U. S. SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
Form 10-KSB

(Mark One)
-------
  X      Annual report under section 13 or 15(d) of the Securities Exchange Act
-------  of 1934 for the fiscal year ended December 31, 2002.

-------
         Transition report under section 13 or 15(d) of the Securities and
-------  Exchange Act of 1934 for the transition period



Commission file number                        000-49909
                      ----------------------------------------------------------

                      Community First Financial Corporation
-------------------------------------------------------------------------------
                 (Name of small business issuer in its charter)

            Virginia                                             81-0556879
-------------------------------                              -------------------
(State or other jurisdiction of                               (I.R.S. Employer
 incorporation or organization)                              Identification No.)

1646 Graves Mill Road, Lynchburg, Virginia                             24112
---------------------------------------------                       ------------
     (Address of principal executive offices)                        (Zip Code)


Issuer's telephone number      (434) 386-6300
                          ------------------------------------------------------

Securities registered under Section 12(b) of the Act:

       (Title of class)               Name of exchange on which registered

                                      None
--------------------------------------------------------------------------------


Securities registered under Section 12 (g) of the Act:

    Common Stock, No Par Value                        None
----------------------------------    ----------------------------------------

         (Title of class)               Name of exchange on which registered

Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.

                               Yes X   No
                                  ---    ---
Check if disclosure of delinquent filers in response to Item 405 of Regulation
S-B is not 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


<PAGE>

State issuer's revenues for its most recent fiscal year   $7,973,492
                                                        ------------------------

State the aggregate market value of the voting and non-voting common equity held
by non-affiliates computed by reference to the price at which the common equity
was sold, or the average bid and asked price of such common equity, as of a
specified date within the past 60 days. $10,654,743.00 based on $11.00 per
share.

(Applicable only to corporate registrants) State the number of shares
outstanding of each of the issuer's classes of common equity, as of the latest
practicable date 968,613 shares outstanding as of March 6, 2003.

Documents incorporated by reference. (1) Portions of the Annual Report to
Shareholders for the year ended December 31, 2002 are incorporated into Part II,
Item 5 through 7. (2) Portions of the Corporation's 2003 Definitive Proxy
Statement have been incorporated by reference into Part III.



Transitional Small Business Disclosure Format:  Yes         No  X
                                                    ---        ---
                                       1
<PAGE>

PART 1
------

Item 1.  Description of Business
--------------------------------

General

         Community First Financial Corporation ("CFFC", "the Company" or "the
Corporation") is a financial holding company organized under Virginia law during
March 2002, commenced operations on July 1, 2002 and was capitalized through the
issuance of $9,686,130 in common stock. CFFC is the parent company of Community
First Bank and its primary business activity is its investment in and managing
the business of Community First Bank ("CFB" or "the Bank"). CFB commenced
operations on October 14, 1999 as a state charted, FDIC insured, commercial
bank. The Bank is also a member of the Federal Reserve Bank System.

         CFFC was organized by the directors of Community First Bank for the
sole purpose of becoming Community First Bank's parent holding company. On July
1, 2002, CFFC and Community First bank completed a share exchange in which one
share of Community First Bank's common stock was exchanged for one share of
CFFC's common stock, Community First Bank's shareholders became the shareholders
of CFFC, and Community First Bank became CFFC's wholly-owned subsidiary.
Community First Bank's shareholders had approved the reorganization at the
annual shareholder's meeting held on May 13, 2002.

         On May 13, 2002 the shareholders approved a change in the articles of
incorporation which authorized the issue of up to 1,000,000 shares of preferred
stock and the issue of shares of new preferred stock from time to time in the
future, in one or more series, and to fix and determine the relative rights and
preferences of these shares, or of each series of shares, at the time of
issuance and without the further approval of shareholders.

         During 2002 the Corporation's Board of Directors created a series of
preferred stock consisting of 325,000 shares of non-cumulative, convertible
preferred stock that provides for stated annual dividend of $.50 per share
("Series A Preferred Stock"). Through December 31, 2002, the Corporation had
sold an aggregate of 265,100 shares of these shares at a price of $10.00 per
share in a private offering to a group of "accredited investors," including
certain of the Corporation's directors and existing shareholders. The proceeds
from the sale of those shares was used to enhance the capital position of the
Bank, to purchase 62,700 shares of Highlands Community Bank common stock and for
general corporate activities conducted by the Corporation.

         Community First Bank, a Virginia banking corporation headquartered in
Lynchburg, Virginia, was incorporated under the laws of the Commonwealth of
Virginia as a state chartered bank in 1998 and began banking operations on


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<PAGE>

October 14, 1999. The bank is a community oriented financial institution that
provides varied banking services to small and medium-sized businesses,
professionals and individuals located in its market area, which consists of the
Greater Lynchburg Area. The Bank's initial focus is on the Bedford and Lynchburg
County area, where it will be headquartered. The Bank strives to provide its
customers with products comparable to statewide regional banks located in its
market area, while maintaining the prompt response and level of service of a
community bank. Management believes this operating strategy has particular
appeal in the Bank's market area.

         The Bank currently conducts business from three full-service offices
located at 1646 Graves Mill Road, and 2301 Langhorne Road, Lynchburg, Virginia
and 69 Callohill Road, Lovingston, Nelson County, Virginia. The Bank plans to
open a fourth office on Timberlake Road, Campbell County, Va. in the third
quarter of 2003. The Bank has no operating subsidiaries.

         The Bank offers a full range of deposit services that are typically
available in most banks and savings and loan associations, including checking
accounts, NOW accounts, savings accounts and other time deposits of various
types, ranging from daily money market accounts to longer-term certificates of
deposit. The transaction accounts and time certificates are tailored to the
Bank's market area at rates competitive to those offered in the area. In
addition, the Bank offers certain retirement account services, such as
Individual Retirement Accounts (IRAs). All deposit accounts are insured by the
Federal Deposit Insurance Corporation (the "FDIC") up to the maximum amount
allowed by law (generally, $100,000 per depositor, subject to aggregation
rules). The Bank solicits such accounts from individuals, businesses,
associations and organizations, and governmental authorities.

         The Bank also offers a full range of short-to-medium term commercial
and personal loans. Commercial loans include both secured and unsecured loans
for working capital (including inventory and receivables), business expansion
(including acquisition of real estate and improvements) and purchase of
equipment and machinery. Consumer loans include secured and unsecured loans for
financing automobiles, home improvements, education and personal investments.
Additionally, the Bank originates fixed and floating-rate mortgage loans and
real estate construction and acquisition loans.

         Other services offered by Community First Bank include safe deposit
boxes, certain cash management services, traveler's checks, direct deposit of
payroll and social security checks and automatic drafts for various accounts.
The Bank also has become associated with a shared network of automated teller
machines (ATMs) that may be used by Bank customers throughout Virginia and other
states located in the Mid-Atlantic region and nationally.

                                       3
<PAGE>

Market Area

         The Bank's market area consists of Amherst, Bedford, Campbell and
Nelson Counties and the City of Lynchburg. The Bank's primary service area is
Bedford County and the city of Lynchburg. The market area had a population base
of 208,612 people in 2000.

Employees

         As of December 31, 2002, the Bank had 34 full-time equivalent
employees. None of its employees are represented by any collective bargaining
agreements, and relations with employees are considered excellent.

Governmental Monetary Policies

         The earnings and growth of the Bank are affected not only by general
economic conditions, but also by the monetary policies of various governmental
regulatory authorities, particularly the Board of Governors of the Federal
Reserve System (the "Federal Reserve Board"). The Federal Reserve Board
implements national monetary policy by its open market operations in United
States Government securities, control of the discount rate and establishment of
reserve requirements against both member and nonmember financial institutions'
deposits. These actions have a significant effect on the overall growth and
distribution of loans, investments and deposits, as well as the rates earned on
loans, or paid on deposits.

         Management of the Bank is unable to predict the effect of possible
changes in monetary policies upon the future operating results of the Bank.

Competition

         The Bank competes as a financial intermediary with other commercial
banks, savings and loan associations, credit unions, mortgage banking firms,
consumer finance companies, securities brokerage firms, insurance companies,
money market mutual funds and other financial institutions operating in the
Metro Lynchburg market area and elsewhere. Many of the Bank's non-bank
competitors are not subject to the same extensive federal regulations that
govern federally insured banks and state regulations governing state chartered
banks. As a result, such non-bank competitors may have certain advantages over
the Bank in providing certain services.

         The Bank's market area is a highly competitive, highly branched banking
market. Competition in the market area for loans to small businesses and
professionals, the Bank's target market, is intense, and pricing is important.
Most of the bank's competitors have substantially greater resources and lending
limits than the Bank and offer certain services, such as extensive and
established branch networks, that the Bank is not currently providing. Moreover,


                                       4
<PAGE>

larger institutions operating in the market area have access to borrowed funds
at lower cost than are presently available to the Bank. Deposit competition
among institutions in the market area also is strong. Competition for
depositors' funds comes from U.S. Government securities, private issuers of debt
obligations and suppliers of other investment alternatives for depositors, among
other sources. As a result, the Bank has paid and may in the future pay,
above-market rates to attract deposits.

Regulation

         The Bank is subject to various state and federal banking laws and
regulations that impose specific requirements or restrictions on and provide for
general regulatory oversight with respect to virtually all aspects of
operations. The following is a brief summary of the material provisions of
certain statutes, rules and regulations that will affect the Bank. This summary
is qualified in its entirety by reference to the particular statutory and
regulatory provisions referred to below.

         General. The Bank is under the supervision of, and subject to
regulation and examination by, The Federal Reserve Bank (FRB), The Federal
Deposit Insurance Corp. (FDIC) and the State Corporation Commission of Virginia
(the "Commission"). As such, the Bank is subject to various statutes and
regulations administered by these agencies that govern, among other things,
required reserves, investments, loans, lending limits, acquisitions of fixed
assets, interest rates payable on deposits, transactions among affiliates and
the Bank, the payment of dividends, mergers and consolidations, and
establishment of branch offices.

         Mergers and Acquisitions. Under federal law enacted in 1995, previously
existing restrictions on interstate bank acquisitions were abolished effective
September 29, 1995, and, since such date, bank holding companies from any state
have been able to acquire banks and bank holding companies located in any other
state. Effective June 1, 1997, the law allows banks to merge across state lines,
subject to earlier "opt-in" or "opt-out" action by individual states. The law
also allows interstate branch acquisitions and de novo branching if permitted by
the "host state." Effective July 1, 1995, Virginia adopted early "opt-in"
legislation which permits interstate bank mergers. Virginia law also permits
interstate branch acquisitions and de novo branching if reciprocal treatment is
accorded Virginia banks in the state of the acquiror.

         Although the above laws may have a significant impact on the banking
industry, it is not possible for the management of the Bank to determine, with
any degree of certainty, the impact of such laws on Community First Bank.

         Dividends. The amount of dividends payable by the bank depends upon its
earnings and capital position, and is limited by federal and state law,
regulations and policy. In addition, Virgnia law imposes restrictions on the
ability of all banks chartered under Virginia law to pay dividends. Under such
law, no dividend may be declared or paid that would impair a bank's paid-in


                                       5
<PAGE>

capital. Each of the Commission, the FRB and the FDIC have the general authority
to limit dividends paid by the Bank if such payments are deemed to constitute an
unsafe and unsound practice. In particular, Section 38 of the Federal Deposit
Insurance Act ("FDIA") would prohibit the Bank from making a dividend if it were
"undercapitalized" or if such dividend would result in the institution becoming
"undercapitalized."

         Capital Requirements. The various federal bank requlatory agencies,
including the FRB, have adopted risk-based capital requirements for assessing
bank capital adequacy. In addition, Virginia chartered banks must also satisfy
the capital requirements adopted by the Commission. The federal capital
standards define capital and establish minimum capital requirements in relation
to assets and off-balance sheet exposure, as adjusted for credit risk. The
risk-based capital standards currently in effect are designed to make regulatory
capital requirements more sensitive to differences in risk profile among bank
holding companies and banks, to account for off-balance sheet exposure and to
minimize disincentives for holding liquid assets. Assets and off-balance sheet
items are assigned to broad risk categories, each with appropriate risk weights.
The resulting capital ratios represent capital as a percentage of total
risk-weighted assets and off-balance sheet items.

         The minimum requirement for the ratio of total capital risk-weighted
assets (including certain off-balance sheet obligations, such as stand-by
letters of credit) is 8.0%. At least half of the risk-based capital must consist
of common equity, retained earnings and qualifying perpetual preferred stock,
less deductions for goodwill and various other tangibles ("Tier 1 capital"). The
remainder ("Tier 2 capital") generally consists of a limited amount of
subordinated debt, certain hybrid capital instruments and other debt securities,
preferred stock and a limited amount of the general valuation allowance for loan
losses. The sum of Tier 1 and total capital to risk-weighted asset ratio of the
Bank as of December 31, 2002 were 9.2% and 10.3%, respectively, exceeding the
minimums required.

         The FRB also has adopted regulations, which supplement the risk-based
guidelines to include a minimum leverage ratio of Tier 1 capital to quarterly
average assets ("Leverage ratio") of 3%. The FRB has emphasized that the
foregoing standards are supervisory minimums and that a banking organization
will be permitted to maintain such minimum levels of capital only if it receives
the highest rating under the regulatory rating system and the banking
organization is not experiencing or anticipating significant growth. All other
banking organizations are required to maintain a Leverage ratio of at least 4.0%
to 5.0% of Tier 1 capital. These rules further provide that banking
organizations experiencing internal growth or making acquisitions will be
expected to maintain capital positions substantially above the minimum
supervisory levels and comparable to peer group averages, without significant
reliance on intangible assets. The tangible Tier 1 Leverage ratio is the ratio
of a banking organization's Tier 1 capital, less deductions for intangibles
otherwise includable in Tier 1 capital, to total tangible assets. The Leverage
ratio of the Bank as of December 31, 2002 was 8.4%, well above the minimum
requirement.

         In August 1995, the FRB and other federal banking agencies published a
final rule modifying their existing risk-based capital standards to provide for
consideration of interest rate risk when assessing capital adequacy of a bank.
Under the final rule, the FRB must explicitly include a bank's exposure to
declines in the economic value of its capital due to changes in interest rates


                                       6
<PAGE>

as a factor in evaluating a bank's capital adequacy. In addition, in August
1995, the FRB and the other federal banking agencies published a joint policy
statement for public comment that describes the process the banking agencies
will use to measure and assess the exposure of a bank's net economic value to
changes in interest rates. Under the policy statement, the FRB will consider
results of supervisory and internal interest rate risk models as one factor in
evaluating capital adequacy.

         Deposit Insurance. Section 38 of the FDIA, as amended by the Federal
Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA"), requires that
the federal banking agencies establish five capital levels for insured
depository institutions - "well capitalized," "adequately capitalized,"
"undercapitalized," "significantly undercapitalized" and "critically
undercapitalized" - and requires or permits such agencies to take certain
supervisory actions as an insured institution's capital level falls. In certain
circumstances, a financial institution's low capital position can lead to
enhanced restrictions by the FDIC. An "adequately capitalized" institution is
restricted from accepting brokered deposits, and a "significantly
undercapitalized" institution must develop a capital restoration plan and is
subject to a number of mandatory and discretionary supervisory actions. These
powers and authorities are in addition to the traditional powers of the federal
banking agencies to deal with undercapitalized institutions.

         As an institution with deposits insured by the Bank Insurance Fund
("BIF"), the Bank also is subject to insurance assessments imposed by the FDIC.
In September 1995, the BIF met its target reserve level and consequently,
effective Januray1996, the FDIC revised its risk-based assessment schedule,
imposing assessments ranging from 0.0% (subject to an annual minimum of $2,000)
to 0.27% of an institution's average assessment base. The actual assessment to
be paid by each BIF member is based on whether the institution is considered
"well capitalized", "adequately capitalized" or "undercapitalized", as such
terms have been defined in applicable federal regulations, and whether such
institution is considered by its supervisory agency to be financially sound or
to have supervisory concerns. The Bank was subject to a deposit insurance
assessment, or $14,114, in fiscal 2002.


         The Deposit Insurance Funds Act of 1996 (the "Funds Act") was enacted
on September 30, 1996. Among other provisions, the Funds Act (i) requires that
certain depository institutions pay a one-time special assessment (65.7 cents
per $100 of SAIF-assessable deposits) to the FDIC to capitalize the Savings
Association Insurance Fund ("SAIF") at its statutory required reserve ratio of
1.25% of insurable deposits, (ii) exempts certain depository institutions with
SAIF-assessable deposits that meet any of several specified criteria from paying
the special assessment and (iii) authorizes the Financing Corporation ("FICO")
to impose periodic assessments on depository institutions that are members of
the BIF, in addition to institutions that are members of the SAIF, in order to
spread the cost of the interest payments on the outstanding FICO bonds over a
larger number of institutions. Until this change in the law, only SAIF-member


                                       7
<PAGE>

institutions bore the cost of funding these interest payments. FICO assessment
rates for the second quarter of 2003 were set at 1.62% (per $100) annually for
BIF-Assessable deposits and 1.62% (per $100) annually for SAIF-assessable
deposits. These rates may be adjusted quarterly to reflect changes in assessment
bases for BIF and the SAIF. By federal law,the FICO rate on BIF-assessable
deposits must be one-fith the rate on SAIF-assessable deposits until the
insurance funds are merged or until January 1, 2001, whichever occurs first. As
the Bank's deposits are insured by the BIF, the Funds Act in not expected to
significantly impact the Bank's financial condition and results of operation in
the foreseeable future.

         Safety and soundness. The federal banking agencies have broad powers
under current federal law to take prompt corrective action to resolve problems
of insured depository institutions. The extent of these powers depends upon
whether the institutions in capitalized question are "well capitalized,"
"adequately," "undercapitalized," "significantly undercapitalized," or
"critically undercapitalized," all such terms are defined under uniform
regulations defining such capital levels issued by each of the federal banking
agencies.

         On December 19, 1991, the FDICIA was enacted into law. FDICIA requires
each federal banking regulatory agency to prescribe, by regulation or guideline,
standards for all insured depository institution holding companies relating to
(i) internal controls, informations systems; (ii) loan documentation; (iii)
credit underwriting; (iv) interest rate risk exposure; (v) asset growth; (vi)
compensation, fees and benefits; and (vii) such other operational and managerial
standards as the agency determines to be appropriate. The compensation standards
would prohibit employment contracts or other compensatory arrangements that
provide excess compensation, fees or benefits or could lead to material
financial loss. In addition, each federal banking regulatory agency must
prescribe, by regulation or guideline, standards relating to asset quality,
earnings and stock valuation as the agency determines to be appropriate. On July
10, 1995 the federal banking agencies including the FRB adopted final rules and
proposed guidelines concerning standards for safety and soundness required to be
prescribed by regulation pursuant to Section 39 of the FDIA. In general, the
standards relate to (1) operational and managerial matters; (2) asset quality
and earnings; and (3) compensation. The operational and managerial standards
cover (a) internal controls and informational systems, (b) internal audit
systems, (c) loan documentation, (d) credit underwriting, (e) interest rate
exposure, (f) asset growth, and (g) compensation, fees and benefits.

         Activities and Investments of Insured State-Chartered Banks. The
activities and equity investments of FDIC-insured, state chartered banks are
generally limited to those that are permissible for national banks. Under
regulations dealing with equity investments, an insured state bank generally may
not directly or indirectly acquire or retain any equity investment of a type, or
in an amount, that is not permissible for a national bank. An insured state bank
is not prohibited from, among other things, (i) acquiring or retaining a
majority interest in a subsidiary, (ii) investing as a limited partner in a
partnership, the sole purpose of which is direct or indirect investment in the
acquisition, rehabilitation or new construction of a qualified housing project,
provided that such limited partnership investments may not exceed 2% of the
bank's total assets, (iii) acquiring up to 10% of the voting stock of a company
that solely provides or reinsures directors', trustees' and officers' liability
insurance coverage or bankers' blanket bond group insurance coverage for insured
depository institutions, and (iv) acquiring or retaining the voting shares of a
depository instution if certain requirements are met. In addition, an insured


                                       8
<PAGE>

state-chartered may not, directly, or indirectly through a subsidiary, engage as
"principal" in any activity that is not permissible for a national bank unless
the FDIC has determined that such activities would pose no risk to the insurance
fund of which it is a member and the bank is in compliance with applicable
regulatory requirements. Any insured state-chartered bank directly or indirectly
engaged in any activity that is not permitted for a national bank must cease the
impermissible activity.

         Regulatory Enforcement Authority. Applicable banking laws include
substantial enforcement powers available to federal banking regulators. This
enforcement authority includes, among other things, the ability to assess civil
money penalties, to issue cease-and-desist or removal orders and to initiate
injunctive actions against banking organizations and institution-affiliated
parties, as defined. In general, these enforcement actions may be initiated for
violations of laws and regulations and unsafe practices.

Other actions or inactions may provide the basis for enforcement action,
including misleading or untimely reports filed with regulatory authorities.

Gramm-Leach-Bliley Act

         The Company is a Financial holding company within the meaning of the
Federal Gramm-Leach-Bliley Act (the "GLB Act"). The GLB Act was adopted by
Congress during 1999 and has dramatically changed various federal laws governing
the banking, securities and insurance industries. The GLB Act has expanded
opportunities for banks and bank holding companies to provide services and
engage in other revenue-generating activities that previously were prohibited to
them.

         With respect to bank holding companies, the GLB Act in general (i)
expands opportunities to affiliate with securities firms and insurance
companies; (ii) overrides certain state laws that would prohibit certain banking
and insurance affiliations; (iii) expands the activities in which banks and bank
holding companies may participate; (iv) requires that banks and bank holding
companies engage in some activities only through affiliates owned or managed in
accordance with certain requirements; (v) reorganizes responsibility among
various federal regulators for oversight of certain securities activities
conducted by banks and bank holding companies; and (vi) requires banks to adopt
and implement policies and procedures for the protection of the financial
privacy of their customers, including procedures that allow customers to elect
that certain financial information not be disclosed to certain persons.

         The GLB Act has expanded opportunities for us and Community First to
provide other services and obtain other revenues in the future but, at present,
it has not had a significant effect on our operations as they are presently
conducted. However, this expanded authority also may present us with new
challenges as our larger competitors are able to expand their services and


                                       9
<PAGE>

products into areas that are not feasible for smaller, community oriented
financial institutions. The economic effects of the GLB Act on the banking
industry, and on competitive conditions in the financial services industry
generally, may be profound.

Item 2. Description of Properties
---------------------------------

         As of July 2000, Community First Bank conducted business from its main
banking office located at 1646 Graves Mill Road, Lynchburg, Virginia. The Bank
owns the two-story building, which contains approximately 7,500 square feet.

         The Bank, in March 2001, established a office at 2301 Langhorne Road,
Lynchburg, Virginia which it leases. In April 2002 the Bank leased additional
space on the second floor of this office. Also, see "Item 7, Certain
Relationships and Related Transactions" in this Form 10-KSB.

The Bank established a temporary office in Lovingston, Virginia in the April of
2002 in a leased 1,200 square foot facility at 69 Callohill Road the Bank plans
to relocate this office to 150 Front Street, Lovingston, Virginia in April 2003.

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

         The Bank is not involved in any pending legal proceedings other than
non-material legal proceedings occurring in the ordinary course of business.

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

         There were no matters submitted to a vote of security holders during
the quarter ended December 31, 2002.

                                     PART II

ITEM 5.  Market for the Common Equity and Related Shareholder Matters
---------------------------------------------------------------------

CFFC first issued shares of its common stock during July 2002 in exchange for
the outstanding shares of Community First Bank's common stock in connection with
CFFC's initial incorporation as Community First Bank's parent holding company.
CFFC's common stock is not listed on any exchange and there is not an active
public market for CFFC's common stock. Prior to the organization of CFFC,
Community First Bank's common stock was not listed on any exchange, neither was
there an active public trading market for the stock.

Between the date of issuance and December 31, 2002, to the knowledge of
management, the common stock traded at a low of $10.00, and a high of $11.00.
Trades to date in 2003 have been at a low of $10.00 and a high of $11.00.

CFFC has not yet paid any cash dividend on its common stock. CFFC is a holding
company, and its only source of revenue is dividends it receives from Community
First Bank. Therefore, CFFC's ability to pay dividends to its shareholders is
subject to Community First Bank's ability to pay dividends to it. Community
First Bank's ability to pay dividends to CFFC will continue to depend on its
earnings and financial condition, capital requirements, general economic


                                       10
<PAGE>

conditions, compliance with regulatory requirements that apply to Virginia
banks, and other factors. Also, dividends by Community First Bank are subject to
various laws and regulatory restrictions, including the requirement that its
capital be maintained at certain levels and that it only pay dividends from its
retained earnings. CFFC expects that, for the foreseeable future profits
resulting from Community First Bank will be retained by it as additional capital
to support its operations and growth and that any dividends paid by Community
First Bank to CFFC will be limited to amounts needed by CFFC to pay stated
dividends on CFFC's outstanding Series A Preferred Stock, to pay any separate
expenses of CFFC, and that CFFC will not pay cash dividends on its common stock.

In the future, CFFC's ability to pay dividends also will be subject toits Board
of Directors, evaluation of its own separate business factors, including CFFC's
earnings and financial condition, capital requirements, debt service
requirements, and regulatory restrictions applicable to bank holding companies.
In the future, CFFC may borrow additional funds, issue debt instruments, issue
and sell additional shares of preferred stock or engage in other types of
financing activities, in order to increase its capital and/or to provide funds
that it can use to increase Community First Bank's capital. The terms of CFFC's
outstanding Series A Preferred Stock provides that no dividends may be declared
and paid during any calander year on CFFC's common stock unless and until there
shall have been paid in full to the shareholders of the Series A Preferred Stock
not less than a pro rata portion of the stated annual dividend on the series A
Preferred Stock for the year, at the rate provided for those dividends, through
the date on which CFFC's proposes to pay dividends on the common stock.
Covenants contained in any loan or financing agreement entered into by CFFC's
int the future, or other debt or capital instruments issued by CFFC in the
future, also could restrict or condition CFFC's payment of cash dividends based
on various financial considerations or factors. Additionally, if CFFC creates
and issues shares of any other series of preferred stock, the terms of that
stock colud require that stated periodic dividends be paid on the preferred
stock before any cash dividends could be paid on CFFC's common stock. Therefore,
there is no assurance that, for the foreseeable future, CFFC will have funds
available to pay cash dividends, or, even if funds are available, that it will
pay dividends in any particular amount or at any particular time, or that it
will paya dividends at all.

On August 15, 2002, CFFC issued 325,000 shares of its Series A preferred Stock
for cash in a limited offering. Through December 31,2002, the company had sold
an aggregate of 265,100 shares of these shares at a price of $10.00 per share.
CFFC paid no underwriting discounts or commissions in connection with the sale.
The shares were sold only to persons who were "accredited" investors" as defined
in the Securities and Exchange Commission's Rule 501 (a). Each share is


                                       11
<PAGE>

convertible into one share of CFFC's stock at any time following two years after
it is issued at the option of the holder of that share and, under certain
circumstances, each share is convertible at the same rate at the option of CFFC.
The full terms and conditions of such conversion are set forth in CFFC's Private
Placement Memorandum. The shares of Series A Preferred Stock were offered and
sold without registration under the1933 Act pursuant to the exemption from
registration provided by Rule 506 of the 1933 Act.

ITEM 6.  Management's Discussion and Analysis or Plan of Operations
-------------------------------------------------------------------

         This information is incorporated herein by reference from pages 25
through 28 of the 2002 Annual Report.


                                       12
<PAGE>

Statistical Information

         The following statistical information is furnished pursuant to the
requirements of Guide 3 promulgated under the Securities Act of 1933.

INDEX

                                                                            Page
                                                                            ----

TABLE 1.  Average Balance Sheets, Net Interest Income, and Rates..........   14

TABLE 2.  Analysis of Change in Net Interest Income.......................   16

TABLE 3.  Types of Investment Securities..................................   17

TABLE 4.  Maturity Schedule of Selected Loans as of December 31, 2002.....   18

TABLE 5.  Summary of Allowance for Loan Losses............................   19

TABLE 6.  Allocation of the Allowance for Loan Losses.....................   20

TABLE 7.  Deposits........................................................   21

TABLE 8.  Return on Equity and Assets.....................................   22

TABLE 9.  Interest Sensitivity Analysis...................................   23

TABLE 10. Selected Historical Financial Information.......................   24



                                       13
<PAGE>
<TABLE>

                                     TABLE 1

             AVERAGE BALANCES, INCOME AND EXPENSES, YIELDS AND RATES

         The following table depicts interest income on earnings assets and
related average yields as well as interest expenses on interest-bearing
liabilities and related average rates paid for the periods indicated.


                                                      2002                                 2001
                                                    Interest    Average                  Interest    Average
                                        Average      Income/     Yield/      Average      Income/     Yield/
                                        Balance      Expense      Rate       Balance     Expense       Rate
                                        -------      -------      ----       -------     -------       ----
Assets:
<S>                                     <C>           <C>         <C>        <C>            <C>        <C>
Investment securities                   $ 3,013       $ 105       3.48%      $ 1,641        $102       6.22%
Total Loans (1)                          99,301       7,568        7.62       64,444       5,583        8.66


Federal funds sold                        1,997          34        1.70        1,120          43        3.84
                                          -----          --        ----        -----          --        ----

Total earning assets                    104,311       7,707        7.39       67,205       5,728        8.52
                                                      -----        ----                    -----        ----

less: allowance for loan losses           1,059                                  737
Total non-earning assets                   4224                                4,517
                                           ----                                -----

Total Assets                            109,594                               70,985
                                        =======                               ======

Liabilities & Equity
Interest-bearing deposits:
   NOW                                  $ 8,729       $ 182        2.09%     $ 2,114        $ 28        1.32%
   Savings                                  824           8         .97          301           5        1.66
   Money market                           9,036         171        1.89        5,975         213        3.56
   Time deposits >$100,000               19,728         808        4.10       13,421         772        5.75
   Other time                            51,537       2,342        4.54       32,968       2,020        6.13
                                         ------       -----        ----       ------       -----        ----
Total interest-bearing deposits          89,853       3,511        3.91       54,779       3,038        5.55

Short-term borrowings                     1,273          23        1.81          651          31        4.76
                                          -----          --        ----          ---          --        ----
Total interest bearing liabilities       91,126       3,534        3.88       55,430       3,069        5.54
                                                      -----        ----                    -----        ----


Noninterest-bearing liabilities:
   Demand deposits                        8,973                                6,146
   Other liabilities                        478                                  629
                                            ---                                  ---

Total Liabilities                       100,583                               62,205

Shareholders' equity                      9,011                                8.780
                                          -----                                -----

Total Liabilities & Equity              109,594                               70,985
                                        =======                               ======

Net interest Income                                   4,173                                2,659
                                                      =====                                =====
Interest rate spread (2)                                           3.51%                                2.98%
Interest expense as a percent of                                   3.39%                                4.57%
average earning assets
Net Interest margin (3)                                            4.00%                                3.96%

(1)  Nonaccruing loans are included in average loans outstanding

(2)  Interest spread is the average yield earned on earning assets less the
     average rate paid on interest-bearing liabilities

(3)  Net interest margin is net interest income expressed as a percentage of
     average earning assets

                                       14
<PAGE>

                               TABLE 1--CONTINUED

                  AVERAGE BALANCE, INCOME AND EXPENSE, YIELD RATES

                                                                    2000
                                                                  Interest      Average
                                                      Average     Income /      Yield /
                                                      Balance      Expense       Rate
                                                      -------      -------       ----
Assets:
Investment securities                                 $3,362        $ 210         6.25%
Total Loans (1)                                       23,031        2,128         9.24

Federal funds sold                                       787           51         6.48
                                                         ---           --         ----

Total earning assets                                  27,180        2,389         8.79
                                                                    -----         ----
less: allowance for loan losses                          300

Total non-earning assets                               2,540
                                                       -----

Total Assets                                          29,420
                                                      ======

Liabilities & Equity
Interest-bearing deposits:
   NOW                                                $1,436         $ 30        2.09%
   Savings                                               198            5         2.53
   Money market                                        1,875           97         5.17
   Time deposits >$100,000                             3,147          210         6.67
   Other time                                          9,893          680         6.87
                                                       -----          ---         ----
Total interest-bearing deposits                       16,549        1,022         6.17

Short-term borrowings                                    767           50         6.52
                                                         ---           --         ----
Total interest bearing liabilities                    17,316        1,072         6.19
                                                                    -----         ----

Noninterest-bearing liabilities:
   Demand deposits                                     2,860
   Other liabilities                                     209
                                                         ---

Total Liabilities                                     20,385

Shareholders' equity                                   9,035
                                                       -----

Total Liabilities & Equity                            29,420
                                                      ======

Net interest Income                                                $1,317
                                                                   ======
Interest rate spread (2)                                                         2.60%
Interest expense as a percent of                                                 3.94%
average earning assets
Net Interest margin (3)                                                          4.85%

(1)  Nonaccruing loans are included in average loans outstanding

(2)  Interest spread is the average yield earned on earning assets less the
     average rate paid on interest-bearing liabilities

(3)  Net interest margin is net interest income expressed as a percentage of
     average earning assets


                                       15
<PAGE>

                                     TABLE 2
                            VOLUME AND RATE ANALYSIS

         The following table describes the impact on the company's interest
income and interest expense resulting from changes in average balances and
average rates over the period indicated. The changes in interest due to both
volume and rate have been allocated to rate and volume equally. Because the Bank
was open only 55 days during 1999, the analysis for 2000/1999 is not presented
as it would not be meaningful.


                                       Years Ended December 31,                  Years Ended December 31,
                                             2002/2001                                 2001/2000
                                       Increase     (Decrease)     Total or     Increase     (Decrease)      Total or
                                         due to     change in        net          due to      change in        net
                                        Average      Average       Increase      Average       Average       increase
                                        Balance        Rate       (decrease)     Balance        Rate        (decrease)
                                        -------        ----       ----------     -------        ----        ----------

Interest-earning assets:
Interest-bearing deposits with banks

Taxable securities                             48          (45)            (3)       (107)            (1)         (108)
Non-taxable securities
Federal funds sold and securities              15          (24)            (9)          13           (21)           (8)
purchased under resale agreements
Totals loans (net of unearned)              2,656         (671)          1,985       3,586          (131)         3,455
                                            -----         -----          -----       -----          -----         -----

Income on interest-earning assets           2,719         (740)          1,979       3,492          (153)         3,339
                                            -----         -----          -----       -----          -----         -----

Interest-bearing liabilities:
Interest-bearing demand deposits              138            16            154           9           (11)           (2)
Money market deposits                          58         (100)           (42)         146           (30)           116
Savings deposits                                5           (2)              3           2            (2)             0
Certificates of deposit of $100,000
& over                                        258         (222)             36         590           (28)           562
Other time deposits                           844         (522)            322       1,414           (74)         1,340
Federal funds purchased and
securities sold under repurchase
agreements                                     11          (19)            (8)         (6)           (13)          (19)
                                               --          ----            ---         ---           ----          ----
Federal Home Loan Bank long-term
debt

Expense of interest-bearing
liabilities                                 1,314         (849)          (465)       2,155          (158)         1,997
                                            -----         -----          -----       -----          -----         -----

Net change in net interest income           1,405           109          1,514       1,337              5         1,342
                                            =====           ===          =====       =====              =         =====

                                       16
<PAGE>
                                     TABLE 3
                    SECURITIES HELD FOR RESALE AND INVESTMENT
                     MATURITY DISTRIBUTION AND AVERAGE YIELD


                Book Value of Investments
                -------------------------
                                                        December 31,
                                                        ------------
Securities Available for Sale:                         2002      2001
                                                       ----      ----

Fair Value:

U.S. Government Agencies and Corporations             $ 3,198    3,993
                                                      =======    =====




      Maturities of Investments at December 31, 2002
      ----------------------------------------------
                                                                      Weighted
                                       Amortized     Fair Market       Average
                                            Cost           Value         Yield
                                            ----           -----         -----

Within one year                           $3,189          $3,191          1.94%
After one year to five years                   0               0              0
After five years through ten years             0               0              0
                                               -               -              -

                                        $  3,189           3,191          1.94%
                                        ========           =====          =====

         Other than U.S. Government Agencies, the Bank held no issues that
exceeded 10% of Shareholder's Equity at December 31, 2002.



                                       17
<PAGE>

                                     TABLE 4
             LOAN PORTFOLIO AND MATURITY SCHEDULE OF SELECTED LOANS



                                                  December 31,
                                  ----------------------------------------------
                                              2002                   2001
                                  ----------------------------------------------

    Commercial                              $     21,508             $   16,368
    Real Estate:
                  Mortgage                        80,629                 45,181
                  Construction                     8,675                 10,758
    Installment                                   11,243                  4,346
                                                  ------                  -----
                                                 122,055                 76,578
    Net deferred fees
                                                    (122)                   (75)
    Allowance for loan losses                     (1,302)                  (957)
                                  ----------------------- ----------------------

    Loans, net                               $   120,631             $   75,621
                                  ----------------------- ----------------------




The following table presents the maturities of loans for the Bank. Maturities of
loans are not ready available by loan category.


                                                       December 31, 2002
                                                       -----------------

Aggregate Maturities of Loan balances which are due:

         Within one year                                  $       48,929
         Over one year through five years                         43,390
         Over five years                                          29,736
                                                          --------------

                  Total Loans                             $      122,055
                                                          ==============


         There were no restructured loans at December 31, 2002 and $.5 million
at December 31, 2000. The Bank had no non-performing loans, repossessed or
foreclosed properties at December 31, 2002 or 2001.

         The Bank is a party to financial instruments with off-balance sheet
risk in the normal course of business. These financial instruments include
commitments to extend credit and standby letters of credit. This information is
incorporated by reference in this report from note 14 on pages 19 and 20 of the
2002 Annual Report to Stockholders.

         The Bank also has certain concentrations of credit risk. This
information is incorporated by reference in this report from note 14 on page 20
of the 2002 Annual Report to Stockholders.


                                       18
<PAGE>

                                     TABLE 5
                      SUMMARY OF ALLOWANCE FOR LOAN LOSSES



         The following table shows the Bank's loan loss and recovery experience
for the past two years.

         The Bank tries to maintain an allowance for loan losses that represents
an estimate of all losses estimated in the Bank's loan portfolio. To achieve
this goal, the loan loss provision must be sufficient to cover charged off loans
plus growth in the loan portfolio. The loan loss provision is a charge against
earnings necessary to maintain the allowance for loan losses at management's
targeted level. In considering the provision for loan loss, an evaluation of the
loan portfolio is conducted. Loans in non-accrual status and loans past due over
ninety days are considered in this evaluation as well as other loans the Bank
feels may be a potential loss. The status of non-accrual and past due loans
varies from quarter to quarter based on seasonality and cash flow of customers.





                                     2002         2001        2000
                                     ----         ----        ----


Balance beginning of period           957          615         150

Loans charged off:                   (458)         (18)         (1)

Recoveries                             18            1           0
                                       --            -           -

Net loans charged off                (440)         (17)         (1)

Provision for loan losses             785          359         466

Balance end of period               1,302          957         615
                                    =====          ===         ===



Net charge-offs to                   0.44%        0.03%          -%
     Average loans



                                       19
<PAGE>

                                     TABLE 6
                   ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES



         A breakdown of the allowance for loan losses along with the percent of
loans in each major category is provided in the following table. Management of
the Bank does not believe that the allowance for loan losses can be fragmented
by category with any precision that would be useful to investors. The breakdown
of the allowance for loan losses is based primarily upon those factors discussed
above in computing the allowance as a whole. Because all of these factors are
subject to change, the breakdown is not necessarily indicative of the category
of future losses.



                                     December 31, 2002                    December 31, 2001
                                     -----------------                    -----------------


                                              Percentage of                             Percentage of
                                              loans in each                             loans in each
                                            category to total                         category to total
                             Allowance            loans                Allowance            loans
                             ---------            -----                ---------            -----

Commercial                         229                17.62                  205                21.37
Real Estate Mortgage               860                66.06                  564                58.90
Real Estate Construction            93                 7.11                  134                14.05
Consumer                           120                 9.21                   54                 5.68
                                   ---                 ----                   --                 ----

       Total                     1,302               100.00                  957               100.00
                                 =====               ======                  ===               ======



                                       20
<PAGE>

                                     TABLE 7
                                    DEPOSITS



         The average balance and rates for certain categories of deposits for
the last three years are shown in the following table. 1999 is not shown as the
bank was only open 55 days thus the data would not be meaningful:



                                                     2002                          2001                        2000
                                                     ----                          ----                        ----

                                             Average        Average        Average      Average       Average        Average
                                             Balance          Rate         Balance        Rate        Balance          Rate
                                             -------          ----         -------        ----        -------          ----

Noninterest-bearing demand deposits           $8,973                        $6,146                     $2,860

Interest-bearing deposits:
     Now                                       8,729           2.09%         2,114       1.32%          1,436           2.09%
     Savings                                     824            .97%           301       1.66%            198           2.53%
     Money market                              9,036           1.89%         5,975       3.56%          1,875           5.17%
    Time deposits >$100,000                   19,728           4.10%        13,421       5.75%          3,147           6.67%
     Other time                               51,537           4.54%        32,968       6.13%          9,893           6.87%
                                              ------                        ------                      -----

Total interest-bearing deposits               89,853           3.91%        54,779       5.55%         16,549           6.17%
                                              ------                        ------                     ------

Total deposit                               $ 98,826                      $ 60,925                    $19,409
                                            ========                      ========                    =======




                                                 Maturities of CD's >$100,000 at
                                                         December 31, 2001


                                               Amount                       Percent

Three months or less                        $     3,682                      16.29%
Over three months to twelve months               11,547                      51.08%
One year through five years                       7,375                      32.63%
Over five years                                       0                         0 %
                                            -----------                     -------

Total                                       $    22,604                     100.00%
                                            ===========                     =======



                                       21
<PAGE>

                                     TABLE 8
                           RETURN ON EQUITY AND ASSETS



         The ratio of net income to average total assets and average
shareholders' equity and certain other ratios for the periods indicated are as
follows:




                                               2002         2001         2000
                                               ----         ----         ----

Return on average assets                        .32%        .16%        -1.58%

Return on average equity                       3.19%       1.31%        -5.16%

Average equity to average assets               8.22%      12.37%        30.71%

Dividend payout ratio                          0.00%       0.00%         0.00%




                                       22
<PAGE>

                                     TABLE 9
                          INTERST SENSITIVITY ANALYSIS


                                             Static Gap Schedule
                                                (in thousands)

                       Floating  0-3 Months  3-12 Months   1-3 Years    3-5 Years  5-15 Years  > 15 Years      TOTAL
Assets

Loans                    43,814      21,075       20,037      21,113        9,758      11,522       2,912    130,231
Int -bearing Bank             0           0            9           0            0           0           0          9
Deposits
Fed Funds                     0           0            0           0            0           0           0          0
Investments                   0       1,698        1,493           0            0           0           0      3,191
Totals                   43,814      22,773       21,539      21,113        9,758      11,522       2,912    133,431

Liabilities

Interest-bearing
Transaction accounts      5,029           0            0      14,315            0           0           0     19,344
Money market/Savings      4,410           0            0       4,238            0           0           0      8,648
Certificates<$100M            0      10,546       23,605      23,202        6,096           0           0     63,449
Certificates>$100M            0       3,682       11,547       5,215        2,160           0           0     22,604
Other Borrowings              0           0            0          20            0           0           0         20
Fed Funds                 4,824           0            0           0            0           0           0      4,824
Totals                   14,263      14,228       35,152      46,990        8,256           0           0    118,889

Gap                      29,551       8,545      (13,613)    (25,877)       1,502      11,522       2,912     14,542

Cumulative Gap           29,551      38,095       24,482

Cumulative Gap/EA          0.22        0.29         0.18

Cumulative RSA/RSL         3.07        2.34         1.38


                                       23
<PAGE>

                                    TABLE 10
                              COMMUNITY FIRST BANK
                    Selected Historical Financial Information
           (In Thousands, Except Shares and Per Share Data and Ratios)

                                                             Years Ended December 31,
                                                             ------------------------

                                                      2002         2001        2000        1999
                                                      ----         ----        ----        ----
STATEMENT OF INCOME DATA:
     Total interest income                            7,707       5,728       2,389         198
     Total interest expense                           3,534       3,069       1,072           9
     Net interest income                              4,173       2,659       1,317         189
     Provision for loan losses                          785         359         466         150
     Total non-interest income                          267         113          65           3
     Total non-interest expense                       3,303       2,298       1,382         457
     Income tax expense                                   -           -           -           -
     Net income                                         351         115       (466)       (415)

PER SHARE DATA:
     Net income                                         .36         .12       (.48)       (.43)
     Net income - assuming dilution                     .36         .12       (.48)       (.43)
     Cash dividend                                     0.00        0.00        0.00        0.00
     Stock Dividend                                       0           0           0           0
     Book Value                                        9.58        9.13        9.01        9.48






BALANCE SHEET DATA:
     Federal funds sold under resale agreements        0.00        0.00       1,889       1,765
     Securities available-for-sale                    3,863       3,993       1,008       3,428
     Securities held-to-maturity                       0.00        0.00        0.00        0.00
     Loans, net                                     120,631      75,622      40,708       6,644
     Total Assets                                   139,752      86,615      47,738      13,163
     Total deposits                                 122,498      74,392      38,633       3,942
     Total stockholders' equity                      11,815       8,839       8,724       9,186

SELECTED RATIOS:
     Return on average assets                          .32%        .16%     (1.58)%    (15.88)%
     Return on average equity                         3.19%       1.31%     (5.16)%    (17.03)%
     Dividend payout ratio                            0.00%       0.00%       0.00%       0.00%
     Average equity to average assets                 8.22%      12.37%      30.71%      78.76%
     Allowance for loan losses to loans,
         net of unearned income                       1.06%       1.25%       1.49%       2.21%
</TABLE>


         1998 financial information is not presented since the Bank did not open
         for business until October 14, 1999.

         Periods prior to 2002 reflect Community First Bank's operations only.

                                       24
<PAGE>

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

         This information is incorporated herein by reference from pages 2
through 23 of the 2002 Annual Report.


Item 8. Changes in and Disagreements with Accountants on Accounting and
-----------------------------------------------------------------------
Financial Disclosure
--------------------


         Larrowe & Company, P.L.C. served as the Company's independent public
accountants for the period from October 14, 1999 through December 31, 2002.

         For the period from October 14, 1999 through December 31, 2001, the
independent auditor's report with respect to the Company's financial statements
neither contained an adverse opinion or a disclaimer of opinion, nor were such
reports qualified or modified as to uncertainty, audit scope or accounting
principles. There were no disagreements with Larrowe & Company on any matter of
accounting principles or practices, financial statement disclosure or auditing
scope or procedure which, if not resolved to the satisfaction of Larrowe &
Company, would have caused it to make a reference to the subject matter of the
disagreement in connection with its report.

         There have been no disagreements between the Company and its
independent accountants for the Bank's most recent three fiscal years.



                                       25
<PAGE>

PART III

ITEM 9. Directors, Executive Officers, Promoters and Control Persons; Compliance
--------------------------------------------------------------------------------
with Section 16(a) of the Exchange Act
--------------------------------------

         Certain information is incorporated herein by reference from pages 3
through 6 of the Company's 2003 definitive proxy statement for the annual
meeting of shareholders ("Definitive Proxy Statement"), which was filed with the
Securities and Exchange Commission on March 28, 2003.

         The following is information on the executive officers of the Company
who are not directors of the Company:

         Francis F. Falls   (62)    Vice President and Operations Officer of
                                    Community First Bank; prior to joining the
                                    Bank Mr. Falls was Vice president of
                                    Metro-county Bank from March 1997 to June
                                    1999. He was an Independent Insurance Agent
                                    from January 1996 to March 1997. Mr. Falls
                                    was Vice President - Operations for Piedmont
                                    Trust Bank from 1981 to October 1994

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

         This information is incorporated herein by reference from page 3 of the
Company's Definitive Proxy Statement.

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

         This information is incorporated herein by reference from pages 5 and 6
of the Company'sDefinitive Proxy Statement.

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

         This information is incorporated herein by reference from Note 12, page
18 of the Company's 2002 Annual Report.

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

(a)      Exhibits

3.1 & 3.2      The Company's Articles of Incorporation and By Laws (Item
               (a) (2)), required to be filed under this section, have been
               previously filed with the Securities and Exchange Commission as
               an exhibit to the Company's Form 8-K filed on July 11, 2002, and
               are incorporated herein by reference.


                                       26
<PAGE>


10.2           The Company's Stock Incentive Plan, required to be filed under
               this section, have been previously filed with the Board of
               Governors of the Federal Reserve System as an exhibit to the
               Bank's Form 10-QSB filed for the quarter ended June 30, 2001, and
               are incorporated herein by reference.

13.0           2002 Annual Report to Stockholders, Exhibit A.

20             Proxy Statement / Annual Meeting of Stockholders, Exhibit B.

(b)      Reports on Form 8-K.
         --------------------

         There were no reports filed on Form 8-K during the fourth quarter 2002.


         In accordance with 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 FIRST BANK


March 28, 2003                By: /s/ F. F. Falls
                                 --------------------------------------
                                  F. F. Falls
                                  Vice President


CERTIFICATIONS

The undersigned hereby certifies that, (to his or her knowledge), (i) the Form
10-KSB filed by Community First Financial Corporation (the "issuer") for the
year ended December 31, 2002, fully complies with the requirements of Section
13(a) or 15(b) 0f the Securities Exchange Act of 1934, and (ii) the information
contained in that report fairly presents, in all material respects, the
financial conditions and results of operations of the Issuer (on the dates and
for the periods presented therein).


Date: March 28, 2003                   /s/ John L. Wynne
                                      -----------------------------------------
                                      John L. Wynne
                                      President and Chief Executive Officer

Date: March 28, 2003                  /s/ F. F. Falls
                                      -----------------------------------------
                                      F. F. Falls
                                      Vice President "Chief Financial Officer"


                                       27
<PAGE>
<TABLE>
         In accordance with 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.



         Signatures                                         Title                                  Date
         ----------                                         -----                                  ----
<S> <C>
/s/  John L. Wynne
-------------------------------------
     John L. Wynne                               President, CEO and Director                   MARCH 28, 2002

/s/   R. Thomas Beach
-------------------------------------------
      R. Thomas Beach                            Director                                      MARCH 28, 2002

/s/ A. C. Coleman, Jr.
-------------------------------------
    A. C. (Buzzy) Coleman, Jr.                   Director                                      MARCH 28, 2002

/s/ Frank C. Crist, Jr., DDS
-------------------------------------
    Frank C. Crist, Jr., DDS                     Director                                      MARCH 28, 2002

/s/ Walter G. Mason, II
----------------------------------------
    Walter G. Mason, II                          Vice President and Director                   MARCH 28, 2002

/s/ Thomas M. Mignogna
--------------------------------------
    Thomas M. Mignogna                           Director                                      MARCH 28, 2002

/s/ Dr. Larry H. Redmond
--------------------------------------
    Dr. Larry H. Redmond                         Director                                      MARCH 28, 2002

/s/  Daniel P. Thornton
-------------------------------------
     Daniel P. Thornton                          Director                                      MARCH 28, 2002

/s/ J. Michael Thomas
--------------------------------------------
    J. Michael Thomas                            Vice President and Director                   MARCH 28, 2002

</TABLE>


                                       28
<PAGE>


                                              CERTIFICATIONS

I, John L. Wynne, certify that:

1.   I have reviewed this annual report on Form 10-KSB of Community First
     Financial Corporation.

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

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

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

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

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

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

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

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

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

6.   The registrant's other certifying officers and I have indicated in this
     quarterly report whether or not there were significant changes in internal
     controls or in other factors that could significantly affect internal
     controls subsequent to the date of our most recent evaluation, including
     any corrective actions with regard to significant deficiencies and material
     weaknesses.


Date:  March 28, 2003                     /s/ John L. Wynne
                                          -------------------------------------
                                          John L. Wynne
                                          President and Chief Executive Officer


                                       29
<PAGE>

I, F. F. Falls, certify that:

1.   I have reviewed this annual report on Form 10-KSB of Community First
     Financial Corporation.

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

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

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

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

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

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

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

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

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

6.   The registrant's other certifying officers and I have indicated in this
     quarterly report whether or not there were significant changes in internal
     controls or in other factors that could significantly affect internal
     controls subsequent to the date of our most recent evaluation, including
     any corrective actions with regard to significant deficiencies and material
     weaknesses.


Date:  March 28, 2002                   /s/ F. F. Falls
                                        ----------------------------------------
                                        F. F. Falls
                                        Vice President "Chief Financial Officer"


                                       30
<PAGE>
                      COMMUNITY FIRST FINANCIAL CORPORATION



                                    Exhibit A
                       2002 Annual report to Stockholders





                                 (See Attached)

<PAGE>
================================================================================
2002 Annual Report
--------------------------------------------------------------------------------

Table of Contents

Letter to Shareholders...................................................1

Independent Auditor's Report.............................................2

Consolidated Balance Sheets..............................................3

Consolidated Statements of Operations....................................4

Consolidated Statements of Changes in Stockholders' Equity...............5

Consolidated Statements of Cash Flows....................................6

Notes to Consolidated Financial Statements...............................7

Management's Discussion and Analysis....................................25

Board of Directors and Officers.........................................29

Stockholder Information.................................................30



<PAGE>

To our Shareholders, Customers and Friends:

Reporting to you the highlights of 2002 is as exciting as ever, given the
impressive results and numerous exciting initiatives ongoing within Community
First Bank. Not the least of which was the formation of our financial holding
company Community First Financial Corporation (CFFC) as a mechanism for
ownership in a number of certain other entities, including the investment of
$672 thousand of common stock in Highlands Community Bank, a newly
state-chartered bank located in Covington, Virginia. The investment in Highlands
Community Bank is intended to foster a relationship to help Community First Bank
in meeting its funding needs, as well as, realize capital appreciation for CFFC.

Another holding company initiative was the issuance of $3 million in preferred
convertible stock in the fall of 2002. This additional capital makes it possible
to actively consider new business opportunities. Given the continued growth of
Community First Bank and its parent (CFFC), with assets approaching $140 million
and posting after-tax profits in excess of $350 thousand for 2002, the financial
engine is primed to drive the success of the financial holding company.

Our company has continued in 2002 to have the very good fortune of hiring highly
experienced local individuals, all of whom have extensive local banking and
business development experience. As you would imagine, a major premise of our
corporate philosophy is having the right people in our organization. In the
spring of 2002, we were fortunate to hire; Mary Glenn M. Cobb as Vice President
- Private Banking, William M. Herbert as Vice President - Private Banking, James
C. Hyson, II as Vice President - Business Banking, and, Mark A. Strosnider as
Vice President - Corporate Banking, all of whom bring a wealth of experience and
business relationships with them.

In March of 2002, CFB opened its Lovingston, Virginia office in a market that
experienced a merger of competing banks and was left without a true community
bank. Margaret Layne, with over 20 years of banking experience, serves as Branch
Office Manager with a staff of three. This office, while temporarily located in
the Callohill Road Shopping Center, will make its permanent home at 150 Front
Street in April of this year. This modern facility will be fully staffed and
offer a night depository, safe deposit boxes and CFB 24, our 24 hour automated
banking facility. Our Lovingston office, along with the soon-to-be opened
Timberlake Road office in Lynchburg, will serve to capture additional market
shares, deposits and loans; and to fulfill our promise of being a locally run
organization with the right people at the right places, providing timely
service.

And while our local base of business continues to grow; we are now utilizing
technology and reaching out to other markets through our Internet site
www.cfbonline.com. Still in its infancy, the CFB website received an average of
1,000 visits per month during 2002. We also have added another convenient point
of access for our retail and business customers by introducing Internet banking,
which provides 24-hour a day banking availability.

We are firmly committed to the success of Community First Financial Corporation
and believe there is great opportunity for a progressive, forward thinking
company such as ours. I thank each of our Directors, Officers, Employees and
Shareholders for their huge contribution to our success and continued support of
our mission to provide service that is Fast, Local, Personal...Guaranteed.

Sincerely,

/s/ John L. Wynne

John L. Wynne
President & CEO

                                       1
<PAGE>

                          Independent Auditor's Report


Board of Directors and Stockholders
Community First Bank
Lynchburg, Virginia

We have audited the consolidated balance sheets of Community First Financial
Corporation and subsidiary as of December 31, 2002 and 2001 and the related
consolidated statements of operations, changes in stockholders' equity and cash
flows for each of the three years in the period ended December 31, 2002. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Community First
Financial Corporation at December 31, 2002 and 2001, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 2002 in conformity with accounting principles generally accepted in
the United States of America.


/s/ Larrowe & Company, PLC

Galax, Virginia
February 12, 2003


                                       2
<PAGE>
<TABLE>
====================================================================================================
Consolidated Balance Sheets
December 31, 2002 and 2001
----------------------------------------------------------------------------------------------------
                                                                        2002              2001
                                                                   ---------------  ----------------
Assets
<S>                                                                <C>              <C>
   Cash and due from banks                                         $     2,701,380  $      2,323,527
   Interest-bearing deposits with banks                                      8,886             5,523
   Investment securities available-for-sale                              3,863,450         3,993,225
   Restricted equity securities                                            670,886           458,526
   Loans, net of allowance for loan losses of
   $1,301,659 in 2002 and $957,000 in 2001                             120,631,471        75,621,681
   Loans held for sale                                                   8,228,574         1,525,260
   Property and equipment, net                                           2,821,937         2,264,802
   Accrued income                                                          480,464           330,746
   Other assets                                                            344,954            91,470
                                                                   ---------------  ----------------
         Total assets                                              $   139,752,002  $     86,614,760
                                                                   ===============  ================

Liabilities and Stockholders' Equity

Liabilities
   Noninterest-bearing deposits                                    $     8,502,587  $      6,414,434
   Interest-bearing deposits                                           113,995,248        67,977,448
                                                                   ---------------  ----------------
         Total deposits                                                122,497,835        74,391,882

   Federal funds purchased                                               4,824,000         2,724,000
   Accrued interest payable                                                307,520           276,181
   Other liabilities                                                       307,190           383,205
                                                                   ---------------  ----------------
         Total liabilities                                             127,936,545        77,775,268
                                                                   ---------------  ----------------

   Commitments and contingencies

Stockholders' equity
   Preferred stock $10 par value; 1,000,000 shares
     authorized; 265,100 shares issued and outstanding in
     2002 and none issued in 2001                                        2,621,989                 -
   Common stock, no par value; 10,000,000 shares
     authorized; 968,613 shares issued and outstanding
     in 2002 and 2001                                                    9,650,427         9,650,427
   Retained earnings (deficit)                                            (459,618)         (811,103)
   Accumulated other comprehensive income                                    2,659               168
                                                                   ---------------  ----------------
         Total stockholders' equity                                     11,815,457         8,839,492
                                                                   ---------------  ----------------
         Total liabilities and stockholders' equity                $   139,752,002  $     86,614,760
                                                                   ===============  ================

See Notes to Consolidated Financial Statements


                                       3
<PAGE>
==================================================================================================================
Consolidated Statements of Operations
Years ended December 31, 2002, 2001 and 2000
------------------------------------------------------------------------------------------------------------------

                                                                      2002             2001              2000
                                                                ----------------  ---------------  ----------------
Interest income
   Loans and fees on loans                                      $      7,568,238  $     5,582,582  $      2,127,863
   Federal funds sold                                                     34,056           43,256            51,159
   Investment securities, taxable                                        104,479          102,113           210,241
   Deposits with banks                                                       187              169                67
                                                                ----------------  ---------------  ----------------
         Total interest income                                         7,706,960        5,728,120         2,389,330
                                                                ----------------  ---------------  ----------------

Interest expense
   Deposits                                                            3,510,725        3,037,571         1,021,816
   Other borrowings                                                       22,909           31,443            50,586
                                                                ----------------  ---------------  ----------------
         Total interest expense                                        3,533,634        3,069,014         1,072,402
                                                                ----------------  ---------------  ----------------
         Net interest income                                           4,173,326        2,659,106         1,316,928

Provision for loan losses                                                785,000          358,883           465,976
                                                                ----------------  ---------------  ----------------
         Net interest income after provision
           for loan losses                                             3,388,326        2,300,223           850,952
                                                                ----------------  ---------------  ----------------

Noninterest income
   Service charges on deposit accounts                                   162,070           22,118             8,602
   Other service charges and fees                                        104,462           90,572            56,225
                                                                ----------------  ---------------  ----------------
         Total noninterest income                                        266,532          112,690            64,827
                                                                ----------------  ---------------  ----------------

Noninterest expense
   Salaries and employee benefits                                      1,876,191        1,411,752           732,940
   Occupancy and equipment expense                                       476,836          344,352           160,867
   Data processing                                                       109,837           73,503            57,094
   Other expense                                                         840,509          468,222           430,960
                                                                ----------------  ---------------  ----------------
         Total noninterest expense                                     3,303,373        2,297,829         1,381,861
                                                                ----------------  ---------------  ----------------
         Net income (loss)                                      $        351,485  $       115,084  $       (466,082)
                                                                ================  ===============  ================

Basic earnings (loss) per share                                 $            .36  $           .12  $          (.48)
                                                                ================  ===============  ===============
Diluted earnings (loss) per share                               $            .34  $           .12  $          (.48)
                                                                ================  ===============  ===============
Weighted average common shares outstanding                               968,613          968,613           968,613
                                                                ================  ===============  ================
Weighted average common shares outstanding, diluted                    1,026,533          983,640           968,613
                                                                ================  ===============  ================


See Notes to Consolidated Financial Statements


                                       4
<PAGE>
===================================================================================================================
Consolidated Statements of Changes in Stockholders' Equity
Years ended December 31, 2002, 2001 and 2000
-------------------------------------------------------------------------------------------------------------------
                                                                                        Accumulated
                                                  Stock                 Retained           Other
                                      -----------------------------     Earnings       Comprehensive
                                        Preferred        Common        (Deficit)       Income (Loss)          Total
                                      -------------  --------------   -------------  ---------------   ------------
Balance, December 31, 1999            $           -  $   9,650,427    $    (460,105) $        (4,528)  $  9,185,794

Comprehensive loss
Net loss                                          -              -         (466,082)               -       (466,082)
Net change in unrealized
   depreciation on
   investment securities
   available for sale                             -              -                -            3,870          3,870
                                                                                                       ------------
Total comprehensive loss                                                                                   (462,212)
                                      -------------  --------------   -------------  ---------------   ------------
Balance, December 31, 2000                        -       9,650,427        (926,187)            (658)     8,723,582

Comprehensive income
Net income                                        -               -         115,084                -        115,084
Net change in unrealized
   depreciation on
   investment securities
   available for sale                             -               -               -              826            826
                                                                                                       ------------
Total comprehensive income                                                                                  115,910
                                      -------------  --------------   -------------  ---------------   ------------
Balance, December 31, 2001                        -       9,650,427        (811,103)             168      8,839,492

Shares sold                               2,651,000               -               -                -      2,651,000
Stock issuance costs                        (29,011)              -               -                -        (29,011)

Comprehensive income
Net income                                        -               -         351,485                -        351,485
Net change in unrealized
   appreciation on
   investment securities
   available for sale                             -               -               -            2,491          2,491
                                                                                                       ------------
Total comprehensive income                                                                                  353,976
                                      -------------  --------------   -------------  ---------------   ------------
Balance, December 31, 2002            $   2,621,989  $    9,650,427   $    (459,618) $         2,659   $ 11,815,457
                                      =============  ==============   =============  ===============   ============

See Notes to Consolidated Financial Statements

                                       5
<PAGE>
===================================================================================================================
Consolidated Statements of Cash Flows
Years ended December 31, 2002, 2001 and 2000
-------------------------------------------------------------------------------------------------------------------

                                                                      2002             2001              2000
                                                                ----------------  ---------------  ----------------
Cash flows from operating activities
   Net income (loss)                                            $        351,485  $       115,084  $       (466,082)
   Adjustments to reconcile net income (loss)
     to net cash provided by operations:
       Depreciation and amortization                                     253,009          215,103           107,005
       Deferred taxes                                                   (201,446)         (32,145)                -
       Accretion of discount on securities
          net of amortization of premiums                                (32,337)          25,506           (73,678)
       Provision for loan losses                                         785,000          358,883           465,976
       Changes in assets and liabilities:
         Loans available for sale                                     (6,703,314)      (1,525,260)                -
         Accrued income                                                 (149,718)        (137,879)         (148,677)
         Other assets                                                    (52,038)          (1,031)            7,121
         Accrued interest payable                                         31,339           50,529           219,554
         Other liabilities                                               (76,015)         227,244           126,688
                                                                ----------------  ---------------  ----------------
              Net cash provided by operating activities               (5,794,035)        (703,966)          237,907
                                                                ----------------  ---------------  ----------------

Cash flows from investing activities
   Purchases of investment securities                                 (9,032,950)     (11,023,741)       (1,112,204)
   Maturities of investment securities                                 8,985,193        7,963,494         3,500,000
   Net increase in loans                                             (45,794,790)     (35,272,608)      (34,529,915)
   Net purchases of property and equipment                              (810,144)        (230,093)       (1,740,806)
                                                                ----------------  ---------------  ----------------
              Net cash used in investing activities                  (46,652,691)     (38,562,948)      (33,882,925)
                                                                ----------------  ---------------  ----------------

Cash flows from financing activities
   Net increase in noninterest-bearing deposits                        2,088,153        1,037,490         4,093,713
   Net increase in interest-bearing deposits                          46,017,800       34,721,264        30,597,844
   Net change in federal funds                                         2,100,000        4,613,000          (124,000)
   Issuance of preferred stock, net of costs                           2,621,989                -                 -
                                                                ----------------  ---------------  ----------------
              Net cash provided by financing activities               52,827,942       40,371,754        34,567,557
                                                                ----------------  ---------------  ----------------
              Net increase in cash and cash equivalents                  381,216        1,104,840           922,539

Cash and cash equivalents, beginning                                   2,329,050        1,224,210           301,671
                                                                ----------------  ---------------  ----------------
Cash and cash equivalents, ending                               $      2,710,266  $     2,329,050  $      1,224,210
                                                                ================  ===============  ================

Supplemental disclosure of cash flow information
   Interest paid                                                $      3,502,295  $     3,018,485  $        852,848
                                                                ================  ===============  ================
   Taxes paid                                                   $         68,302  $             -  $              -
                                                                ================  ===============  ================

See Notes to Consolidated Financial Statements
</TABLE>

                                       6
<PAGE>
================================================================================
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

Note 1.  Organization and Summary of Significant Accounting Policies

Organization

Community First Financial Corporation (the Corporation) is a bank holding
company that was organized under Virginia law during 2002. It is the parent
company of Community First Bank (the Bank), and its primary business activity is
its investment in and managing the business of the Bank.

The directors of the Bank organized the Corporation for the sole purpose of
becoming the Bank's parent holding Company. On July 1, 2002, the Corporation and
the Bank completed a tax-free share exchange in which each outstanding share of
the Bank's common stock was exchanged for one share of the Corporation's common
stock. The Bank's shareholders became the shareholders of the Corporation and
the Bank became the Corporation's wholly owned subsidiary. The Bank's
shareholders had approved this reorganization at its annual meeting held on May
13, 2002.

The Bank's operations are primarily retail oriented and directed toward
individuals and small and medium sized businesses located in its banking market.
The Bank currently serves Bedford County, Nelson County, the City of Lynchburg,
Virginia and surrounding areas through three banking offices. As a state
chartered Federal Reserve member, the Bank is subject to regulation by the
Virginia Bureau of Financial Institutions and the Federal Reserve.

The accounting and reporting policies of the Company follow generally accepted
accounting principles and general practices within the financial services
industry. Following is a summary of the more significant policies.

Critical accounting policies

The notes to our audited consolidated financial statements contain a summary of
our significant accounting policies. We believe our policies with respect to the
methodology for our determination of the allowance for loan losses, and asset
impairment judgments, including the recoverability of intangible assets involve
a higher degree of complexity and require management to make difficult and
subjective judgments which often require assumptions or estimates about highly
uncertain matters. Changes in these judgments, assumptions or estimates could
cause reported results to differ materially. These critical policies and their
application are periodically reviewed with the Audit Committee and our Board of
Directors.

Business segments

The Company reports its activities as a single business segment. In determining
the appropriateness of segment definition, the Company considers the materiality
of the potential segment and components of the business about which financial
information is available and regularly evaluated relative to resource allocation
and performance assessment.

Principles of consolidation

The consolidated financial statements include the accounts of Community First
Financial Corporation and its wholly owned subsidiary, Community First Bank,
herein after referred to as the Company. All significant inter-company accounts
and transactions have been eliminated.


                                       7
<PAGE>
================================================================================
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

Note 1.  Organization and Summary of Significant Accounting Policies, continued

Use of estimates

The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

Material estimates that are particularly susceptible to significant change
relate to the determination of the allowance for loan losses and the valuation
of real estate acquired in connection with foreclosures or in satisfaction of
loans. In connection with the determination of the allowances for loan and
foreclosed real estate losses, management obtains independent appraisals for
significant properties.

Substantially all of the Corporation's loan portfolio consists of loans in its
market area. Accordingly, the ultimate collectibility of a substantial portion
of the Corporation's loan portfolio and the recovery of a substantial portion of
the carrying amount of foreclosed real estate are susceptible to changes in
local market conditions. The regional economy is diverse, but influenced to an
extent by the educational, manufacturing, and retail segments.

While management uses available information to recognize loan and foreclosed
real estate losses, future additions to the allowances may be necessary based on
changes in local economic conditions. In addition, regulatory agencies, as a
part of their routine examination process, periodically review the Corporation's
allowances for loan and foreclosed real estate losses. Such agencies may require
the Corporation to recognize additions to the allowances based on their
judgments about information available to them at the time of their examinations.
Because of these factors, it is reasonably possible that the allowances for loan
and foreclosed real estate losses may change materially in the near term.

Cash and cash equivalents

For the purpose of presentation in the statement of cash flows, cash and cash
equivalents are defined as those amounts included in the balance sheet caption
"cash and due from banks" and "interest-bearing deposits in banks."

Trading securities

The Corporation does not hold securities for short-term resale and therefore
does not maintain a trading securities portfolio.

Securities held to maturity

Bonds, notes, and debentures for which the Corporation has the positive intent
and ability to hold to maturity are reported at cost, adjusted for premiums and
discounts that are recognized in interest income using the interest method over
the period to maturity or to call dates. All securities held by the Bank at
December 31, 2002 and 2001 were classified as available for sale.

Securities available for sale

Available for sale securities are reported at fair value and consist of bonds,
notes, debentures, and certain equity securities not classified as trading
securities or as held to maturity securities.

                                       8
<PAGE>

Note 1.  Organization and Summary of Significant Accounting Policies, continued

Securities available for sale, continued

Unrealized holding gains and losses, net of tax, on available for sale
securities are reported as a net amount in a separate component of stockholders'
equity. Realized gains and losses on the sale of available for sale securities
are determined using the specific-identification method. Premiums and discounts
are recognized in interest income using the interest method over the period to
maturity or to call dates.

Declines in the fair value of individual held to maturity and available for sale
securities below cost that are other than temporary are reflected as write-downs
of the individual securities to fair value. Related write-downs are included in
earnings as realized losses.

Loans held for sale

Mortgage loans originated and intended for sale in the secondary market are
carried at the lower of cost or estimated market value in the aggregate. Net
unrealized losses are recognized through a valuation allowance by charges to
income.

Loans receivable

Loans receivable that management has the intent and ability to hold for the
foreseeable future or until maturity or pay-off are reported at their
outstanding principal amount adjusted for any charge-offs, the allowance for
loan losses, and any deferred fees or costs on originated loans and unamortized
premiums or discounts on purchased loans.

Loan origination fees and certain direct origination costs are capitalized and
recognized as an adjustment of the yield of the related loan. Discounts and
premiums on any purchased residential real estate loans are amortized to income
using the interest method over the remaining period to contractual maturity,
adjusted for anticipated prepayments. Discounts and premiums on any purchased
consumer loans are recognized over the expected lives of the loans using methods
that approximate the interest method.

Interest is accrued and credited to income based on the principal amount
outstanding. The accrual of interest on impaired loans is discontinued when, in
management's opinion, the borrower may be unable to meet payments as they become
due. When interest accrual is discontinued, all unpaid accrued interest is
reversed. Interest income is subsequently recognized only to the extent cash
payments are received. When facts and circumstances indicate the borrower has
regained the ability to service the debt, the loan is returned to accrual
status. Past due status of loans is determined based on contractual terms.

Allowance for loan losses

The allowance for loan losses is established as losses are estimated to have
occurred through a provision for loan losses charged to earnings. Loan losses
are charged against the allowance when management believes the uncollectability
of a loan balance is confirmed. Subsequent recoveries, if any, are credited to
the allowance.

The allowance for loan losses is evaluated on a regular basis by management and
is based upon management's periodic review of the collectibility of the loans in
light of historical experience, the nature and volume of the loan portfolio,
adverse situations that may affect the borrower's ability to repay, estimated
value of any underlying collateral and prevailing economic conditions. This
evaluation is inherently subjective as it requires estimates that are
susceptible to significant revision as more information becomes available.

                                       9
<PAGE>
================================================================================
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

Note 1.  Organization and Summary of Significant Accounting Policies, continued

Allowance for loan losses, continued

A loan is considered impaired when, based on current information and events, it
is probable that the Company will be unable to collect the scheduled payments of
principal or interest when due according to the contractual terms of the loan
agreement. Factors considered by management in determining impairment include
payment status, collateral value, and the probability of collecting scheduled
principal and interest payments when due. Loans that experience insignificant
payment delays and payment shortfalls generally are not classified as impaired.
Management determines the significance of payment delays and payment shortfalls
on a case-by-case basis, taking into consideration all of the circumstances
surrounding the loan and the borrower, including the length of the delay, the
reasons for the delay, the borrower's prior payment record, and the amount of
the shortfall in relation to the principal and interest owed. Impairment is
measured on a loan by loan basis for commercial and construction loans by either
the present value of expected future cash flows discounted at the loan's
effective interest rate, the loan's obtainable market price, or the fair value
of the collateral if the loan is collateral dependent.

Large groups of smaller balance homogeneous loans are collectively evaluated for
impairment. Accordingly, the Bank does not separately identify individual
consumer and residential loans for impairment disclosures.

Property and equipment

Company premises, furniture and equipment, and leasehold improvements are
carried at cost, less accumulated depreciation and amortization computed
principally by the straight-line method over the following estimated useful
lives:

                                                          Years
                                                          -----
                  Buildings and improvements              5-40
                  Furniture and equipment                 5-10

For assets recorded under the terms of capital leases, the present value of
future minimum lease payments is treated as cost.

Stock-based compensation

The Company accounts for its stock-based compensation using the accounting
prescribed by Accounting Principles Board Opinion No. 25, Accounting for Stock
Issued to Employees. The Company is not required to adopt the fair value based
recognition provisions prescribed under SFAS No. 123, Accounting for Stock-Based
Compensation (issued in October 1995), but complies with the disclosure
requirements set forth in the Statement, which include disclosing pro forma net
income as if the fair value based method of accounting had been applied.

Transfers of financial assets

Transfers of financial assets are accounted for as sales, when control over the
assets has been surrendered. Control over transferred assets is deemed to be
surrendered when (1) the assets have been isolated from the Bank, (2) the
transferee obtains the right (free of conditions that constrain it from taking
advantage of that right) to pledge or exchange the transferred assets, and (3)
the Company does not maintain effective control over the transferred assets
through an agreement to repurchase them before their maturity.

                                       10
<PAGE>
================================================================================
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

Note 1.  Organization and Summary of Significant Accounting Policies, continued

Income taxes

Provision for income taxes is based on amounts reported in the statements of
operations (after exclusion of non-taxable income such as interest on state and
municipal securities) and consists of taxes currently due plus deferred taxes on
temporary differences in the recognition of income and expense for tax and
financial statement purposes. Deferred tax assets and liabilities are included
in the financial statements at currently enacted income tax rates applicable to
the period in which the deferred tax assets or liabilities are expected to be
realized or settled. As changes in tax laws or rates are enacted, deferred tax
assets and liabilities are adjusted through the provision for income taxes.

Deferred income tax liability relating to unrealized appreciation (or the
deferred tax asset in the case of unrealized depreciation) on investment
securities available for sale is recorded in other liabilities (assets). Such
unrealized appreciation or depreciation is recorded as an adjustment to equity
in the financial statements and not included in income determination until
realized. Accordingly, the resulting deferred income tax liability or asset is
also recorded as an adjustment to equity.

Basic earnings per share

Basic earnings per share is computed by dividing income available to common
stockholders by the weighted average number of common shares outstanding during
the period, after giving retroactive effect to stock splits and dividends.

Diluted earnings per share

The computation of diluted earnings per share is similar to the computation of
basic earnings per share except that the denominator is increased to include the
number of additional common shares that would have been outstanding if dilutive
potential common shares had been issued. The numerator is adjusted for any
changes in income or loss that would result from the assumed conversion of those
potential common shares.

Foreclosed properties

Real estate properties acquired through or in lieu of, loan foreclosure are to
be sold and are initially recorded at fair value less anticipated cost to sell
at the date of foreclosure establishing a new cost basis. After foreclosure,
valuations are periodically performed by management and the real estate is
carried at the lower of carrying amount or fair value less cost to sell. Revenue
and expenses from operations and changes in the valuation allowance are included
in loss on foreclosed real estate. The historical average holding period for
such properties is less than 12 months.

Comprehensive income

Annual comprehensive income reflects the change in the Company's equity during
the year arising from transactions and events other than investment by and
distributions to shareholders. It consists of net income plus certain other
changes in assets and liabilities that are reported as separate components of
stockholders' equity rather than as income or expense.

Financial instruments

Derivatives that are used as part of the asset/liability management process are
linked to specific assets or liabilities and have high correlation between the
contract and the underlying item being hedged, both at inception and throughout
the hedge period. In addition, forwards and option contracts must reduce an
exposure's risk, and for hedges of anticipatory transactions, the significant
terms and characteristics of the transaction must be identified and the
transactions must be probable of occurring. All derivative financial instruments
held or issued by the Company are held or issued for purposes other than
trading.

In the ordinary course of business the Company has entered into
off-balance-sheet financial instruments consisting of commitments to extend
credit and commercial and standby letters of credit. Such financial instruments
are recorded in the financial statements when they are funded or related fees
are incurred or received.

                                       11
<PAGE>
================================================================================
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

Note 1.  Organization and Summary of Significant Accounting Policies, continued

Fair value of financial instruments

Statement of Financial Accounting Standards No. 107, Disclosures about Fair
Value of Financial Instruments, requires disclosure of fair value information
about financial instruments, whether or not recognized in the balance sheet. In
cases where quoted market prices are not available, fair values are based on
estimates using present value or other valuation techniques. Those techniques
are significantly affected by the assumptions used, including the discount rate
and estimates of future cash flows. In that regard, the derived fair value
estimates cannot be substantiated by comparison to independent markets and, in
many cases, could not be realized in immediate settlement of the instruments.
Statement No. 107 excludes certain financial instruments and all nonfinancial
instruments from its disclosure requirements. Accordingly, the aggregate fair
value amounts presented do not represent the underlying value of the Company.

The following methods and assumptions were used by the Company in estimating its
fair value disclosures for financial instruments:

Cash and cash equivalents: The carrying amounts reported in the balance sheet
for cash and due from banks and interest-bearing deposits with banks approximate
their fair values.

Available-for-sale and held-to-maturity securities: Fair values for securities,
excluding restricted equity securities, are based on quoted market prices, where
available. If quoted market prices are not available, fair values are based on
quoted market prices of comparable instruments. The carrying values of
restricted equity securities approximate fair values.

Loans receivable: For variable-rate loans that reprice frequently and with no
significant change in credit risk, fair values are based on carrying amounts.
The fair values for other loans are estimated using discounted cash flow
analysis, based on interest rates currently being offered for loans with similar
terms to borrowers of similar credit quality. Loan fair value estimates include
judgments regarding future expected loss experience and risk characteristics.
Fair values for impaired loans are estimated using discounted cash flow analysis
or underlying collateral values, where applicable. The carrying amount of
accrued interest receivable approximates its fair value. Loans held for sale
generally have fixed purchase commitments. Therefore, the carrying approximates
fair market value.

Deposit liabilities: The fair values disclosed for demand and savings deposits
are, by definition, equal to the amount payable on demand at the reporting date.
The fair values for certificates of deposit are estimated using a discounted
cash flow calculation that applies interest rates currently being offered on
certificates to a schedule of aggregated contractual maturities on such time
deposits. The carrying amount of accrued interest payable approximates fair
value.

Other liabilities: For fixed-rate loan commitments, fair value considers the
difference between current levels of interest rates and the committed rates. The
carrying amounts of other liabilities approximates their fair values.

Reclassification

Certain reclassifications have been made to the prior years' consolidated
financial statements to place them on a comparable basis with the current year.
Net income and stockholders' equity previously reported were not affected by
these reclassifications.

                                       12
<PAGE>
================================================================================
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

Note 2.  Restrictions on Cash

To comply with banking regulations, the Bank is required to maintain certain
average cash reserve balances. The Bank met all reserve requirements at December
31, 2002 and 2001.

Note 3.  Securities

Debt and equity securities have been classified in the balance sheets according
to management's intent. The carrying amount of securities and their approximate
fair values at December 31, 2002 and 2001 follow:
<TABLE>
                                                  Amortized        Unrealized       Unrealized           Fair
                                                    Cost              Gains           Losses             Value
                                               ---------------  ----------------  ---------------  ----------------
2002
<S>                                            <C>              <C>               <C>              <C>
   U.S. Government agency securities           $     3,188,791  $          2,659  $             -  $      3,191,450
   Equity securities                                   672,000                 -                -           672,000
                                               ---------------  ----------------  ---------------  ----------------
                                               $     3,860,791  $          2,659  $             -  $      3,863,450
                                               ===============  ================  ===============  ================

2001
   U.S. Government agency securities           $     3,993,057  $            168  $             -  $      3,993,225
                                               ===============  ================  ===============  ================
</TABLE>

Restricted equity securities consist of investments in stock of the Federal Home
Loan Bank of Atlanta ("FHLB"), The Community Bankers Bank, The Federal Reserve
of Richmond (Federal Reserve), Virginia Title Center and Banker's Insurance,
LLC. All of those entities except Virginia Title Center and Banker's Insurance,
LLC are upstream correspondents of the Bank. Virginia Title Center is a title
company. Banker's Insurance, LLC is an insurance company. The FHLB requires
financial institutions to make equity investments in the FHLB in order to borrow
from it. The Bank is required to hold that stock so long as it is an FHLB
member. The Federal Reserve requires Banks to purchase stock as a condition of
membership in the Federal Reserve system. The Bank's stock in The Community
Bankers Bank and Virginia Title Center is restricted only in the fact that the
stock may only be repurchased by the respective companies.

Investment securities with amortized cost and market value of approximately
$1,000,000 at both December 31, 2002 and 2001 were pledged as collateral on
public deposits. There were no realized gains or losses on the sales or
maturities of investment securities for the years ended December 31, 2002, 2001,
or 2000. At December 31, 2002, all debt investment securities available-for-sale
were scheduled to mature within one year.

                                       13
<PAGE>
================================================================================
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

Note 4.  Loans Receivable

The major components of loans in the balance sheet at December 31, 2002 and 2001
are as follows (in thousands):

                                                  2002              2001
                                             ---------------  ----------------

Commercial                                   $        21,508  $         16,368
Real estate:
   Construction and land development                   8,675            10,758
   Farmland                                               89                71
   Residential, 1-4 families                          39,372            17,057
   Residential, 5 or more families                     2,226             1,962
   Nonfarm, nonresidential                            38,942            26,091
Consumer                                               5,575             3,807
Other                                                  5,668               540
                                             ---------------  ----------------
                                                     122,055            76,654

Net deferred loan fees                                  (122)              (75)
Allowance for loan losses                             (1,302)             (957)
                                             ---------------  ----------------
                                             $       120,631  $         75,622
                                             ===============  ================

Note 5.  Allowance for Loan Losses

An analysis of the changes in the allowance for loan losses for the years ended
December 31, 2002, 2001 and 2000 is as follows:
<TABLE>
                                            2002             2001              2000
                                      ----------------  ---------------  ----------------

<S>                                   <C>               <C>              <C>
Balance, beginning                    $        957,000  $       615,000  $        150,000

Provision charged to expense                   785,000          358,883           465,976
Recoveries of amounts charged off               17,662              779                 -
Amounts charged off                           (458,003)         (17,662)             (976)
                                      ----------------  ---------------  ----------------
Balance, ending                       $      1,301,659  $       957,000  $        615,000
                                      ================  ===============  ================

An allowance determined in accordance with SFAS No. 114 and No. 118 is provided
for all impaired loans. There was one impaired, nonaccrual, restructured or
other nonperforming loans at December 31, 2002 and 2001. Additionally, there
were no foreclosed, reposed or idled properties at December 31, 2002 and 2001.
The total recorded investment in impaired loans and the related allowance for
loan losses at December 31, 2002 and 2001 is as follows:

                                                         2002              2001
                                                    ---------------  ----------------

Impaired loans without a valuation allowance        $             -  $              -
Impaired loans with a valuation allowance                    49,970           741,555
                                                    ---------------  ----------------
         Total impaired loans                       $        49,970  $        741,555
                                                    ===============  ================

Valuation allowance related to impaired loans       $        24,985  $        384,723
                                                    ===============  ================
</TABLE>

Non-accrual loans and loans past due 90 days or more at December 31, 2002 were
approximately $50,000 and $62,000, respectively.

                                       14
<PAGE>
================================================================================
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

Note 5.  Allowance for Loan Losses, continued

The average annual recorded investment in impaired loans and interest income
recognized on impaired loans for the years ended December 31, 2002 and 2001 is
summarized below:
<TABLE>
                                                                  2002              2001
                                                             ---------------  ----------------
<S>                                                          <C>              <C>
Average investment in impaired loans                         $       326,134  $        148,675
                                                             ===============  ================
Interest income recognized for the year                      $         1,873  $         43,085
                                                             ===============  ================
Interest income recognized on a cash basis for the year      $         1,873  $         43,056
                                                             ===============  ================

There were no impaired loans during 2000. The Corporation is not committed to
lend additional funds to debtors whose loans are impaired or have been modified.

Note 6.  Property and Equipment

Components of property and equipment and total accumulated depreciation at
December 31, 2002 and 2001 are as follows:

                                                                   2002              2001
                                                             ---------------  ----------------

Land, buildings and improvements                             $     2,132,409  $      1,569,626
Furniture and equipment                                            1,281,530         1,034,169
                                                             ---------------  ----------------
     Property and equipment, total                                 3,413,939         2,603,795

Less accumulated depreciation                                        592,002           338,993
                                                             ---------------  ----------------
     Property and equipment, net of depreciation             $     2,821,937  $      2,264,802
                                                             ===============  ================
</TABLE>

Depreciation expense was approximately $253,000, $215,000 and $107,000 in 2002,
2001 and 2000, respectively.

The Company leases two branch facilities accounted for as operating leases,
which commenced February 1, 2001 and April 1, 2002 and will expire January 31,
2006 and March 31, 2007. Rental expense under these leases for the years ended
December 31, 2002 and 2001 was $63,400 and $44,000, respectively. Future
non-cancelable lease payments are as follows:

                      2003                  $         75,900
                      2004                            86,100
                      2005                            88,800
                      2006                            44,800
                      2007                            10,200
                                            ----------------
                                            $        305,800

Note 7.  Deposits

The aggregate amount of time deposits in denominations of $100,000 or more at
December 31, 2002 and 2001 was approximately $22,604,000 and $16,075,000,
respectively.

At December 31, 2002, the scheduled maturities of time deposits are as follows:

                    2003                           $     49,330,437
                    2004 through 2005                    28,416,885
                    2006 through 2007                     8,255,329
                                                   ----------------
                                                   $     86,002,651

                                       15
<PAGE>
================================================================================
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

Note 8.  Short-term Debt

Short-term debt consists of federal funds purchased, which generally mature
within one to four days from the transaction date. Additional information at
December 31, 2002, 2001 and 2000 and for the years then ended is summarized
below:
<TABLE>
                                                               2002              2001
                                                         ---------------  ----------------

<S>                                                      <C>              <C>
Outstanding balance at December 31                       $     4,824,000  $      2,724,000
                                                         ===============  ================
Year-end weighted averaged rate                                    1.60%             1.81%
                                                         ===============  ================
Daily average outstanding during the year                $     1,249,737  $        620,562
                                                         ===============  ================
Average rate for the year                                          1.82%             4.76%
                                                         ===============  ================
Maximum outstanding at any month-end during the year     $     6,470,000  $      4,046,000
                                                         ===============  ================

At December 31, 2002, the Company had established lines of credit of
approximately $23,900,000 with various correspondent banks to provide additional
liquidity if, and as needed.

Note 9.  Fair Value of Financial Instruments

The estimated fair values of the Company's financial instruments are as follows
(dollars in thousands):

                                                       December 31, 2002                  December 31, 2001
                                                 -------------------------------  ---------------------------------
                                                    Carrying           Fair           Carrying            Fair
                                                     Amount            Value           Amount             Value
                                                 --------------   --------------  ---------------  ----------------
Financial assets
   Cash and cash equivalents                     $        2,710   $        2,710  $         2,329  $          2,329
   Securities, available for sale                         3,863            3,863            3,993             3,993
   Restricted equity securities                             671              671              458               458
   Loans, net of allowance for loan losses              120,631          120,093           75,622            75,202
   Loan available for sale                                8,229            8,229            1,525             1,525

Financial liabilities
   Deposits                                             122,498          123,081           74,392            74,432
   Federal funds purchased                                4,824            4,824            2,724             2,724

Note 10.  Earnings per Share

The following table details the computation of basic and diluted earnings per
share for the years ended December 31, 2002, 2001 and 2000.

                                                                      2002             2001              2000
                                                                ----------------  ---------------  ----------------

Net income (loss) (income available to common shareholders)     $        351,485  $       115,084  $       (466,082)
                                                                ================  ===============  ================

Weighted average common shares outstanding                               968,613          968,613           968,613
Effect of dilutive options                                                14,879           15,027                 -
Effect of dilutive preferred stock                                        43,041                -                 -
                                                                ----------------  ---------------  ----------------
Weighted average common shares outstanding, diluted                    1,026,533          983,640           968,613
                                                                ================  ===============  ================

Basic earnings (loss) per share                                 $            .36  $           .12  $          (.48)
                                                                ================  ===============  ===============
Diluted earnings (loss) per share                               $            .34  $           .12  $          (.48)
                                                                ================  ===============  ===============
</TABLE>


                                       16
<PAGE>
================================================================================
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

Note 10.  Earnings per Share, continued

At December 31, 2000, 55,000 exercisable options were outstanding (see Note 11)
with an exercise price below the market value of the Company's stock at that
date. This condition placed those options "in the money". However, exercise of
those options is not assumed in computing 2000 diluted earnings per share
because their exercise would reduce the reported diluted loss per share.

Note 11. Benefit Plans

Defined Contribution Plan

The Bank maintains a profit sharing plan pursuant to Section 401(k) of the
Internal Revenue Code. The plan covers substantially all employees. Participants
may contribute a percentage of compensation, subject to a maximum allowed under
the Code. In addition, the Bank may make additional contributions at the
discretion of the Board of Directors. The Company made no contribution in 2002
and $17,284 to the plan during 2001.

Flexible Benefits Plan

The Company maintains a Flexible Benefits Plan which covers substantially all
employees. Participants may set aside pre-tax dollars to provide for the future
expenses such as insurance, dependant care or health care. The Bank makes no
contributions to this plan.

Stock Option Plan

During 2000, the Bank adopted a long-term incentive stock option plan under
which up to 200,000 shares of stock may be issued. Shares subject to the plan
may be issued in any combination of incentive stock options, non-incentive stock
options, restricted stock or stock appreciation rights, provided that the total
value of shares issued pursuant to incentive stock options may not exceed
$100,000 to any individual. Termination of restrictions on any restricted stock
granted or expiration of stock appreciation rights are controlled by the terms
of each individual grant. Incentive and non-incentive options expire no more
than 10 years from the date of grant. Exercise prices of all options are
determined by each individual grant except that incentive stock options may not
be granted at less than fair market value and non-incentive stock options may
not be granted at less than the initial subscription price of the Bank's stock
($10). Vesting of incentive stock options is determined in accordance with the
terms of each option granted, but may not vest sooner than one year from the
option grant date.

Activity under the plan during the years ended December 31, 2002, 2001 and is
summarized below:
<TABLE>
                                                                Granted and Outstanding
                                               ----------------------------------------------------
                                                    Available        Incentive       Non-incentive
                                                       for             Stock            Stock
                                                     Grant           Options           Options
                                               ----------------  ---------------  ----------------
<S>                                                    <C>                <C>               <C>
Shares available pursuant to plan approval              200,000                -                 -
Granted for 1999                                       (165,000)          75,000            90,000
Granted for 2000                                        (15,000)          15,000                 -
                                               ----------------  ---------------  ----------------
Balance December 31, 2000                                20,000           90,000            90,000

Granted                                                  (9,996)           9,996                 -
                                               ----------------  ---------------  ----------------
Balance December 31, 2001                                10,004           99,996            90,000
                                               ================  ===============  ================

Forfeited                                                 1,866          (1,866)                 -
                                               ----------------  --------------   ----------------
Balance December 31, 2002                                11,870           98,130            90,000
                                               ================  ===============  ================
</TABLE>

                                       17
<PAGE>
================================================================================
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

Note 11. Benefit Plans, continued

Stock Option Plan, continued

Additional information relating to the plan for the years ended December 31,
2002, 2001 and 2000 is listed below:
<TABLE>

Outstanding options at December 31:                                   2002             2001              2000
                                                                ----------------  ---------------  ----------------

<S>                                                             <C>               <C>              <C>
   Exercise price, beginning of the year(1)                     $          10.13  $         10.09  $            n/a
   Exercise price, end of the year(1)                           $          10.13  $         10.13  $          10.09
   Range of exercise prices:
     From                                                       4          10.00  $         10.00  $          10.00
     To                                                         $          11.00  $         11.00  $          11.00
   Remaining contractual life in months(1)                                    82               94               106

Exercisable options outstanding at December 31:
   Number                                                                177,710          115,000            55,000
   Exercise price(1)                                            $          10.07  $         10.04  $          10.00

Weighted average exercise price of options:
   Granted during the year                                      $              -  $         11.00  $          10.09
   Exercised during the year                                    $              -  $             -  $              -
   Forfeited during the year                                    $          11.00  $             -  $              -
   Expired during the year                                      $              -  $             -  $              -

Significant assumptions used in determining fair value:
   Risk-free interest rate                                                   n/a             3.0%             5.25%
   Expected life in years                                                    n/a               10                10
   Expected dividends                                                        n/a             0.0%              0.0%
   Expected volatility                                                       n/a             0.2%              0.1%

Grant-date fair value:
   Options granted during the year                              $            n/a  $        28,289  $        889,350

Results of operations:
   Compensation cost recognized in income
     for all stock-based compensation awards                    $              -  $             -  $              -
                                                                ================  ===============  ================
   Pro forma net income (loss)(2)                               $        149,604  $       (90,359) $       (649,024)
                                                                ================  ===============  ================
   Pro forma income (loss) per common share(2)                  $            .15  $          (.09) $          (.67)
                                                                ================  ===============  ===============
   Pro forma income (loss) per diluted common share(2)          $            .15  $          (.09) $          (.67)
                                                                ================  ===============  ===============
</TABLE>

---------------------------

(1)  Weighted average

(2)  As if the fair value based method prescribed by SFAS No. 123 has been
     applied, net of income taxes

                                       18
<PAGE>
================================================================================
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

Note 12.  Transactions with Related Parties

The Company has entered into transactions with its directors, significant
shareholders and their affiliates (related parties). Such transactions were made
in the ordinary course of business on substantially the same terms and
conditions as those prevailing at the same time for comparable transactions with
other customers and vendors.

Loans

Aggregate loan transactions with related parties are as follows:

                                                  2002              2001
                                            ---------------  ----------------

Balance, beginning                          $     3,100,119  $      3,642,850
Advances                                          2,067,023         2,240,165
Repayments                                       (1,524,137)       (2,782,896)
                                            ---------------  ----------------
Balance, ending                             $     3,643,005  $      3,100,119
                                            ===============  ================

Note 13.  Income Taxes

Current and deferred income tax components
<TABLE>

The components of income tax expense (all Federal) are as follows:

                                                       2002              2001             2000
                                                 ----------------  ---------------  ----------------

<S>                                              <C>               <C>              <C>
Current                                          $        201,446  $        32,145  $              -
Deferred                                                  (73,156)          (1,877)         (157,969)
Deferred tax asset valuation allowance change            (128,290)         (30,268)          157,969
                                                 ----------------  ---------------  ----------------
                                                 $              -  $             -  $              -
                                                 ================  ===============  ================

Rate reconciliation

A reconciliation of income tax expense (benefit) computed at the statutory
federal income tax rate included in the statement of operation follows:
                                                        2002              2001              2000
                                                  ----------------  ---------------  ----------------

Tax at statutory federal rate                     $        119,504  $        28,133  $       (158,468)
Other                                                        8,786            2,135               499
Deferred tax asset valuation allowance change             (128,290)         (30,268)          157,969
                                                  ----------------  ---------------  ----------------
                                                  $              -  $             -  $              -
                                                  ================  ===============  ================
</TABLE>


                                       19
<PAGE>
================================================================================
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

Note 13.  Income Taxes, continued

Deferred income tax analysis

The components of net deferred tax assets (all Federal) at December 31are
summarized as follows:

                                                   2002             2001
                                             ---------------  ----------------

Deferred tax assets
   Allowance for loan losses                 $       388,840  $        296,018
   Loan fees                                          41,451            25,379
   Organizational expenses                            39,148            60,998
   Accrued expenses                                        -             3,740
                                             ---------------  ----------------
     Deferred tax assets                             469,439           386,135
                                             ---------------  ----------------

Deferred tax liabilities
   Accretion of bond discount                         (8,629)             (821)
   Depreciation                                      (71,375)          (69,035)
                                             ---------------  ----------------
     Deferred tax liabilities                        (80,004)          (69,856)
                                             ---------------  ----------------
     Deferred tax asset valuation allowance         (155,844)         (284,134)
                                             ---------------  ----------------
     Net deferred tax asset                  $       233,591  $         32,145
                                             ===============  ================

Note 14.  Commitments and Contingencies

Litigation

In the normal course of business the Company may be involved in various legal
proceedings. After consultation with legal counsel, management believes that any
liability resulting from such proceedings will not be material to the financial
statements. The Company was not a party to any litigation at December 31, 2002.

Financial instruments with off-balance-sheet risk

The Bank is party to financial instruments with off-balance-sheet risk in the
normal course of business to meet the financing needs of its customers. These
financial instruments include commitments to extend credit and standby letters
of credit. These instruments involve, to varying degrees, credit risk in excess
of the amount recognized in the balance sheets.

The Bank's exposure to credit loss in the event of nonperformance by the other
party to the financial instrument for commitments to extend credit and standby
letters of credit is represented by the contractual amount of those instruments.
The Bank uses the same credit policies in making commitments and conditional
obligations as for on-balance-sheet instruments. A summary of the Bank's
commitments at December 31, 2002 and 2001 is as follows:

                                                   2002              2001
                                              ---------------  ----------------

Commitments to extend credit                  $    21,030,000  $     12,558,000
Standby letters of credit                             920,000           361,000
                                              ---------------  ----------------
                                              $    21,950,000  $     12,919,000
                                              ===============  ================

                                       20
<PAGE>
================================================================================
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

Note 14.  Commitments and Contingencies, continued

Financial instruments with off-balance-sheet risk, continued

Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since many of the commitments are expected to expire
without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Bank evaluates each customer's
creditworthiness on a case-by-case basis. The amount of collateral obtained, if
deemed necessary by the Bank upon extension of credit, is based on management's
credit evaluation of the party. Collateral held varies, but may include accounts
receivable, inventory, property and equipment, residential real estate and
income-producing commercial properties.

Standby letters of credit are conditional commitments issued by the Bank to
guarantee the performance of a customer to a third party. Those guarantees are
primarily issued to support public and private borrowing arrangements. The
credit risk involved in issuing letters of credit is essentially the same as
that involved in extending loan facilities to customers. Collateral held varies
as specified above and is required in instances which the Bank deems necessary.

Concentrations of credit risk

Substantially all of the Bank's loans, commitments to extend credit, and standby
letters of credit have been granted to customers in the Bank's market area and
such customers are generally depositors of the Bank. The concentrations of
credit by type of loan are set forth in Note 4. The distribution of commitments
to extend credit approximates the distribution of loans outstanding. The Bank's
primary focus is toward consumer and small business transactions, and
accordingly, it does not have a significant number of credits to any single
borrower or group of related borrowers in excess of $1,200,000.

The Bank from time to time has cash and cash equivalents on deposit with
financial institutions which exceed federally-insured limits.

Other commitments

The Bank has entered into employment agreements with certain of its key officers
covering duties, salary, benefits, provisions for termination and Bank
obligations in the event of merger or acquisition.

Note 15.  Regulatory Restrictions

Dividends

The Company's dividend payments (when available) will be made primarily from
dividends received from the Bank. The Bank, as a Virginia banking corporation,
may pay dividends only out of its retained earnings. However, regulatory
authorities may limit payment of dividends by any bank when it is determined
that such a limitation is in the public interest and is necessary to ensure
financial soundness of the bank. At December 31, 2002 there are no retained
earnings available from which to pay dividends.

Capital requirements

The Company and the Bank are subject to various regulatory capital requirements
administered by federal banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory (and possibly additional
discretionary) actions by regulators that, if undertaken, could have a direct
material effect on the Bank's financial statements. Under capital adequacy
guidelines and the regulatory framework for prompt corrective action, the Bank
must meet specific capital guidelines that involve quantitative measures of the
Bank's assets, liabilities, and certain off-balance-sheet items as calculated
under regulatory accounting practices. The Bank's capital amounts and
classification are also subject to qualitative judgments by the regulators about
components, risk weightings, and other factors.

                                       21
<PAGE>
================================================================================
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

Note 15.  Regulatory Restrictions, continued

Capital requirements, continued

Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the table
below) of total and Tier I capital to risk-weighted assets, and of Tier I
capital to average assets, as all those terms are defined in the regulations.
Management believes, as of December 31, 2002 and 2001, that the Bank meets all
capital adequacy requirements to which it is subject.

As of December 31, 2002 and 2001, the Bank met the criteria to be considered
well capitalized under the regulatory framework for prompt corrective action. To
be categorized as well capitalized the Bank must maintain minimum total
risk-based, Tier I risk-based, and Tier I leverage ratios as set forth in the
following table.

The Bank's actual capital amounts and ratios as of December 31, 2002 and 2001
are also presented in the following table (in thousands). The holding company
has no significant assets other than the investment in the Bank. Therefore,
there is no material difference between consolidated and the following Bank only
ratios.
<TABLE>
                                                                                                 Minimum
                                                                                                To Be Well
                                                                         Minimum             Capitalized Under
                                                                         Capital             Prompt Corrective
                                               Actual                  Requirement           Action Provisions
                                      -----------------------   -----------------------   ------------------------
                                         Amount         Ratio       Amount        Ratio       Amount         Ratio
                                      -------------     -----   -------------     -----   --------------     -----
<S>                                   <C>               <C>     <C>                 <C>   <C>                 <C>
December 31, 2002:
   Total Capital
     (to Risk-Weighted Assets)        $      12,340     10.31%  $       9,571       8.0%  $       11,964      10.0%
   Tier I Capital
     (to Risk-Weighted Assets)        $      11,038      9.23%  $       4,785       4.0%  $        7,178       6.0%
   Tier I Capital
     (to Average Assets)              $      11,038      8.34%  $       5,291       4.0%  $        6,614       5.0%

December 31, 2001:
   Total Capital
     (to Risk-Weighted Assets)        $       9,783      13.0%  $       6,044       8.0%  $        7,555      10.0%
   Tier I Capital
     (to Risk-Weighted Assets)        $       8,839      11.7%  $       3,022       4.0%  $        4,533       6.0%
   Tier I Capital
     (to Average Assets)              $       8,839      10.7%  $       3,298       4.0%  $        4,122       5.0%
</TABLE>

Inter-company transactions

Legal lending limits on loans by the Bank to the Company are governed by Federal
Reserve Act 23A, and differ from legal lending limits on loans to external
customers. Generally, a bank may lend up to 10% of its capital and surplus to
its parent, if the loan is secured. If collateral is in the form of stocks,
bonds, debentures or similar obligations, it must have a market value when the
loan is made of at least 20% more than the amount of the loan, and if
obligations of a state or political subdivision or agency thereof, it must have
a market value of at least 10% more than the amount of the loan. If such loans
are secured by obligations of the United States or agencies thereof, or by
notes, drafts, bills of exchange or bankers' acceptances eligible for rediscount
or purchase by a Federal Reserve Bank, requirements for collateral in excess of
loan amount do not apply. Under this definition, the legal lending limit for the
Bank on loans to the Company was approximately $1,100,000 at December 31, 2002.
No 23A transactions existed at December 31, 2002.

                                       22
<PAGE>
================================================================================
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

Note 16.  Preferred Stock

On May 13, 2002 the shareholders approved the articles of incorporation which
authorized the issue of up to 1,000,000 shares of preferred stock and the issue
of shares of new preferred stock from time to time in the future, in one or more
series, and to fix and determine the relative rights and preferences of these
shares, or of each series of shares, at the time of issuance and without the
further approval of shareholders.

During 2002 the Corporation's Board of Directors created a series of preferred
stock consisting of 325,000 shares of non-cumulative, convertible preferred
stock that provides for stated annual dividend of $.50 per share ("Series A
Preferred Stock"). Through December 31, 2002, the Corporation had sold an
aggregate of 265,100 shares of these shares at a price of $10.00 per share in a
private offering to a group of "accredited investors," including certain of the
Corporation's directors and existing shareholders. The proceeds from the sale of
those shares was used to enhance the capital position of the Bank, to purchase
62,700 shares of Highlands Community Bank common stock and for general corporate
activities conducted by the Corporation.

These shares of preferred stock have preferences over, or special terms that
differ from common stock, including, among other things:

o    the right to receive dividends (which may be cumulative or non-cumulative)
     at a stated rate before any dividend may be paid on common stock or its
     other shares of preferred stock; and
o    the right to receive a stated distribution upon any liquidation of the
     Corporation before any distribution could be made to holders of common
     stock or its other preferred stock.

Additional shares of preferred stock that may be issued in the future will have
preferences over common stock and possibility preexisting preferred stock.

Note 17.  Parent Company Financial Information


Condensed financial information of Community First Financial Corporation is
presented as follows:

                                  Balance Sheet
                                December 31, 2002

Assets
   Cash and due from banks                                  $        102,155
   Investment securities available for sale                          672,000
   Investment in subsidiary bank at equity                        11,041,302
                                                            ----------------
         Total assets                                       $     11,815,457
                                                            ================

Liabilities
   Accounts payable and other liabilities                   $              -
                                                            ----------------

Stockholders' equity
   Preferred stock                                                 2,621,989
   Common stock                                                    8,883,295
   Retained earnings                                                 307,514
    Other comprehensive income                                         2,659
                                                            ----------------
         Total stockholders' equity                               11,815,457
                                                            ----------------
         Total liabilities and stockholders' equity         $     11,815,457
                                                            ================


                                       23
<PAGE>
================================================================================
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
<TABLE>
Note 17.  Parent Company Financial Information, continued

                             Statement of Operations
                         Period ended December 31, 2002

Expenses
<S>                                                                  <C>
   Professional fees                                                 $         28,972
   Other expenses                                                              18,862
                                                                     ----------------
       Total expenses                                                          47,834
                                                                     ----------------
       Loss before equity in undistributed income of subsidiary               (47,834)

Equity in undistributed income of subsidiary                                  355,348
                                                                     ----------------
       Net income                                                    $        307,514
                                                                     ================

                             Statement of Cash Flows
                         Period ended December 31, 2002

Cash flows from operating activities
   Net income                                                        $        307,514
   Adjustments:
      Increase in equity in undistributed income of subsidiary               (355,348)
                                                                     ----------------
          Net cash used by operating activities                               (47,834)
                                                                     ----------------

Cash flows from investing activities
   Purchase of investment securities                                       (1,800,000)
   Investment in subsidiary                                                  (672,000)
                                                                     ----------------
          Net cash used by investing activities                            (2,472,000)
                                                                     ----------------

Cash flows from financing activities
   Issuance of preferred stock, net                                         2,621,989
                                                                     ----------------

   Increase in cash and due from banks                                        102,155

Cash and cash equivalents, beginning                                                -
                                                                     ----------------
Cash and cash equivalents, ending                                    $        102,155
                                                                     ================
</TABLE>


                                       24
<PAGE>
================================================================================
Management's Discussion and Analysis
--------------------------------------------------------------------------------

To accurately understand the change in the Community First Financial
Corporation's ("CFFC" or "the Corporation" or "the Company") financial
statements, the following information is provided. The Company commenced
operations on July 1, 2002 and was capitalized through the issuance of
$9,686,130 in common stock. CFFC was organized for the sole purpose of becoming
Community First Bank's parent holding company. Community First Bank ("CFB" or
"the Bank") commenced operation on October 14, 1999, as a state charted, FDIC
insured commercial bank. The Bank is also a member of the Federal Reserve Bank
System. This commentary provides an overview of Community First Financial
Corporation's financial condition, changes in financial condition and results of
operation for 2002 and 2001. The following discussion should assist readers in
the analysis of the accompanying financial statements.

Summary of Results of Operations

2002 Compared to 2001

The Company had net income for the year ended December 31, 2002 0f $351,485
compared to $115,084 for the period ending December 31, 2001 an increase of
205.4%. Return on average assets was .32% and .16% in 2002 and 2001
respectively. Return on average shareholders' equity was 3.19% in 2002 compared
to 1.31% in 2001. Basic earning per share for the year 2002 were $.36 compared
to $.12 for the 2001 a increase of $.24 or 200.0%.

The Company has commenced an expansion program with the opening of its third
banking office at 69 Callohill Road, Lovingston, Virginia, and moved its
commercial loan division to 2301 Langhorne Road, Lynchburg, Virginia in April of
2002. The Bank plans to open a fourth office in Lynchburg, Virginia in the third
quarter of 2003 and move its Lovingston office to 150 Front Street in the second
quarter of 2003. This expansion program, along with the opening of additional
banking offices in the future, will require increased operation cost and the
expectation of reduced net income during the development stages of the new
offices. The Bank believes that the establishment of strategically located
facilities throughout Central Virginia is crucial to the Company's continued
growth and creation of long-term shareholder value.

2001 Compared to 2000

The Company had income for the year ended December 31, 2001 of $115,084 compared
to a loss of $466,082 for the period ending December 31, 2000 an increase of
$581,155 or 124.7%. Return on average assets was .16% and (1.58)% respectively.
Return on average shareholder's equity was 1.31% in 2001 compared to (5.16)% in
2000. Basic earning per share was $.12 per share in 2001 and $(.48) in 2000 an
increase of $.60 or 125.0%.

Net Interest Income

The principal source of earnings for the Corporation is net interest income. Net
interest income is defined as the difference between interest and fees generated
by earning assets and the cost of funds supporting those assets. As such, net
interest income represents the gross profit from the Bank's lending, investment
and funding activities.

A large number of variables interact to effect net interest income. Included are
variables such as changes in mix and volume of earning assets and interest
bearing liabilities, market interest rates and the statutory Federal tax rate.
It is management's ongoing policy to maximize net interest income through the
development of balance sheet and pricing strategies while maintaining
appropriate risk levels as set by the Board of Directors.

The Company's net interest income totaled $4.2 million and $2.7 million for 2002
and 2001, respectively, representing an increase of $1.5 million or 55.6%. This
increase was primarily the result of an increase in average earning assets of
$37.1 million or 55.2%.

                                       25
<PAGE>
================================================================================
Management's Discussion and Analysis
--------------------------------------------------------------------------------

Other Operating Income and Other Operating Expenses

Having concentrated on basic banking services in its first full three years of
operations, non-interest income has not contributed significantly to earnings.
Other operating income increased to $266,532 from $112,690 an increase of
$153,842 or 136.5% in 2002 over 2001. Substantially all of the increase is
attributable to service charges and fees on deposit accounts.

 Other operating expenses increased to $3.3 million in 2002 from $2.3 million in
2001 or 43.5%. During 2002 CFB opened its third office at 69 Callohill Road,
Lovingston Virginia, moved its commercial loan division to2301 Langhorne Roan,
Lynchburg, Virginian and increased its loan origination and support staff..

Bank-wide salary and employee benefit expenses increased by $464,439 or 32.9% in
2002 over 2001 due primarily to increased staff. Occupancy and equipment expense
and stationary supplies expense increased by $132,484 or 38.5% primarily due to
the increase in the number of customers and accounts and having relocated the
commercial loan division and opening the Lovingston Office in April 2002.

Summary of Statements of Financial Condition

Assets

At December 31, 2002, the Company had total assets of $139.8 million,
representing a increase of $53.2 million or 61.4% over December 31, 2001 balance
of $86.6 million. Loan growth has been strong due to the growth of the local
economy and business development efforts since opening.

Loans

The net loan portfolio totaled $120.6 and $75.6 million for 2002 and 2001,
respectively, representing an increase of $45.0 million or 59.5%. Real estate
loans, both mortgage and construction, increased by $25.5 million to
$81.5million. Consumer loans increased from $3.8million to $5.6 million while
commercial loans increased to $21.5 million from $16.4 million. Mortgage loans
available for sale increased from $1.5 million to $8.2 million an increase of
$6.7 million or 446.7%. Consistent with its focus on providing community based
financial services, the Bank generally does not make loans outside its principal
market regions. By policy it does not originate or purchase leveraged loans or
loans to foreign entities or individuals.

The Bank had one non-performing loan, repossessed and foreclosed properties at
December 31, 2002 and none at December 31, 2001.

Provision and Allowance for Loan Losses

The provision for loan losses is a charge against earnings necessary to maintain
the allowance for loan losses at a level consistent with management's evaluation
of the credit quality and risk of the loan portfolio. The Bank maintains an
allowance which management believes represents a conservative estimate of
potential losses in the Bank's loan portfolio. To achieve this goal, the loan
loss provision must be sufficient to cover loans charged off plus the growth (if
any) in the loan portfolio. In determining the adequacy of the allowance for
loan losses, management uses a methodology, which specifically identifies and
reserves for high-risk loans. A general reserve is established of
non-specifically reserved loans. Loans in non-accrual status and over ninety
days past due are considered in this evaluation as well as other loans, which
may be a potential loss.

From the Bank's inception, management and the Board have endeavored to
systematically build up the allowance to a meaningful level. The 2002 provision
of $785,000 increased the allowance to $1,301,659. There was a provision of
$358,883 in 2001. Management and the Board of Directors believe that the
allowance at year-end was adequate relative to the current levels of risk in the
portfolio. Continued loan growth will warrant additional provisions in the
future. The allowance for loan losses as a percentage of gross loans was 1.08%
and 1.27% at December 31, 2002 and 2001 respectively.

                                       26
<PAGE>
================================================================================
Management's Discussion and Analysis
--------------------------------------------------------------------------------

Loan charge-offs totaled $458,003 in 2002 and $17,662 in 2001and recoveries were
$17,662 and $799 respectively in 2002 and 2001.

Securities and Federal Funds Purchased

At year-end total securities totaled $4.5 million compared to $4.5 million on
December 31, 2001and federal funds purchased totaled $4.8 million and $2.7
million at December 31, 2002 and 2001 respectively an increase of $2.1 million
or 77.8%. These funds were used to support the increase in mortgage loans
available for sale.

Deposits

Deposits totaled $122.5 and $74.4 million at December 31, 2002 and 2001
respectively, representing an increase of 64.7%. As the Bank concentrated on
developing commercial relationships, demand deposit accounts increased from $6.4
million to $8.5 million or 32.8%. Certificates of Deposit accounts increased
from $57.0 million to $86.0 million or 50.8%

Shareholders' Equity

Future growth and expansion of the Company is dictated by its capital base. The
adequacy of the Company's capital is reviewed by management on an ongoing basis
with reference to the size, composition and quality of the company's asset and
liability levels and consistent with regulatory requirements and industry
standards. Management seeks to maintain a capital structure that assures an
adequate level to support anticipated asset growth and absorb potential losses.
During 2002 the Company increased equity through the private placement of
3,000,000 shares of preferred stock, increasing equity by $2.6 million.

Shareholders' equity was $11.8 million at the end of 2002 compared to $8.8 at
the end of 2001 or a 34.1% increase. The Bank's equity to asset ratio at
December 31, 2002 was 8.2% compared to 10.2% at December 31, 2001 reflecting the
continued growth of the bank.

Liquidity, Market Risk and Interest Sensitivity

The objective of the Bank's liquidity management policy include providing
adequate funds to meet the need of depositors and borrowers at all times, as
well as providing funds to meet the basic needs for ongoing operations, to allow
funding of lower-term investment opportunities and regulatory requirements.
Sufficient assets are maintained on a short-term basis to meet the liquidity
demands anticipated by management. The most immediate and efficient source of
liquidity are short-term investments, which include federal funds sold and
securities maturing within one year.

Market risk is the risk of loss arising from adverse changes in interest rates.
Interest rate risk can be measured by looking at the volatility of projected net
interest income as a result of possible changes in interest rates over a given
period of time. The Bank's goal is to limit interest rate exposure to prudent
levels as determined by the Bank's Board of Directors. The Board establishes
limits on the earnings at risk for a particular period, usually defined as th
next twelve months. Actions that can be taken to manage interest rate risk
include changing the mix of floating rate versus fixed rate earning assets and
funding sources, changes in average maturities within the securities available
for sale portfolio through sales and purchases, and product development efforts
to attract new loans and deposits.

Another tool for assessing interest rate risk is the quantification of the
economic fair value of shareholders' equity (EVE). Economic value of equity
consists of the present value of all future cash flows from assets and
liabilities. Potential, changes in the EVE are calculated by projecting cash
flows and computing present values under a series of different rate scenarios.

While Community First Bank believes that these methodologies provide a
meaningful representation of the Bank's interest rate sensitivity, the
methodologies do not necessarily take into account all developments which can
have an effect on net interest income, such as changes in credit quality or
changes in the amount and composition of earning assets and sources of funds.

                                       27
<PAGE>
================================================================================
Management's Discussion and Analysis
--------------------------------------------------------------------------------

Information contained in "Management's Discussion and Analysis of Financial
Conditions and Results of Operations" may contain forward-looking statements
with respect to the Bank's financial condition and results of operation. These
forward-looking statements may involve certain risks and uncertainties. Factors
that may cause actual results to differ materially from those contemplated by
such forward-looking statements include, but are not limited to, an increase in
competitive pressures in the banking industry, economic conditions, adverse
technological change, changes in the interest rate environment or the Bank's
interest rate position, and the impact of future legal and regulatory actions.
It is important to note that the actual results may differ materially from those
projected in forward- looking statements.

                                       28
<PAGE>
<TABLE>
================================================================================
Directors and Officers
--------------------------------------------------------------------------------

                                       Board of Directors
<S> <C>
R. Thomas Beach.............................................Retired President of Beach Medical

A. C. (Buzzy) Coleman..........................................CEO, Coleman Adams Construction

Frank C. Crist, Jr. DDS......................................President, Brady & Crist Dentists

Walter G. (Chip) Mason, II.........Senior Vice President - Retail Banking Community First Bank

Thomas S. Mignogna.......................................Retired CEO of Limitorque Corporation

Dr. Larry H. Redmond.........................................Radiologist, Radiology Consultant

J. Michael Thomas................Senior Vice-President - Business Banking Community First Bank

Daniel P. Thornton..........................................................Progress Printing

John L. Wynne.............................................President & CEO Community First Bank

                                      Corporate Officers

F. F. "Bucky" Falls.............................................................Vice President

W. G. "Chip" Mason, II..........................................................Vice President

J. Michael Thomas...............................................................Vice President

John L. Wynne............................................President and Chief Executive Officer
</TABLE>


                                              29
<PAGE>
================================================================================
Stockholder Information
--------------------------------------------------------------------------------

Annual Meeting

The annual meeting of stockholders will be held Monday, May 12, 2003 at 2:00
p.m. at Miller Claytor House, 2200 Miller Claytor Lane, Lynchburg, Virginia.




Requests for Information

Requests for information should be directed to Mr. F. F. Falls, Vice President
and Secretary, at Community First Bank, Post Office Box 4314, Lynchburg, VA
24502; telephone (434) 386-6300. A copy of the Company's Form 10-KSB for 2002
will be available on the internet at www.sec.gov, after March 31, 2003.




      Independent Auditors                     Stock Transfer Agent

      Larrowe & Company, PLC                   Registrar and Transfer Company
        Certified Public Accountants           10 Commerce Drive
      Post Office Box 760                      Cranford, New Jersey 07016-3572
      Galax, Virginia 24333





Federal Deposit Insurance Corporation

The Bank is a member of the FDIC. This statement has not been reviewed, or
confirmed for accuracy or relevance by the Federal Deposit Insurance
Corporation.

       Main Office            Langhorne Road Office         Lovingston Office

  1646 Graves Mill Road        2301 Langhorne Road          150 Front Street
Lynchburg, Virginia 24502   Lynchburg, Virginia 24502     Lovingston, VA 22949
     (434) 386-6300              (434) 386-6330              (434) 263-6301


                               Coming Spring 2003

                          20479 Timberlake Road Office
                            Lynchburg, Virginia 24502







                                       30
<PAGE>

                      COMMUNITY FIRST FINANCIAL CORPORATION



                                    Exhibit B
          Proxy Statement and Notice of Annual Meeting of Stockholders
                             to be held May 12, 2003




                                 (See Attached)




<PAGE>


                      COMMUNITY FIRST FINANCIAL CORPORATION
                            SCHEDULE 14A INFORMATION

                Proxy Statement Pursuant to Section 14(a) of the
                         Securities Exchange Act of 1934
                               (Amendment No. __ )

Filed by the Registrant  [X]

Filed by a Party other than the Registrant [ ]

Check the appropriate box:

[   ] Preliminary Proxy Statement

[   ] Confidential, for Use of the Board Only (as permitted by Rule 14a-6(e)(2))

[ X ] Definitive Proxy Statement

[   ] Definitive Additional Materials

[   ] Soliciting Material Pursuant toss.240.14a-11(c) orss.240.14a-12

                     COMMUNITY FIRST FINANCIAL CORPORATION
                     -------------------------------------
                (Name of Registrant as Specified In Its Charter)

                                      N.A.
                                      ----
                    (Name of Person(s) Filing Proxy Statement
                          if other than the Registrant)


Payment of Filing Fee (Check the appropriate box):

[X] No fee required.

[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.

                                 Not Applicable.

[ ] Fee paid previously with preliminary materials.

[ ] Check box if any part of the fee is offset as provided by Exchange
    Act Rule 0-11(a)(2) and identify the filing for which the offsetting
    fee was paid previously. Identify the previous filing by registration
    statement number, or the Form or Schedule and the date of its filing.

                                 Not Applicable.


<PAGE>



                      COMMUNITY FIRST FINANCIAL CORPORATION
                              1646 Graves Mill Road
                            Lynchburg, Virginia 24502

PROXY SOLICITED BY BOARD OF DIRECTORS

The undersigned hereby appoints R. Thomas Beach and Larry H. Redmond, or either
of them, as proxies, with full power of substitution, to vote all common stock
of the undersigned at the Annual Meeting of Stockholders of CFFC, to be held at
the Miller Claytor House, 2200 Miller Claytor Lane, Lynchburg, Virginia 24503,
on Monday, May 12, 2003, at 2:00 p.m., and at any adjournment thereof, as
follows:

(1)      To vote FOR election to the Board of Directors of all nominees listed
         below as a group, unless you insert the word "NO" in the blank at the
         end of this paragraph. If you insert the word "NO", you will cause your
         shares not to be voted in favor of anyone in the group.
         _________________.

YOU MAY INSTRUCT THE ABOVE PERSONS NOT TO VOTE FOR A PARTICULAR INDIVIDUAL
NOMINEE BY DRAWING A LINE THROUGH THE NOMINEE'S NAME BELOW. Your shares will
then be voted for those nominees which you have not so marked.

The listed nominees, to serve until the Annual Meetings of Stockholders in 2006
(Class A), and until their successors are elected and have qualified, are:

         Thomas S. Mignogna          Larry H. Redmond          J. Michael Thomas

(2)      To vote for appointment of Larrowe & Company, PLC, as independent
         auditor of CFFC for the year 2003, unless one of the following two
         alternatives is chosen:
         AGAINST (  )                       ABSTAIN (  ).

(3)      To vote upon such other business as may be properly brought before the
         meeting.

THE STOCK REPRESENTED BY THIS PROXY WILL BE VOTED AS SPECIFIED.

IF AUTHORITY TO VOTE IS NOT WITHHELD, IF NO CONTRARY CHOICE IS INDICATED OR IF
NO CHOICE IS SPECIFIED, THE STOCK REPRESENTED BY THIS PROXY WILL BE VOTED FOR
ALL NOMINEES NAMED ABOVE TO BE ELECTED TO THE BOARD OF DIRECTORS, AND FOR
APPOINTMENT OF LARROWE & COMPANY, PLC AS INDEPENDENT AUDITOR FOR CFFC FOR 2003.

Please sign your name(s) exactly as shown imprinted hereon. If acting as
executor or trustee or otherwise in a fiduciary capacity, please sign as such
fiduciary.

Date:
     ---------------                           ---------------------------------
                                               Signature of Stockholder

                                               ---------------------------------
                                               Signature of Stockholder


<PAGE>



                                 April 10, 2003


Dear Stockholder:

You are cordially invited to attend the annual meeting of stockholders of
Community First Bank. The meeting will begin at 2:00 p.m. on Monday, May 12,
2003, at the Miller Claytor House, 2200 Miller Claytor Lane, Lynchburg, Virginia
24503.

Please sign and date the enclosed proxy and mail it in the envelope provided at
your earliest convenience.

                                  Very truly yours,

                                  /s/ John L. Wynne

                                  John L. Wynne
                                  President


<PAGE>

                      COMMUNITY FIRST FINANCIAL CORPORATION
                              1646 Graves Mill Road
                            Lynchburg, Virginia 24502

                  NOTICE OF 2003 ANNUAL MEETING OF STOCKHOLDERS


To the Stockholders of Community First Financial Corporation:

         NOTICE is hereby given that the 2003 Annual Meeting of Stockholders of
Community First Financial Corporation will be held at the Miller Claytor House,
2200 Miller Claytor Lane, Lynchburg, Virginia 24503, on Monday, May 12, 2003, at
2:00 p.m. for the following purposes:

          (1)  Electing Directors for the ensuing year.

          (2)  Voting on appointment of Larrowe & Company, PLC, as independent
               auditor of CFFC for the year 2003.

          (3)  Transacting such other business as may properly come before the
               meeting, or any adjournments thereof.

         Only stockholders of record at the close of business on April 1, 2003,
are entitled to notice of and to vote at such meeting, or any adjournments
thereof.

         Your attention is directed to the Proxy Statement accompanying this
notice for a more complete statement regarding matters proposed to be acted upon
at the meeting.

         To ensure that your shares are represented at the meeting, please fill
in, date, sign, and mail promptly the enclosed proxy, for which a return
envelope is provided. Your proxy is revocable at any time prior to its exercise.

                                  By Order of the Board of Directors




April 8, 2003


<PAGE>
                      COMMUNITY FIRST FINANCIAL CORPORATION
                              1646 Graves Mill Road
                            Lynchburg, Virginia 24502

                                 PROXY STATEMENT
                     FOR 2003 ANNUAL MEETING OF STOCKHOLDERS
                                   TO BE HELD
                                  MAY 12, 2003

         The Board of Directors of Community First Financial Corporation
("CFFC") solicits the enclosed proxy to be used at the 2003 Annual Meeting of
Stockholders to be held at the Miller Claytor House, 2200 Miller Claytor Lane,
Lynchburg, Virginia 24503, on Monday, May 12, 2003, at 2:00 p.m., and at any
adjournment thereof.

         The cost of solicitation of proxies will be borne by CFFC.
Solicitations will be made only by mail, except that, if necessary, officers and
regular employees of CFFC and Community First Bank may make solicitations of
proxies by telegram, telephone or personal calls. Brokerage houses and other
nominees may request that copies of the proxy soliciting material be furnished
to them for mailing to the beneficial owners of the stock held of record by such
brokerage houses and nominees. CFFC may reimburse them for their reasonable
expenses in this connection.

         All properly executed proxies delivered pursuant to this solicitation
will be voted at the meeting in accordance with the instructions therein
contained, if any. Any person signing and mailing the enclosed proxy may revoke
the proxy at any time prior to the actual voting thereof by a written
revocation, by delivery of a later proxy, or by either revoking the proxy or
voting in person at the meeting. Directors are elected by a plurality of votes
properly cast, assuming a quorum is present. All other matters coming before the
meeting will be approved if the votes favoring such matter exceed those opposing
it. Abstentions and broker non-votes will have no direct effect on the election
of directors or any other matter which may be considered.

         An Annual Report to Stockholders, including CFFC's financial statements
for the year ended December 31, 2002, accompanies this proxy statement. This
proxy statement and the accompanying proxy are first being sent or delivered to
stockholders of CFFC on or about April 8, 2003.

         As of March 31, 2003, CFFC had outstanding 968,613 shares of its common
stock, each of which is entitled to one vote at the Annual Meeting. Only
stockholders of record at the close of business on April 1, 2003, will be
entitled to vote at the meeting, or any adjournment thereof.

                          ITEM 1: ELECTION OF DIRECTORS
                          ------  ---------------------

         At the annual meeting, three Class A Directors will be elected, to
serve until the Annual Meeting of Stockholders in 2006, or until their
successors shall be elected and qualify. In the event that any nominee becomes
unavailable for election, any proxy voted in his favor will be voted for a
substitute nominee. However, the Board of Directors does not anticipate that any
nominee will be unavailable for election, and all nominees have consented to be
named and to serve if elected. Each nominee named above has been recommended for
election by the Board of Directors.


<PAGE>
<TABLE>
                         INFORMATION CONCERNING NOMINEES
                         -------------------------------

Class A, serving until the 2006 Annual Meeting of Stockholders:


         Name              Age     Director Since (1) Principal Occupation Last Five Years
         ----              ---     --------------     ------------------------------------
<S>                         <C>        <C>            <C>
Thomas S. Mignogna          70         2002           Retired President and Chairman, Limitorque
                                                      Corporation

Larry H. Redmond            61         2002           Radiologist, Radiologist Consultants of
                                                      Lynchburg

J. Michael Thomas           43         2002           Vice President, CFFC; Senior Vice President
                                                      Community First Bank; Vice President First
                                                      Community Bank 1994-1999

                   INFORMATION CONCERNING REMAINING DIRECTORS
                   ------------------------------------------

Class B, serving until the 2004 Annual Meeting of Stockholders:

       Name                 Age    Director Since     Principal Occupation Last Five Years
       ----                 ---    --------------     ------------------------------------

A. C. Coleman               62         2002           Chief Executive Officer,
                                                      Coleman-Adams Construction, Inc.

Walter G. Mason, II         49         2002           Vice President, CFFC; Senior Vice President,
                                                      Community First Bank 1999-present; Senior Vice
                                                      President First Community Bank 1989-1999

Daniel P. Thornton          48         2002           Vice President - Sales and Marketing,
                                                      Progress Printing Company

Class C, serving until the 2005 Annual Meeting of Stockholders:

         Name               Age    Director Since      Principal Occupation Last Five Yrs.
         ----               ---    --------------      -----------------------------------

R. Thomas Beach              52         2002           Private Investor

Frank C. Crist, Jr.          58         2002           President, Brady & Crist Dentists, Inc.

John L. Wynne                59         2002           President and Chief Executive Officer, CFFC;
                                                       President and Chief Executive Officer,
                                                       Community First Bank 1999-present; President
                                                       and Chief Executive Officer, First Community
                                                       Bank, 1986-1998
</TABLE>

         (1) All directors and nominees except Messrs. Thomas and Mason served
as directors of Community First Bank prior to organization of CFFC as its
holding company on July 1, 2002.

                                       2
<PAGE>

EXECUTIVE COMPENSATION
----------------------
         The following table sets forth the compensation of CFFC's Chief
Executive Officer and three additional officers for the fiscal years ended
December 31, 2002, 2001, and 2000. No other officer received in excess of
$100,000 for the year 2002.
<TABLE>

                                        Summary Compensation Table (1)
                                        ------------------------------

Name and Capacity              Year ending                                                   All Other Cash
-----------------              -----------                                                   --------------
in Which Served                December 31                Salary            Bonus            Compensation (2)
---------------                -----------                ------            ------           ------------
<S>                                <C>            <C>                  <C>                    <C> <C>
John L. Wynne,                     2002           $ 140,000.01         $61,100.00             $ 2 799.72
President                          2001           $ 129,999.96         None                   None
                                   2000           $  99,999.96         None                   None

J. Michael Thomas,                 2002           $  95,000.16         $28,875.00             $ 7,113.33
Vice President, Business           2001           $  87,500.17         None                   $13,939.20
Banking

F. F. Falls, Vice President        2002           $  97,500.00         $29,700.00             $ 3,051.04

Walter G. Mason, II                2002           $  95,000.16         $28,825.00             $ 1,399.86
Vice President
</TABLE>

     (1)  Includes compensation by CFFC's predecessor, Community First Bank.

     (2)  Consists of profit-sharing contribution and cash payment for unused
          health insurance, vacation and other benefits.

DIRECTORS MEETINGS, COMMITTEES AND FEES
---------------------------------------

         Directors of CFFC currently receive no fees for attendance at board
meetings, and no fees for attending committee meetings.

         The Board of Directors held two meetings during fiscal year 2002 (six
months). All incumbent directors attended at least 75 percent of the aggregate
number of meetings held by the Board and meetings of committees on which they
served.

         The Board of Directors has appointed an Audit Committee consisting of
the following nonemployee directors: Messrs. Beach, Crist and Thornton. The
Audit Committee, which did not meet during 2002, is responsible for reviewing
the financial records and reports of CFFC. All members of the committee are
considered independent under Rule 4200(a)(15) of the listing standards of the
National Association of Securities Dealers.

                                       3
<PAGE>

The Board of Directors has appointed a Nominating Committee, consisting of
Messrs. Crist and Thornton, to consider nominees to stand for election to the
Board of Directors. This committee did not meet during 2002. The Nominating
Committee currently has no formal procedure for considering nominees proposed by
the shareholders. The Executive Committee of the Board of Directors acts as the
Compensation Committee for CFFC.

Audit Committee Report
----------------------

The Audit Committee of the Board is responsible for providing independent,
objective oversight of CFFC's accounting functions and internal controls. The
Audit Committee is composed of independent directors, and acts under a written
charter adopted and approved by the Board of Directors. Each of the members of
the Audit Committee is independent as defined by Bank policy and by the listing
standards of the National Association of Securities Dealers.

The responsibilities of the Audit Committee include recommending to the Board an
accounting firm to be engaged as CFFC's independent accountants. Additionally,
and as appropriate, the Audit Committee reviews and evaluates, and discusses and
consults with management, internal audit personnel and the independent
accountants regarding, the following:

     o    the plan for, and independent accountants' report on, each audit of
          CFFC's financial statements

     o    CFFC's financial disclosure documents, including all financial
          statements and reports filed with the Board of Governors of the
          Federal Reserve System or sent to shareholders

     o    changes in CFFC's accounting practices, principles, controls or
          methodologies, or in its financial statements

     o    significant developments in accounting rules

     o    the adequacy of CFFC's internal accounting controls, and accounting,
          financial and auditing personnel

     o    the establishment and maintenance of an environment at CFFC that
          promotes ethical behavior

The Audit Committee is responsible for recommending to the Board that CFFC's
financial statements be included in its annual report. The Committee took a
number of steps in making this recommendation for 2003. First, the Audit
Committee discussed with its independent public accountants those matters the
accountant communicated to and discussed with the Audit Committee under
applicable auditing standards, including information regarding the scope and
results of the audit. These communications and discussions are intended to
assist the Audit Committee in overseeing the financial reporting and disclosure
process. Second, the Audit Committee discussed the accountant's independence
with that firm and received a letter from the accountant concerning independence
as required under applicable independence standards for auditors of public
companies. This discussion and disclosure informed the Audit Committee of the
accountant's independence, and assisted the Audit Committee in evaluating such


                                       4
<PAGE>

independence. Finally, the Audit Committee reviewed and discussed, with CFFC
management and the accounting firm, CFFC's audited consolidated balance sheets
at December 31, 2002, and 2000, and consolidated statements of income, cash
flows and stockholders' equity for the three years ended December 31, 2002,
2001, and 2000. Based on discussions with the accountants


concerning the audit, the independence discussions, and the financial statement
review, and such other matters deemed relevant and appropriate by the Audit
Committee, the Audit Committee recommended to the Board that these financial
statements be included in CFFC's 2002 Annual Report on Form 10-KSB.

                                           R. Thomas Beach
                                           Frank C. Crist, Jr.
                                           Daniel P. Thornton

                            OWNERSHIP OF COMMON STOCK
                            -------------------------

         Except for Messrs. Beach and Wynne, listed in the following table, no
person owned in excess of five percent of the outstanding common stock of CFFC
as of March 31, 2003.

The following table sets forth the beneficial ownership of the common stock of
CFFC as of March 31, 2003, by each director (including the Chief Executive
Officer) and nominee and all directors and executive officers as a group.

Name of Beneficial                   Amount and Nature of
       Owner                        Beneficial Ownership(1)     Percent of Class
       -----                        -----------------------     ----------------
R. Thomas Beach                            52,000(3)                  5.37
A. C. Coleman, Jr.                         25,200(4)                  2.60
Frank C. Crist, Jr.                        46,650(5)                  4.82
Walter G. Mason, II                        11,250(10)                 1.16
Thomas S. Mignogna                          7,000(6)                   (2)
Larry H. Redmond                           10,400                     1.07
J. Michael Thomas                           6,000(11)                  (2)
Daniel P. Thornton                         15,000                     1.55
John L. Wynne                              60,388(7)                  6.23

All directors and executive officers      233,888                    24.15
as a group (10 persons)

(1)  Includes shares which may be deemed beneficially owned by virtue of family
     relationships, joint ownership, voting power or investment power. Does not
     include currently exercisable options to purchase 30,000 shares (Mr.
     Wynne), and 10,000 shares (each of the other directors), at $10 per share.
     If all of such options were exercised, all directors and executive officers
     as a group would own 32.51 percent of the 1,088,613 outstanding shares.

(2)  Less than 1 percent.

(3)  Includes shares owned by spouse and as custodian for minor child.

                                       5
<PAGE>


(4)  Includes shares owned by family limited partnership.

(5)  Includes shares owned by family limited partnership.

(6)  Includes shares owned jointly with spouse and by spouse as custodian for
     minor children.

(7)  Includes shares owned as beneficiary of trust and as custodian for minor
     children.

(8)  Totals do not include 2,000 shares held by an entity owned by Messrs.
     Mason, Thomas & Wynne.

(9)  Totals do not include 80,000 shares held by an entity owned by Messrs.
     Beach, Mason, Thomas & Wynne.

(10) Includes shares owned by spouse.

(11) Includes shares owned as custodian for minor children.

Long-Term Incentive Plan
------------------------

The Long-Term Incentive Plan (the "Plan") currently in effect, as approved by
the stockholders at the 2000 Annual Meeting, is intended to encourage directors
and selected key employees of CFFC to develop and maintain an interest in the
growth and performance of CFFC, and to create additional incentive for them to
contribute to CFFC's future success. To accomplish this, the Plan offers a
combination of stock options, awards of stock, stock appreciation rights (known
as "SAR's"), and similar products, granted to participants by the Board of
Directors of CFFC from time to time. A total of 200,000 unissued shares have
been reserved for use pursuant to the Plan. Options are typically granted at the
current fair market value, creating an incentive to enhance the performance of
CFFC, and presumably, its common stock. The duration of the Plan will be ten
years from the date of approval by the stockholders of CFFC.

Section 16(a) Beneficial Ownership Reporting Compliance
-------------------------------------------------------

         Based upon the records available to CFFC, all reports required of
executive officers and directors were timely filed pursuant to Section 16(a) of
the Securities Exchange Act of 1934 during 2002.

CERTAIN TRANSACTIONS
--------------------

         Some of the directors and officers of CFFC and their families are at
present, as in the past, customers of CFFC, and have had and expect to have
transactions with CFFC in the ordinary course of business. In addition, some of
the directors and officers of CFFC are at present, as in the past, also
directors and officers of companies which are customers of CFFC and which have
had and expect to have transactions with CFFC in the ordinary course of
business. Such transactions were made in the ordinary course of business on
substantially the same terms, including interest rates and collateral, as those
prevailing at the time for comparable transactions with other persons, and did
not involve more than normal risk of collectibility or present other unfavorable
features.

         You are urged to execute and return promptly the enclosed form of
proxy.



                                       6
<PAGE>

                   ITEM 2: APPOINTMENT OF INDEPENDENT AUDITOR
                   ------------------------------------------

         Larrowe & Company, PLC is being recommended to the stockholders of CFFC
for appointment as independent auditor for the year ending December 31, 2003.
Representatives of this firm are expected to attend the meeting and have the
opportunity to make a statement and respond to appropriate questions from
stockholders.

                          Services and Fees During 2002
                          -----------------------------

         As CFFC's independent accountants for 2002, Larrowe & Company, PLC
provided various audit and non-audit services for which CFFC was billed for fees
as further described below. None of the hours expended on Larrowe & Company,
PLC's audit of CFFC's financial statements were attributed to work performed by
persons other than the principal accountant's full-time, permanent employees.
CFFC's Audit Committee has considered whether Larrowe & Company, PLC's provision
of non-audit services is compatible with maintaining its independence.

         Audit Fees. Larrowe & Company, PLC audited CFFC's annual financial
         ----------
statements included in its 2002 Annual Report on Form 10-KSB and, during 2002,
it reviewed the financial statements included in CFFC's Quarterly Reports on
Form 10-QSB. The aggregate amount of fees billed to CFFC for those services was
$26,700.

         Financial Information Systems Design and Implementation Fees. During
         ------------------------------------------------------------
2002, Larrowe & Company, PLC provided no services related to financial
information systems design and implementation.

         All Other Fees. In addition to the services listed above, Larrowe &
         --------------
Company, PLC provided a number of other services to CFFC during 2002 for which
the aggregate amount of fees billed to CFFC was $20,100.


YOUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS APPOINTMENT OF LARROWE & COMPANY,
PLC AS INDEPENDENT AUDITORS FOR CFFC FOR THE CURRENT YEAR.

                         STOCKHOLDER PROPOSALS FOR 2004
                         ------------------------------

         If any eligible stockholder intends to present a proposal at the 2004
Annual Meeting of Stockholders, such proposal must be received by CFFC at its
principal executive office, P.O. Box 4314, Lynchburg, Virginia 24502, on or
before December 11, 2003. Otherwise, such proposal will not be considered for
inclusion in CFFC's proxy statement for such meeting.

                                  MISCELLANEOUS
                                  -------------

         All properly executed proxies received by CFFC will be voted at the
meeting in accordance with the instructions contained therein.

         The Board of Directors knows of no matter not identified herein which
may properly come before the meeting for action. However, if any other matter
does properly come before the meeting, the person or persons named in the proxy
form enclosed will vote in accordance with their judgment upon such matter.


                                       7