SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549


                                   FORM 10-KSB

         /X/      ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

                  SECURITIES EXCHANGE ACT OF 1934

                  For the fiscal year ended March 31, 2000


                                       OR

         / /      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

                  SECURITIES EXCHANGE ACT OF 1934


                  For the transition period from ______ to _______

                         Commission file number 0-18265.


                         COMMUNITY FINANCIAL CORPORATION
                 (Name of small business issuer in its charter)




           Virginia                                     54-1532044
--------------------------------------------------------------------------------
(State or other jurisdiction                (I.R.S. Employer Identification No.)
of incorporation or organization)


38 North Central Avenue, Staunton, Virginia                          24401
--------------------------------------------------------------------------------
(Address of principal executive offices)                           (Zip Code)


         Issuer's telephone number, including area code: (540) 886-0796

       Securities Registered Under Section 12(b) of the Exchange Act: None

         Securities Registered Under Section 12(g) of the Exchange Act:

                     COMMON STOCK, PAR VALUE $.01 PER SHARE
                     --------------------------------------
                                (Title of Class)


<PAGE>



     Check  whether  the issuer (1) filed all  reports  required  to be filed by
Section 13 or 15(d) of the  Exchange  Act during the past twelve  months (or for
such shorter period that the registrant was required to file such reports),  and
(2) has been subject to such filing requirements for the past 90 days.
YES /X/ / /

     Check if there is no disclosure  of  delinquent  filers in response to Item
405 of  Regulation  S-B  contained  in  this  form,  and no  disclosure  will 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-KSB
or any amendment to this Form 10-KSB. /X/

     The  registrant  had  $19,350,419  in revenues for the year ended March 31,
2000

     As of May 31, 2000,  there were issued and outstanding  2,486,776 shares of
the  registrant's  common stock.  The aggregate market value of the voting stock
held by  non-affiliates  of the issuer,  computed by reference to the average of
the  closing  bid  and  asked  price  of such  stock  as of May  31,  2000,  was
approximately  $20,000,000.  (The exclusion from such amount of the market value
of the  shares  owned by any  person  shall not be deemed  an  admission  by the
registrant that such person is an affiliate of the issuer.) There were 2,486,776
shares of common stock of the registrant outstanding as of May 31, 2000.


                       DOCUMENTS INCORPORATED BY REFERENCE

     Part II of Form  10-KSB--Portions  of the Annual Report to Stockholders for
the fiscal year ended March 31, 2000.

     PART  III of Form  10-KSB--Portions  of the  Proxy  Statement  for the 2000
Annual Meeting of Stockholders.

     Transitional Small Business Disclosure Format:   Yes / /    No/X/


                                       2
<PAGE>


PART I

Item  1. Description of Business

General
--------------------------------------------------------------------------------

     Community  Financial  Corporation  ("Community"  or  the  "Company")  is  a
Virginia  corporation,  which  owns  Community  Bank (the  "Bank" or  "Community
Bank"). The Bank was organized in 1928 as a Virginia-chartered building and loan
association,  converted to a federally-chartered savings and loan association in
1955 and to a federally-chartered  savings bank in 1983. In 1988, Community Bank
converted  to the stock form of  organization  through the sale and  issuance of
shares of our common stock. We effected a two-for-one stock split in the form of
a 100% stock  dividend in November  1994 and March 1998.  References  throughout
this Form 10KSB to the Company  generally  include the Bank,  unless the context
otherwise requires.

     Our principal asset is the outstanding  stock of Community Bank, our wholly
owned  subsidiary.  Our common stock trades on The Nasdaq  SmallCap Market under
the symbol "CFFC." In November 1997, Community Bank established  Community First
Mortgage  Corporation  ("Community  First"),  a wholly  owned  mortgage  banking
subsidiary to originate and sell mortgage loans.

     Community  and  Community  Bank are  subject to  comprehensive  regulation,
examination and supervision by the Office of Thrift  Supervision,  Department of
the Treasury ("OTS") and by the Federal Deposit Insurance  Corporation ("FDIC").
The Bank is a member  of the  Federal  Home Loan Bank  ("FHLB")  System  and our
deposits are backed by the full faith and credit of the United States Government
and are  insured by the  Savings  Association  Insurance  Fund  ("SAIF")  to the
maximum extent permitted by the FDIC.

     At March 31,  2000,  Community  had $243.1  million in assets,  deposits of
$158.6 million and stockholders'  equity of $25.4 million.  Community's  primary
business consists of attracting deposits from the general public and originating
real estate loans and other types of investments  through our offices located in
Staunton, Waynesboro, Stuart Drafts and Virginia Beach, Virginia.

     Like all financial  institutions,  Community's  operations  are  materially
affected by general economic conditions, the monetary and fiscal policies of the
federal  government  and the  policies  of the various  regulatory  authorities,
including  the OTS and the Board of  Governors  of the  Federal  Reserve  System
("Federal Reserve Board").  Our results of operations are largely dependent upon
our net interest income, which is the difference between the interest we receive
on our loan portfolio and our investment securities portfolio,  and the interest
we pay on our deposit accounts and borrowings.

     Our main office is located at 38 North Central Avenue,  Staunton,  Virginia
24401. Our telephone number is (540) 886-0796.


                                       3
<PAGE>



Forward-Looking Statements
--------------------------------------------------------------------------------

     This  Annual  Report  on  Form  10-KSB  contains  certain   forward-looking
statements with respect to the financial  condition and results of operations of
our  business.  These  forward-looking  statements  involve  certain  risks  and
uncertainties.  When used in this Annual Report on Form 10-KSB or future filings
by us with the  Securities  and Exchange  Commission,  in our press  releases or
other public or shareholder communications,  or in oral statements made with the
approval of an authorized  executive officer,  the words or phrases "will likely
result",  "are expected to",  "will  continue",  "is  anticipated",  "estimate",
"project",   "believe"   or  similar   expressions   are  intended  to  identify
"forward-looking  statements"  within  the  meaning  of the  Private  Securities
Litigation  Reform Act of 1995.  We wish to caution  readers  not to place undue
reliance on any such forward-looking statements, which speak only as of the date
made, and to advise readers that various factors including regional and national
economic conditions, changes in levels of market interest rates, credit risks of
lending  activities,  and  competitive  and regulatory  factors could affect our
financial  performance  and could cause our actual results for future periods to
differ materially from those anticipated or projected.

     We do not undertake and  specifically  disclaim any  obligation to publicly
release the results of any  revisions  which may be made to any  forward-looking
statements to reflect the occurrence of anticipated or  unanticipated  events or
circumstances after the date of such statements.


Lending Activities
--------------------------------------------------------------------------------

     General. We, like most other thrift  institutions,  concentrate our lending
activities on first mortgage conventional loans secured by residential and, to a
lesser extent,  commercial real estate with an emphasis on multi-family housing.
We make  construction  loans  secured  by  commercial  real  estate  and  one-to
four-family  residential  properties.  Additionally,  we make consumer  loans in
order to increase the diversification and decrease the interest rate sensitivity
of our loan portfolio and to increase interest income.  Substantially all of our
loans  are  originated  within  our  market  area  which  includes   Shenandoah,
Rockingham,  Page, Highland,  Augusta,  Albemarle,  Bath,  Rockbridge and Nelson
Counties, the city of Richmond and the Hampton Roads area in Virginia.

     Residential loan originations come primarily from walk-in  customers,  real
estate  brokers and  builders.  Commercial  real estate  loan  originations  are
obtained  through  broker  referrals,  direct  solicitation  of  developers  and
continued business from customers.  All completed loan applications are reviewed
by our salaried loan officers.  As part of the application process,  information
is obtained concerning the income,  financial  condition,  employment and credit
history of the applicant. If commercial real estate is involved,  information is
also obtained  concerning cash flow after debt service.  The quality of loans is
analyzed  based on our  experience  and on  guidelines  with  respect  to credit
underwriting as well as the guidelines  issued by the Federal Home Loan Mortgage
Corporation ("FHLMC"),  Federal National Mortgage Association ("FNMA") and other
purchasers  of  loans,  depending  on the type of  loans  involved.  The  one-to
four-family  adjustable-rate  mortgage loans originated by us, however,  are not
readily  saleable  in  the  secondary  market  due to the  fact  that  we do not


                                       4
<PAGE>



typically  require  surveys,   title  insurance  or  written   verifications  of
employment  history and deposit  relationships.  All real estate is appraised by
independent fee appraisers who have been pre-approved by the Board of Directors.

     Our loan  commitments  are approved at different  levels,  depending on the
size and type of the loan being sought.  One-to  four-family and commercial real
estate loans in the amount of $225,000 or less may be approved by the  President
of the  Company.  Loans in excess of  $225,000  but less than  $750,000  must be
approved by a majority of our Loan  Committee.  All mortgage  loans in excess of
$750,000 must be approved by the Board of Directors. Consumer loans in excess of
$250,000 on a secured  basis and  $150,000  on an  unsecured  basis  require the
approval of three members of senior  management.  Regardless  of the  individual
loan approval  authority,  the Board of Directors generally approves or ratifies
all loans.

     The aggregate amount of loans that the Bank is permitted to make to any one
borrower, including related entities, and the aggregate amount that the Bank may
invest in any one real estate project,  with certain  exceptions,  is limited to
the greater of 15% of unimpaired  capital and surplus or $500,000.  At March 31,
2000,  the maximum  amount  which the Bank could have loaned to one borrower and
the   borrower's   related   entities  and  invested  in  any  one  project  was
approximately  $3.7  million.  At March 31, 2000,  the Bank had no borrower,  or
groups of borrowers, with loans outstanding in excess of $2.6 million.




                                       5
<PAGE>



     Loan Portfolio Composition.  The following table sets forth the composition
of our  total  loan  portfolio  in  dollars  and  percentages  as of  the  dates
indicated.


<TABLE>
<CAPTION>
                                                                           March 31,
                               -----------------------------------------------------------------------------------------------------
                                    2000                 1999                 1998                 1997                  1996
                               -----------------------------------------------------------------------------------------------------
                               Amount    Percent    Amount     Percent   Amount    Percent    Amount    Percent    Amount    Percent
                               -----------------------------------------------------------------------------------------------------
                                                                     (Dollars in Thousands)
<S>                           <C>         <C>      <C>         <C>      <C>         <C>      <C>         <C>      <C>         <C>
REAL ESTATE LOANS:
Residential                   $ 97,409    48.57%   $ 91,396    51.56%   $ 94,962    56.92%   $ 96,968    63.83%   $ 91,212    62.92%
Commercial                      42,318     21.10     38,545     21.75     40,115     24.04     37,508     24.69     38,433     26.51
Construction                    20,687     10.31     13,712      7.74     10,071      6.04      5,204      3.42      6,415      4.43
                                ------     -----     ------      ----     ------      ----      -----      ----      -----      ----
  Total real estate            160,414     79.98    143,653     81.05    145,148     87.00    139,680     91.94    136,060     93.86
                               -------     -----    -------     -----    -------     -----    -------     -----    -------     -----
CONSUMER LOANS:
Unsecured personal               2,800      1.40      2,710      1.53      1,935      1.16      4,418      2.91      3,616      2.50
Secured personal                 7,794      3.89      4,200      2.37      3,066      1.84        546       .36        ---       ---
Automobile                       8,945      4.46      6,430      3.63      3,970      2.38      1,646      1.08      1,470      1.01
Home equity                     10,590      5.28     12,234      6.90      7,086      4.25      1,630      1.07        380       .26
Deposit account                    576       .29        260       .15        277       .16        339       .22        234       .16
Other                               48       .02         47       .02         35       .02         76       .05        496       .34
  Total consumer                30,753     15.34     25,881     14.60     16,369      9.81      8,655      5.69      6,196      4.27
Commercial business              9,392      4.68      7,713      4.35      5,321      3.19      3,588      2.37      2,709      1.87
                                 -----      ----      -----      ----      -----      ----      -----      ----      -----      ----
  Total loans receivable      $200,559   100.00%   $177,247   100.00%   $166,838   100.00%   $151,923   100.00%   $144,965   100.00%
                              --------   ======    --------   ======    --------   ======    --------   ======    --------   ======
Less:
Undisbursed loans in process     9,452                4,249                3,003                1,619                1,830
Derferred fees and unearned        188                  268                  247                  361                  396
Allowance for losses             1,218                1,316                1,117                1,038                1,000
                                 -----                -----                -----                -----                -----
 Total net items                10,858                5,833                4,367                3,018                3,226
                                ------                -----                -----                -----                -----
 Total loans receivable, net  $189,701             $171,414             $162,471             $148,905             $141,739
                              ========             ========             ========             ========             ========

</TABLE>



                                       6
<PAGE>



     The following  table shows the  composition  of our loan portfolio by fixed
and adjustable rate at the dates indicated.

<TABLE>
<CAPTION>
                                                                             March 31
                           ---------------------------------------------------------------------------------------------------------
                                  2000                  1999                  1998                  1997                    1996
                           ---------------------------------------------------------------------------------------------------------
                            Amount   Percent     Amount     Percent     Amount  Percent    Amount     Percent     Amount    Percent
                           ---------------------------------------------------------------------------------------------------------
                                                                                       (Dollars in Thousands)
<S>                        <C>        <C>      <C>          <C>      <C>         <C>      <C>          <C>      <C>          <C>
Fixed-Rate Loans:
Real Estate:
Residential                18,343     9.15%    $ 16,587     9.36%    $ 13,539    8.12%    $ 11,161     7.34%    $ 12,863     8.87%
Commercial                 13,019      6.49      11,294      6.37       6,442     3.86       6,223      4.10       5,548      3.83
                           ------      ----      ------      ----       -----     ----       -----      ----       -----      ----
 Total real estate         31,362     15.64      27,881     15.73      19,981    11.98      17,384     11.44      18,411     12.70
                           ------     -----      ------     -----      ------    -----      ------     -----      ------     -----
Consumer                   27,911     13.91      22,353     12.61      14,716     8.82       8,114      5.33       5,902      4.07
Commercial business         4,327      2.16       5,656      3.19       4,767     2.86       3,588      2.37       2,709      1.87
                            -----      ----       -----      ----       -----     ----       -----      ----       -----      ----
 Total fixed-rate loans    63,600     31.71      55,890     31.53      39,464    23.66      29,086     19.14      27,022     18.64
                           ------     -----      ------     -----      ------    -----      ------     -----      ------     -----
Adjustable-Rate loans:
Real Estate:
Residential                78,908     39.34      84,877     47.89      86,074    51.59      87,336     57.49      80,773     55.72
Commercial                 50,144     25.00      30,895     17.43      39,093    23.43      34,960     23.01      36,876     25.44
                           ------     -----      ------     -----      ------    -----      ------     -----      ------     -----
 Total real estate        129,052     64.34     115,772     65.32     125,167    75.02     122,296     80.50     117,649     81.16
                          -------     -----     -------     -----     -------    -----     -------     -----     -------     -----
Consumer                    2,842      1.42       3,528      1.99       1,653      .99         541       .36         294       .20
Commercial Business         5,065      2.53       2,057      1.16         554      .33         ---       ---         ---       ---
                            -----      ----       -----      ----         ---      ---     -------     -----     -------     -----
 Total adjustable-rate    136,959     68.29     121,357     68.47     127,374    76.34     122,837     80.86     117,943     81.36
                          -------     -----     -------     -----     -------    -----     -------     -----     -------     -----
 Total loans receivable  $200,559   100.00%    $177,247   100.00%    $166,838  100.00%     $151,923  100.00%    $144,965   100.00%
                         --------   ======     --------   ======     --------  ======      --------  ======     --------   ======

Less:
Undisbursed loans in         9,452                 4,249                 3,003               1,619                 1,830
Deferred fees and              188                   268                   247                 361                   396
Allowance for losses         1,218                 1,316                 1,117               1,038                 1,000
                             -----                 -----                 -----               -----                 -----
Total net items             10,858                 5,833                 4,367               3,018                 3,226
                            ------                 -----                 -----               -----                 -----
Total loans               $189,701              $171,414              $162,471            $148,905              $141,739
                          ========              ========              ========            ========              ========

</TABLE>

         (1)  Includes  residential  real  estate  construction  loans  of  $1.0
million, $2.7 million,  $818,000,  $1.5 million, and $2.4 million and commercial
real estate construction loans of $1.1 million, $2.6 million, $4.3 million, $3.7
million,  and $4.0  million  at March  31,  2000,  1999,  1998,  1997 and  1996,
respectively.

         (2)  Includes  residential  real  estate  construction  loans  of $12.2
million,  $7.4 million and $3.8 million and commercial real estate  construction
loans of $4.6  million,  $1.0  million and $1.1 million at March 31, 2000 , 1999
and 1998 respectively.


                                       7
<PAGE>



Loan Maturity and Repricing
--------------------------------------------------------------------------------

     We originate  fixed and adjustable  rate  construction  loans both of which
generally  mature  in one  year  or  less.  At  March  31,  2000,  we had  total
construction  loans of $20.7  million,  all of which  mature in the fiscal  year
ending March 31, 2001.


One-to Four-Family Residential Real Estate Lending
--------------------------------------------------------------------------------

     Our primary  lending  program is the origination of loans secured by one-to
four-family  residences,  substantially  all of which are  located in our market
area. We evaluate  both the  borrower's  ability to make  principal and interest
payments  and the value of the  property  that will  secure  the loan.  Although
federal law  permits us to make loans in amounts of up to 100% of the  appraised
value of the  underlying  real  estate,  we  generally  make one-to  four-family
residential  real estate loans in amounts of 80% or less of the appraised value.
In  certain  instances,  we will  lend up to 90% of the  appraised  value of the
underlying  real estate and require the  borrower to purchase  private  mortgage
insurance in an amount sufficient to reduce our exposure to 80% or less.

     In order to reduce  our  exposure  to changes in  interest  rates,  we have
de-emphasized  the  origination  of  30-year   fixed-rate   one-to   four-family
residential  mortgage  loans for  retention in our own  portfolio.  For the year
ended  March 31,  2000,  35.4% of all one-to  four-family  residential  loans we
originated had adjustable  interest rates.  Although,  due to competitive market
pressures,  we do originate  fixed-rate mortgage loans, we currently  underwrite
and  document  all such  loans to permit  their sale in the  secondary  mortgage
market, with a third-party purchase commitment for the loan being required prior
to  origination.  At March 31, 2000,  $17.3 million  (excluding  $1.0 million of
residential  construction loans) or 18.2%, of our one-to four-family residential
mortgage loan portfolio consisted of fixed-rate mortgage loans.

     Our  current  one-to  four-family  residential   adjustable-rate  mortgages
("ARMs")  have interest  rates that adjust  primarily  every year,  generally in
accordance with the rates on one-year U.S. Treasury Bills.  Although our primary
one-to  four-family  residential  loan is the one  year  adjustable,  we offer a
residential loan which adjusts every three or five years generally in accordance
with the rates on one or three  year U.S.  Treasury  Bills.  Our ARMs  generally
limit  interest  rate  increases to 2% each rate  adjustment  period and have an
established  ceiling  rate at the time the  loans  are made of up to 6% over the
original  interest  rate.  To compete with other  lenders in our market area, we
make one,  three and  five-year  ARMs at interest  rates which,  for the initial
period,  are below the index rate which would  otherwise  apply to these  loans.
Borrowers are qualified,  however,  at the fully indexed interest rate. At March
31, 2000,  residential  ARM loans totaled $78.9 million,  or 39.3%, of our total
loans receivable before net items. There are unquantifiable risks resulting from
potential  increased  costs to the  borrower  as a result  of  repricing.  It is
possible,  therefore,  that during periods of rising interest rates, the risk of
defaults on ARMs may increase due to the upward  adjustment of interest costs to
borrowers.

     All one-to  four-family  real estate mortgage loans being  originated by us
contain  a  "due-on-sale"  clause  providing  that  we may  declare  the  unpaid


                                       8
<PAGE>



principal balance due and payable upon the sale of the mortgaged property. It is
our policy to enforce these due-on-sale clauses concerning fixed-rated loans and
to permit assumptions of ARMs, for a fee, by qualified borrowers.

     We require,  in connection with the origination of residential  real estate
loans, title opinions and fire and casualty insurance coverage, as well as flood
insurance  where  appropriate,  to  protect  our  interests.  The  cost  of this
insurance coverage is paid by the borrower.  We generally do not require escrows
for taxes and insurance.


Commercial Real Estate and Construction Lending
--------------------------------------------------------------------------------

     We have originated and, in the past have purchased,  commercial real estate
loans and loan participations.  We also make commercial real estate construction
loans. Our commercial real estate and construction  loans are secured by various
types of commercial real estate,  including multi-family  residential buildings,
hotels and motels,  convenience  stores,  commercial and  industrial  buildings,
shopping  centers and churches.  We have in recent years placed more emphasis on
multi-family  housing loans for our commercial  real estate loan  portfolio.  At
March 31, 2000,  commercial real estate,  land and construction loans aggregated
$63.0  million or 31.4% of our total  loans  receivable  before  net items.  Our
commercial  real  estate  and  construction   loans  are  secured  primarily  by
properties located in our market area.

     Our commercial  real estate loans are generally made at interest rates that
adjust based on yields for one-year U.S. Treasury  securities,  with a 2% annual
cap on rate  adjustments  and a 6% cap on  interest  rates  over the life of the
loan.  Typically,  we charge fees ranging from 1% to 2% on these loans. At March
31,  2000,  we had $13.0  million  in  fixed-rate  commercial  real  estate  and
construction loans. Commercial real estate loans made by us are fully amortizing
with maturities ranging from five to 30 years.

     At  March  31,  2000,  we had  $5.8  million  or  2.9% of our  total  loans
receivable before net items invested in commercial  construction  loans compared
to $3.6  million  or 2.1% at March  31,  1999.  At  March  31,  2000,  we had 30
commercial  construction loans, the largest one having an outstanding balance of
$716,000.  All of these loans are presently  performing in accordance with their
terms. Our commercial  construction loans are generally made for a one year term
or less,  with a requirement  that the borrower have a commitment  for permanent
financing  prior to  funding  the  construction  loan.  Our  construction  loans
generally  provide for a fixed rate of interest at the prevailing  prime rate or
slightly  above.  Such  loans are  secured  by the  personal  guarantees  of the
borrowers and by first mortgages on the projects.

     In our  underwriting of commercial real estate and  construction  loans, we
may lend,  under  federal  regulations,  up to 100% of the  security  property's
appraised  value,  although the loan to original  appraised  value ratio on such
properties is generally 80% or less. Our commercial real estate and construction
loan  underwriting  criteria  require an  examination  of debt service  coverage
ratios, the borrower's creditworthiness and prior credit history and reputation,
and we generally  require personal  guarantees or endorsements of borrowers.  We
also carefully consider the location of the security property.

     At March 31,  2000,  we had 23  commercial  real estate  loans (or multiple
loans to one  borrower) in excess of $1.0  million with an aggregate  balance of


                                       9
<PAGE>



$36.8  million.  The  largest  relationship  was to a single  borrower  for $2.6
million  secured by a  combination  of  multi-family  and single  family  rental
property, personal residence, improved land and residential construction.

     The following table presents information as to Community's  commercial real
estate  and  construction  lending  portfolio  as of March  31,  2000 by type of
project.



                                                    NUMBER OF   PRINCIPAL
                                                      LOANS      BALANCE
                                                    (Dollars in Thousands)
Permanent financing:
Multi-family residential buildings                     44      $16,177
Hotel and motel                                         3        2,099
Commercial and industrial buildings                    62       19,422
Raw land                                               90        5,441
Church                                                  4          981
                                                      ---       ------
                                                      203       44,010
Acquisition and construction financing:
Commercial and industrial buildings                    30        5,765
                                                      ---       ------

Total                                                 233      $49,775
                                                      ===      =======


     Commercial real estate and construction  lending is generally considered to
involve  a higher  level of  credit  risk than  one-to  four-family  residential
lending due to the  concentration  of principal in a limited number of loans and
borrowers  and the  effects  of  general  economic  conditions  on  real  estate
developers and managers.  Our risk of loss on a  construction  loan is dependent
largely upon the accuracy of the initial  estimate of the property's  sale value
upon  completion  of the project and the estimated  cost of the project.  If the
estimated cost of construction or development proves to be inaccurate, we may be
required  to advance  funds  beyond the amount  originally  committed  to permit
completion of the project. If the estimate of value proves to be inaccurate,  we
may be confronted,  at or prior to the maturity of the loan, with a project with
value which is insufficient to assure full repayment. Because we usually provide
loans to a developer for the entire  estimated cost and interest of the project,
defaults in repayment  generally do not occur during the construction period and
it is therefore difficult to identify problem loans at an early stage. When loan
payments  become due,  borrowers may experience cash flow from the project which
is not adequate to service total debt. This cash flow shortage can result in the
failure to make loan payments.  In such cases, we may be compelled to modify the
terms of the loan. In addition,  the nature of these loans is such that they are
generally less predictable and more difficult to evaluate and monitor.


Consumer Lending
--------------------------------------------------------------------------------

     We offer various secured and unsecured consumer loans,  including unsecured
personal loans, automobile loans, deposit account loans,  installment and demand
loans,  and home equity and credit card loans.  At March 31, 2000,  we had $30.7
million or 15.3% of our total  loans  receivable  before net items  invested  in
consumer  loans.  With the  exception  of $10.6  million of home equity loans at
March 31, 2000,  our consumer loans have fixed interest rates and generally have


                                       10
<PAGE>



terms  ranging  from 90 days to five years.  The largest  component  of consumer
loans are home equity  loans.  We  originate  all of our  consumer  loans in our
market area and intend to continue our consumer lending in this geographic area.

     We offer VISA credit card  accounts.  At March 31, 2000,  1,440 credit card
accounts had been issued, with an aggregate  outstanding balance of $430,000 and
unused  credit  available  of  $3.5  million.  We  presently  charge  no  annual
membership fee and an annual rate of interest of 15.98%.

     Consumer  loans do not  include  unused  lines of  credit  on  credit  card
accounts opened by us and lines of credit on home equity loans. The total unused
credit available under our home equity and credit card programs was $8.3 million
at March 31, 2000.

     The  underwriting  standards  employed by us for consumer  loans  include a
determination  of  the  applicant's  payment  history  on  other  debts  and  an
assessment of ability to meet existing  obligations and payments on the proposed
loan.  The  stability of the  applicant's  monthly  income may be  determined by
verification of gross monthly income from primary  employment,  and additionally
from any verifiable secondary income. Although creditworthiness of the applicant
is of primary consideration, the underwriting process also includes a comparison
of the value of the security in relation to the proposed loan amount.

     Consumer loans may entail greater risk than do residential  mortgage loans,
particularly  in the case of consumer loans which are unsecured,  such as credit
card receivables,  or secured by rapidly depreciable assets such as automobiles.
In such cases, any repossessed  collateral for a defaulted consumer loan may not
provide an adequate  source of  repayment of the  outstanding  loan balance as a
result of the greater likelihood of damage, loss or depreciation.  The remaining
deficiency often does not warrant further substantial collection efforts against
the  borrower.  In addition,  consumer  loan  collections  are  dependent on the
borrower's  continuing  financial  stability,  and thus are  more  likely  to be
adversely  affected  by job  loss,  divorce,  illness  or  personal  bankruptcy.
Furthermore,  the  application  of various  federal  and state  laws,  including
federal and state bankruptcy and insolvency laws, may limit the amount which can
be recovered on such loans. Such loans may also give rise to claims and defenses
by a consumer loan  borrower  against an assignee of such loan such as us, and a
borrower may be able to assert  against such assignee  claims and defenses which
it  has  against  the  seller  of the  underlying  collateral.  We  add  general
provisions to our loan loss allowance,  in amounts determined in accordance with
industry  standards,  at the  time  the  loans  are  originated.  Consumer  loan
delinquencies often increase over time as the loans age.  Accordingly,  although
the level of non-performing  assets in our consumer loan portfolio has generally
been  low  ($161,000  at  March  31,  2000),  there  can  be no  assurance  that
delinquencies will not increase in the future.


Commercial Business Lending
--------------------------------------------------------------------------------

     We also originate  commercial business loans. At March 31, 2000 we had $9.4
million in commercial business loans outstanding, representing 4.7% of our gross
loan  portfolio.   We  offer  commercial  business  loans  to  service  existing
customers, to consolidate our banking relationships with these customers, and to
further our asset/liability management goals.



                                       11
<PAGE>



     Unlike residential  mortgage loans which generally are made on the basis of
the  borrower's  ability to make  repayment from his or her employment and other
income,  and which are  secured by real  property  whose  value tends to be more
easily ascertainable, commercial business loans are of higher risk and typically
are made on the basis of the borrower's  ability to make repayment from the cash
flow of the borrower's business.  As a result, the availability of funds for the
repayment of commercial  business loans may be dependent upon the success of the
business  itself.  Our commercial  business loans almost always include personal
guarantees and are usually, but not always, secured by business assets. However,
the collateral  securing the loans may depreciate over time, may be difficult to
appraise  and may  fluctuate in value based on the success of the  business.  At
March 31, 2000,  we had $7.8 million of secured  commercial  business  loans and
$1.6 million of unsecured commercial business loans.

     We recognize the generally increased credit risk associated with commercial
business  lending.  Our commercial  business lending practice  emphasizes credit
file  documentation  and  analysis  of  the  borrower's  character,   management
capabilities, capacity to repay the loan, the adequacy of the borrower's capital
and collateral.  Analysis of the borrower's past,  present and future cash flows
is also an important aspect of our credit analysis.


Loan Originations, Purchases and Sales
--------------------------------------------------------------------------------

     Federal regulations  authorize us to make real estate loans anywhere in the
United States. However, at March 31, 2000,  substantially all of our real estate
loans were secured by real estate located in our market area.

     Management  believes that  purchases of loans and loan  participations  are
generally  desirable only when local mortgage  demand is less than the supply of
funds available for local mortgage origination. We did not purchase any loans in
fiscal 2000.

     Generally,  we originate fixed-rate  residential mortgage loans for sale in
the  secondary  market  and  retain  adjustable-rate   mortgage  loans  for  our
portfolio.  Prior to fiscal 1997 we retained the  servicing  for mortgage  loans
sold.  During fiscal 1997 we began to sell loans with  servicing  released to be
more competitive in that market.




                                       12
<PAGE>



     The  following  table  shows  our  loan  origination,  purchase,  sale  and
repayment activities for the periods indicated.


                                                       Year Ended March 31,
                                               ---------------------------------
                                                 2000        1999         1998
                                               ---------------------------------
                                                         (In Thousands)
ORIGINATION BY TYPE:
Adjustable Rate:
Real estate - one - to four - family
              - residential                    $35,426     $22,300      $20,724
              - commercial                       2,912      13,916        9,693
              - home equity                      1,420       8,214          390
                                                 -----       -----          ---
      Total adjustable rate                     39,758      44,430       30,807
                                                ------      ------       ------
FIXED RATE:
Real estate - one - to four - family
              - residential                     64,560      28,614        5,345
              - commercial                       9,533       4,514          ---
Non-real estate - consumer (1)                  19,391      22,134       22,009
                           --                   ------      ------       ------
      Total fixed rate                          93,484      55,262       27,354
                                                ------      ------       ------
SALES AND REPAYMENTS
Real estate loans                               77,850      28,606        4,001
Principal repayments                            24,278      41,034       23,552
                                                ------      ------       ------
      Total reductions                         102,128      69,640       27,553
                                               -------      ------       ------
Increase (decrease) in other items, net       (12,827)    (21,109)     (17,041)
                                              -------     -------      -------

      Net increase                             $18,287     $ 8,943      $13,567
                                               =======     =======      =======


-------------------
     (1) Consumer loans include the amounts  outstanding on credit card accounts
opened by us and unused lines of credit on home equity  loans.  The total credit
available  was $8.3 million,  $5.9 million,  and $4.6 million at March 31, 2000,
1999 and 1998,  respectively,  which would have  increased  fixed-rate  consumer
loans  to  $36.2  million,  $28.0  million  and  $26.6  million  at such  dates,
respectively.


Delinquent and Problem Loans
--------------------------------------------------------------------------------

     When a borrower  fails to make a required  payment on a loan, we attempt to
cause the deficiency to be cured by contacting the borrower.  A notice is mailed
to the  borrower  after a payment is 16 days past due and again when the loan is
28 days past due. For most loans, if the delinquency is not cured within 30 days
we issue a notice of intent to foreclose on the property and if the  delinquency


                                       13
<PAGE>



is not cured within 60 days, we may institute  foreclosure action. If foreclosed
on,  real  property  is sold  at a  public  sale  and  may be  purchased  by us.
Historically, deficiencies have been cured promptly.

     The following table sets forth information  concerning  delinquent mortgage
and other loans at March 31, 2000.  The amounts  presented  represent  the total
remaining  principal  balances  of the  related  loans,  rather  than the actual
payment amounts which are overdue.

<TABLE>
<CAPTION>
                              Residential Real     Commercial Real
                                    Estate              Estate            Consumer
                              ----------------------------------------------------------
                              Number    Amount     Number    Amount    Number    Amount
                              ----------------------------------------------------------
                                                 (Dollars in Thousands)
<S>                            <C>       <C>         <C>     <C>         <C>     <C>
LOANS DELINQUENT FOR:
30-59 days                     7         $361        4       $346        74      $1,705
60-89 days                     -            -        -          -         2          16
90 days and over               2          159        1        131         2         158
                               -          ---        -        ---         -         ---
Total delinquent loans         9         $520        5       $477        78      $1,879
                               =         ====        =       ====        ==      ======

</TABLE>

     Federal  regulations  provide for the classification of loans, debt, equity
securities and other assets considered to be of lesser quality as "substandard,"
"doubtful" or "loss" assets.  The regulations  require  insured  institutions to
classify their own assets and to establish prudent general allowances for losses
for assets  classified  "substandard"  or "doubtful."  For the portion of assets
classified as "loss," an  institution is required to either  establish  specific
allowances of 100% of the amount classified or charge such amount off its books.
Assets which do not currently expose the insured  institution to sufficient risk
to warrant  classification in one of the  aforementioned  categories but possess
potential  weaknesses  are  required  to  be  designated  "special  mention"  by
management.  In  addition,  the OTS may require the  establishment  of a general
allowance for losses based on assets  classified as "substandard" and "doubtful"
or based on the general  quality of the asset  portfolio of an  institution.  In
connection  with  the  filing  of our  periodic  reports  with  the  OTS  and in
accordance with our  classification  of assets policy,  we regularly  review the
loans in our portfolio to determine whether any loans require  classification in
accordance with applicable regulations.

     On the basis of  management's  review of our assets,  at March 31, 2000, we
had classified $1,221,000 of our assets as substandard,  $13,000 as doubtful and
none as loss. All assets that have been  classified are included below in either
the table of non-performing assets or under "Other Loans of Concern."


                                       14
<PAGE>




Non-Performing Assets
--------------------------------------------------------------------------------

     The table  below sets forth the amounts and  categories  of  non-performing
assets in our loan portfolio.  Non-performing assets include non-accruing loans,
accruing loans  delinquent 90 days or more as to principal or interest  payments
and real estate acquired through  foreclosure,  which include assets acquired in
settlement of loans.  Typically,  a loan becomes  nonaccruing when it is 90 days
delinquent. All consumer loans more than 120 days delinquent are charged against
the consumer loan allowance for loan losses.  Accruing mortgage loans delinquent
more than 90 days are  loans  that we  consider  to be well  secured  and in the
process of  collection.  For the years  presented,  we have had no troubled debt
restructurings  (which  involve  forgiving a portion of interest or principal on
any loans or making loans at a rate materially less than that of market rates).

<TABLE>
<CAPTION>
                                                                                      March 31,
                                                           --------------------------------------------------------------
                                                            2000          1999          1998          1997          1996
                                                           --------------------------------------------------------------
                                                                               (Dollars in Thousands)
<S>                                                         <C>            <C>          <C>           <C>           <C>
Non-accruing loans:
Consumer                                                    $ 281          $ 92         $ 590         $ 400         $ ---
Real Estate                                                   159         1,074            45           103           ---
Accruing loans delinquent more than 90 Days:
Residential                                                   ---           ---           ---           ---            52
Commercial                                                    ---           ---           ---           ---           ---
Consumer                                                      ---           ---           ---           ---           541
Real estate acquired through foreclosure                      831           352           303           173           148
                                                           ------        ------        ------         -----         -----
     Total                                                 $1,271        $1,518         $ 938         $ 676         $ 741
                                                           ======        ======         =====         =====         =====

     Total as a percentage of total assets                   .52%          .76%          .51%          .40%          .46%
                                                             ===           ===           ===           ===           ===

Unallocated allowance for loan losses                      $1,200        $1,195        $1,080         $ 783         $ 791
                                                           ======        ======        ======         =====         =====


</TABLE>

     Non-performing  assets  at March  31,  2000  were  comprised  primarily  of
residential  real estate  acquired  through  foreclosure.  At March 31, 2000 the
largest  property  in  non-performing  assets  was a  multi-family  unit with an
approximate value of $457,000.  Based on current market values of the properties
securing these loans,  management anticipates no significant losses in excess of
the reserves for losses previously recorded.



                                       15
<PAGE>




Other Loans Of Concern
--------------------------------------------------------------------------------

     As of March 31, 2000,  there were $3,458,000 in loans with respect to which
known  information  about the possible  credit  problems of the borrowers or the
cash flows of the security  properties have caused  management to have doubts as
to the ability of the borrowers to comply with present loan repayment  terms and
which may result in the  future  inclusion  of such items in the  non-performing
asset categories.

     The  $3,458,000  in other  loans  of  concern  is  comprised  primarily  of
commercial and  residential  real estate loans.  Included in the commercial real
estate  loans  of  concern  are two  loans in the  amount  of $1.3  million  and
$900,000,  both of which are current as to interest and principal  payments.  We
are closely monitoring the status of these loans.

     Although management believes that these loans are adequately secured and no
material loss is expected,  certain  circumstances  may cause the borrower to be
unable to comply with the present loan repayment terms at some future date.


Allowance for Losses on Loans and Real Estate
--------------------------------------------------------------------------------

     We provide  valuation  reserves  for  anticipated  losses on loans and real
estate when management determines that a significant decline in the value of the
collateral  has  occurred,  as a result of which the value of the  collateral is
less than the amount of the unpaid  principal of the related loan plus estimated
costs of acquisition  and sale. In addition,  we also provide  reserves based on
the dollar amount and type of collateral securing our loans, in order to protect
against unanticipated losses. Although management believes that it uses the best
information  available  to  make  such  determinations,  future  adjustments  to
reserves may be necessary,  and net income could be significantly  affected,  if
circumstances  differ  substantially  from the  assumptions  used in making  the
initial  determinations.  During 1999,  we decreased our allowance for losses on
loans by $98,000 due primarily to the charge-off of specific reserves.  At March
31,  2000,  we  had  an  allowance  for  loan  losses  of  $1,218,000  which  is
predominantly a general allowance of $1,200,000.




                                       16
<PAGE>



     The  following  table  sets forth an  analysis  of our  allowance  for loan
losses.

<TABLE>
<CAPTION>
                                                                                  Year Ended March 31,
                                                         -------------------------------------------------------------------
                                                          2000           1999           1998           1997           1996
                                                         -------------------------------------------------------------------
                                                                                 (Dollars in Thousands)
<S>                                                      <C>            <C>            <C>            <C>             <C>
Balance at beginning of period                           $1,316         $1,117         $1,039         $1,000          $ 743
                                                         ------         ------         ------         ------          -----
Provision charged to operations                             283            360            499            181            307
                                                            ---            ---            ---            ---            ---
CHARGE-OFFS:
   Residential real estate                                  288            100            116             59            ---
   Consumer                                                 159             74            376            110             71
Recoveries:
   Real Estate                                               59              6            ---            ---            ---
   Consumer                                                   7              7             73             27              1
                                                              -              -             --             --              -
Net charge-offs                                             381            161            420            142             70
                                                            ---            ---            ---            ---             --
Balance at end of period                                 $1,218         $1,316         $1,117         $1,039         $1,000
                                                         ------         ------         ------         ------         ------
Ratio of net charge-offs during the period to              .20%           .10%           .27%           .01%           .01%

</TABLE>







                                       17
<PAGE>



     The  distribution  of the  allowance  for  losses  on  loans  at the  dates
indicated is summarized as follows:

<TABLE>
<CAPTION>
                                                                                                        Consumer and
                                                                 Commercial                              Commercial
                                                Residential      Real Estate      Construction             Business        Total
                                                -----------------------------------------------------------------------------------
                                                                               (Dollars in Thousands)
<S>                                               <C>              <C>                <C>                  <C>             <C>
MARCH 31,2000
Amount of loan loss allowance                    $   238          $   246            $   136              $   598         $  1,218
Loan amounts by category                          97,409           42,318             20,687               40,145          200,559
Percent of loans in each
category to total loans                           48.57%           21.10%             10.31%               20.02%          100.00%

MARCH 31,1999
Amount of loan loss allowance                    $   375          $   306            $   123              $   512         $  1,316
Loan amounts by category                          91,396           38,545             13,712               33,594          177,247
Percent of loans in each
category to total loans                           51.56%           21.75%              7.74%               18.95%          100.00%

MARCH 31, 1998
Amount of loan loss allowance                    $   376          $   161            $   116              $   464         $  1,117
Loan amounts by category                          94,962           40,115             10,071               21,690          166,838
Percent of loans in each
category to total loans                           56.92%           24.04%              6.04%               13.00%          100.00%

MARCH 31, 1997
Amount of loan loss allowance                    $   385          $   140            $    78              $   436         $  1,039
Loan amounts by category                          96,968           37,508              5,204               12,243          151,923
Percent of loans in each
category to total loans                           63.83%           24.69%              3.42%                8.06%          100.00%

MARCH 31, 1996
Amount of loan loss allowance                    $   381          $   242            $    83              $   294         $  1,000
Loan amounts by category                          91,212           38,433              6,415                8,905          144,965
Percent of loans in each
category to total loans                           61.92%           26.51%              4.43%                6.14%          100.00%
</TABLE>


                                       18
<PAGE>



Subsidiary Activities
--------------------------------------------------------------------------------

     We established  Community First Mortgage  Corporation,  a mortgage  banking
subsidiary,  in November  1997 and began  operations  in June 1998.  The primary
business of Community First is to originate fixed rate mortgage loans to sell to
third party  investors  to generate fee income and gains on the sale of mortgage
loans.  The success of a mortgage  banking  operation such as Community First is
generally  dependent on increasing the volume of mortgage  loans  originated and
sold to  investors.  Community  First,  during  the year  ended  March 31,  2000
experienced a loss before income taxes of approximately $608,000.


Investment Activities
--------------------------------------------------------------------------------

     As a member of the FHLB System, Community Bank must maintain minimum levels
of  investments  that are liquid  assets as specified by the OTS.  Liquidity may
increase or decrease  depending upon the  availability  of funds and comparative
yields on  investments  in relation to the return on loans.  See  "Regulation  -
Liquidity."

     Historically,  we have  maintained  our  liquid  assets  above the  minimum
requirements  imposed by federal regulations and at a level believed adequate to
meet  requirements  of normal daily  activities,  repayment of maturing debt and
potential  deposit  outflows.  Cash flow projections are regularly  reviewed and
updated to assure that adequate liquidity is provided. As of March 31, 2000, the
Bank's  liquidity  ratio  (liquid  assets as a  percentage  of net  withdrawable
savings and current borrowings) was 6.8%.

     The  contractual  maturities and weighted  average yields of the investment
securities  portfolio,  excluding  FHLB of Atlanta  stock and FHLMC  stock,  are
indicated in the following table.

<TABLE>
<CAPTION>
                                                                                March 31, 2000
                                                     --------------------------------------------------------------
                                                     Within 1 year     1 to 5 Years   Total Investment  Securities
                                                      Book Value        Book Value       Book Value     MarketValue
                                                     --------------------------------------------------------------
                                                                            (Dollars in Thousands)
<S>                                                      <C>             <C>              <C>             <C>
Federal agency obligations                               $ ---           $23,065          $23,065         $22,610
State agency obligations and commercial paper            1,195             3,053            4,248           4,194
                                                         -----             -----            -----           -----
Total investment securities                             $1,195           $26,118          $27,313         $26,804
                                                        ======           =======          =======         =======

Weighted average yield                                   5.11%             6.66%            6.59%           6.71%

</TABLE>




                                       19
<PAGE>



     The following table sets forth the composition of our investment  portfolio
at the dates indicated.

<TABLE>
<CAPTION>
                                                                                      March 31,
                                                      -----------------------------------------------------------------------------
                                                               2000                        1999                       1998
                                                      Book Value   % of Total    Book Value    % of Total   Book Value   % of Total
                                                      -----------------------------------------------------------------------------
                                                                                  (Dollars in Thousands)
<S>                                                      <C>         <C>           <C>          <C>           <C>         <C>
Interest-bearing deposits with banks                     $1,908      100.0%       $6,407        100.0%       $2,866      100.0%
       Total                                             $1,908      100.0%       $6,407        100.0%       $2,866      100.0%
                                                         ------      ------       ------        ------       ------      ------
Investment securities:
   Federal agency obligations                            23,065       63.8         2,315         21.8         1,861       55.2
   State agencies and commercial paper                    4,248       11.8         3,246         30.6         1,323        3.6
   FHLMC common stock                                     6,864       19.0         3,543         33.4         3,905       25.4
                                                          -----       ----         -----         ----         -----       ----
       Subtotal                                          34,177       94.6         9,104         85.8         7,089       84.2
FHLB stock                                                1,950        5.4         1,508         14.2         1,600       15.8
                                                          -----       ----         -----         ----         -----       ----
       Total investment securities and FHLB stock       $36,127      100.0%      $10,612       100.00%       $8,689      100.0%
                                                        =======      ======      =======       =======       ======      ======

Average remaining life or term to repricing,                        3 Years                    3 Years                   3 Years
</TABLE>

     During  fiscal  2000  the  market  rates  paid  on  investment   securities
increased.  During fiscal 2000 we invested primarily in federal and state agency
securities  with  maturities  of one to five years,  some of which are  callable
within one to three years from date of purchase.





                                       20
<PAGE>



Sources of Funds
--------------------------------------------------------------------------------

     General. Deposits have traditionally been the principal source of our funds
for use in lending  and for other  general  business  purposes.  In  addition to
deposits,  we derive  funds  from loan  repayments,  cash flows  generated  from
operations,  which includes interest  credited to deposit  accounts,  repurchase
agreements entered into with commercial banks and FHLB of Atlanta advances.

     Contractual  loan payments are a relatively  stable source of funds,  while
deposit  inflows and  outflows  and the  related  cost of such funds have varied
widely.  Borrowings  may  be  used  on a  short-term  basis  to  compensate  for
reductions in deposits or deposit inflows at less than projected  levels and may
be used on a longer-term basis to support expanded lending activities.

     Deposits.  We attract  both  short-term  and  long-term  deposits  from the
general public by offering a wide assortment of accounts and rates. We have been
required by market  conditions to rely on short-term  accounts and other deposit
alternatives that are more responsive to market interest rates than the passbook
accounts and fixed interest rate, fixed-term  certificates that were our primary
source of deposits in the past. We offer  regular  passbook  accounts,  checking
accounts, various money market accounts,  fixed-rate long-term certificates with
varying  maturities,  $100,000  or  above  jumbo  certificates  of  deposit  and
individual  retirement  accounts.  Certain of our jumbo  certificates which have
matured  revert to a passbook  rate and are  reflected in the tables as passbook
accounts. We do not solicit brokered deposits due to our ability historically to
attract funds from our local markets or borrow from the FHLB at lower rates.

     The following table sets forth the dollar amount of savings deposits in the
various types of deposit programs offered by us at the periods indicated.


                                                        At March 31,
                                           -------------------------------------
                                             2000           1999          1998
                                           -------------------------------------
                                                       (In Thousands)
Passbook and statement accounts             $14,574       $14,307       $12,443
NOW and Super NOW accounts                   26,763        25,914        21,080
Money market accounts                        11,257        11,613         8,349
One-to five-year fixed-rate certificates    103,029        97,508        91,996
Six-month and 91 day certificates             2,445         3,373         3,246
Jumbo certificates                              500           300         1,050
                                                ---           ---         -----
         Total                             $158,568      $153,015      $138,164
                                           ========      ========      ========





                                       21
<PAGE>



     The  following  table sets forth the change in the dollar amount of savings
deposits in the various types of deposit  programs offered by us for the periods
indicated.

                                                    Year Ended March 31,
                                             -----------------------------------
                                              2000           1999          1998
                                             -----------------------------------
                                                       (In Thousands)
Passbook and statement accounts              $ 267         $1,864       $ (135)
NOW and Super NOW accounts                     849          4,834         5,504
Money market accounts                        (356)          3,264       (1,586)
One-to five-year fixed-rate certificates     5,521          5,512        18,179
Six-month and 91 day certificates            (928)            127         (829)
Jumbo certificates                             200          (750)           436
                                               ---          ----            ---
         Total increase                     $5,553        $14,851       $21,569
                                            ======        =======       =======



     The following table contains  information  pertaining to the average amount
of and the average rate paid on each of the following deposit categories for the
periods indicated.

<TABLE>
<CAPTION>
                                                                   Year Ended March 31,
                                        ---------------------------------------------------------------------------
                                                2000                       1999                       1998
                                        ---------------------------------------------------------------------------
                                        Average       Average      Average       Average      Average       Average
                                        Balance         Rate       Balance         Rate       Balance         Rate
                                                        Paid                       Paid                       Paid
                                        ---------------------------------------------------------------------------
                                                                  (Dollars in Thousands)
<S>                                     <C>                         <C>                        <C>
Deposit Category
Non-interest bearing demand deposits    $ 6,601        ---%         $4,909        ---%         $2,944        ---%
Interest bearing demand deposits         29,146        2.73         26,027        2.96         23,715        2.96
Savings deposits                         14,297        3.04         13,378        3.00         12,358        2.99
Time deposits                           101,377        5.08         97,475        5.35         87,672        5.45
                                        -------                     ------                     ------
         Total deposits                $151,421        4.22%       141,789        4.50%      $126,689        4.54%
                                       ========                    =======                   ========

</TABLE>



                                       22
<PAGE>



     The variety of deposit  accounts we offer has allowed us to be  competitive
in  obtaining  funds and has allowed us to respond with  flexibility  (by paying
rates of interest  more closely  approximating  market  rates of  interest)  to,
although not eliminate the threat of,  disintermediation (the flow of funds away
from depository  institutions such as thrift institutions into direct investment
vehicles such as  government  and corporate  securities).  In addition,  we have
become  much more  subject  to  short-term  fluctuations  in deposit  flows,  as
customers have become more interest rate  conscious.  Our ability to attract and
maintain  deposits,  and our cost of funds,  has been,  and will continue to be,
significantly affected by money market conditions.

     The  following  table  sets forth our  deposit  flows  during  the  periods
indicated.


                                               Year Ended March 31,
                                 --------------------------------------------
                                    2000             1999              1998
                                 --------------------------------------------
                                            (Dollars in Thousands)
Opening balance                  $153,015         $138,164          $116,595
Net deposits (withdrawals)          (827)            8,464            16,718
Interest credited                   6,380            6,387             4,851
                                    -----            -----             -----
Ending balance                    158,568         $153,015          $138,164
                                  =======         ========          ========

Net increase                        5,553          $14,851           $21,569

Percent increase                    3.63%           10.75%            18.50%



     During the fiscal years ended March 31, 2000,  1999 and 1998 we  emphasized
free checking accounts, increased our marketing efforts and remained competitive
in regard to the rates  offered by  competitors.  Due to these  efforts  and the
opening of an  additional  branch  location in  Staunton in October of 1999,  we
experienced an increase in both demand and time deposits  during fiscal 2000. To
the  extent  that we may rely on  sources  of funds  other  than  deposits,  our
earnings may be adversely  affected.  We may use  borrowings  as an  alternative
source of funds. See "- Borrowings."




                                       23
<PAGE>



     The following table shows rate  information for our certificates of deposit
as indicated.

                    2.00-       3.01-          5.01-      6.01-
                    3.00%       5.00%          6.00%      7.00%         Total
--------------------------------------------------------------------------------
                                        (In Thousands)
March 31, 2000        $21      $37,443      $49,368      $19,142     $105,974
March 31, 1999        ---      $29,790      $67,199       $4,192     $101,181
March 31, 1998        $49       $5,729      $74,112      $16,402      $96,292


     The following table indicates the amount of the  certificates of deposit by
time remaining until maturity as of March 31, 2000.

<TABLE>
<CAPTION>
                                                                            Maturity
                                                  3 Months         Over 3 to        Over 12         Total
                                                  or less          12 Months        Months
                                                  ----------------------------------------------------------
                                                                         (In Thousands)
<S>                                                <C>              <C>             <C>              <C>
Certificates of deposit less than $100,000         $13,193          $40,103         $37,377          $90,673
Certificates of deposit of $100,000 or more          1,523            7,038           6,740           15,301
Total certificates of deposit                      $14,716          $47,141         $44,117         $105,974

</TABLE>





                                       24
<PAGE>



Borrowings
--------------------------------------------------------------------------------

     As a member of the FHLB of Atlanta, we are required to own capital stock in
the FHLB of Atlanta and are  authorized  to apply for advances  from the FHLB of
Atlanta.  Each FHLB credit program has its own interest rate, which may be fixed
or variable,  and range of  maturities.  The FHLB of Atlanta may  prescribe  the
acceptable  uses to which these  advances may be put, as well as  limitations on
the size of the advances and repayment provisions. Our borrowings,  from time to
time,  also  include  securities  sold  under  agreements  to  repurchase,  with
mortgage-backed  securities  or other  securities  pledged  as  collateral.  The
proceeds are utilized by us for general corporate  purposes.  At March 31, 2000,
we had $20,000,000 of securities sold under agreements to repurchase.

     We  generally  utilize  borrowings  to  supplement  deposits  when they are
available  at a lower  overall  cost to us or they can be invested at a positive
rate of return.

     The following table sets forth the maximum month-end  balance,  and average
balance and weighted average rate, of FHLB advances for the periods indicated.


<TABLE>
<CAPTION>
                                                  Year Ended March 31,
                            ------------------------------------------------------------------
                             2000                         1999                         1998
                            ------------------------------------------------------------------
                                                 (Dollars in Thousands)
<S>                         <C>                          <C>                          <C>
Maximum Balance:
FHLB advances               $42,000                      $20,000                      $32,000
</TABLE>

<TABLE>
<CAPTION>
                     Amount         Rate          Amount         Rate          Amount         Rate
                     ------------------------------------------------------------------------------
<S>                  <C>            <C>          <C>             <C>          <C>             <C>
Average Balance:
FHLB advances        $32,583        5.7%         $14,167         5.7%         $25,917         5.7%
</TABLE>




                                       25
<PAGE>



     The following table sets forth information as to the our borrowings and the
weighted average interest rate paid on such borrowings at the dates indicated.

<TABLE>
<CAPTION>
                                                                      At March 31,
                                                     ----------------------------------------------
                                                       2000                1999               1998
                                                     ----------------------------------------------
                                                                 (Dollars in Thousands)
<S>                                                   <C>                 <C>                <C>
Securities sold under agreements to repurchase       $20,000                 ---                ---
FHLB advances                                         37,000              19,000             18,000
         Total Borrowings                            $57,000             $19,000            $18,000
Weighted average interest rate of borrowings           6.49%               5.60%              5.77%
</TABLE>

















                                       26
<PAGE>



Competition
--------------------------------------------------------------------------------

     Community faces strong  competition  both in originating  real estate loans
and in attracting  deposits.  Competition in originating real estate loans comes
primarily from other thrift institutions,  commercial banks and mortgage bankers
who also make loans  secured by real  estate  located  in our  market  area.  We
compete for real estate loans principally on the basis of our interest rates and
loan fees, the types of loans and the quality of services provided to borrowers.

     We face  substantial  competition in attracting  deposits from other thrift
institutions, commercial banks, money market and mutual funds, credit unions and
other investment vehicles. Our ability to attract and retain deposits depends on
our ability to provide an investment opportunity that satisfies the requirements
of investors as to rate of return, liquidity, risk and other factors. We compete
for these  deposits  by offering a variety of deposit  accounts  at  competitive
rates and convenient business hours.

     We consider our primary  market for  deposits to be Augusta  County and for
mortgage loans to be Augusta and Rockingham Counties and the Hampton Roads area.
We  estimate  that our market  share of savings  deposits  in Augusta  County is
approximately  10% and our share of  mortgage  loans in Augusta  and  Rockingham
Counties is less than 10%.  The opening of an office by the Bank in April,  1997
in Virginia Beach, Virginia expanded the Bank's market area to the Hampton Roads
area of Virginia.


Regulation
--------------------------------------------------------------------------------

     General. Community Bank is a federally chartered financial institution, the
deposits of which are federally insured. Accordingly,  Community Bank is subject
to broad federal regulation and oversight  extending to all its operations.  The
Bank is a member  of the FHLB of  Atlanta  and is  subject  to  certain  limited
regulation  by the Board of Governors of the Federal  Reserve  System  ("Federal
Reserve  Board").  As the savings and loan holding  company of  Community  Bank,
Community Financial also is subject to federal regulation and oversight.

     Certain of these  regulatory  requirements  and  restrictions are discussed
below or elsewhere in this document.

     Federal Regulation of Savings Associations. The OTS has extensive authority
over the operations of savings associations.  As part of this authority,  we are
required to file  periodic  reports  with the OTS and we are subject to periodic
examinations  by the OTS.  When an  examination  is  conducted  by the OTS,  the
examiners  may  require us to provide for higher  general or specific  loan loss
reserves.  Our  last  regular  OTS  examination  was in  October,  1999  and the
examiners did not require us to provide for higher general or specific loan loss
reserves.




                                       27
<PAGE>



     All savings  associations  are subject to a semi-annual  assessment,  based
upon the savings  association's total assets, to fund the operations of the OTS.
Our OTS assessment for the fiscal year ended March 31, 2000, was $49,806.

     Insurance  of Accounts  and  Regulation  by the FDIC.  Community  Bank is a
member of the SAIF,  which is administered by the FDIC.  Deposits are insured up
to applicable  limits by the FDIC and such insurance is backed by the full faith
and credit of the United States Government. As insurer, the FDIC imposes deposit
insurance  premiums and is authorized to conduct  examinations of and to require
reporting by FDIC-insured institutions.

     The FDIC's  deposit  insurance  premiums are assessed  through a risk-based
system,  under which all insured depository  institutions are placed into one of
nine  categories  and  assessed  insurance  premiums,  based upon their level of
capital and supervisory evaluation.  Under this system,  institutions classified
as well capitalized  (i.e., a core capital ratio of at least 5%, a ratio of Tier
1 or core capital to  risk-weighted  assets ("Tier 1 risk-based  capital") of at
least 6% and a risk-based capital ratio of at least 10%) and considered healthy,
pay the  lowest  premium  while  institutions  that  are  less  than  adequately
capitalized (i.e., core or Tier 1 risk-based capital ratios of less than 4% or a
risk-based  capital  ratio  of less  than  8%)  and  considered  of  substantial
supervisory concern pay the highest premium.  Risk classification of all insured
institutions will be made by the FDIC for each semi-annual assessment period.

     Regulatory Capital  Requirements.  Federally insured savings  associations,
such as Community  Bank,  are required to maintain a minimum level of regulatory
capital. The OTS has established capital standards, including a tangible capital
requirement,  a leverage  ratio (or core capital)  requirement  and a risk-based
capital  requirement  applicable  to such savings  associations.  These  capital
requirements   must  be  generally  as  stringent  as  the  comparable   capital
requirements  for national  banks.  The OTS is also authorized to impose capital
requirements  in excess  of these  standards  on  individual  associations  on a
case-by-case  basis.  See  Note  10  of  the  Notes  to  Consolidated  Financial
Statements  contained in Part II, Item 7 of this report for  information  on our
regulatory capital levels and applicable OTS requirements.

     The OTS and the  FDIC  are  authorized  and,  under  certain  circumstances
required, to take certain actions against savings associations that fail to meet
their capital requirements.

     Limitations on Dividends and Other Capital  Distributions.  OTS regulations
impose  various  restrictions  on  savings  associations  with  respect to their
ability  to make  distributions  of  capital,  which  include  dividends,  stock
redemptions or repurchases,  cash-out mergers and other transactions  charged to
the capital account.  OTS regulations  also prohibit a savings  association from
declaring or paying any dividends or from repurchasing any of its stock if, as a
result,  the regulatory  capital of the  association  would be reduced below the
amount  required to be maintained  for the  liquidation  account  established in
connection with its mutual to stock conversion.

     Generally,  savings  associations,  such as Community  Bank that before and
after the  proposed  distribution  meet  their  capital  requirements,  may make
capital  distributions  during  any  calendar  year  equal to net income for the
current year plus the previous two years net income, less capital  distributions
paid over that same period. However, an association deemed to be in need of more
than normal supervision by the OTS may have its dividend authority restricted by


                                       28
<PAGE>



the OTS.  Community  Bank may pay  dividends  in  accordance  with this  general
authority.

     Liquidity. All savings associations, including Community Bank, are required
to  maintain  an  average  daily  balance  of liquid  assets  equal to a certain
percentage of the sum of its average daily balance of net  withdrawable  deposit
accounts and borrowings payable in one year or less. For a discussion of what we
include in liquid assets, see "Management's Discussion and Analysis of Financial
Condition and Results of  Operations-Liquidity  and Capital Resources" contained
in Part II, Item 6 of this report.

     Qualified Thrift Lender Test. All savings associations, including Community
Bank,  are  required to meet a qualified  thrift  lender  ("QTL")  test to avoid
certain  restrictions  on  their  operations.   This  test  requires  a  savings
association  to have  at  least  65% of its  portfolio  assets  (as  defined  by
regulation) in qualified thrift investments on a monthly average for nine out of
every 12 months on a rolling basis. As an alternative,  the savings  association
may maintain 60% of its assets in those assets specified in Section  7701(a)(19)
of the Internal Revenue Code.  Under either test, such assets primarily  consist
of  residential  housing  related  loans and  investments.  At March  31,  2000,
Community Bank met the test and has always met the test since its effectiveness.

     Any savings  association  that fails to meet the QTL test must convert to a
national bank charter,  unless it requalifies as a QTL and thereafter  remains a
QTL. If an  association  does not  requalify  and  converts  to a national  bank
charter,  it must remain  SAIF-insured  until the FDIC permits it to transfer to
the BIF.

     Community  Reinvestment Act. Under the Community  Reinvestment Act ("CRA"),
every FDIC insured  institution  has a  continuing  and  affirmative  obligation
consistent  with safe and sound banking  practices to help meet the credit needs
of its entire community,  including low and moderate income  neighborhoods.  The
CRA does not establish  specific lending  requirements or programs for financial
institutions nor does it limit an institution's  discretion to develop the types
of products  and  services  that it believes  are best suited to its  particular
community, consistent with the CRA. The CRA requires the OTS, in connection with
the examination of Community Bank, to assess the institution's record of meeting
the credit  needs of its  community  and to take such record into account in its
evaluation of certain  applications,  such as a merger or the establishment of a
branch, by Community Bank. An unsatisfactory rating may be used as the basis for
the denial of an application by the OTS.

     The federal banking agencies,  including the OTS, have recently revised the
CRA regulations and the methodology for determining an institution's  compliance
with the CRA. Due to the heightened attention being given to the CRA in the past
few  years,  Community  Bank may be  required  to  devote  additional  funds for
investment  and  lending  in our  local  community.  We  were  examined  for CRA
compliance in October, 1999 and received a rating of "Satisfactory".

     Transactions  with Affiliates.  Generally,  transactions  between a savings
association or its  subsidiaries  and its affiliates are required to be on terms
as  favorable  to  the  association  as  transactions  with  non-affiliates.  In
addition,  certain of these  transactions,  such as loans to an  affiliate,  are
restricted to a percentage of the association's capital. Affiliates of Community
Bank include  Community  Financial and any company which is under common control
with  Community  Bank. In addition,  a savings  association  may not lend to any
affiliate  engaged in activities not  permissible  for a bank holding company or


                                       29
<PAGE>



acquire the securities of most affiliates. Community Bank's subsidiaries are not
deemed affiliates,  however; the OTS has the discretion to treat subsidiaries of
savings associations as affiliates on a case by case basis.

     Holding Company  Regulation.  Community  Financial is a unitary savings and
loan holding company subject to regulatory oversight by the OTS. As such, we are
required to register and file reports with the OTS and are subject to regulation
and examination by the OTS. In addition,  the OTS has enforcement authority over
us and our non-savings  association  subsidiaries  which also permits the OTS to
restrict or prohibit  activities that are determined to be a serious risk to the
subsidiary savings association.

     As a unitary savings and loan holding company, we generally are not subject
to activity  restrictions.  If we acquire control of another savings association
as a separate subsidiary,  we or the Company would become a multiple savings and
loan holding company, and our activities and any of our subsidiaries (other than
Community  Bank or any other  SAIF-insured  savings  association)  would  become
subject to such  restrictions  unless such other  associations each qualify as a
QTL and were acquired in a supervisory acquisition.

     Federal  Securities  Law.  Our stock is  registered  with the SEC under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). We are subject
to the information,  proxy solicitation,  insider trading restrictions and other
requirements of the SEC under the Exchange Act.

     Community  stock held by persons who are  affiliates  (generally  officers,
directors and  principal  stockholders)  of Community may not be resold  without
registration or unless sold in accordance with certain resale  restrictions.  If
we meet specified  current public  information  requirements,  each affiliate of
ours is able to sell in the  public  market,  without  registration,  a  limited
number of shares in any three-month period.





                                       30
<PAGE>




Federal and State Taxation
--------------------------------------------------------------------------------

     Federal  Taxation.  Savings  associations  such as Community Bank that meet
certain  definitional  tests  relating  to the  composition  of assets and other
conditions  prescribed  by the Internal  Revenue  Code of 1986,  as amended (the
"Code"),  had been  permitted  to  establish  reserves for bad debts and to make
annual additions thereto which could,  within specified formula limits, be taken
as a deduction in computing taxable income for federal income tax purposes.  The
amount of the bad debt reserve deduction for "non-qualifying loans" was computed
under the experience  method.  The amount of the bad debt reserve  deduction for
"qualifying  real  property  loans"  (generally  loans  secured by improved real
estate) could be computed under either the  experience  method or the percentage
of taxable income method (based on an annual election).

     Under the experience  method,  the bad debt reserve deduction was an amount
determined under a formula based generally upon the bad debts actually sustained
by the savings association over a period of years.

     The  percentage  of  specially  computed  taxable  income  that was used to
compute a savings  association's bad debt reserve deduction under the percentage
of taxable  income  method (the  "percentage  bad debt  deduction")  was 8%. The
percentage bad debt deduction thus computed was reduced by the amount  permitted
as a  deduction  for  non-qualifying  loans  under the  experience  method.  The
availability  of the  percentage of taxable income method  permitted  qualifying
savings  associations to be taxed at a lower  effective  federal income tax rate
than that applicable to corporations generally (approximately 31.3% assuming the
maximum percentage bad debt deduction).

     Under the  percentage of taxable  income  method,  the  percentage bad debt
deduction  cannot  exceed the amount  necessary  to increase  the balance in the
reserve for  "qualifying  real property  loans" to an amount equal to 6% of such
loans  outstanding  at the end of the  taxable  year or the  greater  of (i) the
amount  deductible  under the  experience  method or (ii) the amount  which when
added to the bad debt deduction for "non-qualifying  loans" equals the amount by
which 12% of the amount comprising  savings accounts at year-end exceeds the sum
of surplus, undivided profits and reserves at the beginning of the year.

     In August 1996,  legislation was enacted that repealed the  above-described
reserve method of accounting (including the percentage of taxable income method)
used by many thrift institutions to calculate their bad debt reserve for federal
income tax  purposes.  Thrift  institutions  with $500 million or less in assets
may, however,  continue to use the experience method. As a result, the Bank must
recapture as taxable  income that portion of the reserve that exceeds the amount
that could have been taken under the experience method for post- 1987 tax years.
At March 31,  2000,  Community  Bank's  post-1987  excess  reserves  still to be
recaptured  amounted to approximately  $845,000.  This amount will be recaptured
into taxable  income  ratably  over the next four years.  The  legislation  also
requires  thrift  institutions  to account for bad debts for federal  income tax
purposes on the same basis as  commercial  banks for tax years  beginning  after
December 31, 1995.

     In addition to the regular  income  tax,  corporations,  including  savings
associations such as Community Bank,  generally are subject to a minimum tax. An
alternative  minimum tax is imposed at a minimum tax rate of 20% on  alternative
minimum  taxable  income,  which is the sum of a  corporation's  regular taxable
income (with certain  adjustments) and tax preference  items, less any available
exemption.  The alternative  minimum tax is imposed to the extent it exceeds the


                                       31
<PAGE>



corporation's  regular  income tax and net  operating  losses can offset no more
than 90% of alternative minimum taxable income.

     To the extent  earnings  appropriated to a savings  association's  bad debt
reserves for  "qualifying  real property  loans" and deducted for federal income
tax purposes  exceed the allowable  amount of such reserves  computed  under the
experience method and to the extent of the association's  supplemental  reserves
for  losses on loans  ("Excess"),  such  Excess  may not,  without  adverse  tax
consequences,   be  utilized  for  the  payment  of  cash   dividends  or  other
distributions   to  a  shareholder   (including   distributions  on  redemption,
dissolution or  liquidation) or for any other purpose (except to absorb bad debt
losses). As of March 31, 2000,  Community Bank's Excess for tax purposes totaled
approximately $2.3 million.

     Community Financial and Community Bank file consolidated federal income tax
returns on a fiscal  year basis.  Savings  associations,  such as the  Community
Bank,  that file federal income tax returns as part of a consolidated  group are
required by applicable  Treasury  regulations to reduce their taxable income for
purposes of computing the percentage bad debt deduction for losses  attributable
to activities of the non-savings  association  members of the consolidated group
that are  functionally  related to the  activities  of the  savings  association
member.

     Our federal income tax returns and our consolidated subsidiary for the last
three years are open to possible  audit by the  Internal  Revenue  Service  (the
"IRS").  No returns  are being  audited by the IRS at the current  time.  In the
opinion of management,  any examination of still open returns (including returns
of subsidiaries and  predecessors  of, or entities merged into,  Community Bank)
would not result in a deficiency  which could have a material  adverse effect on
the   financial   condition  of  Community   Financial   and  our   consolidated
subsidiaries.

     Virginia Taxation. We conduct our business in Virginia and consequently are
subject to the  Virginia  corporate  income tax.  The  Commonwealth  of Virginia
imposes a  corporate  income tax on a basis  similar to federal  income tax at a
rate of 6% on Virginia taxable income.


Executive Officers
--------------------------------------------------------------------------------

     The following sets forth the name,  age and  information as to the business
experience  during  the past five  years of each of the  executive  officers  of
Community  Financial.  Except as  otherwise  indicated,  the persons  named have
served as officers of Community Financial since it became the holding company of
Community  Bank,  and all offices and  positions  described  below are also with
Community Bank.

     P. Douglas  Richard.  Mr.  Richard was appointed  the Acting  President and
Chief Executive Officer of Community Financial and Community Bank on January 12,
2000,  and  became  the  President  and Chief  Executive  Officer  of  Community
Financial and Community Bank on April 26, 2000. He was appointed to the Board of
Directors of Community  Financial  on April 26, 2000.  From January 1, 1997,  to
January 12, 2000,  Mr.  Richard was a Vice  President of  Community  Bank.  From
December 1993 to January 1996, he was President and Chief  Executive  Officer of
Seaboard Bancorp.



                                       32
<PAGE>



     R. Jerry Giles. Mr. Giles, age 51, is our Chief Financial  Officer.  He was
appointed to his current  position in April 1994.  Prior to joining the Company,
Mr. Giles was a Certified Public  Accountant in public  accounting and the Chief
Financial Officer with a savings bank for eleven years.

     Patsy Clem.  Ms. Clem, age 60, is our  Controller,  a position she has held
since July,  1986. Ms. Clem has been employed by us since 1983 in the Accounting
Department.

     Chris P.  Kyriakides.  Mr.  Kyriakides,  age 37, is our Vice  President and
Regional President, a position he has held since January, 1997. Prior to joining
the Company Mr. Kyriakides was Chief Operations Officer of Seaboard Savings Bank
in Virginia Beach, Virginia.

     Benny N. Werner. Mr. Werner, age 51, is our Senior Vice President of Retail
Banking, a position he has held since May 1998. Prior to joining the Company Mr.
Werner was employed by Crestar for three years as  President-Warrenton  area and
employed  by  Jefferson  Savings  and Loan,  Warrenton,  Virginia as Senior Vice
President of Retail Banking for seventeen years.

     There is no family  relationship  between any of the executive  officers of
the Company or its subsidiaries. None was selected as an officer pursuant to any
arrangement or understanding  between him or her and any other person.  The term
of office for each executive  officer of Community  expires at the first meeting
of the  Board  of  Directors  after  the next  annual  meeting  of  stockholders
following his or her election or  appointment  and until his or her successor in
chosen and qualified, or until their earlier resignation or removal.

Employees
--------------------------------------------------------------------------------

     At March 31,  2000,  we had a total of 138  employees,  including 22 hourly
employees.  None of our employees are  represented by any collective  bargaining
group. Management considers our employee relations to be good.




                                       33
<PAGE>



Item  2.  Description of Property
--------------------------------------------------------------------------------


     The following table sets forth  information at March 31, 2000, with respect
to our offices and equipment.
<TABLE>
<CAPTION>
                                                                              Net Book
                                                 Owned or                     Value at
                                                  Leased     Gross Square     March 31,
       Location                     Opened      Expiration      Footage         2000
-----------------------------------------------------------------------------------------
<S>                                  <C>          <C>           <C>            <C>
38 North Central Avenue
Staunton, Virginia                   1965         Owned         17,000         $2,901,000

Rte 250 West
Waynesboro, Virginia                 1989         Owned          5,300           960,000

Route 340 and 608
Stuarts Draft, Virginia              1993         Owned          2,074           358,000

5300 Kemps River Drive
Virginia Beach, Virginia             1997         2002           2,400           64,000

621 Nevan Road
Virginia Beach, Virginia             1998         2038          13,000           986,000

101 Community Way
Staunton, Virginia                   1999         2039           4,500           879,000

Community First Mortgage
9011 Arboretum Parkway
Richmond, Virginia                   1997         2003           1,800           10,000
</TABLE>

     Our accounting and record-keeping  activities are maintained on an in-house
computer system.  The net book value of our computer equipment at March 31, 2000
was $965,518.

     For  additional  information  regarding  our  property  and  equipment  and
operating  leases,  see  notes  3 and  14 of  Notes  to  Consolidated  Financial
Statements in Item 7,  "Financial  Statements" of this Annual  Report,  which is
incorporated herein by reference.



                                       34
<PAGE>

Item  3.  Legal Proceedings
--------------------------------------------------------------------------------

     There are no material  pending legal  proceedings to which we or our direct
or indirect subsidiaries is a party or to which any of our property is subject.


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

     No  matter  was  submitted  to a vote  of  security  holders,  through  the
solicitation of proxies or otherwise, during the quarter ended March 31, 2000.


PART II

Item  5.  Market for Common Equity and Related Security Holder Matters
--------------------------------------------------------------------------------

     The  information  contained  under the caption "Common Stock" on page 40 of
the Registrant's Annual Report to Stockholders  attached hereto as Exhibit 13 is
incorporated herein by reference.


Item 6. Management's Discussion and Analysis or Plan of Operation
--------------------------------------------------------------------------------

     The information under the caption "Management's  Discussion and Analysis of
Operations"  on  pages  9  through  16 of  the  Registrant's  Annual  Report  to
Stockholders attached hereto as Exhibit 13 is incorporated herein by reference.


Item 7.  Financial Statements
--------------------------------------------------------------------------------

     The Financial  Statements on pages 17 through 38 in the Registrant's Annual
Report to Stockholders  attached hereto as Exhibit 13 is incorporated  herein by
reference.

     Financial  Statement  schedules  have  been  omitted  because  they are not
applicable or because the information is otherwise furnished.


Item 8.  Changes in and Disagreements with Accountants on

Accounting and Financial Disclosure
--------------------------------------------------------------------------------

     None.


                                       35
<PAGE>



PART III

Item 9.  Directors, Executive Officers, Promoters and Control

Persons; Compliance with Section 16(a) of the Exchange Act
--------------------------------------------------------------------------------

     Information  concerning  directors of the  Registrant  contained  under the
caption  "Proposal I - Election of Directors" in our definitive  Proxy Statement
is incorporated  herein by reference from our definitive Proxy Statement for the
2000 Annual Meeting of Stockholders a copy of which will be filed not later than
120 days after the close of the fiscal year.

     Information  concerning  executive  officers is set forth in Part I of this
report under the caption  "Executive  Officers," and is  incorporated  herein by
reference.

     Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors  and  executive  officers,  and  persons  who own  more  than 10% of a
registered class of our equity securities,  to file with the SEC initial reports
of  ownership  and  reports of changes in  ownership  of Common  Stock and other
equity  securities.  Officers,  directors and greater than 10%  stockholders are
required by SEC  regulation to furnish us with copies of all Section 16(a) forms
they file.

     To our  knowledge,  based  solely on a review of the copies of such reports
furnished to us and written representations that no other reports were required,
during the last fiscal  year ended March 31,  2000,  all  Section  16(a)  filing
requirements  applicable to our officers,  directors and greater than 10 percent
beneficial owners were complied with.


Item 10.  Executive Compensation
--------------------------------------------------------------------------------

     Information  concerning executive  compensation contained under the caption
"Executive  Compensation"  in our  definitive  Proxy  Statement is  incorporated
herein by reference  from our  definitive  Proxy  Statement  for the 2000 Annual
Meeting of  Stockholders,  a copy of which will be filed not later than 120 days
after the close of the fiscal year.


Item 11.  Security Ownership of Certain Beneficial Owners and Management
--------------------------------------------------------------------------------

     Information  concerning security ownership of certain beneficial owners and
management  contained under the caption "Stock Ownership of Community  Financial
Corporation Common Stock - Stock Ownership of Directors and Executive  Officers"
in our Proxy Statement is  incorporated  herein by reference from our definitive
Proxy  Statement for the 2000 Annual  Meeting of  Stockholders,  a copy of which
will be filed not later than 120 days after the close of the fiscal year.


                                       36
<PAGE>



Item 12.  Certain Relationships and Related Transactions
--------------------------------------------------------------------------------

     Information  concerning  certain  relationships and transactions  contained
under the caption  "Certain  Transactions"  in our definitive Proxy Statement is
incorporated  herein by reference  from our definitive  Proxy  Statement for the
2000  Annual  Meeting of  Stockholders,  a copy of which will be filed not later
than 120 days after the close of the fiscal year.


Item 13.  Exhibits and Reports on 8-K
--------------------------------------------------------------------------------

(a)      Exhibits:
<TABLE>
<CAPTION>

 Regulation S-K                                  Document                            Reference to Prior
 Exhibit Number                                                                       Filing or Exhibit
                                                                                       Number Attached
                                                                                            Hereto
-------------------------------------------------------------------------------------------------------
<S>                <C>                                                               <C>
       2           Plan of acquisition, reorganization, arrangement, liquid, or             None

       3           Amended and Restated Articles of Incorporation and Bylaws                ***

       4           Instruments defining the rights of security holders, including           ****

       9           Voting trust agreement                                                   None

       10          Material contracts:

                   Stock Option and Incentive Plan                                           *

                   Employment Agreement for P. Douglas Richard                              10.1

                   Employee Stock Ownership Plan                                             **

                   1996 Incentive Plan                                                      ***

                   Supplemental Executive Retirement Plan                                   ****

       11          Statement re computation of per share earnings                           None

       13          Annual Report to Security Holders                                         13

       16          Letter on change in certifying accountant                                None

       18          Letter on change in accounting principles                                None

       21          Subsidiaries of Registrant                                               ****



                              37
<PAGE>


       22          Published report regarding matters submitted to vote of security         None

       23          Consent of Experts                                                        23

       24          Power of Attorney                                                    Not required

       27          Financial Data Schedule                                                   27

       99          Additional exhibits                                                      None
</TABLE>


     *Filed  on May  19,  1989  as  exhibits  to the  Registrant's  Registration
Statement No. 33-28817 on Form S-4. All of such  previously  filed documents are
hereby  incorporated  herein  by  reference  in  accordance  with  Item  601  of
Regulation S-B.

     **Filed on June 28, 1993, as Exhibit 10 to the Annual Report on Form 10-KSB
for the fiscal year ended March 31,  1993.  Such  previously  filed  document is
hereby  incorporated  herein  by  reference  in  accordance  with  Item  601  of
Regulation S-B.

     ***Filed on July 5, 1996 as exhibits to the  Registrant's  Definitive Proxy
Statement, File Number 000-18265 on Schedule 14A. Such previously filed document
is  hereby  incorporated  herein by  reference  in  accordance  with Item 601 of
Regulation S-B.

     ****Filed  on June 29,  1999 as  Exhibit  10 to the  Annual  Report on Form
10-KSB for the fiscal year ended March 31, 1999. Such previously  filed document
is  hereby  incorporated  herein by  reference  in  accordance  with Item 601 of
Regulation S-B.

         (b)      Reports on Form 8-K:

     On February 2, 2000, the  Registrant  filed its press release dated January
24,  2000 under a current  report on Form 8-K,  announcing  the  resignation  of
Thomas W. Winfree as the Registrant's  President and Chief Executive Officer and
the appointment of P. Douglas Richard as his replacement.





                                       38
<PAGE>




                                   SIGNATURES

     Pursuant  to the  requirements  of  Section  13 or 15(d) of the  Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                        COMMUNITY FINANCIAL CORPORATION


Date:    June 28, 2000                    By: /s/ P. Douglas Richard
                                          ------------------------------------
                                              P. Douglas Richard
                                              (Duly Authorized Representative)

     Pursuant to the  requirements of the Securities  Exchange Act of 1934, this
Report  has  been  signed  below  by the  following  persons  on  behalf  of the
Registrant and in the capacities and on the dates indicated.

By: /s/ P. Douglas Richard                By: /s/ James R. Cooke, Jr.
-----------------------------             ------------------------------
P. Douglas Richard                            James R. Cooke, Jr.
President and Chief                           Chairman of the Board
Executive Officer                             and Director
(Principal Executive Officer)


Date:    June 28, 2000                    Date:   June 28, 2000


By: /s/ Jane C. Hickok                    By: /s/ Charles F. Andersen
   -----------------------------          ------------------------------
   Jane C. Hickok                             Charles F. Andersen
   Vice Chairman of the Board                 Director
     and Director


Date:    June 28, 2000                    Date:    June 28, 2000


By: /s/ Dale C. Smith                     By: /s/ Kenneth L. Elmore
   -----------------------------          ------------------------------
   Dale C. Smith                              Kenneth L. Elmore
   Director                                   Director


Date:    June 28, 2000                    Date:      June 28, 2000


By: /s/ R. Jerry Giles                    By: /s/ Charles W. Fairchilds
   -----------------------------          ------------------------------
   R. Jerry Giles                            Charles W. Fairchilds
   Chief Financial Officer                   Director
   (Principal Financial and
   Accounting Officer)

Date:    June 28, 2000                    Date:     June 28, 2000





                                       39
<PAGE>