” securities carried at amortized cost and “available-for-sale”
               securities carried at fair value.

                The Community Banking Subsidiaries’ mortgage-backed portfolio consists of fifty-two U.S. Government corporation collateralized mortgage obligations. The actual maturity of these securities will differ from the contractual maturity because borrowers on the underlying loans may have the right to prepay obligations with or without prepayment penalties.  Decreases in interest rates will generally cause prepayments to increase while increases in the interest rates will have the opposite effect on prepayments. Prepayments of the underlying loans may shorten the life of the security, thereby adversely effecting the yield to maturity. In an increasing interest rate, the Community Banking Subsidiaries may have an obligation yielding a return less than the current yields on securities.  However, because the majority of these in mortgage-backed securities have adjustable rates, negative effects of changes in interest rates on earnings and carrying values of these securities are somewhat mitigated.

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TABLE 5                MATURITIES OF INVESTMENTS

The amounts of securities in each category as of December 31, 2001 are shown in the following table according to maturity classifications of one year or less, after one year through five years, after five years through ten years, and after ten years.

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LOAN PORTFOLIO

TABLE 6                Types of Loans

The amounts of loans outstanding at the indicated dates are in the following table according to the type of loan.

(1)          Commercial, financial and agricultural loans include loans held for sale, which are disclosed
               separately in the consolidated balance sheets.
(2)          Amounts are disclosed net of unearned loan income.

                See “Business Description of the Community Banking- Loans” for a description of the composition of each loan, the underwriting criteria and risks that are unique to each.

                Loans outstanding as of December 31, 2000, 1999, 1998 and 1997 have been reclassified to be consistent with the presentation adopted for the year ended December 31, 2001.

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TABLE 7               MATURITIES AND SENSITIVITIES OF LOANS TO CHANGES IN INTEREST
                                RATES

                Total loans as of December 31, 2001 are shown in the following table according to maturity classifications one year or less, after one year through five years and after five years. (1)

(1)           Does not include loans held for sale.

               The following table summarizes loans at December 31, 2001 with due dates after one year which have predetermined and floating or adjustable interest rates.

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TABLE 8                Nonaccrual, Past Due and Restructured Loans

               Information with respect to nonaccrual past due and restructured loans at the indicated dates is as follows:

               The reduction in interest income associated with nonaccrual and renegotiated loans as of December 31, 2001 is as follows:

               The Community Banking Subsidiaries’ policy is to discontinue the accrual of interest income when, in the opinion of management, collection of such interest becomes doubtful. This status is accorded such interest when (1) there is a significant deterioration in the financial condition of the borrower and full repayment of principal and interest is not expected and (2) the principal or interest is more than ninety days past due, unless the loan is both well-secured and in the process of collection. Accrual of interest on such loans is resumed, in management’s judgment, when the collection of interest and principal become probable. Loans classified for regulatory purposes as loss, substandard, or special mention that have not been included in the table above do not represent or result from trends or uncertainties which management reasonably expects will materially effect future operating results, liquidity or capital resources. These classified loans do not represent material credits about which management is aware and which causes management to have serious doubts as to the ability of such borrowers to comply with the loan repayment terms.

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COMMITMENTS AND LINES OF CREDIT

               The Community Banking Subsidiaries will, in the normal course of business, commit to extend credit in the form of letters of credit or lines of credit. The amount of outstanding loan commitments and letters of credit at December 31, 2001 and 2000 were $35,564,457 and $31,894,087, respectively.   Commitments to extend credit generally have fixed expiration dates or other termination clauses and may require payment of a fee.  Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements.

SUMMARY OF LOAN LOSS EXPERIENCE

TABLE 9

               The following table summarizes average loan balances for each year determined using the daily average balances during the year; changes in the reserve for possible loan losses arising from loans charged off and recoveries on loans previously charged off; additions to the reserve which have been charged to operating expense; and the ratio of net charge-offs during the year to average loans.

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ALLOWANCE FOR LOAN LOSSES

               The provision for possible loan losses is created by direct charges to income. Losses on loans are charged against the allowance in the year in which such loans, in management’s opinion, become uncollectible. Recoveries during the year are credited to this allowance. The factors that influence management’s judgment in determining the amount charged to income are past loan loss experience, composition of the loan portfolio, evaluation of possible future losses, current economic conditions and other relevant factors. The Company’s allowance for loan losses was $6,652,000 at December 31, 2001, representing 1.46% of total loans, compared with $6,307,000 at December 31, 2000, which represented 1.51% of total loans. The allowance for loan losses is reviewed regularly based on management’s evaluation of current risk characteristics of the loan portfolio, as well as the impact of prevailing and expected economic business conditions. Management considers the allowance for loan losses adequate to cover possible loan losses at December 31, 2001.

               Historically, management has not allocated the Company’s allowance for loan losses to specific categories of loans. However, based on management’s best estimate and historical experience, the allocation of the allowance for loan losses for December 31, 2001, 2000, 1999, 1998 and 1997 is summarized below:

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DEPOSITS

TABLE 10

               Average amount of deposits and average rates paid thereon, classified as to noninterest-bearing demand deposits, interest-bearing demand and savings deposits and time deposits, for the years indicated are presented below.   (1)

               The amounts of time certificates of deposit issued in amounts of $100,000 or more as of December 31, 2001 are shown below by category, which is based on time remaining until maturity of (1) three months or less, (2) over three through six months, (3) over six through twelve months and (4) over twelve months.

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RETURN ON ASSETS AND SHAREHOLDERS’ EQUITY

TABLE 11

The following rate of return information for the years is presented below.

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ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                The financial statements and the report of independent accountants are included in this report beginning at page F-1.

ITEM 9.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
                  FINANCIAL DISCLOSURE.

                During the Company’s two most recent fiscal years, the Company did not change accountants and had no disagreement with its accountants on any matters of accounting principles or practices or financial statement disclosure.

PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

                The following is a brief description, as of December 31, 2001, of the business experience of each of the directors and executive officers of the Company who, except as otherwise indicated, has been or was engaged in his or her present of last principal employment, in the same or a similar position, for more than five years:

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31

                Directors are elected at each annual meeting of shareholders and hold office until the next annual meeting and until their successors are elected and qualified.  The executive officers are elected by the Board of Directors and serve at the will of the Board.  There are no family relationships among executive officers and directors of the Company.

The company is not subject to Section 16(a) of the Securities Exchange Act of 1934.

ITEM 11.   EXECUTIVE COMPENSATION.

                The following table sets forth the annual and long-term compensation paid by the Company to the Chief Executive Officer of the Company and the four other most highly compensated officers of the Company whose salary and bonus exceeded $100,000 during the last fiscal year (the “Named Executive Officers”).

Summary Compensation Table