<PAGE>   1

                    U.S. SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C. 20549


                                  FORM 10-QSB


 X      Quarterly Report under Section 13 or 15(d) of the Securities Exchange
---     Act of 1934

        For the quarterly period                    June 30, 1997            
                                   -------------------------------------------

Commission File Number:     0-28496
                       -------------------------------------------------------

                        Community Financial Group, Inc.
------------------------------------------------------------------------------
       (Exact name of small business issuer as specified in its charter)


<TABLE>
<S>                                                                                   <C>
                       Tennessee                                                                62-1626938             
-----------------------------------------------------------------------------------------------------------------------
(State or other jurisdiction of incorporation or organization)                        (I.R.S Employer Identification No.)

          401 Church Street, Nashville, Tennessee                                                37219-2213      
-----------------------------------------------------------------------------------------------------------------------
         (Address of principal executive offices)                                                (Zip Code)
</TABLE>

        (615) 271-2000        (Issuer's telephone number, including area code)
------------------------------

Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 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.

                                                     X  Yes       No
                                                    ---       ---

State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date.

            Common shares outstanding 2,205,149 as of July 31, 1997.
<PAGE>   2



<TABLE>
<CAPTION>
                                                         PART I

                                                  FINANCIAL INFORMATION
                                                                                             Page(s) 
                                                                                            ---------
<S>              <C>                                                                        <C>
ITEM 1.          FINANCIAL STATEMENTS

     -           Consolidated Balance Sheet
                  - June 30, 1997 . . . . . . . . . . . . . . . . . . . . . . . . . .          1

     -           Consolidated Statement of Changes in Shareholders' Equity
                  - Six Months Ended June 30, 1997  . . . . . . . . . . . . . . . . .          2

     -           Consolidated Statements of Income
                  - Three and Six Months Ended June 30, 1997 and 1996 . . . . . . . .          3

     -           Consolidated Statements of Cash Flows
                  - Six Months Ended June 30, 1997 and 1996 . . . . . . . . . . . . .        4 - 5

     -           Notes to Consolidated Financial Statements - June 30, 1997 . . . . .        6 - 9


ITEM 2.          MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                 CONDITION AND RESULTS OF OPERATIONS  . . . . . . . . . . . . . . . .       10 - 14


                                                         PART II

                                                    OTHER INFORMATION


ITEM 4.          SUBMISSION OF MATTERS TO A VOTE OF SECURITY
                 HOLDERS    . . . . . . . . . . . . . . . . . . . . . . . . . . . . .         15

ITEM 6.          EXHIBITS AND REPORTS ON FORM 8-K . . . . . . . . . . . . . . . . . .       15 - 17 
</TABLE>
<PAGE>   3

                 COMMUNITY FINANCIAL GROUP, INC. AND SUBSIDIARY
                           CONSOLIDATED BALANCE SHEET
                                 JUNE 30, 1997
                           (IN THOUSANDS OF DOLLARS)
                                  (UNAUDITED)


<TABLE>
<S>                                                                                                      <C>
                                                        ASSETS
Cash and due from banks                                                                                  $  6,538
Interest-bearing balances with banks                                                                          475
Federal funds sold                                                                                          5,000
Securities available for sale (amortized cost $62,054)                                                     62,218
Loans (net of unearned income of $276):
   Commercial                                                                                              37,969
   Real estate - mortgage loans                                                                            66,189
   Real estate - construction loans                                                                         9,652
   Consumer                                                                                                 3,474
                                                                                                         --------
       Loans, net of unearned income                                                                      117,284
   Less allowance for possible loan losses                                                               (  3,010)
                                                                                                         --------

         Total Net Loans                                                                                  114,274
                                                                                                         --------

Premises and equipment, net                                                                                 1,090
Accrued interest and other assets                                                                           1,383
                                                                                                         --------

         Total Assets                                                                                    $190,978
                                                                                                         ========


                                           LIABILITIES AND SHAREHOLDERS' EQUITY

Non-interest bearing demand deposits                                                                     $ 16,830
Interest-bearing deposits:
   NOW accounts                                                                                             6,528
   Money market accounts                                                                                   62,117
   Time certificates less than $100,000                                                                    36,402
   Time certificates $100,000 and greater                                                                  30,022
                                                                                                         --------
         Total Deposits                                                                                   151,899
                                                                                                         --------

Federal Home Loan Bank borrowings                                                                          14,500
Accounts payable and accrued liabilities                                                                    1,813
                                                                                                         --------
         Total Liabilities                                                                                168,212
                                                                                                         --------

Commitments and contingencies                                                                                 -

Shareholders' equity (Note F):
   Common stock, $6 par value; authorized 50,000,000 shares; issued and
     outstanding 2,204,784 shares                                                                          13,229
   Additional paid-in capital                                                                               6,686
   Retained earnings                                                                                        2,749
   Unrealized gain on securities available for sale, net of tax                                               102
                                                                                                         --------
         Total Shareholders' Equity                                                                        22,766
                                                                                                         --------

         Total Liabilities and Shareholders' Equity                                                      $190,978
                                                                                                         ========
</TABLE>


          See accompanying notes to consolidated financial statements.





                                      -1-
<PAGE>   4


                 COMMUNITY FINANCIAL GROUP, INC. AND SUBSIDIARY
           CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
                         SIX MONTHS ENDED JUNE 30, 1997
                           (IN THOUSANDS OF DOLLARS)
                                  (UNAUDITED)


<TABLE>
<CAPTION>
                                                                                       Unrealized
                                                                                         Gain on
                                                                                       Securities
                                                  Additional                            Available
                                     Common         Paid-In          Retained         For Sale, Net
                                      Stock         Capital          Earnings            of Tax            Total  
                                   -----------   --------------      --------       -----------------    ---------
<S>                                  <C>             <C>            <C>                  <C>             <C>
Balance, January 1, 1997             $13,215         $6,676         $  2,130             $   64          $ 22,085

Issuance of common stock -
  (2,311 shares)                          14             10              -                  -                  24

Net income                               -              -                840                -                 840

Cash dividends - $.10 per share          -              -             (  221)               -             (   221)

Change in unrealized gain on
  securities available for sale,
  net of tax                             -              -                -                   38                38
                                     -------         ------          -------               ----          --------

Balance, June 30, 1997               $13,229         $6,686          $ 2,749               $102          $ 22,766
                                     =======         ======          =======               ====          ========
</TABLE>


          See accompanying notes to consolidated financial statements.





                                      -2-
<PAGE>   5

                 COMMUNITY FINANCIAL GROUP, INC. AND SUBSIDIARY
                       CONSOLIDATED STATEMENTS OF INCOME
              (IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
                                  (UNAUDITED)

<TABLE>
<CAPTION>
                                                 Three Months Ended June 30         Six Months Ended June 30  
                                                 --------------------------        ---------------------------
                                                    1997            1996               1997           1996     
                                                 -----------    -----------        -----------     -----------
<S>                                              <C>            <C>                <C>             <C>
Interest income:
  Interest and fees on loans                     $     2,668    $     2,355        $     5,129     $     4,637
  Interest on federal funds sold                          31             53                147             138
  Interest on balances in banks                            4            -                    9             -
  Interest on securities:
    U.S. Treasury securities                              32             90                 89             221
    Other U.S. government agency obligations           1,045            647              1,831           1,257
    States and political subdivisions                      5             -                  10             -
    Other securities                                      36             29                 55              29
                                                 -----------    -----------        -----------     -----------
         Total interest income                         3,821          3,174              7,270           6,282
                                                 -----------    -----------        -----------     -----------

Interest expense:
  Interest bearing demand deposits                       830            690              1,611           1,361
  Savings and time deposits less than $100,000           530            460                987             958
  Time deposits $100,000 and over                        432            405                838             835
  Interest on Federal Home Loan Bank borrowings          173            -                  303             -
  Federal funds purchased                                 19              3                 26               3
                                                 -----------    -----------        -----------     -----------
         Total interest expense                        1,984          1,558              3,765           3,157
                                                 -----------    -----------        -----------     -----------

Net interest income                                    1,837          1,616              3,505           3,125
Provision for possible loan losses                        25            -                   50             -  
                                                 -----------    -----------        -----------     -----------

Net interest income after provision for
  possible loan losses                                 1,812          1,616              3,455           3,125
Non-interest income:
  Service fee income                                     100             40                196              75
  Trust income                                           103            122                220             203
  Investment Center income                                29             21                 51              33
  Gain (loss) on sale of securities                        2     (        2)                 2     (         2)
  Income from foreclosed assets                           12              6                 15             121
  Gain on sale of foreclosed assets                        2            -                    2               5
  Other                                                   64             42
                                                                                           112              60
                                                 -----------    -----------        -----------     -----------
         Total non-interest income                       312            229                598             495
                                                 -----------    -----------        -----------     -----------

Non-interest expense:
  Salaries and employee benefits                         657            611              1,348           1,167
  Occupancy expense                                      177            118                367             231
  FDIC insurance                                           5              1                  9               2
  Advertising                                             45             43                125              69
  Audit, tax and accounting                               54             70                116             103
  Data processing expense                                 61             46                119             108
  Other operating expenses                               310            291                657             530
                                                 -----------    -----------        -----------     -----------
         Total non-interest expense                    1,309          1,180              2,741           2,210
                                                 -----------    -----------        -----------     -----------

Income before income taxes                               815            665              1,312           1,410
Provision for income taxes                               277             15                472              30
                                                 -----------    -----------        -----------     -----------
Net income                                       $       538    $       650        $       840     $     1,380
                                                 ===========    ===========        ===========     ===========

Earnings per share (Note F)                      $       .24    $       .29        $       .38     $       .62
                                                 ===========    ===========        ===========     ===========
 
Weighted average common shares outstanding         2,228,602      2,215,507          2,228,079       2,213,589
                                                 ===========    ===========        ===========     ===========
 </TABLE>


          See accompanying notes to consolidated financial statements.





                                      -3-
<PAGE>   6

                 COMMUNITY FINANCIAL GROUP, INC. AND SUBSIDIARY
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                           (IN THOUSANDS OF DOLLARS)
                                  (UNAUDITED)


<TABLE>
<CAPTION>
                                                                                     Six Months Ended June 30,    
                                                                                  ------------------------------
                                                                                    1997                  1996     
                                                                                  ---------            --------- 
<S>                                                                               <C>                  <C>
Cash flows from operating activities:
   Interest received                                                              $   7,079            $   6,395
   Fees received                                                                        597                  498
   Interest paid                                                                   (  3,371)            (  3,360)
   Cash paid to suppliers and associates                                           (  3,151)            (  2,327)
                                                                                  ---------            --------- 
       Net cash provided by operating activities                                      1,154                1,206
                                                                                  ---------            ---------


Cash flows from investing activities:
   Proceeds from sales of securities available for sale                               2,479                6,016
   Maturities of securities available for sale                                       10,073                5,972
   Purchases of securities available for sale                                      ( 28,325)            (  7,135)
   Loans (originated) repaid by customers, net                                     (  9,314)            (  5,494)
   Capital expenditures                                                            (    439)            (     15)
                                                                                  ---------            --------- 
       Net cash (used) provided by investing activities                            ( 25,526)            (    656)
                                                                                  ---------            --------- 


Cash flows from financing activities:
   Net increase demand deposits, NOW, money market accounts                           3,749                7,361
   Net increase (decrease) in certificates of deposit                                14,880             (  3,592)
   Increase in Federal Home Loan Bank borrowings                                      5,000                  -
   Increase in Federal funds purchased                                                  -                  3,000
   Proceeds from issuance of common stock                                                24                   77
   Dividends paid                                                                  (    221)            (    176)
                                                                                  ---------            --------- 
       Net cash provided by financing activities                                     23,432                6,670
                                                                                  ---------            ---------

Net increase (decrease) in cash and cash equivalents                               (    940)               7,220

Cash and cash equivalents - beginning of period                                      12,953                7,279
                                                                                  ---------            ---------
Cash and cash equivalents - end of period                                         $  12,013            $  14,499
                                                                                  =========            =========
</TABLE>


          See accompanying notes to consolidated financial statements.





                                      -4-
<PAGE>   7

                 COMMUNITY FINANCIAL GROUP, INC. AND SUBSIDIARY
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                           (IN THOUSANDS OF DOLLARS)
                                  (UNAUDITED)


<TABLE>
<CAPTION>
                                                                                      Six Months Ended June 30,    
                                                                                    ----------------------------
                                                                                     1997                  1996     
                                                                                    -------              ------- 
<S>                                                                                 <C>                  <C>
Reconciliation of net income to net cash provided by operating activities:

Net income                                                                          $   840              $ 1,380
Adjustments to reconcile net income to net cash
  provided by operating activities:
   Depreciation and amortization                                                        198                  102
   Provision for possible loan losses                                                    50                  -
   Provision for deferred taxes                                                         122                  -
   Gain on sale of foreclosed assets                                                (     2)              (    5)
   (Gain) loss on sale of securities                                                (     2)                   2
   Loss on disposal of equipment                                                        -                      3
   Changes in assets and liabilities:
     (Increase) decrease in accrued interest and other assets                       (   200)                 145
     Increase (decrease) in accounts payable and accrued liabilities                    148               (  421)
                                                                                    -------              ------- 
          Net cash provided by operating activities                                 $ 1,154              $ 1,206
                                                                                    =======              =======

Supplemental Disclosure:

Non Cash Transactions:
   Change in unrealized gain (loss) on securities available for sale, net of tax    $    38              $(  465)
                                                                                    =======              ======= 
</TABLE>


          See accompanying notes to consolidated financial statements.





                                      -5-
<PAGE>   8

                 COMMUNITY FINANCIAL GROUP, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 JUNE 30, 1997
                                  (UNAUDITED)


A.       HOLDING COMPANY FORMATION AND PRINCIPLES OF CONSOLIDATION

         On April 16, 1996, the shareholders of The Bank of Nashville (The
         Bank) approved the formation of a holding company.  On April 30, 1996
         The Bank became a wholly-owned subsidiary of the holding company,
         Community Financial Group, Inc. (CFGI), a Tennessee corporation.  Each
         outstanding share of The Bank's stock was exchanged for an outstanding
         share of CFGI and each outstanding warrant and each option to purchase
         common shares of The Bank became warrants and options to purchase
         shares of CFGI.

         The accompanying unaudited consolidated financial statements include
         the accounts of CFGI and The Bank.  Balances and activity reflected in
         the accompanying consolidated financial statements for the period
         prior to the formation of CFGI are those of The Bank only.  The
         operations of CFGI and The Bank are collectively referred herein as
         the Company.  All significant intercompany balances and transactions
         have been eliminated in the accompanying consolidated financial
         statements.

         The accompanying unaudited consolidated financial statements have been
         prepared in accordance with general practices within the banking
         industry and generally accepted accounting principles for interim
         financial information and with the instructions to Form 10-QSB and
         Regulation SB.  Accordingly, they do not include all the information
         and footnotes required by generally accepted accounting principles for
         complete consolidated financial statements.  In the opinion of
         management, all adjustments (consisting of normal recurring accruals)
         considered necessary for a fair presentation have been included.

         Certain prior year amounts have been reclassified to conform with
         current year presentation.

         The consolidated financial statements should be read in conjunction
         with the Summary of Significant Accounting Policies and the Notes to
         the Financial Statements presented in the Company's 1996 Annual Report
         to Shareholders.  The results for the interim period are not
         necessarily indicative of results to be expected for the complete
         calendar year.


B.       SECURITIES

         Securities with an aggregate fair market value of $30.1 million
         at June 30, 1997, were pledged to secure public deposits, Federal Home
         Loan Bank borrowings and for other purposes as required or permitted
         by law.


C.       ALLOWANCE FOR POSSIBLE LOAN LOSSES

         An analysis of the changes in the allowance for possible loan losses
         follows (in thousands):

<TABLE>
<CAPTION>
                                                               Three Months Ended        Six Months Ended
                                                                   June 30, 1997          June 30, 1997    
                                                             -----------------------  ---------------------
         <S>                                                         <C>                       <C>
         Balance, beginning of period                                $ 2,963                   $ 2,878
         Provision charged (credited) to operations                       25                        50
         Loans charged off                                           (    40)                   (   40)
         Recoveries                                                       62                       122
                                                                     -------                   -------

         Balance, end of period                                      $ 3,010                   $ 3,010
                                                                     =======                   =======

         Allowance ratios are as follows:
           Balance, to loans outstanding end of period                  2.57%                     2.57%
           Net (charge-offs) recoveries to average loans                 .02%                      .07%
</TABLE>





                                      -6-
<PAGE>   9


                 COMMUNITY FINANCIAL GROUP, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 JUNE 30, 1997
                                  (UNAUDITED)


D.       IMPAIRED LOANS

         The Company adopted Statement of Financial Accounting Standards (SFAS)
         No. 114, "Accounting by Creditors for Impairment of a Loan," and SFAS
         No. 118, "Accounting by Creditors for Impairment of a Loan - Income
         Recognition and Disclosures," as of January 1, 1995.  These statements
         require that certain impaired loans be measured based on the present
         value of expected future cash flows discounted at the loan's original
         effective interest rate.  As a practical expedient, impairment may be
         measured based on the loan's observable market price or the fair value
         of the collateral if the loan is collateral dependent.  When the
         measure of the impaired loan is less that the recorded investment in
         the loan, the impairment is recorded through a valuation allowance.
         
         At June 30, 1997, the Company recorded investment in impaired loans and
         the related valuation allowance calculated under SFAS No. 114 are
         $357,000 and $184,000, respectively.  This valuation allowance is
         included in the allowance for loan losses on the consolidated balance
         sheet.

         The average recorded investment in impaired loans for the three and six
         months ended June 30, 1997 were $365,000 and $364,000, respectively.

         Interest payments received on impaired loans are recorded as reductions
         in principal outstanding or recoveries of principal previously charged
         off.  Once the entire principal has been collected any additional
         payments received are recognized as interest income.  No interest
         income was recognized on impaired loans in the three and six month
         periods ended June 30, 1997.


E.       INCOME TAXES

         Actual income tax expense for the three differed from "expected" tax
         expense (computed by applying the U.S. Federal corporate tax rate of
         34% to income before income taxes) as follows:

<TABLE>
<CAPTION>
                                                              Three Months Ended        Six Months Ended
                                                                 June 30, 1997            June 30, 1997    
                                                           ------------------------   ---------------------
         <S>                                                           <C>                     <C>
         Computed "expected" tax expense                               $277                    $446
         Other, net                                                     -                        26
                                                                       ----                    ----

                 Total Income Tax Expense                              $277                    $472
                                                                       ====                    ====
</TABLE>

         The Company accounts for income taxes according to SFAS No. 109,
         Accounting for Income Taxes, which requires the use of the asset and
         liability method of accounting for income taxes.  Under the asset and
         liability method, deferred tax assets and liabilities are recognized
         for the estimated future tax effects attributable to differences
         between the financial statement carrying amounts of existing assets
         and liabilities and their respective tax bases.  Deferred tax assets
         and liabilities are measured using enacted tax rates expected to apply
         to taxable income in the years in which those temporary differences
         are expected to be recovered or settled.  Under SFAS No. 109, the
         effect on deferred tax assets and liabilities of a change in tax rates
         is recognized in the period that includes the enactment date.





                                      -7-
<PAGE>   10


                 COMMUNITY FINANCIAL GROUP, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 JUNE 30, 1997
                                  (UNAUDITED)


E.       INCOME TAXES - CONTINUED

         The tax effects of temporary differences that give rise to significant
         portions of the deferred tax assets and deferred tax liabilities at
         June 30, 1997, are presented below (in thousands):

<TABLE>
         <S>                                                                                        <C>
         Deferred tax assets:

         Deferred fees, principally due to timing differences in the recognition of income          $  139
         Net operating loss carryforwards                                                               18
         Other                                                                                          12
                                                                                                    ------

              Total gross deferred tax assets                                                          169
                                                                                                    ------

         Deferred tax liabilities:

         Discount on securities deferred for tax purposes                                             ( 99)
         Unrealized gain on securities available for sale                                             ( 62)
         Loans, principally due to provision for possible losses                                      (193)
         Premises and equipment, principally due to differences in depreciation methods               ( 56)
         Other                                                                                        ( 25)
                                                                                                    ------ 

              Total gross deferred tax liabilities                                                    (435)
                                                                                                    ------ 

         Net deferred tax liabilities                                                               $ (266)
                                                                                                    ====== 
</TABLE>

         At December 31, 1996, the Company had a net operating loss
         carryforward for income tax purposes of $1.9 million for state
         purposes.  The state net operating loss carryforward expires in 2007.


F.       SHAREHOLDERS' EQUITY

         The Company had outstanding stock options totaling 75,000 shares at
         June 30, 1997.

         At June 30, 1997, warrants to purchase 4,744,742 shares of the Company
         common stock were outstanding.  This exercise price of the warrants is
         $12.50, and they expire on December 31, 1998.

         Management has used the treasury stock method to compute earnings per 
         share since the Company was incorporated.  The Company's options and 
         warrants are common stock equivalents. The above mentioned warrants 
         have not been included in the Company's computation of earnings per 
         share because the market price of the Company's common stock has been 
         less than the exercise price of the warrants for substantially all of 
         any three-month reporting period since the Company's inception.





                                      -8-
<PAGE>   11


                 COMMUNITY FINANCIAL GROUP, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 JUNE 30, 1997
                                  (UNAUDITED)


F.       SHAREHOLDERS' EQUITY - CONTINUED

         In February 1997, the Financial Accounting Standards Board issued SFAS
         No. 128, "Earnings Per Share".  SFAS No. 128 supersedes Accounting
         Principles Bulletin (APB) No. 15 and establishes standards for the
         computation, presentation, and disclosures required for earnings per
         share.  SFAS No. 128 replaces the presentation of primary earnings per
         share with a presentation of basic earnings per share and fully
         diluted earnings per share with diluted earnings per share.  It also
         requires dual presentation of basic and diluted earnings per share on
         the income statement for all entities other than those with simple
         capital structures.  

         Basic earnings per share exclude dilution and is computed by dividing
         income available to common shareholders by the weighted-average
         number of common shares outstanding for the period. Diluted earnings
         per share reflects the potential dilution that could occur if
         securities or other contracts to issue common stock were exercised or
         converted into common stock or resulted in the issuance of common
         stock that then shared in the earnings of the entity. Diluted earnings
         per share is computed similarly to fully diluted EPS pursuant to APB
         15.  SFAS No. 128 retains the treasury stock method and eliminates the
         modified treasury stock method of computing earnings per share.  SFAS
         No. 128 is effective for financial statements for both interim and
         annual periods ending after December 15, 1997.  Earlier application is
         not permitted.  Upon adoption all calculations of prior period
         earnings per share will be restated to conform with SFAS No. 128.

         Pro forma basic earnings per share calculated under SFAS No.
         128 for the three and six month periods in 1997 were $.24 and $.38,
         respectively. Pro forma diluted earnings per share for such periods
         were $.24 and $.38, respectively.  Stock options to purchase 75,000
         common shares at June 30, 1997 were included in the calculation of pro
         forma diluted earnings per share.  The warrants to purchase 4,744,742
         common shares were excluded from the pro forma calculations because the
         exercise price has not exceeded the market price for substantially all
         of the respective reporting periods, and thus are antidilutive.


G.       COMMITMENTS AND CONTINGENCIES

         In the normal course of business, there are various commitments
         outstanding to extend credit, such as the funding of undrawn lines of
         credit or standby letters of credit, which generally accepted
         accounting principles do not require to be recognized in the
         financial statements.  The Company, through regular reviews of these
         arrangements, does not anticipate any material losses as a result of
         these transactions.  At June 30, 1997, the Company had unfunded
         commitments to extend credit totaling $41.7 million consisting of
         unfunded lines of credit and commitments to extend credit.
         Additionally, the Company had standby letters of credit of $3.2
         million as of June 30, 1997.

         The Bank is required to maintain average balances with the Federal
         Reserve Bank and in vault cash to meet its reserve requirements.  The
         average amount of these balances at the Federal Reserve Bank and vault
         cash for the three and six months period ended June 30, 1997, totaled
         approximately $1,707,000 and $1,625,000.  The required balance at June
         30, 1997 was $1,387,000.





                                      -9-
<PAGE>   12


      ITEM 2 -    MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                  AND RESULTS OF OPERATIONS


Community Financial Group, Inc. (CFGI), is a bank holding company which was
formed on April 30, 1996 and is the parent company of its wholly-owned
subsidiary, The Bank of Nashville (The Bank), collectively referred to as the
Company.  The balances and activities for the periods prior to April 30, 1996,
are those of The Bank only.  The following discussion compares the Company's
financial condition at June 30, 1997 and December 31, 1996, and results of
operations for the second quarter of 1997 with the same period in 1996.  The
accompanying consolidated financial statements and notes are considered an
integral part of the analysis and should be read in conjunction with the
narrative.  The quarterly consolidated financial statements reflect all
adjustments which are, in the opinion of management, necessary for fair
presentation of results of interim periods.  The results for interim periods
are not necessarily indicative of results to be expected for the complete
calendar year.  References should also be made to the Company's 1996 annual
report for a more complete discussion of factors that impact the results of
operations, liquidity, and capital.

This discussion is designed to assist readers in their analysis of the
Company's consolidated financial statements and related notes.


OVERVIEW

Net income of $538,000 was reported for the second quarter of 1997 compared
with net income of $650,000 for the second quarter of 1996.  This decrease of
$112,000 in net income resulted from an increase of $262,000 in provision for
income taxes.  The Company earned $.24 per share for the second quarter of
1997, a 17% decrease from the $.29 per share reported for the second quarter of
1996.  1996 earnings had the benefit of a Federal tax loss carryforward which
was fully utilized during the fourth quarter of 1996.  1997 earnings were
impacted by an effective tax rate that more closely approximates the applicable
statutory tax income tax rates.

The Company's annualized return on average assets was 1.15% for the second
quarter of 1997 and 1.70% for the second quarter of 1996.  Annualized return on
average equity was 9.61% for the second quarter of 1997 and 12.64% for the same
period in 1996.

Net income for the six month period ended June 30, 1997, was $840,000 and
included a $50,000 provision for possible loan losses and $472,000 provision
for income taxes compared with net income of $1,380,000 during the first six
months of 1996, a period in which the Company reported a zero provision for
possible loan losses and only $30,000 in provision for income taxes.  Earnings
per share were $.38 for the six months ended June 30, 1997, compared with $.62
for the same period in 1996.  Net interest income increased $380,000, 12.2%,
during the first six months in 1997 from the same period in 1996.  Non-interest
income increased $103,000, 20.8%, during the first six months of 1997 compared
with the same period in 1996, resulting primarily from increases in service fee
income.  This increase was partially offset by a decrease in income from
foreclosed assets.  Non-interest expense increased $531,000, 24.0%, during the
first six months of 1997 compared with the same period in 1996.  This increase
was primarily related to the expansion of the Company's delivery system through
the opening of its new Green Hills location in January, 1997, as well as the
establishment of mobile branching in late 1996.  The Company's annualized
return on average assets was .93% for the six months ended June 30, 1997 and
1.79% for the same period in 1996.  Annualized return on average equity was
7.60% for the six months ended June 30, 1997 and 13.61% for the same period in
1996.





                                      -10-
<PAGE>   13


NET INTEREST INCOME

Net interest income is the principal component of the Company's income stream
and represents the difference or spread between interest generated from earning
assets and interest paid on deposits.  Fluctuation in interest rates, as well
as volume and mix changes in earning assets and interest bearing liabilities,
materially impact net interest income.

Net interest income before provision for possible loan losses for the second
quarter of 1997 was $1.8 million, an increase of $.2 million, or 13.7%,
compared to the second quarter of 1996.  The increase in net interest income
resulted from a 21.5% increase in the volume of average earning assets and a 8
basis point decrease in the average interest rate earned on those assets.  Also
impacting net interest income was a 23.0% increase in the volume of interest
bearing liabilities and an 18 basis point increase in the average rate paid on
those liabilities.  The increase in volume of average earning assets may be
attributed to a $12.5 million increase in average loans outstanding, and a
$21.4 million increase in average investments which were partially offset by a
$1.9 million decrease in Federal Funds sold.  The mix of these assets changed
somewhat as the percentage of average investments to earning assets increased
from 29.9% to 36.4% during the second quarter of 1997 compared with the same
period in 1996.  Loans represented 62.1% of average earning assets in the
second quarter of 1997 compared to 67.1% for the same period in 1996.  Net
interest income was impacted by a shift in the mix of interest bearing
liabilities during the second quarter of 1997 compared to the same period in
1996.  The average volume of Money Market Accounts increased $8.1 million, or
14.6%, while the average volume of NOW Accounts increased $.2 million, 3.0%,
certificates of deposit less than $100,000 increased $5.2 million, 16.7%, and
certificates of deposit $100,000 or greater increased $1.4 million, 4.8%.
Additionally, average borrowed funds were $13.4 million during the second
quarter of 1997, while there were less than $1 million in borrowed funds during
the same period of 1996.  These borrowed funds were primarily comprised of
Federal Home Loan Bank borrowings.  The average rate paid increased 10 basis
points on certificates of deposit $100,000 or greater, decreased 8 basis points
on certificates of deposit less than $100,000, while the average rate paid on
Money Market Accounts increased 12 basis points, and the average rate paid on
NOW Accounts increased 149 basis points as the Company introduced its "High
Yield Checking" product.

Total interest income increased $647,000, or 20.4%, in the second quarter of
1997 compared to the same period in 1996.  This increase was primarily the
result of the increase of 21.5% in the average volume of earning assets.  Total
interest expense increased $426,000, or 27.3%, in the second quarter of 1997
compared to the same period in 1996.  This increase resulted primarily from the
increase in the average volume of interest bearing liabilities of 23.0%.  The
increase in average volume of interest bearing liabilities is primarily
attributable to increases in Money Market Accounts and Federal Home Loan Bank
advances.

The net interest margin (net interest income expressed as a percentage of
average earning assets) was 4.0% and 4.3% for the quarters ended June 30, 1997
and 1996, respectively.  Fluctuations in net interest margins were also
affected by differences in the interest rate sensitivity of the Company's
earning assets and interest bearing liabilities.

Net interest income for the first six months of 1997 was $3.5 million, an
increase of 12.2%, compared to $3.1 million during the first six months of
1996.  The increase in net interest income during the first six months of 1997
resulted from an increase of 16.5% in the volume of average earning assets,
while average interest bearing liabilities increased 17.6%.  Average rates
earned on earning assets declined 6 basis points while average rates paid on
interest bearing liabilities increased 7 basis points during the first six
months of 1997 compared to the same period in 1996.  Net interest income was
also impacted by the shift in the mix of average earning assets which reflected
loans increasing by 10.9% while investments increased 29.6% and Federal Funds
sold increased by 3.3%.  A shift in the mix of average interest bearing
liabilities also contributed to the improvement in net interest income as funds
grew more significantly in Money Market Accounts and Federal Home Loan Bank
advances than in higher rate certificates of deposit.  This shift in mix in
average interest bearing liabilities was comprised of increases of $8.3 million
in Money Market Investment Accounts, $10.8 million in Federal Home Loan Bank
advances, $1.9 million in certificates of deposit less than $100,000, and $.8
million in Federal Funds sold.  These increases were partially offset by a
decrease of $.3 million in NOW Accounts.  Although the movement of funds into
more liquid transaction accounts that has occurred in the past six months had
the effect of lowering the cost of funds, it also positioned this money to
reprice more rapidly in a changing interest rate environment.  More growth in
the liquid deposit accounts rather than certificates of deposit and generally
reflects an expectation that interest rates will continue to rise.





                                      -11-
<PAGE>   14


The net interest margin (net interest income expressed as a percentage of
average earning assets) was 4.0% and 4.3% for the quarter ended June 30, 1997
and 1996, respectively.  Net interest margin was 4.0% for the six month period
ended June 30, 1997, compared to 4.1% for the same period in 1996.  The decline
in net interest margin for the three month and six month periods ended June 30,
1997 compared to the same periods in 1996, resulted primarily from the
implementation of an asset liability management strategy, approved and
monitored by the Company's Board of Directors, which consisted of matching
Federal Home Loan Bank borrowings to fund the purchase of additional investment
securities.  While this strategy contributed to increasing net interest income,
it also had the effect of lowering the net interest margin.  Managing and
regularly monitoring the interest rate risk associated with this strategy are
the responsibility of both management and the Company's Board of Directors.
Liquidity and asset/liability strategies include the utilization of borrowings
from the Federal Home Loan Bank or drawing on lines of credit established with
correspondent banks to satisfy liquidity or funding needs.  At June 30, 1997,
the Company had borrowings totaling $14.5 million from the Federal Home Loan
Bank.  Approximately $10 million of these borrowings were used to fund
investment securities.  The Company had $3 million in borrowed funds at June
30, 1996.

NON-INTEREST INCOME

Non-interest income was $312,000 for the second quarter of 1997, compared with
$229,000 for the same period in 1996.  Excluding gains(losses) on sale of
securities and sale of foreclosed assets, totaling $4,000 in 1997 and ($2,000)
in 1996, non-interest income increased $77,000 in 1997 from the same period in
1996.  This increase was comprised of an increase of $60,000 in service fee
income, $8,000 in Investment Center income, $6,000 in income from foreclosed
assets and $22,000 in other miscellaneous income areas.  These increases were
partially offset by a decline of $19,000 in Trust income.

Total non-interest income was $598,000 for the first six months of 1997,
compared with $495,000 for the same period in 1996.  Non-interest income,
excluding gains(losses) on sale of securities and foreclosed assets of $4,000
in 1997 and $3,000 in 1996, increased $102,000 for the first six months of 1997
compared with the same period in 1996.  Increases in 1997 compared to 1996 of
$121,000 in service fee income, primarily in the area of charges for checks
drawn on insufficient funds, $17,000 in Trust income, $18,000 in Investment
Center income and $52,000 in other miscellaneous income categories were
partially offset by a decrease of $106,000 in income from foreclosed assets.
The decrease in income from foreclosed assets during 1997 was the result of
income received in 1996 from liquidating a partnership interest which was no
longer carried on the Company's balance sheet.

NON-INTEREST EXPENSE

Total non-interest expense increased $129,000 during the second quarter of 1997
compared with the second quarter of 1996.  This increase was the result of
increases of $46,000 in salaries and employee benefits, $59,000 in occupancy
expense, $4,000 in FDIC insurance, $15,000 in data processing expense and
$19,000 in other miscellaneous operating categories.  These increases were
partially offset by a decrease of $16,000 in audit, tax and accounting expense.
The increase in salaries and employee benefits and occupancy expense were
primarily the result of the Company having opened its first branch office in
Green Hills in January of 1997.

Total non-interest expenses increased $531,000, or 24.0%, during the first six
months of 1997 compared with the same period of 1996.  Increases were reflected
primarily in the areas of salaries and employee benefits, occupancy expense and
advertising expense.  These increases were primarily the result of the
Company's expansion of its delivery systems through the addition of a mobile
branch and the opening of its new traditional branch location in the Green
Hills area.  At June 30, 1997, the Company had 52 employees (1 employee per
$3.7 million in assets) compared with 43 employees (1 employee per $3.7 million
in assets) at June 30, 1996 and 52 employees (1 employee per $3.2 million in
assets) at December 31, 1996.





                                      -12-
<PAGE>   15


INCOME TAXES

During the second quarter of 1997, the Company recorded provision for income
taxes of $277,000 compared to $15,000 during the same period in 1996.  During
1996, reported earnings benefited from a Federal tax loss carry forward which
was fully utilized during the fourth quarter of 1996.  Having fully utilized
the Federal net operating loss carry forward, the 1997 effective tax rate more
closely approximates the applicable statutory income tax rate.  The Company
continues to benefit from a State net operating loss carryforward.  Reference
should be made to Note E of the financial statements.

During the first six months of 1997, the Company reported provision for income
taxes of $472,000 compared to $30,000 during the same period in 1996.

CREDIT QUALITY AND ALLOWANCE

Nonperforming assets, which include nonaccrual loans, restructured loans and
foreclosed properties were $515,000 at June 30, 1997, a decrease of $64,000
from $579,000 at December 31, 1996 and representing a decrease of $45,000 from
the $560,000 reported at June 30, 1996.  There were no loans 90 days or more
past due and still accruing interest at June 30, 1997 or 1996. Potential
problem loans totaled approximately $164,000 at June 30, 1997, compared with
$510,000 at June 30, 1996 and $84,000 at December 31, 1996.

The Company recorded $25,000 in expense for provision for possible loan losses
during the second quarter of 1997, compared with no expense for provision for
possible loan losses during the same quarter of 1996.  Net loan recoveries were
$22,000 in the second quarter of 1997 compared with $3,000 for the same period
in 1996.  The allowance for possible loan losses was $3.0 million at June 30,
1997 compared to $3.2 million at June 30, 1996 and $2.9 million at December 31,
1996.  Loan and valuation reserves as a percentage of total nonperforming
assets were 584% and 567% at June 30, 1997 and 1996, respectively.  The
allowance for possible loan losses represented 497% of nonperforming loans at
December 31, 1996.  The level of the allowance and the amount of the provision
are determined on a quarter-by-quarter basis and, given the inherent
uncertainties in the estimation process, no assurance can be given as the
amount of the allowance at any future date.

BALANCE SHEET

The Company's total assets at June 30, 1997, were $191.0 million, an increase
of $24.3 million from December 31, 1996.  This increase reflects the results of
the Company's expansion of its delivery system through mobile branching and the
establishment of its branch office in the Green Hills area as well as the
utilization of a matched funding leveraging strategy consisting of Federal Home
Loan Bank borrowings being invested in securities.  The increase in total
assets was the result of an increase of  $15.8 million in investment
securities, $9.4 million in total loans and $306,000 in premises and equipment.
These increases were partially offset by a decrease of $1.8 million in Federal
Funds sold.  Total deposits at June 30, 1997, were $151.9 million, an increase
of $18.6 million from $133.3 million at December 31, 1996.  The increase in
deposits was comprised of an increase of $4.1 million in non-interest bearing
demand deposits, $1.7 million in NOW Accounts, $10.0 million in time
certificates less than $100,000 and $4.9 million in time certificates $100,000
and greater.  These increases were partially offset by a decrease of $2.0
million in Money Market Accounts.  Federal Home Loan Bank borrowings increased
$5 million from $9.5 million at December 31, 1996 to $14.5 million at June 30,
1997 as a result of the Company's asset/liability management leveraging
strategy.

Shareholders' equity (adjusted for SFAS No. 115) increased $681,000 to $22.8
million at June 30, 1997 from $22.1 million at December 31, 1996.  The Company
recorded dividend payments of $221,000 during the first six months of 1997
compared with $176,000 for the same period in 1996.  Unrealized gain on
securities available for sale, net of income taxes, was $102,000 at June 30,
1997 compared to $64,000 at December 31, 1996.  Changes in unrealized
gains/losses on securities available for sale are the result of adjustments
for SFAS No. 115 reflecting current market value on these securities.







                                      -13-
<PAGE>   16


CAPITAL ADEQUACY AND LIQUIDITY

The Company's capital position continued to remain strong during the first six
months of 1997.  Shareholders' equity (excluding SFAS No. 115 adjustments) at
June 30, 1997, was $22.7 million, or 11.9% of total assets, which compares with
$22.0 million, or 13.2% of total assets at December 31, 1996.  Total
shareholders' equity (including adjustments for SFAS No. 115) at June 30, 1997,
was $22.8 million, or 11.9% of total assets, which compares with $22.1 million,
or 13.3% of total assets, at December 31, 1996.  The increase in capital during
the second quarter of 1997 was primarily a result of current period earnings
and an increase in the unrealized gain on securities available for sale.  The
effect of these items was partially offset by the payment of dividends of
$221,000 in the first six months of 1997 compared with $176,000 for the same
period of 1996.  At June 30, 1997, the Company's primary and total capital
ratios to adjusted assets were 17.8% and 20.0%, respectively, which is
significantly in excess of the applicable regulatory requirements of the
Federal Reserve Board.  In addition, the Company's total risk based capital
ratio was 19.1% at June 30, 1997, compared with 20.6% at December 31, 1996.

The Company's principal sources of asset liquidity are marketable securities
available for sale and Federal Funds sold, as well as maturities of securities.
The estimated average maturity of securities was 7.12 years at June 30, 1997,
compared to 3.4 years at December 31, 1996.  Securities available for sale were
$62.2 million at June 30, 1997, compared to $46.4 million at December 31, 1996.
Federal Funds sold were $5.0 million at June 30, 1997 compared with $6.8
million at December 31, 1996.  Core deposits, a relatively stable funding base,
comprised 80.2% of total deposits at June 30, 1997, and 81.2% at December 31,
1996.  Core deposits represent total deposits excluding time certificates of
$100,000 or greater.

The Board of Directors of The Bank and its shareholders approved a plan of
exchange with CFGI whereby CFGI became the parent holding company of The Bank
effective April 30, 1996.  Each share of common stock of The Bank was exchanged
for one share of common stock of CFGI, and each outstanding warrant and each
outstanding option to purchase common shares of The Bank automatically became
warrants and options to purchase shares of CFGI.  This exchange of shares
consummated the formation of the holding company and received approval of The
Bank's shareholders, the Board of Governors of the Federal Reserve System and
the Tennessee Department of Financial Institutions.





                                      -14-
<PAGE>   17


                                    PART II

                               OTHER INFORMATION



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

At the Company's annual meeting of shareholders held on Tuesday, May 6,
1997, the following items were voted on an are herein incorporated by reference
to the Proxy Statement for the annual meeting of shareholders previously filed
with the Commission.

1.  To elect nine (9) Directors to serve until the next Annual meeting or until
    their successors are elected and qualified;

2.  To transact such other business as may properly be brought before the
    Annual meeting or any adjournments thereof.

The following reflects the vote of the shareholders of the items noted above:

<TABLE>
<CAPTION>
          Item #                      Affirmative                Negative               Abstain
          ------                      -----------                --------               -------
    <S>                                <C>                       <C>                    <C>
    1.                                 1,642,197
</TABLE>

* Included in the affirmative votes are negative votes against specific
Directors disclosed as follows:

<TABLE>
    <S>                                   <C>
    J. B. Baker                             9,432
    Jo D. Federspiel                        9,432
    Richard H. Fulton                      10,676
    Mack S. Linebaugh, Jr.                  9,432
    Louis A. McRedmond                     10,432
    Leon Moore                             59,232
    Perry W. Moskovitz                     65,972
    C. Norris Nielsen                      56,846
    G. Edgar Thornton                      55,746
                                          -------

                                          287,203
                                          =======
</TABLE>


ITEM 6. - EXHIBITS AND REPORTS ON FORM 8-K

(A)      Exhibits

<TABLE>
<CAPTION>
Exhibit No.                                   Description                            
-----------             -------------------------------------------------------
  <S>                   <C>
  11                    Statement regarding computation of earnings per share.

  27                    Financial Data Schedule (for SEC use only)
</TABLE>


(B)      Report on Form 8-K filed during the quarter ended June 30, 1997 was as
         follows:

         April 9, 1997 reported the promotion of T. Wayne Hood to Senior Vice
         President of Community Financial Group, Inc., and Senior Vice
         President/General Counsel and Senior Trust Officer of the Company's
         wholly owned subsidiary, The Bank of Nashville.





                                      -15-
<PAGE>   18


                                   SIGNATURES

         In accordance with the requirements of the Exchange Act, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.




                                            COMMUNITY FINANCIAL GROUP, INC.    
                                         --------------------------------------
                                                     Registrant
                                                               
                                         
                                         
                                         
August 12, 1997                          /s/ Mack S. Linebaugh, Jr.             
---------------------------              --------------------------------------
Date                                     Mack S. Linebaugh, Jr.
                                         President, Chairman of the Board,
                                         Chief Executive Officer and Chief
                                         Financial Officer





                                      -16-